DATED 7 OCTOBER 2011

Royalton Europe Holdings LLC

Walton MG London Hotels Investors V, L.L.C.

Walton Street Real Estate Fund V, L. P.

Morgans Group LLC

- and -

Capital Hill Hotels Limited

AGREEMENT FOR THE ACQUISITION OF

MORGANS HOTEL GROUP EUROPE LIMITED

 

LOGO [g288074g42c30.jpg]

Ref: 42698.00039

Hogan Lovells International LLP, Atlantic House, Holborn Viaduct, London EC1A
2FG

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

CONTENTS

 

September 30,

CLAUSE

     PAGE   1. INTERPRETATION        3    2. SALE AND PURCHASE OF THE SALE SHARE
       9    3. PURCHASE PRICE        10    4. COMPLETION        12    5. BUYER’S
WARRANTIES        16    6. SELLERS’ WARRANTIES        16    7. LIMITATIONS ON
SELLERS’ LIABILITY        18    8. POST COMPLETION OBLIGATIONS        18    9.
CONFIDENTIALITY        19    10. ANNOUNCEMENTS        21    11. ASSIGNMENT
PROHIBITED        21    12. NOTICE        22    13. COSTS        25    14.
INTEREST ON LATE PAYMENT        25    15. VARIATION        25    16. WAIVER     
  25    17. RIGHTS AND REMEDIES ARE CUMULATIVE        25    18. COUNTERPARTS
       25    19. EFFECT OF COMPLETION        25    20. ENTIRE AGREEMENT       
26    21. INVALIDITY        26    22. THIRD PARTY RIGHTS        26    23.
FURTHER REASSURANCE        27    24. GOVERNING LAW        27    25. JURISDICTION
       27    26. SERVICE OF PROCESS        27    27. APPOINTMENT OF AGENT FOR
SERVICE        28    SCHEDULES        31    1. THE SELLERS        31    2.
TARGET GROUP        32   

Part A: Corporate Details of Target Company

       32   

Part B: Corporate Details of the Operating Company

       33   

3. THE PROPERTY

       34   

Part A: Freehold Property

       34   

 

Hogan Lovells

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

September 30,

CLAUSE

     PAGE  

Part B: Leasehold Properties

       35   

4. COMPLETION STATEMENT AND COMPLETION

       37   

Part A: General

       37   

Part B: Format of Completion Statement

       43   

Part C: Detailed Working Capital Pro Forma

       44   

Part D: Accounting Policies to be adopted in the Final Completion Statement

       50    5. PRE-COMPLETION MATTERS        51    6. COMPLETION OBLIGATIONS
       54    7. SELLERS’ WARRANTIES        57    8. BUYER’S WARRANTIES        73
   9. LIMITATIONS ON SELLERS’ LIABILITY        74    10. TAX COVENANT AND TAX
WARRANTIES        78   

Part A: Tax Covenant

       78   

Part B: Tax Warranties

       89   

 

Hogan Lovells

ii

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

THIS AGREEMENT is made on the 7th October, 2011

BETWEEN:

 

(1)

Royalton Europe Holdings LLC, a limited liability company formed in the State of
Delaware (registered number 2924004), whose registered office is at 1209 Orange
Street, City of Wilmington, County of New Castle, State of Delaware 19801, USA
(“Royalton Europe”);

 

(2)

Walton MG London Hotels Investors V, L.L.C., a limited liability company formed
in the State of Delaware (registered number 4288746), whose registered office is
at 1209 Orange Street, City of Wilmington, County of New Castle, State of
Delaware 19801, USA (“Walton MG London”, and together with Royalton Europe, the
“Sellers”);

 

(3)

Walton Street Real Estate Fund V, L. P., a Limited Partnership formed in the
State of Delaware, whose registered office is at 1209 Orange Street, City of
Wilmington, County of New Castle, State of Delaware 19801, USA, as guarantor for
Walton MG London, (“Walton Guarantor”);

 

(4)

Morgans Group LLC, a company formed in the State of Delaware (registered number
4049027), whose registered office is at 1209 Orange Street, City of Wilmington,
County of New Castle, State of Delaware 19801, USA, as guarantor for Royalton
Europe, (“Royalton Guarantor”, and together with the Walton Guarantor, the
“Sellers’ Guarantors”); and

 

(5)

Capital Hill Hotels Limited, a company incorporated in England and Wales
(registered number 07785139), whose registered office is at 14-18 City Road,
Cardiff, United Kingdom, CF24 3DL (the “Buyer”),

each a “party” and together the “parties”.

PREAMBLE:

The Sellers have agreed to sell all of the shares in the Target Company to the
Buyer on the terms of this Agreement.

IT IS AGREED:

 

1.

INTERPRETATION

 

1.1

In this Agreement:

“Accounts” means the consolidated audited balance sheet and profit and loss
account of the Target Group and the individual audited balance sheet and profit
and loss account of each Target Group Company as at and for the period ended on
the Balance Sheet Date;

“Balance Sheet Date” means 31 December 2010;

“Business Day” means a day (except a Saturday or Sunday) on which banks are
generally open for business in London, England;

“Buyer’s Confidential Information” means information in any form relating to the
Target Group’s business, customers or financial or other affairs (including
future plans and business development), but does not include information which:

 

  (a)

is publicly known at the date of this Agreement or which subsequently becomes
publicly known (other than in either case as a result of a breach of the
provisions of a Transaction Document by a Seller’s Group Company). A compilation
of otherwise public information in a form not publicly known is to be regarded
as not publicly known;

 

Hogan Lovells

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

  (b)

the relevant Seller can show was made known to it after the date of this
Agreement by a person unconnected with a Buyer’s Group Company who was entitled
to do so (and not in breach of an obligation of confidence) and who did not
impose an obligation of confidence or restricted use; or

 

  (c)

the relevant Seller has retained or acquired rights under a Transaction
Document;

“Buyer’s Group” means the Buyer and any person which is from time to time a
subsidiary undertaking of Dreamworks Finance Limited (a company incorporated in
the Cayman Islands, (company number 218288)) and “Buyer’s Group Company” means
any of them;

“Buyer’s Solicitors” means Lawrence Graham LLP of 4 More London Riverside,
London SE1 2AU, United Kingdom;

“Buyer’s Warranty” means a statement set out in schedule 8 and “Buyer’s
Warranties” means all those statements;

“Certificates of Title” means long form certificates of title as prescribed by
the City of London Law Society land law sub-committee (fifth edition) in
relation to each Property prepared by Macfarlanes LLP and addressed to the Buyer
in the agreed form and dated the date of this Agreement;

“Claim” means a claim arising under or in respect of a breach of a Sellers’
Warranty or the Tax Covenant;

“Completion” means completion of the sale and purchase of the Sale Shares in
accordance with this Agreement;

“Completion Date” has the meaning as set out in clause 4.1 of this Agreement;

“Completion Statement” means the combined Working Capital of the Target Group at
the Relevant Time, prepared in accordance with schedule 4;

“Completion Working Capital” means the Working Capital as shown by the Final
Completion Statement;

“Confidentiality Agreement” means the memorandum of understanding for the sale
of the Sanderson and St Martin’s Lane Hotels, London, dated 16 June 2011, signed
on behalf of the Buyer in which, amongst other things, the Buyer has agreed to
keep confidential certain information relating to the Target Group;

“Data Room Information” means the documents and information disclosed to the
Buyer in the electronic data room maintained by the Sellers’ Solicitors, a copy
of which is contained on the DVD-ROM annexed to the Disclosure Letter;

“Deposit” means the deposit of £10,000,000 payable to the Sellers’ Solicitors by
the Buyer in accordance with clause 3.2;

“De Minimis Claim” is defined in paragraph 2.1 of schedule 9;

“Disclosure Letter” means the letter described as such, from the Seller to the
Buyer dated the date of this Agreement;

“Employee” means each employee who is engaged by the Operating Company at
Completion and “Employees” means all those employees;

 

Hogan Lovells

 

4

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

“Encumbrance” means a charge, debenture, mortgage, pledge, lien or other
security interest;

“Environment” means all and any of the media of air, water and land and any
living organisms or ecosystems supported by those media;

“Environmental Law” means each applicable law (including statute, secondary
legislation, directives, regulations, resolutions, statutory guidance and codes
of practice having the force of law, civil, criminal or administrative law,
common law, a notice, order, judgment, ruling or other requirement from any
governmental, administrative or regulatory agency or body or a court, tribunal
or other assembly conducting judicial business) which are legally binding and in
force at the date of this Agreement in so far as they relate to or have as a
purpose or effect the prevention of harm to the Environment, or human health and
safety;

“Environmental Permit” means a consent, permission, licence, approval or other
authorisation issued, or registration made, pursuant to Environmental Law
necessary for the material conduct of the business of the Target Group;

“Estimated Working Capital” means the sum of £1,294,019, being the agreed
estimate of the Working Capital as at the Completion Date;

“F&B Leases” means the lease dated 18 April 2000, in relation to the Sanderson
hotel, and the lease dated 30 November 1999, in relation to St Martin’s Lane
hotel, each between the Operating Company and SC London Limited (each an “F&B
Lease”);

“F&B Lease Regularisation Agreement” means the agreement in the agreed form
between SC London Limited and the Operating Company in respect of the F&B
Leases;

“Facility Agreement” means the facility agreement dated 15 July 2010 between the
Operating Company, Aareal Bank AG as Arranger, the financial institutions listed
in schedule 1 thereto as Original Lenders, and Aareal Bank AG as Agent and
Security Agent, pursuant to which the Original Lenders agreed to make certain
facilities available to the Operating Company;

“Final Completion Statement” means the Completion Statement which becomes final
and binding in accordance with (as appropriate) paragraph 3.5, 3.8 or 6.7 of
part 1 of schedule 4;

“Final Completion Statement Date” means the date on which the Completion
Statement becomes final and binding in accordance with (as appropriate)
paragraph 3.5, 3.8 or 4.7 of part 1 of schedule 4;

“Hazardous Substance” means any waste, pollutant, contaminant or hazardous,
toxic, radioactive, noxious, flammable, corrosive or caustic matter including
asbestos (whether, in each case, in solid, liquid or gaseous form) which is
(alone or in combination) capable of causing significant harm to the Environment
or harm to human health;

“Initial Consideration” means £92,750,000;

“Intellectual Property” means:

 

  (a)

patents, registered and unregistered trade marks, rights in domain names,
registered designs, unregistered rights in designs, copyright and database
rights and, in each case, rights of a similar or corresponding character; and

 

  (b)

applications for any of the rights referred to in paragraph (a);

 

Hogan Lovells

 

5

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

“MAC Claim Notice” has the meaning set out in clause 4.7(b) of this Agreement;

“MAC Expert” has the meaning set out in clause 4.6(b)(ii) of this Agreement;

“Management Agreements” means the Master Management Agreement, the Sanderson
Management Agreement and the St Martin’s Lane Management Agreement;

“Master Management Agreement” means the master management agreement between the
Target Company, as owner, and Royalton London LLC, as operator, for the
management of hotels located in Europe as amended and restated on 16 February
2007;

“Material Adverse Change” has the meaning set out in clause 4.7(a) of this
Agreement;

“New Management Agreements” means the New Sanderson Management Agreement and the
New St Martin’s Lane Management Agreement;

“New Sanderson Management Agreement” means the hotel management agreement in the
agreed form between the Operating Company, as owner, and Morgans Hotel Group
U.K. Management Limited, as operator, for the management of a hotel known as the
Sanderson, located in London;

“New St Martin’s Lane Management Agreement” means the hotel management agreement
in the agreed form between the Operating Company, as owner, and Morgans Hotel
Group U.K. Management Limited, as operator, for the management of a hotel known
as St Martin’s Lane, located in London;

“Non-Tax Claim” means a Claim other than a Tax Claim;

“Operating Company” means Morgans Hotel Group London Limited, a company
incorporated in England and Wales under registered number 03462675, further
details about which are set out in part B of schedule 2;

“Permitted Encumbrance” means the Charge over Shares dated 15 July 2010 between
the Target Company and Aareal Bank AG;

“Property” means the property or all or any of the properties details of which
are set out in schedule 3 and includes part of a property and “Properties” shall
be construed accordingly;

“Purchase Price” means the Initial Consideration plus the Estimated Working
Capital, subject to any adjustment in accordance with clauses 3.2 and 3.5, to be
paid on Completion in accordance with clauses 3.3 and 3.4;

“Referral Date” has the meaning set out in clause 4.6(b)(ii) of this Agreement;

“Relevant Time” means 24:00 (BST) at the end of the Completion Date;

“Sale Shares” means the 2,499,999 A ordinary shares of £1.00 each, the 2,499,999
B ordinary shares of £1.00 each and the 2 preferred ordinary shares of £1.00
each in the capital of the Target Company, comprising the entire allotted and
issued share capital of the Target Company;

“Sanderson Management Agreement” means the property management agreement between
the Operating Company, as owner, and Morgans Hotel Group U.K. Management
Limited, as operator, for the management of a hotel known as the Sanderson
located in London, dated 18 June 1998, as amended and restated on 16 February
2007;

 

Hogan Lovells

 

6

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

“Seller’s Confidential Information” means information in any form relating to a
Seller’s Retained Group Company’s business, customers or financial or other
affairs (including future plans and business development), but does not include
information which:

 

  (a)

is publicly known at Completion or which subsequently becomes publicly known
(other than in either case as a result of a breach of the provisions of the
Confidentiality Agreement or a Transaction Document by a Buyer’s Group Company).
A compilation of otherwise public information in a form not publicly known is to
be regarded as not publicly known; or

 

