Exhibit 10.10
Execution Version
SECURITIES PURCHASE AGREEMENT
By and Among
MORGANS HOTEL GROUP CO.
and
YUCAIPA AMERICAN ALLIANCE FUND II, L.P.,
and
YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P.,
Dated as of October 15, 2009

 

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TABLE OF CONTENTS

              Page  
 
       
ARTICLE 1 DEFINED TEMS
    1  
 
       
ARTICLE 2 ISSUANCE AND SALE OF INVESTOR SECURITIES
    10  
2.1 Issuance and Sale of the Investor Securities
    10  
2.2 Deliveries
    10  
2.3 Allocation of Investment Amount
    11  
 
       
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
    12  
3.1 Entity Status
    12  
3.2 Authorization; Noncontravention
    12  
3.3 Capital Structure
    14  
3.4 Real Property
    16  
3.5 Intellectual Property
    17  
3.6 Environmental Matters
    17  
3.7 Legal Proceedings
    18  
3.8 Taxes
    18  
3.9 Labor
    19  
3.10 Employee Benefit Plans
    19  
3.11 Compliance with Laws
    20  
3.12 SEC Reports and Company Financial Statements
    20  
3.13 Material Contracts
    22  
3.14 Absence of Certain Changes
    23  
3.15 Insurance
    24  
3.16 Private Placement
    24  
3.17 Form S-3 Eligibility
    25  
3.18 Brokers
    25  
3.19 Listing and Maintenance Requirements
    25  
3.20 Registration Rights
    25  
3.21 No Restriction on the Ability to Pay Cash Dividends
    25  
3.22 Joint Ventures
    25  
 
       
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE INVESTORS
    26  

 

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TABLE OF CONTENTS
(continued)

              Page  
 
       
4.1 Entity Status
    26  
4.2 Authorization; Noncontravention
    26  
4.3 Securities Act; Purchase for Investment Purposes
    27  
4.4 Brokers
    28  
4.5 Available Funds
    28  
 
       
ARTICLE 5 COVENANTS
    28  
5.1 Further Assurances
    28  
5.2 Fees and Expenses; Commitment Fee
    29  
5.3 Stockholder Approvals
    29  
5.4 Rights Plan
    29  
5.5 Gaming and Liquor Licenses
    30  
5.6 Certain Approval Rights
    30  
5.7 Board Representation
    31  
5.8 Publicity
    34  
5.9 Hedging
    34  
5.10 Investor Right of First Refusal
    34  
5.11 VCOC
    35  
5.12 Certain Tax Matters
    35  
5.13 Standstill Agreement
    36  
5.14 Company Right of First Refusal
    38  
 
       
ARTICLE 6 INDEMNIFICATION
    39  
6.1 Indemnification
    39  
 
       
ARTICLE 7 GENERAL PROVISIONS
    41  
7.1 Amendments and Waivers
    41  
7.2 Assignment
    41  
7.3 No Third-Party Beneficiaries
    41  
7.4 Notices
    42  
7.5 Counterparts
    42  
7.6 Entire Agreement
    43  
7.7 Interpretation; Exhibits and Schedules
    43  

 

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TABLE OF CONTENTS
(continued)

              Page  
 
       
7.8 Severability
    43  
7.9 Consent to Jurisdiction
    43  
7.10 Governing Law
    43  
7.11 Waiver of Jury Trial
    43  
7.12 No Personal Liability of Partners, Directors, Officers, Owners, Etc
    44  
7.13 Rights of Holders
    44  
7.14 Adjustment in Share Numbers and Prices
    44  
7.15 Construction
    44  

 

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TABLE OF CONTENTS
(continued)

          Page

LIST OF EXHIBITS

 
Exhibit A Form of Certificate of Designations
Exhibit B Form of Warrant
Exhibit C Form of Real Estate Fund Formation Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Rights Plan Amendment
Exhibit F Form of Secretary’s Certificate
Exhibit G Form of Opinion of Sullivan & Cromwell LLP
Exhibit H Form of Opinion of Munger, Tolles & Olson LLP
Exhibit I Forms of Management Rights Letters

 

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SECURITIES PURCHASE AGREEMENT, dated as of October 15, 2009 (the “Agreement”),
by and among MORGANS HOTEL GROUP CO., a Delaware corporation (the “Company”),
and YUCAIPA AMERICAN ALLIANCE FUND II, L.P., a Delaware limited partnership
(“YAAF II”), and YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P., a Delaware
limited partnership (“YAAF II-P” and together with YAAF II, the “Investors”).
A. WHEREAS, the Investors desire to purchase from the Company, and the Company
desires to issue and sell to the Investors, against payment of the Investment
Amount and pursuant to the terms and conditions set forth in this Agreement,
(a) 75,000 shares of the Company’s preferred stock, par value $0.01 per share,
designated as Series A Preferred Securities (the “Preferred Securities”), having
the voting and other powers, preferences and relative, participating, optional
or other rights, and the qualifications, limitations and restrictions as
specified in the Certificate of Designations of the Series A Preferred
Securities of the Company in the form attached hereto as Exhibit A (the
“Certificate of Designations”), and (b) warrants in the form attached hereto as
Exhibit B (the “Warrants” and, together with the Preferred Securities, the
“Investor Securities”) to acquire 12,500,000 shares (the “Underlying Shares”) of
the Company’s common stock, par value $0.01 per share (“Common Stock”);
B. WHEREAS, concurrently with the execution and delivery of this Agreement, the
Company and Yucaipa American Alliance Fund II, LLC, a Delaware limited liability
company (“Yucaipa Manager”), are entering into the Real Estate Fund Formation
Agreement, dated as of this date, in the form attached hereto as Exhibit C (the
“Real Estate Fund Formation Agreement”);
C. WHEREAS, concurrently with the execution and delivery of this Agreement, the
Company and the Investors are entering into a Registration Rights Agreement,
dated as of this date, in the form attached hereto as Exhibit D (the
“Registration Rights Agreement” and, together with the Real Estate Fund
Formation Agreement, the “Ancillary Agreements”).
NOW, THEREFORE, in consideration of the foregoing and the promises and
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE 1
Defined Terms
As used in this Agreement, the following terms shall have the following
meanings:
“Action” means any suit, action, proceeding (including any compliance,
enforcement or disciplinary proceeding), arbitration, formal or informal
inquiry,

 

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inspection, investigation or formal order of investigation or complaint, or
other litigation of any kind, in each case whether civil, criminal or
administrative, at law or in equity.
“Affiliate” of any person means another person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person. A person shall be deemed to control
another person if such first person possesses, directly or indirectly, the power
to direct, or cause the direction of, the management and policies of such other
person, whether through the ownership of voting securities, by contract or
otherwise; provided, that, the existence of a management contract primarily for
operational services provided by the Company or an Affiliate of the Company
shall not be deemed to be control by the Company or such Affiliate, as the case
may be.
“Agreement” has the meaning assigned to such term in the Preamble.
“Ancillary Agreements” has the meaning assigned to such term in Recital C.
“Applicable Law” means all applicable constitutions, statutes, laws, rules,
regulations, ordinances and Judgments of Governmental Entities.
“Appointment Resolutions” means the resolutions of the Board of Directors (a) to
fix the number of directors of the Board of Directors at nine (9) pursuant to
Section 2.1 of the By-Laws, and (b) to appoint the Investor Nominee to fill the
single vacancy of the nine-member Board of Directors caused by the Resignations
pursuant to Article Seventh of the Charter and Section 2.2 of the By-Laws.
“Benefit Arrangement” means, at any time, an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any member of the ERISA
Group.
“Board of Directors” has the meaning assigned to such term in Section 3.2(a).
“Business Day” means any day except Saturday, Sunday or a day on which banking
institutions in the State of New York generally are authorized or required by
law to be closed.
“By-Laws” means the By-Laws of the Company, dated as of February 9, 2006, in the
form provided to the Investors as an annex to the secretary’s certificate
delivered to the Investors pursuant to Section 2.2.1(c)(i).
“Capital Lease Obligations” of any person means the obligations of such person
to pay rent or other amounts under any lease of (or other arrangement conveying
the right to use) real or personal property, or a combination thereof, which
obligations are required to be classified and accounted for as capital leases on
a balance sheet of such person under GAAP, and the amount of such obligations
shall be the capitalized amount thereof determined in accordance with GAAP.
“Certificate of Designations” has the meaning assigned to such term in Recital
A.

 

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“Charter” means the Amended and Restated Certificate of Incorporation of the
Company, as filed with the Secretary of State of the State of Delaware on
February 9, 2006, in the form provided to the Investors as an annex to the
secretary’s certificate delivered pursuant to Section 2.2.1(c)(i).
“Code” means the Internal Revenue Code of 1986, as amended.
“Collective Bargaining Agreement” means any collective bargaining agreement or
any other labor-related agreement with any labor union or labor organization to
which the Company or any of its subsidiaries is a party.
“Common Stock” has the meaning assigned to such term in Recital A.
“Common Stock Board Condition” has the meaning assigned to such term in Section
5.7(b)(i).
“Company” has the meaning assigned to such term in the Preamble.
“Company Disclosure Schedules” has the meaning assigned to such term in the
introductory statement to ARTICLE 3.
“Company Indemnified Parties” has the meaning assigned to such term in Section
6.1(b).
“Company Notice” has the meaning assigned to such term in Section 5.14(b).
“Confidentiality Agreement” means that certain Confidentiality Agreement, dated
as of August 13, 2009, by and between the Company and The Yucaipa Companies,
LLC.
“Contract” means any contract, agreement, lease, purchase order, license,
mortgage, indenture, supplemental indenture, line of credit, note, bond, loan,
credit agreement, capital lease, sale/leaseback arrangement, concession
agreement, franchise agreement or other instrument, including all amendments,
supplements, exhibits and attachments thereto.
“Designated Transaction” has the meaning assigned to such term in Section 5.6.
“Designated Transaction Notice” has the meaning assigned to such term in Section
5.6.
“Encumbrance” means any lien, encumbrance, security interest, pledge, mortgage,
hypothecation, charge, restriction on transfer of title, adverse claim, title
retention agreement of any nature or kind, or similar claim or right.
“Environmental Laws” means any Applicable Law relating to environmental
protection or the manufacture, storage, remediation, disposal or clean-up of
Hazardous Materials including the following: Clean Air Act, 42 U.S.C. § 7401 et
seq.; Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. § 6901 et seq.; Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. §

 

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9601 et seq.; National Environmental Policy Act, 42 U.S.C. § 4321 et seq.;
regulations of the Environmental Protection Agency and any applicable rule of
common law and any judicial interpretation thereof relating primarily to the
environment or Hazardous Materials.
“ERISA” means the Employee Retirement Income Security Act of 1974, as in effect
from time to time.
“ERISA Group” means the Company, any subsidiary of the Company and all members
of a controlled group of corporations and all trades or businesses (whether or
not incorporated) which, together with the Company or any subsidiary of the
Company, are treated as a single employer under Section 414 of the Code.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Financial Statements” has the meaning assigned to such term in Section 3.12(b).
“GAAP” means generally accepted accounting principles in the United States of
America as in effect from time to time.
“Gaming Authorities” means any Governmental Entity with regulatory control,
authority or jurisdiction over casino, pari-mutuel and lottery or other gaming
activities and operations within the State of Nevada, including the Nevada
Gaming Commission, the Nevada State Gaming Control Board, the Clark County
Liquor and Gaming Licensing Board and the City of Las Vegas.
“Gaming Laws” means all Laws pursuant to which any Gaming Authority possesses
regulatory, licensing or permit authority over, casino and pari-mutuel, lottery
or other gaming activities in any jurisdiction, including all rules and
regulations established by any Gaming Authority.
“Governmental Authorizations” means, collectively, all applicable consents,
approvals, permits, orders, authorizations, licenses and registrations, given or
otherwise made available by or under the authority of Governmental Entities or
pursuant to the requirements of any Applicable Law, including liquor licenses,
business licenses required for any form of public amusement or accommodation,
and all such consents, approvals, permits, orders, authorizations, licenses and
registrations under Gaming Laws.
“Governmental Entity” means any domestic or foreign, transnational, national,
Federal, state, municipal or local government, or any other domestic or foreign
governmental, regulatory or administrative authority, or any agency, board,
department, commission, court, tribunal or instrumentality thereof.
“Guarantee” means, as to any person, any obligation, contingent or otherwise, of
such person guaranteeing or having the economic effect of guaranteeing any
Indebtedness or other financial obligation of another person (the “primary
obligor”) in any manner, whether directly or indirectly, and including any
obligation of such person, direct or indirect, (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or
other financial obligation, (ii) to purchase or lease

 

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property, securities or services for the purpose of assuring the obligee in
respect of such Indebtedness or other obligation of the payment or performance
of such Indebtedness or other financial obligation, (iii) to maintain working
capital, equity capital, or any other financial statement condition or liquidity
or level of income or cash flow of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or other financial obligation, or
(iv) entered into for the purpose of assuring in any other manner the obligee in
respect of such Indebtedness or other obligation of the payment or financial
performance thereof or to protect such obligee against loss in respect thereof
(in whole or in part). The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the related primary
obligation, or portion thereof, in respect of which such Guarantee is made. The
term Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business or non-mandatory rights to make a remedial payment
or to take any action following the failure of performance tests in connection
with management contracts primarily for operational services provided by the
Company or an Affiliate of the Company.
“Hazardous Materials” means all or any of the following: (a) substances that are
defined or listed in, or otherwise classified pursuant to, any applicable
Environmental Laws as “hazardous substances”, “hazardous materials”, “hazardous
wastes”, “toxic substances” or any other formulation intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, reproductive toxicity, “TCLP” toxicity
or “EP toxicity”; (b) oil, petroleum or petroleum derived substances, natural
gas, natural gas liquids or synthetic gas and drilling fluids, produced waters
and other wastes associated with the exploration, development or production of
crude oil, natural gas or geothermal resources; (c) any explosives or any
radioactive materials; (d) asbestos and asbestos-containing materials in any
form; (e) toxic mold; (f) lead and lead paint; and (g) polychlorinated
biphenyls.
“Hedging Transaction” has the meaning assigned to such term in Section 5.9.
“HSR Act” means Hart Scott Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder,
“including” means including, without limitation.
“Indebtedness” of any person means, without duplication, (a) all obligations of
such person for borrowed money or with respect to deposits or advances of any
kind, (b) all obligations of such person evidenced by bonds, debentures, notes
or similar instruments, (c) all obligations of such person upon which interest
charges are customarily paid, (d) all obligations of such person under
conditional sale or other title retention agreements relating to property
acquired by such person, (e) all obligations of such person in respect of the
deferred purchase price of property or services (excluding trade accounts
payable and other accrued obligations, in each case incurred in the ordinary
course of business), (f) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Encumbrance on property owned or acquired by such person,
whether or not the Indebtedness secured thereby has been assumed, (g) all
Guarantees by such person of Indebtedness of others, (h) all Capital Lease
Obligations of such person, (i) all obligations, contingent or otherwise, of
such person as an account party in respect of

 

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letters of credit and letters of guaranty, and (j) all obligations, contingent
or otherwise, of such person in respect of bankers’ acceptances. The
Indebtedness of any person shall include the Indebtedness of any other entity
(including any partnership in which such person is a general partner) to the
extent such person is liable therefor as a result of such person’s ownership
interest in or other relationship with such entity, except to the extent the
terms of such Indebtedness provide that such person is not liable therefor.
Notwithstanding the foregoing, in connection with any acquisition by any person,
the term “Indebtedness” shall not include contingent post-closing purchase price
adjustments or earn-outs to which the seller in such acquisition may become
entitled.
“Indemnified Party” has the meaning assigned to such term in Section 6.1(c).
“Indemnitor” has the meaning assigned to such term in Section 6.1(c).
“Intellectual Property” has the meaning assigned to such term in Section 3.5.
“Investor” has the meaning assigned to such term in the Preamble.
“Investor Indemnified Parties” has the meaning assigned to such term in Section
6.1(a).
“Investor Nominee” has the meaning assigned to such term in Section 5.7.
“Investor Proposal” has the meaning assigned to such term in Section 5.6.
“Investor Securities” has the meaning assigned to such term in Recital A.
“Investment Amount” has the meaning assigned to such term in Section 2.1.
“Joint Venture” means any joint venture or similar business entity, whether
organized as a general or limited partnership, limited liability company or
otherwise, to which the Company or any of its subsidiaries is a party, including
without limitation each of the “unconsolidated joint ventures” described to in
the Company’s most recent Annual Report on Form 10-K filed pursuant to the
Exchange Act and the rules and regulations thereunder. Any subsidiary of the
Company shall not be a Joint Venture.
“Judgment” means any applicable judgment, order or decree of any Governmental
Entity.
“JV Guarantee” has the meaning assigned to such term in Section 3.22(c).
“knowledge of the Company,” “to the Company’s knowledge” or other references to
the “knowledge” of the Company mean the actual knowledge of the particular fact
in question by (i) any officer of the Company who has the title of Executive
Vice President or a more senior title or (ii) any attorney working in the office
of the General Counsel of the Company; provided, that for purposes of
Section 3.6, “knowledge of the Company,” “to the Company’s knowledge” or other
references to the “knowledge” of the Company mean the actual knowledge of the
particular fact in question by (x) any officer of the Company who has the title
of Executive Vice President or a more senior title, (y) any attorney working in
the office of the General Counsel of the Company, or (z) the general

 

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manager (or equivalent) of each of the properties listed on Schedule 3.6 of the
Company Disclosure Schedules.
“Labor Laws” means any Applicable Law relating to employment standards, employee
rights, health and safety, labor relations, workplace safety and insurance or
pay equity.
“Losses” means all liabilities, costs, expenses, obligations, losses, damages
(excluding consequential, special, incidental, indirect or punitive damages),
penalties, actions, judgments and claims of any kind or nature (including
reasonable attorneys’ fees and expenses incurred in investigation or defending
any of the foregoing).
“Material Adverse Effect” means any material adverse effect on (i) the business,
results of operations or financial condition of the Company and its
subsidiaries, taken as a whole (other than (a) any change, event, occurrence or
development that generally affects the industry in which the Company and its
subsidiaries operate and does not disproportionately effect (relative to other
industry participants) the Company and its subsidiaries, (b) any change, event,
occurrence or development to the extent attributable to conditions generally
affecting (I) the industries in which the Company participates that does not
have a materially disproportionate effect (relative to other industry
participants) on the Company and its subsidiaries, (II) the U.S. economy as a
whole, or (III) the equity capital markets generally, and (c) any change, event,
occurrence or development that results from any action taken by the Company at
the request of an Investor or as required by the terms of this Agreement or the
Ancillary Agreements) or (ii) the ability of the Company to perform its
obligations hereunder or under the Ancillary Agreements.
“Material Contract” means any Contract of a type described in Item 6.01 of
Regulation S-K.
“Material Indebtedness” means, with respect to a person, (a) any Indebtedness of
such person in excess of $5,000,000, or (b) any Contract pursuant to which such
person has the right to incur Indebtedness in excess of $5,000,000.
“Multiemployer Plan” has the meaning assigned to such term in Section 3.10(b).
“Nasdaq” means the Nasdaq Global Select Market (or a successor entity thereto).
“New Securities” means any debt or equity securities of the Company, whether or
not now authorized, and securities or rights of any type issued by the Company
that are, or by their terms may become, convertible into or exchangeable or
exercisable for debt or equity securities of the Company.
“Operating Company” means Morgans Group LLC, a Delaware limited liability
company.
“Owned Real Property” has the meaning assigned to such term in Section 3.4(a).
“PBGC” means the Pension Benefit Guaranty Corporation and any successor agency.

 

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“Permitted Encumbrances” means: (i) carriers’, warehousemen’s, mechanics’,
materialmen’s, repairmen’s, landlords’ and other like Encumbrances imposed by
law, arising in the ordinary course of business and securing obligations that
are not overdue by more than 30 days or are being contested in good faith by
appropriate proceedings with appropriate reserves established; (ii) Encumbrances
for Taxes, utilities and other governmental charges that, in each case, are not
overdue by more than 30 days or are being contested in good faith by appropriate
proceedings with appropriate reserves established; (iii) pledges and deposits
made in the ordinary course of business pursuant to workers’ compensation,
unemployment insurance and other social security laws or regulations;
(iv) deposits to secure the performance of bids, trade contracts, leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature, in each case in the ordinary course of business;
(v) easements, zoning restrictions, rights-of-way and similar Encumbrances on
real property imposed by law or arising in the ordinary course of business that
do not secure any monetary obligations and do not, individually or in the
aggregate, materially detract from the value of the affected property or
interfere with the ordinary conduct of business of the Company and its
subsidiaries; (vi) matters of record or registered Encumbrances affecting title
to any owned or leased real property of a person and its subsidiaries, (vii)
statutory Encumbrances of landlords for amounts not yet due and payable; and
(viii) de minimis defects, irregularities or imperfections of title and other
Encumbrances which, individually or in the aggregate, do not materially impair
the continued use (in a manner generally consistent with current use in the
business of the person and its subsidiaries) of the asset or property to which
they relate.
“person” means any individual, firm, corporation, partnership, limited liability
company, trust, joint venture, Governmental Entity or other entity.
“Plan” means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (a) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (b) has at any time within the
preceding five years been maintained, or contributed to, by any person which is
currently or was at such time a member of the ERISA Group for employees of any
person which is currently or was at such time a member of the ERISA Group.
“Preferred Securities” has the meaning assigned to such term in Recital A.
“Pro Rata Amount” means, at any time with respect to each Investor, as of any
date of determination, the ratio of (i) the number of shares of Common Stock
that such Investor holds (beneficially or of record) or has the right to acquire
by exercise of the Warrants or the REF Warrants (whether or not such Warrants or
REF Warrants are then exercisable) as of such date, to (ii) the total number of
shares of Common Stock issued and outstanding as of such date.
“Real Estate Fund Formation Agreement” has the meaning assigned to such term in
Recital B.

 

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“Real Property” means, collectively, the Owned Real Properties and the
properties leased pursuant to the Real Property Leases.
“Real Property Lease” has the meaning assigned to such term in Section 3.4(b).
“Recent Balance Sheet” means the consolidated balance sheet of the Company and
its consolidated subsidiaries as of June 30, 2009 included in the Financial
Statements.
“REF Warrants” means the warrants to acquire Common Stock issued to Yucaipa
Manager on the date hereof pursuant to the Real Estate Fund Formation Agreement.
“REF Underlying Shares” means the shares of Common Stock issuable upon exercise
of the REF Warrants.
“Registration Rights Agreement” has the meaning assigned to such term in Recital
C.
“Resignations” has the meaning assigned to such term in Section 5.7(a)(i).
“Rights Plan” means the Amended and Restated Stockholder Protection Rights
Agreement, dated as of October 1, 2009, by and between the Company and Mellon
Investor Services LLC, as rights agent.
“Rights Plan Amendment” means the amendment to the Rights Plan in the form
attached hereto as Exhibit E.
“ROFR Notice” has the meaning assigned to such term in Section 5.14(a).
“Rules” has the meaning assigned to such term in Section 5.3.
“SEC” means the Securities and Exchange Commission.
“SEC Reports” has the meaning assigned to such term in Section 3.12(a).
“Securities Act” means the Securities Act of 1933, as amended.
“SOX” means the Sarbanes-Oxley Act of 2002.
“subsidiary” of any person means, on any date, any person the accounts of which
would be consolidated with and into those of the first person in such person’s
consolidated financial statements if such financial statement were prepared in
accordance with GAAP.
“Surviving Representation” has the meaning assigned to such term in Section 6.1.
“Tax” means any foreign, Federal, state or local income, sales and use, excise,
franchise, real and personal property, gross receipt, capital stock, production,
business and occupation, disability, estimated, employment, payroll, severance
or withholding tax, value-added tax or other tax, duty, fee, impost, levy,
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any taxing authority, and any interest or penalties and other additions to tax
related thereto.
“Tax Returns” means any return, report, claim for refund, declaration,
information return or other document required to be filed with any Tax authority
with respect to Taxes, including any amendments thereof.
“Third Party” means any person other than the Company, the Investors, or any of
their respective subsidiaries or Affiliates.
“Third Party Claim” has the meaning assigned to such term in Section 6.1(c).
“Underlying Shares” has the meaning assigned to such term in Recital A.
“Voting Debt” means bonds, debentures, notes or other debt securities having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) generally in the election of directors of the Company or other
matters on which holders of the Common Stock may vote.
“Voting Stock” of any person means securities having the right to vote generally
in any election of directors or comparable governing persons of any such person.
“Warrant” has the meaning assigned to such term in Recital A.
“YAAF II” and “YAAF II-P” have the respective meanings assigned to such terms in
the Preamble.
“Yucaipa Manager” has the meaning assigned to such term in Recital B.
ARTICLE 2
Issuance and Sale of Investor Securities
2.1 Issuance and Sale of the Investor Securities. On the terms and subject to
the conditions set forth in this Agreement, the Company hereby issues, sells and
delivers in certificated form to the Investors, and the Investors hereby
purchase from the Company, the Investor Securities for an aggregate cash
purchase price of $75,000,000 (the “Investment Amount”).
2.2 Deliveries.
2.2.1 Concurrently with the execution and delivery of this Agreement, the
Company will deliver to:

  (a)   YAAF II a certificate representing 45,213 shares of Preferred Securities
and a Warrant to acquire 7,535,580 shares of Common Stock, and

 

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  (b)   YAAF II-P a certificate representing 29,787 shares of Preferred
Securities and a Warrant to acquire 4,964,420 shares of Common Stock;

  (c)   The Investors:

(i) a secretary’s certificate, dated as of the date hereof, executed by the
Company’s secretary, in the form attached hereto as Exhibit F,
(ii) a duly executed counterpart of each Ancillary Agreement to which the
Company is a party, and
(iii) an opinion letter of Sullivan & Cromwell LLP, as counsel to the Company,
dated as of the date hereof, in the form attached hereto as Exhibit G;

  (d)   Yucaipa Manager (or person(s) designated by the Investors in writing)
payment by wire transfer to the bank account specified in Schedule 2.2.1(d) of
$600,000 in payment of costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby (such payment being made
pursuant to Section 5.2(a)); and

  (e)   Yucaipa Manager payment by wire transfer to the bank account specified
in Schedule 2.2.1(d) of the commitment fee pursuant to Section 5.2(b).

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

  (a)   Payment of a portion of the Investment Amount by wire transfer to the
bank account of the Company specified in Schedule 2.2.2(a) in the following
amounts:

  (i)   From YAAF II: $45,213,478.50, and

  (ii)   From YAAF II-P: $29,786,521.50;

  (b)   An opinion letter of Munger, Tolles & Olson LLP, dated as of the date
hereof, in the form attached hereto as Exhibit H; and

  (c)   A duly executed counterpart of each Ancillary Agreement to which each
Investor or an Affiliate of the Investors is a party.

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

 

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and Tax purposes, $69,000,000 to the aggregate Preferred Securities issued
hereby and $6,000,000 to the aggregate Warrants issued hereby. Neither the
Company nor any Investor shall take any position inconsistent with such
allocation unless required to do so by Applicable Law.
ARTICLE 3
Representations and Warranties
of the Company
Subject to the qualifications set forth in the corresponding sections of the
disclosure schedules delivered by the Company to the Investors concurrently with
the execution and delivery of this Agreement (the “Company Disclosure
Schedules”) or in the SEC Reports (other than any “Risk Factors” section or
“forward-looking statements” contained therein, any exhibits thereto, and any
documents incorporated by reference therein), the Company hereby represents and
warrants to the Investors as follows:
3.1 Entity Status. Each of the Company and its subsidiaries is duly incorporated
or otherwise organized, validly existing and in good standing under the
Applicable Laws of its governing jurisdiction and each has all requisite
corporate or other power and authority to carry on its business as it is now
being conducted and is duly qualified to do business in each of the
jurisdictions in which the ownership, operation or leasing of its assets or the
conduct of its business requires it to be so qualified, except where the failure
to have such corporate or other power or authority or to be in good standing or
so qualified, has not had and would not reasonably be expected to have a
Material Adverse Effect, and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power, authority or qualification.
3.2 Authorization; Noncontravention.
(a) Authorization. The Company has all necessary corporate power and authority
to execute and deliver this Agreement and the Ancillary Agreements, to perform
its obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The Company has delivered to the Investors a
true and correct copy, certified by the Company’s secretary, of the resolutions
of its board of directors (the “Board of Directors”) authorizing the execution
and delivery of this Agreement and consummation of the transactions contemplated
by this Agreement. Such resolutions are in full force and effect, have not been
amended, supplemented, revoked or superseded as of the date hereof and are the
only resolutions of the Board of Directors pertaining to the authorization,
execution and delivery of this Agreement and the Ancillary Agreements and
consummation of the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Ancillary Agreements and the
consummation by the Company of the transactions contemplated hereby and thereby,
including the issuance (or reservation for issuance), sale and delivery of the
Investor Securities, the Underlying Shares, the REF Warrants and the REF
Underlying Shares and any redemptions of such Warrants and REF Warrants pursuant
to the terms thereof, have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of the

 

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Company or its subsidiaries or (except as contemplated by Section 5.3) vote of
holders of any class or series of capital stock of the Company or its
subsidiaries is necessary to authorize this Agreement or the Ancillary
Agreements or to consummate the transactions contemplated hereby and thereby.
This Agreement and the Ancillary Agreements have been duly executed and
delivered by the Company and (assuming due authorization, execution and delivery
by each other party thereto) each constitutes, a valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors’ rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law);
provided, that no representation is made hereby with respect to the
enforceability of Section 5.7(b)(ii)(4).
(b) Preemptive Rights; Rights of First Offer. None of the sale and issuance of
the Investor Securities pursuant to this Agreement and the issuance of
Underlying Shares upon exercise thereof, or the issuance of the REF Warrants
pursuant to the Real Estate Fund Formation Agreement and the issuance of the REF
Underlying Shares upon exercise thereof, is or will be subject to any preemptive
rights, rights of first offer or similar rights of any person.
(c) No Conflict. The Company is not in violation or default of any provision of
its Charter or By-Laws. Except as set forth in Schedule 3.2(c) of the Company
Disclosure Schedules, the execution, delivery and performance by the Company of
this Agreement and the Ancillary Agreements do not, and the consummation of the
transactions contemplated hereby and thereby and compliance with the provisions
hereof and thereof will not, result in a “change of control” (or similar event)
under, or conflict with, or result in any default under, or give rise to an
increase in, or right of termination, cancellation, acceleration or mandatory
prepayment of, any obligation or to the loss of a benefit under, or result in
the suspension, revocation, impairment, forfeiture or amendment of any term or
provision of or the creation of any Encumbrance upon any of the properties or
assets of the Company or any of its subsidiaries under, or require any consent
or waiver under, any provision of (i) the Charter, the By-Laws or the comparable
organizational documents of any of the Company’s subsidiaries, (ii) any Material
Contract, (iii) any Material Indebtedness, (iv) any Collective Bargaining
Agreement, Multiemployer Plans or Benefit Plans or (v) any Applicable Law,
Judgment or Governmental Authorization, in each case applicable to the Company
and its subsidiaries or their respective assets, except in the case of (ii),
(iii), (iv) or (v), to the extent it does not or would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
No Governmental Authorization, order or authorization of, or registration,
qualification, declaration or filing with, or notice to, any Governmental Entity
is required to be obtained or made by or with respect to the Company or any of
its subsidiaries in connection with the execution, delivery and performance of
this Agreement or any of the Ancillary Agreements or the other transactions
contemplated by this Agreement or the Ancillary Agreements, including the
issuance of the Investor Securities, the Underlying Shares, the REF Warrants and
the REF Underlying Shares (and any redemptions of the Warrants or REF Warrants
pursuant to the terms thereof), except for (A) authorization of, or
registration, qualification, declaration or filing with, or notice to, Gaming
Authorities (which have been, or will be at the time required, duly

 

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performed by the Company), (B) notice to or consultation with Nasdaq (which has
been, or will be at the time required, duly performed by the Company), and
(C) such Governmental Authorizations, orders, authorizations, registrations,
declarations, filings and notices, the failure of which to be obtained or made
would not materially impair the Company’s ability to perform its obligations
under this Agreement or the Ancillary Agreements or to consummate the
transactions contemplated hereby or thereby. Except as set forth in
Schedule 3.2(c) of the Company Disclosure Schedules, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, either alone or in combination with another event (whether
contingent or otherwise) will, to the knowledge of the Company, (1) result in
the payment of any “excess parachute payment” under Section 280G of the Code,
(2) entitle any current or former employee, consultant or director of the
Company or any of its subsidiaries to any material payment other than pursuant
to the terms of the Real Estate Fund Formation Agreement, (3) increase the
amount of compensation or benefits due to any such employee, consultant or
director other than pursuant to the terms of the Real Estate Fund Formation
Agreement, or (4) accelerate the vesting, funding or time of payment of any
compensation, equity award or other benefit. After giving effect to the Rights
Plan Amendment, none of the execution and delivery of this Agreement, the
execution and delivery of any of the Ancillary Agreements, or the consummation
of any of the transactions contemplated hereby or thereby (including the
issuance of the Warrants and the Underlying Shares upon exercise thereof and the
issuance of the REF Warrants and the REF Underlying Shares upon exercise
thereof) shall give any person the right to purchase any securities of the
Company pursuant to, or shall otherwise trigger any comparable provisions under,
the Rights Plan.
3.3 Capital Structure.
(a) The authorized capital stock of the Company consists of 200,000,000 shares
of Common Stock and 40,000,000 shares of preferred stock. Of the 200,000,000
authorized shares of Common Stock, 29,648,096 shares are issued and outstanding,
and only the following are reserved for issuance: 12,500,000 shares reserved for
issuance in connection with the exercise of the Warrants, 6,415,327 shares
reserved for issuance in connection with the exercise of warrants issued
pursuant to hedging transactions, 5,000,000 shares reserved for issuance in
connection with the exercise of the REF Warrants, and 16,468,755 shares reserved
for issuance pursuant to the Company’s 2007 Amended and Restated Omnibus
Incentive Plan and the Company’s 2.375% Senior Subordinated Convertible Notes
due 2014. Of the 40,000,000 authorized shares of preferred stock, the only
shares issued and outstanding are the Preferred Securities issued to the
Investors, and no other shares of such preferred stock are reserved for
issuance.
(b) Each share of Common Stock is duly authorized, validly issued, fully paid
and nonassessable. The Preferred Securities, Warrants, Underlying Shares, REF
Warrants, and REF Underlying Shares, have been duly authorized and are, or to
the extent issued after the date hereof are reserved and will upon issuance be:
(i) solely with respect to the Preferred Securities, Underlying Shares and REF
Underlying Shares, validly issued, fully paid and nonassessable, (ii) not issued
in violation of any purchase option, call option, right of first refusal,
preemptive right, subscription right or any similar right under any provision of
the Charter or By-Laws of the Company or any Contract to which the Company or
any of its subsidiaries is a party or by which any of its

 

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

 

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stock or any securities convertible into or exchangeable for any shares of
capital stock or any Voting Debt of any subsidiary of the Company,
(ii) outstanding obligations of the subsidiaries of the Company to repurchase,
redeem or otherwise acquire shares of their respective capital stock or equity
interests, (iii) voting trusts, stockholder agreements, proxies or other
agreements or understandings in effect with respect to the voting or transfer of
shares of capital stock of the subsidiaries of the Company (but only to the
Company’s knowledge with respect to any such agreements to which neither the
Company nor any subsidiary of the Company is a party), or (iv) rights of first
refusal, preemptive rights, subscription rights or any similar rights under any
provision of the governing documents of any subsidiary of the Company.
(d) Other than the subsidiaries of the Company, the Joint Ventures and the
subsidiaries thereof and other than as set forth in Schedule 3.3(c) of the
Company Disclosure Schedules, there are no persons in which any of the Company
or its subsidiaries owns any equity, membership, partnership, joint venture or
other similar interest with a value in excess of $1,000,000.
3.4 Real Property.
(a) As of the date hereof, the Company and its subsidiaries own in fee simple
the real property listed in Schedule 3.4(a) of the Company Disclosure Schedules
(the “Owned Real Property”). The Company or the subsidiary indicated on such
schedule has good and marketable title in fee simple, free and clear of
Encumbrances (other than those set forth on Schedule 3.4(a) of the Company
Disclosure Schedules and Permitted Encumbrances), to each Owned Real Property.
Neither the Company nor any of its subsidiaries has received notice of any
pending, and to the Company’s knowledge there is no threatened, condemnation
proceeding with respect to any of the Owned Real Property.
(b) Schedule 3.4(b) of the Company Disclosure Schedules lists all material
leases and subleases, including all amendments, assignments, supplements and, to
the Company’s knowledge, modifications thereto, under which the Company or any
of its subsidiaries uses or occupies or has the right to use or occupy any real
property and all material tenant leases and subleases as to which the Company or
any of its subsidiaries is the lessor (the “Real Property Leases”) and specifies
the remaining term of each Real Property Lease with respect to which the Company
or any of its subsidiaries is the lessee and the amounts of rent payable per
year thereunder. Each Real Property Lease is valid, binding and in full force
and effect and no termination event (other than expirations in the ordinary
course), notice of termination or non-renewal or condition or uncured default
(or event which with notice or lapse of time, or both, would constitute a
default) of a material nature on the part of the Company or the applicable
subsidiary or the other party thereunder, exists under any Real Property Lease.
The Company or the applicable subsidiary has a good and valid leasehold interest
in each parcel of real property as to which it is a tenant under a Real Property
Lease, and, to the Company’s knowledge, such leasehold estate is free and clear
of all Encumbrances other than those set forth on Schedule 3.4(b) of the Company
Disclosure Schedules and Permitted Encumbrances or those imposed by the
applicable Real Property Leases. As of the date hereof, neither the Company nor
any subsidiary of the Company has received notice of any pending, and to the
Company’s knowledge there is no threatened, condemnation

 

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proceedings with respect to any property leased pursuant to any of the Real
Property Leases.
(c) Neither the Company nor any subsidiary of the Company uses or occupies any
real property in the ordinary course of the business of the Company and its
subsidiaries, other than the Owned Real Property, properties that are the
subject of leases where the Company or any of its subsidiaries is the lessor,
properties that are the subject of management or similar agreements under which
the Company or any of its subsidiaries manages any portion of the businesses
located on such real property, easements and properties that are the subject of
a Real Property Lease.
3.5 Intellectual Property. Each of the Company and each of its subsidiaries
owns, or has the right to use, all software, patents, trademarks, service marks,
trade names, trade secrets and copyrights (collectively, “Intellectual
Property”) material to the conduct of its businesses as currently conducted.
Except as set forth on Schedule 3.5 of the Company Disclosure Schedules, since
January 1, 2008, no material Action has been filed or threatened in writing by
any person (i) with respect to the use of any such Intellectual Property by the
Company or any subsidiary of the Company, (ii) challenging or questioning the
validity of any such Intellectual Property owned by the Company or any
subsidiary of the Company, or (iii) to the Company’s knowledge, challenging or
questioning the validity of any such Intellectual Property that is used but not
owned by the Company or any subsidiary of the Company. To the Company’s
knowledge, the use of such Intellectual Property by the Company and its
subsidiaries does not infringe on the rights of any person, except for such
infringements as would not reasonably be expected to, individually or in the
aggregate, give rise to any liabilities on the part of the Company or any of its
subsidiaries that would reasonably be expected to have a Material Adverse
Effect.
3.6 Environmental Matters. Each of the Company and its subsidiaries has obtained
all Governmental Approvals which are required under Environmental Laws for the
operation of the business as presently conducted and is in compliance with all
terms and conditions of such Governmental Approvals, except as would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect. Except for any of the following matters that would not,
individually or in the aggregate, be reasonably expected to have a Material
Adverse Effect, (i) the Company does not have knowledge of, and has not received
any written notice of, any past, present, or future events, conditions,
circumstances, activities, practices, incidents, actions, or plans that, with
respect to the Company, any subsidiary of the Company or any of the Real
Property, that would reasonably be expected to prevent compliance or continued
compliance with Environmental Laws, or give rise to any common-law or legal
liability, or otherwise form the basis of any claim, action, demand, suit,
proceeding, hearing, study, or investigation, based on or related to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling or the emission, discharge, release or threatened release
into the environment, of any Hazardous Material, and (ii) there is no Action
pending or, to the Company’s knowledge, threatened, against the Company or any
subsidiary of the Company relating to Environmental Laws. Notwithstanding any
other representation and warranty in this Article 3, the representations and
warranties contained in this Section 3.6 constitute the sole representations and
warranties of the Company relating to any Environmental Law.

