Exhibit 10.3
Confirmation of OTC Warrant Transaction

     
Date:
  October 17, 2007
 
   
To:
  Morgans Hotel Group Co. (“Counterparty”)
 
  Attention:
 
  Telephone No.:
 
  Facsimile No.:
 
   
From:
  Merrill Lynch Financial Markets, Inc. (“Dealer” or “MLFM”)
 
  4 World Financial Center 5th Floor
 
  New York, New York 10080
 
  Attention: Corporate Derivatives
 
  Facsimile No.: (212) 738-1069
 
  Telephone No.: (212) 449-6763

MLFM Reference:
 
Dear Sir / Madam:
     The purpose of this letter agreement (this “Confirmation”) is to amend and
restate the terms and conditions of the above-referenced transaction entered
into among Counterparty, Dealer and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the “Agent”) on the Trade Date specified below (the
“Transaction”). This Confirmation amends, restates, and supercedes in its
entirety the Confirmation in respect of the Transactions dated as of October 11,
2007. This Confirmation constitutes a “Confirmation” as referred to in the
Agreement specified below.
     The definitions and provisions contained in the 2000 ISDA Definitions (the
“Swap Definitions”) and the 2002 ISDA Equity Derivatives Definitions (the
“Equity Definitions” and, together with the Swap Definitions, the
“Definitions”), in each case as published by the International Swaps and
Derivatives Association, Inc., are incorporated into this Confirmation. In the
event of any inconsistency between the Swap Definitions and the Equity
Definitions, the Equity Definitions will govern, and in the event of any
inconsistency between the Definitions and this Confirmation, this Confirmation
will govern. References herein to a “Transaction” shall be deemed to be
references to a “Share Option Transaction” for the purposes of the Equity
Definitions and to a “Swap Transaction” for the purposes of the Swap
Definitions. For purposes of this Transaction, “Warrant Style”, “Warrant Type”,
“Number of Warrants” and “Warrant Entitlement” (each as defined below) shall be
used herein as if such terms were referred to as “Option Style”, “Option Type”,
“Number of Options” and “Option Entitlement”, respectively, in the Definitions.
     This Confirmation evidences a complete binding agreement between you and us
as to the terms of the Transaction to which this Confirmation relates. This
Confirmation (notwithstanding anything to the contrary herein), shall be subject
to, and form part of, an agreement in the 1992 form of the ISDA Master Agreement
(Multicurrency Cross Border) (the “Master Agreement” or “Agreement”) as if we
had executed an agreement in such form (but without any Schedule and with
elections specified in the “ISDA Master Agreement” Section of this Confirmation)
on the Trade Date. In the event of any inconsistency between the provisions of
that Agreement and this Confirmation, this Confirmation will prevail for the
purpose of this Transaction. The parties hereby agree that the Transaction
evidenced by this Confirmation shall be the only Transaction subject to and
governed by the Agreement.
     The terms of the particular Transaction to which this Confirmation relates
are as follows:
Amended and Restated OTC Warrant Confirmation

 

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General Terms:
   
 
   
Trade Date:
  October 11, 2007
 
   
Effective Date:
  October 17, 2007 subject to cancellation of the OTC Warrant Transaction prior
to 5:00 p.m. (New York City time) on such date by the Counterparty. In the event
of such cancellation, any payments previously made hereunder, including the
Premium, shall be returned to the person making such payment. In addition,
Counterparty shall reimburse Dealer for any costs or expenses (including market
losses) relating to the unwinding of its hedging activities in connection with
the Transaction (including any loss or cost incurred as a result of its
terminating, liquidating, obtaining or reestablishing any hedge or related
trading position).
 
   
Warrant Style:
  European
 
   
Warrant Type:
  Call
 
   
Seller:
  Counterparty
 
   
Buyer:
  Dealer
 
   
Shares:
  Shares of Common Stock, $0.01 par value, of Counterparty (Security Symbol:
 
  “MHGC”).
 
   
Number of Warrants:
  4,276,885
 
   
Daily Number of Warrants:
  For any day, the unexercised Number of Warrants on such day divided by the
remaining number of Expiration Dates (including such day) and rounded down to
the nearest whole number, with the balance of the Number of Warrants exercised
on the final Expiration Date.
 
   
Warrant Entitlement:
  One (1) Share per Warrant
 
   
Strike Price:
  $40.00
 
   
Premium:
  $22,712,500
 
   
Premium Payment Date:
  The Effective Date; provided that no cancellation of the Transaction has
occurred prior to 5:00 p.m. (New York City time) on such date by the
Counterparty.
 
   
Exchange:
  Nasdaq Global Market
 
   
Related Exchange(s):
  All Exchanges
 
   
Full Exchange Business Day:
  A Scheduled Trading Day that has a scheduled closing time for its regular
trading session at 4:00 p.m. (New York City time) or the then standard closing
time for regular trading on the Exchange and is not a Disrupted Day.
 
   
Procedures for Exercise:
   
 
   
Expiration Time:
  11:59 p.m. (New York City time).

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Amended and Restated OTC Warrant Confirmation

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          Expiration Dates:   The 90 consecutive Full Exchange Business Days
beginning on and including January 15, 2015 each shall be the Expiration Date
for a number of Warrants equal to the Daily Number of Warrants on such date.
 
        Exercise Dates:   Each Expiration Date shall be an Exercise Date for a
number of Warrants equal to the Daily Number of Warrants on such date. The
Warrants shall not be exercised prior to the first such Exercise Date.
 
        Automatic Exercise:   Applicable; provided that Section 3.4(a) of the
Equity Definitions shall apply to Cash Settlement and Net Physical Settlement;
and provided further that, unless all Warrants have been previously exercised
hereunder, a number of Warrants for each Expiration Date equal to the Daily
Number of Warrants for such Expiration Date shall be deemed to be automatically
exercised.
 
       
Counterparty’s Telephone Number and Telex and/or Facsimile Number and Contact
Details for purpose of Giving Notice:
  Address:
 
Attention:
Facsimile No.:
Telephone No.:   To be advised.
 
       
Valuation:
       
 
        Valuation Dates:   Each Exercise Date
 
       
Settlement Terms:
       
 
        Cash Settlement:   Applicable; provided that it shall be a condition of
Counterparty’s right to elect Cash Settlement that on the date of the Cash
Settlement election, none of Counterparty, its directors, executive officers, or
any person controlling, or exercising influence over, its decision to elect Cash
Settlement is in possession of any material non-public information with respect
to Counterparty or the Shares. If Counterparty elects to settle the Transaction
by Cash Settlement, Counterparty represents and agrees that:
 
            (i) Counterparty is not, on the date of the Cash Settlement
election, and will not be, on any day during the period from and including the
first Expiration Date to and including the final Expiration Date, engaged in a
distribution, as such term is used in Regulation M under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”); and
 
            (ii) during the period from and including the first Expiration Date
to and including the final Expiration Date, without the prior written consent of
Dealer, the Counterparty shall not, and shall cause its affiliates and
affiliated purchasers (each as defined in Rule 10b-18 under the Exchange Act)
not to, directly or indirectly (including, without limitation, by means of a
derivative instrument) purchase, offer to purchase, place any bid or limit order
that would effect a purchase of, or commence any tender offer relating to, any
Shares (or equivalent interest, including a unit of beneficial interest in a
trust or limited partnership or a depository share) or any security convertible
into or exchangeable for the Shares.