  (b)

the Buyer can show was made known to it after the date of this Agreement by a
person unconnected with a Seller’s Retained Group Company or the Target Group
who was entitled to do so (and not in breach of an obligation of confidence) and
who did not impose an obligation of confidence or restricted use;

“Seller’s Group” means with respect to each Seller, such Seller and any person
which is from time to time a subsidiary undertaking of such Seller, a parent
undertaking of such Seller and any other subsidiary undertaking of such parent
undertaking (including the Target Group) and in relation to each Seller,
“Seller’s Group Company” means any of them;

“Seller’s Retained Group” means the Seller’s Group other than the Target Group
and “Seller’s Retained Group Company” means any of them;

“Sellers’ Solicitors” means Hogan Lovells International LLP of Atlantic House,
Holborn Viaduct, London EC1A 2FG;

“Sellers’ Completion Warranty” means a statement set out in part B of schedule 7
and “Sellers’ Completion Warranties” means all of those statements;

“Sellers’ Signing Warranty” means a statement set out in part A of schedule 7
and “Sellers’ Signing Warranties” means all of those statements;

“Sellers’ Warranty” means a Sellers’ Completion Warranty or a Sellers’ Signing
Warranty and “Sellers’ Warranties” means all those statements;

“Signing” means the signing of this Agreement by the parties;

St Martin’s Lane Management Agreement” means the property management agreement
between the Operating Company, as owner, and Morgans Hotel Group U.K. Management
Limited, as operator, for the management of a hotel known as St Martin’s Lane,
located in London, dated 18 June 1998, as amended and restated on 16 February
2007;

“Swap Agreement” means the ISDA Master Agreement and schedule between Aareal
Bank AG and the Operating Company, dated 15 July 2010;

“Target Company” means Morgans Hotel Group Europe Limited, a company
incorporated in England and Wales under registered number 03203996, further
details about which are set out in part A of schedule 2;

“Target Group” means the Target Company and the Operating Company;

“Target Group Company” means the Target Company or the Operating Company and
“Target Group Companies” means both those companies;

 

Hogan Lovells

 

7

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

“Tax” means:

 

  (a)

all forms of tax, levy, impost, contribution, duty, liability and charge in the
nature of taxation and all related withholdings or deductions of any nature
(including, for the avoidance of doubt, National Insurance contribution
liabilities in the United Kingdom and corresponding obligations elsewhere); and

 

  (b)

all related fines, penalties, charges and interest;

“Tax Authority” means a taxing or other governmental (local or central), state
or municipal authority (whether within or outside the United Kingdom) competent
to impose a liability for or to collect Tax;

“Tax Claim” means a claim by the Buyer in respect of a Tax Warranty or under the
Tax Covenant;

“Tax Covenant” means the covenant set out in part A of schedule 10;

“Tax Warranty” means a statement set out in part B of schedule 10 and “Tax
Warranties” means all of those statements;

“Third Party” is defined in clause 22.2;

“Title Deeds” means the documents relating to the Properties that are listed in
the agreed form schedule of title deeds;

“Title Warranties” means the warranties set out in paragraphs 1, 2.3 and 2.4 of
part A of schedule 7;

“Transaction” means a transaction that:

 

  (a)

relates to or is entered into in connection with the sale by the Sellers and the
purchase by the Buyer of the Sale Shares; and

 

  (b)

is expressly contemplated in a Transaction Document,

and “Transactions” means all those transactions; and

“Transaction Document” means:

 

  (a)

this Agreement;

 

  (b)

the Disclosure Letter;

 

  (c)

New Management Agreements; and

 

  (d)

each document that a Seller’s Group Company or a Buyer’s Group Company is to
enter into after the date of this Agreement under the terms of an agreement or
document referred to in paragraphs (a), (b) or (c),

and “Transaction Documents” means all those agreements and documents.

 

1.2

In this Agreement:

 

  (a)

a reference to a clause, paragraph or schedule is, unless stated otherwise, a
reference to a clause or paragraph of, or schedule to, this Agreement;

 

  (b)

a reference in a schedule to a paragraph is, unless otherwise stated, a
reference to a paragraph in that schedule or, where that schedule is split into
parts, a reference to a paragraph in that part of that schedule;

 

Hogan Lovells

 

8

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

  (c)

a reference to any statute or statutory provision is a reference to that statute
or statutory provision as re-enacted, amended or extended before the date of
this Agreement and includes reference to any subordinate legislation (as
re-enacted, amended or extended) made under it before the date of this
Agreement;

 

  (d)

a reference to a “person” includes any individual, company, corporation, firm,
partnership, joint venture, association, state, state agency, institution or
trust (whether or not having a separate legal personality);

 

  (e)

a reference to a document being in the “agreed form” is a reference to a
document in the form and terms approved and, for the purposes of identification
only, initialled, by or on behalf of each party on or before the date of this
Agreement with any alterations that are agreed in writing by or on behalf of
each party at any time before Completion or, if not agreed before the date of
this Agreement, the form and terms of which are agreed between each party on or
before Completion;

 

  (f)

a reference to one gender is a reference to all or any genders;

 

  (g)

a reference to a particular time of day is, unless stated otherwise, a reference
to that time in London, England;

 

  (h)

a reference to a person’s “Group” is, unless otherwise stated, a reference to
that person, its subsidiary undertakings, its parent undertakings and any other
subsidiary undertakings of its parent undertakings;

 

  (i)

a reference to “including” or “includes” does not limit the scope of the meaning
of the words preceding it;

 

  (j)

the expressions “subsidiary undertaking” and “parent undertaking” have the
meanings given to them by the Companies Act 2006;

 

  (k)

the expression “connected” with reference to a person or group of persons has
the meaning given to it in sections 1122 and 1123 of the Corporation Tax Act
2010.

 

1.3

In this Agreement, a reference in relation to any Intellectual Property, to
“use” includes any act which would constitute an infringement if done without
the permission of the owner of the Intellectual Property.

 

1.4

The schedules form part of this Agreement and a reference to “this Agreement”
includes its schedules.

 

1.5

The headings in this Agreement do not affect its interpretation.

 

2.

SALE AND PURCHASE OF THE SALE SHARES

 

2.1

In accordance with this Agreement:

 

  (a)

each Seller agrees to sell the Sale Shares set opposite its name in column
(2) of schedule 1 with full title guarantee; and

 

  (b)

the Buyer agrees to buy the Sale Shares,

in each case, on and with effect from Completion, free from any Encumbrance and
together with all rights attaching to the Sale Shares on or after Completion,
including the right to receive all dividends or distributions declared, paid or
made on or after Completion.

 

Hogan Lovells

 

9

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

2.2

Each of the Sellers irrevocably waives any right of pre-emption or other right
or restriction on transfer in respect of any of the Sale Shares conferred on it
(whether under the articles of association of the Target Company or otherwise).

 

3.

PURCHASE PRICE

 

3.1

Amount

The Purchase Price is the Initial Consideration plus the Estimated Working
Capital, subject to adjustment in accordance with clauses 3.4 and 3.7.

 

3.2

Deposit

 

  (a)

On Signing, the Buyer shall pay the Deposit into the account of the Sellers’
Solicitors by electronic transfer of funds for same day value to be held by the
Sellers’ Solicitors as stakeholders pending Completion.

 

  (b)

At Completion, subject to the provisions of clause 4, the Deposit and any
interest received on the Deposit prior to Completion shall be deemed to be paid
to the Sellers in part satisfaction of the Buyer’s obligation to pay the Initial
Consideration.

 

3.3

Interest on Deposit

The Sellers will procure that the Sellers’ Solicitors place the Deposit on
interest bearing deposit until the Completion Date. Any interest received on the
Deposit prior to the Completion Date shall be for the benefit of the Buyer and
shall be deducted from the amount paid by the Buyer to the Sellers on Completion
in accordance with paragraph 2.2 of schedule 6.

 

3.4

Working Capital Adjustment

If the Completion Working Capital is:

 

  (a)

less than the Estimated Working Capital:

 

  (i)

the Purchase Price will be reduced by an amount equal to the shortfall; and

 

  (ii)

each Seller must repay to the Buyer (in accordance with clause 3.3) their
proportionate share (as provided in column (6) of schedule 1) of the amount
equal to such shortfall; or

 

  (b)

more than the Estimated Working Capital:

 

  (i)

the Purchase Price will be increased by an amount equal to the excess; and

 

  (ii)

the Buyer must pay to each Seller (in accordance with clause 3.3) their
proportionate share (as provided in column (6) of schedule 1) of the amount
equal to such excess; or

 

  (c)

equal to the Estimated Working Capital, there will be no adjustment to the
Purchase Price under this clause 3.4.

 

3.5

Payment of sums due under clause 3.4

Any payment due under clause 3.4 must be made in cash within five Business Days
of the Final Completion Statement Date, by electronic transfer of funds for same
day value to the bank account which the party or parties entitled to receive the
payment directs in writing, at least 2 Business Days before payment is due to be
made, to the party or parties due to make the payment.

 

Hogan Lovells

 

10

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

3.6

Payment method

The Buyer must pay the Initial Consideration plus the Estimated Working Capital
in cash on Completion in accordance with the provisions of paragraph 2.2 of
schedule 6.

 

3.7

Amounts paid by Sellers a deemed reduction in the Purchase Price

A payment made by a Seller to the Buyer in respect of a Claim will be treated as
having reduced the Purchase Price receivable by that Seller by the amount of the
payment but will not reduce the Purchase Price to below zero. This clause does
not limit the amount that the Buyer may claim under this Agreement or the Tax
Covenant.

 

3.8

Sellers’ Pre-Completion Conduct

Between Signing and Completion, each Seller must:

 

  (a)

comply with schedule 5; and

 

  (b)

ensure that each Target Group Company complies with schedule 5.

 

3.9

Guarantee

 

  (a)

Guarantors’ obligations

In consideration of the Sellers entering into this Agreement, the Guarantors
hereby irrevocably and unconditionally: (i) guarantees to the Buyer the punctual
performance by the Seller for which it is the Guarantor of its payment
obligations and the obligations set out in schedule 6 under this Agreement; and
(ii) undertakes to the Buyer that whenever the Seller, for whom it is the
Guarantor, does not pay any amount when due under or in connection with this
Agreement (including where the Seller’s payment obligations are or become
unenforceable or invalid), or comply with its obligations set out in schedule 6,
that it shall immediately on demand pay that amount or procure the compliance
with such obligations as set out in schedule 6 as if it were the principal
obligor.

 

  (b)

Continuing nature of guarantee

The guarantee contained in this clause 3.6 is a continuing guarantee and shall
remain in force until all sums payable by the Seller, for whom it is the
Guarantor, have been fully paid, regardless of any intermediate payment or
discharge in whole or in part.

 

  (c)

Waiver of defences

The obligations of each Guarantor shall not be affected by any act, omission,
matter or thing which, but for this provision, might operate to reduce, release
or otherwise exonerate the Guarantor from its obligations or affect such
obligations, including without limitation and whether or not known to the
Guarantor or to the Buyer:

 

  (i)

any variation of this Agreement or any time, indulgence, waiver or consent at
any time given to the Sellers or any other person;

 

  (ii)

any legal limitation, disability, incapacity or other circumstance relating to
either Seller or any other person; or

 

Hogan Lovells

 

11

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

  (iii)

any irregularity, unenforceability or invalidity of any obligations of the
Seller, for whom it is the Guarantor, under this Agreement, or the dissolution,
amalgamation, reconstruction or insolvency of that Seller.

 

4.

COMPLETION

 

4.1

Completion Date

Completion must take place on the earlier of the following dates (the
“Completion Date”):

 

  (a)

if, on or before 30 November 2011, the Operating Company has received
confirmation from Aareal Bank AG, in a form reasonably satisfactory to the
Operating Company (after consultation with the Buyer), to the effect that the
whole of the amount of the loan owing to Aareal Bank AG under the Facility
Agreement, together with accrued interest, can be voluntarily pre-paid by the
Operating Company on Completion without payment of any Break Costs (as defined
in the Facility Agreement) (excluding, for the avoidance of doubt, break costs
in respect of the Swap Agreement or the termination thereof) and without
incurring a pre-payment fee, or any other costs, in excess of 3% of the
principal amount of the loan so pre-paid, then Completion shall take place on
30 November 2011, or such other date as is agreed in writing between the
parties;

 

  (b)

if the Operating Company has not received confirmation from Aareal Bank AG in
the form referred to in clause 4.1(a) above by 11am (London time) on 30 November
2011, then Completion shall take place on 30 December 2011.

 

4.2

Time and place

Completion must take place on the Completion Date at the offices of the Sellers’
Solicitors or at another location agreed in writing between the Buyer and the
Sellers.

 

4.3

Completion obligations

At Completion, each of the Sellers (save to the extent that compliance is waived
by the Buyer in its absolute discretion) and the Buyer must comply with their
respective obligations set out in schedule 6.

 

4.4

The Sellers’ Solicitors are irrevocably authorised by the Sellers to receive all
cash amounts payable to the Sellers under this Agreement and the receipt by the
Sellers’ Solicitors of any such cash amounts discharges the Buyer of its
obligations with respect to the payment of that amount and the Buyer is not
required to investigate the subsequent application of the cash.

 

4.5

Effect of Completion on Tax Covenant

At Completion, following compliance by the Buyer and each of the Sellers with
their respective obligations set out in schedule 6, the Tax Covenant takes
effect.

 

4.6

When a party is not obliged to complete

A party is not obliged to complete the sale and purchase of the Sale Shares:

 

  (a)

unless the other party complies with all its obligations in schedule 6; and

 

  (b)

unless the sale and purchase of all the Sale Shares is completed simultaneously;
and

 

  (c)

(in respect of the Buyer only) if there has been any Material Adverse Change (as
defined in clause 4.7 below).