 

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3.7 Legal Proceedings. Except as set forth in Schedule 3.7 of the Company
Disclosure Schedules, there are no Actions pending or, to the Company’s
knowledge, threatened, against the Company or any of its subsidiaries, which, if
adversely determined, would reasonably be expected to have a Material Adverse
Effect. There are no Actions pending or, to the Company’s knowledge, threatened
against the Company or any of its subsidiaries, which, if adversely determined,
would materially impair the Company’s ability to perform its obligations under
this Agreement or the Ancillary Agreements or challenge the validity or
enforceability of this Agreement or any Ancillary Agreement or seek to enjoin or
prohibit the consummation of the transactions contemplated hereby or thereby.
None of the Company or any of its subsidiaries is in default with respect to any
material Judgment.
3.8 Taxes.
(a) Except as disclosed in the SEC Reports or in Schedule 3.8 of the Company
Disclosure Schedules or except as would not reasonably be expected, individually
or in the aggregate, to have a Material Adverse Effect: (i) the Company and each
of its subsidiaries have filed all Tax Returns required to be filed by them;
(ii) all such Tax Returns are true, correct and complete; (iii) all Taxes due
and owed by the Company and its subsidiaries (whether or not shown on any Tax
Return) have been paid; (iv) neither the Company nor any of its subsidiaries
currently is the beneficiary of any extension of time within which to file any
Tax Return; (v) no claim has ever been made by a Governmental Authority in a
jurisdiction where the Company or any of its subsidiaries does not file Tax
Returns that the Company or any such subsidiary is or may be subject to taxation
by that jurisdiction; (vi) there are no liens on any of the assets or properties
of the Company or any of its subsidiaries that arose in connection with any
failure (or alleged failure) to pay any Tax; (vii) there are no ongoing, pending
or, to the Company’s knowledge, threatened audits, assessments, or other
proceedings for or relating to any liability in respect of Taxes of the Company
or any of its subsidiaries; (viii) neither the Company nor any of its
subsidiaries has waived any statute of limitations in respect of Taxes or agreed
to any extension of time with respect to a Tax assessment or deficiency; and
(ix) the Company and each of its subsidiaries have timely withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party.
(b) There are no Tax sharing agreements or similar arrangements (including
indemnity arrangements) with respect to or involving the Company or any of its
subsidiaries. Since February 17, 2006, neither the Company nor any of its
subsidiaries has been a member of any affiliated group filing a consolidated
Federal income Tax Return other than a group the common parent of which is the
Company. Except pursuant to customary gross-up, tax escalation or similar
provisions in financing and commercial Contracts entered into in the ordinary
course of business, neither the Company nor any of its subsidiaries has any
actual or potential liability for the Taxes of any person (other than Taxes of
the Company and its subsidiaries) under Treasury Regulations Section 1.1502-6
(or any similar provision of foreign, state or local law), as a transferee or
successor, by Contract, or otherwise.

 

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3.9 Labor. Except as set forth on Schedule 3.9 of the Company Disclosure
Schedules, neither the Company nor any of its subsidiaries is party to any
Collective Bargaining Agreement. Except as set forth on Schedule 3.9 of the
Company Disclosure Schedules, no Collective Bargaining Agreement currently is
being negotiated by the Company or any of its subsidiaries. None of the Company
or any of its subsidiaries has any obligation to inform or consult with any
employees or their representatives in respect of the transactions contemplated
hereby under the terms of any Collective Bargaining Agreement or Applicable Law,
except where the failure to so inform or consult would not reasonably be
expected to have a Material Adverse Effect. There has not been (i) since
January 1, 2008, any work stoppage, slowdown, lockout, employee strike or, (ii)
since January 1, 2009, to the Company’s knowledge any labor union organizing
activity involving any of the Company and its subsidiaries and, (iii) since
January 1, 2009, to the Company’s knowledge, none of the foregoing or any
material labor dispute or Action has been threatened in writing. The Company and
its subsidiaries are operating their respective businesses in compliance with
all Labor Laws, except as would not reasonably be expected to have a Material
Adverse Effect. Except as set forth on Schedule 3.9 of the Company Disclosure
Schedules, as of the date hereof, to the Company’s knowledge, there are no
ongoing union certification drives or pending proceedings for certifying a union
with respect to employees of any of the Company or any of its subsidiaries. None
of the Company or its subsidiaries is in material breach or material default
under any Collective Bargaining Agreement.
3.10 Employee Benefit Plans.
(a) Each member of the ERISA Group is in compliance with its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan
and is in compliance with the presently applicable provisions of ERISA and the
Code with respect to each Plan, except in each case for noncompliances which
could not reasonably be expected to have a Material Adverse Effect. No member of
the ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the 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 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. None of the assets of the Company or its subsidiaries
constitutes “plan assets” within the meaning of ERISA, the Code and the
respective regulations promulgated thereunder. The execution, delivery and
performance of this Agreement and the Ancillary Agreements do not and will not
constitute “prohibited transactions” under ERISA or the Code.
(b) No withdrawal liability in an aggregate amount in excess of $5,000,000 has
been incurred under Title IV of ERISA by any member of the ERISA Group with
respect to any “multiemployer plan” (as defined in Section 3(37) or 4001(a)(3)
of ERISA) which is or has been contributed to by such person at any time during
the six-year period ending on the date of this Agreement or as to which any
member of the ERISA Group has any liability (the “Multiemployer Plans”), and no
such liability would be incurred if any member of the ERISA Group were to
withdraw from any Multiemployer Plan in a complete or partial withdrawal. No
member of the ERISA

 

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Group has agreed with any person to be responsible for any liability under Title
IV of ERISA with respect to any multiemployer plan within the meaning of
Section 3(37) or 4001(a)(3) of ERISA.
3.11 Compliance with Laws.
(a) Except as disclosed in the SEC Reports or in Schedule 3.11 of the Company
Disclosure Schedules, the Company and each of its subsidiaries and the conduct
and operation of their respective businesses are and have been, since January 1,
2008, (A) in compliance with (1) each Applicable Law that affects or relates to
this Agreement or the Ancillary Documents and (2) each Applicable Law that is
applicable to the Company or its subsidiaries or their respective businesses,
including any laws relating to employment practices, except as would not,
individually or in the aggregate, reasonably be expected to cause a Material
Adverse Effect; and (B) in compliance in all material respects with all
applicable Gaming Laws.
(b) Neither the Company nor any of its subsidiaries has received any written
notice or other written communication from any Governmental Entity or any other
person regarding (1) any actual, alleged, possible or potential violation of or
failure to comply with any material term or requirement of any Governmental
Authorization, or (2) any actual, proposed, possible or potential revocation,
withdrawal, suspension, cancellation, termination of or modification to any
Governmental Authorization, other than such as would not, individually or in the
aggregate, have a Material Adverse Effect.
3.12 SEC Reports and Company Financial Statements.
(a) Since February 17, 2006, the Company has filed all reports, schedules,
forms, statements and other documents required to be filed by it with the SEC
pursuant to the reporting requirements of the Exchange Act (all the foregoing
filed prior to the date hereof and all exhibits included or incorporated by
reference therein and financial statements and schedules thereto and documents
included or incorporated by reference therein being sometimes hereinafter
collectively referred to as the “SEC Reports”). Since January 1, 2008 all of the
SEC Reports have been timely filed with the SEC pursuant to the reporting
requirements of the Exchange Act. As of their respective filing dates, the SEC
Reports complied in all material respects with the requirements of the Exchange
Act applicable to the SEC Reports (as amended or supplemented), and none of the
SEC Reports, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Except as set
forth on Schedule 3.12 of the Company Disclosure Schedules, no subsidiary of the
Company is required to be, a registrant with the SEC.
(b) As of their respective dates, except as set forth therein or in the notes
thereto, the financial statements contained in the SEC Reports and the related
notes (the “Financial Statements”) complied as to form in all material respects
with all applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. The Financial Statements (i) were
prepared in accordance with

 

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GAAP, consistently applied during the periods involved (except (x) as may be
otherwise indicated in the notes thereto or (y) in the case of unaudited interim
statements, to the extent that they may not include footnotes or may be
condensed or summary statements), (ii) fairly present in all material respects
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments) and (iii) are in all
material respects in accordance with the books of account and records of the
Company and its consolidated subsidiaries (except as may be otherwise noted
therein).
(c) Except as disclosed in the SEC Reports or in Schedule 3.12 of the Company
Disclosure Schedules, neither the Company nor any of its subsidiaries has any
material liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated, whether due or to become due), except for
the following: (i) liabilities reflected in or reserved for in the Recent
Balance Sheet, (ii) liabilities that have arisen since the date of the Recent
Balance Sheet in the ordinary course of the businesses of the Company and its
subsidiaries consistent with past practice, (iii) liabilities that (A) would not
be required under GAAP to be reflected in an audited consolidated balance sheet
of the Company and its consolidated subsidiaries and (B) are not in the
aggregate material and (iv) liabilities incurred in connection with this
Agreement and the Ancillary Agreements and the performance by the Company of its
obligations thereunder.
(d) Neither the Company nor any of its subsidiaries is a party to, or has any
commitment to become a party to, any joint venture, off-balance sheet
partnership or any similar Contract or arrangement (including any Contract
relating to any transaction or relationship between or among the Company and any
of its subsidiaries, on the one hand, and any unconsolidated affiliate of the
Company or any of its subsidiaries, including any structured finance, special
purpose or limited purpose entity or person, on the other hand, or any
“off-balance sheet arrangements” (as defined in Item 303(a) of Regulation S-K of
the SEC)), where the result, purpose or effect of such Contract is to avoid
disclosure of any material transaction involving, or material liabilities of,
the Company or any of its subsidiaries in the Company’s or such subsidiary’s
audited financial statements or other SEC Reports.
(e) The audit committee of the Board of Directors has established
“whistleblower” procedures that meet the requirements of Rule 10A-3 promulgated
under the Exchange Act.
(f) The Company and its subsidiaries have implemented and maintain disclosure
controls and procedures (as defined in Rule 13a-15(f) promulgated under the
Exchange Act) that comply in all material respects with the requirements of the
Exchange Act and the rules and regulations thereunder and have been designed by,
or under the supervision of, their respective principal executive and principal
financial officers, or persons performing similar functions, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
GAAP. The Company and its subsidiaries maintain internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific

 

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authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to maintain
asset accountability; (iii) access to assets is permitted only in accordance
with management’s general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. The
Company has disclosed, based on its most recent evaluation prior to the date of
this Agreement, to the Company’s outside auditors and the audit committee of the
Board of Directors (A) any significant deficiencies and material weaknesses in
the design or operation of “internal control over financial reporting” (as
defined in Rule 13a-15(f) promulgated under the Exchange Act) that are
reasonably likely to adversely affect the Company’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 Company’s internal controls over financial reporting.
(g) To the Company’s knowledge, there is no reason that its outside auditors and
its chief executive officer and chief financial officer will not be able to give
the certifications and attestations required pursuant to the rules and
regulations adopted pursuant to Section 404 of SOX, without qualification, when
next due.
(h) Except as set forth on Schedule 3.12 of the Company Disclosure Schedules or
as disclosed in the SEC Reports and except as contemplated by the Real Estate
Fund Formation Agreement, none of the executive officers, directors or related
persons (as defined in Regulation S-K Item 404) of the Company is presently a
party to any transaction with the Company or any of its subsidiaries that would
be required to be reported on Form 10-K by Item 13 thereof pursuant to
Regulation S-K Item 404.
(i) Set forth on Schedule 3.12 of the Company Disclosure Schedules is a true and
correct list of all Material Indebtedness of the Company and its subsidiaries
incurred since June 30, 2009. Except as set forth on Schedule 3.12 of the
Company Disclosure Schedules or as disclosed in the SEC Reports, neither the
Company nor any of its subsidiaries is, after giving effect to this Agreement,
(A) in default in the payment of any Material Indebtedness or (B) in breach or
default under any Material Contract evidencing or relating to Indebtedness in
any manner that would permit (or that with notice, lapse of time, or both, would
permit) any party to any such Material Contract to cause such Indebtedness to
become due and payable before its stated maturity or before its regularly
scheduled date of payment or to cause the Company or any of its subsidiaries a
reduction or loss in a material respect of rights or benefits under, or an
increase in a material respect of any obligation under, any such Material
Contract.
3.13 Material Contracts.
(a) The SEC Reports as supplemented by Schedule 3.13(a) of the Company
Disclosure Schedules, contain a complete and accurate list of all Material
Contracts to which the Company and its subsidiaries are parties.
(b) (i) Each Material Contract, assuming such Material Contract is a legal,
valid and binding obligation of and enforceable against the other parties
thereto in accordance with its terms, constitutes a valid and binding obligation
of

 

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the Company or the subsidiary of the Company party thereto and is enforceable
against the Company or such subsidiary, except as limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors’ rights in general and subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
at law or in equity), and (ii) each Material Contract, to the Company’s
knowledge, is a valid, binding and enforceable obligation of the other parties
thereto, except as limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting the enforcement of creditors’ rights in general
and subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
(c) Except as set forth on Schedule 3.13(c) of the Company Disclosure Schedules,
none of the Company or its subsidiaries and, to the Company’s knowledge, no
other party to a Material Contract is in breach or default in any material
respect thereunder.
3.14 Absence of Certain Changes.
3.14.1 Since December 31, 2008 through the date hereof, there has not occurred
any change, event or circumstance that has had or would be reasonably expected
to have a Material Adverse Effect.
3.14.2 Except as expressly contemplated by this Agreement or the Ancillary
Agreements, since December 31, 2008 through the date hereof, the Company and its
subsidiaries have conducted their business in the ordinary course generally
consistent with past practice in all material respects, and except as expressly
contemplated by this Agreement or the Ancillary Agreements, since December 31,
2008 through the date hereof, none of the Company or any of its subsidiaries
has:
(a) except as set forth on Schedule 3.14.2(a) of the Company Disclosure
Schedules, amended its Charter, By-Laws or similar organizational documents;
(b) adopted a plan or agreement of liquidation, dissolution, restructuring,
merger, consolidation, recapitalization or other reorganization;
(c) (i) issued, sold, transferred or otherwise disposed of any shares of its
capital stock, Voting Debt or other voting securities or any securities
convertible into or exchangeable for any of the foregoing, (ii) granted or
issued any options, warrants, securities or rights that are linked to the value
of the Common Stock, or other rights to purchase or obtain any shares of its
capital stock or any of the foregoing or any “phantom” stock, “phantom” stock
rights, stock appreciation rights or stock-based performance units, (iii) split,
combined, subdivided or reclassified any shares of its capital stock,
(iv) declared, set aside or paid any dividend or other distribution with respect
to any shares of its capital stock, or (v) redeemed, purchased or otherwise
acquired any shares of its capital stock or any rights, warrants or options to
acquire any such shares or effected any reduction in capital, except (with
respect to clauses (i) through (v) above): (A) for issuances of securities of
the Company’s subsidiaries and the Joint Ventures and their subsidiaries to the
Company or a wholly owned subsidiary of the

 

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Company, (B) for dividends or other distributions by any subsidiary of the
Company or any Joint Venture or subsidiary thereof to the Company or a wholly
owned subsidiary of the Company; (C) in connection with grants made pursuant to,
and in accordance with all of the terms and provisions of, the Plans and Benefit
Arrangements in the ordinary course of business; (D) (solely with respect to
clause (i)) Permitted Encumbrances; and (E) as otherwise set forth on
Schedule 3.14.2(c) of the Company Disclosure Schedules;
(d) except as set forth on Schedule 3.14.2(d) of the Company Disclosure
Schedules, entered into or consummated any transaction involving the acquisition
(including, by merger, consolidation or acquisition of the business, stock or
all or substantially all of the assets or other business combination) of any
other person for consideration in excess of $5,000,000;
(e) except as set forth on Schedule 3.14.2(e) of the Company Disclosure
Schedules, settled any Action involving a payment by the Company or any of its
subsidiaries in excess of $1,000,000;
(f) changed any of its material accounting policies or practices, except as a
result of a change in GAAP or the rules and regulations of the SEC;
(g) (i) made, changed or revoked any material election in respect of Taxes,
(ii) adopted or changed any material accounting method in respect of Taxes, or
(iii) entered into any Tax allocation agreement, Tax-sharing agreement, Tax
indemnity agreement or closing agreement;
(h) except as set forth on Schedule 3.14.2(h) of the Company Disclosure
Schedules, agreed or committed by Contract or otherwise to do any of the
foregoing.
3.15 Insurance. Each of the Company and its material subsidiaries maintains,
with reputable insurers or through self-insurance, insurance in such amounts,
including deductible arrangements, and of such a character as is customary for
companies engaged in the same or similar business. All policies of title, fire,
liability, casualty, business interruption, workers’ compensation and other
forms of insurance including directors and officers insurance held by the
Company and its subsidiaries as of the date hereof, are in full force and effect
in accordance with their terms. Neither the Company nor any of its subsidiaries
is in default under any provisions of any such policy of insurance and neither
the Company nor any of its subsidiaries has received notice of cancellation of
any such insurance, except as has not had and would not reasonably be expected
to have a Material Adverse Effect.
3.16 Private Placement.
(a) Assuming that the representations of the Investors set forth in Section 4.3
are true and correct, the offer, sale, and issuance of the Investor Securities
and the issuance of the Underlying Shares upon exercise of the Warrants, in each
case in conformity with the terms of this Agreement, are exempt from the
registration requirements of Section 5 of the Securities Act.

 

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(b) Assuming that the representations set forth in Section 4.3 are true and
correct with respect to Yucaipa Manager as though made by Yucaipa Manager with
respect to the REF Warrants, the offer, sale and issuance of the REF Warrants
and the issuance of the REF Underlying Shares upon exercise of the REF Warrants,
in each case in conformity with the terms of the Real Estate Fund Formation
Agreement, are exempt from the registration requirements of Section 5 of the
Securities Act.
3.17 Form S-3 Eligibility. The Company meets the eligibility requirements of
General Instruction I to Form S-3 promulgated under the Securities Act.
3.18 Brokers. Except as disclosed on Schedule 3.18 of the Company Disclosure
Schedules, the Company and its subsidiaries have incurred no obligation or
liability, contingent or otherwise, in connection with this Agreement that would
result in the obligation of the Investors to pay any finder’s fees, brokerage or
agent’s commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby.
3.19 Listing and Maintenance Requirements. The Company has not since
February 17, 2006 received notice (written or oral) from Nasdaq to the effect
that the Company is not in compliance with the listing or maintenance
requirements of Nasdaq. The Company is, and has since such date been, in
compliance in all material respects with all such listing and maintenance
requirements. The Company has not applied for and been denied the right to list
any of its securities on any stock exchange or automated quotation system.
3.20 Registration Rights. Except as set forth in the SEC Reports and pursuant to
the Registration Rights Agreement, the Company has not granted or agreed to
grant, and is not under any obligation to provide, any rights (including
“piggy-back” registration rights) to register under the Securities Act any of
its presently outstanding securities or any of its securities that may be issued
subsequently.
3.21 No Restriction on the Ability to Pay Cash Dividends. Except as disclosed in
Schedule 3.21 of the Company Disclosure Schedules, neither the Company nor the
Operating Company is a party to any Contract, and is not subject to any
provisions in its Charter or By-Laws or other governing documents or resolutions
of the Board of Directors or other governing body, that restricts, limits,
prohibits or prevents the payment of cash dividends with respect to any of its
equity securities.
3.22 Joint Ventures. Except as set forth in Schedule 3.22 of the Company
Disclosure Schedules:
(a) Neither the Company nor any subsidiary of the Company (i) has any funding or
capital contribution obligations with respect to any Joint Venture (excluding
any obligations to indemnify a Joint Venture or another party to a Joint Venture
for a breach of the operating agreement (or equivalent governing document) of
such Joint Venture), or (ii) is actually or contingently liable in respect of
any Indebtedness or any other obligations of any Joint Venture.

 

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(b) Neither the Company nor any subsidiary of the Company has scheduled funding
obligations or capital contribution obligations in excess of $5,000,000 with
respect to any Joint Venture.
(c) Schedule 3.22 of the Company Disclosure Schedules includes a complete and
accurate list of all Guarantees and other guarantees, e.g., equity maintenance
agreements, performance guarantees and completion guarantees, provided by the
Company or any subsidiary of the Company in respect of any Indebtedness or other
obligations of any Joint Venture (the “JV Guarantees”). True and correct copies
of all JV Guarantees have been provided to the Investors, and no JV Guarantee
has been modified, supplemented or altered in any respect from the form provided
to the Investors.
(d) The execution, delivery and performance by the Company of this Agreement and
the Ancillary Agreements do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not: (1) result in a “change of control” (or similar event) under,
or conflict with, or result in any default under, or give rise to an increase
in, or right of termination, cancellation, acceleration or mandatory prepayment
of, any obligation or to the loss of a benefit under, or result in the
suspension, revocation, impairment, forfeiture or amendment of any term or
provision of or the creation of any Encumbrance upon any of the properties or
assets of the Company, any of its subsidiaries or any Joint Venture under, or
require any consent or waiver under, any JV Guarantee or other Contract of the
Company or any of its subsidiaries relating to a Joint Venture, except to the
extent that it does not cause an acceleration of the obligations under such JV
Guarantee or other Contract or result in the Company or any of its subsidiaries
becoming liable thereunder; (2) alter in any respect any funding or other
payment obligations of the Company or any of its subsidiaries with respect to
any of the Joint Ventures, or (3) result in any beneficiary of any JV Guarantee
or any holder or obligee of any Indebtedness or other obligations of any Joint
Venture having any recourse or other right of action with respect thereto
against the Company or any of its subsidiaries or any of their respective
assets.
ARTICLE 4
Representations and Warranties of the Investors
Each Investor, severally but not jointly, hereby represents and warrants to the
Company, as of the date of this Agreement, as follows:
4.1 Entity Status. Such Investor is duly incorporated or otherwise organized,
validly existing and in good standing under the Applicable Laws of its governing
jurisdiction and has all requisite corporate or other power and authority to
carry on its business as it is now being conducted, and no proceeding has been
instituted in any such jurisdiction revoking, limiting or curtailing, or seeking
to revoke, limit or curtail, such power, authority or qualification.
4.2 Authorization; Noncontravention.
(a) Authorization. Such Investor has all necessary entity power and authority to
execute and deliver this Agreement and the Ancillary Agreements

 

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to which it is a party, to perform its obligations hereunder and thereunder and
to consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Ancillary Agreements to which
it is a party and the consummation by such Investor of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary entity action, and no other entity proceedings on the part of such
Investor or vote of holders of any class or series of capital stock or equity
interests of such Investor is necessary to authorize this Agreement and the
Ancillary Agreements to which such Investor is a party or to consummate the
transactions contemplated hereby or thereby. This Agreement and the Ancillary
Agreements to which such Investor is a party have been duly executed and
delivered by such Investor and (assuming due authorization, execution and
delivery by the Company) each constitutes a valid and binding obligation of such
Investor, enforceable against such Investor in accordance with its respective
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
creditors’ rights generally or by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
(b) No Conflict. Such Investor is not in violation or default of any provision
of its organizational documents. The execution, delivery and performance by such
Investor of this Agreement and the Ancillary Agreements to which it is a party
do not, and the consummation of the transactions contemplated hereby and thereby
and compliance with the provisions of this Agreement and the Ancillary
Agreements to which it is a party will not, conflict with, or result in any
default under, any provision of (i) the organizational documents of such
Investor, (ii) any material Contract to which such Investors is a party or by
which any of such Investor’s assets are bound, or (iii) any Applicable Law,
Governmental Authorization or Judgment, in each case applicable to such
Investor, other than, in the case of clauses (ii) and (iii), any such conflicts
or defaults that would not reasonably be expected to materially impair or delay
the ability of such Investor to perform its obligations under this Agreement or
the Ancillary Agreements to which it is a party or carry out the transactions
contemplated hereby or thereby in accordance with the terms hereof or thereof.
No Governmental Authorization, order or authorization of, or registration,
qualification, declaration or filing with, or notice to, any Governmental Entity
is required to be obtained or made by or with respect to such Investor in
connection with the execution, delivery and performance of this Agreement or any
of the Ancillary Agreements to which such Investor is a party or the other
transactions contemplated by this Agreement or the Ancillary Agreements, except
for such Governmental Authorizations, orders, authorizations, registrations,
declarations, filings and notices, the failure of which to be obtained or made
would not materially impair such Investor’s ability to perform its obligations
under this Agreement or the Ancillary Agreements or consummate the transactions
contemplated hereby or thereby.
4.3 Securities Act; Purchase for Investment Purposes. Such Investor (i) is
acquiring the Investor Securities solely for investment with no present
intention to distribute them in violation of the Securities Act and the rules
and regulations thereunder or any applicable U.S. state securities laws,
(ii) has such knowledge and experience in financial and business matters and in
investments of this type that it is capable of evaluating the merits and risks
of making an informed investment decision to purchase the Investor Securities,
and (iii) is an “institutional accredited investor” (as that term is

 

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defined by Rule 501 promulgated under the Securities Act). Such Investor
understands that the purchase of the Investor Securities involves substantial
risk. Such Investor did not learn of the opportunity to purchase the Investor
Securities by means of any form of general or public solicitation or general
advertising, or publicly disseminated advertisements or sales literature,
including (i) any advertisement, article, notice or other communication
published in any newspaper, magazine, or similar media, or broadcast over
television or radio, or (ii) any seminar or meeting to which the Investor was
invited by any of the foregoing means of communications. Such Investor
understands that the Investor Securities will be characterized as “restricted
securities” under the United States federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public offering
and that under such laws and applicable regulations such securities may be
resold without registration under the Securities Act only in certain limited
circumstances. Such Investor understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the shares or the fairness or suitability of
the Investor Securities. Such Investor understands that until such time as the
resale thereof has been registered under the Securities Act, certificates
evidencing the Investor Securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. NEITHER THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR ANY
INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED OF IN ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER
THE SECURITIES ACT.
4.4 Brokers. Such Investor has incurred no obligation or liability, contingent
or otherwise, in connection with this Agreement that would result in the
obligation of the Company or any of its Affiliates to pay any finder’s fees,
brokerage or agent’s commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
4.5 Available Funds. Such Investor has sufficient funds in its possession to
permit it to pay its portion of the Investment Amount.
ARTICLE 5
Covenants
5.1 Further Assurances. The Company, on the one hand, and the Investors, on the
other hand, shall use their commercially reasonable efforts to do and perform,
or cause to be done and performed, all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments or
documents as the other may reasonably request in order to carry out the intent
and purposes of this Agreement and the consummation of the transactions
contemplated hereby.

 

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5.2 Fees and Expenses; Commitment Fee.
(a) Upon an Investor’s request from time to time (including on the date hereof
as contemplated by Section 2.2.1(d)), the Company shall promptly pay or
reimburse, or cause to be paid or reimbursed, all reasonable out-of-pocket costs
and expenses incurred by such Investor or on such Investor’s behalf in
connection with this Agreement and the Ancillary Agreements (including
reasonable fees and expenses of accountants and legal counsel of the Investors);
provided, that the aggregate amount paid or reimbursed by the Company in respect
of such costs and expenses incurred by the Investors or on the Investors’ behalf
shall in no event exceed $600,000 in the aggregate for the Investors.
(b) In connection with the purchase of the Investor Securities hereunder, on the
date hereof, the Company shall pay to Yucaipa American Funds, LLC, an Affiliate
of the Investors, a commitment fee of $2,437,500.
5.3 Stockholder Approvals. The Company shall use its commercially reasonable
efforts to present and recommend to the stockholders of the Company at a special
meeting of the stockholders of the Company (to be held in accordance with the
corporate laws of Delaware, the Charter and the By-Laws), duly noticed and
called for not later than January 15, 2010, a proposal to approve the terms of
the Warrants and the REF Warrants, the full exercise of the Warrants and the REF
Warrants and the issuance of the Underlying Shares and REF Underlying Shares as
Common Stock in connection therewith. If such approval is not obtained at a
meeting of stockholders of the Company on or prior to January 15, 2010, the
Company shall not thereafter have any obligation to continue to try to obtain
such approval.
5.4 Rights Plan. Except with the express prior written consent of YAAF II, on
behalf of the Investors (which consent may be withheld in YAAF II’s sole
discretion as to clause (a) below, but shall not be unreasonably withheld as to
clause (b) below), the Company shall not, and shall cause its subsidiaries not
to, enter into any modification, amendment, supplement or other alteration of
the Rights Plan, or adopt any successor “stockholder rights plan,” “poison
pill,” or other comparable plan or arrangement, that (a) would result in the
Investors, Yucaipa Manager or any of them or their respective Affiliates
becoming an “acquiring person” as defined in the Rights Plan or having a similar
effect under the Rights Plan as it may be amended or under any comparable plan
or arrangement that may be adopted in the future, or (b) would limit the
Investors’ or any of their respective Affiliates’ ability to acquire, hold or
dispose of any securities of the Company in a manner that is more restrictive or
limiting in any respect than would be the case under the Rights Plan, as
modified by the Rights Plan Amendment and otherwise as in effect on the date
hereof, it being understood that the following shall not in any event require
the consent of YAAF II on behalf of the Investors: (i) an extension of the
expiration date of the Rights Plan, as modified by the Rights Plan Amendment and
otherwise as in effect on the date hereof, and (ii) any modification, amendment,
supplement or other alteration of the Rights Plan (as modified by the Rights
Plan Amendment and otherwise as in effect on the date hereof) or any adoption of
any successor “stockholder rights plan,” “poison pill,” or any other comparable
plan or arrangement that provides that such modifications, changes or other
alterations to the Rights Plan (as modified by the Rights Plan Amendment and
otherwise as in effect on the

 

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date hereof) are not applicable to the Investors or any of their respective
Affiliates. Upon written request by a Yucaipa Holder (as such term is defined in
the Rights Plan) from time to time, the Company shall promptly furnish such
Yucaipa Holder with the number of issued and outstanding shares of Common Stock
as of a recent date for purposes of determining Beneficial Ownership (as such
term is defined in the Rights Plan) by such Yucaipa Holder.
5.5 Gaming and Liquor Licenses. The Company shall, and shall cause its officers
and employees to, cooperate in good faith (such cooperation to be provided at
the Company’s sole cost and expense) in connection with any efforts by the
Investors or their Affiliates to obtain any Governmental Authorization under
Gaming Laws or laws regulating the sale of alcoholic beverages, including by
providing copies of documents in the possession of the Company or its
Affiliates, attending meetings and proceedings, and consulting and cooperating
with the Investors and their Affiliates in connection with the preparation of
any written submissions to and/or proceedings before Gaming Authorities. The
Investors shall pay their own costs and expenses in connection with any such
Governmental Authorizations.
5.6 Certain Approval Rights.
(a) For so long as the Investors collectively own, or have the right to purchase
through exercise of the Warrants (whether or not any or all of such Warrants are
exercisable), an aggregate of at least 6,250,000 shares of Common Stock (subject
to adjustment in accordance with Section 7.14), the Company shall not, directly
or indirectly, take any of the following actions, including the entry into any
contract, agreement, arrangement or transaction (or series of related contracts,
agreements, arrangements or transactions) with respect to any of the following
actions, without the prior written approval of each Investor (which approval may
be withheld in the Investors’ sole discretion as to clauses (i), (iii) and
(iv) below but shall not be unreasonably withheld as to clause (ii) below):
(i) sell or transfer all or substantially all of the assets of the Company and
its subsidiaries, taken as a whole, to any Third Party;
(ii) any transaction involving the acquisition (including by merger,
consolidation, other business combination, or acquisition of all or
substantially all of the capital stock or assets of any Third Party) of any
Third Party by the Company or any of its subsidiaries where the equity
investment by the Company and its subsidiaries is $100,000,000 or greater;
(iii) any transaction involving the acquisition (including by merger,
consolidation, other business combination, or acquisition of all or
substantially all of the assets of the Company and its subsidiaries, taken as a
whole, other than an acquisition that is an acquisition of substantially all of
the assets of the Company and its subsidiaries, taken as a whole, as the result
of the disposition by the Company or its subsidiaries of real estate assets
where the Company and its subsidiaries, taken as a whole, will continue to
engage in the business of managing hotel properties and other real property
assets) of the Company by any Third Party; or

 

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(iv) any change in the size of the Board of Directors to a number below 7 or
above 9; provided, that if an Investor Nominee shall fail to be elected to the
Board of Directors and the Board of Directors shall increase the size thereof by
a single director (not to exceed 11 total directors) and shall fill the vacancy
created thereby with the Investor Nominee, then the Investors shall not have an
approval right pursuant to this Section 5.6(a)(iv) over such increase.
Notwithstanding the foregoing, the prior written approval of the Investors shall
not be required prior to the Company taking any action described in the
foregoing Sections 5.6(a)(i) or 5.6(a)(iii) (a “Designated Transaction”) if
(A) such Designated Transaction has been approved by the Board of Directors by a
vote of at least 75% of the directors of the Company (excluding any director who
has recused himself or herself from voting on such Designated Transaction) and
(B) the Investors or any of their Affiliates have (directly or indirectly,
individually or in concert with another person or as part of a “group” (as
defined in Section 13 of the Exchange Act)) taken an action described in
Section 5.13(a) within the six-month period prior to the applicable date of
determination (an “Investor Proposal”).
(b) Prior to the Board of Directors considering a Designated Transaction, the
Company shall give the Investors written notice thereof (including the intended
time for the Board of Directors’ consideration thereof) concurrently with notice
of the same to members of the Board of Directors and shall provide the Investors
with all written materials provided to the directors regarding the same (except
to the extent that providing such materials would reasonably likely adversely
affect the attorney-client privilege between the Company and its counsel or is
expressly prohibited by the investment bankers or other advisers providing such
materials) subject to customary confidentiality restrictions concurrently when
providing such materials to the members of the Board of Directors. In the event
that the Board of Directors approves any Designated Transaction as to which the
Investors or their Affiliates have made an Investor Proposal by a vote of less
than 75% of the directors of the Company (excluding any director who has been
recused from the consideration of such Designated Transaction), the Company
shall furnish written notice of such approval to the Investors (the “Designated
Transaction Notice”). Each Investor shall then notify the Company in writing
whether it approves or rejects the Designated Transaction that is the subject of
such Designated Transaction Notice as soon as reasonably practicable, and in no
event later than the earlier of (A) 24 hours after receipt of such Designated
Transaction Notice, and (B) the next opening of trading in the Company’s Common
Stock on the first Business Day following receipt of such Designated Transaction
Notice that is not less than 12 hours after receipt of such Designated
Transaction Notice.
5.7 Board Representation.
(a) The Company represents and warrants to the Investors that:
(i) Each of the directors of the Company identified in the secretary’s
certificate delivered do the Investors pursuant to Section 2.2.1(c)(i) (or in
the applicable annex thereto) has resigned from the Board of Directors effective
as of the date hereof (the “Resignations”), by means of delivering written
notice of his or her resignation to the Board of Directors in accordance with
Section 2.2 of the By-Laws. A

 

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true and correct copy of each Resignation notice has been provided to the
Investors as an annex to such secretary’s certificate. Each Resignation has been
accepted by the Board of Directors on behalf of the Company and is in full force
and effect.
(ii) The Appointment Resolutions in the form annexed to the secretary’s
certificate delivered to the Investors pursuant to Section 2.2.1(c)(i) are in
full force and effect as of the date hereof and have not been amended,
supplemented, revoked or superseded, and there are no other resolutions of the
Board of Directors concerning the subject matter thereof.
(b) (i) The parties acknowledge and agree that it is their intent that the
Investors shall have the right to appoint one person to the Board of Directors
(the “Investor Nominee”) for so long as the Investors collectively own, or have
the right to purchase through exercise of the Warrants (whether or not any or
all of such Warrants are exercisable and assuming a cash exercise of such
Warrants), an aggregate of at least 875,000 shares of Common Stock (subject to
adjustment in accordance with Section 7.14) (the “Common Stock Board
Condition”). The parties further acknowledge and agree that the initial Investor
Nominee was elected to the Board of Directors pursuant to the Appointment
Resolutions and that such person shall continue to be the Investor Nominee
unless and until such person is replaced pursuant to Section 5.7(b)(ii)(2).
(ii) At any time that the Common Stock Board Condition is satisfied:

  (1)   The Company shall use its reasonable best efforts to cause the Board of
Directors (or the appropriate committee thereof) to nominate and recommend to
the stockholders of the Company the election of the Investor Nominee at any
meeting of the stockholders of the Company (or in any resolution by written
consent in lieu thereof) at which the Investor Nominee is being considered for
election to the Board of Directors, and use its reasonable best efforts to
ensure that the Investor Nominee is elected to the Board of Directors at each
such meeting (or in each such resolution by written consent in lieu thereof);

  (2)   YAAF II, on behalf of the Investors, by delivery of written notice to
the Company at any time or from time to time, shall have the right, in its sole
and absolute discretion, to direct that an Investor Nominee then serving as a
director of the Company (or as an observer of the Board of Directors) be removed
from the Board of Directors (or as an observer thereof), and/or that any
Investor Nominee be replaced with a replacement Investor Nominee named in such
notice; provided, that, any such replacement Investor Nominee shall be
reasonably satisfactory in accordance with the applicable selection criteria for
directors of the Company from time to time set forth in the Company’s “Corporate
Governance Guidelines”. For the avoidance of doubt, the Investor Nominee need
not be “independent” of the Company for purposes of the Rules or any Company
policies or guidelines. In the event that

 

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      YAAF II, on behalf of the Investors, notifies the Company in writing that
it desires to remove and/or replace an Investor Nominee in accordance with this
Section 5.7(b)(ii)(2), then the Company shall use its reasonable best efforts to
cause the Board of Directors and stockholders of the Company, as applicable, to
comply with such request as promptly as practicable, and such replacement
Investor Nominee shall continue to be the “Investor Nominee” hereunder unless
and until such person is replaced by YAAF II, on behalf of the Investors,
pursuant to this Section 5.7(b)(ii)(2);

  (3)   In the event that an Investor Nominee is not elected to the Board of
Directors at any meeting of stockholders at which directors are elected, if the
Company notifies the Investors that there is an available seat on the Board of
Directors (due to increasing the size of the Board of Directors, filling a
vacancy or otherwise), YAAF II, on behalf of the Investors, by delivery of
written notice to the Company, shall promptly select a replacement Investor
Nominee. Such replacement Investor Nominee shall be reasonably satisfactory in
accordance with the applicable selection criteria for directors of the Company
from time to time set forth in the Company’s “Corporate Governance Guidelines”.
For the avoidance of doubt, the Investor Nominee need not be “independent” of
the Company for purposes of the Rules or any Company policies or guidelines. In
such event, the Company shall use its reasonable best efforts to cause the Board
of Directors to comply with such request as promptly as practicable, and such
replacement Investor Nominee shall continue to be the “Investor Nominee”
hereunder unless and until such person is replaced by YAAF II, on behalf of the
Investors, pursuant to this Section 5.7(b)(ii)(2); and

  (4)   Unless and until the Investor Nominee is elected to the Board of
Directors (and during any period of time that the Investor Nominee is not
serving as a director of the Board of Directors), the Company shall invite the
Investor Nominee, and the Investor Nominee shall have the right, to attend all
meetings of its Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such Investor Nominee copies of all notices, minutes,
consents and other material that it provides to its directors; provided that the
Company reserves the right to withhold any information and to exclude such
Investor Nominee from any meeting or portion thereof if a conflict of interest
exists, if the Board of Directors plans to discuss a matter involving the
Company or its subsidiaries, on the one hand, and an Affiliate of one of the
Investors, on the other hand, or if access to such information or attendance at
such meeting would reasonably likely adversely affect the attorney-client
privilege between the Company

 

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      and its counsel or result in the disclosure of trade secrets. The Investor
Nominee shall agree to customary confidentiality restrictions.