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Settlement Currency:
  USD
 
   
Settlement Price:
  For each Valuation Date, the Rule 10b-18 Dollar Volume Weighted Average Price
of the Shares (“VWAP”) calculated from 9:45 a.m. to 3:45 p.m., as observed under
the heading Bloomberg “VWAP” on Bloomberg page MHGC.Q <equity> VAP (or any
successor thereto) (or if such volume-weighted average price is unavailable, the
market value of one Share on such Valuation Date, as determined by the
Calculation Agent); provided that, if the scheduled weekday closing time of the
Exchange for any Valuation Date is later than 4:00 p.m. (without regard to after
hours or any other trading outside of the regular trading session hours) the
VWAP shall be calculated for such Valuation Date from 9:45 a.m. until 15 minutes
prior to such later closing time of the Exchange.
 
   
 
  Section 6.3(a) of the Equity Definitions is hereby amended by replacing clause
(ii) in its entirety with “(ii) an Exchange Disruption, or” and inserting
immediately following clause (iii) the phrase “; in each case that the
Calculation Agent determines is material.”
 
   
Cash Settlement Payment
Date:
  With respect to each Valuation Date, three (3) Currency Business Days after
the final Valuation Date.
 
   
Settlement Method Election:
  Applicable with respect to Cash Settlement or Net Physical Settlement only.
 
   
Electing Party:
  Counterparty
 
   
Settlement Method Election
Date:
  Ten (10) Business Days prior to the first Expiration Date
 
   
Default Settlement Method:
  Net Physical Settlement.
 
   
Net Physical Settlement:
  In the event that the Counterparty elects to settle this Transaction by Net
Physical Settlement, Counterparty shall deliver to Dealer on the Settlement Date
a number of Shares (the “Delivered Shares”) equal to the Share Delivery
Quantity; provided that in the event that the number of Shares calculated
comprises any fractional Share, only whole Shares shall be delivered and an
amount in cash equal to the value of such fractional share shall be payable by
the Counterparty to Dealer in lieu of such fractional Share. If, in the
reasonable opinion of Dealer based on advice of counsel, for any reason, the
Shares deliverable upon Net Physical Settlement would not be immediately freely
transferable by Dealer under Rule 144(k) under the Securities Act of 1933, as
amended (the “Securities Act”), then Dealer may elect to either (x) accept
delivery of such Shares notwithstanding any restriction on transfer or (y) have
the provisions set forth under “Registration/Private Placement” below apply,
mutatis mutandis.
 
   
Share Delivery Quantity:
  For each Exercise Date, a number of Shares, as calculated by the Calculation
Agent, equal to the Net Physical Settlement Amount for such Exercise Date
divided by the Settlement Price on the Valuation Date in respect of such
Settlement Date plus an amount in cash in lieu of any fractional shares (based
on the applicable Settlement Price).
 
   
Net Physical Settlement
Amount:
  For any Exercise Date, an amount equal to the product of (i) the Number of
Warrants being exercised on the relevant Exercise Date, (ii) the Strike Price

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  Differential for such Exercise Date and (iii) the Warrant Entitlement.
 
   
Strike Price Differential:
  For any Valuation Date, (i) if the Settlement Price is greater than the Strike
Price, an amount equal to the excess of such Settlement Price over the Strike
Price for such Valuation Date or (ii) if such Settlement Price is less than or
equal to the Strike Price, zero.
 
   
Settlement Date:
  Settlement with respect to each Exercise Date shall occur on the third (3rd)
Full Exchange Business Day following the final Valuation Date; provided that
Dealer shall have the right to request by prior written notice to Counterparty a
Settlement Date with respect to any Exercise Date and the related Share Delivery
Quantity that is three (3) Full Exchange Business Days following such Exercise
Date. Such request shall not unreasonably be denied.
 
   
Limitations on Net
Physical Settlement by
Counterparty:
  Notwithstanding anything herein or in the Agreement to the contrary, the
number of Shares that may be delivered at settlement by Counterparty shall not
exceed 6,415,327 Shares at any time (“Maximum Deliverable Share Amount”), as
adjusted by Calculation Agent to account for any subdivision, stock-split, stock
combination, reclassification or similar dilutive or anti-dilutive event with
respect to the Shares.
 
   
 
  Counterparty represents and warrants that the number of Available Shares as of
the Trade Date is greater than the Maximum Deliverable Share Amount.
Counterparty covenants and agrees that (i) Counterparty shall not take any
action of corporate governance or otherwise to reduce the number of Available
Shares below the Maximum Deliverable Share and (ii) Counterparty shall use its
reasonable efforts to cause the number of Available Shares at all times to be
greater than the Maximum Deliverable Share Amount.
 
   
 
  For this purpose, “Available Shares” means the number of Shares Counterparty
currently has authorized (but not issued and outstanding) less the maximum
number of Shares that may be required to be issued by Counterparty in connection
with stock options, convertibles, and other commitments of Counterparty that may
require the issuance or delivery of Shares in connection therewith.
 
   
Dividends:
   
 
   
Dividends:
  If at any time during the period from and including the Trade Date, to and
including the date on which Counterparty has fully performed its obligations to
deliver Shares hereunder, an ex-dividend date for a cash dividend occurs with
respect to the Shares (an “Ex-Dividend Date”), and that dividend is different
from the Regular Dividend on a per Share basis, then the Calculation Agent will,
in its reasonable discretion, adjust the Strike Price, the Number of Warrants,
the Daily Number of Warrants, the Warrant Entitlement and any other variable it
deems appropriate to preserve the fair value of the Warrants after taking into
account such dividend.
 
   
Regular Dividend:
  Initially USD $0.00 per Share per quarter in respect of the Shares. In the
event that, in any quarter, a regular quarterly Ex-Dividend Date occurs for
which the amount of the corresponding cash dividend is different (the “New
Dividend Amount”) from the Regular Dividend or no Ex-Dividend Date occurs (in
which case the New Dividend Amount shall be zero), then following the adjustment
by the Calculation Agent pursuant to “Dividends” above, the Regular Dividend
shall

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  equal the New Dividend Amount.
 
   
Extraordinary Dividends:
  Any dividend other than Regular Dividends. For the avoidance of doubt, if more
than one Ex-Dividend Date occurs in a quarter, the Calculation Agent shall
designate any cash dividend other than a Regular Dividend as an Extraordinary
Dividend and will, in its reasonable discretion, adjust the Strike Price, the
Number of Warrants, the Daily Number of Warrants, the Warrant Entitlement and
any other variable it deems appropriate to preserve the fair value of the
Warrants after taking into account such Extraordinary Dividend.
 