 

Hogan Lovells

 

12

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

4.7

Material Adverse Change

 

  (a)

If between the date of this Agreement and the Completion Date (w) any Property
is sold or otherwise disposed of or any legal or beneficial interest in any
Property is disposed of by the Operating Company; (x) any of the Properties are
destroyed; (y) any of the Properties are damaged, such that the whole of such
Property cannot be operated at any capacity within one month of such damage; or
(z) any fact, event or circumstance or series of related facts, events or
circumstances that has a negative effect on the ownership, operation or value of
the Target Group, in each case which has or is reasonably likely to have a total
monetary impact exceeding £10,000,000, excluding, in any such case, any fact,
event, or circumstance arising from:

 

  (i)

changes in stock markets, interest rates, exchange rates, commodity prices or
other general economic conditions;

 

  (ii)

changes in conditions generally affecting the industry in which the Operating
Company operates;

 

  (iii)

changes in laws, regulations or accounting practices;

 

  (iv)

matters disclosed in the Disclosure Letter;

 

  (v)

this transaction or the change in control resulting from this transaction; or

 

  (vi)

changes in the operating performance of the Target Group other than as a result
of fraud, wilful misconduct or gross negligence of the Target Group or any of
its directors, officers or employees.

in each case a “Material Adverse Change”.

 

  (b)

If the Buyer reasonably believes that a Material Adverse Change has occurred,
the Buyer may give written notice to the Sellers (a “MAC Claim Notice”),
following which:

 

  (i)

within two Business Days after the date of service of the MAC Claim Notice, the
Buyer and the Sellers shall meet in good faith and use reasonable endeavours to
resolve whether a Material Adverse Change has occurred;

 

  (ii)

if the Buyer and the Sellers fail to resolve whether a Material Adverse Change
has occurred within ten Business Days of service of the MAC Claim Notice (the
“Referral Date”), the dispute shall be referred to an independent expert (the
“MAC Expert”) to be appointed by the Buyer and Sellers to determine whether or
not a Material Adverse Change has occurred (who shall be instructed to deliver
his determination within 7 days of his appointment);

 

  (iii)

if the Buyer and Sellers cannot agree on the identity of a MAC Expert within
five Business Days of the Referral Date, on the request of either the Buyer or
the Sellers the MAC Expert shall be appointed by the International Centre for
Expertise of the International Chamber of Commerce (who shall be instructed to
deliver his determination within 7 days of his appointment);

 

  (iv)

the MAC Expert shall act as an expert and not as an arbitrator;

 

Hogan Lovells

 

13

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

  (v)

the MAC Expert shall determine the procedure to be followed for the MAC Expert
to make his decision;

 

  (vi)

the MAC Expert shall be entitled to appoint advisers (including legal advisers)
where necessary to assist him in making his decision;

 

  (vii)

the Buyer and the Sellers shall each provide the MAC Expert with all information
which the MAC Expert reasonably requires to make his decision and shall comply
fully with any reasonable requests made by the MAC Expert;

 

  (viii)

the Buyer and the Sellers shall each bear fifty percent (50%) of the fees of the
MAC Expert unless the MAC Expert determines otherwise; and

 

  (ix)

in the absence of fraud, manifest error, or bias, the MAC Expert’s decision
shall be final and binding on the Buyer and the Sellers.

 

4.8

Buyer’s and Sellers’ rights when entitled not to complete

 

  (a)

If a party, which for the purpose of this clause 4.8 means the Sellers or the
Buyer, (“defaulting party”) fails to comply with any of its obligations in
schedule 6, the other party may, by notice to the defaulting party:

 

  (i)

elect to proceed to Completion so far as reasonably practicable and set another
date on which the defaulting party must comply with those obligations which it
has failed to comply with on the Completion Date; or

 

  (ii)

postpone Completion to a Business Day not more than five Business Days after the
Completion Date; or

 

  (iii)

terminate this Agreement by giving notice of termination to the defaulting party
with immediate effect, in which case clause 4.10 applies.

 

  (b)

In the event that on or by the Completion Date, a MAC Claim Notice has been
served by the Buyer pursuant to clause 4.7(b) and such Material Adverse Claim
has not been resolved by the Buyer and the Sellers or by determination by the
MAC Expert:

 

  (i)

the Completion Date shall be deferred to, and shall be the tenth (10th) Business
Day following the date on which the Sellers and the Buyer either agree or the
MAC Expert determines (in accordance with the provisions of clause 4.7(b) that a
Material Adverse Change has not occurred; or

 

  (ii)

if, subsequently, the Sellers and the Buyer either agree or the MAC Expert
determines (in accordance with the provisions of clause 4.7(b)) that a Material
Adverse Change has occurred, the Buyer may, by written notice given by it to the
Sellers, terminate this Agreement and each party’s rights and obligations under
this Agreement shall terminate at the time at which such notice is given save as
set out in clauses 4.8, 9, 10 and 13 and the Sellers shall procure that the
Deposit (together with any interest accrued thereon) is paid to the Buyer within
three Business Days of receipt of such notice.

 

  (c)

In the event that, prior to the Completion Date, the Sellers and the Buyer agree
or the MAC Expert determines that a Material Adverse Change has occurred, the
Buyer may, by written notice given by it to the Sellers prior to the Completion
Date, terminate this Agreement and each party’s rights and obligations under
this Agreement shall terminate at the time at which such notice is given save as
set out in clauses 4.8, 9, 10 and 13 and the Sellers shall procure that the
Deposit (together with any interest accrued thereon) is paid to the Buyer within
three Business Days of receipt of such notice.

 

Hogan Lovells

 

14

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

4.9

Effect of postponement of Completion

If a party postpones Completion to another date in accordance with clause
4.8(a)(ii) or 4.8(b)(i) the provisions of this Agreement apply as if that other
date is the Completion Date and references to the Completion Date will be
construed as if they were references to that other date.

4.10 Effect of termination

If a party terminates this Agreement pursuant to clause 4.8(a)(iii):

 

  (a)

the defaulting party must indemnify it on demand against:

 

  (i)

each loss, liability and cost which it has incurred in connection with
negotiating, preparing, signing or implementing a Transaction Document; and

 

  (ii)

each cost which it incurs in enforcing its rights under clause 4.8(a)(i); and

 

  (b)

each party’s further rights and obligations cease immediately on termination
except that:

 

  (i)

each party must continue to comply with clauses 9, 10 and 13 and each provision
of this Agreement necessary for a party to enforce those clauses; and

 

  (ii)

termination of this Agreement does not affect a party’s right to claim for a
breach of the other party’s obligations in relation to this Agreement if that
breach occurred before termination and each party must continue to comply with
each provision of this Agreement necessary for a party to enforce such a right;

 

  (c)

with regard to the Deposit:

 

  (i)

if the defaulting party is the Buyer, then the Deposit, and any interest which
has accrued thereon, shall be forfeited to the Sellers and the Sellers shall be
entitled to keep the Deposit and deal with such funds as they sees fit; and

 

  (ii)

if the defaulting party is a Seller, then the Sellers shall return the Deposit,
and any interest which has accrued thereon, to the Buyer as soon as reasonably
practicable following receipt of notice of termination in accordance with clause
4.8(c) and in any case within five Business Days of receipt of such notice.

 

4.11

Specific performance

If the Sellers fail to comply with their obligations under clause 4.3 and
schedule 6 of this Agreement on the Completion Date, then the Sellers
acknowledge and agree that damages alone would not be an adequate remedy for any
breach of the terms of the Agreement by the Sellers and accordingly the Buyer
shall be entitled to the remedy of specific performance in addition to and
without prejudice to any other remedies that it may have.

 

Hogan Lovells

 

15

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

5.

BUYER’S WARRANTIES

 

5.1

Buyer’s Warranties

The Buyer warrants to each of the Sellers that at the date of this Agreement and
at Completion (other than in respect of the warranty in paragraph 2 of schedule
8) each Buyer’s Warranty is true and accurate.

 

5.2

Buyer’s Warranties are separate statements

Each Buyer’s Warranty is a separate and independent statement and (except as
expressly provided by this Agreement) is not limited or otherwise affected by
any other Buyer’s Warranty or by any other provision of this Agreement.

 

6.

SELLERS’ WARRANTIES

 

6.1

Sellers’ Signing Warranties

The Sellers warrant to the Buyer that at the date of this Agreement each
Sellers’ Signing Warranty is true and accurate. The Sellers Signing Warranties
(other than the Title Warranties) are given by the Sellers jointly and severally
and the Title Warranties are given by each Seller on an individual basis,
severally, in respect of itself (and, where appropriate, its Sale Shares) only.

 

6.2

Sellers’ Completion Warranties

The Sellers warrant to the Buyer that, immediately before Completion, each
Sellers’ Completion Warranty is true and accurate. The Sellers’ Completion
Warranties (other than the Title Warranties) are given by the Sellers jointly
and severally and the Title Warranties are given by each Seller on an individual
basis, severally, in respect of itself (and, where appropriate, its Sale Shares)
only.

 

6.3

Sellers’ Warranties and Sellers’ Completion Warranties are separate statements

Each Sellers’ Warranty and each Sellers’ Completion Warranty is a separate and
independent statement and (except as expressly provided by this Agreement) is
not limited or otherwise affected by any other Sellers’ Warranty or by any other
provision of this Agreement.

 

6.4

Scope of Sellers’ Warranties

The only Sellers’ Warranties given:

 

  (a)

in respect of Tax are those set out in part B of schedule 10 and none of the
Sellers’ Warranties set out in schedule 7 is or will be interpreted as being a
warranty, statement or representation relating to Tax;

 

  (b)

in respect of Intellectual Property are those set out in paragraph 9 of part A
of schedule 7 and none of the other Sellers’ Warranties is or will be
interpreted as being a warranty, statement or representation relating to
Intellectual Property;

 

  (c)

in respect of freehold, leasehold or other real property are those set out in
paragraph 12 of part A of schedule 7 and none of the other Sellers’ Warranties
is or will be interpreted as being a warranty, statement or representation
relating to freehold, leasehold or other real property;

 

  (d)

in respect of environmental or health and safety matters are those set out in
paragraph 15 of part A of schedule 7 and none of the other Sellers’ Warranties
is or will be interpreted as being a warranty, statement or representation
relating to environmental or health and safety matters;

 

Hogan Lovells

 

16

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

  (e)

in respect of employment or consultancy matters (other than retirement benefit
matters) are those set out in paragraph 16 of part A of schedule 7 and none of
the other Sellers’ Warranties is or will be interpreted as being a warranty,
statement or representation relating to employment or consultancy matters (other
than retirement benefit matters); and

 

  (f)

in respect of retirement benefit matters are those set out in paragraph 17 of
part A of schedule 7 and none of the other Sellers’ Warranties is or will be
interpreted as being a warranty, statement or representation relating to
retirement benefit matters.

 

6.5

Sellers’ Warranties qualified by disclosure

The Buyer is not entitled to claim that a fact, matter or circumstance causes a
Sellers’ Warranty to be untrue or inaccurate, if that fact, matter or
circumstance is fairly disclosed in sufficient detail to enable the Buyer to
reasonably assess the nature and scope of the matter, fact or circumstance
disclosed and its impact on each Target Group Company in or by:

 

  (i)

the Disclosure Letter;

 

  (ii)

the documents that are annexed to the Disclosure Letter or are listed in the
index of documents annexed to the Disclosure Letter;

 

  (iii)

the Data Room Information; or

 

  (iv)

the Certificates of Title.

 

6.6

Sellers’ Warranties

Other than with regard to the Sellers’ Warranties in paragraph 2 of part A of
schedule 7, each Sellers’ Warranty which is expressed to be given in relation to
the Target Company shall also be deemed to be given in relation to the Operating
Company as if it had been repeated with respect to each such member naming it in
place of the Operating Company throughout.

 

6.7

Seller’s knowledge

Where a Sellers’ Warranty is qualified by the expression “so far as the Sellers
are aware” or “to the best of the Sellers’ knowledge, information or belief” or
a similar expression, the Sellers shall be deemed to have knowledge only of
matters, facts and circumstances within the actual knowledge of Richard Russo,
Yoav Gery, David Smail, Justin Leonard or Jeffrey Quicksilver having made due
enquiries of Anne Golden and Ralf Albus, and no such persons are required to
make or is deemed to have made any other enquiry of any other person.

 

6.8

No claim against Target Group employees, directors etc

 

  (a)

Each Seller agrees not to bring any claim which it may have against any Target
Company or a present or former officer, director or employee of the Target
Company, arising out of any information or advice provided (or omitted to be
provided) by any such person on which such Seller relied when making a
representation, giving a Sellers’ Warranty, preparing the Disclosure Letter or
otherwise agreeing to the terms of a Transaction Document.

 

Hogan Lovells

 

17

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

  (b)

The Buyer agrees not to bring any claim which it may have against (i) a Seller’s
Retained Group Company (other than the Sellers); or (ii) a present or former
officer, adviser, director or employee of a Seller’s Retained Group Company or
the Target Group, arising out of any information or advice provided (or omitted
to be provided) by any such person on which the Buyer relied when agreeing to
the terms of a Transaction Document.

 

  (c)

Clauses 6.7(a) and (b) do not apply to a claim against a person who is alleged
to have acted fraudulently.