5.8 Publicity. The Company and the Investors shall communicate with each other
and cooperate with each other prior to any public disclosure of the purchase and
sale of the Investor Securities. The Company, on the one hand, and the
Investors, on the other hand, agree that no public release or announcement
concerning the purchase and sale of the Investor Securities shall be issued by
or as a result of the actions of any of them without the prior consent of the
other, which consent shall not be unreasonably withheld or delayed, except as
such release or announcement may be required by Applicable Law or the rules and
regulations of Nasdaq, in which case the party required to make the release or
announcement shall use its reasonable best efforts to consult with the other
parties hereto about, and allow the other parties hereto to reasonably comment
on, such release or announcement in advance of such issuance.
5.9 Hedging. On and after April 15, 2011, the Investors shall be permitted to
enter into any short sale, swap, hedge, forward contract, credit default swap,
or any other agreement, transaction or series of transactions that hedges or
transfers, in whole or in part, directly or indirectly, any of the economic
consequences of ownership of any Investor Securities, whether any such
transaction, swap or series of transactions is to be settled by delivery of
securities, in cash or otherwise (each, a “Hedging Transaction”), and prior to
such date, the Investors and their Affiliates shall not enter into any Hedging
Transaction or any other transaction which reasonably could be expected to lead
to or result in a sale or disposition of any Investor Securities or Common Stock
even if such shares would be disposed of by someone other than an Investor or
its Affiliate. The Company acknowledges that from and after April 15, 2011,
subject to compliance with applicable securities laws and the Company’s insider
trading policies as in effect from time to time (it being agreed by the Company
that it will not revise its insider trading policies to prevent or limit in a
material respect Hedging Transactions beyond any limitations in place on the
date hereof), there shall be no restriction under this Agreement on the
Investors’ ability to enter into any Hedging Transaction or otherwise hedge any
securities of the Company or take any of the other actions described in the
previous sentence.
5.10 Investor Right of First Refusal.
(a) Until the first anniversary of the date hereof, each Investor shall have the
right to purchase its Pro Rata Amount of any New Securities that the Company
may, from time to time, propose to sell and issue. In the event that the Company
proposes to issue any New Securities prior to such first anniversary of the date
hereof, it shall give the Investors written notice at least 10 Business Days
before such issuance, describing in reasonable detail the type of New
Securities, the price and number of shares (or principal amount) to be issued,
and the general terms upon which the Company proposes to issue such New
Securities. Each such notice shall constitute an irrevocable offer by the
Company to each Investor to purchase up to the amount of New Securities equal to
its Pro Rata Amount of

 

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such New Securities (subject to increase as set forth in the immediately
following sentence) upon the terms reflected in such notice. Each Investor shall
have 10 Business Days from the date of receipt of such notice to agree to
purchase up to the amount of New Securities equal to its Pro Rata Amount of such
New Securities (and any New Securities offered to another Investor if such other
Investor does not elect to purchase its full Pro Rata Amount of New Securities)
by giving written notice to the Company of its intention to purchase such New
Securities at the closing of the sale of New Securities and the number of such
New Securities that it intends to purchase; provided, that, with respect to an
underwritten public offering by the Company of its New Securities in which
(i) the Company has provided each Investor written notice thereof pursuant to
this Section 5.10(a), (ii) the Company has concurrently provided to the
Investors all material information relating to such offering that has been
provided to potential investors in the New Securities, and (iii) the Company has
kept the Investors apprised of the estimated timing and pricing for such
offering in a commercially reasonable manner during such offering process
(including at least 48 hours notice of the proposed time of pricing and the
estimated pricing range or pricing formula), the Investors shall be permitted to
accept such offer until the latest time that other investors are permitted to
commit to participate in such offering, after which such offer shall lapse. An
Investor electing to exercise its right to purchase New Securities pursuant to
this Section 5.10 may make any such election contingent upon obtaining any
Governmental Authorizations required in connection with such purchase, including
any such Governmental Authorizations pursuant to Gaming Laws or pursuant to the
HSR Act.
(b) If and to the extent that any Investor fails to exercise in full its right
to purchase New Securities within the periods required for such exercise, then
the Company shall have 60 days thereafter to sell the New Securities with
respect to which the Investors did not exercise their rights to purchase upon
terms no less favorable to the Company (taken as a whole) than the terms
reflected in the notice by which such New Securities were offered to the
Investors. The Company shall not issue or sell any additional amounts of New
Securities after the expiration of such 60-day period without first offering
such securities to the Investors in the manner provided in this Section 5.10.
5.11 VCOC. The Company shall, on the date hereof, enter into a management rights
letter with each of the Investors (and, at the request of an Investor, an
Affiliate of such Investor) in the forms of Exhibit I attached hereto and, at
each Investor’s request from time to time thereafter, enter into such amended or
replacement customary management rights letter in such form and substance as
each Investor reasonably determines is required in order for such Investor to
maintain its status, or the status of any of its Affiliates, as a “venture
capital operating company” for purposes of ERISA.
5.12 Certain Tax Matters.
(a) The Company and the Investors acknowledge and agree that the Investor
Securities are being issued solely in consideration of the Investment Amount and
neither the Company nor the Investors shall take any position for financial
accounting, Tax or other purposes inconsistent with such agreement. Without
limiting the foregoing, the Company shall not record an expense or apply any
withholding (other than any withholding that may be required by law pursuant to
Section 1441, 1442 or 1445 of the Code) in connection with the issuance or any
exercise or redemption of, any adjustment to, or any payments made in respect of
any of the Investor Securities.

 

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(b) The Company and the Investors acknowledge and agree that, if it is
determined that the Preferred Securities are properly treated as more likely
than not to be redeemed within the meaning of Treasury Regulations
Section 1.305-5(b)(3), the Company shall not take the position that the time
that redemption is most likely to occur is any earlier than the seventh
anniversary of the Original Issue Date (as such term is defined in the
Certificate of Designations).
(c) Upon the request of the Investors from time to time, but no more often than
once per calendar year, the Company shall provide the Investors with such
factual information and material that the Investors reasonably require to
determine whether the Company is a United States real property holding company
within the meaning of Section 897 of the Code, provided, however, that if the
preparation of such information and material involves material third-party
expenses, then the Company shall only be required to provide such information to
Investors that agree to bear such third-party expenses.
5.13 Standstill Agreement.
(a) Each Investor agrees that, without the prior approval of the Company, such
Investor will not, directly or indirectly, through its Affiliates or associates
or any other persons, or in concert with any person, or as a participant in a
“group” (such term being used in this Section 5.13 as defined in Section 13 of
the Exchange Act):
(i) purchase, offer to purchase, hold or agree to purchase or otherwise acquire
“beneficial ownership” (such term being used in this Section 5.13 as defined in
the Rights Plan as in effect as of the date hereof) of any Common Stock, or
securities convertible into or exchangeable for Common Stock, that would result
in the Investors and their subsidiaries and Affiliates having beneficial
ownership of more than 39.9% of the outstanding shares of voting stock or Common
Stock of the Company (treating warrants and exchangeable or convertible
securities of the Company that are beneficially owned by a person or its
Affiliates as fully converted into Common Stock), provided, that to the extent
that the Investors and their subsidiaries and Affiliates hold beneficial
ownership of more than 39.9% of the outstanding shares of voting stock or Common
Stock of the Company (treating warrants and exchangeable or convertible
securities of the Company that are beneficially owned by a person or its
Affiliates as fully converted into Common Stock) as a result of repurchases of
shares of Common Stock by the Company, the Investors and their subsidiaries and
Affiliates shall not be required to dispose of shares of voting stock or Common
Stock in order to hold beneficial ownership of 39.9% or less of the outstanding
shares of voting stock or Common Stock of the Company (treating warrants and
exchangeable or convertible securities of the Company that are beneficially
owned by a person or its Affiliates as fully converted into Common Stock) unless
and to the extent that such holding in excess of 39.9% would result in a default
or loan repayment obligation by the Company or an Affiliate of the Company of
any Material Indebtedness of the Company or its subsidiaries or would trigger a
change of control provision under a material Contract of the Company or any of
its subsidiaries;
(ii) make, or in any way participate in, any solicitation of proxies to vote any
voting securities of Company or any of its subsidiaries, or seek to

 

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control or direct the management of the Company or the Board of Directors by way
of any public communication, or communication with any person other than the
Company or its authorized representatives;
(iii) make any public announcement with respect to, or submit a proposal for, or
offer of (with or without conditions) any acquisition of, or extraordinary
transaction involving, the Company or any of Company’s subsidiaries or any of
their respective securities or assets; or
(iv) enter into any negotiations, arrangements or understandings with, or form,
join or participate in a group with, any other person in such other person’s
taking, planning to take, or seeking to take any of the actions described in
clauses (i) through (iii) of this Section 5.13(a) or otherwise act, alone or in
concert with others, to seek to control or direct the management of the Company
or the Board of Directors.
(b) Notwithstanding anything to the contrary contained herein, (1) this
Section 5.13 shall not prohibit or otherwise limit any actions by any member of
the Board of Directors (including any Affiliate of an Investor or any person
appointed or otherwise designated to the Board of Directors by any of the
Investors) in connection with the exercise of his or her duties as a member of
the Board of Directors; and (2) subject to clause (c) immediately below, if
(A) any person or “group” (excluding the Investors and their Affiliates) files a
Form 13D disclosing the acquisition of 15% or more of the Common Stock and such
event has not been endorsed or supported by the Board of Directors within 10
Business Days of the occurrence of such event, (B) any person or “group”
(excluding the Investors and their Affiliates) commences one or more
solicitations of proxies seeking to remove and/or appoint members of the Board
of Directors which if successful would result in such person or “group” (without
duplication) having removed, having appointed or being affiliated or associated
with an aggregate of three or more such members who are or would serve
concurrently, or (C) any person or “group” (excluding the Investors and their
Affiliates) provides written notice to the Board of Directors of, or publicly
announces, a bona fide intention to engage in any of the actions described in
the foregoing clauses (A) and (B), then the Investors shall be permitted at
their sole option to make a confidential proposal to the disinterested members
of the Board of Directors with respect to a transaction described in Section
5.13(a) above; provided, however, that with respect to foregoing clause (B) and
(C), if the applicable proxy solicitation(s) seek the removal of less than a
majority of the Board of Directors in the aggregate, then the Investors shall
only be permitted to make a confidential proposal to the disinterested members
of the Board of Directors with respect to a transaction described in
Section 5.13(a)(ii) above only.
(c) If (A) the Company has sought the consent of the Investors pursuant to
Section 5.6 with respect to a Designated Transaction, (B) such Designated
Transaction was approved by the Board of Directors, and (C) the Investors have
exercised their right to veto such Designated Transaction pursuant to
Section 5.6(a), then no Investor shall be permitted to make a confidential
proposal to the disinterested members of the Board of Directors as permitted
pursuant to Section 5.13(b)(2) above prior to the date that is six months
following the date on which such veto was made.

 

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to control or direct the management of the Company or the Board of Directors by
way of any public communication, or communication with any person other than the
Company or its authorized representatives;
(d) Each Investor’s obligations under this Section 5.13 shall terminate and be
of no further force and effect on the first date that the Investors and their
Affiliates have beneficial ownership (as defined in the Rights Plan as in effect
on the date hereof) of less than 15% of the outstanding Common Stock (treating
warrants and exchangeable or convertible securities of the Company that are
beneficially owned by a person or its Affiliates as fully converted into Common
Stock in accordance with their respective terms).
5.14 Company Right of First Refusal. From and after the sixth anniversary of the
date hereof:
(a) Subject to the further terms and conditions of this Section 5.14, if an
Investor proposes to sell greater than 1,000,000 shares of Common Stock in a
single transaction or series of related transactions, such Investor shall give
the Company prior written notice thereof (the “ROFR Notice”), including in
reasonable detail the price and number of shares of Common Stock to be sold, and
the general terms upon which such Investor proposes to sell such shares. Each
such ROFR Notice shall constitute an irrevocable offer by such Investor to the
Company to purchase all (but not less than all) of the shares of Common Stock
included in such notice upon the terms and conditions reflected in such notice.
If a ROFR Notice is delivered to the Company after 1:00 p.m., New York City
time, on any Business Day, it shall be deemed received on the next succeeding
Business Day.
(b) The Company shall have two Business Days from the date of receipt of a ROFR
Notice to agree to purchase all (but not less than all) of the shares of Common
Stock described therein by delivering written notice (the “Company Notice”) to
such Investor of its election to purchase all of such shares of Common Stock
prior to 5:00 p.m. (New York City time) on the second Business Day following the
delivery of the applicable ROFR Notice. The Company shall effect the purchase of
any such shares of Common Stock, including payment of the purchase price, not
more than three Business Days after delivery of the Company Notice.
(c) If and to the extent that the Company fails to exercise its right to
purchase all of the shares of Common Stock described in any ROFR Notice pursuant
to the foregoing clause (a) within the period required for such election, then
the Investor shall have 60 days thereafter to sell such shares of Common Stock
on terms no less favorable to the Investor (taken as a whole) than the terms set
forth in the ROFR Notice.
(d) The rights of the Company, and the obligations of the Investors, under this
Section 5.14 shall terminate and be of no further force and effect from and
after the first date that the Investors beneficially own (as such term is
defined in the Rights Plan as in effect on the date hereof) less than 10% of
outstanding shares of Common Stock (treating warrants and exchangeable or
convertible securities of the Company that are beneficially owned by a person or
its Affiliates as fully converted into Common Stock).

 

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ARTICLE 6
Indemnification
6.1 Indemnification. All representations and warranties contained in this
Agreement shall survive the Closing Date for a period of twenty months except
that (i) with respect to claims asserted pursuant to this ARTICLE 6, such claims
shall survive until the date that they are finally liquidated or otherwise
resolved, (ii) the representations and warranties set forth in Section 3.8 shall
survive for the duration of the applicable statute of limitations, and (iii) the
representations and warranties set forth in Sections 3.2, 3.3, 3.18, 4.2 and 4.4
(the “Surviving Representations”) shall survive indefinitely.
(a) Subject to the limitations set forth in this Section 6.1, the Company hereby
agrees to indemnify, pay and hold each Investor, and each of the respective
officers, directors, employees and affiliates of each Investor, and each of the
respective direct and indirect beneficial owners of each Investor (the “Investor
Indemnified Parties”) harmless to the fullest extent permitted by Applicable
Law, from and against any and all Losses which may be imposed on, incurred by or
asserted against such Investor Indemnified Party, in any manner relating to or
arising out of (i) the breach by the Company of any representation or warranty
set forth in this Agreement, or (ii) the breach, non-compliance or
non-performance of any covenant, agreement or obligation of the Company
contained in this Agreement (other than a breach, non-compliance or
non-performance of or with Section 5.7(b)(ii)(4) due to a final judicial
determination by a court of competent jurisdiction arising from an Action
initiated by a Third Party that such Section is not enforceable); provided,
however, that any claim by any Investor Indemnified Party under clause (i) above
shall be made prior to the date on which the applicable representation and
warranty expires pursuant to this Section 6.1 and that any claim by any Investor
Indemnified Party under clause (ii) above shall be made within six months of the
time performance of such covenant or agreement is contemplated.
(b) Subject to the limitations set forth in this Section 6.1, each Investor
severally but not jointly hereby agrees to indemnify, pay and hold the Company
and its officers, directors, employees and affiliates (the “Company Indemnified
Parties”) harmless to the fullest extent permitted by Applicable Law, from and
against any and all Losses which may be imposed on, incurred by, or asserted
against such Company Indemnified Party, in any manner relating to or arising out
of (i) the breach by such Investor of any representation or warranty set forth
in this Agreement, or (ii) the breach, non-compliance or non-performance of any
covenant, agreement or obligation of such Investor contained in this Agreement;
provided, however, that any claim by any Company Indemnified Party under clause
(i) above shall be made prior to the date on which the applicable representation
and warranty expires pursuant to this Section 6.1 and that any claim by any
Company Indemnified Party under clause (ii) above shall be made within six
months of the time performance of such covenant or agreement is contemplated.
(c) With respect to any claim by an Investor Indemnified Party for
indemnification pursuant to Section 6.1(a)(i),(A) an Investor Indemnified Party
shall only be entitled to indemnification to the extent that, and shall not be
entitled to any indemnification until, the aggregate of all amounts subject to
indemnification exceeds

 

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$2,000,000 (and then only for the amount by which such Losses exceed that
amount), and (B) as to any particular indemnity claim or series of indemnity
claims arising out of the same or related facts, events or circumstances, an
Investor Indemnified Party shall be entitled to seek indemnity for such claim or
claims only if such indemnity claim or series of related indemnity claims equals
or exceeds $150,000, in which case the Investor Indemnified Party shall be
entitled to seek indemnity for the full amount of such claim or claims.
Notwithstanding the foregoing: (x) the maximum liability of the Company for
indemnification claims pursuant to Section 6.1(a)(i) except in the case of a
breach of a Surviving Representation shall not exceed $25,000,000, and (y) the
maximum liability of the Company for all indemnification claims pursuant to
Section 6.1(a)(i) (including claims based on breaches of the Surviving
Representations) shall not exceed the Investment Amount. For purposes of
determining Losses under this ARTICLE 6, if it is determined that a breach of a
representation and warranty has occurred (giving effect to any stated
limitations for Material Adverse Effect and materiality), then the Investor
Indemnified Parties shall, subject to the immediately preceding sentence, be
entitled to indemnification for the full amount of the Losses arising from such
breach without regard to whether and to what extent such Losses would be
considered or qualified by “material” or would constitute or be qualified by
“Material Adverse Effect” (and shall not increase the scope of the matters for
which a representation and warranty is made, including any representations and
warranties as to “material subsidiaries,” “material leases,” “Material
Indebtedness” and “Material Contract”).
(d) A party hereto seeking indemnification under this ARTICLE 6 (the
“Indemnified Party”) with respect to any action, lawsuit, proceeding,
investigation or other claim brought against it by a Third Party (a “Third-Party
Claim”) shall give prompt written notice to the party from whom indemnification
is sought (the “Indemnitor”) of such Third-Party Claim that might give rise to
indemnified liabilities setting forth a description of those elements of such
Third-Party Claim of which such Indemnified Party has knowledge; provided that
any delay or failure to give such notice shall not affect the obligations of the
Indemnitor unless (and then solely to the extent) such Indemnitor is actually
prejudiced by such delay or failure. The Indemnitor shall have the right at any
time during which such Third-Party Claim is pending to select counsel (which
counsel shall be reasonably satisfactory to the Indemnified Party) to defend and
control the defense thereof and settle any Third-Party Claim for which they are
responsible for indemnification hereunder (provided that the Indemnitor will not
settle any such Third-Party Claim without (i) the appropriate Indemnified
Party’s prior written consent, which consent shall not be unreasonably withheld
or delayed, or (ii) obtaining an unconditional release of the appropriate
Indemnified Party from all claims arising out of or in any way relating to the
circumstances involving such Third-Party Claim) so long as in any such event the
Indemnitor shall have stated in a writing delivered to the Indemnified Party
that, as between the Indemnitor and the Indemnified Party, the Indemnitor is
responsible to the Indemnified Party with respect to such Third-Party Claim to
the extent and subject to the limitations set forth herein; provided, that if
the Indemnitor has reasonably concluded, based on the written advice of counsel,
that there exists or is reasonably likely to exist a conflict of interest that
would make it inappropriate for the same counsel to represent both the
Indemnified Party and the Indemnitor, then the Indemnified Party shall be
entitled to retain one separate firm of counsel reasonably acceptable to the
Indemnitor, in which case the reasonable fees,

 

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disbursements and charges of such counsel will be at the expense of the
Indemnitor. The Indemnified Party shall extend reasonable cooperation in
connection with any such defense. All reasonable fees and expenses of the
Indemnified Party (including reasonable fees and expenses to the extent incurred
in connection with investigating or preparing to defend a matter not
inconsistent with this ARTICLE 6) shall be paid to the Indemnified Party, as
incurred, upon written notice thereof to the Indemnitor (regardless of whether
it is ultimately determined that the Indemnified Party is not entitled to
indemnification hereunder; provided that the Indemnitor may require the
Indemnified Party to undertake to reimburse all such fees and expenses to the
extent it is finally determined by a court of competent jurisdiction that the
Indemnified Party is not entitled to indemnification hereunder). To the extent
that the undertaking to indemnify, pay and hold harmless set forth herein may be
unenforceable because it is violative of any Law or public policy, the
Indemnitor shall contribute the maximum portion which it is permitted to pay and
satisfy under Applicable Law to the payment and satisfaction of all Indemnified
Liabilities incurred by the Indemnified Parties or any of them.
ARTICLE 7
General Provisions
7.1 Amendments and Waivers. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Except as
otherwise provided in this Agreement, any failure of any party to comply with
any obligation, covenant, agreement or condition herein may be waived by the
party entitled to the benefits thereof only by a written instrument signed by
the party granting such waiver, but such waiver shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
7.2 Assignment. This Agreement and the rights and obligations hereunder shall
not be assignable or transferable by any party without the prior written consent
of the other parties hereto. Any attempted assignment in violation of this
Section 7.2 shall be void.
7.3 No Third-Party Beneficiaries. This Agreement is for the sole benefit of the
parties hereto and their permitted assigns and nothing herein expressed or
implied shall give or be construed to give to any person, other than the parties
hereto and such permitted assigns, any legal or equitable rights hereunder,
except that (a) each Indemnified Party is an intended beneficiary of Section 6.1
and may enforce the provisions of such Section directly against the parties with
obligations thereunder, (b) Yucaipa Manager is an intended beneficiary of all
representations, warranties and covenants contained herein to the extent that
they pertain to the Real Estate Fund Formation Agreement or the REF Warrants and
or the REF Underlying Shares and may enforce such provisions and seek
indemnification for any breaches thereof pursuant to the corresponding
provisions of ARTICLE 6 against the Company directly, and (c) Yucaipa American
Funds, LLC is an intended beneficiary of Sections 2.2.1(e) and 5.2(b) and may
enforce such provisions and seek indemnification for any breaches thereof
pursuant to the corresponding provisions of ARTICLE 6 against the Company
directly.

 

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7.4 Notices. All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent by a
nationally recognized overnight courier service (with tracking capability), and
shall be deemed given when received, as follows:
if to an Investor, to such Investor:
c/o Yucaipa American Alliance Fund II, LLC
9130 W. Sunset Boulevard
Los Angeles, California 90069
Attention: Robert P. Bermingham
with a copy (which shall not constitute notice) to:
Munger, Tolles & Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, California 90071
Attention: Judith T. Kitano
Fax: (213) 683-4052
Email: judith.kitano@mto.com
if to the Company, to:
475 Tenth Avenue
New York, New York 10018
Attention: David Smail
with a copy (which shall not constitute notice) to:
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Attention: Robert W. Downes
Fax: (212) 558-3588
Email: downesr@sullcrom.com
With respect to any notice or other deliveries required under the Certificates
of Designations or the Warrants to holders of the Preferred Securities or
Warrants, each such notice or other delivery will, with respect to an Investor
or any of its Affiliates, be validly given thereunder only if such notice or
other delivery is delivered by hand or sent by a nationally recognized overnight
courier service (with tracking capability) to the Investors in accordance with
this Section 7.4.
7.5 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each of the
parties hereto and delivered to the other parties hereto.

 

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7.6 Entire Agreement. This Agreement and the Ancillary Agreements, along with
the Schedules and the Exhibits hereto and thereto, contain the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof and thereof and supersede all prior agreements and understandings
relating to such subject matter. None of the parties shall be liable or bound to
any other party in any manner by any representations, warranties or covenants
relating to such subject matter except as specifically set forth herein or in
the Ancillary Agreements.
7.7 Interpretation; Exhibits and Schedules. The headings contained in this
Agreement, in any Exhibit or Schedule hereto and in the table of contents to
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. All Exhibits and Schedules
annexed hereto or referred to herein are hereby incorporated in and made a part
of this Agreement as if set forth in full herein. Any capitalized terms used in
any Schedule or Exhibit but not otherwise defined therein shall have the meaning
assigned to such term in this Agreement. When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
7.8 Severability. If any provision of this Agreement (or any portion thereof) or
the application of any such provision (or any portion thereof) to any person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other persons or circumstances.
7.9 Consent to Jurisdiction. All actions and proceedings arising out of or
relating to this Agreement and the Ancillary Agreements shall be heard and
determined exclusively in any New York state or federal court sitting in the
Borough of Manhattan of The City of New York. The parties hereto hereby
(a) submit to the exclusive jurisdiction of any state or federal court sitting
in the Borough of Manhattan of The City of New York for the purpose of any
Action arising out of or relating to this Agreement or the Ancillary Agreements
brought by any party hereto, and (b) irrevocably waive, and agree not to assert
by way of motion, defense, or otherwise, in any such Action, any claim that it
is not subject personally to the jurisdiction of the above-named courts, that
its property is exempt or immune from attachment or execution, that the action
or proceeding is brought in an inconvenient forum, that the venue of the Action
is improper, or that this Agreement or the Ancillary Agreements or the
transactions contemplated by this Agreement or the Ancillary Agreements may not
be enforced in or by any of the above-named courts.
7.10 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
7.11 Waiver of Jury Trial. Each party hereby waives, to the fullest extent
permitted by Applicable Law, any right it may have to a trial by jury in respect
to any litigation directly or indirectly arising out of, under or in connection
with this Agreement, any Ancillary Agreement or any transaction contemplated
hereby or thereby. Each party (a) certifies that no representative, agent or
attorney of any other party has represented,

 

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expressly or otherwise, that such other party would not, in the event of
litigation, seek to enforce the foregoing waiver and (b) acknowledges that it
and the other parties hereto have been induced to enter into this Agreement and
the Ancillary Agreements, as applicable, by, among other things, the mutual
waivers and certifications in this Section 7.11.
7.12 No Personal Liability of Partners, Directors, Officers, Owners, Etc. No
director, officer, employee, incorporator, stockholder, managing member, member,
general partner, limited partner, principal or other agent of any of the
Investors shall have any liability for any obligations of the Investors under
this Agreement or for any claim based on, in respect of, or by reason of, the
obligations of the Investors hereunder. The Company waives and releases all such
liability. This waiver and release is a material inducement to the Investors’
entry into this Agreement. No director, officer, employee, incorporator,
stockholder, managing member, member, general partner, limited partner,
principal or other agent of the Company shall have any liability for any
obligations of the Company under this Agreement or for any claim based on, in
respect of, or by reason of, the obligations of the Company hereunder. The
Investors jointly and severally waive and release all such liability. This
waiver and release is a material inducement to the Company’s entry into this
Agreement.
7.13 Rights of Holders. Each party to this Agreement shall have the absolute
right to exercise or refrain from exercising any right or rights that such party
may have by reason of this Agreement, including the right to consent to the
waiver or modification of any obligation under this Agreement, and such party
shall not incur any liability to any other party or other holder of any
securities of the Company as a result of exercising or refraining from
exercising any such right or rights.
7.14 Adjustment in Share Numbers and Prices. In the event of any (i) stock
split, (ii) subdivision, (iii) dividend or distribution payable in shares of
Common Stock (or other securities or rights convertible into or entitling the
holder thereof to receive directly or indirectly shares of Common Stock),
(iv) combination or (v) other similar recapitalization or event, in each case,
occurring after the date hereof, each reference in this Agreement and the
Ancillary Agreements to a number of shares or a price per share shall be amended
to appropriately account for such event.
7.15 Construction. The parties acknowledge that each party and its counsel have
participated in the negotiation and preparation of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring construction against the party causing the Agreement to be drafted.
Every covenant, term and provision of this Agreement shall be construed simply
according to its fair meaning and not strictly for or against any party hereto.
[Signature page follows.]

 

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In Witness Whereof, the Company and the Investors have executed this Agreement
as of the date first above written.

              COMPANY:  
 
            MORGANS HOTEL GROUP CO.
 
           
By:
  /s/ Marc Gordon               
 
  Name:   Marc Gordon     
 
           
 
  Title:   President     
 
           

[Investor signatures on following page.]
(Securities Purchase Agreement)

 

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              INVESTORS:  
 
            YUCAIPA AMERICAN ALLIANCE FUND II, L.P.
 
            By:   Yucaipa American Alliance Fund II, LLC     Its:   General
Partner    
 
            By:   /s/ Robert P. Bermingham               
 
  Name:   Robert P. Bermingham    
 
  Title:   Vice President    
 
            YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P.
 
            By:   Yucaipa American Alliance Fund II, LLC     Its:   General
Partner    
 
            By:   /s/ Robert P. Bermingham               
 
  Name:   Robert P. Bermingham    
 
  Title:   Vice President    

(Securities Purchase Agreement)

 

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Exhibit A
See Attached

 

 

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CERTIFICATE OF DESIGNATIONS
OF
SERIES OF PREFERRED STOCK
DESIGNATED AS
SERIES A PREFERRED SECURITIES
OF
MORGANS HOTEL GROUP CO.
MORGANS HOTEL GROUP CO., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the “Corporation”), in accordance with
the provisions of Sections 103 and 151 thereof, DOES HEREBY CERTIFY:
The board of directors of the Corporation (the “Board of Directors”), in
accordance with the Certificate of Incorporation, Bylaws and applicable law,
adopted the following resolution on October 14, 2009 creating a series of 75,000
shares of Preferred Stock of the Corporation designated as “Series A Preferred
Securities”.
“RESOLVED, that pursuant to the provisions of the Certificate of Incorporation,
a series of Preferred Stock, par value $0.01 per share, of the Corporation be
and hereby is created, and that the designation and number of shares of such
series, and the voting and other powers, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, of the shares of such series, are as follows:
Section 1. Designation. There is hereby created out of the authorized and
unissued shares of preferred stock of the Corporation a series of preferred
stock designated (and defined herein) as the “Series A Preferred Securities”.
Each Series A Preferred Security shall be identical in all respects to every
other Series A Preferred Security.
Section 2. Number of Shares. The authorized number of Series A Preferred
Securities shall be 75,000. Each Series A Preferred Security shall represent one
share of Preferred Stock.
Section 3. Definitions. As used herein with respect to Series A Preferred
Securities:
(a) “Affiliate” of any person means another person that, directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, such first person. A person shall be deemed to control
another person if such first person possesses, directly or indirectly, the power
to direct, or cause the direction of, the management and policies of such other
person, whether through the ownership of voting securities, by contract or
otherwise; provided, that, the existence of a management contract primarily for
operational services provided by the Corporation or an Affiliate of the
Corporation shall not be deemed to be control by the Corporation or such
Affiliate, as the case may be.

 

 

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(b) “Board Trigger Event” means, so long as the Common Stock Board Condition is
satisfied, any of the following:
(i) the person nominated by the Investor pursuant to Section 5.7(b) of the
Purchase Agreement for election to the Board of Directors (whether as its
initial nominee or as a replacement director) (the “Investor Nominee”), other
than at a meeting of stockholders where a purpose of such meeting is to elect
directors, does not become a member of the Board of Directors within 60 days
from the date of such nomination; or
(ii) an Investor Nominee is not elected as a director of the Board of Directors
at a meeting of stockholders where a purpose of such meeting is to elect
directors, and the Company does not, within 30 days from the date of such
meeting, create an additional seat on the Board of Directors and has made
available such seat to the Investor Nominee.
A Board Trigger Event shall commence at the applicable time referred to in
clause (i) or (ii) above and shall cease to continue when either (i) an Investor
Nominee becomes a member of the Board of Directors or (ii) the Company shall
have created or otherwise made available an additional seat on the Board of
Directors and has made available such seat to an Investor Nominee.
(c) “Business Day” means any day except Saturday, Sunday and any day on which
banking institutions in the State of New York generally are authorized or
required by law or other governmental actions to close.
(d) “ByLaws” means the bylaws of the Corporation, as they may be amended from
time to time.
(e) “Certificate of Designations” means this Certificate of Designations
relating to the Series A Preferred Securities, as it may be amended from time to
time.
(f) “Certification of Incorporation” shall mean the certificate of incorporation
of the Corporation, as it may be amended from time to time, and shall include
this Certificate of Designations.
(g) “Common Stock” means the common stock, par value $0.01 per share, of the
Corporation.

 

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(h) “Common Stock Board Condition” has the meaning ascribed to such term in the
Purchase Agreement.
(i) “Competitor” means a person that engages in the business of operating,
licensing, franchising or managing a hotel brand or group of hotels, it being
agreed and acknowledged that, for the avoidance of doubt, an investment fund or
other person that engages in any such business primarily for investment purposes
shall not constitute a “Competitor” hereunder.
(j) “Dividend Rate” means (i) prior to the fifth anniversary of the Original
Issue Date, a per annum rate of 8%, (ii) during the period on and after the
fifth anniversary date of the Original Issue Date to the day immediately
preceding the seventh anniversary date of the Original Issue Date, a per annum
rate of 10%, and (iii) at any time on and after the seventh anniversary of the
Original Issue Date, a per annum rate of 20%; provided, that, during the
continuance of a Board Trigger Event, the Dividend Rate under each of clause
(i), (ii) or (iii), as applicable, shall be increased by 4% per annum.
(k) “Investors” means Yucaipa American Alliance Fund II, LP, a Delaware limited
partnership, and Yucaipa American Alliance (Parallel) Fund II, L.P., a Delaware
limited partnership, which are collectively purchasing 75,000 Series A Preferred
Securities on the Original Issue Date.
(l) “Junior Stock” means the Common Stock and any other class or series of stock
of the Corporation (other than the Series A Preferred Securities) the terms of
which expressly provide that it ranks junior to Series A Preferred Securities
either or both as to the payment of dividends and/or as to the distribution of
assets on any liquidation, dissolution or winding up of the Corporation.
(m) “Original Issue Date” means October 15, 2009.
(n) “Parity Stock” means any class or series of stock of the Corporation (other
than Series A Preferred Securities) the terms of which do not expressly provide
that such class or series will rank senior or junior to Series A Preferred
Securities as to dividend rights and/or as to rights on any liquidation,
dissolution or winding up of the Corporation (in each case without regard to
whether dividends accumulate cumulatively or non-cumulatively).
(o) Preferred Stock” means any and all series of preferred stock of the
Corporation, including the Series A Preferred Securities.
(p) “Purchase Agreement” means the Securities Purchase Agreement, dated as of
the Original Issue Date, by and among the Corporation and the Investors.

 

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Section 4. Dividends.
(a) Rate. Holders of Series A Preferred Securities shall be entitled to receive,
on each Series A Preferred Security, out of funds legally available for the
payment of dividends under Delaware law, cumulative cash dividends with respect
to each Dividend Period (as defined below) at a rate per annum equal to the
Dividend Rate on (i) the amount of $1,000 per Series A Preferred Security and
(ii) the amount of accumulated and unpaid dividends on such Series A Preferred
Security. Such dividends shall begin to accumulate and be cumulative from the
Original Issue Date, shall compound on each Dividend Payment Date and shall be
payable in arrears (as provided below in this Section 4(a)), but only if, as and
when declared by the Board of Directors or a duly authorized committee of the
Board of Directors on each January 15, April 15, July 15 and October 15 (each, a
“Dividend Payment Date”), commencing on January 15, 2010; provided, that, if any
such Dividend Payment Date would otherwise occur on a day that is not a Business
Day, any dividend payable on Series A Preferred Securities on such Dividend
Payment Date shall instead be payable on the immediately succeeding Business
Day, and no additional dividends will accumulate as a result of that
postponement. Dividends payable on the Series A Preferred Securities in respect
of any Dividend Period shall be computed on the basis of a 360-day year
consisting of twelve 30-day months. The amount of dividends payable on the
Series A Preferred Securities on any date prior to the end of a Dividend Period,
and for the initial Dividend Period, shall be computed on the basis of a 360-day
year consisting of twelve 30-day months, and actual days elapsed over a 30-day
month.
Dividends that are payable on Series A Preferred Securities on any Dividend
Payment Date will be payable to holders of record of Series A Preferred
Securities as they appear on the stock register of the Corporation on the
applicable record date, which shall be the 15th calendar day before such
Dividend Payment Date (as originally scheduled) or such other record date fixed
by the Board of Directors or a duly authorized committee of the Board of
Directors that is not more than 60 nor less than 10 days prior to such Dividend
Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend
Record Date shall be a Dividend Record Date whether or not such day is a
Business Day.
Each dividend period (a “Dividend Period”) shall commence on and include a
Dividend Payment Date (other than the initial Dividend Period, which shall
commence on and include the Original Issue Date) and shall end on and include
the calendar day immediately preceding the next Dividend Payment Date. Dividends
payable in respect of a Dividend Period shall be payable in arrears on the first
Dividend Payment Date after such Dividend Period.
Holders of Series A Preferred Securities shall not be entitled to any dividends,
whether payable in cash, securities or other property, other than dividends (if
any) declared and payable on the Series A Preferred Securities as specified in
this Section 4 (subject to the other provisions of this Certificate of
Designations).