   
Adjustments:
   
 
   
Method of Adjustment:
  Calculation Agent Adjustment
 
   
Extraordinary Events:
   
 
   
Consequences of Merger Events:
  (a) Share-for-Share: Modified Calculation Agent Adjustment
 
   
 
  (b) Share-for-Other: Cancellation and Payment (Calculation Agent
Determination)
 
   
 
  (c) Share-for-Combined: Component Adjustment (Calculation Agent Determination)
 
   
Tender Offer:
  Applicable
 
   
Consequences of Tender Offers:
  (a) Share-for-Share: Modified Calculation Agent Adjustment
 
   
 
  (b) Share-for-Other: Cancellation and Payment (Calculation Agent
Determination)
 
   
 
  (b) Share-for-Combined: Component Adjustment (Calculation Agent Determination)
 
   
 
  With respect to any Extraordinary Events hereunder, upon the occurrence of
Cancellation and Payment in whole or in part, the parties agree that the amount
to be paid, in accordance with the Equity Definitions, shall constitute a
Transaction Early Termination Amount, subject to satisfaction by the payment or
delivery of Shares or cash as set forth in the Early Termination section below.
 
   
Nationalization,
Insolvency or Delisting:
  Cancellation and Payment (Calculation Agent Determination) (subject to
satisfaction by payment or delivery of Shares or cash as set forth in “Early
Termination” below). In addition to the provisions of Section 12.6(a)(iii) of
the Equity Definitions, it will also constitute a Delisting if the Exchange is
located in the United States and the Shares are not immediately re-listed,
re-traded or re-quoted on any of the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Global Market or the NASDAQ Global Select Market (or their
respective successors); if the Shares are immediately re-listed, re-traded or
re-quoted on any such exchange or quotation system, such exchange or quotation
system shall thereafter be deemed to be the Exchange.

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Determining Party:
  Dealer
 
   
Additional Disruption
Events:
   
 
   
Change in Law:
  Applicable
 
   
Failure to Deliver:
  Not Applicable
 
   
Insolvency Filing:
  Applicable
 
   
Hedging Disruption Event:
  Applicable
 
   
Increased Cost of Hedging:
  Not Applicable
 
   
Loss of Stock Borrow:
  Applicable. Section 12.9(b)(iv) of the Equity Definitions is hereby amended by
deleting the text from and including “(A)” to and including “(B)” and by
deleting the words “in each case”.
 
   
Maximum Stock Loan Rate:
  0.60%
 
   
Increased Cost of Stock Borrow:
  Applicable; provided that it shall be a condition to Counterparty’s right to
make the election described in clause (C) of Section 12.9(b)(v) of the Equity
Definitions that on the date of such election, none of Counterparty, its
directors, executive officers, or any person controlling, or exercising
influence over, its decision to make such election is in possession of any
material non-public information with respect to Counterparty or the Shares; and
provided further that, if Counterparty timely makes the election described in
clause (A) or (B) of Section 12.9(b)(v) of the Equity Definitions, Counterparty
shall thereafter remain entitled, subject to the foregoing condition, to
terminate the Transaction pursuant to Section 12.9(b)(v)(C) of the Equity
Definitions upon ten Scheduled Trading Days’ notice to Dealer. Section
12.9(b)(v) of the Equity Definitions is hereby amended by deleting the text from
and including “(X)” to and including “(Y)”.
 
   
Initial Stock Loan Rate:
  0.25%
 
   
Hedging Party:
  Dealer
 
   
Determining Party:
  Dealer
 
   
Non-Reliance:
  Applicable
 
   
Agreements and Acknowledgments Regarding Hedging Activities:
  Applicable
 
   
Additional Acknowledgments:
  Applicable
 
   
Other Provisions:
   
 
   
Additional Agreements:
  If Counterparty would be obligated to pay cash to Dealer pursuant to the terms
of

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  this Agreement due to an event or circumstance outside Counterparty’s control
without having had the right (other than pursuant to this paragraph) to elect to
deliver Shares in satisfaction of such payment obligation, then Counterparty may
elect to deliver to Dealer a number of Shares (whether registered or
unregistered) having a cash value equal to the amount of such payment
obligation. Such number of Shares to be delivered shall be the number of Shares,
determined by the Calculation Agent, sufficient for Dealer to realize the cash
equivalent of such payment obligation from proceeds of the sale of such number
of Shares over a reasonable period of time taking into account any applicable
discount (determined in a commercially reasonable manner) to reflect any
restrictions on transfer as well as the market value of the Shares. Settlement
relating to any delivery of Shares pursuant to this paragraph shall occur within
a reasonable period of time. The number of Shares delivered pursuant to this
paragraph shall not exceed the Maximum Deliverable Share Amount and shall be
subject to the provisions under “Early Termination” hereof regarding Proceeds
Amount and the provisions set forth in subsection (c) under “Additional
Agreements, Representations and Covenants of Counterparty, Etc.” below.
 
   
Early Termination:
  Notwithstanding any provision to the contrary, upon the designation of an
Early Termination Date or the occurrence of Cancellation and Payment in whole or
in part hereunder (except in the case of an Event of Default in which
Counterparty is the Defaulting Party or a Termination Event in which
Counterparty is the Affected Party, other than an (x) Event of Default of the
type described in Section 5(a)(iii), (v), (vi) or (vii) of the Master Agreement
or (y) a Termination Event of the type described in Section 5(b)(i), (ii),
(iii), (iv), or (v) of the Master Agreement that in the case of either (x) or
(y) resulted from an event or events outside Counterparty’s control),
Counterparty’s payment obligation in respect of this Transaction (which shall,
in the case of an Early Termination Date be determined in accordance with Second
Method and Loss) (the “Transaction Early Termination Amount”) may, at the option
of Counterparty, be satisfied by the delivery of a number of Shares equal to the
Transaction Early Termination Amount divided by the Termination Price (“Early
Termination Stock Settlement”); provided, however, that Counterparty must notify
Dealer of its election of Early Termination Stock Settlement by the close of
business on the day that is two Exchange Business Days following the day that
the notice designating the Early Termination Date, or notice that an
Extraordinary Event has resulted in the cancellation or termination of the
Transaction in whole or in part, is effective. “Termination Price” means the
market value per Share on the date that Shares are delivered in connection with
such Early Termination Date, as determined by the Calculation Agent in a
commercially reasonable manner taking into account any applicable discount to
reflect any restrictions on transfer.
 