 

6.9

Sellers’ Guarantors Warranties

Each of the Sellers’ Guarantors severally warrants in respect of itself only to
the Buyer that at the date of this Agreement and at Completion in terms of the
Warranties set out in paragraph 1 of schedule 6 save that each reference to
“Seller” shall be deemed to be a reference to the Walton Guarantor or the
Royalton Guarantor as appropriate and each reference to “Transaction Documents”
shall be deemed to be a reference to this Agreement only.

 

7.

LIMITATIONS ON SELLERS’ LIABILITY

The provisions of schedule 9 apply to impose limitations on the Sellers’
liability in respect of Claims as stated therein, provided that the limitations
in paragraphs 2 and 3 of schedule 9 shall not apply to the Title Warranties.

 

8.

POST COMPLETION OBLIGATIONS

 

8.1

No use of Seller’s Group’s intellectual property etc

 

  (a)

Other than in accordance with the terms of the New Management Agreements, no
Buyer’s Group Company may at any time after Completion:

 

  (i)

represent itself or permit itself to be held out as being in any way connected
with a Seller’s Retained Group Company; or

 

  (ii)

use, or interfere with the use by a Seller’s Retained Group Company or any of
its licensees of, any name, mark or logo in which a Seller’s Retained Group
Company is interested or use any confusingly similar name, mark or logo.

 

  (b)

The Buyer shall make sure that:

 

  (i)

within 30 days starting on the day after the Completion Date, other than as
permitted by the terms of the New Management Agreements, each Target Group
Company removes from any of its business materials (including signage,
stationery, order forms and website) the names “Morgans”, “Morgans Hotel Group”,
“a Morgans Hotel”, “the Sanderson” and “St Martin’s Lane” and any reference to
any Target Group Company being part of the same Group as the relevant Seller;
and

 

  (ii)

within 10 days starting on the day after the Completion Date, each Target Group
Company shall file with Companies House the shareholders special resolution and
the relevant Companies House forms to change the name of the Target Group
Company to a name that shall not include “Morgans”, “Morgans Hotel Group”,
Morgans Hotel”, “the Sanderson”, or “St Martin’s Lane”.

 

Hogan Lovells

 

18

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

8.2

Buyer to provide Sellers with access to books and records

After Completion, the Buyer shall permit, and shall ensure that each Target
Group Company permits upon reasonable prior notice and during normal working
hours, the Sellers and their representatives to have reasonable access to, and
to take copies of, the books, records and documents of each Target Group Company
to the extent that:

 

  (a)

they relate to the period prior to Completion; and

 

  (b)

they are reasonably required by a Seller’s Retained Group Company to comply with
any relevant law or regulations or in connection with its accounting obligations
or Tax affairs.

 

8.3

Seller to provide Buyer with information relating to Target Company

After Completion, each Seller must permit, and must ensure that each of its
other Seller’s Retained Group Company permits, upon reasonable prior notice and
during normal working hours, the Buyer and its representatives to have
reasonable access to, and to take copies of, the books, records and documents of
any Target Group Company to the extent that such books, records and documents
were retained by such Seller’s Retained Group Company and:

 

  (a)

they relate to the period prior to Completion; and

 

  (b)

they are reasonably required by the Buyer to comply with any relevant law or
regulations or in connection with the Buyer accounting obligations or Tax
affairs.

 

9.

CONFIDENTIALITY

 

9.1

Seller’s confidentiality obligations

After Completion, other than in accordance with the Management Agreements, each
Seller must:

 

  (a)

not disclose or use the Buyer’s Confidential Information unless it has first
obtained the Buyer’s permission; and

 

  (b)

ensure that no Seller’s Retained Group Company discloses or uses the Buyer’s
Confidential Information unless it has first obtained the Buyer’s permission.

 

9.2

Buyer’s confidentiality obligations

After Completion, other than in accordance with the Management Agreements, the
Buyer must:

 

  (a)

not disclose or use the Sellers’ Confidential Information unless it has first
obtained the relevant Seller’s permission; and

 

  (b)

ensure that no Buyer’s Group Company discloses or uses the Sellers’ Confidential
Information unless it has first obtained the relevant Seller’s permission.

 

9.3

Both parties’ confidentiality obligations

After the date of this Agreement, each party must:

 

  (a)

not disclose information relating to the negotiation, existence or provisions of
a Transaction Document unless:

 

  (i)

it has first obtained the other parties’ permission; or

 

Hogan Lovells

 

19

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

  (ii)

it is permitted under clause 9.4 or clause 10; and

 

  (b)

ensure that no member of its Group discloses information relating to the
negotiation, existence or provisions of a Transaction Document unless it has
first obtained the other parties’ permission.

 

9.4

Permitted disclosures

Clauses 9.1, 9.2 and 9.3 do not apply to a disclosure or use of information if:

 

  (a)

the disclosure or use is required by applicable law, a court of competent
jurisdiction or a competent judicial, governmental, supervisory or regulatory
body;

 

  (b)

the disclosure or use is required by a rule of a stock exchange or listing
authority on which the shares or other securities in a member of the disclosing
person’s Group are listed or traded;

 

  (c)

the disclosure is made to the directors, officers or senior employees of a
member of the Buyer’s Group or either Seller’s Group, as the case may be, for
the purpose of ensuring compliance with the terms of a Transaction Document;

 

  (d)

the disclosure or use is required for the purpose of legal proceedings arising
out of a Transaction Document or the disclosure is required to be made to a Tax
Authority in connection with the Tax affairs of a member of the Buyer’s Group or
either Seller’s Group, as the case may be;

 

  (e)

the disclosure is made to a professional adviser of the disclosing person, in
which case the disclosing person is responsible for ensuring that the
professional adviser complies with the terms of clause 9 as if it were a party
to this Agreement;

 

  (f)

the disclosure is made to any general partner, limited partner, trustee, nominee
of, manager of, or adviser to a party, or any parent or subsidiary undertaking
of a party, or any investor or potential investor in any of them; or

 

  (g)

the disclosure is made to any company or fund (including any unit trust,
investment trust, limited partnership or general partnership) which is advised
by, or the assets of which are managed (whether solely or jointly with others)
from time to time by, a party or in respect of which a party is a general
partner, or which is advised or managed by a party’s general partner, trustee,
nominee, manager or adviser.

 

9.5

Notification required before a permitted disclosure

The Buyer or the Sellers may only make a disclosure in the circumstances
contemplated by clause 9.4(a) or (b) if, to the extent reasonably practicable
before making the disclosure, it has notified the other parties of the
disclosure.

 

9.6

Termination of Confidentiality Agreement

With effect from Completion:

 

  (a)

the Confidentiality Agreement terminates; and

 

  (b)

the Sellers each waive any right or claim that it may have against the Buyer (or
any director, officer, employee or adviser of the Buyer) arising out of or in
connection with the Confidentiality Agreement.

 

Hogan Lovells

 

20

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

10. ANNOUNCEMENTS

10.1 Permission of the other party generally required

Subject to clauses 10.2, 10.3 and 10.4, after Completion, each party must not:

 

  (a)

make or send; or

 

  (b)

permit another person to make or send on its behalf,

a public announcement or circular regarding the existence or the subject matter
of a Transaction Document, unless it has first obtained the other parties’
permission, such permission not to be unreasonably withheld or delayed.

 

10.2

Circumstances in which permission of other party is not required

Clause 10.1 does not apply to an announcement or circular which is required by:

 

  (a)

applicable law, a court of competent jurisdiction or a competent judicial,
governmental, supervisory or regulatory body; or

 

  (b)

a rule of a stock exchange or listing authority on which the shares or other
securities of a Seller’s Retained Group Company or a Buyer’s Group Company are
listed or traded provided that in respect of references to the Buyer in such
announcement or circular, unless required by a rule of such stock exchange or
listing authority, the only reference to the Buyer shall be limited to the
identity of the Buyer.

 

10.3

Notification where permission of other party is not required

A party that is required to make or send an announcement or circular in the
circumstances contemplated by clause 10.2(b) must, to the extent reasonably
practicable before making or sending the announcement or circular, notify the
other parties of the announcement or circular.

 

10.4

Agreed form announcement

Each party shall be permitted to make or send or to permit another person to
make or send on its behalf the agreed form public announcement regarding its
entry into and subject of the Transaction Documents.

 

11.

ASSIGNMENT PROHIBITED

 

11.1

General prohibition

Subject to clauses 11.2 and 11.3, the Buyer is not permitted to assign, charge
or otherwise dispose of any of its rights or benefits under this Agreement or
grant or create any third party interest in any of its rights under this
Agreement (including holding an interest on trust for another) without the prior
written permission of each of the Sellers.

 

11.2

Assignment within Buyer’s Group

The Buyer shall be entitled to assign or transfer the whole of (and not just
part thereof) of its rights and obligations under this Agreement to any wholly
owned member of the Buyer’s Group, provided that if such assignee or transferee
ceases to be a wholly owned member of the Buyer’s Group the Buyer shall procure
that prior to such assignee or transferee ceasing to be a wholly owned member of
the Buyer’s Group the rights and obligations under this Agreement are reassigned
or retransferred to the Buyer or another wholly owned member of the Buyer’s
Group.

 

Hogan Lovells

 

21

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

11.3

Assignment to a provider of acquisition finance

The Buyer shall be entitled to assign or transfer (in whole or in part) its
rights and obligations under this agreement to a party which (i) provides
acquisition finance in respect of the Buyer’s acquisition hereunder or (ii) the
lender under the Facility Agreement.

 

12.

NOTICES

 

12.1

Method of giving a notice or other communication

A notice, permission or other communication under or in connection with this
Agreement must be:

 

  (a)

in writing;

 

  (b)

in English;

 

  (c)

signed by or on behalf of the person giving it; and

 

  (d)

delivered by hand (including by courier) or by fax to the relevant party to the
contact, address and fax number set out in clause 12.3 (or if otherwise notified
by the relevant person under clause 12.7 to such other contact, address or fax
number as has been so notified).

 

12.2

Notice not properly given unless copy also given

In the case of notices only, a copy of any notice sent to a party under or in
connection with this Agreement must be delivered by hand or by fax to the person
(“copy recipient”) indicated in clause 12.3, to the contact, address and fax
number set out in clause 12.3 (or if otherwise notified by the relevant person
under clause 12.7 to such other copy recipient or such other contact, address or
fax number as has been so notified). A notice given to a party is not duly given
until both the notice and the copy is given in accordance with clause 12.

 

12.3

Addresses

The contact, address and fax number for each party and copy recipient is (unless
otherwise notified under clause 12.7):

 

  (a)

in the case of the Sellers as follows:

Royalton Europe

 

  Address:

C/O Morgans Group LLC

475 Tenth Avenue

New York

NY 10018

USA

 

  Attention:

General Counsel,

with, in the case of notices only, a copy to the Sellers’ Solicitors, as
follows:

 

  Address:

Hogan Lovells International LLP

Atlantic House

Holborn Viaduct

London EC1A 2FG

 

  Fax:

+44 20 7296 2001

 

  Attention:

Nigel Read.

 

Hogan Lovells

 

22

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

Walton MG London

 

  Address:

900 North Michigan Avenue

Suite 1900

Chicago

Illinois 60611

USA

 

  Fax:

+1 312 915 2881

 

  Attention:

Justin Leonard,

with, in the case of notices only, a copy to the Sellers’ Solicitors, as
follows:

 

  Address:

Hogan Lovells International LLP

Atlantic House

Holborn Viaduct

London EC1A 2FG

 

  Fax:

+44 20 7296 2001

 

  Attention:

Nigel Read; and

 

  (b)

in the case of the Buyer, as follows:

 

  Address:

Al Mirqab Holding

Al Wajba Palace

Dukhan Road

P.O. Box 4044

Doha

Qatar

 

  Fax:

+974 44816106

 

  Attention:

Fady Bakhos,

with, in the case of notices only, a copy to the Buyer’s Solicitors, as follows:

 

  Address:

Lawrence Graham LLP

4 More London Riverside

London SE1 2AU

 

  Fax:

+44 (0)20 7379 6854

 

  Attention:

Mike Lacey.

 

  (c)

In the case of the Sellers Guarantors as follows:

Walton Guarantor

 

  Address:

900 North Michigan Avenue

Suite 1900

Chicago

Illinois 60611

USA

 

  Fax:

+1 312 915 2881

 

  Attention:

Justin Leonard,

 

Hogan Lovells

 

23

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

with, in the case of notices only, a copy to the Sellers’ Solicitors, as
follows:

 

  Address:

Hogan Lovells International LLP

Atlantic House

Holborn Viaduct

London EC1A 2FG

 

  Fax:

+44 20 7296 2001

 

  Attention:

Nigel Read; and

Royalton Guarantor

 

  Address:

C/O Morgans Group LLC

475 Tenth Avenue

New York

NY 10018

USA

 

  Attention:

General Counsel,

with, in the case of notices only, a copy to the Sellers’ Solicitors, as
follows:

 

  Address:

Hogan Lovells International LLP

Atlantic House

Holborn Viaduct

London EC1A 2FG

 

  Fax:

+44 20 7296 2001

 

  Attention:

Nigel Read.

 

12.4

Time that notice or communication is deemed given

Unless there is evidence that it was received earlier, and except as set out in
the final sentence of clause 12.2, a notice or other communication that complies
with clause 12.1 and 12.2 is deemed given:

 

  (a)

if delivered by hand, at the time of delivery, except as provided in clause
12.5;

 

  (b)

if sent by fax, at the time of its transmission, except as provided in clause
12.5.

 

12.5

Effect of delivery by hand or fax after 6.00 pm or on a non-Business Day

 

  (a)

If deemed delivery under clause 12.4 of a notice or other communication
delivered by hand or sent by fax occurs before 9.00 am on a Business Day, the
notice or other communication is deemed delivered at 9.00 am on that day.