 

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(b) Priority of Dividends. So long as any Series A Preferred Securities remain
outstanding, no dividend shall be declared or paid on the Common Stock or any
other shares of Junior Stock (other than a dividend payable solely in Junior
Stock), and no Common Stock, Junior Stock or Parity Stock shall be purchased,
redeemed or otherwise acquired for consideration by the Corporation, directly or
indirectly during a Dividend Period, unless all accumulated and unpaid dividends
for all past completed Dividend Periods, including the latest completed Dividend
Period (including, if applicable, dividends on such amount as provided in
Section 4(a) above), on all outstanding Series A Preferred Securities have been
declared and paid in full (or declared and a sum sufficient for the payment
thereof has been set aside in trust for the benefit of the holders of Series A
Preferred Securities on the applicable record date). The foregoing limitation
shall not apply to (i) redemptions, purchases or other acquisitions of shares of
Common Stock or other Junior Stock by the Corporation in connection with the
administration of any employee benefit plan of the Corporation in the ordinary
course of business, (ii) any dividends or distributions of rights or Junior
Stock in connection with a stockholders’ rights plan of the Corporation or any
redemption or repurchase of rights pursuant to any such stockholders’ rights
plan; (iii) the acquisition by the Corporation or any of its subsidiaries of
record ownership in Junior Stock or Parity Stock for the beneficial ownership of
any other persons (other than the Corporation or any of its subsidiaries),
including as trustee or custodians; and (iv) the exchange or conversion of
Junior Stock for or into other Junior Stock or of Parity Stock for or into other
Parity Stock (with the same or lesser aggregate liquidation amount) or Junior
Stock.
The Corporation shall not permit any subsidiary of the Corporation to redeem,
purchase or otherwise acquire for value, or set apart money for any sinking fund
for the purpose thereof, any Common Stock or any other shares of Junior Stock
unless the Corporation is permitted, pursuant to the immediately preceding
paragraph, to so redeem, purchase or otherwise acquire such Common Stock or any
other shares of Junior Stock at such time and in such manner.
When dividends are not paid (or declared and a sum sufficient for payment
thereof set aside for the benefit of the holders thereof on the applicable
record date) on any Dividend Payment Date (or, in the case of Parity Stock
having dividend payment dates different from the Dividend Payment Dates, on a
dividend payment date therefor falling within a Dividend Period related to such
Dividend Payment Date) in full upon the Series A Preferred Securities and any
shares of Parity Stock, all dividends declared on the Series A Preferred
Securities and all such Parity Stock and payable on such Dividend Payment Date
(or, in the case of Parity Stock having dividend payment dates different from
the Dividend Payment Dates, on a dividend payment date therefor falling within
the Dividend Period related to such Dividend Payment Date) shall be declared pro
rata so that the respective amounts of such dividends declared shall bear the
same ratio to each other as all accumulated and unpaid dividends per security on
the Series A Preferred Securities (including, if applicable, dividends on such
amount as provided in Section 4(a) above) and all Parity Stock payable on such
Dividend Payment Date (or, in the case of Parity Stock having dividend payment
dates different from the Dividend Payment Dates, on a dividend payment date
therefor falling within the Dividend Period related to such Dividend Payment
Date) bear to each other.
Subject to the foregoing, holders of Series A Preferred Securities shall not be
entitled to participate in any dividends (payable in cash, securities or other
property) that are (i) duly declared by the Board of Directors or any duly
authorized committee of the Board of Directors and in compliance with the
provisions hereof and (ii) paid on any securities (other than the Series A
Preferred Securities), including Common Stock and other Junior Stock, from time
to time out of any funds legally available for such dividends.

 

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Section 5. Liquidation Rights.
(a) Voluntary or Involuntary Liquidation. In the event of any liquidation,
dissolution or winding up of the affairs of the Corporation, whether voluntary
or involuntary, holders of Series A Preferred Securities shall be entitled to
receive for each Series A Preferred Security, out of the assets of the
Corporation or proceeds thereof (whether capital or surplus) available for
distribution to stockholders of the Corporation, and after satisfaction of all
liabilities and obligations to creditors of the Corporation, before any
distribution of such assets or proceeds is made to or set aside for the holders
of Common Stock and any other stock of the Corporation ranking junior to the
Series A Preferred Securities as to such distribution, payment in full in an
amount equal to the sum of (i) $1,000 per security and (ii) the amount of any
accumulated and unpaid dividends thereon (including, if applicable, dividends on
such amount as provided in Section 4(a) above), whether or not declared, to the
date of payment.
(b) Partial Payment. If, in any distribution described in Section 5(a) above,
the assets of the Corporation or proceeds thereof are not sufficient to pay the
Liquidation Preferences (as defined below) in full to all holders of Series A
Preferred Securities and all holders of any stock of the Corporation ranking
equally with the Series A Preferred Securities as to such distribution, the
amounts paid to the holders of Series A Preferred Securities and to the holders
of all such other stock shall be paid pro rata in accordance with the respective
aggregate Liquidation Preferences of the holders of Series A Preferred
Securities and the holders of all such other stock. In any such distribution,
the “Liquidation Preference” of any holder of stock of the Corporation shall
mean the amount otherwise payable to such holder in such distribution (assuming
no limitation on the assets of the Corporation available for such distribution),
including an amount equal to any declared but unpaid dividends (and, in the case
of any holder of stock, including the Series A Preferred Securities, on which
dividends accumulate on a cumulative basis, an amount equal to any accumulated
and unpaid dividends (including, if applicable, dividends on such amount as
provided in Section 4(a) above), whether or not declared, as applicable),
provided, that, the Liquidation Preference for any Series A Preferred Security
shall be determined in accordance with Section 5(a) above.
(c) Residual Distributions. If the Liquidation Preference has been paid in full
to all holders of Series A Preferred Securities, and the corresponding amounts
payable with respect of any other stock of the Corporation ranking equally with
Series A Preferred Securities as to distributions has been paid in full, the
holders of Common Stock and any other stock of the Corporation ranking junior to
the Series A Preferred Securities as to distributions shall be entitled to
receive all remaining assets of the Corporation (or proceeds thereof) according
to their respective rights and preferences.
(d) Merger or Consolidation Not Liquidation. For purposes of this Section 5, the
merger or consolidation of the Corporation with any other corporation or other
entity, including a merger or consolidation in which the holders of Series A
Preferred Securities receive cash, securities or other property for their
shares, or the sale, lease or exchange (for cash, securities or other property)
of all or substantially all of the assets of the Corporation, shall not
constitute a liquidation, dissolution or winding up of the Corporation.

 

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Section 6. Redemption.
(a) Optional Redemption. The Corporation, at its option, may redeem, in whole at
any time or in part from time to time, the Series A Preferred Securities at the
time outstanding, upon notice given as provided in Section 6(d) below, at a
redemption price equal to the sum of (i) $1,000 per security and (ii) the
accumulated and unpaid dividends thereon (including, if applicable, dividends on
such amount as provided in Section 4(a) above), whether or not declared, to the
redemption date; provided, that, the minimum number of Series A Preferred
Securities redeemable at any time is the lesser of (i) 5,000 Series A Preferred
Securities and (ii) the number of Series A Preferred Securities outstanding.
(b) Payment of Redemption Price. The redemption price for any Series A Preferred
Securities shall be payable on the redemption date to the holder of such shares
against surrender of the certificate(s) evidencing such shares to the
Corporation or its agent. Any declared but unpaid dividends payable on a
redemption date that occurs subsequent to the Dividend Record Date for a
Dividend Period shall not be paid to the holder entitled to receive the
redemption price on the redemption date, but rather shall be paid to the holder
of record of the redeemed shares on such Dividend Record Date relating to the
Dividend Payment Date as provided in Section 4 above.
(c) No Sinking Fund. The Series A Preferred Securities will not be subject to
any mandatory redemption, sinking fund or other similar provisions. Holders of
Series A Preferred Securities will have no right to require redemption of any
Series A Preferred Securities.
(d) Notice of Redemption. Notice of every redemption of Series A Preferred
Securities shall be given by first class mail, postage prepaid, addressed to the
holders of record of the shares to be redeemed at their respective last
addresses appearing on the books of the Corporation. Such mailing shall be at
least 30 days and not more than 60 days before the date fixed for redemption.
Any notice mailed as provided in this subsection shall be conclusively presumed
to have been duly given whether or not the holder receives such notice, but
failure duly to give such notice by mail, or any defect in such notice or in the
mailing thereof, to any holder of Series A Preferred Securities designated for
redemption shall not affect the validity of the proceedings for the redemption
of any other shares of Preferred Stock; provided, that, with respect to any such
notice to an Investor or any of its Affiliates, such notice shall be
conclusively presumed to have been duly given only upon delivery of such notice
to such person in the manner required under the Purchase Agreement.
Notwithstanding the foregoing, if the Series A Preferred Securities are issued
in book-entry form through The Depository Trust Company or any other similar
facility, notice of redemption may be given to the holders of Series A Preferred
Securities at such time and in any manner permitted by such facility. Each
notice of redemption given to a holder shall state: (1) the redemption date;
(2) the number of Series A Preferred Securities to be redeemed and, if less than
all the shares held by such holder are to be redeemed, the number of such shares
to be redeemed from such holder; (3) the redemption price; and (4) the place or
places where certificates for such shares are to be surrendered for payment of
the redemption price.

 

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(e) Partial Redemption. In case of any redemption of part of the Series A
Preferred Securities at the time outstanding as permitted in Section 6(a), the
Series A Preferred Securities to be redeemed shall be selected pro rata among
the holders of Series A Preferred Securities. If fewer than all the shares
represented by any certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without charge to the holder thereof.
(f) Effectiveness of Redemption. If notice of redemption has been duly given and
if on or before the redemption date specified in the notice all funds necessary
for the redemption have been deposited by the Corporation, in trust for the pro
rata benefit of the holders of the shares called for redemption, with a bank or
trust company doing business in the Borough of Manhattan, The City of New York,
and having a capital and surplus of at least $500 million and selected by the
Corporation, so as to be and continue to be available solely therefor, then,
notwithstanding that any certificate for any share so called for redemption has
not been surrendered for cancellation, on and after the redemption date
dividends shall cease to accumulate on all shares so called for redemption, all
shares so called for redemption shall no longer be deemed outstanding and all
right with respect to such shares shall forthwith on such redemption date cease
and terminate, except only the right of the holder thereof to receive the amount
payable on such redemption from such bank or trust company, without interest.
Any funds unclaimed at the end of three years from the redemption date shall, to
the extent permitted by law, be released to the Corporation, after which time
the holders of the shares so called for redemption shall look only to the
Corporation for payment of the redemption price of such shares.
(g) Status of Redeemed Shares. Series A Preferred Securities that are redeemed,
repurchased or otherwise acquired by the Corporation shall revert to authorized
but unissued shares of Preferred Stock (provided, that, any such cancelled
Series A Preferred Securities may be reissued only as shares of any series of
Preferred Stock other than Series A Preferred Securities).
Section 7. Conversion. Holders of Series A Preferred Securities shall have no
right to exchange or convert such shares into any other securities.
Section 8. Voting Rights.
(a) General. The holders of Series A Preferred Securities shall not have any
voting rights except as set forth below or as otherwise from time to time
required by applicable law. Notwithstanding anything to the contrary herein, the
holders of Series A Preferred Securities may, by a vote of at least a majority
of the outstanding Series A Preferred Securities, limit or eliminate any or all
of the matters over which holders of Series A Preferred Securities, voting as a
class, have voting or consent rights pursuant to Section 8(b) or 8(c).

 

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(b) Class Voting Rights as to Particular Matters. So long as any Series A
Preferred Securities remain outstanding, in addition to any other vote or
consent of stockholders required by law or by the Certificate of Incorporation,
the vote or consent of the holders of at least a majority of the Series A
Preferred Securities at the time outstanding, given in person or by proxy,
either in writing without a meeting or by vote at any meeting called for the
purpose, shall be necessary for effecting or validating:
(i) Authorization of Senior Stock. Any amendment or alteration of the
Certificate of Incorporation to authorize or create, or increase the authorized
amount of, any shares of any class or series of capital stock of the Corporation
ranking senior to the Series A Preferred Securities with respect to either or
both the payment of dividends and/or the distribution of assets on any
liquidation, dissolution or winding up of the Corporation;
(ii) Amendment of Series A Preferred Securities. (A) Any amendment, alteration
or repeal of any provision of the Certificate of Incorporation (whether by
merger or otherwise) that has a material adverse affect on the rights,
preferences, privileges or voting powers of the Series A Preferred Securities or
(B) any amendment, alteration or repeal of any provision of this Certificate of
Designations;
provided, however, that, for all purposes of this Section 8(b), any increase in
the amount of the authorized Preferred Stock, or the creation and issuance, or
an increase in the authorized or issued amount, whether pursuant to preemptive
or similar rights or otherwise, of any other series of Preferred Stock, or any
securities convertible into or exchangeable or exercisable for any other series
of Preferred Stock, ranking equally with and/or junior to the Series A Preferred
Securities with respect to the payment of dividends (whether such dividends are
cumulative or non-cumulative) and the distribution of assets upon liquidation,
dissolution or winding up of the Corporation will not be deemed to have a
material adverse affect on the rights, preferences, privileges or voting powers
of the Series A Preferred Securities.
(c) Class Voting Rights as to Certain Transactions So Long as the Investors and
Their Affiliates Collectively Hold at Least a Majority of the Series A Preferred
Securities. So long as the Investors and their Affiliates collectively hold at
least a majority of the Series A Preferred Securities outstanding, in addition
to any other vote or consent of stockholders required by law or by the
Certificate of Incorporation, the prior approval (by vote or consent) of the
holders of at least a majority of the outstanding Series A Preferred Securities,
given in person or by proxy, either in writing without a meeting or by vote at
any meeting called for the purpose, shall be necessary for effecting or
validating any transaction (x) involving the acquisition (including by merger,
consolidation, other business combination, or acquisition of all or
substantially all of the assets of the Corporation, other than an acquisition
that is an acquisition of substantially all of the assets of the Corporation as
the result of the disposition by the Corporation of real estate assets where the
Corporation will continue to engage in the business of managing hotel properties
and other real property assets) of the Corporation by any third party or
(y) pursuant to which the Series A Preferred Securities are converted or
otherwise reclassified into or exchanged for securities of another entity. Upon
written request by the Corporation, the Investors shall promptly furnish the
Corporation with the number of Series A Preferred Securities held by the
Investors and their Affiliates.

 

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(d) Changes after Provisions for Redemption. No vote or consent of the holders
of Series A Preferred Securities shall be required pursuant to Section 8(b) or
Section 8(c) above if, at or prior to the time when any such vote or consent
would otherwise be required pursuant to such Section, (i) with respect to any
Series A Preferred Securities held by any of the Investors or any of their
Affiliates, all such shares have been redeemed pursuant to Section 6, and
(ii) with respect to any other Series A Preferred Securities, such shares shall
have been called for redemption upon proper notice and sufficient funds shall
have been deposited in trust for such redemption pursuant to Section 6. Promptly
upon written request from the Corporation from time to time, each Investor and
any of its Affiliates holding Series A Preferred Securities shall provide the
Corporation with its wire transfer instructions for the payment of the
redemption price for Series A Preferred Securities redeemed by the Corporation
pursuant to Section 6.
(e) Procedures for Voting and Consents. The rules and procedures for calling and
conducting any meeting of the holders of Series A Preferred Securities
(including, without limitation, the fixing of a record date in connection
therewith), the solicitation and use of proxies at such a meeting, the obtaining
of written consents, any other aspect or matter with regard to such a meeting or
such consents shall be governed by any rules of the Board of Directors or a duly
authorized committee of the Board of Directors, in its reasonable discretion,
may adopt from time to time, which rules and procedures shall conform to the
requirements of the Certificate of Incorporation, the Bylaws, and applicable law
and the rules of any national securities exchange or other trading facility on
which the Series A Preferred Securities is listed or traded at the time. With
respect to any holders of Series A Preferred Securities that are not Affiliates
of an Investor (the “Non-Yucaipa Holders”), such rules and procedures shall
provide that in connection with any vote or consent of holders of Series A
Preferred Securities, the Series A Preferred Securities held by the Non-Yucaipa
Holders shall be deemed to be voted in favor of the recommendation of the Board
of Directors by each Non-Yucaipa Holder that has not notified the Corporation
within 10 Business Days of the date on which the notice of such proposed vote or
consent was first given in accordance with the terms hereof that such
Non-Yucaipa Holder is withholding its vote or consent on such matter.

 

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Section 9. Transfer.
(a) Restrictions on Transfer.
(i) Subject to Section 5.9 of the Purchase Agreement, no holder of Series A
Preferred Securities shall pledge, sell, encumber, assign or otherwise transfer
all or any portion of its Series A Preferred Securities prior to the third
anniversary date of the Original Issue Date (the “Third Anniversary”); provided,
that, nothing in this clause (i) shall restrict the rights of a holder of
Series A Preferred Securities that is an investment fund under common control
with The Yucaipa Companies, LLC (a “Yucaipa Fund Holder”) to sell, assign or
otherwise transfer (A) any or all of its Series A Preferred Securities to a
subsidiary of such Yucaipa Fund Holder or to another Yucaipa Fund Holder
(including an “alternative investment vehicle” that is affiliated with such
Yucaipa Fund Holder) or (B) all of its Series A Preferred Securities to the
persons directly holding the equity interests in the Yucaipa Fund Holder in
connection with a liquidation of such Yucaipa Fund Holder in accordance with the
provisions of the constituent documents of such Yucaipa Fund Holder.
(ii) For the period commencing on the Third Anniversary and ending on the day
immediately preceding the seventh anniversary date of the Original Issue Date
(the “Seventh Anniversary”), a holder of Series A Preferred Securities may
pledge, sell, encumber, assign or otherwise transfer all or any portion of its
Series A Preferred Securities to any person, other than a Competitor.
(iii) On and after the Seventh Anniversary, a holder of Series A Preferred
Securities may pledge, sell, encumber, assign, or otherwise transfer all or any
portion of its Series A Preferred Securities to any person.
(b) Certificates. Upon surrender of any certificate(s) representing Series A
Preferred Securities to the Corporation or, if the Corporation so instructs the
holder thereof in writing, at the office of its transfer agent, if any, with
assignment documentation duly executed, the Corporation shall, without charge,
execute and deliver a new certificate representing Series A Preferred Securities
in the name of the assignee named in such instrument of assignment. If
certificate(s) representing Series A Preferred Securities are assigned in part
only, the Corporation shall, upon surrender of such certificate(s), execute and
deliver a new certificate evidencing the Series A Preferred Securities that such
holder has not assigned.
(c) Legends. Unless the Series A Preferred Securities have been registered under
the Securities Act or transferred pursuant to Rule 144 to a person who is not an
affiliate of the Corporation, it is understood and agreed that any certificate
representing Series A Preferred Securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE
DISPOSED OF IN ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT.

 

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Section 10. Record Holders. To the fullest extent permitted by applicable law,
the Corporation and any transfer agent for the Series A Preferred Securities may
deem and treat the record holder of any Series A Preferred Security as the true
and lawful owner thereof for all purposes, and neither the Corporation nor such
transfer agent shall be affected by any notice to the contrary.
Section 11. Notices. All notices or communications in respect of Series A
Preferred Securities shall be sufficiently given if given in writing and
delivered in person or by first class mail, postage prepaid, or if given in such
other manner as may be permitted in this Certificate of Designations, in the
Certificate of Incorporation or Bylaws or by applicable law. Notwithstanding the
foregoing, if the Series A Preferred Securities are issued in book-entry form
through The Depository Trust Company or any similar facility, such notices may
be given to the holders of Series A Preferred Securities in any manner permitted
by such facility.
Section 12. No Preemptive Rights. No Series A Preferred Security shall have any
rights of preemption whatsoever as to any securities of the Corporation, or any
warrants, rights or options issued or granted with respect thereto, regardless
of how such securities, or such warrants, rights or options, may be designated,
issued or granted.
Section 13. Replacement Certificates. The Corporation shall replace any
mutilated certificate at the holder’s expense upon surrender of that certificate
to the Corporation. The Corporation shall replace certificates that become
destroyed, stolen or lost at the holder’s expense upon delivery to the
Corporation of reasonably satisfactory evidence that the certificate has been
destroyed, stolen or lost, together with any indemnity that may be reasonably
required by the Corporation.
Section 14. Other Rights. The Series A Preferred Securities shall not have any
rights, preferences, privileges or voting powers or relative, participating,
optional or other special rights, or qualifications, limitations or restrictions
thereof, other than as set forth herein or in the Certificate of Incorporation
or as provided by applicable law.

 

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In Witness Whereof, MORGANS HOTEL GROUP CO. has caused this certificate to be
signed by ____________________, its _________________________________, this 15th
day of October, 2009.

            MORGANS HOTEL GROUP CO.
      By:   /s/ Marc Gordon         Name:   Marc Gordon        Title:  
President   

[Certificate of Designations]

 

 

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Exhibit B-1
See Attached

 

 

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THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE
DISPOSED OF IN ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT.
Issue Date: October 15, 2009 (the “Issue Date”)
MORGANS HOTEL GROUP CO.
Common Stock Purchase Warrant
Morgans Hotel Group Co. (the “Company”), for value received, hereby certifies
and agrees that YUCAIPA AMERICAN ALLIANCE FUND II, L.P., or its registered
assigns (the “Holder”), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time during the Exercise Period (as defined
below), 7,535,580 shares (the “Warrant Shares”) of the Company’s common stock,
par value $0.01 per share (the “Common Stock”), at an initial purchase price
(the “Exercise Price”) per share equal to $6.00. The Exercise Price and the
number of Warrant Shares to be purchased upon exercise of this Warrant are
subject to adjustment as hereinafter provided.
1. Defined Terms.
“Additional Shares” has the meaning ascribed to such term in Section 7(a)(ii).
“Affiliate” has the meaning ascribed to such term in Section 12 of the Exchange
Act; provided, that, the existence of a management contract primarily for
operational services provided by the Company or an Affiliate of the Company
shall not be deemed to be control by the Company or such Affiliate, as the case
may be.
“Appraised Value” per share of Common Stock as of a date specified herein shall
mean the fair market value of a share of Common Stock as of such date as
determined by an investment bank of nationally recognized standing selected
jointly by the Holder and the Company. If the Company and the Holder cannot
agree on a mutually acceptable investment bank, then the Company and the Holder
shall each choose one such investment bank and the respective chosen firms shall
jointly select a third investment bank, which shall make the determination. The
Company shall pay the costs and fees of each such investment bank (including any
such investment bank selected by the Holder), and the decision of the investment
bank making such determination of Appraised Value shall be final and binding on
the Company and the Holder. No discount shall be applied on account of (i) any
Warrants or Warrant Shares representing a minority interest, (ii) any lack of
liquidity of the Common Stock or the Warrants, or (iii) the fact that the
Warrants or Warrant Shares may constitute “restricted securities” for securities
law purposes.

 

 

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“Board of Directors” means the Board of Directors of the Company.
“Business Day” means any day except Saturday, Sunday and any day on which
banking institutions in the State of New York generally are authorized or
required by law or other governmental actions to close.
“Commencement Date” means the earlier of (i) the first Business Day immediately
following the special meeting of stockholders of the Company to approve the
issuance of the Common Stock in connection with the exercise of the Warrants and
(ii) January 15, 2010.
“Common Stock” has the meaning ascribed to such term in the preamble of this
Warrant.
“Company” has the meaning ascribed to such term in the preamble of this Warrant.
“Company Equity” means shares of Common Stock, options to purchase or rights to
subscribe for shares of Common Stock, securities that by their terms are
convertible into or exchangeable for shares of Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities.
“Competitor” means a person that engages in the business of operating,
licensing, franchising or managing a hotel brand or group of hotels, provided,
that, for the avoidance of doubt, an investment fund or other person or entity
that engages in any such business primarily for investment purposes shall not
constitute a “Competitor” hereunder.
“Exchange Act” means Securities Exchange Act of 1934, as amended.
“Excluded Securities” means (i) any Company Equity issued to current or former
employees, directors or consultants of the Company or its subsidiaries or
Affiliates pursuant to the Company’s stock incentive or compensation plans
approved by the Board of Directors, or (ii) any Company Equity issued by the
Company after the Issue Date in an aggregate amount not to exceed 1,000,000
shares of Common Stock (including securities convertible into or exchangeable
for shares of Common Stock on an “as converted” or “as exchanged” basis) (as
adjusted to account for any (a) stock split, (b) subdivision, (c) dividend or
distribution payable in shares of Common Stock (or other securities or rights
convertible into or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), (d) combination or (e) other similar
recapitalization or event, in each case, occurring after the Issue Date).
“Exercise Cap” has the meaning ascribed to such term in Section 3(a)(i).
“Exercise Date” has the meaning ascribed to such term in Section 2(a).

 

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“Exercise Notice” has the meaning ascribed to such term in Section 2(a).
“Exercise Period” means the period commencing on the Commencement Date and
ending on the Expiration Date
“Exercise Price” has the meaning ascribed to such term in the preamble of this
Warrant.
“Expiration Date” has the meaning ascribed to such term in Section 5.

“Fair Market Value” of a Warrant Share means, as of any date:
(i) if the Common Stock is traded on a securities exchange or quoted on the
Nasdaq Stock Market, the Fair Market Value of a Warrant Share shall be deemed to
be the average of the closing prices over the five Business Day period ending on
the Business Day immediately prior to such date; or
(ii) if clause (i) immediately above is not applicable, the Fair Market Value of
a Warrant Share shall be determined in reasonable good faith by the Board of
Directors; provided, that, the Company shall give the Holder prompt written
notice thereof following any such determination, together with reasonable data
and documentation to support such determination; provided, further, that, for
purposes of Sections 2 and 3 only, if the Holder objects to any such
determination within two Business Days after receiving notice of the same, the
Fair Market Value of a Warrant Share shall be the Appraised Value thereof.
“Gaming Approval” means any approval or consent required under Gaming Laws to be
obtained from any Gaming Authority, including, without limitation, any
registration, finding of suitability or approval of an acquisition of control.
“Gaming Authority” means any governmental entity with regulatory control,
authority or jurisdiction over casino, pari-mutuel, lottery or other gaming
activities and operations within the State of Nevada, including, without
limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board,
the Clark County Liquor and Gaming Licensing Board and the City of Las Vegas.
“Gaming Event” means a Gaming Approval requirement arises for the Holder, an
Other Holder or a Licensed Affiliate to hold or exercise this Warrant or any
Other Warrants as a result of circumstances primarily caused by the Company or
any of its subsidiaries.
“Gaming Laws” means all laws, regulations, rules, ordinances or other
pronouncements pursuant to which any Gaming Authority possesses regulatory,
licensing or permit authority over casino, pari-mutuel, lottery or other gaming
activities in any jurisdiction, including all rules and regulations established
by any Gaming Authority.
“Gaming Trigger” means a Gaming Approval requirement for the Holder, an Other
Holder or a Licensed Affiliate to hold or exercise this Warrant or any Other
Warrants that does not arise as a result of circumstances primarily caused by
the Holder, an Other Holder or a Licensed Affiliate.

 

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“Holder” has the meaning ascribed to such term in the preamble of this Warrant.
“Issue Date” has the meaning ascribed to such term above the preamble of this
Warrant.
“Licensed Affiliate” means a person who is associated or affiliated with the
Holder, an Other Holder or any of their respective Affiliates and is required
under Gaming Laws to obtain a Gaming Approval for the Holder or an Other Holder
to hold, or to exercise in full, the Warrants and the Other Warrants.
“Other Company Equity” means Company Equity (other than Common Stock).
“Other Holders” means the holders of the Other Warrants.
“Other Warrants” means the warrants, other than this Warrant, issued pursuant to
the Purchase Agreement and the warrants issued pursuant to the Real Estate Fund
Formation Agreement (as defined in the Purchase Agreement), in each case, that
are held by Affiliates of the Holder.
“Preferred Securities” means the Preferred Stock, par value $0.01 per share, of
the Company designated as Series A Preferred Securities issued to the Holder and
the Other Holders pursuant to the Purchase Agreement.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of the
Issue Date, by and among the Company, the Holders and the Other Holders.
“Redemption Date” has the meaning ascribed to such term in Section 3(b)(iii).
“Redemption Price” means, with respect to any portion of the Warrant being
redeemed pursuant to Section 3(b) as of a Redemption Date, the number of Warrant
Shares underlying such portion of the Warrant multiplied by an amount equal to
(A) the Fair Market Value as of the Redemption Date less (B) the Exercise Price
as of the Redemption Date.
“Securities Act” has the meaning ascribed to such term in Section 11(a).
“Seventh Anniversary” means the seventh anniversary of the Issue Date.
“Third Anniversary” has the meaning ascribed to such term in Section 11(b)(i).
“Warrant” means this Warrant originally issued pursuant to the Purchase
Agreement, and all other warrants issued upon transfer, division or combination
of, or in substitution for, this Warrant or such other warrants.
“Warrant Shares” has the meaning ascribed to such term in the preamble of this
Warrant.
“Yucaipa Fund Holder” has the meaning ascribed to such term in Section 11(b)(i).

 

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2. Method of Exercise.
(a) This Warrant may be exercised by the Holder at any time and from time to
time during the Exercise Period for all or any portion of the number of Warrant
Shares purchasable hereunder. In order to exercise this Warrant, in whole or in
part, the Holder shall deliver this Warrant, together with a duly executed copy
of the form of notice of exercise attached hereto as Attachment A (together, the
“Exercise Notice”), to the Company at its principal offices prior to 1:00 p.m.,
New York City time, on a Business Day, which Exercise Notice shall specify the
number of Warrant Shares subject to such Exercise Notice (the date on which such
delivery shall have taken place being referred to as the “Exercise Date”). The
Exercise Date for any Exercise Notice delivered to the Company after 1:00 p.m.,
New York City time, on any Business Day shall be the next succeeding Business
Day.
(b) Upon each exercise of the Warrant, the Company shall issue to the Holder a
number of shares of Warrant Shares computed using the following formula:

        X =  Y * (A-B)     A  

Where:

  X =  
the number of Warrant Shares to be issued to the Holder.
    Y =  
the number of Warrant Shares purchasable under the Warrant or, if only a portion
of the Warrant is being exercised, the number of Warrant Shares subject to the
applicable Exercise Notice.
    A =  
the Fair Market Value as of the Exercise Date.
    B =  
the Exercise Price (as adjusted to the Exercise Date).
    * =  
multiplied by.

(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which the Exercise
Notice shall have been delivered to the Company as provided above. As soon as
practicable after each exercise of this Warrant, and in any event within three
Business Days thereafter, the Company shall execute (or cause to be executed)
and deliver (or cause to be delivered) to the Holder a certificate or
certificates representing the aggregate number of full Warrant Shares issuable
and issued upon such exercise, together with cash in lieu of any fraction of a
share (as provided in Section 2(d) below). The stock certificate or certificates
so delivered shall be, to the extent possible, in such denomination or
denominations as the exercising Holder shall reasonably request in the Exercise
Notice or otherwise and shall be registered in the name of the Holder or,
subject to Section 11, such other name as shall be designated in the Exercise
Notice. Unless the applicable Exercise Notice is revoked as provided in
Section 3(a)(i), this Warrant shall be deemed to have been exercised, and such
stock certificate or certificates shall be deemed to have been issued, and the
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of the shares of Common Stock evidenced by such
stock certificate or certificates for all purposes, as of the Exercise Date.

 

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(d) No fractional shares of any security will be issued in connection with any
exercise hereunder. As to any fraction of a share that would otherwise be
issuable, the Company shall pay cash equal to such fraction multiplied by the
Fair Market Value as of the applicable Exercise Date.
(e) If this Warrant shall have been exercised in part, the Company shall, not
later than the time of delivery of the certificate or certificates representing
the Warrant Shares being issued pursuant to such exercise, deliver to the Holder
a new Warrant evidencing the rights of the Holder to purchase the unexercised
Warrant Shares subject to this Warrant. Such new Warrant shall in all other
respects be identical to this Warrant.
(f) The Company hereby represents and warrants to the Holder that all Warrant
Shares issuable and issued upon the exercise of this Warrant pursuant to the
terms hereof will be validly issued, fully paid and nonassessable, issued
without violation of any preemptive rights and issued free and clear of any
lien, encumbrance, security interest, pledge, mortgage, hypothecation, charge,
adverse claim, title retention agreement of any nature or kind, or other
encumbrance, except as provided for under applicable securities laws and Gaming
Laws. The Company shall pay all of its expenses in connection with, and all
issuance, transfer, stamp and other similar taxes and other governmental charges
that may be imposed upon it with respect to, the exercise of this Warrant or the
issue or delivery of Warrant Shares hereunder.
3. Exercise Cap; Redemptions.
(a) Exercise Cap.
(i) Subject to Section 3(a)(ii), the Holder shall not be entitled to exercise
its rights to purchase Warrant Shares hereunder to the extent, and only to the
extent, such exercise would cause such Holder, together with its Affiliates, to
become the beneficial owner of more than 9.9% of the issued and outstanding
shares of the Common Stock, as determined pursuant to Section 13 of the Exchange
Act (the “Exercise Cap”). The Company shall, within one Business Day of delivery
by Holder of an Exercise Notice, notify the Holder in writing of (A) the number
of Warrant Shares that would be issuable to the Holder if such exercise
requested in such Exercise Notice were effected in full and (B) the number of
issued and outstanding shares of the Common Stock (as determined pursuant to
Section 13 of the Exchange Act) as of the most recent date such information is
available to the Company, whereupon, notwithstanding anything to the contrary
set forth herein, the Holder may within one Business Day of its receipt of the
notice from the Company required by this Section revoke such Exercise Notice to
the extent that it determines that such exercise would result in the Holder,
together with its Affiliates, owning in excess of 9.9% of the issued and
outstanding shares of Common Stock, as determined pursuant to Section 13 of the
Exchange Act.

 

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(ii) Notwithstanding anything to the contrary herein, Section 3(a)(i) shall not
limit a Holder from exercising all or any portion of the Warrant if: (A) the
Holder, the Other Holders and the Licensed Affiliates have obtained all Gaming
Approvals necessary to hold, and to exercise in full, the Warrants and the Other
Warrants, and the Holder has notified the Company in writing thereof and has not
revoked such notification, or (B) none of the Holder, the Other Holders or the
Licensed Affiliates are required under the Gaming Laws to obtain any Gaming
Approval to hold, or to exercise in full, the Warrants and the Other Warrants
(e.g., the Company does not own or hold any assets or rights that subject it to
the authority or jurisdiction of a Gaming Authority), and the Holder has
notified the Company in writing thereof and has not revoked such notification.
In connection with the foregoing, the Company shall use its reasonable best
efforts to keep the Holder apprised of all material facts pertaining to the
business and affairs of the Company which have, or would reasonably be expected
to have, a bearing upon the determination of whether any such Gaming Approvals
are or continue to be required, including, without limitation, information
pertaining to any acquisitions or dispositions of assets by the Company or any
of its Affiliates that are subject to regulation under Gaming Laws, and shall,
upon request from the Holder from time to time, provide any documents and
records in its possession or in the possession of its Affiliates (to the extent
available to the Company) that the Holder reasonably requests in order to
determine whether such Gaming Approvals are required; provided, that, prior to
receiving any documents and records, the Holder shall agree to comply with the
Company’s insider trading policies as in effect and shall agree to keep the
information contained therein confidential, including to the extent required so
that the Company’s provision of such documents and records does not cause the
Company to breach any confidentiality agreement to which it is a party.
(b) Redemption.
(i) In the event that the stockholders of the Company do not duly approve
(including, without limitation, approval pursuant to the corporate governance
requirements and listing rules promulgated by the Nasdaq Stock Market, including
Rule 5635 thereof) the issuance of Common Stock in connection with the exercise
of the Warrants and the Other Warrants, on or prior to January 15, 2010, the
Holder shall thereafter have the right, at any time and from time to time during
the Exercise Period, to cause the Company to redeem at the Redemption Price up
to 3,074,517 Warrant Shares (subject to adjustment on the same basis as is the
number of shares for which this Warrant is exercisable as a result of an event
specified in Section 7(a), 7(b), 7(c), 7(d) or 7(e)).
(ii) In the event of a Gaming Event, the Holder shall thereafter have the right,
at any time and from time to time during the Exercise Period, to cause the
Company to redeem at the Redemption Price a portion of the Warrant such that the
Holder, the Other Holders and the Licensed Affiliates are not required to
receive any Gaming Approvals to continue to hold the Warrant or to exercise the
Warrant in the manner contemplated herein.
(iii) In order to exercise its redemption rights, in whole or in part, pursuant
to this Section 3(b), the Holder shall deliver this Warrant, together with a
written notice setting forth the portion of the Warrant being redeemed pursuant
to such notice (designated by the number of Warrant Shares underlying such
portion of the Warrant), whether such redemption is pursuant to Section 3(b)(i)
or 3(b)(ii) and wire transfer instructions to which the Company is to send the
cash payment to the Holder of the Redemption Price, to the Company at its
principal offices prior to 1:00 p.m., New York City time, on a Business Day, and
such redemption shall be effective as of the close of business on the day such
notice is received by the Company (a “Redemption Date”). The Redemption Date for
any redemption notice delivered to the Company after 1:00 p.m., New York City
time, on any Business Day shall be the next succeeding Business Day. As soon as
practicable after each such Redemption Date, and in any event within five
(5) Business Days thereafter, the Company shall send to the Holder by wire
transfer of immediately available funds the Redemption Price for the redemption
on such Redemption Date, together with written notice of its calculation of the
Redemption Price, and a new Warrant evidencing the rights of the Holder with
respect to the portion of the Warrant that was not redeemed, and such new
Warrant shall in all other respects be identical to this Warrant.

 

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4. No Impairment; Regulatory Compliance and Cooperation; Gaming Trigger.
(a) The Company will not, by amendment of its certificate of incorporation or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the material terms of this Warrant, but will at all times in good
faith assist in carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (i) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant and
(ii) obtain all such authorizations, exemptions or consents from any regulatory
body having jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant.
(b) Notwithstanding anything the contrary herein, if any exercise of all or any
portion of this Warrant pursuant to Section 2, a redemption of all of any
portion of this Warrant pursuant to Section 3(b) or a transfer of all or any
portion of this Warrant pursuant to Section 11 requires the consent, approval,
waiver, or authorization of any governmental authority or any third party
(including, without limitation, the Nasdaq Stock Market) as a condition to the
lawful and valid exercise, redemption or transfer, as the case may be, then each
of the time periods provided in Section 2, Section 3(b), or Section 11, as
applicable, for the consummation thereof shall be suspended for the period of
time during which any such consent, approval, waiver, or authorization is being
pursued, and if and to the extent that any such suspension causes the
consummation thereof to occur after the intended Expiration Date, then such
Expiration Date shall be extended to (i) in the event of an exercise or
redemption, the date of consummation thereof, and (ii) in the event of a
transfer, 30 days following the date of consummation thereof. The Company agrees
to use its reasonable best efforts to obtain, or to assist the affected person
in obtaining, any such consent, approval, waiver, or authorization (it being
understood that the Company and its subsidiaries shall not have to enter into
any agreements restricting the conduct of their business or agree to dispose of
any assets or rights) and shall cooperate and use its reasonable best efforts to
respond as promptly as practicable to all inquiries received by it or by the
affected person from any governmental authority for initial or additional
information or documentation in connection therewith. The Company and the Holder
shall each bear their own costs and expenses in connection with this
Section 4(b), except that in the case of filing fees for any notification and
report forms contemplated by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (and the rules and regulations promulgated thereunder), the
Company shall promptly reimburse the holders of Warrants and Other Warrants up
to $22,500 of such fees in the aggregate upon written request therefor.