   
 
  A number of Shares calculated as being due in respect of any Early Termination
Stock Settlement will be deliverable on the third Clearance System Business Day
following the date that notice specifying the number of Shares deliverable is
effective; provided that, if Counterparty is delivering Shares as a result of a
Merger Event, the Settlement Date for such delivery will be immediately prior to
the effective time of the Merger Event and the Shares will be deemed delivered
at such time such that Dealer will be a holder of the Shares prior to such
effective time and be entitled to receive such merger consideration as a holder
of Shares at such time would be entitled to receive (and references in herein to
Shares shall be deemed to refer to such merger consideration, as applicable).
Section 6(d)(i) of the Agreement is hereby amended by adding the following words
after the word

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              “paid” in the fifth line thereof: “or any delivery is to be made,
as applicable.”
 
            On or prior to the Early Termination Date or date on which notice
that an Extraordinary Event has resulted in the cancellation or termination of
the Transaction in whole or in part is effective, as applicable, if Early
Termination Stock Settlement is elected and if so requested by Dealer upon
advice of counsel, Counterparty shall comply with the provisions set forth below
opposite the caption “Registration/Private Placement”.
 
        Registration/Private
Placement:   If the provisions under this heading “Registration/Private
Placement” apply, Counterparty shall (subject to its right to make the election
described in the immediately succeeding paragraph) (A) afford Dealer a
reasonable opportunity to conduct a due diligence investigation with respect to
Counterparty that is customary in scope for underwritten offerings of equity
securities that yields a result reasonably satisfactory to Dealer; (B) enter
into a registration rights agreement with Dealer (a “Registered Settlement”) in
form and substance reasonably acceptable to Dealer which agreement
(“Registration Rights Agreement”) will contain among other things, customary
representations and warranties and indemnification, restrictions on sales during
“blackout dates” as provided for in the Registration Rights Agreement and shall
satisfy the conditions contained therein; and (C) promptly file and procure the
effectiveness a Registration Statement pursuant to Rule 415 under the Securities
Act. If and when such Registration Statement shall have been declared effective
by the Securities and Exchange Commission, Counterparty shall have made
available to Dealer such Prospectuses as Dealer may reasonably request to comply
with the applicable prospectus delivery requirements for the resale by Dealer of
such number of Shares as Dealer shall specify (or, if greater, the number of
Shares that Counterparty shall specify). Such Registration Statement shall be
effective and Prospectus shall be current until the earliest of the date on
which (i) all the Delivered Shares or Shares delivered by Counterparty in
connection with an Early Termination Date, as the case may be, have been sold,
(ii) Dealer has advised Counterparty that it no longer requires that such
Registration Statement be effective or (iii) all remaining Shares could be sold
by Dealer without registration pursuant to Rule 144 promulgated under the
Securities Act (the “Termination Registration Period”). It is understood that
the Registration Statement and Prospectus will cover a number of Shares equal to
the aggregate number of Shares (if any) reasonably estimated by Dealer to be
potentially deliverable by Counterparty in connection with Net Physical
Settlement or Early Termination Stock Settlement hereunder, as the case may be,
but in no event exceeding the Maximum Deliverable Share Amount. On each day
during the Termination Registration Period Counterparty shall represent that
each of its filings under the Securities Act, the Exchange Act or other
applicable securities laws that are required to be filed have been filed and
that, as of the respective dates thereof and as of the date of this
representation, they do not contain any untrue statement of a material fact or
omission of a material fact required to be stated therein or necessary to make
the statements made, in the light of the circumstances under which they were
made, not misleading.
 
            In lieu of a Registered Settlement, Counterparty may elect, by
notice to Dealer no later than the time the relevant delivery obligation is due
, that this paragraph shall apply:
 
       
 
      (a) Counterparty shall afford Dealer and any potential institutional

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      purchaser of any Shares identified by Dealer a reasonable opportunity to
conduct a due diligence investigation with respect to Counterparty that is
customary in scope for private placements of equity securities subject to
execution of any customary confidentiality agreements;
 
       
 
      (b) Counterparty shall enter into an agreement (a “Private Placement
Agreement”) with Dealer on commercially reasonable terms in connection with the
private placement of such Shares (including any additional Shares pursuant to
clause (c) below) by Counterparty to Dealer or an affiliate and the private
resale of such shares by Dealer or such affiliate, substantially similar to
private placement purchase agreements customary for private placements of equity
securities, in form and substance commercially reasonably satisfactory to
Dealer, which Private Placement Agreement shall include provisions relating to
the indemnification of, and contribution in connection with the liability of,
Dealer and its affiliates, shall provide for the payment by Counterparty of all
expenses in connection with such resale, including all reasonable and documented
fees and expenses of counsel for Dealer, shall contain representations,
warranties and agreements of Counterparty reasonably necessary or advisable to
establish and maintain the availability of an exemption from the registration
requirements of the Securities Act for such resales, and shall use commercially
reasonable efforts to provide for the delivery of accountants’ “comfort letters”
to Dealer or such affiliate with respect to the financial statements and certain
financial information contained in or incorporated by reference into the
offering memorandum prepared for the resale of such Shares;
 
       
 
      (c) Dealer shall sell the Delivered Shares or the Shares delivered by
Counterparty in connection with Early Termination Stock Settlement, as the case
may be, in a commercially reasonable manner until the amount received by Dealer
for the sale of the Shares (the “Proceeds Amount”) is equal to the Net Physical
Settlement Amount or the Transaction Early Termination Amount, as applicable.
Any remaining delivered Shares shall be returned to Counterparty. If the
Proceeds Amount is less than the Net Physical Settlement Amount or the
Transaction Early Termination Amount, as applicable, Counterparty shall promptly
deliver upon notice from Dealer additional Shares to Dealer until the dollar
amount from the sale of such Shares by Dealer equals the difference between the
Net Physical Settlement Amount or the Transaction Early Termination Amount, as
applicable, and the Proceeds Amount. In no event shall Counterparty be required
to deliver to Dealer a number of Shares greater than the Maximum Deliverable
Share Amount.
 
            Notwithstanding the foregoing: (I) if Counterparty has elected to
deliver Shares as described in paragraph (a) above and either (A) Counterparty
does not provide for the sale of the Shares under the Registration Statement as
provided in the Registration Rights Agreement, (B) some Shares cannot be
registered under the Registration Statement due to Rule 415(a)(4) under the
Securities Act or (C) some Shares cannot be sold due to the application of a
blackout period or the failure of the Registration Statement to become effective
on or prior to the date on which the relevant delivery obligation is due, then
the provisions of the preceding paragraph shall apply to the extent Counterparty
has not satisfied its obligations hereunder. (II) If the preceding paragraph is
applicable and

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  Counterparty fails to satisfy its obligations under such paragraph, then
Counterparty may deliver unregistered Shares of equivalent value to the Net
Physical Settlement Amount or the Transaction Early Termination Amount, as
applicable, (or, if applicable, the unsatisfied portion thereof). The value of
any unregistered Shares so delivered shall be discounted to reflect an
appropriate liquidity discount (determined by Dealer in a commercially
reasonable manner, taking into account Dealer’s policies and determinations with
respect to any transfer restrictions that Dealer deems it advisable to observe
in connection with sales of such Shares). (III) If some or all of the Delivered
Shares or Shares delivered in connection with an Early Termination Stock
Settlement, as applicable, cannot be used to close out stock loans in the shares
of Counterparty entered into to establish or maintain short positions by Dealer
in connection with this Transaction without a prospectus being required by
applicable law to be delivered to such lender, then the value of any such Shares
shall reflect the cost (determined by Dealer in good faith and in a commercially
reasonable manner) to Dealer of trading Shares in order to close out its hedge
position if any, and the number of Shares required to be delivered shall be
adjusted accordingly. In no event shall Counterparty be required to (i) top-up
the delivery in cash or (ii) deliver to Dealer a number of Shares greater than
the Maximum Deliverable Share Amount.
 