 

  (b)

If deemed delivery under clause 12.4 of a notice or other communication
delivered by hand or sent by fax occurs after 6.00 pm on a Business Day or on a
day which is not a Business Day, the notice or communication is deemed to have
been given at 9.00 am on the next Business Day.

 

Hogan Lovells

 

24

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

12.6

Relevant time of day

In this clause, a reference to time is to local time in the country in which the
recipient of the notice or communication is located.

 

12.7

Notification of change in notice details

A party may notify the other party of a change to any of the details for it or
its copy recipient referred to in clause 12.3. The notice must comply with the
terms of clause 12.1 and 12.2 and must state the date on which the change is to
occur. That date must be on or after the fifth Business Day after the date on
which the notice is delivered.

 

13.

COSTS

Except where this Agreement or another Transaction Document provides otherwise,
each party must pay its own costs incurred in connection with the negotiation,
preparation, execution and implementation of each Transaction Document.

 

14.

INTEREST ON LATE PAYMENT

If a party fails to pay an amount required to be paid under this Agreement when
it is due (a “Due Amount”), that party must pay interest on the Due Amount from
and including the due date for payment up to and including the date of actual
payment at the rate per year of 4 per cent above the base lending rate from time
to time of Barclays Bank plc. This rate applies to any period after a judgement
as well as before a judgement. Interest accrues on a daily basis.

 

15.

VARIATION

A variation of this Agreement is valid against a party only if it is in writing
and signed by such party or signed on its behalf by its authorised
representative.

 

16.

WAIVER

Except in the circumstances set out in schedules 9 and 10, failure to exercise,
or a delay in exercising, a right or remedy provided by this Agreement or by law
does not constitute a waiver of the right or remedy or a waiver of other rights
or remedies. No single or partial exercise of a right or remedy provided by this
Agreement or by law prevents the further exercise of the right or remedy or the
exercise of another right or remedy. A waiver of a breach of this Agreement does
not constitute a waiver of a subsequent or prior breach of this Agreement.

 

17.

RIGHTS AND REMEDIES ARE CUMULATIVE

The rights and remedies provided by this Agreement are cumulative and do not
exclude any rights and remedies provided by law.

 

18.

COUNTERPARTS

This Agreement may be entered into in any number of counterparts and any party
may enter into this Agreement by executing any counterpart. A counterpart
constitutes an original of this Agreement and all executed counterparts together
have the same effect as if each party had executed the same document.

 

19.

EFFECT OF COMPLETION

Each obligation under this Agreement which has not been fully performed by
Completion remains in force after Completion.

 

Hogan Lovells

 

25

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

20.

ENTIRE AGREEMENT

 

20.1

Entire agreement

The Transaction Documents together set out the entire agreement between the
parties in respect of the Transactions and supersede any previous agreement or
arrangement between the parties relating to the subject matter of the
Transactions.

 

20.2

No reliance on a statement outside the Transaction Documents

The Buyer agrees and acknowledges that it has not relied on or been induced to
enter into a Transaction Document by a warranty, statement, representation or
undertaking which is not expressly included in a Transaction Document.

 

20.3

Buyer’s only remedy is damages for breach of contract under this Agreement

 

  (a)

The Buyer has no claim or remedy in respect of a warranty, statement,
misrepresentation (whether negligent or innocent) or undertaking made to it by
or on behalf of any Seller in connection with or relating to a Transaction which
is not expressly included in a Transaction Document.

 

  (b)

The only claim or remedy that is available to the Buyer in respect of a
warranty, statement, misrepresentation (whether negligent or innocent) or
undertaking made to it by or on behalf of any Seller is a claim for damages for
breach of this Agreement and not termination, rescission, damages in tort,
damages under statute or any other remedy.

 

20.4

Clause does not apply in the event of fraud

Nothing in this clause 20 limits or excludes liability arising as a result of
fraud.

21. INVALIDITY

If a provision of this Agreement is found to be illegal, invalid or
unenforceable, then to the extent it is illegal, invalid or unenforceable, that
provision will be given no effect and will be treated as though it were not
included in this Agreement, but the validity or enforceability of the remaining
provisions of this Agreement will not be affected.

 

22.

THIRD PARTY RIGHTS

 

22.1

Exclusion of Contracts (Rights of Third Parties) Act 1999, subject to exceptions

Except as provided in clause 22.2, a person who is not a party to this Agreement
has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce
this Agreement.

22.2 Exceptions to exclusion of Contracts (Rights of Third Parties) Act 1999

The following persons (each a “Third Party”) may enforce the following terms of
this Agreement subject to and in accordance with the terms of this Agreement and
the Contracts (Rights of Third Parties) Act 1999:

 

  (a)

any Target Group Company may in its own right enforce the obligations of each
Seller contained in clause 6.7(a) and clause 9.1;

 

  (b)

a present or former officer, director or employee of any Target Group Company
may in its own right enforce each Seller’s undertaking contained in clause
6.7(a); and

 

Hogan Lovells

 

26

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

  (c)

a Seller’s Group Company, other than a Seller may in its own right enforce the
obligations of the Buyer contained in clause 6.7(b) and clause 9.2; and

 

  (d)

a present or former officer, adviser, director or employee of a Seller’s
Retained Group Company or any Target Group Company may in its own right enforce
the Buyer’s undertaking contained in clause 6.7(b).

 

22.3

Buyer’s or Sellers’ permission required for enforcement

 

  (a)

No Third Party may enforce any obligations of any Seller by virtue of the
Contracts (Rights of Third Parties) Act 1999 and clause 22.2(a) or (b) without
the prior written permission of the Buyer. The Buyer’s permission may, if given,
be given on and subject to any terms and conditions that the Buyer wishes.

 

  (b)

No Third Party may enforce any obligations of the Buyer by virtue of the
Contracts (Rights of Third Parties) Act 1999 and clause 22.2(c) or (d) without
the prior written permission of each of the Sellers. Each the Sellers’
permission may, if given, be given on and subject to any terms and conditions
that the Seller wishes.

 

22.4

Assignment of rights under Contracts (Rights of Third Parties) Act 1999

No Third Party may, without the prior permission of the Buyer and each Seller,
assign, charge or otherwise dispose of any of its rights under this Agreement or
grant or create any third party interest in its rights under this Agreement
(including holding an interest on trust for another).

 

23.

FURTHER REASSURANCE

Each party shall, at the reasonable request in writing of the others, do,
execute, or arrange for the doing and executing of each necessary act, document
and thing to give full effect to this Agreement and securing to it the full
benefit of the right, powers and remedies conferred upon them in this Agreement.

 

24.

GOVERNING LAW

This Agreement, the jurisdiction clause contained in it, all the documents
referred to in it which are not expressed to be governed by another law, and all
non-contractual obligations arising in any way whatsoever out of or in
connection with this Agreement or any such documents are governed by, construed
and take effect in accordance with English law.

 

25.

JURISDICTION

The courts of England have exclusive jurisdiction to settle any claim, dispute
or matter of difference which may arise in any way whatsoever out of or in
connection with this Agreement (including without limitation claims for set-off
or counterclaim) or the legal relationships established by this Agreement
(“Dispute”).

 

26.

SERVICE OF PROCESS

A document which starts or is otherwise required to be served in connection with
any legal action or proceedings relating to a Dispute (“Process Document”) may
be served in the same way as notices in accordance with clause 12. This clause
26 does not prevent a Process Document being served in another manner permitted
by law.

 

Hogan Lovells

 

27

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

27.

APPOINTMENT OF AGENT FOR SERVICE

 

  (a)

Each Seller and each of the Sellers’ Guarantors must at all times maintain an
agent for service of process in England and Wales.

 

  (b)

Royalton Europe and the Royalton Guarantor appoint Sisec Limited of 21 Holborn
Viaduct, London EC1A 2DY, as its agent to accept service of any Process Document
in England.

 

  (c)

Walton MG London and the Walton Guarantor appoint Sisec Limited of 21 Holborn
Viaduct, London EC1A 2DY, as its agent to accept service of any Process Document
in England.

 

  (d)

Any Process Document will be sufficiently served on any Seller or any Sellers’
Guarantor (as the case may be) if delivered to its agent at its address for the
time being.

 

  (e)

Any Seller, or any Sellers’ Guarantor must not revoke the authority of its
agent. If a party’s agent ceases to be able to act as such or to have an address
within the jurisdiction of the English courts, the Seller, or any Sellers’
Guarantor (as the case may be) must promptly appoint another agent (with an
address for service within the jurisdiction of the English courts).

 

  (f)

A party must notify each other party within 14 days of any change in the
identity or address of its agent for service of process.

 

  (g)

This clause 27 does not prevent a Process Document being served in another
manner permitted by law.

 

Hogan Lovells

 

28

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

EXECUTED by the parties    

Executed by

  )   ROYALTON EUROPE HOLDINGS LLC   )   By: Morgans Group LLC, its managing
member,   )   by Morgans Hotel Group Co., its managing member,   )   acting by:
  )  

/s/ Michael Gross

    Name: Michael Gross     Title: Chief Executive Officer     Executed by   )  
WALTON MG LONDON HOTELS INVESTORS V, L.L.C.   )  

acting by: Ira J. Schulman

  )  

/s/ Ira Schulman

    Authorised signatory     Executed by   )   WALTON STREET REAL ESTATE FUND V,
L.P.   )   acting by: Ira J. Schulman   )  

/s/ Ira Schulman

    Authorised signatory     Executed by   )   MORGANS GROUP LLC   )   By:
Morgans Hotel Group Co., its managing member,   )   acting by:   )  

/s/ Michael Gross

    Name: Michael Gross     Title: Chief Executive Officer    

 

Hogan Lovells

 

29

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

Executed by

  )   CAPITAL HILL HOTELS LIMITED   )   acting by: Fakirahmed Gulammonhiddin
Kaldane   )  

/s/ Fakirahmed Gulammonhiddin Kaldane

    Director/Authorised signatory    

 

Hogan Lovells

 

30

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

SCHEDULES

SCHEDULE 1

THE SELLERS

 

September 30, September 30, September 30, September 30, September 30,

(1)

     (2)      (3)        (4)        (5)        (6)  

Seller

     Sale Shares      Initial
Consideration        Aggregate
liability for all
Claims
(including
Title
Warranties
and Tax
Covenant)        Aggregate
liability for
Claims
(excluding
Title
Warranties
and Tax
Covenant)        Proportionate
share  

Royalton Europe Holdings LLC

     2,499,999 A Ordinary Shares      £ 46,374,999         £ 96,000,000        
£ 17,500,000           50 %       1 Preferred Share      £ 1                  

Walton MG London Hotels Investors V, L.L.C.

     2,499,999 B Ordinary Shares      £ 46,374,999         £ 96,000,000        
£ 17,500,000           50 %       1 Preferred Share      £ 1                  

 

Hogan Lovells

 

31

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

SCHEDULE 2

TARGET GROUP

PART A

Corporate Details of Target Company

 

Morgans Hotel Group Europe Limited

Name of shareholder(s)

  

Royalton Europe Holdings LLC

Walton MG London Hotels Investors V, L.L.C.

Registered number

   03203996

Legal form

   Private company, limited by shares

Date of incorporation

   28 May 1996

Registered office

   10 Norwich Street, London EC4A 1BD

Share capital

   The Target Company’s articles of association limit the maximum amount of
shares it may issue to, in aggregate, £5,000,000 divided into 2,499,999 A
ordinary shares of £1.00 each, 2,499,999 B ordinary shares of £1.00 each and 2
preferred ordinary shares of £1.00 each.

Issued share capital

(indicate to what extent it has been paid up)

   The Target Company has allotted and issued 2,499,999 A ordinary shares of
£1.00 each, 2,499,999 B ordinary shares of £1.00 each and 2 preferred ordinary
shares of £1.00 each, fully paid.

Loan capital

   None.

Accounting reference date

   31 December

Directors

  

Michael Jonathan Gross

Justin Lawrence Leonard

Jeffrey Scott Quicksilver

David Winston Smail

Company secretary

   Bibi Rahima MS Ally

Auditors

   BDO LLP, 55 Baker Street, London W1U 7EU

 

Hogan Lovells

 

32

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

PART B

Corporate Details of the Operating Company

 

Morgans Hotel Group London Limited

Name of shareholder(s)

   Morgans Hotel Group Europe Limited

Registered number

   03462675

Legal form

   Private company, limited by shares

Date of incorporation

   07 November 1997

Registered office

   10 Norwich Street, London EC4A 1BD

Share capital

   The Operating Company’s articles of association limit the maximum amount of
shares it may issue to, in aggregate, £100 divided into 100 ordinary shares of
£1.00 each.

Issued share capital

(indicate to what extent it has been paid up)

   The Operating Company has allotted and issued 25 ordinary shares of £1.00
each, fully paid.

Loan capital

   None.

Accounting reference date

   31 December

Directors

  

Michael Jonathan Gross

Justin Lawrence Leonard

Jeffrey Scott Quicksilver

David Winston Smail

Company secretary

   Bibi Rahima MS Ally

Auditors

   BDO LLP, 55 Baker Street, London W1U 7EU

 

Hogan Lovells

 

33

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

SCHEDULE 3

THE PROPERTY

PART A

Freehold Property

 

Address/description

   St Martin’s Lane Hotel, 42-49 St Martin’s Lane, 9A, 10 and 11 Hop Gardens, 12
to 19 Bedfordbury and 12-22 Mays Building, London WC2

Title Number and Class of Title

  

379553

Title absolute

Registered Proprietor

   Morgans Hotel Group London Limited

Use

   204 bed hotel and ancillary restaurant, conferencing and other areas
(comprising two bars, car parking (44 spaces), office lobbies and a gym)
Occupational interests to which the Property is subject, including leases,
tenancies, licences or related agreements.   