 

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(c) In the event of a Gaming Trigger that is not a Gaming Event, upon notice
thereof by the Holder to the Company, the Company and the Holder shall meet and
cooperate promptly and in good faith to amend and/or restructure this Warrant
such that (i) the Holder continues to receive, to the greatest extent
practicable, the intended economic benefits hereunder, (ii) the Company
continues to receive, to the greatest extent practicable, the intended economic
benefits hereunder and (iii) the Holder, the Other Holders and the Licensed
Affiliates are not required to obtain any Gaming Approvals to hold or to
exercise this Warrant or any Other Warrants.
5. Expiration. This Warrant and the right to purchase Warrant Shares upon
exercise hereof shall expire at 11:59 p.m. New York City time on April 15, 2017
(as may be extended pursuant to Section 4(b), the “Expiration Date”).
6. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of the Common Stock for the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares of
stock or any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of the
capital stock of the Company, any consolidation or merger of the Company, any
consolidation or merger of the Company with or into another corporation, or any
transfer of all or substantially all of the assets of the Company in any one
transaction or a series of related transactions, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of
the Company, or
(d) the Company shall grant to the holders of its Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class,
then, and in each such case:
the Company will mail or cause to be mailed to the Holder of this Warrant a
notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the
estimated effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of the Common Stock shall be entitled to exchange their shares for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 calendar days prior to the
record date or effective date for the event specified in such notice. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on the Exercise Price
and the number and kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon exercise of this Warrant.

 

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7. Adjustment of Number of Warrant Shares and Exercise Price. The number and
kind of Warrant Shares and the Exercise Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows; provided,
that, if more than one subsection of this Section 7 is applicable to a single
event, the subsection that produces the largest adjustment shall be applied, and
no single event shall cause an adjustment under more than one subsection of this
Section 7 to the extent of any resulting duplication:
(a) Upon Certain Issuances of Common Stock.
(i) If the Company shall, at any time on or prior to the first anniversary of
the Issue Date, issue (1) any shares of Common Stock without consideration or
for consideration per share of $4.00 (as adjusted to account for any (a) stock
split, (b) subdivision, (c) dividend or distribution payable in shares of Common
Stock (or other securities or rights convertible into or entitling the holder
thereof to receive directly or indirectly shares of Common Stock),
(d) combination or (e) other similar recapitalization or event, in each case,
occurring after the Issue Date) or less or (2) Other Company Equity without
consideration or for consideration per share less than the Exercise Price in
effect immediately prior to the issuance of such Other Company Equity, in each
case of clause (1) and (2), other than Excluded Securities, then the Exercise
Price shall forthwith be reduced to a price equal to the consideration per share
for which such shares of Common Stock or Other Company Equity are issued (plus,
with respect to options or rights, the additional consideration required to be
paid upon exercise of such options or rights).
(ii) If the Company shall, at any time on or prior to the first anniversary of
the Issue Date, issue any shares of Common Stock for consideration per share of
greater than $4.00 (as adjusted to account for any (a) stock split,
(b) subdivision, (c) dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), (d) combination or
(e) other similar recapitalization or event, in each case, occurring after the
Issue Date) and less than the Exercise Price in effect immediately prior to the
issuance of such shares (the shares being so issued being referred to herein as
the “Additional Shares”), other than Excluded Securities, then the Exercise
Price shall forthwith be reduced to a price equal to such Exercise Price
multiplied by a fraction, (1) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the Company for the total number of Additional Shares would purchase at the
Exercise Price in effect immediately prior to such issuance, and (2) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of such Additional Shares so
issued.

 

10

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(iii) For the purposes of any adjustment of the Exercise Price pursuant to this
Section 7(a), the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash in whole or in part,
whether in a public offering, private placement or otherwise, the cash
consideration shall be deemed to be the amount of cash paid therefor without any
deduction therefrom, including for any expenses or discounts, commissions or
placement fees payable by the Company to any underwriter or placement agent in
connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for consideration in whole or in
part other than cash, the consideration other than cash shall be deemed to be
the fair market value thereof as reasonably determined by the Board of
Directors, which determination shall be promptly provided in writing to the
Holder.
(3) In the case of the issuance of options to purchase or rights to subscribe
for Common Stock, securities by their terms convertible into or exchangeable for
Common Stock, or options to purchase or rights to subscribe for such convertible
or exchangeable securities, except for Excluded Securities:
(A) the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in clauses (1) and (2) immediately above), if any, received by
the Company upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
(B) the aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange of any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities,
options, or rights were issued and for a consideration equal to the
consideration received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in clauses (1) and (2) immediately above);
(C) on any change in the number of shares or exercise price of Common Stock
deliverable upon exercise of any such options or rights or conversions of or
exchanges for such securities prior to the first anniversary of the Issue Date,
other than a change resulting from the antidilution provisions thereof, the
applicable Exercise Price shall forthwith be readjusted to such Exercise Price
as would have been obtained had the adjustment made upon the issuance of such
options, rights or securities not converted prior to such change or options or
rights related to such securities not converted prior to such change been made
upon the basis of such change; and

 

11

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(D) no further adjustment of the Exercise Price adjusted upon the issuance of
any such options, rights, convertible securities or exchangeable securities
shall be made as a result of the actual issuance of Common Stock on the exercise
of any such rights or options or any conversion or exchange of any such
securities.
(b) Upon Stock Dividends or Splits. If, at any time after the Issue Date, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, effective as of the record date for the determination of
holders of Common Stock entitled to receive such stock dividend, or to be
affected by such subdivision or split-up, the Exercise Price shall be
appropriately decreased so that the number of shares of Common Stock purchasable
on exercise of this Warrant shall be increased in proportion to such increase in
outstanding shares.
(c) Upon Combinations. If, at any time after the Issue Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then, following the record date to determine shares affected by such
combination, the Exercise Price shall be appropriately increased so that the
number of shares of Common Stock purchasable on exercise of this Warrant shall
be decreased in proportion to such decrease in outstanding shares.
(d) Upon Reclassifications, Reorganizations, Consolidations or Mergers. In the
event of any capital reorganization of the Company, any reclassification of the
stock of the Company (other than a change in par value or from par value to no
par value or from no par value to par value or as a result of a stock dividend
or subdivision, split-up or combination of shares), or any consolidation or
merger of the Company with or into another corporation (where the Company is not
the surviving corporation or where there is a change in or distribution with
respect to the Common Stock), this Warrant shall after such reorganization,
reclassification, consolidation, or merger be exercisable for the kind and
number of shares of stock or other securities or property of the Company or of
the successor corporation resulting from such consolidation or surviving such
merger, if any, to which the holder of the number of Warrant Shares underlying
this Warrant (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) would have been entitled upon such
reorganization, reclassification, consolidation or merger; provided, that, if
the holders of Common Stock have the right to elect the kind or amount of
consideration receivable upon consummation of any such reorganization,
reclassification, consolidation or merger, then the consideration that the
Holder shall be entitled to receive upon exercise of this Warrant shall be the
types and amounts of consideration received by the majority of all holders of
the shares of Common Stock that affirmatively make an election (or of all such
holders if none make an election). The provisions of this clause shall similarly
apply to successive reorganizations, reclassifications, consolidations, or
mergers.

 

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(e) Other Distributions. In case the Company shall fix a record date for the
making of a distribution to all holders of shares of its Common Stock of
securities, evidences of indebtedness, assets, cash, rights or warrants, in each
such case, the Exercise Price in effect prior to such record date shall be
reduced immediately thereafter to the price determined by multiplying the
Exercise Price in effect immediately prior to the reduction by the quotient of
(x) the Fair Market Value as of the last trading day preceding the first date on
which the Common Stock trades regular way on the principal national securities
exchange or quotation system on which the Common Stock is listed or admitted to
trading without the right to receive such distribution, minus the amount of cash
and/or the fair market value of the securities, evidences of indebtedness,
assets, rights or warrants to be so distributed, as reasonably determined by the
Board of Directors, in respect of one share of Common Stock divided by (y) such
Fair Market Value on such date specified in clause (x); such adjustment shall be
made successively whenever such a record date is fixed.
(f) Adjustment of Number of Shares Purchasable. Upon any adjustment of the
Exercise Price as provided in Section 7(b), 7(c), 7(d) or 7(e), the Holder shall
thereafter be entitled to purchase upon the exercise thereof, at the Exercise
Price resulting from such adjustment, the number of shares of Common Stock
(calculated to the nearest 1/100th of a share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares underlying this Warrant and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(g) Rounding of Calculations; Minimum Adjustments. All calculations under this
Section 7 shall be made to the nearest one-tenth (1/10th) of a cent or to the
nearest one-hundredth (1/100th) of a share, as the case may be. Any provision of
this Section 7 to the contrary notwithstanding, no adjustment in the Exercise
Price or the number of shares of Common Stock into which this Warrant is
exercisable shall be made if the amount of such adjustment would be less than
$0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount
shall be carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
$0.01 or 1/10th of a share of Common Stock, or more.
(h) Notice of Adjustment. Whenever the terms of this Warrant are adjusted
pursuant to this Section or pursuant to any other applicable provision hereof,
the Company shall deliver to the Holder in accordance with the notice provisions
below a certificate signed by the Company’s President or Chief Financial Officer
describing, in reasonable detail, the change or event requiring such adjustment
and the newly adjusted Exercise Price and, as applicable, the kind and amount of
shares, securities or other property purchasable hereunder after giving effect
to such adjustment.
(i) Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action that would require an adjustment pursuant
to this Section 7, the Company shall take any and all actions that may be
necessary, including obtaining regulatory, the Nasdaq Stock Market or other
applicable national securities exchange or stockholder approvals or exemptions,
in order that Company may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock that the Holder is entitled to receive
upon exercise of this Warrant.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for the issuance and delivery upon the exercise of this
Warrant, such Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. All securities
which shall be so issuable, when issued upon exercise of the Warrant in
accordance herewith, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.

 

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9. Replacement of Warrants. Upon delivery by the Holder to the Company of
evidence reasonably satisfactory to the Company (such as an affidavit of the
Holder) of the loss, theft, destruction or mutilation of this Warrant and (in
the case of loss, theft or destruction) upon delivery of an indemnity agreement
(with surety if reasonably required) in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of this
Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor
and dated as of the Issue Date.
10. No Rights as Stockholder. Until the exercise of this Warrant, the Holder of
this Warrant shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
11. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant Shares issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the “Securities Act”), or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available, including
if the Warrant or the Warrant Shares are sold in accordance with Rule 144
promulgated under the Securities Act or any successor rule or regulation
hereafter adopted by the Securities and Exchange Commission.
(b) Restrictions on Transfer.
(i) Subject to Section 5.9 of the Purchase Agreement, the Holder shall not
pledge, sell, encumber, assign or otherwise transfer all or any portion of this
Warrant prior to the third anniversary date of the Issue Date (the “Third
Anniversary”); provided, that, nothing in this clause (i) shall restrict the
rights of a holder of this Warrant that is an investment fund under common
control with The Yucaipa Companies, LLC (a “Yucaipa Fund Holder”) to sell,
assign or otherwise transfer (A) all or any portion of this Warrant to a
subsidiary of such Yucaipa Fund Holder or to another Yucaipa Fund Holder
(including an “alternative investment vehicle” that is affiliated with such
Yucaipa Fund Holder) or (B) all of this Warrant to the persons directly holding
the equity interests in the Yucaipa Fund Holder in connection with a liquidation
of such Yucaipa Fund Holder in accordance with the provisions of the constituent
documents of such Yucaipa Fund Holder.
(ii) On and after the Third Anniversary, the Holder may pledge, sell, encumber,
assign or otherwise transfer all or any portion of this Warrant to any person,
other than a Competitor; provided, that, if any Preferred Securities are
outstanding on the Seventh Anniversary, unless and until all such Preferred
Securities have been redeemed, the foregoing restriction on pledges, sales,
encumbrances, assignments or transfers to Competitors shall not be applicable.

 

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(iii) The Holder may pledge, sell, encumber, assign, or otherwise transfer any
or all shares of Common Stock received upon exercise of this Warrant to any
person, other than a Competitor; provided, that, if any Preferred Securities are
outstanding on the Seventh Anniversary, unless and until all such Preferred
Securities have been redeemed, the foregoing restriction on pledges, sales,
encumbrances, assignments or transfers to Competitors shall not be applicable.
(c) Transfer Notice. Promptly following the sale, assignment or other transfer
of all or a portion of this Warrant, the Holder shall surrender this Warrant to
the Company, together with written notice of (i) the name, address, telephone
number and facsimile number of the transferee and (ii) the portion of this
Warrant so transferred (designated by the number of Warrant Shares underlying
such portion of the Warrant). Promptly following delivery by the Holder of such
notice, the Company shall promptly (and in any event within 7 days thereafter)
(A) deliver to the designated transferee a new Warrant evidencing the rights of
such transferee to purchase the Warrant Shares in the denominations as set forth
in such notice, (B) if applicable, deliver to the Holder a new Warrant
evidencing the balance of this Warrant not assigned by the Holder, and (C)
register on the books and records of the Company such transfer. Such new
Warrants shall in all other respects be identical to this Warrant. All or any
portion of this Warrant, if properly assigned in compliance with this
Section 11, may be exercised by the new Holder for the purchase of shares of
Common Stock without having a new Warrant issued.
(d) Legends. Unless the Warrant Shares have been registered under the Securities
Act or transferred pursuant to Rule 144 to a person who is not an affiliate of
the Company, it is understood and agreed that any Warrant or certificate
representing Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE
DISPOSED OF IN ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT.
(e) Rule 144 Information. The Company covenants that it will use its reasonable
best efforts to file timely all reports and other documents required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder
(or, if the Company is not required to file such reports, it will, upon the
request of the Holder, make publicly available such information as necessary to
permit sales pursuant to Rule 144 under the Securities Act), and it will use its
reasonable best efforts to take such further action as a Holder may reasonably
request, in each case, to the extent required from time to time to enable the
Holder to, if permitted by the terms of this Warrant, sell this Warrant without
registration under the Securities Act within the limitations of the exemptions
provided by (A) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (B) any successor rule or regulation hereafter adopted by
the Securities and Exchange Commission. Upon the written request of the Holder,
the Company will deliver to such Holder a written statement that it has complied
with such requirements.

 

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12. Miscellaneous.
(a) Delivery of Notices, etc. All notices and other communications from the
Company to the Holder of this Warrant shall be sufficiently made if sent by
first class mail, postage prepaid, personal delivery or by facsimile to the
address or facsimile number, as applicable, of such Holder appearing on the
books of the Company maintained for such purpose (as changed by the Holder from
time to time by like notice). All notices and other communications from the
Holder of this Warrant or in connection herewith to the Company, including any
Exercise Notice or notice of redemption pursuant to Section 3(b), shall be
sufficiently made if sent by first class mail, postage prepaid, personal
delivery or by facsimile to the address or facsimile number, as applicable, of
the Company at its principal offices as shown below or as changed by the Company
from time to time by like notice. Any notice and other communication in
accordance with this Section 12(a) shall be deemed to be delivered, given and
received for all purposes as of: (i) three Business Days immediately following
the date sent, if sent by first class mail, postage prepaid, (ii) the date so
delivered, if delivered personally, and (iii) the date sent, if sent by
facsimile.
(b) Nonwaiver. No course of dealing or any delay or failure to exercise any
right hereunder on the part of the Company or the Holder shall operate as a
waiver of such right or otherwise prejudice the rights, powers or remedies of
such person.
(c) Limitation of Liability. No provision hereof, in the absence of affirmative
action by the Holder to purchase shares of Common Stock, and no enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder to pay the Exercise Price for any Warrant Shares other
than pursuant to an exercise of this Warrant or give rise to any status of or
liability as a stockholder of the Company, whether such status or liability is
asserted by the Company or by creditors of the Company.
(d) Remedies. Each Holder of Warrants and/or Warrant Shares, in addition to
being entitled to exercise its rights granted by law, including recovery of
damages, shall be entitled to specific performance of its rights provided under
this Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Warrant and hereby agrees, in an action for specific performance, to
waive the defense that a remedy at law would be adequate.
(e) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding day that is a Business Day.
(f) Change or Waiver. Any term of this Warrant may be changed or waived only by
an instrument in writing signed by the party against which enforcement of the
change or waiver is sought. Notwithstanding the foregoing, the Holder may, by
written notice to the Company at any time and from time to time, reduce the
Exercise Cap hereunder to a lower percentage.

 

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(g) Successors and Assigns. Subject to the terms hereof, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the permitted successors and assigns of the Holder
hereof. The provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and to the extent applicable, all
Holders of Warrant Shares issued upon the exercise hereof (including
transferees), and shall be enforceable by any such Holder.
(h) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
(i) Headings. The headings in this Warrant are for purposes of reference only
and shall not limit or otherwise affect the meaning of any provision of this
Warrant.
(j) Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New York.

            MORGANS HOTEL GROUP CO.
      By:   /s/ Marc Gordon         Name:   Marc Gordon        Title:  
President        Principal Office:

475 Tenth Ave.
New York, New York 10018
Facsimile Number: (212) 277-4280
Attention: Corporate Secretary
   

[Base Warrant]

 

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ATTACHMENT A
NOTICE OF EXERCISE
Morgans Hotel Group Co. (the “Company”)
Attention: Corporate Secretary
The undersigned Holder of this Warrant exercises [this Warrant in full] [a
portion of this Warrant for [_____] shares of Common Stock of the Company], on a
net exercise basis in accordance with Section 2(b) of this Warrant, and hereby
instructs the Company (a) to issue certificates for a number of Warrant Shares
determined pursuant to Section 2(b) of this Warrant in the name of and delivered
to _______________ whose address is _____________________ and (b) if such issued
shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, to deliver a new Warrant of like tenor and
date for the balance of the shares of Common Stock issuable under the Warrant to
the undersigned.

     
 
(Name of Registered Owner)
   
 
   
 
(Signature of Registered Owner)
   
 
   
 
(Street Address)
   
 
   
 
   
 
   
 
(Dated)
   

 

 

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Exhibit B-2
See Attached

 

 

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THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE
DISPOSED OF IN ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT.
Issue Date: October 15, 2009 (the “Issue Date”)
MORGANS HOTEL GROUP CO.
Common Stock Purchase Warrant
Morgans Hotel Group Co. (the “Company”), for value received, hereby certifies
and agrees that YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P., or its
registered assigns (the “Holder”), is entitled, subject to the terms set forth
below, to purchase from the Company, at any time during the Exercise Period (as
defined below), 4,964,420 shares (the “Warrant Shares”) of the Company’s common
stock, par value $0.01 per share (the “Common Stock”), at an initial purchase
price (the “Exercise Price”) per share equal to $6.00. The Exercise Price and
the number of Warrant Shares to be purchased upon exercise of this Warrant are
subject to adjustment as hereinafter provided.
1. Defined Terms.
“Additional Shares” has the meaning ascribed to such term in Section 7(a)(ii).
“Affiliate” has the meaning ascribed to such term in Section 12 of the Exchange
Act; provided, that, the existence of a management contract primarily for
operational services provided by the Company or an Affiliate of the Company
shall not be deemed to be control by the Company or such Affiliate, as the case
may be.
“Appraised Value” per share of Common Stock as of a date specified herein shall
mean the fair market value of a share of Common Stock as of such date as
determined by an investment bank of nationally recognized standing selected
jointly by the Holder and the Company. If the Company and the Holder cannot
agree on a mutually acceptable investment bank, then the Company and the Holder
shall each choose one such investment bank and the respective chosen firms shall
jointly select a third investment bank, which shall make the determination. The
Company shall pay the costs and fees of each such investment bank (including any
such investment bank selected by the Holder), and the decision of the investment
bank making such determination of Appraised Value shall be final and binding on
the Company and the Holder. No discount shall be applied on account of (i) any
Warrants or Warrant Shares representing a minority interest, (ii) any lack of
liquidity of the Common Stock or the Warrants, or (iii) the fact that the
Warrants or Warrant Shares may constitute “restricted securities” for securities
law purposes.

 

 

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“Board of Directors” means the Board of Directors of the Company.
“Business Day” means any day except Saturday, Sunday and any day on which
banking institutions in the State of New York generally are authorized or
required by law or other governmental actions to close.
“Commencement Date” means the earlier of (i) the first Business Day immediately
following the special meeting of stockholders of the Company to approve the
issuance of the Common Stock in connection with the exercise of the Warrants and
(ii) January 15, 2010.
“Common Stock” has the meaning ascribed to such term in the preamble of this
Warrant.
“Company” has the meaning ascribed to such term in the preamble of this Warrant.
“Company Equity” means shares of Common Stock, options to purchase or rights to
subscribe for shares of Common Stock, securities that by their terms are
convertible into or exchangeable for shares of Common Stock, or options to
purchase or rights to subscribe for such convertible or exchangeable securities.
“Competitor” means a person that engages in the business of operating,
licensing, franchising or managing a hotel brand or group of hotels, provided,
that, for the avoidance of doubt, an investment fund or other person or entity
that engages in any such business primarily for investment purposes shall not
constitute a “Competitor” hereunder.
“Exchange Act” means Securities Exchange Act of 1934, as amended.
“Excluded Securities” means (i) any Company Equity issued to current or former
employees, directors or consultants of the Company or its subsidiaries or
Affiliates pursuant to the Company’s stock incentive or compensation plans
approved by the Board of Directors, or (ii) any Company Equity issued by the
Company after the Issue Date in an aggregate amount not to exceed 1,000,000
shares of Common Stock (including securities convertible into or exchangeable
for shares of Common Stock on an “as converted” or “as exchanged” basis) (as
adjusted to account for any (a) stock split, (b) subdivision, (c) dividend or
distribution payable in shares of Common Stock (or other securities or rights
convertible into or entitling the holder thereof to receive directly or
indirectly shares of Common Stock), (d) combination or (e) other similar
recapitalization or event, in each case, occurring after the Issue Date).
“Exercise Cap” has the meaning ascribed to such term in Section 3(a)(i).
“Exercise Date” has the meaning ascribed to such term in Section 2(a).

 

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“Exercise Notice” has the meaning ascribed to such term in Section 2(a).
“Exercise Period” means the period commencing on the Commencement Date and
ending on the Expiration Date
“Exercise Price” has the meaning ascribed to such term in the preamble of this
Warrant.
“Expiration Date” has the meaning ascribed to such term in Section 5.
“Fair Market Value” of a Warrant Share means, as of any date:
(i) if the Common Stock is traded on a securities exchange or quoted on the
Nasdaq Stock Market, the Fair Market Value of a Warrant Share shall be deemed to
be the average of the closing prices over the five Business Day period ending on
the Business Day immediately prior to such date; or
(ii) if clause (i) immediately above is not applicable, the Fair Market Value of
a Warrant Share shall be determined in reasonable good faith by the Board of
Directors; provided, that, the Company shall give the Holder prompt written
notice thereof following any such determination, together with reasonable data
and documentation to support such determination; provided, further, that, for
purposes of Sections 2 and 3 only, if the Holder objects to any such
determination within two Business Days after receiving notice of the same, the
Fair Market Value of a Warrant Share shall be the Appraised Value thereof.
“Gaming Approval” means any approval or consent required under Gaming Laws to be
obtained from any Gaming Authority, including, without limitation, any
registration, finding of suitability or approval of an acquisition of control.
“Gaming Authority” means any governmental entity with regulatory control,
authority or jurisdiction over casino, pari-mutuel, lottery or other gaming
activities and operations within the State of Nevada, including, without
limitation, the Nevada Gaming Commission, the Nevada State Gaming Control Board,
the Clark County Liquor and Gaming Licensing Board and the City of Las Vegas.
“Gaming Event” means a Gaming Approval requirement arises for the Holder, an
Other Holder or a Licensed Affiliate to hold or exercise this Warrant or any
Other Warrants as a result of circumstances primarily caused by the Company or
any of its subsidiaries.
“Gaming Laws” means all laws, regulations, rules, ordinances or other
pronouncements pursuant to which any Gaming Authority possesses regulatory,
licensing or permit authority over casino, pari-mutuel, lottery or other gaming
activities in any jurisdiction, including all rules and regulations established
by any Gaming Authority.
“Gaming Trigger” means a Gaming Approval requirement for the Holder, an Other
Holder or a Licensed Affiliate to hold or exercise this Warrant or any Other
Warrants that does not arise as a result of circumstances primarily caused by
the Holder, an Other Holder or a Licensed Affiliate.

 

3

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“Holder” has the meaning ascribed to such term in the preamble of this Warrant.
“Issue Date” has the meaning ascribed to such term above the preamble of this
Warrant.
“Licensed Affiliate” means a person who is associated or affiliated with the
Holder, an Other Holder or any of their respective Affiliates and is required
under Gaming Laws to obtain a Gaming Approval for the Holder or an Other Holder
to hold, or to exercise in full, the Warrants and the Other Warrants.
“Other Company Equity” means Company Equity (other than Common Stock).
“Other Holders” means the holders of the Other Warrants.
“Other Warrants” means the warrants, other than this Warrant, issued pursuant to
the Purchase Agreement and the warrants issued pursuant to the Real Estate Fund
Formation Agreement (as defined in the Purchase Agreement), in each case, that
are held by Affiliates of the Holder.
“Preferred Securities” means the Preferred Stock, par value $0.01 per share, of
the Company designated as Series A Preferred Securities issued to the Holder and
the Other Holders pursuant to the Purchase Agreement.
“Purchase Agreement” means the Securities Purchase Agreement, dated as of the
Issue Date, by and among the Company, the Holders and the Other Holders.
“Redemption Date” has the meaning ascribed to such term in Section 3(b)(iii).
“Redemption Price” means, with respect to any portion of the Warrant being
redeemed pursuant to Section 3(b) as of a Redemption Date, the number of Warrant
Shares underlying such portion of the Warrant multiplied by an amount equal to
(A) the Fair Market Value as of the Redemption Date less (B) the Exercise Price
as of the Redemption Date.
“Securities Act” has the meaning ascribed to such term in Section 11(a).
“Seventh Anniversary” means the seventh anniversary of the Issue Date.
“Third Anniversary” has the meaning ascribed to such term in Section 11(b)(i).
“Warrant” means this Warrant originally issued pursuant to the Purchase
Agreement, and all other warrants issued upon transfer, division or combination
of, or in substitution for, this Warrant or such other warrants.
“Warrant Shares” has the meaning ascribed to such term in the preamble of this
Warrant.
“Yucaipa Fund Holder” has the meaning ascribed to such term in Section 11(b)(i).

 

4

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2. Method of Exercise.
(a) This Warrant may be exercised by the Holder at any time and from time to
time during the Exercise Period for all or any portion of the number of Warrant
Shares purchasable hereunder. In order to exercise this Warrant, in whole or in
part, the Holder shall deliver this Warrant, together with a duly executed copy
of the form of notice of exercise attached hereto as Attachment A (together, the
“Exercise Notice”), to the Company at its principal offices prior to 1:00 p.m.,
New York City time, on a Business Day, which Exercise Notice shall specify the
number of Warrant Shares subject to such Exercise Notice (the date on which such
delivery shall have taken place being referred to as the “Exercise Date”). The
Exercise Date for any Exercise Notice delivered to the Company after 1:00 p.m.,
New York City time, on any Business Day shall be the next succeeding Business
Day.
(b) Upon each exercise of the Warrant, the Company shall issue to the Holder a
number of shares of Warrant Shares computed using the following formula:

        X =  Y * (A-B)       A  

Where:

  X =  
the number of Warrant Shares to be issued to the Holder.
    Y =  
the number of Warrant Shares purchasable under the Warrant or, if only a portion
of the Warrant is being exercised, the number of Warrant Shares subject to the
applicable Exercise Notice.
    A =  
the Fair Market Value as of the Exercise Date.
    B =  
the Exercise Price (as adjusted to the Exercise Date).
    * =  
multiplied by.

(c) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which the Exercise
Notice shall have been delivered to the Company as provided above. As soon as
practicable after each exercise of this Warrant, and in any event within three
Business Days thereafter, the Company shall execute (or cause to be executed)
and deliver (or cause to be delivered) to the Holder a certificate or
certificates representing the aggregate number of full Warrant Shares issuable
and issued upon such exercise, together with cash in lieu of any fraction of a
share (as provided in Section 2(d) below). The stock certificate or certificates
so delivered shall be, to the extent possible, in such denomination or
denominations as the exercising Holder shall reasonably request in the Exercise
Notice or otherwise and shall be registered in the name of the Holder or,
subject to Section 11, such other name as shall be designated in the Exercise
Notice. Unless the applicable Exercise Notice is revoked as provided in
Section 3(a)(i), this Warrant shall be deemed to have been exercised, and such
stock certificate or certificates shall be deemed to have been issued, and the
Holder or any other person so designated to be named therein shall be deemed to
have become a holder of record of the shares of Common Stock evidenced by such
stock certificate or certificates for all purposes, as of the Exercise Date.

 

5

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(d) No fractional shares of any security will be issued in connection with any
exercise hereunder. As to any fraction of a share that would otherwise be
issuable, the Company shall pay cash equal to such fraction multiplied by the
Fair Market Value as of the applicable Exercise Date.
(e) If this Warrant shall have been exercised in part, the Company shall, not
later than the time of delivery of the certificate or certificates representing
the Warrant Shares being issued pursuant to such exercise, deliver to the Holder
a new Warrant evidencing the rights of the Holder to purchase the unexercised
Warrant Shares subject to this Warrant. Such new Warrant shall in all other
respects be identical to this Warrant.
(f) The Company hereby represents and warrants to the Holder that all Warrant
Shares issuable and issued upon the exercise of this Warrant pursuant to the
terms hereof will be validly issued, fully paid and nonassessable, issued
without violation of any preemptive rights and issued free and clear of any
lien, encumbrance, security interest, pledge, mortgage, hypothecation, charge,
adverse claim, title retention agreement of any nature or kind, or other
encumbrance, except as provided for under applicable securities laws and Gaming
Laws. The Company shall pay all of its expenses in connection with, and all
issuance, transfer, stamp and other similar taxes and other governmental charges
that may be imposed upon it with respect to, the exercise of this Warrant or the
issue or delivery of Warrant Shares hereunder.
3. Exercise Cap; Redemptions.
(a) Exercise Cap.
(i) Subject to Section 3(a)(ii), the Holder shall not be entitled to exercise
its rights to purchase Warrant Shares hereunder to the extent, and only to the
extent, such exercise would cause such Holder, together with its Affiliates, to
become the beneficial owner of more than 9.9% of the issued and outstanding
shares of the Common Stock, as determined pursuant to Section 13 of the Exchange
Act (the “Exercise Cap”). The Company shall, within one Business Day of delivery
by Holder of an Exercise Notice, notify the Holder in writing of (A) the number
of Warrant Shares that would be issuable to the Holder if such exercise
requested in such Exercise Notice were effected in full and (B) the number of
issued and outstanding shares of the Common Stock (as determined pursuant to
Section 13 of the Exchange Act) as of the most recent date such information is
available to the Company, whereupon, notwithstanding anything to the contrary
set forth herein, the Holder may within one Business Day of its receipt of the
notice from the Company required by this Section revoke such Exercise Notice to
the extent that it determines that such exercise would result in the Holder,
together with its Affiliates, owning in excess of 9.9% of the issued and
outstanding shares of Common Stock, as determined pursuant to Section 13 of the
Exchange Act.

 

6

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(ii) Notwithstanding anything to the contrary herein, Section 3(a)(i) shall not
limit a Holder from exercising all or any portion of the Warrant if: (A) the
Holder, the Other Holders and the Licensed Affiliates have obtained all Gaming
Approvals necessary to hold, and to exercise in full, the Warrants and the Other
Warrants, and the Holder has notified the Company in writing thereof and has not
revoked such notification, or (B) none of the Holder, the Other Holders or the
Licensed Affiliates are required under the Gaming Laws to obtain any Gaming
Approval to hold, or to exercise in full, the Warrants and the Other Warrants
(e.g., the Company does not own or hold any assets or rights that subject it to
the authority or jurisdiction of a Gaming Authority), and the Holder has
notified the Company in writing thereof and has not revoked such notification.
In connection with the foregoing, the Company shall use its reasonable best
efforts to keep the Holder apprised of all material facts pertaining to the
business and affairs of the Company which have, or would reasonably be expected
to have, a bearing upon the determination of whether any such Gaming Approvals
are or continue to be required, including, without limitation, information
pertaining to any acquisitions or dispositions of assets by the Company or any
of its Affiliates that are subject to regulation under Gaming Laws, and shall,
upon request from the Holder from time to time, provide any documents and
records in its possession or in the possession of its Affiliates (to the extent
available to the Company) that the Holder reasonably requests in order to
determine whether such Gaming Approvals are required; provided, that, prior to
receiving any documents and records, the Holder shall agree to comply with the
Company’s insider trading policies as in effect and shall agree to keep the
information contained therein confidential, including to the extent required so
that the Company’s provision of such documents and records does not cause the
Company to breach any confidentiality agreement to which it is a party.
(b) Redemption.
(i) In the event that the stockholders of the Company do not duly approve
(including, without limitation, approval pursuant to the corporate governance
requirements and listing rules promulgated by the Nasdaq Stock Market, including
Rule 5635 thereof) the issuance of Common Stock in connection with the exercise
of the Warrants and the Other Warrants, on or prior to January 15, 2010, the
Holder shall thereafter have the right, at any time and from time to time during
the Exercise Period, to cause the Company to redeem at the Redemption Price up
to 2,025,483 Warrant Shares (subject to adjustment on the same basis as is the
number of shares for which this Warrant is exercisable as a result of an event
specified in Section 7(a), 7(b), 7(c), 7(d) or 7(e)).
(ii) In the event of a Gaming Event, the Holder shall thereafter have the right,
at any time and from time to time during the Exercise Period, to cause the
Company to redeem at the Redemption Price a portion of the Warrant such that the
Holder, the Other Holders and the Licensed Affiliates are not required to
receive any Gaming Approvals to continue to hold the Warrant or to exercise the
Warrant in the manner contemplated herein.

 

7

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(iii) In order to exercise its redemption rights, in whole or in part, pursuant
to this Section 3(b), the Holder shall deliver this Warrant, together with a
written notice setting forth the portion of the Warrant being redeemed pursuant
to such notice (designated by the number of Warrant Shares underlying such
portion of the Warrant), whether such redemption is pursuant to Section 3(b)(i)
or 3(b)(ii) and wire transfer instructions to which the Company is to send the
cash payment to the Holder of the Redemption Price, to the Company at its
principal offices prior to 1:00 p.m., New York City time, on a Business Day, and
such redemption shall be effective as of the close of business on the day such
notice is received by the Company (a “Redemption Date”). The Redemption Date for
any redemption notice delivered to the Company after 1:00 p.m., New York City
time, on any Business Day shall be the next succeeding Business Day. As soon as
practicable after each such Redemption Date, and in any event within five
(5) Business Days thereafter, the Company shall send to the Holder by wire
transfer of immediately available funds the Redemption Price for the redemption
on such Redemption Date, together with written notice of its calculation of the
Redemption Price, and a new Warrant evidencing the rights of the Holder with
respect to the portion of the Warrant that was not redeemed, and such new
Warrant shall in all other respects be identical to this Warrant.
4. No Impairment; Regulatory Compliance and Cooperation; Gaming Trigger.
(a) The Company will not, by amendment of its certificate of incorporation or
through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the material terms of this Warrant, but will at all times in good
faith assist in carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
Holder of this Warrant against impairment. Without limiting the generality of
the foregoing, the Company will (i) take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of Common Stock upon the exercise of this Warrant and
(ii) obtain all such authorizations, exemptions or consents from any regulatory
body having jurisdiction thereof as may be necessary to enable the Company to
perform its obligations under this Warrant.
(b) Notwithstanding anything the contrary herein, if any exercise of all or any
portion of this Warrant pursuant to Section 2, a redemption of all of any
portion of this Warrant pursuant to Section 3(b) or a transfer of all or any
portion of this Warrant pursuant to Section 11 requires the consent, approval,
waiver, or authorization of any governmental authority or any third party
(including, without limitation, the Nasdaq Stock Market) as a condition to the
lawful and valid exercise, redemption or transfer, as the case may be, then each
of the time periods provided in Section 2, Section 3(b), or Section 11, as
applicable, for the consummation thereof shall be suspended for the period of
time during which any such consent, approval, waiver, or authorization is being
pursued, and if and to the extent that any such suspension causes the
consummation thereof to occur after the intended Expiration Date, then such
Expiration Date shall be extended to (i) in the event of an exercise or
redemption, the date of consummation thereof, and (ii) in the event of a
transfer, 30 days following the date of consummation thereof. The Company agrees
to use its reasonable best efforts to obtain, or to assist the affected person
in obtaining, any such consent, approval, waiver, or authorization (it being
understood that the Company and its subsidiaries shall not have to enter into
any agreements restricting the conduct of their business or agree to dispose of
any assets or rights) and shall cooperate and use its reasonable best efforts to
respond as promptly as practicable to all inquiries received by it or by the
affected person from any governmental authority for initial or additional
information or documentation in connection therewith. The Company and the Holder
shall each bear their own costs and expenses in connection with this
Section 4(b), except that in the case of filing fees for any notification and
report forms contemplated by the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (and the rules and regulations promulgated thereunder), the
Company shall promptly reimburse the holders of Warrants and Other Warrants up
to $22,500 of such fees in the aggregate upon written request therefor.

 

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(c) In the event of a Gaming Trigger that is not a Gaming Event, upon notice
thereof by the Holder to the Company, the Company and the Holder shall meet and
cooperate promptly and in good faith to amend and/or restructure this Warrant
such that (i) the Holder continues to receive, to the greatest extent
practicable, the intended economic benefits hereunder, (ii) the Company
continues to receive, to the greatest extent practicable, the intended economic
benefits hereunder and (iii) the Holder, the Other Holders and the Licensed
Affiliates are not required to obtain any Gaming Approvals to hold or to
exercise this Warrant or any Other Warrants.
5. Expiration. This Warrant and the right to purchase Warrant Shares upon
exercise hereof shall expire at 11:59 p.m. New York City time on April 15, 2017
(as may be extended pursuant to Section 4(b), the “Expiration Date”).
6. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of the Common Stock for the
purpose of entitling or enabling them to receive any dividend or other
distribution, or to receive any right to subscribe for or purchase any shares of
stock or any class or any other securities, or to receive any other right, or
(b) of any capital reorganization of the Company, any reclassification of the
capital stock of the Company, any consolidation or merger of the Company, any
consolidation or merger of the Company with or into another corporation, or any
transfer of all or substantially all of the assets of the Company in any one
transaction or a series of related transactions, or
(c) of the voluntary or involuntary dissolution, liquidation or winding-up of
the Company, or
(d) the Company shall grant to the holders of its Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class,
then, and in each such case:
the Company will mail or cause to be mailed to the Holder of this Warrant a
notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the
estimated effective date on which such reorganization, reclassification,
consolidation, merger, transfer, dissolution, liquidation or winding-up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of the Common Stock shall be entitled to exchange their shares for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 calendar days prior to the
record date or effective date for the event specified in such notice. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action on the Exercise Price
and the number and kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon exercise of this Warrant.