   
Compliance With Securities
Laws:
  Counterparty represents and agrees that it has complied, and will comply, in
connection with this Transaction and all related or contemporaneous sales and
purchases of Shares, with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations promulgated thereunder, including,
without limitation, Rule 10b-5 and 13e and Regulation M under the Exchange Act.
 
   
 
  Each party acknowledges that the offer and sale of the Transaction to it is
intended to be exempt from registration under the Securities Act by virtue of
Section 4(2) thereof. Accordingly, each party represents and warrants to the
other party that (i) it has the financial ability to bear the economic risk of
its investment in the Transaction and is able to bear a total loss of its
investment, (ii) it is an “accredited investor” as that term is defined in
Regulation D as promulgated under the Securities Act and (iii) the disposition
of the Transaction is restricted under this Confirmation, the Securities Act and
state securities laws.
 
   
 
  Counterparty further represents and warrants that:
(a) Counterparty is not entering into this Transaction to create actual or
apparent trading activity in the Shares (or any security convertible into or
exchangeable for Shares) or to raise or depress or otherwise manipulate the
price of the Shares (or any security convertible into or exchangeable for
Shares);
 
   
 
  (b) Counterparty represents and acknowledges that as of the date hereof and
without limiting the generality of Section 13.1 of the Equity Definitions,
Dealer is not making any representations or warranties with respect to the
treatment of the Transaction under FASB Statements 149 or 150, EITF Issue
No. 00-19 (or any successor issue statements) or under FASB’s Liabilities &
Equity Project;
 
   
 
  (c) Counterparty is not, and after giving effect to the Transaction
contemplated hereby, will not be, an “investment company” as such term is
defined in the Investment Company Act of 1940, as amended;

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  (d) As of the Trade Date and each date on which a payment of cash is made by
Counterparty hereunder, (i) the assets of Counterparty at their fair valuation
exceed the liabilities of Counterparty, including contingent liabilities;
(ii) the capital of Counterparty is adequate to conduct its business; and
(iii) Counterparty has the ability to pay its debts and other obligations as
such obligations mature and does not intend to, or believe that it will, incur
debt or other obligations beyond its ability to pay as such obligations mature.
 
   
Account Details:
  Account for payments to Counterparty:
 
            To be advised.
 
   
 
  Account for payments to Dealer:
 
            To be advised.
 
   
 
  Account for delivery of Shares to Dealer:
 
   
 
            To be advised.
 
   
Agreement Regarding Shares:
  Counterparty agrees that, in respect of any Shares delivered to Dealer, such
Shares shall be, upon such delivery, duly and validly authorized, issued and
outstanding, fully paid and non-assessable and subject to no adverse claims of
any other party. The issuance of such Shares does not and will not require the
consent, approval, authorization, registration or qualification of any
government authority, except such as shall have been obtained on or before the
delivery date of any Shares or as may be required in connection with any
Registration Statement filed with respect to any Shares.
 
   
Bankruptcy Rights:
  In the event of Counterparty’s bankruptcy, Dealer’s rights in connection with
this Transaction shall not exceed those rights held by common shareholders. For
the avoidance of doubt, the parties acknowledge and agree that Dealer’s rights
with respect to any other claim arising from this Transaction prior to
Counterparty’s bankruptcy shall remain in full force and effect and shall not be
otherwise abridged or modified in connection herewith.
 
   
Set-Off:
  Each party waives any and all rights it may have to set-off, whether arising
under any agreement, applicable law or otherwise.
 
   
Transfer:
  Neither party may transfer its rights or delegate its obligations under this
Transaction without the prior written consent of the other party, except that
Dealer, after payment in full of the Premium, may assign its rights and delegate
its obligations hereunder, in whole or in part, to any other person (an
“Assignee”) without the prior consent of the Counterparty, so long as Assignee
makes to Counterparty the representations set forth in the second paragraph
under “Compliance with Securities Laws,” effective (the “Transfer Effective
Date”) upon delivery to Counterparty of an executed acceptance and assumption by
the Assignee (an “Assumption”) of the transferred obligations of Dealer under
this Transaction (the “Transferred Obligations”). Notwithstanding any other
provision in this Confirmation to the contrary requiring or allowing Dealer to
purchase, sell, receive or deliver any Shares or other securities to or from
Counterparty, Dealer may designate any of its affiliates to purchase, sell,
receive or deliver such Shares or other securities and otherwise to perform
Dealer’s

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  obligations in respect of this Transaction and any such designee may assume
such obligations. Dealer shall be discharged of its obligations to Counterparty
to the extent of any such performance.
 
   
Indemnity:
  Counterparty agrees to indemnify Dealer, its Affiliates and their respective
directors, officers, agents and controlling parties (each such person being an
“Indemnified Party”) from and against any and all losses, claims, damages and
liabilities, joint and several, to which such Indemnified Party may become
subject because of a breach of any representation or covenant hereunder, in the
Agreement or any other agreement relating to the Agreement or Transaction and
will reimburse Indemnified Party for all reasonable expenses (including
reasonable legal fees and expenses) as they are incurred in connection with the
investigation of, preparation for, or defense of, any pending or threatened
claim or any action or proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto. Seller will not be liable under the
foregoing Indemnity provision to the extent that any loss, claim, damage,
liability or expense is found in a final judgment by a court to have resulted
from Dealer’s gross negligence or willful misconduct.

Additional Agreements, Representations and Covenants of Counterparty, Etc.:

(a)   Counterparty hereby represents and warrants to Dealer, on each day from
the Trade Date to and including the earlier of (i) November 17, 2007 and
(ii) the date by which Dealer is able to initially complete a hedge of its
position created by this Transaction, that:

  (1)   it will not, and will not permit any person or entity subject to its
control to, bid for or purchase Shares during such period except pursuant to
transactions or arrangements which have been approved by Dealer or an affiliate
of Dealer; and     (2)   it has publicly disclosed all material information
necessary for it to be able to purchase or sell Shares in compliance with
applicable federal securities laws.