1)     Lease of restaurant and bars dated 10 November 1999 between the Operating
Company (1) and SC London Limited (2)

 

2)     Lease of transformer chamber dated 20 December 1999 between the Operating
Company (1) and London Electricity plc (2)

 

3)     Lease of telecommunications equipment on roof dated 20 February 2003
between the Operating Company (1) and Vodafone Limited (2)

 

4)     Lease of gym dated 14 November 2007 between the Operating Company (1) and
Sparring Partners Limited t/a Gymbox (2) and Richard Hilton (3)

 

Hogan Lovells

 

34

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

Part B

Leasehold Properties

 

Address/description

   Sanderson Hotel, 49-57 Berners Street, London W1

Registered proprietor if a Registered Lease

   Morgans Hotel Group London Limited

Title Number and Class of Title

  

NGL748048

Title absolute

Use

   150 bed hotel and ancillary restaurant, conferencing and other areas
(comprising a terrace, two bars, spa, gift shop, car parking (50 spaces),
offices and lobbies)

Date of Lease/Licence

   31 January 1997

Parties

   Mrs P A Allsopp, M E R Allsopp, W P Harriman and A W K Merriam (1) and
Burford (Covent Garden) Limited (2)

Current Tenant/Licensee and Guarantor (if any)

  

Morgans Hotel Group London Limited

No guarantor

Term (including expiry date)

   150 years from 1 January 1997 expiring on 31 December 2146

Options to break and renew

   None

Current rent

   £75,000 per annum

Next rent review date

   24 June 2017 Occupational interests (including subleases, tenancies, licences
or related agreements)   

1)     Lease of restaurant, bars and kitchen dated 18 April 2000 between the
Operating Company (1) and SC London Limited (2)

 

2)     Lease of Transformer Chamber dated 12 February 2001 between the Operating
Company (1) and London Electricity plc (2)

 

3)     Lease of Transformer Chamber dated 21 March 2001 between the Operating
Company (1) and London Electricity plc (2)

 

Hogan Lovells

 

35

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

Address/description

   Second floor 11 Wells Mews London W1

Registered proprietor if a Registered Lease

   Not applicable

Title Number and Class of Title

   Not applicable

Use

   Offices within Class B1 of the Schedule to the Town and Country Planning (Use
Classes) Order 1987

Date of Lease/Licence

   2 April 2007

Parties

   Leavesdon Holdings Limited (1) Morgans Hotel Group London Limited (2)

Current Tenant/Licensee and Guarantor (if any)

  

Morgans Hotel Group London Limited

No guarantor

Term (including expiry date)

   5 years from 2 April 2007 expiring 1 April 2012

Options to break and renew

   None

Current rent

   £27,250.00 per annum

Next rent review date

   Not applicable Occupational interests (including subleases, tenancies,
licences or related agreements)    Not applicable

 

Hogan Lovells

 

36

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

SCHEDULE 4

COMPLETION STATEMENT AND COMPLETION

Part A: General

 

1.

DEFINITIONS

In this schedule the following definitions apply:

“Accruals” means the monetary value of goods and services received by a Target
Group Company before the Completion Date which have not been paid for by that
Target Group Company as at the Relevant Time, including but not limited to,
wages, salaries, vacation pay, severance or redundancy pay arising on
terminations notified by any Target Group Company prior to the Relevant Time,
accrued Tax, pension scheme contribution accruals as at the Relevant Time, and
any amounts in respect of contractual bonuses for the period up to the Relevant
Time, together with Tax in respect thereof which will be apportioned on a
pro-rata basis. Accruals shall include, to the extent not paid pursuant to
paragraphs 1.3(e) and (f) of schedule 6, (i) any pre-payment fee or other costs
payable by the Operating Company on repayment of the facility provided by Aareal
Bank AG under the Facility Agreement; (ii) termination fees charged and costs on
the termination of the Swap Agreement with Aareal Bank AG; and (iii) accrued
interest due and payable up to and including the Completion Date under the
Facility Agreement;

“Accrued Income” means the monetary value of all goods and services provided by
any Target Group Company before the Relevant Time for which revenue has not been
received by that Target Group Company immediately prior to the Relevant Time;

“Buyer’s Accountants” means the accountants appointed by the Buyer prior to
Completion;

“Cash” means the amount in GBP Sterling which is the aggregate of the following
in relation to each Target Group Company:

 

  (a)

all deposits with any bank as at the Relevant Time; plus

 

  (b)

cleared cash balances with any bank as at the Relevant Time; plus

 

  (c)

cash in transit as at the Relevant Time receivable by each Target Group Company
and cheques received and paid into any bank account of each Target Group Company
on or before the Relevant Time and, in each case, which clear after the Relevant
Time; plus

 

  (d)

petty cash/cash in hand as at the Relevant Time; plus

 

  (e)

interest accrued to the Relevant Time; less

 

  (f)

cash in transit as at the Relevant Time paid by each Target Group Company and
cheques issued on or before the Relevant Time by each Target Group Company which
are to be cleared through the bank accounts of each Target Group Company after
the Relevant Time,

in each case as shown in the cash book of each Target Group Company and, for the
avoidance of doubt, any item falling within more than one of paragraphs (a) to
(f) above shall only be included once in the calculation of Cash.

 

Hogan Lovells

 

37

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

Cash will include the add back of an amount equal to 50 per cent. of any
pre-payment fee or any other costs in excess of £1,500,000 payable by the
Operating Company on repayment of the facility provided by Aareal Bank AG under
the Facility Agreement, up to a maximum of £750,000;

“Creditors” means the sum of all current liabilities of, or arising out of or
attributable to the operations of, the Target Group Companies as at the Relevant
Time including, without limitation, creditors, Accruals and Deferred Income, but
excluding, for the avoidance of doubt, deferred Tax liabilities and Long Term
Liabilities;

“Current Guest Accounts” means un-invoiced accounts of guests staying at any
Property as at Completion who are booked to remain at that Property after
Completion and un-invoiced or invoiced but unpaid accounts of corporate clients
in respect of guests who have stayed at any Property prior to Completion;

“Debtors” means all the book and other debts (including credit card payments in
process) owed to the Target Group and arising out of or attributable to the
operations of, all of the Target Group Companies as at the Relevant Time
including but not limited to Accrued Income, Prepayments, repayments of Tax and
the right to receive payment for services rendered but not invoiced before
Completion which shall include that portion of Current Guest Accounts relating
to the period prior to Completion but, for the avoidance of doubt, not including
deferred Tax assets;

“Deferred Income” means the aggregate of all payments received and unpaid
invoices issued by the Target Group Companies before the Relevant Time to the
extent that they relate to a service to be provided by any Target Group Company
after the Relevant Time;

“Dispute Notice” has the meaning given in paragraph 3.3 of this schedule 4;

“Expert” has the meaning given in paragraph 6;

“Inter-Group Payables” means the aggregate of all indebtedness due at Completion
from any Target Group Company to any Seller’s Retained Group Company including
any trading debt or liabilities arising in the ordinary course owed by any
Target Group Company to a Seller’s Retained Group Company as at close of
business on the Completion Date;

“Inter-Group Receivables” means the aggregate of all indebtedness due at
Completion from any Seller’s Retained Group Company to any Target Group Company,
including any trading debt or liabilities arising in the ordinary course owed by
any Seller’s Retained Group Company to any Target Group Company as at close of
business on the Completion Date;

“Long Term Liabilities” means the aggregate of all indebtedness due at
Completion from the Target Group Companies to third parties (other than the
Seller’s Retained Group Companies) which is classified as long term liabilities
in accordance with UK GAAP including any amounts owed pursuant to long term
obligations to banks (including mortgages). For the avoidance of doubt, Long
Term Liabilities shall include the amount (if any) equal to 50 per cent of any
pre-payment fee or any other costs, in excess of £1,500,000, payable by the
Operating Company (up to a maximum of £750,000) on the repayment of the facility
provided by Aareal Bank AG under the Facility Agreement and shall also include
any amounts payable to the Buyer in respect of any funds provided by the Buyer
to repay the facility provided by Aareal Bank AG under the Facility Agreement at
the Relevant Date;

 

Hogan Lovells

 

38

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

“Prepayments” means the aggregate of all prepayments made by the Target Group
Companies before or on the Relevant Time which relate to a supply to any such
company of goods and/or services the benefit of which is to be received after
the Relevant Time;

“Sellers’ Accountants” means BDO LLP of 55 Baker Street, London W1U 7EU; and

“Stock” means all items (excluding any stock relating to the F&B Leases) which
have prior to the date hereof been regarded as stock which are unused, owned
beneficially by any Target Group Company and held at any Property at Completion;

“UK GAAP” means UK generally accepted accounting practices, including the
requirements of the Companies Act 2006, Financial Reporting Standards,
Statements of Standard Accounting Practice and Urgent Issues Task Force
Abstracts in force at the Completion Date.

“Working Capital” means the sum, on an aggregated basis, representing the value
of Stock, Debtors, Inter-Group Receivables and Cash less Creditors, Inter-Group
Payables and Tax as at the Relevant Time as set out in the Final Completion
Statement. For the avoidance of doubt, Working Capital shall exclude any bank
indebtedness and any form of indebtedness due to the purchase of any fixed
asset.

 

2.

BASIS OF PREPARATION OF THE COMPLETION STATEMENT

 

2.1

The Completion Statement will be in the form set out in part B of this schedule,
prepared on the basis of the categorisations shown in the detailed working
capital pro forma in part C of this schedule.

 

2.2

The Completion Statement will be drawn up in accordance with the bases that
appear, and in the order shown below:

 

  (a)

the specific accounting policies set out in part D of this schedule;

 

  (b)

adopting the same accounting principles, policies, treatments and
categorisations as were used in the preparation of the Accounts, as there
applied, including in relation to the exercise of accounting discretion and
judgement;

 

  (c)

to the extent not covered by paragraphs 2.2(a) and/or 2.2(b) above, in
accordance with UK GAAP; and

 

  (d)

as if the Completion Date were the end of an accounting period for Tax purposes.

For the avoidance of doubt paragraph 2.2(a) shall take precedence over
paragraphs 2.2(b) and 2.2(c), and paragraph 2.2(b) shall take precedence over
2.2(c).

 

2.3

The Completion Statement will specify the Working Capital.

 

3.

PREPARATION OF THE COMPLETION STATEMENT

 

3.1

The Buyer must prepare, or must procure the preparation of, a draft Completion
Statement for each Target Group Company and, in aggregate the Target Group, and
must deliver it (in aggregate) (in accordance with clause 12 (Notices)) to the
Sellers and the Sellers’ Accountants within 45 Business Days of the Completion
Date.

 

3.2

The Sellers must procure that the Buyer and/or the Buyer’s Accountants are given
such assistance and access to information as may be reasonably requested by the
Buyer and/or the Buyer’s Accountants for the purposes of preparing the draft
Completion Statement within the period referred to in paragraph 3.1.

 

Hogan Lovells

 

39

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

3.3

The Sellers will have 20 Business Days (starting on the first Business Day after
delivery of the draft Completion Statement (“Objection Period”), to agree or
dispute the draft Completion Statement. If the Sellers dispute the draft
Completion Statement they must, within the Objection Period, serve on the Buyer
a notice to that effect setting out, in reasonable detail, each area in dispute,
the reasons why the treatment does not comply with the requirements of this
Agreement, and quantifying, where possible, the adjustments that it considers
should be made (“Dispute Notice”).

 

3.4

The Buyer must procure (to the extent it can do so, having made all reasonable
efforts to do so) that the Sellers and/or the Sellers’ Accountants are given
such assistance and access to information as may be reasonably requested by the
Sellers and/or the Sellers’ Accountants for the purposes of determining, within
the Objection Period, whether the draft Completion Statement has been properly
prepared.

 

3.5

If the Sellers have not delivered a Dispute Notice to the Buyer during the
Objection Period or if, before expiry of the Objection Period, the Sellers
serves written notice on the Buyer that they agree the draft Completion
Statement (an “Acceptance Notice”), the draft Completion Statement will be final
and binding on the Buyer and the Sellers on the earlier of:

 

  (a)

the expiry of the Objection Period; or

 

  (b)

the date of delivery of the Acceptance Notice.

 

3.6

The costs of preparing the Completion Statement will be borne by the Buyer, and
the Sellers will bear the costs of its review of it. Unless otherwise directed
by the Expert under paragraph 4, each party will bear all other costs incurred
by them in connection with this schedule.

 

3.7

If the Sellers serve a Dispute Notice, the Buyer and the Sellers must use their
reasonable endeavours in conjunction with the Buyer’s Accountants and the
Sellers’ Accountants to reach agreement as to the matter or matters in dispute
within 20 Business Days of the date of delivery of such Dispute Notice
(“Resolution Period”). All items other than those included in the Dispute Notice
will be deemed to be agreed.

 

3.8

If, before the expiry of the Resolution Period, agreement is reached between the
Buyer and the Sellers as to all matters in dispute, the Buyer must, within 5
Business Days of such agreement being reached, deliver or procure the delivery
(in either case in accordance with clause 12 (Notices)) to the Sellers of a
revised Completion Statement incorporating such adjustments as have been agreed.
The revised Completion Statement will be final and binding on the Buyer and the
Sellers from the date of its delivery to the Sellers.

 

4.