 

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7. Adjustment of Number of Warrant Shares and Exercise Price. The number and
kind of Warrant Shares and the Exercise Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows; provided,
that, if more than one subsection of this Section 7 is applicable to a single
event, the subsection that produces the largest adjustment shall be applied, and
no single event shall cause an adjustment under more than one subsection of this
Section 7 to the extent of any resulting duplication:
(a) Upon Certain Issuances of Common Stock.
(i) If the Company shall, at any time on or prior to the first anniversary of
the Issue Date, issue (1) any shares of Common Stock without consideration or
for consideration per share of $4.00 (as adjusted to account for any (a) stock
split, (b) subdivision, (c) dividend or distribution payable in shares of Common
Stock (or other securities or rights convertible into or entitling the holder
thereof to receive directly or indirectly shares of Common Stock),
(d) combination or (e) other similar recapitalization or event, in each case,
occurring after the Issue Date) or less or (2) Other Company Equity without
consideration or for consideration per share less than the Exercise Price in
effect immediately prior to the issuance of such Other Company Equity, in each
case of clause (1) and (2), other than Excluded Securities, then the Exercise
Price shall forthwith be reduced to a price equal to the consideration per share
for which such shares of Common Stock or Other Company Equity are issued (plus,
with respect to options or rights, the additional consideration required to be
paid upon exercise of such options or rights).
(ii) If the Company shall, at any time on or prior to the first anniversary of
the Issue Date, issue any shares of Common Stock for consideration per share of
greater than $4.00 (as adjusted to account for any (a) stock split,
(b) subdivision, (c) dividend or distribution payable in shares of Common Stock
(or other securities or rights convertible into or entitling the holder thereof
to receive directly or indirectly shares of Common Stock), (d) combination or
(e) other similar recapitalization or event, in each case, occurring after the
Issue Date) and less than the Exercise Price in effect immediately prior to the
issuance of such shares (the shares being so issued being referred to herein as
the “Additional Shares”), other than Excluded Securities, then the Exercise
Price shall forthwith be reduced to a price equal to such Exercise Price
multiplied by a fraction, (1) the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock which the aggregate consideration received by
the Company for the total number of Additional Shares would purchase at the
Exercise Price in effect immediately prior to such issuance, and (2) the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of such Additional Shares so
issued.

 

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(iii) For the purposes of any adjustment of the Exercise Price pursuant to this
Section 7(a), the following provisions shall be applicable:
(1) In the case of the issuance of Common Stock for cash in whole or in part,
whether in a public offering, private placement or otherwise, the cash
consideration shall be deemed to be the amount of cash paid therefor without any
deduction therefrom, including for any expenses or discounts, commissions or
placement fees payable by the Company to any underwriter or placement agent in
connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for consideration in whole or in
part other than cash, the consideration other than cash shall be deemed to be
the fair market value thereof as reasonably determined by the Board of
Directors, which determination shall be promptly provided in writing to the
Holder.
(3) In the case of the issuance of options to purchase or rights to subscribe
for Common Stock, securities by their terms convertible into or exchangeable for
Common Stock, or options to purchase or rights to subscribe for such convertible
or exchangeable securities, except for Excluded Securities:
(A) the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such options to purchase or rights to subscribe for Common Stock
shall be deemed to have been issued at the time such options or rights were
issued and for a consideration equal to the consideration (determined in the
manner provided in clauses (1) and (2) immediately above), if any, received by
the Company upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
(B) the aggregate maximum number of shares of Common Stock deliverable upon
conversion of or in exchange of any such convertible or exchangeable securities
or upon the exercise of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such securities,
options, or rights were issued and for a consideration equal to the
consideration received by the Company for any such securities and related
options or rights (excluding any cash received on account of accrued interest or
accrued dividends), plus the additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities or the exercise
of any related options or rights (the consideration in each case to be
determined in the manner provided in clauses (1) and (2) immediately above);
(C) on any change in the number of shares or exercise price of Common Stock
deliverable upon exercise of any such options or rights or conversions of or
exchanges for such securities prior to the first anniversary of the Issue Date,
other than a change resulting from the antidilution provisions thereof, the
applicable Exercise Price shall forthwith be readjusted to such Exercise Price
as would have been obtained had the adjustment made upon the issuance of such
options, rights or securities not converted prior to such change or options or
rights related to such securities not converted prior to such change been made
upon the basis of such change; and

 

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(D) no further adjustment of the Exercise Price adjusted upon the issuance of
any such options, rights, convertible securities or exchangeable securities
shall be made as a result of the actual issuance of Common Stock on the exercise
of any such rights or options or any conversion or exchange of any such
securities.
(b) Upon Stock Dividends or Splits. If, at any time after the Issue Date, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, effective as of the record date for the determination of
holders of Common Stock entitled to receive such stock dividend, or to be
affected by such subdivision or split-up, the Exercise Price shall be
appropriately decreased so that the number of shares of Common Stock purchasable
on exercise of this Warrant shall be increased in proportion to such increase in
outstanding shares.
(c) Upon Combinations. If, at any time after the Issue Date, the number of
shares of Common Stock outstanding is decreased by a combination of the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, then, following the record date to determine shares affected by such
combination, the Exercise Price shall be appropriately increased so that the
number of shares of Common Stock purchasable on exercise of this Warrant shall
be decreased in proportion to such decrease in outstanding shares.
(d) Upon Reclassifications, Reorganizations, Consolidations or Mergers. In the
event of any capital reorganization of the Company, any reclassification of the
stock of the Company (other than a change in par value or from par value to no
par value or from no par value to par value or as a result of a stock dividend
or subdivision, split-up or combination of shares), or any consolidation or
merger of the Company with or into another corporation (where the Company is not
the surviving corporation or where there is a change in or distribution with
respect to the Common Stock), this Warrant shall after such reorganization,
reclassification, consolidation, or merger be exercisable for the kind and
number of shares of stock or other securities or property of the Company or of
the successor corporation resulting from such consolidation or surviving such
merger, if any, to which the holder of the number of Warrant Shares underlying
this Warrant (immediately prior to the time of such reorganization,
reclassification, consolidation or merger) would have been entitled upon such
reorganization, reclassification, consolidation or merger; provided, that, if
the holders of Common Stock have the right to elect the kind or amount of
consideration receivable upon consummation of any such reorganization,
reclassification, consolidation or merger, then the consideration that the
Holder shall be entitled to receive upon exercise of this Warrant shall be the
types and amounts of consideration received by the majority of all holders of
the shares of Common Stock that affirmatively make an election (or of all such
holders if none make an election). The provisions of this clause shall similarly
apply to successive reorganizations, reclassifications, consolidations, or
mergers.
(e) Other Distributions. In case the Company shall fix a record date for the
making of a distribution to all holders of shares of its Common Stock of
securities, evidences of indebtedness, assets, cash, rights or warrants, in each
such case, the Exercise Price in effect prior to such record date shall be
reduced immediately thereafter to the price determined by multiplying the
Exercise Price in effect immediately prior to the reduction by the quotient of
(x) the Fair Market Value as of the last trading day preceding the first date on
which the Common Stock trades regular way on the principal national securities
exchange or quotation system on which the Common Stock is listed or admitted to
trading without the right to receive such distribution, minus the amount of cash
and/or the fair market value of the securities, evidences of indebtedness,
assets, rights or warrants to be so distributed, as reasonably determined by the
Board of Directors, in respect of one share of Common Stock divided by (y) such
Fair Market Value on such date specified in clause (x); such adjustment shall be
made successively whenever such a record date is fixed.

 

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(f) Adjustment of Number of Shares Purchasable. Upon any adjustment of the
Exercise Price as provided in Section 7(b), 7(c), 7(d) or 7(e), the Holder shall
thereafter be entitled to purchase upon the exercise thereof, at the Exercise
Price resulting from such adjustment, the number of shares of Common Stock
(calculated to the nearest 1/100th of a share) obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares underlying this Warrant and dividing the product thereof by the
Exercise Price resulting from such adjustment.
(g) Rounding of Calculations; Minimum Adjustments. All calculations under this
Section 7 shall be made to the nearest one-tenth (1/10th) of a cent or to the
nearest one-hundredth (1/100th) of a share, as the case may be. Any provision of
this Section 7 to the contrary notwithstanding, no adjustment in the Exercise
Price or the number of shares of Common Stock into which this Warrant is
exercisable shall be made if the amount of such adjustment would be less than
$0.01 or one-tenth (1/10th) of a share of Common Stock, but any such amount
shall be carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
$0.01 or 1/10th of a share of Common Stock, or more.
(h) Notice of Adjustment. Whenever the terms of this Warrant are adjusted
pursuant to this Section or pursuant to any other applicable provision hereof,
the Company shall deliver to the Holder in accordance with the notice provisions
below a certificate signed by the Company’s President or Chief Financial Officer
describing, in reasonable detail, the change or event requiring such adjustment
and the newly adjusted Exercise Price and, as applicable, the kind and amount of
shares, securities or other property purchasable hereunder after giving effect
to such adjustment.
(i) Proceedings Prior to Any Action Requiring Adjustment. As a condition
precedent to the taking of any action that would require an adjustment pursuant
to this Section 7, the Company shall take any and all actions that may be
necessary, including obtaining regulatory, the Nasdaq Stock Market or other
applicable national securities exchange or stockholder approvals or exemptions,
in order that Company may thereafter validly and legally issue as fully paid and
nonassessable all shares of Common Stock that the Holder is entitled to receive
upon exercise of this Warrant.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for the issuance and delivery upon the exercise of this
Warrant, such Common Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant. All securities
which shall be so issuable, when issued upon exercise of the Warrant in
accordance herewith, shall be duly and validly issued and fully paid and
nonassessable, and not subject to preemptive rights.

 

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9. Replacement of Warrants. Upon delivery by the Holder to the Company of
evidence reasonably satisfactory to the Company (such as an affidavit of the
Holder) of the loss, theft, destruction or mutilation of this Warrant and (in
the case of loss, theft or destruction) upon delivery of an indemnity agreement
(with surety if reasonably required) in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of this
Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor
and dated as of the Issue Date.
10. No Rights as Stockholder. Until the exercise of this Warrant, the Holder of
this Warrant shall not have or exercise any rights by virtue hereof as a
stockholder of the Company.
11. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant Shares issuable upon
the exercise hereof have been registered under the Securities Act of 1933, as
amended (the “Securities Act”), or under any state securities laws and unless so
registered may not be transferred, sold, pledged, hypothecated or otherwise
disposed of unless an exemption from such registration is available, including
if the Warrant or the Warrant Shares are sold in accordance with Rule 144
promulgated under the Securities Act or any successor rule or regulation
hereafter adopted by the Securities and Exchange Commission.
(b) Restrictions on Transfer.
(i) Subject to Section 5.9 of the Purchase Agreement, the Holder shall not
pledge, sell, encumber, assign or otherwise transfer all or any portion of this
Warrant prior to the third anniversary date of the Issue Date (the “Third
Anniversary”); provided, that, nothing in this clause (i) shall restrict the
rights of a holder of this Warrant that is an investment fund under common
control with The Yucaipa Companies, LLC (a “Yucaipa Fund Holder”) to sell,
assign or otherwise transfer (A) all or any portion of this Warrant to a
subsidiary of such Yucaipa Fund Holder or to another Yucaipa Fund Holder
(including an “alternative investment vehicle” that is affiliated with such
Yucaipa Fund Holder) or (B) all of this Warrant to the persons directly holding
the equity interests in the Yucaipa Fund Holder in connection with a liquidation
of such Yucaipa Fund Holder in accordance with the provisions of the constituent
documents of such Yucaipa Fund Holder.
(ii) On and after the Third Anniversary, the Holder may pledge, sell, encumber,
assign or otherwise transfer all or any portion of this Warrant to any person,
other than a Competitor; provided, that, if any Preferred Securities are
outstanding on the Seventh Anniversary, unless and until all such Preferred
Securities have been redeemed, the foregoing restriction on pledges, sales,
encumbrances, assignments or transfers to Competitors shall not be applicable.

 

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(iii) The Holder may pledge, sell, encumber, assign, or otherwise transfer any
or all shares of Common Stock received upon exercise of this Warrant to any
person, other than a Competitor; provided, that, if any Preferred Securities are
outstanding on the Seventh Anniversary, unless and until all such Preferred
Securities have been redeemed, the foregoing restriction on pledges, sales,
encumbrances, assignments or transfers to Competitors shall not be applicable.
(c) Transfer Notice. Promptly following the sale, assignment or other transfer
of all or a portion of this Warrant, the Holder shall surrender this Warrant to
the Company, together with written notice of (i) the name, address, telephone
number and facsimile number of the transferee and (ii) the portion of this
Warrant so transferred (designated by the number of Warrant Shares underlying
such portion of the Warrant). Promptly following delivery by the Holder of such
notice, the Company shall promptly (and in any event within 7 days thereafter)
(A) deliver to the designated transferee a new Warrant evidencing the rights of
such transferee to purchase the Warrant Shares in the denominations as set forth
in such notice, (B) if applicable, deliver to the Holder a new Warrant
evidencing the balance of this Warrant not assigned by the Holder, and (C)
register on the books and records of the Company such transfer. Such new
Warrants shall in all other respects be identical to this Warrant. All or any
portion of this Warrant, if properly assigned in compliance with this
Section 11, may be exercised by the new Holder for the purchase of shares of
Common Stock without having a new Warrant issued.
(d) Legends. Unless the Warrant Shares have been registered under the Securities
Act or transferred pursuant to Rule 144 to a person who is not an affiliate of
the Company, it is understood and agreed that any Warrant or certificate
representing Warrant Shares shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE
SECURITIES LAWS. THE SECURITIES REPRESENTED BY THIS INSTRUMENT MAY NOT BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE
DISPOSED OF IN ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT
FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE SECURITIES ACT.
(e) Rule 144 Information. The Company covenants that it will use its reasonable
best efforts to file timely all reports and other documents required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations promulgated by the Securities and Exchange Commission thereunder
(or, if the Company is not required to file such reports, it will, upon the
request of the Holder, make publicly available such information as necessary to
permit sales pursuant to Rule 144 under the Securities Act), and it will use its
reasonable best efforts to take such further action as a Holder may reasonably
request, in each case, to the extent required from time to time to enable the
Holder to, if permitted by the terms of this Warrant, sell this Warrant without
registration under the Securities Act within the limitations of the exemptions
provided by (A) Rule 144 under the Securities Act, as such rule may be amended
from time to time, or (B) any successor rule or regulation hereafter adopted by
the Securities and Exchange Commission. Upon the written request of the Holder,
the Company will deliver to such Holder a written statement that it has complied
with such requirements.

 

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12. Miscellaneous.
(a) Delivery of Notices, etc. All notices and other communications from the
Company to the Holder of this Warrant shall be sufficiently made if sent by
first class mail, postage prepaid, personal delivery or by facsimile to the
address or facsimile number, as applicable, of such Holder appearing on the
books of the Company maintained for such purpose (as changed by the Holder from
time to time by like notice). All notices and other communications from the
Holder of this Warrant or in connection herewith to the Company, including any
Exercise Notice or notice of redemption pursuant to Section 3(b), shall be
sufficiently made if sent by first class mail, postage prepaid, personal
delivery or by facsimile to the address or facsimile number, as applicable, of
the Company at its principal offices as shown below or as changed by the Company
from time to time by like notice. Any notice and other communication in
accordance with this Section 12(a) shall be deemed to be delivered, given and
received for all purposes as of: (i) three Business Days immediately following
the date sent, if sent by first class mail, postage prepaid, (ii) the date so
delivered, if delivered personally, and (iii) the date sent, if sent by
facsimile.
(b) Nonwaiver. No course of dealing or any delay or failure to exercise any
right hereunder on the part of the Company or the Holder shall operate as a
waiver of such right or otherwise prejudice the rights, powers or remedies of
such person.
(c) Limitation of Liability. No provision hereof, in the absence of affirmative
action by the Holder to purchase shares of Common Stock, and no enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of such Holder to pay the Exercise Price for any Warrant Shares other
than pursuant to an exercise of this Warrant or give rise to any status of or
liability as a stockholder of the Company, whether such status or liability is
asserted by the Company or by creditors of the Company.
(d) Remedies. Each Holder of Warrants and/or Warrant Shares, in addition to
being entitled to exercise its rights granted by law, including recovery of
damages, shall be entitled to specific performance of its rights provided under
this Warrant. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Warrant and hereby agrees, in an action for specific performance, to
waive the defense that a remedy at law would be adequate.
(e) Saturdays, Sundays, Holidays, etc. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall not be a Business Day, then such action may be taken or such right may be
exercised on the next succeeding day that is a Business Day.
(f) Change or Waiver. Any term of this Warrant may be changed or waived only by
an instrument in writing signed by the party against which enforcement of the
change or waiver is sought. Notwithstanding the foregoing, the Holder may, by
written notice to the Company at any time and from time to time, reduce the
Exercise Cap hereunder to a lower percentage.

 

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(g) Successors and Assigns. Subject to the terms hereof, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the permitted successors and assigns of the Holder
hereof. The provisions of this Warrant are intended to be for the benefit of all
Holders from time to time of this Warrant and to the extent applicable, all
Holders of Warrant Shares issued upon the exercise hereof (including
transferees), and shall be enforceable by any such Holder.
(h) Severability. Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
(i) Headings. The headings in this Warrant are for purposes of reference only
and shall not limit or otherwise affect the meaning of any provision of this
Warrant.
(j) Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of New York.

            MORGANS HOTEL GROUP CO.
      By:   /s/ Marc Gordon         Name:   Marc Gordon        Title:  
President        Principal Office:

475 Tenth Ave.
New York, New York 10018
Facsimile Number: (212) 277-4280
Attention: Corporate Secretary
   

[Base Warrant]

 

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ATTACHMENT A
NOTICE OF EXERCISE
Morgans Hotel Group Co. (the “Company”)
Attention: Corporate Secretary
The undersigned Holder of this Warrant exercises [this Warrant in full] [a
portion of this Warrant for [_______] shares of Common Stock of the Company], on
a net exercise basis in accordance with Section 2(b) of this Warrant, and hereby
instructs the Company (a) to issue certificates for a number of Warrant Shares
determined pursuant to Section 2(b) of this Warrant in the name of and delivered
to __________________ whose address is __________________ and (b) if such issued
shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, to deliver a new Warrant of like tenor and
date for the balance of the shares of Common Stock issuable under the Warrant to
the undersigned.

     
 
(Name of Registered Owner)
   
 
   
 
(Signature of Registered Owner)
   
 
   
 
(Street Address)
   
 
   
 
   
 
   
 
(Dated)
   

 

 

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Exhibit C
See Attached

 

 

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Execution Copy
REAL ESTATE FUND FORMATION AGREEMENT
This Real Estate Fund Formation Agreement (this “Agreement”), dated as of
October 15, 2009, is entered into by and between Yucaipa American Alliance Fund
II, LLC, a Delaware limited liability company (“Yucaipa”), and Morgans Hotel
Group Co., a Delaware corporation (“MHG”). In consideration of the promises and
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
1. The Fund. Yucaipa and MHG shall use good faith efforts to endeavor to raise a
private investment fund (the “Fund”) in accordance with subparagraphs (a)
through (g) of this Section 1:
(a) The purpose of the Fund will be to, subject to reasonable exceptions to be
mutually agreed by Yucaipa and MHG, invest in (i) hotel real estate projects
located in North America (including, without limitation, (x) the acquisition,
development or redevelopment of hotel real estate projects and (y) investments
in, or acquisitions, development or redevelopment of, condominiums, bars,
restaurants, retail establishments, entertainment venues and other business
ventures located within or reasonably related to any hotel real estate project
described in the foregoing clause (y)) directly or indirectly undertaken by MHG
or any of its subsidiaries where there is the opportunity to own at least a 20%
equity interest in such project and to make an equity investment of at least
$10,000,000 (each such project, a “Qualified Morgans Project”) (each underlying
hotel of a Qualified Morgans Project in which the Fund invests, a “Fund Morgans
Hotel”) and (ii) such other hotel real estate projects that are related to first
class full-service hotels as determined by the General Partner; provided that no
hotel real estate project located in North America that had been undertaken by a
person without the participation of MHG or any of its subsidiaries shall be
deemed to be a Qualified Morgans Project if (A) such project is subsequently
acquired by MHG or any of its subsidiaries in connection with the acquisition by
MHG or such subsidiary of such project together with (I) assets other than hotel
real estate projects or (II) hotel real estate projects that are located outside
of North America and (B) a majority of the value of the assets being acquired in
such acquisition (as measured based on allocable purchase price at the time of
such acquisition) arises from the portion of such assets that are either (I)
assets other than hotel real estate projects or (II) hotel real estate projects
that are located outside of North America.

 

 

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(b) The Fund will have the first right to fund up to the entire equity
investment (but excluding any portion reserved for co-investment by MHG pursuant
to the last sentence of this Section 1(b)) in (i) each Qualified Morgans Project
and (ii) other hotel real estate projects to be mutually agreed by Yucaipa and
MHG (such right, the “Investment Rights”). MHG will not, and will cause its
subsidiaries and the Non-Yucaipa Key Professionals (as defined below) to not,
invest in, or cause to be offered to any person, the opportunity to invest or
otherwise participate in any project (including, without limitation, any
Qualified Morgans Project) that is subject to the Investment Rights, in each
case, except to the extent the Fund has been offered in accordance with this
Agreement, and the Fund has declined, such opportunity. The Fund will be deemed
to have declined an opportunity if the Fund does not accept such opportunity
within 30 calendar days after being offered such opportunity in accordance with
this Agreement. The General Partner shall use its reasonable best efforts to
complete, and MHG shall use its reasonable best efforts to provide promptly to
the General Partner such information as the General Partner may reasonably
request in order to facilitate the completion of, the General Partner’s due
diligence review of such opportunity within such 30-calendar-day period. If the
Fund has been offered such opportunity in accordance with this Agreement, and
the Fund has declined any portion of such opportunity, then MHG, its affiliates
and the Non-Yucaipa Key Professionals may invest or otherwise participate in
such portion on its own or with one or more third parties; provided that such
investment or participation must be on terms and conditions no more favorable,
taken as a whole, to any such participating party in any material respect than
the terms and conditions that were offered to, and declined by, the Fund, unless
(x) such more favorable terms and conditions are offered to the Fund in
accordance with this Agreement and (y) the Fund does not elect, within seven
calendar days after such offer, to invest in such opportunity upon such more
favorable terms and conditions. If the Fund invests in any Qualified Morgans
Project, MHG may, in MHG’s sole discretion, elect to co-invest with the Fund, on
a pari passu basis with the Fund and upon terms and conditions no more favorable
to MHG than the terms and conditions applicable to the Fund’s investment in such
Qualified Morgans Project, in such amount as MHG shall determine up to 20% of
the aggregate equity investment of the Fund and MHG in such Qualified Morgans
Project.
(c) The Investment Rights will commence as of the closing of the Fund at which
aggregate capital commitments to the Fund equal or exceed $100,000,000 and will
terminate upon the earliest to occur of (i) the expiration of the Fund’s
commitment period, (ii) the date on which the Fund has invested or committed to
invest at least 85% of the aggregate capital commitments to the Fund, and
(iii) the fifth anniversary of the date hereof.
(d) The aggregate capital commitments of the General Partner (as defined below)
and its affiliates to the Fund (the “GP Commitment”) will be equal to 5% of the
aggregate capital commitments to the Fund; provided that in no event will the GP
Commitment be required to exceed $25,000,000.
(e) The targeted size of the Fund will be between $250,000,000 and $500,000,000
in aggregate capital commitments to the Fund.

 

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(f) The Fund will be subject to governance and investor rights satisfactory to
Yucaipa and MHG. The Fund will be entitled to consent rights over certain
actions of MHG with respect to Fund Morgans Hotels and each other Fund hotel
owned by the Fund that is managed by MHG or a subsidiary of MHG. The material
terms and conditions of each Fund Morgans Hotel and each other Fund hotel owned
by the Fund that is managed by MHG or a subsidiary of MHG, including, without
limitation, the acquisition and the corresponding renovation/development scope
and budget, will be mutually decided by the Fund and MHG. Furthermore, if MHG or
any of its subsidiaries co-invests in a Qualified Morgans Project, major
decisions of the applicable joint venture established with respect to the
underlying Fund Morgans Hotel will be mutually decided upon by the Fund and MHG.
Such major decisions will include, without limitation, capital expenditures in
excess of applicable reserves or budgets, financings, dispositions and approvals
of operating and capital budgets.
(g) Except as contemplated by this Agreement (including, without limitation,
subparagraphs (a) through (g) of this Section 1) or otherwise mutually agreed by
Yucaipa and MHG, the terms and conditions of the Fund, and the rights and
obligations of investors in the Fund, will be commercially reasonable, as
determined by reference to prevailing investor expectations, industry standards
and market practices for private investment funds with similar investment
objectives as the Fund.
2. The General Partner. The Fund, if successfully organized, shall be controlled
by a general partner (or other equivalent control entity in the case the Fund is
not organized as a limited partnership) (the “General Partner”), which shall be
organized as a joint venture between Yucaipa, its affiliates and its related
persons, on the one hand, and MHG, its subsidiaries and its related persons, on
the other hand, in accordance with subparagraphs (a) through (d) of this
Section 2:
(a) 50% of the equity interests in the General Partner will be allocated to
Yucaipa, its affiliates and its investment professionals in such proportions as
Yucaipa may determine. The remaining 50% of the equity interests in the General
Partner will be allocated to key non-Yucaipa professionals who are (i) employed
by, or serve as directors to, MHG, (ii) actively involved with the Fund, and
(iii) reasonably satisfactory to Yucaipa (such non-Yucaipa professionals, the
“Non-Yucaipa Key Professionals”).
(b) In the event the General Partner issues equity interests to persons other
than Yucaipa, MHG, Non-Yucaipa Key Professionals or their respective
subsidiaries, affiliates and related persons, including, without limitation, in
connection with the raising of additional capital or as allocations to other
management and professionals, the equityholders of the General Partner will be
subject to pro rata dilution of their equity interests in the General Partner.
(c) Yucaipa will assist the Non-Yucaipa Key Professionals in funding their pro
rata share of the GP Commitment by making to them, or causing one of Yucaipa’s
affiliates to make to them, an interest-bearing loan on mutually agreeable terms
and conditions to be determined by Yucaipa and such Non-Yucaipa Key
Professionals and secured only by a first priority lien in favor of Yucaipa or
such affiliate, as applicable, on such Non-Yucaipa Key Professionals’ interests
in the General Partner and the Fund. Such loans will be structured such that
Yucaipa or such affiliate, as applicable, will be repaid in full (including,
without limitation, all outstanding principal, accrued and unpaid interest and
other amounts owing under such loans) on a first priority basis before any
distributions are made with respect to the General Partner or the Fund to the
Non-Yucaipa Key Professionals. Such loans shall be made in compliance with the
Sarbanes-Oxley Act.

 

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(d) Except as contemplated by this Agreement (including, without limitation,
subparagraphs (a) through (d) of this Section 2), the terms and conditions of
the General Partner, and the respective rights and obligations of the members
and other owners of equity interests in the General Partner, shall be as
mutually agreed by Yucaipa and MHG in good faith.
3. Fund Hotels. If the Fund is successfully organized, then MHG, whether
directly, through its wholly owned subsidiary Morgans Hotel Group Management LLC
or through one or more other wholly owned subsidiaries of MHG, shall have the
first right, except to the extent declined by MHG and subject to a reasonable
transition period in the case such hotel was managed by a third party at the
time the Fund invested in such hotel, to (x) serve as the manager of each hotel
owned by the Fund (regardless of whether such hotel is a Fund Morgans Hotel) and
provide expertise in the operation, direction and supervision of such hotel, and
(y) require such hotel to use MHG’s global technology platforms, reservations
systems and global marketing programs. Such management and use shall be pursuant
to a management agreement (each, a “Management Agreement”) between such hotel
and MHG, which shall contain such terms and conditions as are then generally
offered by MHG, at the time such Management Agreement is negotiated and
executed, to unaffiliated third parties under comparable management agreements
in the locality where such hotel is situated and shall otherwise be in a form
generally consistent with MHG’s then standard management agreement with
unaffiliated third parties (collectively, the “Morgans Standard Terms”). The
Morgans Standard Terms (subject to local variation) are generally as set forth
in the letter from MHG to Yucaipa, dated the date hereof and referencing this
Section 3. MHG and the Fund shall in good faith agree to modifications to the
Morgans Standard Terms from time to time as may be reasonably necessary to
reflect changes in the marketplace for the hotel management services or
practices of MHG and its affiliates.
4. Conflicts of Interest. In organizing the Fund, Yucaipa and MHG shall use
their reasonable efforts to structure the Fund to minimize the risk of any
conflicts of interests. In addition, the governing documents of the Fund and the
General Partner (collectively, including, without limitation, the limited
partnership agreement or other equivalent or related governing agreements of the
Fund and the operating agreement or other equivalent or related governing
agreements of the General Partner, the “Fund Agreements”) shall contain
reasonable conflicts of interest protections, including, without limitation, a
requirement that Yucaipa shall have sole control over the Fund and the General
Partner with respect to any decision or action in which MHG or any of its
affiliates has a material pecuniary interest or other conflict of interest. If
Yucaipa determines that there is a decision or action with respect to which MHG
or any of its affiliates has a material pecuniary interest or other conflict of
interest sufficient for Yucaipa to be entitled under the Fund Agreements to
exercise sole control over the Fund and the General Partner with respect to such
decision or action, Yucaipa shall inform the Non-Yucaipa Key Professionals of
such determination prior to exercising such sole control over such decision or
action.

 

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5. Issuance of REF Warrants. Concurrently with the execution and delivery of
this Agreement, MHG hereby issues, sells and delivers in certificated form to
Yucaipa, and Yucaipa hereby receives from MHG:
(a) a warrant in the form annexed hereto as Exhibit A to acquire 2,500,000
shares of MHG common stock, par value $0.01 per share (“Common Stock”), subject
to the terms and conditions set forth therein; and
(b) a warrant in the form annexed hereto as Exhibit B to acquire an additional
2,500,000 shares of Common Stock, subject to the terms and conditions set forth
therein.
6. Alternative Structures. If Yucaipa and MHG jointly determine that an
alternative form of pooled investment vehicle, another type of financing vehicle
or another type of financing arrangement (each, an “Alternative Structure”),
including, without limitation, (a) any publicly traded special purpose
acquisition company, (b) any separate investment account, or (c) any contractual
co-investment relationship, should be formed, arranged or used in addition or in
lieu of the Fund for purposes of undertaking in whole or in part the purpose or
functions of the Fund, then the Yucaipa and MHG shall interpret this Agreement
to apply mutatis mutandis to such Alternative Structure and otherwise effectuate
the intent of this Agreement to the fullest extent reasonably practicable as if
references hereunder to the “Fund” also refer to such Alternative Structure and
references hereunder to the capital commitments to the Fund also refer to the
capital of such Alternative Structure; provided that a contractual co-investment
relationship shall only be used in addition to the Fund or another Alternative
Structure and shall invest on a pro rata basis with the Fund or such other
Alternative Structure.
7. Termination. This Agreement and the rights and obligations of the parties
hereto hereunder shall terminate automatically on January 30, 2011 if on or
prior thereto the Fund has not closed on at least $100,000,000 in aggregate
capital commitments.
8. Amendments and Waivers. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Except as
otherwise provided in this Agreement, any failure of any party to comply with
any obligation, covenant, agreement or condition herein may be waived by the
party entitled to the benefits thereof only by a written instrument signed by
the party granting such waiver, but such waiver shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure. The failure of
any party hereto to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of such rights.
9. Assignment. This Agreement and the rights and obligations hereunder shall not
be assignable or transferable by any party hereto without the prior written
consent of the other party hereto. Any attempted assignment in violation of this
Section 9 shall be void.
10. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the
parties hereto and their permitted assigns, and nothing herein expressed or
implied shall give or be construed to give to any person, other than the parties
hereto and such permitted assigns, any legal or equitable rights hereunder.

 

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11. Notices. All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent by a
nationally recognized overnight courier service (with tracking capability), and
shall be deemed given when received, as follows:

              (a)   if to Yucaipa, then to:  
 
              Yucaipa American Alliance Fund II, LLC
9130 W. Sunset Boulevard
Los Angeles, California 90069  
 
  Attention: Robert P. Bermingham  
 
              with a copy (which shall not constitute notice) to:  
 
              Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, California 90071  
 
  Attention: Judith T. Kitano  
 
  Fax: (213) 683-4052  
 
  Email: judith.kitano@mto.com  
 
          (b)   if to MHG, then to:  
 
              Morgans Hotel Group Co.
475 Tenth Avenue
New York, New York 10018  
 
  Attention: David Smail  
 
              with a copy (which shall not constitute notice) to:  
 
              Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004  
 
  Attention: Robert W. Downes  
 
  Fax: (212) 558-3588  
 
  Email: downesr@sullcrom.com

12. Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each party
hereto and delivered to the other party hereto.
13. Entire Agreement. This Agreement, including the exhibits hereto, contains
the entire agreement and understanding among the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter. None of the parties hereto shall be liable or
bound to any other party in any manner by any representations, warranties or
covenants relating to such subject matter, except (a) as specifically set forth
herein or, (b) in the case of MHG, as set forth in (i) the Securities Purchase
Agreement, dated as of the hereof, by and among MHG, Yucaipa American Alliance
Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P. (the
“Securities Purchase Agreement”), or (ii) the Ancillary Agreements (as defined
in the Securities Purchase Agreement).

 

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14. Interpretation; Exhibits. The headings contained in this Agreement and in
any exhibit hereto are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. All exhibits annexed hereto
or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein. Any capitalized terms used in any
exhibit but not otherwise defined therein shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to a
“Section” or “Exhibit”, such reference shall be to a section of, or an exhibit
to, this Agreement unless otherwise indicated. For purposes of this Agreement,
(a) an “affiliate” of any person means another person that, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person, and (b) for purposes of the
foregoing clause (a), a person shall be deemed to control another person if such
first person possesses, directly or indirectly, the power to direct, or cause
the direction of, the management and policies of such other person, whether
through the ownership of voting securities, by contract or otherwise; provided
that the existence of a management contract by a person or an affiliate of such
person to manage another person shall not be deemed to be control by such
person; provided further that neither MHG nor any of its subsidiaries shall be
deemed hereunder to be an affiliate of Yucaipa. For purposes of this Agreement,
“person” means any individual, firm, corporation, partnership, limited liability
company, trust, joint venture, governmental entity or other entity.
15. Severability. If any provision of this Agreement (or any portion thereof) or
the application of any such provision (or any portion thereof) to any person or
circumstance shall be held invalid, illegal or unenforceable in any respect by a
court of competent jurisdiction, such invalidity, illegality or unenforceability
shall not affect any other provision hereof (or the remaining portion thereof)
or the application of such provision to any other person or circumstances.
16. Consent to Jurisdiction. All actions and proceedings arising out of or
relating to this Agreement shall be heard and determined exclusively in any New
York state or federal court sitting in the Borough of Manhattan of The City of
New York. The parties hereto hereby (a) submit to the exclusive jurisdiction of
any state or federal court sitting in the Borough of Manhattan of The City of
New York for the purpose of any action or proceeding arising out of or relating
to this Agreement brought by any party hereto, and (b) irrevocably waive, and
agree not to assert by way of motion, defense, or otherwise, in any such action
or proceeding, any claim that it is not subject personally to the jurisdiction
of the above-named courts, that its property is exempt or immune from attachment
or execution, that the action or proceeding is brought in an inconvenient forum,
that the venue of such action or proceeding is improper, or that this Agreement
or the transactions contemplated by this Agreement may not be enforced in or by
any of the above-named courts.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
18. Waiver of Jury Trial. Each party hereto hereby waives, to the fullest extent
permitted by applicable law, any right it may have to a trial by jury in respect
to any litigation directly or indirectly arising out of, under or in connection
with this Agreement or any transaction contemplated hereby. Each party hereto
(a) certifies that no representative, agent or attorney of any other party has
represented, expressly or otherwise, that such other party would not, in the
event of litigation, seek to enforce the foregoing waiver and (b) acknowledges
that it and the other party hereto have been induced to enter into this
Agreement by, among other things, the mutual waivers and certifications in this
Section 18.

 

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19. No Personal Liability of Partners, Directors, Officers, Owners, Etc.
(a) No director, officer, employee, incorporator, stockholder, managing member,
member, general partner, limited partner, principal or other agent of Yucaipa,
or any affiliate of Yucaipa, or any director, officer, employee, incorporator,
stockholder, managing member, member, general partner, limited partner,
principal or other agent of such affiliate, shall have any liability for any
obligations of Yucaipa under this Agreement or for any claim based on, in
respect of, or by reason of, the obligations of Yucaipa hereunder. MHG hereby
waives and releases all such liability. This waiver and release is a material
inducement to Yucaipa’s entry into this Agreement.
(b) No director, officer, employee, incorporator, stockholder, managing member,
member, general partner, limited partner, principal or other agent of MHG, or
any affiliate of MHG, or any director, officer, employee, incorporator,
stockholder, managing member, member, general partner, limited partner,
principal or other agent of such affiliate, shall have any liability for any
obligations of MHG under this Agreement or for any claim based on, in respect
of, or by reason of, the obligations of MHG hereunder. Yucaipa hereby waives and
releases all such liability. This waiver and release is a material inducement to
MHG’s entry into this Agreement.
20. Rights of Holders. Each party hereto shall have the absolute right to
exercise or refrain from exercising any right or rights that such party may have
by reason of this Agreement, including, without limitation, the right to consent
to the waiver or modification of any obligation under this Agreement, and such
party shall not incur any liability to any other party or other holder of any
securities of MHG as a result of exercising or refraining from exercising any
such right or rights.
21. Construction. The parties hereto acknowledge that each such party and its
counsel have participated in the negotiation and preparation of this Agreement.
This Agreement shall be construed without regard to any presumption or other
rule requiring construction against the party causing this Agreement to be
drafted. Every covenant, term and provision of this Agreement shall be construed
according to its fair meaning and not strictly for or against any party hereto.
[Signature page follows.]

 

- 8 -

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In witness whereof, Yucaipa and MHG have executed and delivered this Agreement
as of the date first above written.

            YUCAIPA

Yucaipa American Alliance Fund II, LLC
      By:   /s/ Robert P. Bermingham         Name:   Robert P. Bermingham       
Title:   Vice President and Secretary        MHG

Morgans Hotel Group Co.
      By:           Name:           Title:      

(Real Estate Fund Formation)

 

 

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In witness whereof, Yucaipa and MHG have executed and delivered this Agreement
as of the date first above written.

            YUCAIPA

Yucaipa American Alliance Fund II, LLC
      By:            Name:   Robert P. Bermingham        Title:   Vice
President        MHG

Morgans Hotel Group Co.
      By:   /s/ Marc Gordon         Name:   Marc Gordon        Title:  
President   

[Fund Formation Agreement]

 

 

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Exhibit A
Form of Warrant Issuable under Section 5(a)
[See Attachment.]

 

 

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Exhibit B
Form of Warrant Issuable under Section 5(b)
[See Attachment.]