(b)   No collateral shall be required by either party for any reason in
connection with this Transaction.   (c)   Notwithstanding anything to the
contrary herein, Dealer shall not be entitled to exercise any Warrant or receive
any Shares deliverable hereunder, and Automatic Exercise shall not apply with
respect to any Warrant to the extent (but only to the extent) that after such
receipt of any Shares upon the exercise of such Warrant or otherwise hereunder
Dealer, or its ultimate parent entity would, directly or indirectly, be the
beneficial owner (as such term is defined for purposes of Section 13(d) of the
Exchange Act) at any time of more than 8.0 percent of the class of the
Counterparty’s outstanding equity securities that is comprised of the Shares (an
“Excess Share Owner”).       Dealer shall provide prior notice to Counterparty
if the exercise of any Warrant or delivery of Shares hereunder would cause
Dealer to become directly or indirectly, an Excess Share Owner; provided that
the failure of Dealer to provide such notice shall not alter the effectiveness
of the provisions set forth in the preceding sentence and any purported exercise
or delivery in violation of such provisions shall be void and have no effect. If
any delivery owed to Dealer hereunder is not made, in whole or in part, as a
result of this provision, Counterparty’s obligation to make such delivery shall
not be extinguished and Counterparty shall make such delivery as promptly as
practicable after Dealer gives notice that such delivery would not result in
Dealer being an Excess Share Owner.       If Dealer is not entitled to exercise
any Warrant because such exercise would cause Dealer to become,

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    directly or indirectly, an Excess Share Owner and Dealer thereafter disposes
of Shares owned by it or any action is taken that would then permit Dealer to
exercise such Warrant without such exercise causing it to become, directly or
indirectly, an Excess Share Owner, then Dealer shall provide notice of the
taking of such action to Counterparty and such Warrant shall then become
exercisable by Dealer to the extent such Warrant is otherwise or had otherwise
become exercisable hereunder. In such event, the Expiration Date with respect to
such Warrant shall be the date on which Counterparty receives such notice from
Dealer, and the related Settlement Date shall be as soon as reasonably
practicable after receipt of such notice but no more than three (3) Exchange
Business Days thereafter (but in no event shall the Settlement Date occur prior
to the date on which it would have otherwise occurred but for the provisions of
this subsection); provided that the related Net Physical Settlement Amount shall
be the same as the Net Physical Settlement Amount but for the provisions of this
subsection. In addition, within 30 calendar days of any Settlement Date,
Counterparty shall use its reasonable efforts to refrain from activities that
could reasonably be expected to result in Dealer’s ownership of Shares exceeding
10% of all issued and outstanding Shares.

Matters Relating to Agent:

1.   Agent will be responsible for the operational aspects of the Transactions
effected through it, such as record keeping, reporting, and confirming
Transactions to Counterparty and Dealer;   2.   Unless Counterparty is a “major
U.S. institutional investor,” as defined in Rule 15a-6 of the Exchange Act,
neither Counterparty nor Dealer will contact the other without the direct
involvement of Agent;   3.   Agent’s sole role under this Agreement and with
respect to any Transaction is as an agent of Counterparty and Dealer on a
disclosed basis and Agent shall have no responsibility or liability to
Counterparty or Dealer hereunder except for gross negligence or willful
misconduct in the performance of its duties as agent. Agent is authorized to act
as agent for Dealer, but only to the extent expressly required to satisfy the
requirements of Rule 15a-6 under the Exchange Act in respect of the Options
described hereunder. Agent shall have no authority to act as agent for
Counterparty generally or with respect to transactions or other matters governed
by this Agreement, except to the extent expressly required to satisfy the
requirements of Rule 15a-6 or in accordance with express instructions from
Counterparty.

Certain Important Information:
Dealer is an OTC Derivatives Dealer registered with the U.S. Securities and
Exchange Commission (SEC). Applicable SEC rules require us to provide you with
the following information regarding SEC regulation of OTC Derivatives Dealers:
Dealer is exempt from the provisions of the Securities Investor Protection Act
of 1970 (SIPA), including membership in the Securities Investor Protection
Corporation (SIPC). Therefore, your account is not covered by SIPA protection.
Except as otherwise agreed in writing by you and us, Dealer may repledge and
otherwise use in its business collateral you have pledged to Dealer under the
Agreement. Collateral you have pledged to Dealer will not be subject to the
requirements of Securities Exchange Act Rules: 8c-1 and 15c2-1 regarding
hypothecation of collateral; 15c3-2 regarding free credit balances; or 15c3-3
regarding custody of securities and calculations of a reserve formula applicable
to a fully regulated SEC registered broker or dealer. In the event of Dealer’s
failure (by insolvency or otherwise), you would likely be considered to be an
unsecured creditor of Dealer as to any collateral pledged to Dealer under the
Agreement.
Dealer is incorporated in Delaware and is a direct, wholly owned subsidiary of
Merrill Lynch & Co., Inc. Dealer has entered into this transaction as principal
through Agent as its agent. The time of this Transaction shall be notified to
the Counterparty upon request.
ISDA Master Agreement:
With respect to the Agreement, Dealer and Counterparty each agree as follows:

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“Specified Entity” means in relation to Seller and in relation to Counterparty
for purposes of this Transaction: Not applicable.
The definition of “Specified Transaction” in Section 14 of this Agreement is
hereby amended by adding the text “commodity transaction, credit derivative
transaction, repurchase or reverse purchase transaction, securities lending
transaction, futures transaction, prime brokerage or margin lending transaction”
after the words “foreign exchange transaction” in the sixth line thereof and by
replacing the words “any other similar transaction” in the eighth line thereof
with the text “any other transaction between the parties”. “Specified
Transaction” shall exclude any default under a Specified Transaction if caused
solely by the general unavailability of the currency in which payments under
such Specified Transaction are denominated due to exchange controls or other
governmental action.
The “Cross Default” provisions of Section 5(a)(vi) of the Agreement will not
apply to Dealer and will apply to Counterparty.
“Threshold Amount” means, with respect to Counterparty, $25,000,000.
The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the Agreement
will not apply to Dealer or to Counterparty.
Additional Termination Event.
The occurrence of any of the following shall constitute an Additional
Termination Event with respect to which the Transaction shall be the sole
Affected Transaction and Counterparty shall be the sole Affected Party; provided
that with respect to any Additional Termination Event, Dealer may choose to
treat part of the Transaction as the sole Affected Transaction, and, upon the
termination of the Affected Transaction, a Transaction with terms identical to
those set forth herein except with a Number of Warrants equal to the unaffected
number of Warrants shall be treated for all purposes as the Transaction, which
shall remain in full force and effect:
     (i) within the period commencing on the Trade Date and ending on the second
anniversary of the Premium Payment Date (or at the end of such shorter period as
specified in Rule 144(k) under the Securities Act or any successor rule), Buyer
reasonably determines that it is advisable to terminate a portion of the
Transaction so that Buyer’s related hedging activities will comply with
applicable securities laws, rules or regulations;
     (ii) any “person” or “group” (as such terms are used in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person shall be
deemed to have beneficial ownership of all shares that such person has the right
to acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of voting stock representing 50% or
more of the total voting power of all outstanding voting stock of the company;
     (iii) Counterparty consolidates with, or merges with or into, another
person or Counterparty sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, other than any
such transaction (a) entered into solely for the purpose of changing the
Counterparty’s jurisdiction of incorporation and resulting in a
reclassification, conversion or exchange of outstanding shares of common stock
solely into shares of common stock of the surviving entity, or (b) where
immediately after such transaction the person or persons that “beneficially
owned” (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) immediately
prior to such transaction, directly or indirectly, voting stock representing a
majority of the total voting power of all outstanding voting stock of
Counterparty, “beneficially own or owns” (as so determined), directly or
indirectly, voting stock representing a majority of the total voting power of
the outstanding voting stock of the surviving or transferee person;
     (iv) during any consecutive two-year period, the continuing directors cease
for any reason to constitute a majority of the board of directors of
Counterparty;