STOCK TAKE

 

4.1

The Buyer and the Sellers must procure that:

 

  (a)

the Stock of each Target Group Company will be counted on the Completion Date;

 

  (b)

the Stock count will be attended by representatives of the Sellers and the
Buyer; and

 

  (c)

an agreed Stock sheet (detailing Stock quantities but not values) will be signed
by those representatives at the conclusion of the count.

 

4.2

Such stocktaking will consist of a physical check of the quantities, quality and
condition of all such Stock in each Target Group Company’s ownership or control
and an inspection of

 

Hogan Lovells

 

40

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

 

the books and records and any associated contractual documentation in respect of
that Stock together with confirmation from any other persons having physical
possession of such Stock of the extent, if any, of any encumbrance or interest
claimed.

 

4.3

When such stocktaking has been completed, the Stock will be valued for the
purpose of the Completion Statement in accordance with part A of schedule 4,
paragraph 2.

 

5.

REFERENCE TO EXPERT

 

5.1

The Expert is a person appointed in accordance with this paragraph 5 to resolve
a dispute arising under paragraph 3.

 

5.2

In respect of any matters included in the Dispute Notice on which no agreement
is reached within the Resolution Period, such matters will be referred, on the
application of either the Buyer or the Sellers to the Expert for determination.

 

5.3

The Buyer and the Sellers will agree on the appointment of an independent expert
to act as the Expert.

 

5.4

If the Buyer and the Sellers are unable to agree on an Expert within 10 Business
Days of either of them serving details of a suggested expert on the other,
either the Buyer or the Sellers may request the president for the time being of
the Institute of Chartered Accountants in England and Wales to appoint an
accountant of repute and with relevant experience as the Expert.

 

5.5

The Buyer and the Sellers must co-operate with each other and must take all
reasonable action as is necessary to ensure that the terms of appointment of the
Expert will enable the Expert to give effect to and act in accordance with the
provisions of this paragraph 5.

 

5.6

The Buyer and the Sellers are each entitled to make at least one written
submission to the Expert and to reply once in writing to the other party’s
submission and must provide (or procure that others provide) the Expert with
such assistance and documents as the Expert reasonably requires for the purpose
of reaching a decision.

 

5.7

The Expert will prepare a written decision and give notice (including a copy) of
the decision to the Buyer and the Sellers within a maximum of 2 months of the
matter being referred to him (or such other period as the Buyer and the Seller
may agree in writing with the Expert).

 

5.8

Within 5 Business Days of the Expert’s decision, the Buyer must deliver or
procure the delivery (in either case in accordance with clause 12 (Notices)) to
the Sellers of a revised Completion Statement incorporating such adjustments as
have been determined by the Expert. The revised Completion Statement will be
final and binding on the Buyer and the Sellers from the date of its delivery to
the Sellers.

 

5.9

If the Expert is unable for whatever reason to act, or does not deliver the
decision within the time required by paragraph 5.7 the Buyer and the Sellers
will ensure that a replacement expert is appointed in accordance with the
provisions of paragraph 5.4.

 

5.10

All matters under this paragraph 5 will be conducted, and the Expert’s decision
will be written, in the English language.

 

5.11

To the extent not provided for by this paragraph 5, the Expert may, in his
reasonable discretion, determine such other procedures to assist with the
conduct of the determination as he considers just or appropriate, including (to
the extent he considers necessary) instructing professional advisers to assist
him in reaching his determination.

 

Hogan Lovells

 

41

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

5.12

The Buyer and the Sellers must, with reasonable promptness, supply all
information and provide access to all documentation and personnel as each other
may reasonably require to make a submission under this paragraph 5.

 

5.13

The Buyer and the Sellers will promptly take all such reasonable action which is
necessary to give to give effect to the terms of this paragraph 5.

 

5.14

The Expert will act as an expert and not as an arbitrator. The Expert will
determine any dispute arising in connection the provisions of paragraph 3, his
jurisdiction to determine the matters and issues referred to him or his terms of
reference. The Expert’s written decision on the matters referred to him will be
final and binding in the absence of manifest error (in which case the Expert’s
written decision will be returned to the Expert for correction) or fraud.

 

5.15

The Buyer and the Sellers will bear their own costs in relation to the Expert.
The Expert’s fees and any costs properly incurred by him in arriving at his
determination (including any fees and costs of any advisers appointed by the
Expert) will be borne equally by the Buyer on the one hand, and the Sellers on
the other, or in such other proportions as the Expert directs.

 

Hogan Lovells

 

42

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

Part B: Format of Completion Statement

 

    

Morgans Hotel

Group London

Limited Balance

Sheet (see Part C)

£

   Morgans Hotel
Group Europe
Limited Balance
Sheet (see Part C)
£    Combined Working
Capital Statement
£

Current Assets

        

Debtors

        

Stock

        

Inter-Group Receivables

        

Cash

        

Total A

        

Current Liabilities

        

Creditors

        

Inter-Group Payables

        

Provisions

        

Tax

        

Total B

        

Working Capital A-B

        

(Note: the line items within this pro forma should be obtained from the detailed
working capital pro forma set out in part C of this schedule 4.)

 

Hogan Lovells

 

43

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

Part C: Detailed Working Capital Pro Forma

Morgans Hotel Group Europe Limited

 

September 30,

Description

     Category  

Intercompany debtors

      
  Inter-Group
Receivables   
  

Cash

       Cash   

COMBINED Sanderson and St Martin’s Lane Balance Sheets for Morgans Hotel Group
London Limited

 

Account Code

  

Description

   Category Assets            Pre-payment fee or other costs payable by the
Operating Company on
repayment of the facility provided by Aareal Bank AG under the Facility
Agreement    Creditors      Add back of 50 per cent. of any pre-payment fee or
any other costs in excess
of £1,500,000 payable by the Operating Company on repayment of the facility
provided by Aareal Bank AG under the Facility Agreement, up to a maximum
of £750,000    Cash      Termination fees charged and costs on the termination
of the Swap
Agreement with Aareal Bank AG    Creditors 82100    Cash (House Funds)    Cash
82210    Operating Bank Account #1    Cash 82211    Operating Bank Account #2   
Cash 82220    Payroll Bank Account #1    Cash 82230    Travel Agent Commission
Bank A    Cash 82240    Other Bank Account #1    Cash 82250    Other Bank
Account #2    Cash 82260    Other Bank Account #3    Cash 82261    Other Bank
Account #4    Cash 82262    Other Bank Account #5    Cash 82270    Other Bank
Account #9    Cash 82280    Other Bank Account #14    Cash 82290    Other Bank
Account #19    Cash 82310    Clearing Account #1    Cash 82315    Clearing
Account #2    Cash 82320    Clearing Account #3    Cash 82330    Clearing
Account #4    Cash 82340    Clearing Account #5    Cash 82350    Clearing
Account #6    Cash

 

Hogan Lovells

 

44

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

Account Code

  

Description

   Category 82360    Clearing Account #8    Cash 82370    Clearing Account #9   
Cash 82380    Clearing Account #10    Cash 82390    Clearing Account #11    Cash
82399    Clearing Account #13    Cash 82400    Clearing Account #14    Cash
82410    Clearing Account #17    Cash 82430    Clearing Account #21    Cash
82440    Clearing Account #22    Cash 82450    Clearing Account #24    Cash
82460    Clearing Account #25    Cash 82480    Clearing Account #27    Cash
82490    Clearing Account #28    Cash 83110    City Ledger    Debtor 83120   
Guest Ledger    Debtor 83130    American Express    Debtor 83140    Diners Club
   Debtor 83150    Discover    Debtor 83160    Jcb    Debtor 83170   
Visa/Mastercard    Debtor 83175    Other Credit Card    Debtor 83180    Returned
Cheques / Credit Card    Debtor 83182    Suspense/Pending/Transit Check /Cc   
Debtor 83190    A/R - Intercompany #2    Inter-Group Receivables 83191    A/R -
Intracompany #1    Debtor 83200    Wage Advances    Debtor 83210    Travel
Advances    Debtor 83215    Flex Benefit    Debtor 83220    Employee Advances   
Debtor 83225    Staff Purchase    Debtor 83230    Child Care Vouchers    Debtor
83400    A/R Other #1    Debtor 83450    A/R Other #2    Debtor 83500    A/R
Other #3    Debtor 83600    VAT - INPUT TAX @ 17.5%    Tax 83650    Vat - Input
Tax @ 20%    Tax 83700    Allowance For Bad Debts    Debtor 83900    Ar Other #7
   Debtor 84001    Inventory Food    Stock 84003    Guest Supplies Inventory   
Stock 84005    Inventory Beverage    Stock 84010    Inventory Guest Supply   
Stock 84015    Inventory Cleaning Supply    Stock 84016    Spa Professional   
Stock 84017    Spa Retail    Stock 84020    Inventory -Minibar Food    Stock
84021    Inventory -Minibar Beverage    Stock

 

Hogan Lovells

 

45

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

Account Code

  

Description

   Category 84022    Inventory -Minibar Merchandise    Stock 84023    Inventory
-Minibar Agua    Stock 84025    Inventory China    Stock 84030    Inventory
Glass - Rooms    Stock 84045    Inventory Linen - Rooms    Stock 84050   
Inventory Linen    Stock 84055    Inventory Uniforms    Stock 84100    Clothing
Inventory Cost    Stock 84101    Clothing Inventory Retail    Stock 84102   
Room Service Liquor    Stock 84103    Room Service Wine    Stock 84110   
Jewelry Inv Loss    Stock 84111    Bqt Liquor    Stock 84112    Bqt Wine   
Stock 84120    Gifts & Souvenir Inv Cost    Stock 84121    Gifts & Royalty Inv
Retail    Stock 84122    Gifts & Souv Retail Clrg    Stock 84130    Accessories
Inv Cost    Stock 84131    Accessories Inv Retail    Stock 84132    Accessories
Inv Retl Clrg    Stock 84140    Tobacco Inv Cost    Stock 84141    Tobacco
Inventory Retail    Stock 84142    Tobacco Invent Retail Cle    Stock 84150   
Sundries Inventory Cost    Stock 84151    Sundries Inventory Retail    Stock
84152    Sundries Invent Retail Cl    Stock 84160    Periodicals/Books Inventory
Co    Stock 84161    Periodicals/Books Inventory Re    Stock 84162   
Periodicals/Books In.Retail Cl    Stock 84170    Videos Inventory    Stock 84180
   MAGAZINES INVENTORY CO    Stock 84183    MAGAZINES INVENT MARKD    Stock
84190    BOOKS INVENTORY CO    Stock 85010    Prepaid Other    Debtor 85020   
Prepaid Prop Insurance    Debtor 85030    Prepaid Real Estate Tax    Debtor
85500    Deposits    Debtor 85510    Deposits On Purchases    Debtor 85520   
Deposits - Lease    Debtor 85530    Deposits Due/Security Dep    Debtor 85700   
Suspense Account - Barter Agre    Debtor 86100    Land    86200    Building   
86201    Building - Leased    86202    Building Improvement    86300   
Construction In Progress    86400    Furniture & Fixtures    86410    Ff&E -
Plant & Equipment    86420    Ff&E - Vehicles   

 

Hogan Lovells

 

46

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

Account Code

  

Description

   Category 86430    Ff&E - Operating Equipment    86440    Ff&E - Small
Operating Equipme    86450    Ff&E - Systems    86460    Ff&E -
Fixtures/Fittings    86470    Ff&E - Computer Hardware    86480    Ff&E -
Computer Software    86490    Ff&E - Minibar / Safes    86500    Ff&E - Disposal
   87200    Depreciation-Building    87250    Depreciation -Bldg Improvement   
87300    Depreciation-Construction In P    87400    Depreciation-Ff&E    87410
   Depreciation-Ff&E - Plant & Eq    87420    Depreciation-Ff&E - Vehicles   
87430    Depreciation-Ff&E - Operating    87440    Depreciation-Ff&E - Small
Oper    87450    Depreciation-Ff&E - Systems    87460    Depreciation-Ff&E -
Fixtures/F    87470    Depreciation-Ff&E - Computer H    87480   
Depreciation-Ff&E - Computer S    87490    Depreciation-Ff&E - Minibar /   
87500    Depreciation-Ff&E - Disposal    88100    Accum Amort - Def Fin Ex   
88200    Accum Amort - Startup Cos    89005    Other Deferred Costs    89050   
Startup Costs    89100    Deferred Finance Interest Cap    89102    Ff&E Reserve
   89110    Restricted Cash -Ff&E Reserve    89112    Restricted Cash -Other   
89650    Working Capital Rec’Ble    Liabilities       91200    Banks & Others   
91300    Financing #1    91310    Financing #2    91400    Loans #1    91410   
Loans #2    92100    Accounts Payable Trade    Creditors 92200    Accounts
Payable Other    Creditors 92210    A/P Intercompany Payable   
Inter-Group Payables 92250    Control - Inventory Beverage    92281   
Concession #1    Creditors 92282    Concession #2    Creditors 92283   
Concession #3    Creditors 92284    Concession #4    Creditors 92285   
Concession #5    Creditors 92286    Concession #6    Creditors 92287   
Concession #7    Creditors

 

Hogan Lovells

 

47

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

Account Code

  