 

 

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Exhibit D
See Attached

 

 

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REGISTRATION RIGHTS AGREEMENT
by and between
MORGANS HOTEL GROUP CO.
and
YUCAIPA AMERICAN ALLIANCE FUND II, L.P.,
YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P.,
and
YUCAIPA AMERICAN ALLIANCE FUND II, LLC
Dated as of October 15, 2009

 

 

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TABLE OF CONTENTS

         
1. Certain Definitions
    1  
2. Demand Registrations
    3  
(a) Right to Request Registration
    3  
(b) Number of Demand Registrations
    3  
(c) Participation Rights of Holders
    3  
(d) Priority on Demand Registrations
    4  
(e) Restrictions on Demand Registrations
    4  
(f) Selection of Underwriters
    5  
(g) Other Registration Rights
    5  
(h) Effective Period of Demand Registrations
    5  
3. Piggyback Registrations
    5  
(a) Right to Piggyback
    5  
(b) Priority on Primary Piggyback Registrations
    6  
(c) Priority on Secondary Registrations
    6  
(d) Selection of Underwriters
    6  
(e) Other Registration Rights
    6  
4. S-3 Registrations
    7  
(a) Right to Request Registration
    7  
(b) Priority on Shelf Takedowns
    7  
(c) Selection of Underwriters
    7  
(d) Other Registration Rights
    8  
5. Holdback Agreements
    8  
6. Registration Procedures
    8  
7. Registration Expenses
    13  
8. Indemnification
    13  
9. Participation in Underwritten Registrations
    15  
10. Rule 144
    15  

 

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11. Miscellaneous
    16  
(a) Notices
    16  
(b) No Waivers
    17  
(c) Expenses
    17  
(d) Successors and Assigns
    17  
(e) Governing Law
    17  
(f) Jurisdiction
    17  
(g) Waiver of Jury Trial
    18  
(h) Counterparts; Effectiveness
    18  
(i) Entire Agreement
    18  
(j) Captions
    18  
(k) Severability
    18  
(l) Amendments
    18  
(m) Equitable Relief
    19  
(n) Construction
    19  

 

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THIS REGISTRATION RIGHTS AGREEMENT (this “Agreement”), is made and entered into
as of October 15, 2009, by and between Morgans Hotel Group Co., a Delaware
corporation (the “Company”), and Yucaipa American Alliance Fund II, L.P., a
Delaware limited partnership (“YAAF II”), Yucaipa American Alliance (Parallel)
Fund II, L.P., a Delaware limited partnership (“YAAF II-P” together with YAAF
II, the “Investors”) and Yucaipa American Alliance Fund II, LLC, a Delaware
limited liability company (“Yucaipa Manager” and, together with the Investors,
the “Securityholders”).
Unless otherwise specified herein, capitalized terms used herein shall have the
meanings assigned to such terms in the Securities Purchase Agreement (the
“Purchase Agreement”), dated as of the date hereof, by and among the Company and
the Investors.
In consideration of the mutual covenants and agreements herein contained and
other good and valid consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Certain Definitions.
In addition to the terms defined elsewhere in this Agreement, the following
terms shall have the following meanings:
“Affiliate” of any Person means any other Person which directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Person. The term “control” (including the terms
“controlling,” “controlled by” and “under common control with”) as used with
respect to any Person means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
“Agreement” means this Registration Rights Agreement, including all amendments,
modifications and supplements and any exhibits or schedules to any of the
foregoing, and shall refer to this Registration Rights Agreement as the same may
be in effect at the time such reference becomes operative.
“Blackout Period” has the meaning set forth in Section 6(f) hereof.
“Company” has the meaning set forth in the introductory paragraph.
“Delay Period” has the meaning set forth in Section 2(d) hereof.
“Commencement Date” means (a) as to the Investors, the “Commencement Date” as
such term is defined in the Warrants, and (b) as to Yucaipa Manager, the
“Commencement Date” as such term is defined in the REF Warrants.
“Demand Registration” has the meaning set forth in Section 2(a) hereof.
“Demand Registration Statement” has the meaning set forth in Section 2(a)
hereof.

 

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“Form S-3” means a registration statement on Form S-3 under the Securities Act
or such successor form thereto permitting registration of securities under the
Securities Act.
“Holder” means each Securityholder to the extent that such Securityholder is the
holder of record of Registrable Common Stock. For purposes of this Agreement,
the Company may deem and treat the registered holder of Registrable Common Stock
as the absolute owner thereof, and the Company shall not be affected by any
notice to the contrary.
“Person” means any individual, sole proprietorship, partnership, limited
liability company, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, Governmental Entity or any
other entity.
“Piggyback Registration” has the meaning set forth in Section 3(a) hereof.
“Prospectus” means the prospectus or prospectuses included in any Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Common Stock
covered by such Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus or prospectuses.
“Registrable Common Stock” means any shares of Common Stock issued to a Holder
from time to time upon exercise of the Warrants and REF Warrants and any
securities of the Company issued or issuable with respect to such shares of
Common Stock by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
“Registration Expenses” has the meaning set forth in Section 7(a) hereof.
“Registration Statement” means any registration statement of the Company which
covers any of the Registrable Common Stock pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all materials incorporated by reference in such Registration Statement.
“S-3 Registration” has the meaning set forth in Section 4 hereof.
“Securityholder” has the meaning set forth in the introductory paragraph hereof.
“Suspension Notice” has the meaning set forth in Section 6(f) hereof.
“Termination Date” means the date upon which all the Registrable Common Stock
may be sold in any three-month period without registration under the Securities
Act.
“underwritten offering” means a registered offering in which securities of the
Company are sold to underwriters for reoffering to the public.

 

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2. Demand Registrations.
(a) Right to Request Registration. Subject to the provisions hereof, beginning
on the applicable Commencement Date, one or more Holders may at any time request
registration for resale under the Securities Act of all or part of the
Registrable Common Stock separate from an S-3 Registration (a “Demand
Registration”); provided, that (based on then current market prices) the number
of shares of Registrable Common Stock included in the Demand Registration would
yield gross proceeds to the Holder(s) requesting such Demand Registration of at
least $30,000,000 unless the aggregate value (based on then current market
prices) of the Registrable Common Stock held by the Holder(s) requesting such
Demand Registration is less than $30,000,000 but greater than $15,000,000, in
which case the Demand Registration shall be for all of the Registrable Common
Stock of the Holder(s) requesting such Demand Registration. Subject to Section
2(d) below, the Company shall use its reasonable best efforts (i) to file a
Registration Statement (a “Demand Registration Statement”) registering for
resale such number of shares of Registrable Common Stock as requested to be so
registered within 30 days of a Holder’s request therefor and (ii) to cause such
Demand Registration Statement to be declared effective by the SEC as soon as
practicable thereafter.
(b) Number of Demand Registrations. Subject to the limitations of Section 2(a),
the Holders shall be entitled to request an aggregate of three Demand
Registrations. A Registration Statement shall not count as a permitted Demand
Registration unless and until it has become effective and the Holder(s)
requesting such Demand Registration are able to register and sell at least 50%
of the Registrable Common Stock requested to be included in such registration.
(c) Participation Rights of Holders. Whenever the Company shall be requested by
one or more Holders to effect a Demand Registration pursuant to Section 2(a)
hereof, the Company shall promptly (but not later than 5 days after receiving
such request) give written notice of such requested Demand Registration to each
other Holder that has provided contact information to the Company prior thereto.
Such notice shall inform Holders that they have 10 days to notify the Company in
writing as provided in Section 11(a) hereof that they wish to participate in
such proposed Demand Registration. The Company shall include in such Demand
Registration the shares of Common Stock of any Holder who irrevocably notifies
the Company on or prior to such 10th day that the Holder has elected to include
such shares of Common Stock in such Demand Registration.

 

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(d) Priority on Demand Registrations. The Company may include Common Stock other
than Registrable Common Stock in a Demand Registration on the terms provided
below, and, if such Demand Registration is an underwritten offering, only with
the consent of the managing underwriters of such offering. If the managing
underwriters of the requested Demand Registration advise the Company and the
Holder(s) requesting such Demand Registration that in their opinion the number
of shares of Common Stock proposed to be included in the Demand Registration
exceeds the number of shares of Common Stock which can be sold in such
underwritten offering and/or the number of shares of Common Stock proposed to be
included in such registration would adversely affect the price per share of the
Registrable Common Stock proposed to be sold in such underwritten offering, the
Company shall include in such Demand Registration (i) first, the number of
shares of Common Stock that the Holder(s) requesting such Demand Registration
propose to sell, and (ii) second, the number of shares of Common Stock proposed
to be included therein by any other Persons (including shares of Common Stock to
be sold for the account of the Company and/or other holders of Common Stock)
allocated among such Persons in such manner as they may agree.
(e) Restrictions on Demand Registrations. The Company shall not be obligated to
effect any Demand Registration on behalf of a Holder within six months after the
effective date of any Demand Registration, Piggyback Registration wherein such
Holder was permitted to register, and actually sold, at least 50% of the shares
of Registrable Common Stock requested to be included therein or S-3
Registration. The Company may (i) withdraw a Registration Statement previously
filed (but not declared effective) pursuant to a Demand Registration or postpone
for up to 90 days the filing of a Registration Statement for a Demand
Registration if, based on the good faith judgment of the Company, such
postponement or withdrawal would avoid premature disclosure of a matter the
Company has determined would not be in the best interest of the Company to be
disclosed at such time or (ii) postpone the filing of a Demand Registration in
the event the Company shall be required to prepare (A) audited financial
statements as of a date other than its fiscal year end (unless the Holder(s)
requesting such registration agree to pay the reasonable expenses of such an
audit) or (B) pro forma financial statements that are required to be included in
such Registration Statement; provided, however, that in no event shall the
Company withdraw a Registration Statement under clause (i) after such
Registration Statement has been declared effective; and provided, further,
however, that in any of the events described in clause (i) or (ii) above, the
Holder(s) requesting such Demand Registration shall be entitled to withdraw such
request and, if such request is withdrawn, such Demand Registration shall not
count as one of the permitted Demand Registrations. The Company shall provide
written notice to the Holder(s) requesting a Demand Registration of (x) any
postponement or withdrawal of the filing or effectiveness of a Registration
Statement pursuant to this Section 2(d), (y) the Company’s decision to file or
seek effectiveness of such Registration Statement following such withdrawal or
postponement and (z) the effectiveness of such Registration Statement, which
notice, if it relates to clause (x), shall include the reasons therefor if the
Holder(s) requesting such Demand Registration shall have previously executed a
confidentiality agreement satisfactory to the Company in respect thereof. The
Company may defer the filing of a particular Registration Statement pursuant to
this Section 2(d) only once during any six-month period. The period during which
filing or effectiveness is so postponed hereunder is referred to as a “Delay
Period”.

 

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(f) Selection of Underwriters. If any of the Registrable Common Stock covered by
a Demand Registration is to be sold in an underwritten offering, the Company
will select one joint bookrunning managing underwriter from the list of
investment banks set forth on Schedule I and the Holder(s) participating in such
Demand Registration will select the other joint bookrunning managing underwriter
from the list of investment banks set forth on Schedule I. The list of
investment banks on Schedule I may be amended from time to time by mutual
agreement of the Holders and the Company. Any additional underwriters shall be
selected by mutual agreement of the Holders, on the one hand, and the Company,
on the other hand.
(g) Other Registration Rights. The Company shall not grant to any Person the
right to request the Company (i) to register any shares of Common Stock in a
Demand Registration unless such rights are consistent with the provisions
hereof, or (ii) to register any securities of the Company (other than shares of
Common Stock) in a Demand Registration.
(h) Effective Period of Demand Registrations. Upon the date of effectiveness of
any Demand Registration for an underwritten offering contemplated to be
consummated at the time of effectiveness of the Demand Registration, the Company
shall use its reasonable best efforts to keep such Demand Registration Statement
effective for a period equal to 15 business days from such date or such shorter
period which shall terminate when all of the Registrable Common Stock covered by
such Demand Registration has been sold pursuant to such Demand Registration. If
the Company shall withdraw any Demand Registration pursuant to Section 2(d) or
issue a Suspension Notice pursuant to Section 6(f) within such 15 business day
period and before all of the Registrable Common Stock covered by such Demand
Registration has been sold pursuant thereto, the Holder(s) requesting such
Demand Registration shall be entitled to a replacement Demand Registration which
shall be subject to all of the provisions of this Agreement.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to register any of its
Common Stock under the Securities Act (other than a registration statement on
Form S-8 or on Form S-4 or any similar successor forms thereto), whether for its
own account or for the account of one or more stockholders of the Company and
the form of registration statement to be used may be used for any registration
of Registrable Common Stock (a “Piggyback Registration”), the Company shall give
prompt written notice (in any event no later than 10 days prior to the filing of
such registration statement) to the Holders of its intention to effect such a
registration and, subject to Section 3(b), shall include in such registration
statement all Registrable Common Stock with respect to which the Company has
received written requests for inclusion therein from the Holders within 8 days
after the Holders’ receipt of the Company’s notice. The Company may postpone or
withdraw the filing or the effectiveness of a Piggyback Registration at any time
in its sole discretion. A Piggyback Registration shall not be considered a
Demand Registration for purposes of Section 2 of this Agreement or a S-3
Registration for purposes of Section 4 of this Agreement.

 

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(b) Priority on Primary Piggyback Registrations. If a Piggyback Registration is
initiated as a primary underwritten offering on behalf of the Company and the
managing underwriters advise the Company and the Holders (if any Holders have
elected to include Registrable Common Stock in such Piggyback Registration) that
in their opinion the number of shares of Common Stock proposed to be included in
such registration exceeds the number of shares of Common Stock which can be sold
in such offering and/or that the number of shares of Common Stock proposed to be
included in any such registration would adversely affect the price per share of
the Common Stock to be sold in such offering, the Company shall include in such
registration (i) first, the number of shares of Common Stock that the Company
proposes to sell, and (ii) second, the number of shares of Common Stock
requested to be included therein by holders of Common Stock, including the
Holders (if any Holders have elected to include Registrable Common Stock in such
Piggyback Registration), pro rata among all such holders on the basis of the
number of shares of Common Stock requested to be included therein by all such
holders or as such holders may otherwise agree.
(c) Priority on Secondary Registrations. If a Piggyback Registration is
initiated as an underwritten registration on behalf of a holder of Common Stock
other than Registrable Common Stock, and the managing underwriters advise the
Company that in their opinion the number of shares of Common Stock proposed to
be included in such registration exceeds the number of shares of Common Stock
that can be sold in such offering and/or that the number of shares of Common
Stock proposed to be included in any such registration would adversely affect
the price per share of the Common Stock to be sold in such offering, then the
Company shall include in such registration (i) first, the number of shares of
Common Stock requested to be included therein by the holder(s) requesting such
registration, (ii) second, the number of shares of Common Stock requested to be
included therein by other holders of Common Stock, including the Holders (if any
Holders have elected to include Registrable Common Stock in such Piggyback
Registration), pro rata among such holders on the basis of the number of shares
of Common Stock requested to be included therein by such holders or as such
holders may otherwise agree, and (iii) third, the number of shares of Common
Stock that the Company proposes to sell.
(d) Selection of Underwriters. If any Piggyback Registration is initiated as a
primary underwritten offering, the Company shall have the right to select the
managing underwriter or underwriters to administer any such offering.
(e) Other Registration Rights. The Company shall not grant to any Person the
right to request the Company (i) to register any shares of Common Stock in a
Piggyback Registration unless such rights are consistent with the provisions
hereof, or (ii) to register any securities of the Company (other than shares of
Common Stock) in a Piggyback Registration.

 

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4. S-3 Registrations.
(a) Right to Request Registration. At any time that the Company is eligible to
use Form S-3 or any successor thereto, each Holder shall be entitled to request
that the Company file a Registration Statement on Form S-3 or any successor
thereto for a public offering of all or any portion of the Registrable Common
Stock pursuant to Rule 415 promulgated under the Securities Act or otherwise.
Upon such request, the Company shall use its reasonable best efforts (i) to file
a Registration Statement covering the number of shares of Registrable Common
Stock specified in such request under the Securities Act on Form S-3 or any
successor thereto (an “S-3 Registration”) for public sale in accordance with the
method of disposition specified in such request within 30 days of the such
Holder’s request therefor and (ii) to cause such S-3 Registration to be declared
effective by the SEC as soon as reasonably practicable thereafter. A Holder
shall be entitled, upon not less than 24 hours (given on a business day and
effect at the same time on the next business day) prior written notice to the
Company in the manner provided below, to sell such Registrable Common Stock as
are then registered pursuant to such Registration Statement (each, a “Shelf
Takedown”). The Holder shall be entitled to request that one such Shelf Takedown
shall be an underwritten offering; provided, that (based on then current market
prices) the number of shares of Registrable Common Stock included in such Shelf
Takedown would yield gross proceeds to the Holder(s) requesting such Shelf
Takedown of at least $25,000,000. Each Holder shall also give the Company prompt
written notice of the consummation of such Shelf Takedown. A notice of a
proposed Shelf Takedown pursuant to this Section shall be given by e-mail and
facsimile transmission to the Company’s Chief Financial Officer, with a copy to
designated counsel, as provided in Section 11(a) hereof, and shall be effective
when receipt of such notice has been confirmed telephonically. The Company
agrees to waive such 24-hour notice period if at the time such notice is
effective, the Prospectus included in the Registration Statement related to the
Registrable Common Stock proposed to be sold in the Shelf Takedown does not
contain an untrue statement of a material fact and does not omit any material
fact necessary to make the statements therein not misleading.
(b) Priority on Shelf Takedowns. The Company may include Common Stock other than
Registrable Common Stock in a Shelf Takedown on the terms provided below, and,
if such Shelf Takedown is an underwritten offering, only with the consent of the
managing underwriters of such offering. If the managing underwriters of the
requested Shelf Takedown advise the Company and the Holder(s) participating in
such Shelf Takedown that in their opinion the number of shares of Common Stock
proposed to be included in any Shelf Takedown (1) exceeds the number of shares
of Common Stock which can be sold in such underwritten offering or (2) would
adversely affect the price per share of the Registrable Common Stock proposed to
be sold in such underwritten offering, the Company shall include in such Shelf
Takedown only the number of shares of Common Stock which in the opinion of such
managing underwriters can be sold. If the number of shares of Common Stock which
can be sold is less than the number of shares of Common Stock proposed to be
registered, the amount of Common Stock to be so sold shall be allocated pro rata
among the holders of Common Stock desiring to participate in such Shelf Takedown
on the basis of the number of shares of Common Stock initially proposed to be
registered by such holders or as such holders may otherwise agree.
(c) Selection of Underwriters. If any of the Registrable Common Stock covered by
an S-3 Registration is to be sold in an underwritten offering, the Company will
select one joint bookrunning managing underwriter from the list of investment
banks set forth on Schedule I and the Holder(s) participating in such S-3
Registration will select the other joint bookrunning managing underwriter the
list of investment banks set forth on Schedule I. Any additional underwriters
shall be selected by mutual agreement of the Holders, on the one hand, and the
Company, on the other hand.

 

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(d) Other Registration Rights. The Company shall not grant to any Person the
right to request the Company (i) to register any shares of Common Stock in an
S-3 Registration unless such rights are consistent with the provisions hereof,
or (ii) to register any securities of the Company (other than shares of Common
Stock) in an S-3 Registration.
5. Holdback Agreements.
As long as any Holder is the beneficial owner of five percent or more of the
outstanding Common Stock of the Company, such Holder agrees not to sell,
transfer, hedge the beneficial ownership of (but shall not be required to unwind
any existing hedged position) or otherwise dispose of any shares of Common Stock
(or other securities of the Company) held by it for a period equal to the lesser
of (i) 90 days following the date of a prospectus or prospectus supplement, as
applicable, relating to a sale of shares of Common Stock (or other securities of
the Company) in an underwritten offering registered under the Securities Act or
(ii) such shorter period as the managing underwriters of such underwritten
offering shall agree to. Such agreement shall be in writing in form satisfactory
to the Company and the managing underwriters. The Company may impose
stop-transfer instructions with respect to the shares of Registrable Common
Stock (or other securities) subject to the foregoing restriction until the end
of said period. The foregoing restrictions shall not apply to (i) the exercise
of the Warrants, the REF Warrants or any other warrants or stock options to
purchase shares of capital stock of the Company (provided that such limitation
does not affect limitations on any actions specified in the first sentence of
this Section 5 with respect to the shares issuable upon such exercise),
(ii) transfers to Affiliates where the transferee agrees to be bound by the
terms hereof, (iii) the participation in the filing of a registration statement
with the SEC, including, without limitation, any S-3 Registration hereunder, or
(iv) the shares of Registrable Common Stock included in the underwritten
offering giving rise to the application of this Section 5. Notwithstanding the
foregoing, the holdback arrangement set forth in this Section 5 shall not apply
to sale shares of Common Stock that is registered on Form S-8 or Form S-4.
6. Registration Procedures.
(a) Whenever the Holder(s) requests that any Registrable Common Stock be
registered pursuant to this Agreement, the Company shall use its reasonable best
efforts to effect the registration and the sale of such Registrable Common Stock
in accordance with the intended methods of disposition thereof, and, pursuant
thereto, the Company shall as soon as reasonably practicable use its reasonable
best efforts to:
(i) subject to Section 2(a) and Section 4, prepare and file with the SEC a
Registration Statement with respect to such Registrable Common Stock and cause
such Registration Statement to become effective as soon as reasonably
practicable thereafter; and before filing a Registration Statement or Prospectus
or any amendments or supplements thereto, furnish to the Holders and the
underwriter or underwriters, if any, copies of all such documents proposed to be
filed, including documents incorporated by reference in the Prospectus and, if
requested by the Holders, the exhibits incorporated by reference, and the
Holders shall have the opportunity to object to any information pertaining to
the Holders that is contained therein and the Company will make the corrections
reasonably requested by the Holders with respect to such information prior to
filing any Registration Statement or amendment thereto or any Prospectus or any
supplement thereto;

 

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(ii) prepare and file with the SEC such amendments and supplements to such
Registration Statement and the Prospectus used in connection therewith as may be
necessary to keep such Registration Statement effective for a period of not less
than (A) 15 business days, in the case of a Demand Registration, or (B) the
earlier of 2 years or the Termination Date in the case of an S-3 Registration,
and no longer than is necessary to complete the distribution of the Common Stock
covered by such Registration Statement and comply with the provisions of the
Securities Act with respect to the disposition of all the Common Stock covered
by such Registration Statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
Registration Statement;
(iii) furnish to each seller of Registrable Common Stock the Prospectus included
in such Registration Statement (including each preliminary Prospectus) and any
supplement thereto and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Common Stock
owned by such seller;
(iv) register or qualify such Registrable Common Stock under such other
securities or blue sky laws of such jurisdictions as any seller reasonably
requests and do any and all other acts and things which may be reasonably
necessary or advisable to enable such seller to consummate the disposition in
such jurisdictions of the Registrable Common Stock owned by such seller
(provided, that the Company will not be required to (A) qualify generally to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this subparagraph (iv), (B) subject itself to taxation in any such
jurisdiction or (C) consent to general service of process in any such
jurisdiction);
(v) notify each seller of such Registrable Common Stock, at any time when a
Prospectus relating thereto is required to be delivered under the Securities
Act, of the occurrence of any event as a result of which the Prospectus included
in such Registration Statement contains an untrue statement of a material fact
or omits any fact necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company shall prepare a supplement or
amendment to such Prospectus so that, as thereafter delivered to the purchasers
of such Registrable Common Stock, such Prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein not misleading;

 

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(vi) in the case of an underwritten offering on behalf of the Holder(s) pursuant
to a Demand Registration, Piggyback Registration or an S-3 Registration, enter
into such customary agreements (including underwriting and lock-up agreements in
customary form) and take all such other customary actions as the Holder(s) or
the managing underwriters of such offering reasonably request in order to
expedite or facilitate the disposition of such Registrable Common Stock
(including, without limitation, making members of senior management of the
Company available to participate in “road-show” and other customary marketing
activities (including one-on-one meetings with prospective purchasers of the
Registrable Common Stock)) and cause to be delivered to the underwriters
opinions of counsel to the Company in customary form, covering such matters as
are customarily covered by opinions for an underwritten public offering as the
managing underwriters may request and addressed to the underwriters;
(vii) to the extent not prohibited by applicable law or pre-existing applicable
contractual restrictions, (A) make available, for inspection by the Holders, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney retained by any such underwriter, all financial and
other records, pertinent corporate documents and properties of the Company,
(B) cause the Company’s officers and employees to supply all information
reasonably requested by the Holders or such underwriter or attorney in
connection with such Registration Statement, and (C) make the Company’s
independent registered public accounting firm available for any such
underwriter’s due diligence;
(viii) cause all such Registrable Common Stock to be listed on each securities
exchange on which securities of the same class issued by the Company are then
listed or, if no such similar securities are then listed, on Nasdaq or a
national securities exchange selected by the Company;
(ix) provide a transfer agent and registrar for all such Registrable Common
Stock not later than the effective date of such Registration Statement;

 

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(x) if requested, cause to be delivered at the time of delivery of any
Registrable Common Stock sold pursuant to a Registration Statement, letters from
the Company’s independent registered public accounting firm addressed to each
selling Holder (unless such selling Holder does not provide to such accountants
the appropriate representation letter required by rules governing the accounting
profession) and each underwriter, if any, stating that such accountants are
independent within the meaning of the Securities Act and the applicable rules
and regulations adopted by the SEC thereunder, and otherwise in customary form
and covering such financial and accounting matters as are customarily covered by
letters of independent registered public accounting firms delivered in
connection with primary or secondary underwritten public offerings, as the case
may be;
(xi) make generally available to its stockholders a consolidated earnings
statement (which need not be audited) for the 12 months beginning after the
effective date of a Registration Statement as soon as reasonably practicable
after the end of such period, which earnings statement shall satisfy the
requirements of an earnings statement under Section 11(a) of the Securities Act;
and
(xii) promptly notify the Holders and the underwriter or underwriters, if any:
(1) when the Registration Statement, any pre-effective amendment, the Prospectus
or any Prospectus supplement or post-effective amendment to the Registration
Statement has been filed and, with respect to the Registration Statement or any
post-effective amendment, when the same has become effective;
(2) of the notification to the Company by the SEC of its initiation of any
proceeding with respect to the issuance by the SEC of any stop order suspending
the effectiveness of the Registration Statement; and
(3) of the receipt by the Company of any notification with respect to the
suspension of the qualification of any Registrable Common Stock for sale under
the applicable securities or blue sky laws of any jurisdiction.
(b) The Company represents and warrants that no Registration Statement
(including any amendments thereto) shall contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading, and no Prospectus
(including any supplements thereto) shall contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, in each case, except for any untrue
statement or alleged untrue statement of a material fact or omission or alleged
omission of a material fact made in reliance on and in conformity with written
information furnished to the Company by or on behalf of the Holders specifically
for use therein.

 

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(c) The Company shall make available to the Holders such number of copies of a
Prospectus, including a preliminary Prospectus, and all amendments and
supplements thereto and such other documents as the Holders may reasonably
request in order to facilitate the disposition of the Registrable Common Stock
owned by the Holders. The Company will promptly notify the Holders requesting
registration for Registrable Common Stock of the effectiveness of each
Registration Statement or any post-effective amendment. The Company will
promptly respond to any and all comments received from the SEC, with a view
towards causing each Registration Statement or any amendment thereto to be
declared effective by the SEC as soon as reasonably practicable and shall file
an acceleration request as soon as reasonably practicable following the
resolution or clearance of all SEC comments or, if applicable, following
notification by the SEC that any such Registration Statement or any amendment
thereto will not be subject to review.
(d) At all times after the Company has filed a registration statement with the
SEC pursuant to the requirements of the Securities Act, the Company shall use
its reasonable best efforts to file all reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the SEC thereunder, and use its reasonable best efforts to take such further
action as the Holders may reasonably request, all to the extent required to
enable the Holders to be eligible to sell Registrable Common Stock pursuant to
Rule 144 (or any similar rule then in effect).
(e) The Company may require each seller of Registrable Common Stock as to which
any registration is being effected to furnish to the Company any other
information regarding such seller and the distribution of such securities as the
Company may from time to time reasonably request in writing.
(f) Each seller of Registrable Common Stock agrees by having its stock treated
as Registrable Common Stock hereunder that, upon written notice of the happening
of any event as a result of which the Prospectus included in such Registration
Statement contains an untrue statement of a material fact or omits any material
fact necessary to make the statements therein not misleading (a “Suspension
Notice”), such seller will forthwith discontinue disposition of Registrable
Common Stock for a reasonable length of time not to exceed 60 days until such
seller is advised in writing by the Company that the use of the Prospectus may
be resumed and is furnished with a supplemented or amended Prospectus as
contemplated by Section 6(a)(v) hereof, and, if so directed by the Company, such
seller will deliver to the Company (at the Company’s expense) all copies, other
than permanent file copies then in such seller’s possession, of the Prospectus
covering such Registrable Common Stock current at the time of receipt of such
notice; provided, however, that such postponement of sales of Registrable Common
Stock by the Holders shall not exceed 150 days in the aggregate in any one year.
If the Company shall give any notice to suspend the disposition of Registrable
Common Stock pursuant to a Prospectus, the Company shall extend the period of
time during which the Company is required to maintain the Registration Statement
effective pursuant to this Agreement by the number of days during the period
from and including the date of the giving of such notice to and including the
date such seller either is advised by the Company that the use of the Prospectus
may be resumed or receives the copies of the supplemented or amended Prospectus
contemplated by Section 6(a)(v) (a “Blackout Period”). In any event, the Company
shall not be entitled to deliver more than four Suspension Notices in any one
year.

 

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7. Registration Expenses.
(a) All expenses incident to the Company’s performance of or compliance with
this Agreement, including, without limitation, all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, listing
application fees, printing expenses, transfer agent’s and registrar’s fees, cost
of distributing Prospectuses in preliminary and final form as well as any
supplements thereto, and fees and disbursements of counsel for the Company and
all independent registered public accounting firms and other Persons retained by
the Company (all such expenses being herein called “Registration Expenses”)
(but, not including any underwriting discounts or commissions attributable to
the sale of Registrable Common Stock or fees and expenses of counsel
representing the Holders), shall be borne by the Company. In addition, the
Company shall pay its internal expenses (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance and the expenses and fees for listing the
securities to be registered on each securities exchange on which they are to be
listed.
(b) The obligation of the Company to bear the expenses described in Section 7(a)
shall apply irrespective of whether a registration, once properly demanded, if
applicable, becomes effective, is withdrawn or suspended, is converted to
another form of registration and irrespective of when any of the foregoing shall
occur; provided, however, that Registration Expenses for any Registration
Statement withdrawn solely at the request of the Holders (unless withdrawn
following postponement of filing by the Company in accordance with Section 2(d)
or Section 3(a)) or any supplements or amendments to a Registration Statement or
Prospectus resulting from a misstatement furnished to the Company by the Holders
shall be borne by such Holders. If any Registration Statement is withdrawn
(unless such withdrawal is solely at the request of the Holders), the Company
shall reimburse the Holders for their reasonable legal fees and related
disbursements in connection with such withdrawn Registration Statement.
8. Indemnification.
(a) The Company shall indemnify, to the fullest extent permitted by law, the
Holders and each Person who controls the Holders (within the meaning of the
Securities Act) against all losses, claims, damages, liabilities and expenses
arising out of or based upon any untrue or alleged untrue statement of material
fact contained in any Registration Statement, Prospectus, free writing
prospectus (as defined in Rule 405 promulgated under the Securities Act) or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are made in reliance and in
conformity with information furnished in writing to the Company by a Holder
expressly for use therein or caused by a Holder’s failure to deliver to the
Holder’s immediate purchaser a copy of the Registration Statement, Prospectus,
free writing prospectus (as defined in Rule 405 promulgated under the Securities
Act) or any amendments or supplements thereto (if the same was required by
applicable law to be so delivered) after the Company has furnished the Holders
with a sufficient number of copies of the same prior to any written confirmation
of the sale of Registrable Common Stock. In connection with an underwritten
offering, the Company shall indemnify such underwriters and each Person who
controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the
Holders.

 

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(b) In connection with any Registration Statement in which a Holder is
participating, such Holder shall furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any such Registration Statement or Prospectus or free writing
prospectus (as defined in Rule 405 promulgated under the Securities Act) and,
shall indemnify, to the fullest extent permitted by law, the Company, its
officers, directors and each Person who controls the Company (within the meaning
of the Securities Act) against all losses, claims, damages, liabilities and
expenses arising out of or based upon any untrue or alleged untrue statement of
material fact contained in the Registration Statement, Prospectus, free writing
prospectus (as defined in Rule 405 promulgated under the Securities Act) or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that the same are made in
reliance and in conformity with information furnished in writing to the Company
by such Holder expressly for use therein or caused by such Holder’s failure to
deliver to such Holder’s immediate purchaser a copy of the Registration
Statement, Prospectus, free writing prospectus (as defined in Rule 405
promulgated under the Securities Act) or any amendments or supplements thereto
(if the same was required by applicable law to be so delivered) after the
Company has furnished such Holder with a sufficient number of copies of the same
prior to any written confirmation of the sale of Registrable Common Stock;
provided, however, that the liability of a Holder shall be in proportion to and
limited to the net amount received by such Holder from the sale of Registrable
Common Stock pursuant to such Registration Statement.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the indemnified
party. If such defense is assumed, the indemnifying party shall not be subject
to any liability for any settlement made by the indemnified party without its
consent (but such consent will not be unreasonably withheld). An indemnifying
party who is entitled to, and elects to, assume the defense of a claim shall not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party there may be one or
more legal or equitable defenses available to such indemnified party which are
in addition to or may conflict with those available to another indemnified party
with respect to such claim. Failure to give prompt written notice shall not
release the indemnifying party from its obligations hereunder.

 

14

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(d) The indemnification provided for under this Agreement shall remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling Person of such
indemnified party and shall survive the transfer of securities.
(e) If the indemnification provided for in or pursuant to this Section 8 is due
in accordance with the terms hereof, but is held by a court to be unavailable or
unenforceable in respect of any losses, claims, damages, liabilities or expenses
referred to herein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified Person as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions which result
in such losses, claims, damages, liabilities or expenses as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
on the one hand and of the indemnified Person on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the indemnifying party or by
the indemnified party, and by such party’s relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding anything to the contrary herein, in no event shall the liability
of a Holder be greater in amount than the amount of net proceeds received by
such Holder upon such sale or the amount for which such indemnifying party would
have been obligated to pay by way of indemnification if the indemnification
provided for under Section 8(a) or 8(b) hereof had been available under the
circumstances.
9. Participation in Underwritten Registrations.
No Person may participate in any registration hereunder which is underwritten
unless such Person (a) agrees to sell such Person’s securities on the basis
provided in any underwriting arrangements approved by the Person or Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements.
10. Rule 144.
The Company shall use its reasonable best efforts to file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder, and use its reasonable best
efforts to take such further action as the Holders may reasonably request to
make available adequate current public information with respect to the Company
meeting the current public information requirements of Rule 144(c) under the
Securities Act, to the extent required to enable the Holders to sell Registrable
Common Stock without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
Rule may be amended from time to time, or (ii) any similar rule or regulation
hereafter adopted by the SEC. Upon the request of a Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such information and requirements.

 

15

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11. Miscellaneous.
(a) Notices. Except as otherwise provided herein, all notices, requests,
consents and other communications required or permitted hereunder shall be in
writing and shall be hand delivered or sent postage prepaid by a nationally
recognized overnight courier service (with tracking capability) or by facsimile
transmission (with immediate telephone confirmation thereafter),
If to the Company:
Morgans Hotel Group Co.
475 Tenth Avenue
New York, New York 10018
Attention: Chief Financial Officer
Facsimile: (212) 277-4201
E-mail: richard.szymanski@morganshotelgroup.com
with a copy to (which shall not constitute notice):
Sullivan & Cromwell LLP
125 Broad Street
New York, NY 10004
Attention: Robert W. Downes, Esq.
Facsimile: (212) 558-3588
E-mail: downesr@sullcrom.com
If to a Securityholder:
c/o Yucaipa American Alliance Fund II, LLC
9130 W. Sunset Boulevard
Los Angeles, California 90069
Attention: Robert P. Bermingham
with a copy (which shall not constitute notice) to:
Munger, Tolles & Olson LLP
355 South Grand Avenue
35th Floor
Los Angeles, California 90071
Attention: Judith T. Kitano
Fax: (213) 683-4052
Email: judith.kitano@mto.com

 

16

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or at such other address as such party each may specify by written notice to the
others, and, except as otherwise provided herein, each such notice, request,
consent and other communication shall for all purposes of the Agreement be
treated as being effective or having been given when delivered personally, upon
receipt of facsimile confirmation if transmitted by facsimile, or, if sent by a
nationally recognized overnight courier service (with tracking capability), upon
its receipt.
(b) No Waivers. No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
(c) Expenses. Except as otherwise provided for herein or otherwise agreed to in
writing by the parties, all costs and expenses incurred in connection with the
preparation of this Agreement shall be paid by the Company.
(d) Successors and Assigns. The provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, it being understood that subsequent holders of the
Registrable Common Stock are intended third party beneficiaries hereof. Without
limitation of the foregoing sentence, each Securityholder shall be permitted to
assign its registration rights as a Securityholder hereunder to any person to
whom such Securityholder transfers 2,000,000 shares or more of Registrable
Securities (subject to adjustment in accordance with Section 7.14 of the
Purchase Agreement); provided, that (x) the Company is given prior written
notice of the assignment, stating the name and address of the assignee and
identifying the Registrable Securities with respect to which such registration
rights are being assigned, and (y) such assignee agrees in writing to be bound
by subject to the provisions of this Agreement mutatis mutandis as if the
assignee were a party hereto.
(e) Governing Law. The internal laws of the State of New York shall govern the
enforceability and validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties.
(f) Jurisdiction. Any suit, action or proceeding seeking to enforce any
provision of, or based on any matter arising out of or in connection with, this
Agreement or the transactions contemplated hereby must be brought in any federal
or state court located in the County and State of New York, and each of the
parties hereby consents to the jurisdiction of such courts (and of the
appropriate appellate courts therefrom) in any such suit, action or proceeding
and irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such suit,
action or proceeding in any such court or that any such suit, action or
proceeding which is brought in any such court has been brought in an
inconvenient forum. Process in any such suit, action or proceeding may be served
on any party anywhere in the world, whether within or without the jurisdiction
of any such court. Without limiting the foregoing, each party agrees that
service of process on such party as provided in Section 11(a) shall be deemed
effective service of process on such party.

 

17

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(g) Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
(h) Counterparts; Effectiveness. This Agreement may be executed in any number of
counterparts (including by facsimile) and by different parties hereto in
separate counterparts, with the same effect as if all parties had signed the
same document. All such counterparts shall be deemed an original, shall be
construed together and shall constitute one and the same instrument. This
Agreement shall become effective when each party hereto shall have received
counterparts hereof signed by all of the other parties hereto.
(i) Entire Agreement. This Agreement contains the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes and
replaces all other prior agreements, written or oral, among the parties hereto
with respect to the subject matter hereof.
(j) Captions. The headings and other captions in this Agreement are for
convenience and reference only and shall not be used in interpreting, construing
or enforcing any provision of this Agreement.
(k) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner materially adverse to any party. Upon such a
determination, the parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner in order that the transactions contemplated
hereby be consummated as originally contemplated to the fullest extent possible.
(l) Amendments. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or
consents to departures from the provisions hereof may not be given without the
prior written consent of the Company and the Securityholders.