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     (v) the adoption of a plan of liquidation or dissolution of Counterparty;
or
     (vi) the Shares (or other common stock into which the Shares have been
converted or for which the Shares have been exchanged in connection with any
merger, reclassification or recapitalization of Counterparty) cease to be listed
on a U.S. national securities exchange or approved for quotation and trading on
a national automated dealer quotation system or established automated over the
counter trading market in the U.S. or cease to be so traded or quoted in
contemplation of a delisting or withdrawal of approval.
“Continuing directors” means, as of any date of determination, any member of the
board of directors of Counterparty who was (a) a member of such board of
directors on the Effective Date or (b) nominated for election or elected to such
board of directors with the approval of a majority of the continuing directors
who were members of such board at the time of such nomination or election.
     Notwithstanding the foregoing, a transaction described in clause (ii),
(iii), (iv) or (v) above will not constitute an Additional Termination Event if
90% or more of the consideration for the Shares (excluding cash payments for
fractional shares and cash payments made in respect of dissenters’ appraisal
rights) in the transaction or transactions consists of common stock and any
associated rights listed on a United States national securities exchange or
quoted on a national automated dealer quotation system, or which will be so
traded or quoted when issued or exchanged in connection with such transaction,
and as a result of such transaction or transactions the notes become convertible
solely into such common stock.
The “Automatic Early Termination” provision of Section 6(a) of the Agreement
will not apply to Dealer or to Counterparty.
Payments on Early Termination. For the purpose of Section 6(e) of the Agreement:
(i) Loss shall apply; and (ii) the Second Method shall apply.
“Termination Currency” means USD.
Tax Representations.

(I)   Payer Representations. For the purpose of Section 3(e) of the Agreement,
each party represents to the other party that it is not required by any
applicable law, as modified by the practice of any relevant governmental revenue
authority, of any Relevant Jurisdiction to make any deduction or withholding for
or on account of any Tax from any payment (other than interest under
Section 2(e), 6(d)(ii), or 6(e) of the Agreement) to be made by it to the other
party under the Agreement. In making this representation, each party may rely on
(i) the accuracy of any representations made by the other party pursuant to
Section 3(f) of the Agreement, (ii) the satisfaction of the agreement contained
in Section 4(a)(i) or 4(a)(iii) of the Agreement, and the accuracy and
effectiveness of any document provided by the other party pursuant to
Section 4(a)(i) or 4(a)(iii) of the Agreement, and (iii) the satisfaction of the
agreement of the other party contained in Section 4(d) of the Agreement;
provided that it will not be a breach of this representation where reliance is
placed on clause (ii) above and the other party does not deliver a form or
document under Section 4(a)(iii) of the Agreement by reason of material
prejudice to its legal or commercial position.   (II)   Payee Representations.
For the purpose of Section 3(f) of the Agreement, each party makes the following
representations to the other party:

  (i)   Dealer represents that it is a company incorporated in Delaware.    
(ii)   Counterparty represents that it is a corporation incorporated in
Delaware.

Delivery Requirements. For the purpose of Sections 4(a)(i) and (ii) of the
Agreement, each party agrees to deliver the following documents:

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(a)   Tax forms, documents or certificates to be delivered are:       Dealer
agrees to complete (accurately and in a manner reasonably satisfactory to
Counterparty), execute, and deliver to Counterparty, United States Internal
Revenue Service Form W-9 and all required attachments, or any successor of such
form(s): (i) before the first payment date under this agreement; (ii) promptly
upon reasonable demand by Counterparty; and (iii) promptly upon learning that
any such Form previously provided by Dealer has become obsolete or incorrect.  
    Counterparty agrees to complete (accurately and in a manner reasonably
satisfactory to Dealer), execute, and deliver to Dealer, United States Internal
Revenue Service Form W-9, or any successor of such form(s): (i) before the first
payment date under this agreement; (ii) promptly upon reasonable demand by
Dealer; and (iii) promptly upon learning that any such form(s) previously
provided by Counterparty has become obsolete or incorrect.   (b)   Other
documents to be delivered:

                          Covered by Party Required to           Section 3(d)
Deliver Document   Document Required to be Delivered   When Required  
Representation
Counterparty
  Evidence of the authority and true signatures of each official or
representative signing this Confirmation   Upon or before execution and delivery
of this Confirmation   Yes
 
           
Counterparty
  Certified copy of the resolution of the Board of Directors or equivalent
document authorizing the execution and delivery of this Confirmation and such
other certificate or certificates as Dealer shall reasonably request   Upon or
before execution and delivery of this Confirmation   Yes

Effectiveness. If, prior to the Effective Date, Dealer reasonably determines
that it is advisable to cancel the Transaction because of concerns that Dealer’s
related hedging activities could be viewed as not complying with applicable
securities laws, rules or regulations, such Transaction shall be cancelled and
shall not become effective, and neither party shall have any obligation in
respect of such Transaction.
Addresses for Notices: For the purpose of Section 12(a) of the Agreement:
Address for notices or communications to Dealer for all purposes:

     
Address:
  Merrill Lynch Financial Markets, Inc.
 
  4 World Financial Center, 17th Floor
 
  New York, New York 10080
 
  Merrill Lynch Financial Centre
Attention:
  Manager of Equity Documentation
Facsimile No.:
  (917) 778-0835
Telephone No.:
  (212) 449-1951

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Address for notices or communications to Counterparty for all purposes:

     
Address:
  To be advised.
 
   
 
   
Attention:
   
Facsimile No.:
   
Telephone No.:
   
 
    In addition, in the case of notices or communications relating to Section 5,
6, 11 or 13 of this Agreement, a second copy of any such notice or communication
shall be addressed to the attention of Counterparty’ General Counsel as follows:
 
   
Address:
  To be advised.
 
   
 
   
Attention:
   
Facsimile No.:
   
Telephone No.:
   

Multibranch Party. For the purpose of Section 10(c) of the Agreement: Neither
Dealer nor Counterparty is a Multibranch Party.
Calculation Agent. “Calculation Agent” means Dealer, acting in good faith and in
a commercially reasonable manner.
Credit Support Document.
Dealer: Not Applicable.
Counterparty: Not Applicable
Credit Support Provider.
With respect to Dealer: Not Applicable.
With respect to Counterparty: Not Applicable.
Governing Law. This Confirmation will be governed by, and construed in
accordance with, the laws of the State of New York.
Submission to Jurisdiction. Each party hereby irrevocably and unconditionally
submits for itself and its property in any legal action or proceeding by the
other party against it relating to the Transaction to which it is a party, or
for recognition and enforcement of any judgment in respect thereof, to the
exclusive jurisdiction of the Supreme Court of the State of New York, sitting in
New York County, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof.
Waiver of Jury Trial. Each party waives, to the fullest extent permitted by
applicable law, any right it may have to a trial by jury in respect of any suit,
action or proceeding relating to this Transaction. Each party (i) certifies that
no representative, agent or attorney of the other party has represented,
expressly or otherwise, that such other party would not, in the event of such a
suit, action or proceeding, seek to enforce the foregoing waiver and
(ii) acknowledges that it and the other party have been induced to enter into
this Transaction, as applicable, by, among

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other things, the mutual waivers and certifications provided herein.
Netting of Payments. The provisions of Section 2(c) of the Agreement shall not
be applicable to this Transaction.
Basic Representations. Section 3(a) of the Agreement is hereby amended by the
deletion of “and” at the end of Section 3(a)(iv); the substitution of a
semicolon for the period at the end of Section 3(a)(v) and the addition of
Sections 3(a)(vi), as follows:
Eligible Contract Participant; Line of Business. Each party agrees and
represents that it is an “eligible contract participant” as defined in Section 1
(a)(12) of the U.S. Commodity Exchange Act, as amended (“CEA”), this Agreement
and the Transaction thereunder are subject to individual negotiation by the
parties and have not been executed or traded on a “trading facility” as defined
in Section 1(a)(33) of the CEA, and it has entered into this Confirmation and
this Transaction in connection with its business or a line of business
(including financial intermediation), or the financing of its business.
Acknowledgements:

(a)   The parties acknowledge and agree that there are no other representations,
agreements or other undertakings of the parties in relation to this Transaction,
except as set forth in this Confirmation.   (b)   The parties hereto intend for:

  (i)   Buyer to be a “financial institution” as defined in Section 101(22) of
Title 11 of the United States Code (the “Bankruptcy Code”) and this Transaction
to be a “securities contract” as defined in Section 741(7) of the Bankruptcy
Code and a “swap agreement” as defined in Section 101(53C) of the Bankruptcy
Code, qualifying for the protections of, among other sections,
Sections 362(b)(6), 362 (b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy
Code;     (ii)   a party’s right to liquidate this Transaction and to exercise
any other remedies upon the occurrence of any Event of Default under the
Agreement with respect to the other party to constitute a “contractual right” as
defined in the Bankruptcy Code;     (iii)   all payments for, under or in
connection with this Transaction, all payments for the Shares and the transfer
of such Shares to constitute “settlement payments” as defined in the Bankruptcy
Code.

(c)   The parties acknowledge and agree that in the event of an Early
Termination Date as a result of an Event of Default that is within
Counterparty’s control, the amount payable under the Agreement will be a cash
amount calculated as described therein and that any delivery specified in this
Transaction will no longer be required.

Amendment of Section 6(d)(ii). Section 6(d)(ii) of the Agreement is modified by
deleting the words “on the day” in the second line thereof and substituting
therefor “on the day that is three Local Business Days after the day”.
Section 6(d)(ii) is further modified by deleting the words “two Local Business
Days” in the fourth line thereof and substituting therefor “three Local Business
Days.”
Consent to Recording. Each party consents to the recording of the telephone
conversations of trading and marketing personnel of the parties and their
Affiliates in connection with this Confirmation. To the extent that one party
records telephone conversations (the “Recording Party”) and the other party does
not (the “Non-Recording Party”), the Recording Party shall in the event of any
dispute, make a complete and unedited copy of such party’s tape of the entire
day’s conversations with the Non-Recording Party’s personnel available to the
Non-Recording Party. The Recording Party’s tapes may be used by either party in
any forum in which a dispute is sought to be resolved and the Recording Party
will retain tapes for a consistent period of time in accordance with the
Recording

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Party’s policy unless one party notifies the other that a particular transaction
is under review and warrants further retention.
Disclosure. Each party hereby acknowledges and agrees that Dealer has authorized
Counterparty to disclose this Transaction and any related hedging transaction
between the parties if and to the extent that Counterparty reasonably determines
(after consultation with Dealer) that such disclosure is required by law or by
the rules of the New York Stock Exchange or any securities exchange.
Notwithstanding the foregoing, effective from the date of commencement of
discussions concerning the Transaction, Counterparty and each of its employees,
representatives, or other agents may disclose to any and all persons, without
limitation of any kind, the tax treatment and tax structure of the Transaction
and all materials of any kind (including opinions or other tax analyses) that
are provided to Counterparty relating to such tax treatment and tax structure.
Severability. If any term, provision, covenant or condition of this
Confirmation, or the application thereof to any party or circumstance, shall be
held to be invalid or unenforceable in whole or in part for any reason, the
remaining terms, provisions, covenants, and conditions hereof shall continue in
full force and effect as if this Confirmation had been executed with the invalid
or unenforceable provision eliminated, so long as this Confirmation as so
modified continues to express, without material change, the original intentions
of the parties as to the subject matter of this Confirmation and the deletion of
such portion of this Confirmation will not substantially impair the respective
benefits or expectations of parties to this Agreement; provided, however, that
this severability provision shall not be applicable if any provision of
Section 2, 5, 6 or 13 of the Agreement (or any definition or provision in
Section 14 to the extent that it relates to, or is used in or in connection with
any such Section) shall be so held to be invalid or unenforceable.
Affected Parties. For purposes of Section 6(e) of the Agreement, each party
shall be deemed to be an Affected Party in connection with Illegality and any
Tax Event.
[Signatures follow on separate page]

20

Amended and Restated OTC Warrant Confirmation

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     Please confirm that the foregoing correctly sets forth the terms of our
agreement by executing the copy of this Confirmation enclosed for that purpose
and returning it to us.

                  Very truly yours,
 
                MERRILL LYNCH FINANCIAL MARKETS, INC.
 
           
 
  By:   /s/ Fran Jacobson    
 
           
 
  Name:   Fran Jacobson    
 
  Title:   Authorized Signatory    

Confirmed as of the date first above written:
MORGANS HOTEL GROUP CO.

         
By:
  /s/ Marc Gordon    
 
        Name:   Marc Gordon Title:   Chief Investment Officer & Executive    
Vice President of Capital Markets

Acknowledged and agreed as to matters to the Agent:
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Solely in its capacity as Agent hereunder

         
By:
  /s/ Angelina Lopes    
 
        Name:   Angelina Lopes Title:   Authorized Signatory

 

Amended and Restated OTC Warrant Confirmation