 

18

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(m) Equitable Relief. The parties hereto agree that legal remedies would be
inadequate to enforce the provisions of this Agreement against the Company and
that, in the event of a breach of this Agreement by the Company, the
Securityholders shall be permitted to enforce the provisions of this Agreement
against the Company by means of equitable relief, including specific performance
and injunctive relief.
(n) Construction. The parties hereto acknowledge that each party and its counsel
have participated in the negotiation and preparation of this Agreement. This
Agreement shall be construed without regard to any presumption or other rule
requiring construction against the party causing this Agreement to be drafted.
Every covenant, term and provision of this Agreement shall be construed
according to its fair meaning and not strictly for or against any party hereto.
[Execution Page Follows]

 

19

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IN WITNESS WHEREOF, this Registration Rights Agreement has been duly executed by
each of the parties hereto as of the date first written above.

        MORGANS HOTEL GROUP CO.
    By:         Name:         Title:      

[Securityholder signatures on following page.]

 

 

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        SECURITYHOLDERS:

YUCAIPA AMERICAN ALLIANCE FUND II, L.P.
    By:   Yucaipa American Alliance Fund II, LLC     Its:  General Partner   

        By:         Name:   Robert P. Bermingham      Title:   Vice President   

        YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P.
    By:   Yucaipa American Alliance Fund II, LLC     Its:  General Partner   

        By:         Name:   Robert P. Bermingham      Title:   Vice President   

        YUCAIPA AMERICAN ALLIANCE FUND II, LLC
    By:         Name:   Robert P. Bermingham      Title:   Vice President   

(Registration Rights Agreement)

 

 

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Schedule I
Bank of America Securities LLC [Merrill Lynch]
Citigroup Global Markets Inc.
Deutsche Bank Securities Inc.
Goldman, Sachs & Co.
Jefferies & Company, Inc. [with respect to an offering with aggregate value less
than $50 million]
Wells Fargo Securities, LLC [Wachovia]
(Registration Rights Agreement)

 

 

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Exhibit E
See Attached

 

 

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Amendment No. 1 to the
Amended and Restated Stockholder Protection Rights Agreement
This Amendment No. 1, dated as of October 15, 2009 (this “Amendment”), to the
Amended and Restated Stockholder Protection Rights Agreement, dated as of
October 1, 2009 (the “Rights Agreement”), between the Morgans Hotel Group Co.
(the “Company”) and Mellon Investors Services LLC, as rights agent (the “Rights
Agent”). Capitalized terms used but not defined herein shall have the meanings
assigned to such terms in the Rights Agreement.
WHEREAS, pursuant to Section 5.4 of the Rights Agreement, the Company may amend
the Rights Agreement in any respect prior to the Flip-in Date without the
consent of the holders of Rights;
WHEREAS, the Flip-in Date, as defined in the Rights Agreement, has not occurred;
and
WHEREAS, the Company would like to amend Section 1.1 of the Rights Agreement.
NOW, THEREFORE, the Company and the Rights Agent hereby agree to amend the
Rights Agreement as follows:
Section 1. From and after the execution and delivery of this Amendment, the
definition of the term “Acquiring Person” in Section 1.1 of the Rights Agreement
is hereby amended and restated to read in its entirety as follows:
“Acquiring Person” shall mean any Person who is or becomes the Beneficial Owner
of 15% or more of the outstanding shares of Common Stock; provided, however,
that the term “Acquiring Person” shall not include any Person (i) who is the
Beneficial Owner of 15% or more of the outstanding shares of Common Stock on the
date of the Original Rights Agreement, or who shall become the Beneficial Owner
of 15% or more of the outstanding shares of Common Stock solely as a result of
an acquisition by the Company of shares of Common Stock, until such time after
the date of the Original Rights Agreement or thereafter as such Person shall
become the Beneficial Owner (other than by means of a stock dividend or stock
split) of any additional shares of Common Stock while such Person is or as a
result of which such Person becomes the Beneficial Owner of 15% or more of the
outstanding shares of Common Stock, (ii) who becomes the Beneficial Owner of 15%
or more of the outstanding shares of Common Stock but who acquired Beneficial
Ownership of shares of Common Stock without any plan or intention to seek or
affect control of the Company, if such Person promptly divests, or promptly
enters into an agreement with, and satisfactory to, the Company, in its sole
discretion, to divest (without exercising or retaining any power, including
voting

 

 

--------------------------------------------------------------------------------

 

power, with respect to such shares), sufficient shares of Common Stock (or
securities convertible into, exchangeable into or exercisable for Common Stock)
so that such Person ceases to be the Beneficial Owner of 15% or more of the
outstanding shares of Common Stock, (iii) who Beneficially Owns shares of Common
Stock consisting solely of one or more of (A) shares of Common Stock
Beneficially Owned pursuant to the grant or exercise of an option granted to
such Person (an “Option Holder”) by the Company in connection with an agreement
to merge with, or acquire, the Company entered into prior to a Flip-in Date,
(B) shares of Common Stock (or securities convertible into, exchangeable into or
exercisable for Common Stock) Beneficially Owned by such Option Holder or its
Affiliates or Associates at the time of grant of such option, and (C) shares of
Common Stock (or securities convertible into, exchangeable into or exercisable
for Common Stock) acquired by Affiliates or Associates of such Option Holder
after the time of such grant that, in the aggregate, amount to less than 1% of
the outstanding shares of Common Stock or (iv) an Exempt Person, as defined
below. In addition, the Company, any Subsidiary of the Company and any employee
stock ownership or other employee benefit plan of the Company or a Subsidiary of
the Company (or any entity or trustee holding shares of Common Stock for or
pursuant to the terms of any such plan or for the purpose of funding any such
plan or funding other employee benefits for employees of the Company or of any
Subsidiary of the Company) shall not be an Acquiring Person.
Section 2. From and after the execution and delivery of this Amendment, the
definition of the term “Exempted Person” shall be added to Section 1.1 of the
Rights Agreement to read in its entirety as follows:
“Exempt Person” shall mean (i) Yucaipa American Alliance Fund II, L.P., a
Delaware limited partnership and Yucaipa American Alliance (Parallel) Fund II,
L.P., a Delaware limited partnership, which have entered into a Securities
Purchase Agreement, dated as of October 15, 2009, with the Company (the
“Purchase Agreement”), (ii) Yucaipa American Alliance Fund II, LLC, a Delaware
limited liability company (together with Yucaipa American Alliance Fund II, L.P.
and Yucaipa American Alliance (Parallel) Fund II, L.P., the “Initial Holders”),
which has entered into a Real Estate Fund Formation Agreement, dated as of
October 15, 2009, with the Company (the “Fund Formation Agreement”), (iii) any
subsidiary or investment fund of The Yucaipa Companies, LLC that is affiliated
with the Initial Holders and that acquires Beneficial Ownership of shares of
Common Stock or the warrants (the “Warrants”) issued pursuant to the Purchase
Agreement or the Fund Formation Agreement, and (iv) all Affiliates and
Associates of the Persons described in the foregoing clauses (i) through
(iii) to the extent such Affiliates or Associates Beneficially Own shares of
Common Stock or the Warrants indirectly through any of the Persons described in
the foregoing clauses (i) through (iii) (all persons described in the foregoing
clauses (i) through (iv) being referred to herein collectively as the “Yucaipa
Holders”), for so long as the Yucaipa Holders collectively Beneficially Own (a)
shares of

 

 

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Common Stock underlying, or issued upon exercise of, the Warrants (the
“Investment Securities”), and (b) up to 1,500,000 shares of Common Stock (as
adjusted for stock splits, reverse stock splits, or other recapitalizations of
the Company) purchased in the in the open market (“Open Market Securities”),
provided, that, the Beneficial Ownership of Open Market Securities by the
Yucaipa Holders does not cause the Yucaipa Holders to Beneficially Own, in the
aggregate, in excess of 39.9% of the issued and outstanding Common Stock, unless
such ownership in excess of 39.9% occurs as a result of a redemption or other
acquisition by the Company or any of its subsidiaries of any equity securities
of the Company. In addition, if any of the Series A Preferred Securities being
issued by the Company to the Initial Holders pursuant to the Purchase Agreement
remain outstanding seven years after the date of its issuance, then until the
Series A Preferred Securities are fully redeemed, any transferees of any
Investment Securities from the Yucaipa Holders and any Affiliates or Associates
thereof that Beneficially Own Investment Securities indirectly through any such
transferees shall also be deemed Exempt Persons unless and until they acquire
Beneficial Ownership of any additional shares of Common Stock.
Section 3. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS
OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND
PERFORMED ENTIRELY WITHIN SUCH STATE; EXCEPT THAT ALL PROVISIONS REGARDING THE
RIGHTS, DUTIES AND OBLIGATIONS OF THE RIGHTS AGENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 4. This Amendment may be executed in any number of counterparts and each
of such counterparts shall for all purposes be deemed to be an original, and all
such counterparts shall together constitute but one and the same instrument.

 

 

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly
executed and delivered as of the date first above written.

        MORGANS HOTEL GROUP CO.
    By:         Name:         Title:      

        MELLON INVESTOR SERVICES LLC
    By:         Name:         Title:      

 

 

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Exhibit F
See Exhibit G

 

 

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Exhibit G
See Attached

 

 

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(SULLIVAN & CROMWELL LLP) [c07529c0752901.gif]
  (IMAGE) [c07529c0752902.gif]

     
 
  October 15, 2009

Yucaipa American Alliance Fund II, L.P.,
Yucaipa American Alliance (Parallel) Fund II, L.P.,
     c/o Yucaipa American Alliance Fund II, LLC,
          9130 W. Sunset Boulevard,
               Los Angeles, California 90069.
Ladies and Gentlemen:
In connection with the purchase today by you pursuant to the Securities Purchase
Agreement, dated the date hereof (the “Securities Purchase Agreement”), between
Morgans Hotel Group Co., a Delaware corporation (the “Company”), and you, of
75,000 shares of the Company’s Preferred Stock, par value $0.01 per share,
designated as Series A Preferred Securities (the “Series A Preferred
Securities”), having the terms and conditions specified in the Certificate of
Designations therefor (the “Certificate of Designations”), and warrants (the
“Warrants” and, together with the Preferred Securities, the “Securities”) to
acquire 12,500,000 shares of the Company’s common stock, par value $0.01 per
share (the “Common Stock”), we, as special counsel for the Company, have
examined such corporate records, certificates and other documents, and such
questions of law, as we have considered necessary or appropriate for the
purposes of this opinion. Upon the basis of such examination, it is our opinion
that:
(1) The Company has been duly incorporated and is an existing corporation in
good standing under the laws of the State of Delaware.
(2) The Series A Preferred Securities have been duly authorized, and when issued
and delivered pursuant to the Securities Purchase Agreement, will be validly
issued, fully paid and non-assessable.
(3) The Certificate of Designations and the Rights Plan Amendment (as defined in
the Securities Purchase Agreement) have been duly authorized, executed and
delivered by the Company.

 

 

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      Yucaipa American Alliance Fund II, L.P.,
Yucaipa American Alliance (Parallel) Fund II, L.P.    
-2-

(4) The Securities Purchase Agreement, the Real Estate Fund Formation Agreement
(as defined in the Securities Purchase Agreement), the Warrants, the REF
Warrants (as defined in the Securities Purchase Agreement) and the Registration
Rights Agreement (as defined in the Securities Purchase Agreement) have been
duly authorized, executed and delivered by the Company; and constitute, in each
case, assuming due authorization, execution and delivery by each other party
thereto, valid and legally binding obligations of the Company enforceable
against the Company in accordance with their respective terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’ rights
and to general equity principles; provided, however that we express no opinion
with respect to (a) the enforceability of Section 5.7(b)(ii)(3) of the
Securities Purchase Agreement or (b) the indemnification and contribution
provisions of Section 8 of the Registration Rights Agreement.
(5) The shares of Common Stock initially issuable upon exercise of the Warrants
and the REF Warrants have been duly authorized and reserved for issuance upon
such exercise, and when issued and delivered upon exercise of the Warrants and
the REF Warrants in accordance with their respective terms, will be validly
issued, fully paid and nonassessable.
(6) All regulatory consents, authorizations, approvals and filings required to
be obtained or made by the Company under the Federal laws of the United States,
the laws of the State of New York and the General Corporation Law of the State
of Delaware for the issuance the Securities and the REF Warrants by the Company
to you have been obtained or made.
(7) The issuance of the Securities in accordance with the Securities Purchase
Agreement and the issuance of the REF Warrants in accordance with the Real
Estate Fund Formation Agreement do not (i) violate the Company’s certificate of
incorporation or by-laws or (ii) violate any Federal law of the United States or
law of the State of New York applicable to the Company; provided, however, that
we express no opinion with respect to Federal or state securities laws, other
antifraud laws, fraudulent transfer laws, antitrust laws, state laws relating to
the payment of dividends or the redemption or repurchase of stock and the
Employee Retirement Income Security Act of 1974 and related laws; provided,
further, that insofar as the Securities Purchase Agreement and Real Estate Fund
Formation Agreement are concerned, we express no opinion as to bankruptcy,
insolvency, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors’ rights.

 

 

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      Yucaipa American Alliance Fund II, L.P.,
Yucaipa American Alliance (Parallel) Fund II, L.P.    
-3-

As contemplated by the qualifications set forth in paragraph (4) above, in
rendering the foregoing opinions, we are expressing no opinion as to Federal or
state laws relating to fraudulent transfers. We also express no opinion as to:

  (i)  
provisions to the effect that rights or remedies are not exclusive, that every
right or remedy is cumulative and may be exercised in addition to any other
right or remedy, that the election of some particular remedy does not preclude
recourse to one or more others or that failure to exercise or a delay in
exercising rights or remedies will not operate as a waiver of any such right or
remedy;
    (ii)  
the waiver of any right, duty or remedy, whether or not such waiver is deemed to
be commercially reasonable, if such waiver is determined (a) not to be
commercially reasonable under applicable law, (b) to conflict with mandatory
provisions of applicable law, (c) to be taken in a manner determined to be
unreasonable or not performed in good faith or with fair dealing or with honesty
in fact, or (d) to be broadly or vaguely stated or not to describe the right,
duty or remedy purportedly waived with reasonable specificity;
    (iii)  
provisions which expressly or implicitly waive or limit the benefits of
statutory, regulatory or constitutional rights unless and to the extent such
statute, regulation or constitution expressly allows such waiver or limitation;
and
    (iv)  
the effect of any party’s compliance or noncompliance with any federal or state
laws or regulations applicable to it or applicable to the transactions
contemplated by the Securities Purchase Agreement due to the nature of your
business.

The opinion set forth in paragraph (5) above, with respect to shares of Common
Stock issuable upon exercise of the Warrants or REF Warrants is subject to
outcome of the vote of the Company’s stockholders pursuant to Rule 5635 of the
Nasdaq Stock Market to the extent such approval is required in order for such
shares to be validly issued, fully paid and nonassessable.
The foregoing opinion is limited to the Federal laws of the United States, the
laws of the State of New York and the General Corporation Law of the State of
Delaware, and we are expressing no opinion as to the effect of the laws of any
other jurisdiction.

 

 

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      Yucaipa American Alliance Fund II, L.P.,
Yucaipa American Alliance (Parallel) Fund II, L.P.    
-4-

We have relied as to certain matters upon information obtained from public
officials, officers of the Company and other sources believed by us to be
responsible, and we have assumed that the certificates for the shares of
Preferred Stock conform to the specimen thereof examined by us, that the
certificates for the shares of Common Stock will conform to the specimen thereof
examined by us and will be duly countersigned by a transfer agent of the Common
Stock, and that the signatures on all documents examined by us are genuine,
assumptions which we have not independently verified.

     
 
  Very truly yours,
 
   
 
  (SULLIVAN & CROMWELL LLP) [c07529c0752903.gif]

 

 

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Exhibit H
See Attached

 

 

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(LETTERHEAD) [c07529c0752904.gif]
Morgans Hotel Group Co.
475 Tenth Avenue
New York, New York 10018

      Re:   Securities Purchase Agreement

Ladies & Gentlemen:
We have acted as special counsel to The Yucaipa Companies, LLC, a Delaware
limited liability company (“Yucaipa”), an affiliate of Yucaipa American Alliance
Fund II, L.P., a Delaware limited partnership (“YAAF II”), and Yucaipa American
Alliance (Parallel) Fund II, L.P., a Delaware limited partnership (“YAAF II-P”
and, together with YAAF II, the “Investors”), in connection with the Securities
Purchase Agreement (the “Purchase Agreement”), dated as of the date hereof, by
and among Morgans Hotel Group Co., a Delaware corporation (the “Company”) and
the Investors. We are furnishing this opinion letter to you, at the request of
Yucaipa, pursuant to Section 2.2.2(b) of the Purchase Agreement.
In rendering the opinions expressed below, we have examined originals or copies
of such instruments, corporate records, certificates of public officials and
other persons, and other documents as we have deemed necessary or advisable,
including:

  (a)  
the Purchase Agreement;
    (b)  
the General Partner Certificate, of even date herewith, delivered by the
Investors to us in support of this opinion letter (the “Backup Certificate”),
substantially in the form attached hereto as Exhibit A, and the documents and
records attached thereto;

 

 

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(MUNGER, TOLLES & OLSON LLP) [c07529c0752905.gif]
Morgans Hotel Group Co.
October 15, 2009
Page 2

  (c)  
the Third Amended and Restated Limited Partnership Agreement of YAAF II, dated
as of December 28, 2008, as amended through the date hereof (the “YAAF II
Partnership Agreement”);
    (d)  
the Certificate of Limited Partnership of YAAF II, dated as of September 12,
2007, in the form certified by the Secretary of State of the State of Delaware
on October 1, 2009 (together with the YAAF II Partnership Agreement, the “YAAF
II Organizational Documents”);
    (e)  
the Third Amended and Restated Limited Partnership Agreement of YAAF II-P, dated
as of December 28, 2008, as amended through the date hereof (the “YAAF II-P
Partnership Agreement”);
    (f)  
the Certificate of Limited Partnership of YAAF II-P, dated as of September 12,
2007, in the form certified by the Secretary of State of the State of Delaware
on October 1, 2009 (together with the YAAF II-P Partnership Agreement, the “YAAF
II-P Organizational Documents”);
    (g)  
a certificate of good standing, dated as of October 1, 2009, issued by the
Secretary of State of the State of Delaware with respect to YAAF II (the “YAAF
II Good Standing”); and
    (h)  
a certificate of good standing, dated as of October 1, 2009, issued by the
Secretary of State of the State of Delaware with respect to YAAF II-P (the “YAAF
II-P Good Standing”).

In connection with the opinions expressed below, we have assumed, without
investigation, that: (i) all signatures are genuine; (ii) all documents provided
to or reviewed by us that purport to be originals are authentic; (iii) all
documents provided to or reviewed by us that purport to be copies conform to the
originals thereof; (iv) all certificates of public officials and all public
records provided to or reviewed by us are accurate, complete and authentic;
(v) each natural person who is a signatory to each document provided to or
reviewed by us has the legal capacity to execute such document and, if
applicable, to perform his or her obligations thereunder; (vi) the Company has
all requisite power and authority to execute and deliver the Purchase Agreement
and to perform its obligations thereunder; (vii) the Purchase Agreement has been
duly authorized, executed and delivered by the Company in accordance with
applicable law; (viii) the Purchase Agreement constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms; (ix) each party to each document provided to or reviewed by us
has complied and will comply with all of its obligations thereunder and all
legal requirements applicable to such party, its status, the Purchase Agreement
and the transactions contemplated thereby, and such party has obtained all
necessary consents, licenses, and permits in connection therewith; (x) there are
no agreements or understandings among the parties to the Purchase Agreement, and
there is no usage of trade or course of prior dealing among such parties, that
in either case would define, supplement or qualify the terms of the Purchase
Agreement; and (xi) the parties to the Purchase Agreement are not subject to any
special laws, regulations or restrictions relevant to the transactions
contemplated thereby that are not generally applicable to parties participating
in transactions of the type contemplated thereby.

 

 

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(MUNGER, TOLLES & OLSON LLP) [c07529c0752905.gif]
Morgans Hotel Group Co.
October 15, 2009
Page 3
As to various questions of fact relevant to the opinions expressed below, we
have relied upon, and assumed the accuracy of, the representations and
warranties contained in the Purchase Agreement and the Backup Certificate and
all oral and written statements and other information of or from representatives
of Yucaipa and the Investors and other sources. We have made no independent
verification of any of the factual matters contained in any such documents,
certificates or statements or of any such information.
On the basis of the foregoing, and in reliance thereon, and subject to the
assumptions, qualifications, and limitations set forth herein, we are of the
opinion that:
1. Based solely on our review of the YAAF II Good Standing, YAAF II is duly
formed, is in good standing and has a legal existence under the laws of the
State of Delaware.
2. Based solely on our review of the YAAF II-P Good Standing, YAAF II-P is duly
formed, is in good standing and has a legal existence under the laws of the
State of Delaware.
3. YAAF II has taken all action necessary under the YAAF II Organizational
Documents and the Delaware Revised Uniform Limited Partnership Act (the
“DRULPA”) to authorize its execution and delivery of the Purchase Agreement and
the performance of its obligations thereunder.
4. YAAF II-P has taken all action necessary under the YAAF II-P Organizational
Documents and the DRULPA to authorize the execution and delivery of the Purchase
Agreement and the performance of YAAF II-P’s obligations thereunder.
5. The Purchase Agreement constitutes the valid and binding obligation of the
Investors, enforceable against the Investors in accordance with its terms.
In addition to any assumptions, qualifications and other matters set forth
elsewhere herein, our opinions expressed above are subject to the following:
A. Our opinions expressed above are subject to the effect of any applicable
bankruptcy, insolvency, fraudulent conveyance, fraudulent transfer and equitable
subordination, reorganization, moratorium, or similar laws relating to or
affecting creditors’ rights generally and to general principles of equity,
including concepts of materiality, reasonableness, estoppel and good faith and
fair dealing, regardless of whether considered in a proceeding in equity or at
law.

 

 

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(MUNGER, TOLLES & OLSON LLP) [c07529c0752905.gif]
Morgans Hotel Group Co.
October 15, 2009
Page 4
B. Our opinions with respect to the binding effect and enforceability of the
Purchase Agreement are subject to:

  (i)   the unenforceability under certain circumstances of provisions relating
to choice of law;

  (ii)  
the unenforceability under certain circumstances of provisions relating to the
jurisdiction of any court or other tribunal to adjudicate any controversy and to
inconvenient forum;

  (iii)  
laws, court decisions and public policy considerations that may limit the rights
of a party to obtain indemnification, including (a) limitations on the
enforceability of provisions providing for indemnification contrary to U.S.
federal or state securities laws and the public policy underlying such laws, (b)
limitations on the enforceability of provisions exculpating or exempting a party
from, or requiring indemnification of a party for, liability for its own action
or inaction, to the extent such action or inaction involves gross negligence,
recklessness, willful misconduct, or unlawful conduct, and (c) determinations by
a court or other tribunal that such provisions are otherwise unreasonable in
amount, constitute a penalty, or are contrary to public policy; and

  (iv)  
the unenforceability under certain circumstances of provisions that may be
construed as imposing penalties or forfeitures, late payment charges, or an
increase in interest rate, upon delinquency in payment or the occurrence of
default.
    C.   We express no opinion as to:

  (i)  
the availability of equitable remedies, including the availability of specific
performance or injunctive relief;

  (ii)  
provisions to the effect that rights or remedies are not exclusive, that every
right or remedy is cumulative and may be exercised in addition to any other
right or remedy, that the election of some particular remedy does not preclude
recourse to one or more others or that failure to exercise or a delay in
exercising rights or remedies will not operate as a waiver of any such right or
remedy;

  (iii)  
the waiver of any right, duty or remedy, whether or not such waiver is deemed to
be commercially reasonable, if such waiver is determined (a) not to be
commercially reasonable under applicable law, (b) to conflict with mandatory
provisions of applicable law, (c) to be taken in a manner determined to be
unreasonable or not performed in good faith or with fair dealing or with honesty
in fact, or (d) to be broadly or vaguely stated or not to describe the right,
duty or remedy purportedly waived with reasonable specificity;

 

 

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(MUNGER, TOLLES & OLSON LLP) [c07529c0752905.gif]
Morgans Hotel Group Co.
October 15, 2009
Page 5

  (iv)   provisions which expressly or implicitly waive or limit the benefits of
statutory, regulatory or constitutional rights unless and to the extent such
statute, regulation or constitution expressly allows such waiver or limitation;
    (v)   the effect of Section 1698 of the California Civil Code which, among
other things, provides that a written contract may be modified by an oral
agreement to the extent such agreement is performed by the parties;

  (vi)   the effect of Section 1670.5 of the California Civil Code which
provides that a court may not enforce or may limit the application of a contract
or portions thereof which it finds as a matter of law to have been
unconscionable at the time the contract was made;

  (vii)   the effect of any party’s compliance or noncompliance with any federal
or state laws or regulations applicable to it or applicable to the transactions
contemplated by the Purchase Agreement due to the nature of such party’s
business; and     (viii)   provisions waiving the right to trial by jury.

D. We advise you that the obligations of the Investors, and the rights and
remedies of the Company, in each case, under the Purchase Agreement, may be
subject to possible limitations, including those set forth in this opinion
letter. Such limitations may render unenforceable certain remedies, waivers and
other provisions of the Purchase Agreement.
We are admitted to practice law only in the State of California. The law covered
by the opinions expressed above is limited to, (i) in the case of the opinions
expressed in Paragraphs 1 through 4 above, the DRULPA, and (ii) in the case of
the opinion expressed in Paragraph 5 above, the laws of the State of California.
We express no opinion as to the laws of any other jurisdiction, or any other law
of the State of Delaware, and no opinion regarding the statutes, administrative
decisions, rules, regulations or requirements of any county, municipality,
subdivision or local authority of any jurisdiction. With respect to the DRULPA,
we have relied solely on our review of the Delaware Corporation Laws Annotated —
2008-2009 Edition, published by LexisNexis.
We note that the law of the State of New York is stated to be the governing law
of the Purchase Agreement. For purposes of this opinion, we have assumed with
your permission that the law of the State of California governs the Purchase
Agreement. We express no opinion as to whether a court applying California
choice-of-law rules would apply the law of the State of New York to the Purchase
Agreement.

 

 

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(MUNGER, TOLLES & OLSON LLP) [c07529c0752905.gif]
Morgans Hotel Group Co.
October 15, 2009
Page 6
This opinion letter is expressly limited to the matters set forth above, and we
express no opinion, whether by implication or otherwise, as to any other matter.
The opinions expressed above are given as of the date hereof, and we disclaim
any obligation to update or supplement this opinion letter, regardless of any
change after the date hereof in any applicable law or our awareness after the
date hereof of any facts that may change the opinions expressed above. This
opinion letter is an expression of our professional judgment on the legal issues
expressly addressed herein, and accordingly, this opinion is provided to you as
a legal opinion only and not as a guaranty or warranty of the matters discussed
herein.
This opinion letter is being furnished to you and is solely for your benefit in
connection with the execution and delivery of the Purchase Agreement. This
opinion letter may not be used or relied upon by you for any other purpose or by
any other person for any purpose, nor may copies be delivered to any other
person (other than your counsel and auditors), without, in each instance, our
prior written consent; provided that copies of this opinion letter may be
delivered to the extent necessary to comply with a court order that is binding
upon the Company or the request of a regulatory agency with jurisdiction over
the Company.

     
 
  Very truly yours,
 
  (MUNGER, TOLLES & OLSON LLP) [c07529c0752906.gif]

 

 

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Exhibit A
Backup Certificate

 

 

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OFFICER’S CERTIFICATE
October 15, 2009
This certificate (this “Certificate”), dated as of the date set forth above, is
being furnished to Munger, Tolles & Olson LLP in connection with the rendering
of a legal opinion by Munger, Tolles & Olson LLP, as special counsel to The
Yucaipa Companies, LLC, a Delaware limited liability company, which, in turn, is
an affiliate of each of Yucaipa American Alliance Fund II, L.P., a Delaware
limited partnership (“YAAF II”), and Yucaipa American Alliance (Parallel) Fund
II, L.P., a Delaware limited partnership (“YAAF II-P”).
I, the undersigned, Robert P. Bermingham, hereby certify on behalf of Yucaipa
American Alliance Fund II, LLC, a Delaware limited liability company (the
“General Partner”), as follows:
1. I am a duly elected officer of each of (i) the General Partner and
(ii) Yucaipa American Funds, LLC, a Delaware limited liability company (“YAF”),
in each case, occupying the office of Vice President.
2. The General Partner is the sole general partner of each of YAAF II and YAAF
II-P and has full authority and control over the business and affairs of each of
YAAF II and YAAF II-P. YAF is the sole managing member of the General Partner
and has full authority and control over the business and affairs of the General
Partner.
3. The limited partnership agreement of YAAF II, as amended through the date
hereof, is attached hereto as Exhibit A. Such limited partnership agreement is
in full force and effect in the form attached hereto as Exhibit A.
4. The limited partnership agreement of YAAF II-P, as amended through the date
hereof, is attached hereto as Exhibit B. Such limited partnership agreement is
in full force and effect in the form attached hereto as Exhibit B.
5. Attached hereto as Exhibit C is a duly executed written consent of YAF. Such
written consent is in full force and effect in the form attached hereto as
Exhibit C, and no other resolutions, written consent, instrument or document
inconsistent with such has been executed, adopted, approved or ratified in any
respect.
6. I have been duly authorized and empowered by YAF and the General Partner to
cause the General Partner to take all actions that I determine in my sole
discretion to be necessary, appropriate, advisable or convenient in connection
with the transactions contemplated by that certain Securities Purchase
Agreement, dated as of the date hereof (the “Purchase Agreement”), by and among
Morgans Hotel Group Co., YAAF II and YAAF II-P, including, without limitation,
to (i) cause the General Partner to execute and deliver the Purchase Agreement
in the name and on behalf of YAAF II and YAAF II-P and (ii) cause the General
Partner to cause YAAF II and YAAF II-P to perform all of their respective
obligations thereunder.

 

 

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IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the date
first written above.

            Yucaipa American Alliance Fund II, LLC
      By:   /s/ Robert P. Bermingham         Name:   Robert P. Bermingham       
Title:   Vice President   

(Officer’s Certificate)

 

 

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EXHIBIT A
THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF
YUCAIPA AMERICAN ALLIANCE FUND II, L.P.

 

 

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EXHIBIT B
THIRD AMENDED AND RESTATED LIMITED PARTNERSHIP AGREEMENT OF
YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II, L.P.

 

 

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EXHIBIT C

RESOLUTIONS OF YUCAIPA AMERICAN FUNDS, LLC

 

 

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WRITTEN CONSENT
OF THE MANAGING MEMBER
OF
YUCAIPA AMERICAN ALLIANCE FUND II, LLC,
a Delaware limited liability company
October 15, 2009
The undersigned, being the managing member (the “Managing Member”) of Yucaipa
American Alliance Fund II, LLC, a Delaware limited liability company (the
“Company”), hereby approves and adopts the following resolutions by written
consent:
WHEREAS, the Managing Member is the managing member of the Company and has full
authority and control over the business and affairs of the Company;
WHEREAS, the Company is the general partner of each of Yucaipa American Alliance
Fund II, L.P., a Delaware limited partnership (“YAAF II”), and Yucaipa American
Alliance (Parallel) Fund II, L.P., a Delaware limited partnership (“YAAF II-P”);
and
WHEREAS, the Company, in its capacity as general partner of the YAAF II and YAAF
II-P, has determined that it is in the best interest of YAAF II and YAAF II-P to
enter into that certain Securities Purchase Agreement, in substantially the same
form presented to the Managing Member (the “Purchase Agreement”), by and among
YAAF II, YAAF II-P and Morgans Hotel Group Co., a Delaware corporation
(“Morgans”), dated as of the date hereof, and to enter other ancillary
agreements and perform other acts and transactions contemplated thereby and
related thereto, and to perform all acts including the purchase of shares of
Morgans’ Series A Preferred Stock, par value $0.01 per share (the “Preferred
Stock”), and common stock warrants (the “Warrants”) for an aggregate purchase
price of $75,000,000 (the “Purchase Price”).
NOW, THEREFORE, LET IT BE RESOLVED, that the execution, performance and delivery
of the Purchase Agreement is hereby approved, and the Managing Member, the
Company and any person or persons designated and authorized to act by the
Managing Member or the Company (the “Authorized Persons”), including, without
limitation, Robert P. Bermingham in his capacity as Vice President of the
Managing Member or Vice President of the Company, be, and hereby are, authorized
and empowered, on behalf of and in the name of the Company, whether in its
capacity as general partner of YAAF II and YAAF II-P or otherwise, to execute,
perform and deliver the Purchase Agreement, and any amendments, modifications or
supplements thereto, if any, as the Managing Member, the Company or any
Authorized Person shall determine in its, his or her sole discretion to be
necessary or advisable, which amendments, modifications or supplements are
hereby approved and ratified in all respects; and be it

 

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FURTHER RESOLVED, that the Managing Member, the Company and Authorized Persons,
be, and hereby are, authorized and empowered, on behalf of and in the name of
the Company, whether in its capacity as general partner of YAAF II and YAAF II-P
or otherwise, to prepare, execute, deliver and perform, or cause to be prepared,
executed, delivered and performed, all such other documents, instruments,
receipts, certificates and agreements, and to take or cause to be taken all such
other actions as the Managing Member, the Company or any Authorized Person shall
determine in its, his or her sole discretion to be necessary, appropriate,
advisable or convenient in connection with the transaction contemplated by the
Purchase Agreement in order to effectuate the purposes of the foregoing
resolutions or any of them or to carry out the transactions contemplated
thereby, including, without limitation, the purchase of the Preferred Stock and
the Warrants in exchange for the payment of the Purchase Price to Morgans by
YAAF II and YAAF II-P as contemplated by the Purchase Agreement, and to perform
all of their respective obligations thereunder; and be it
FURTHER RESOLVED, that all prior actions taken by the Managing Member, the
Company and the Authorized Persons that are in conformity with the intent and
purposes of the foregoing resolutions are hereby approved, adopted, ratified and
confirmed in all respects as the acts and deeds of the Company.
[Signature Page Follows]

 

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IN WITNESS WHEREOF, the undersigned have executed this Written Consent,
effective as of the date first above written.
Managing Member:

            Yucaipa American Funds, LLC
      By:   /s/ Robert P. Bermingham         Name:   Robert P. Bermingham      
  Title:   Vice President   

(Managing Member Consent of YAAF II, LLC)

 

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The Yucaipa Companies
October ____, 2009
Munger, Tolles & Olson LLP
Re: Morgans Group Hotel Co. Securities Purchase Transaction
To Whom It May Concern:
I certify, in the capacities set forth below, that Robert P. Bermingham is the
Vice President of Yucaipa American Alliance Fund II, LLC, a Delaware limited
liability company and the Vice President of Yucaipa American Funds, LLC, a
Delaware limited liability company.

                  Yucaipa American Alliance Fund II, LLC    
 
           
 
  By:   Yucaipa American Funds, LLC,    
 
  Its:   Managing Member    
 
           
 
  By:   Yucaipa American Management, LLC,    
 
  Its:   Managing Member    
 
           
 
  By:   /s/ Ronald W. Burkle    
 
     
 
Name: Ronald W. Burkle    
 
      Title: Managing Member    

(Incumbency)

 

 

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Exhibit I
See Attached

 

 

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EXECUTION COPY
MANAGEMENT RIGHTS AGREEMENT
This Management Rights Agreement (this “Agreement”), dated as of October 15,
2009, is entered into by and among Yucaipa American Alliance Fund II, L.P., a
Delaware limited partnership (the “Fund”), and Morgans Hotel Group Co., a
Delaware corporation (the “Company”).
Recitals
Whereas, pursuant to the Securities Purchase Agreement, dated as of October 15,
2009, by and among the Company, the Fund and certain other parties, the Fund
owns certain of the issued and outstanding shares of the Company’s Series A
Preferred Securities, par value $0.01 per share (“Preferred Securities”) and
certain warrants (“Warrants”) to acquire shares of the Company’s common stock,
par value $0.01 per share (“Common Stock”); and
Whereas, the Company has agreed to grant to the Fund certain management rights
with respect to the Company;
Now, therefore, in consideration of the terms, conditions and other provisions
herein, and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
Agreement
1. Management Rights. The Company hereby grants to the Fund the following
management rights with respect to the Company, for so long as the Fund holds any
shares of Preferred Securities or Common Stock or any of the Warrants:
(a) the Fund shall be entitled to consult with and advise management of the
Company on material business activities and financial developments of the
Company;
(b) the Company shall deliver to the Fund, as soon as practicable after they
become available, the financial statements and other financial reports of the
Company with respect to each fiscal year or fiscal quarter of the Company; and
(c) the Fund shall have the right to review and inspect the books and records of
the Company during regular business hours upon reasonable notice to the Company.
The Company agrees to cooperate fully with the Fund to enable the Fund to
exercise the management rights granted to the Fund pursuant to this Agreement.
It is the intent of the parties hereto that such obligation to cooperate with
the Fund and the scope of the management rights granted to the Fund shall be
construed as broadly in favor of the Fund as necessary or appropriate to enable
the Fund to be a “venture capital operating company” or “real estate operating
company” within the meaning of the regulations promulgated by the U.S.
Department of Labor.

 

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EXECUTION COPY
2. Further Assurances. Each party hereto shall take all actions that may be
reasonably necessary or appropriate to carry out the full intent of this
Agreement.
3. Interpretation. Unless the context clearly indicates otherwise: (a) each
definition herein includes the singular and the plural; (b) each reference
herein to any gender includes the masculine, feminine, and neuter where
appropriate; (c) the word “including” when used herein means “including, but not
limited to,” and the word “include” when used herein means “include, without
limitation”; and (d) the words “hereof,” “herein,” “hereto,” “hereby,”
“hereunder,” and derivative or similar words refer to this Agreement as a whole
and not to any particular provision of this Agreement.
4. Governing Law. This Agreement shall be interpreted and enforced in accordance
with and governed by the laws of the State of Delaware applicable to agreements
made and to be performed wholly within that jurisdiction.
5. Miscellaneous. The section headings in this Agreement are for convenience of
reference only and shall not be deemed to constitute a part hereof. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original and all of which taken together shall constitute one and the
same Agreement.
[the remainder of this page is intentionally left blank.]

 

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In witness whereof, the undersigned have executed this Agreement as of the date
first written above.

                      COMPANY    
 
                    Morgans Hotel Group Co.    
 
               
 
  By:                          
 
      Name:    
 
      Title:    
 
                    FUND    
 
                    Yucaipa American Alliance Fund II, L.P.    
 
                    By:   Yucaipa American Alliance Fund II, LLC,
its general partner    
 
               
 
      By:        
 
         
 
Name: Robert P. Bermingham    
 
          Title: Vice President    

(Management Rights Agreement-Main Fund)