Description

   Category 92288    Concession #8    Creditors 92290    Charitable
Contributions    Creditors 92300    Management Fees    Creditors 92500   
Payroll Tax Payable    Tax 92520    Income Tax Payable    Tax 92525    Social
Security Tax Payable    Tax 92526    N.I. Er’S - Psa    Creditors 92527   
National Insurance Employees    Creditors 92610    Vat Tax    Tax 92640    Vat
On Deposit    Tax 92650    Vat Consolidated    Tax 92700    Group Personal
Pension    Creditors 92710    Group Health Insurance    Creditors 92720    Group
Life Insurance    Creditors 92725    Net Pay Control    Creditors 92730   
Unclaimed Wages    Creditors 92735    Unclaimed Check    Creditors 92740   
Unclaimed Property    Creditors 92741    State Sales Tax Payable    Tax 92743   
VAT - OUTPUT TAX @ 17.5%    Tax 92746    Corporation Tax Provision    Tax 92748
   Corporation Tax Provision F&B    Tax 92760    Advance Deposits    Creditors
92761    Wireless Internet Deposit    Creditors 92765    A/R Credit Balance
Refund    Creditors 92770    Gift Certificates Unredeemed    Creditors 92775   
Deferred Income Memberships    Creditors 92780    Deferred Income    Creditors
92810    Gratuity/Svc Chg #1    Creditors 92820    Gratuity/Svc Chg #2   
Creditors 92830    Gratuity/Svc Chg #3    Creditors 92840    Gratuity/Svc Chg #4
   Creditors 93010    Accrued Accounting Fees    Creditors 93015    Accrued Room
Charge    Creditors 93020    Accrued Advertising Media    Creditors 93030   
Accrued Audit Fees    Creditors 93050    Accrued Cc Commission    Creditors
93070    Accrued Construction Fee    Creditors 93080    Accrued Direct Mail   
Creditors 93090    Accrued Electricity    Creditors 93100    Accrued Ff&E   
Creditors 93110    Accrued Gas    Creditors 93120    Accrued Interest   
Creditors 93140    Accrued Legal Fees    Creditors 93150    Accrued
Miscellaneous    Creditors 93155    Accrued Other    Creditors 93160    Accrued
Liability Claims    Creditors 93190    Accrued Incentive Bonus    Creditors

 

Hogan Lovells

 

48

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

Account Code

  

Description

   Category 93192    Accrued N.I On Bonus    Creditors 93200    Accrued Payroll
Taxes    Creditors 93210    Accrued Promotion General    Creditors 93230   
Accrued Rooms Dept Exp    Creditors 93240    Accrued Salaries & Wages   
Creditors 93260    Accrued Telephone    Creditors 93280    Accrued Vacation   
Creditors 93900    Accrued Water & Sewage    Creditors 93950    Accrued Travel
Agent Fee    Creditors 95120    Long Term Debt - Loan #3    95130    Long Term
Debt - Loan #4    95700    Barter Payable    98010    Retained Earnings Prior
Years    98014    Contributions From Owner    98017    Intra Company Cash
Transfers    98051    Other Comprehensive INcome   

 

Hogan Lovells

 

49

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

Part D: Accounting Policies to be adopted in the Final Completion Statement

 

1.

SPECIFIC ACCOUNTING POLICIES

 

1.1

In preparing the Completion Statement, no provision shall be made for contingent
liabilities or for dilapidations.

 

1.2

In preparing the Completion Statement no account shall be taken of any
information that only becomes available after the draft Completion Statement is
delivered by the Buyer to the Sellers.

 

1.3

Save to the extent this Agreement expressly provides otherwise, the Final
Completion Statement will exclude any effects of the change of control or
ownership of the Target Group contemplated by this Agreement.

 

1.4

No item shall be included more than once in the Final Completion Statement and
no level of materiality shall be applied.

 

1.5

The Final Completion Statement shall be prepared in GBP Sterling. Assets and
liabilities in the Final Completion Statement denominated in a currency other
than GBP Sterling shall be converted into GBP Sterling at the mid-point recorded
in the London Edition of the Financial Times published on the last Business Day
immediately preceding Completion.

 

1.6

An amount equal to 50 per cent of any pre-payment fee, or any other costs, in
excess of £1,500,000 payable by the Operating Company on the repayment of the
facility provided by Aareal Bank AG under the Facility Agreement, shall be added
back into the Working Capital up to a maximum of £750,000.

 

1.7

Working Capital shall not include any amounts payable to the Buyer in respect of
any funds provided by the Buyer to repay the facility provided by Aareal Bank AG
under the Facility Agreement at the Relevant Date.

 

2.

CURRENT LIABILITIES

 

2.1

Tax

All corporation tax payable and recoverable by the Target Group in respect of
the period up to the Relevant Time.

 

2.2

Deferred Tax

No deferred Tax assets or liabilities shall be recognised in the Final
Completion Statement.

 

Hogan Lovells

 

50

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

SCHEDULE 5

PRE-COMPLETION MATTERS

 

1.

CONTINUATION OF BUSINESS IN THE NORMAL COURSE

The business of the Target Group must be operated in all material respects in
the normal and usual way, but subject to the restrictions on capital expenditure
as set out in paragraph 2.1(g)(v) of this schedule 5.

 

2.

MATTERS REQUIRING BUYER’S PERMISSION

 

2.1

No Target Company may do or agree to do the following unless the Buyer gives its
prior permission to the Sellers:

Ownership and control of Target Group Companies

 

  (a)

modifying any rights attached to any shares in a Target Group Company;

 

  (b)

creating, or issuing, or granting a right to acquire (either by transfer or
subscription), shares in the capital of a Target Group Company, or issuing
securities giving a right over any shares in the capital of a Target Group
Company;

 

  (c)

capitalising or repaying an amount standing to the credit of a reserve of a
Target Group Company or redeeming or purchasing shares in the capital of a
Target Group Company or otherwise reorganising the share capital of a Target
Group Company;

 

  (d)

admitting a person as a member of a Target Group Company or transferring, or
approving the transfer of, shares in a Target Group Company;

 

  (e)

creating an Encumbrance over any shares or uncalled capital of the Target
Company;

Corporate actions of Target Group Companies

 

  (f)

the members of a Target Group Company passing a shareholders’ resolution;

Financial matters

 

  (g)

a Target Group Company:

 

  (i)

declaring, paying or making a dividend or other distribution;

 

  (ii)

giving a guarantee or indemnity in respect of a third party’s obligation or
liability (other than a guarantee or indemnity in respect of another Target
Group Company’s obligation or liability);

 

  (iii)

borrowing money or accepting a financial facility (other than normal trade
credit), or amending the terms on which a loan or other financial facility
(other than normal trade credit) is made available to it;

 

  (iv)

creating or issuing debt securities, or granting a right to acquire debt
securities;

 

  (v)

making a capital expenditure or capital commitment which individually exceeds
£10,000, or which when added with every other capital expenditure or capital
commitment made by the Target Company since the date of this Agreement means
that total capital expenditure or capital commitments made by the Target Company
between the date of this Agreement and Completion exceed £50,000;

 

Hogan Lovells

 

51

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

Assets

 

  (h)

a Target Group Company:

 

  (i)

acquiring shares or securities issued by another company other than a holding of
three per cent or less; or

 

  (ii)

selling or disposing of, or granting a right to acquire, an asset of a Target
Group Company with a book value in excess of £35,000, other than stock in the
normal and usual course of its business;

 

  (iii)

other than in the normal operation of business, creating an Encumbrance over any
asset of a Target Group Company;

Contracts

 

  (i)

a Target Group Company:

 

  (i)

entering into a contract, transaction or arrangement of a kind referred to in
paragraphs 11.2(a) to (g) of part A of schedule 7; or

 

  (ii)

terminating, or materially amending or varying, a contract, transaction or
arrangement to which the Target Group Company is a party and which (before or
after such an amendment or variation) is of a kind referred to in paragraphs
11.2(a) to (g) of part A of schedule 7;

Employment matters

 

  (j)

appointing a person as a director of a Target Group Company;

 

  (k)

employing, dismissing or changing the remuneration or terms of employment or
engagement of a director or Key Employee of a Target Group Company, other than
increases in remuneration in line with normal annual increases;

 

  (l)

changing the material terms of the employment of the employees engaged by the
Target Company or the Operating Company other than increases in remuneration in
line with normal annual increases.

Disputes

 

  (m)

a Target Group Company starting court or arbitration proceedings, except that a
Target Group Company may, without the Buyer’s permission start routine civil
proceedings for the recovery of trade debts that arise in the normal operation
of its business.

Property

 

  (n)

disposing of a Target Group Company’s interest in a Property or entering into
any agreement to do so or entering into any agreement for lease of or licence to
occupy any part of a Property.

 

Hogan Lovells

 

52

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

2.2

Relationship between paragraph 1 and paragraph 2.1 of this schedule

Paragraph 2.1 takes priority over paragraph 1 if there is a conflict between the
provisions.

 

2.3

Permitted exceptions

Neither paragraph 1 nor paragraph 2 prevents or restricts the Sellers or the
Target Company from:

 

  (a)

completing or performing an obligation under a contract or arrangement entered
into by a Seller’s Group Company before the date of this Agreement; or

 

  (b)

taking or omitting to take any action:

 

  (i)

at the Buyer’s request; or

 

  (ii)

in order to comply with a legal or regulatory requirement or

 

  (c)

taking any action required under this Agreement for the purposes of Completion.

 

3.

ACCESS TO TARGET COMPANY

The Sellers must ensure that the Buyer and its representatives and advisers are
permitted access on reasonable prior notice during normal business hours to
designated representatives of the Target Company and to the Properties.

 

Hogan Lovells

 

53

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

SCHEDULE 6

COMPLETION OBLIGATIONS

 

1.

SELLERS’ OBLIGATIONS

 

1.1

The Sellers must ensure that the following items are delivered to the Buyer:

 

  (a)

instruments of transfer of all the Sale Shares properly executed by the Sellers
in favour of the Buyer (or any other person that the Buyer nominates for the
purpose) together with the share certificates relating to the Sale Shares;

 

  (b)

the common seal (if any), certificate of incorporation, certificates of
incorporation on change of name (if any) and statutory registers (written up to
the date of Completion) and minutes books relating to each of the Target Group
Companies;

 

  (c)

written resignations (expressed to take effect from the end of the board meeting
of each of the Target Group Companies referred to in paragraphs 1.2 and 1.3 of
all the directors and the secretary of each of the Target Group Companies,
resigning from their respective offices and employments, in each case executed
as deeds in the agreed form;

 

  (d)

irrevocable powers of attorney in the agreed form executed by each of the
Sellers in favour of the Buyer to enable the Buyer to exercise all voting and
other rights attaching to the Sale Shares pending registration of the transfers
to the Buyer or its nominee;

 

  (e)

evidence satisfactory to the Buyer of the capacity and authority of each person
executing a document referred to in this schedule on behalf of any Seller;

 

  (f)

the Title Deeds;

 

  (g)

New Sanderson Management Agreement duly executed by Morgans Hotel Group UK
Management Limited and the Operating Company;

 

  (h)

New St. Martins Lane Management Agreement duly executed by Morgans Hotel Group
UK Management Limited and the Operating Company;

 

  (i)

deed of termination in the agreed form in respect of each of the Management
Agreements duly executed by the parties thereto;

 

  (j)

F&B Lease Regularisation Agreement, duly executed by SC London Limited and the
Operating Company;

 

  (k)

Evidence of the transfer by the Target Company of the entire issued share
capital of Newco London City Limited to Morgans Hotel Group UK Management
Limited;

 

  (l)

the deed of termination in the agreed form in respect of the joint venture
agreement made between the Sellers in respect of the Target Group Companies;

 

  (m)

a deed of release in the agreed form in respect of (i) the Facility Agreement
and any Permitted Encumbrances; and (ii) a deed of release in the agreed form
and DS1 in the agreed form in respect of each security granted in connection
with the Facility Agreement; and

 

  (n)

written confirmation that all intragroup indebtedness, either between the Target
Company and the Operating Company or either of them and the Sellers has been
repaid, waived or cancelled.

 

Hogan Lovells

 

54

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

1.2

The Sellers shall ensure that a board meeting of the Target Company is properly
convened and held at Completion, at which the board:

 

  (a)

approves for registration the transfers of the Sale Shares (subject only to the
transfers being duly stamped by and at the cost of the Buyer);

 

  (b)

accepts the resignations of all the directors and the secretary of the Target
Company, so that the resignations take effect from the end of the meeting;

 

  (c)

appoints the persons nominated by the Buyer as directors and secretary of the
Target Company with effect from the end of the meeting (within the maximum
number, if any, permitted under the Target Company’s articles of association);

 

  (d)

approves the change of the registered office of the Target Company to c/o
Lawrence Graham LLP, 4 More London, London SE1 2AU; and

 

  (e)

makes the changes to the signatories to the Target Company’s bank mandates as is
required by the Buyer.

 

1.3

The Sellers shall ensure that a board meeting of the Operating Company is
properly convened and held at Completion, at which the board of the Operating
Company:

 

  (a)

accepts the resignations of all directors and the secretary of the Operating
Company, so that the resignations take effect from the end of the meeting;

 

  (b)

appoints the persons nominated by the Buyer as directors and secretary of the
Operating Company with effect from the end of the meeting (within the maximum
number, if any, permitted under the Company’s articles of association);

 

  (c)

approves the change of the registered office of the Operating Company to c/o
Lawrence Graham LLP, 4 More London, London SE1 2AU;

 

  (d)

makes the changes to the Operating Company’s bank mandates as is required by the
Buyer (save for the accounts operated by the Operator (as defined therein))
pursuant to each of the New Management Agreements;

 

  (e)

subject to receipt of funds in accordance with paragraph 2.2(a) of this schedule
6, agrees to and does repay the amount of the facility provided under the
Facility Agreement together with any interest accrued in connection to it and
any fees or other costs at repayment including any pre-payment fee or other
costs associated with pre-payment; and

 

  (f)

approves and pays any pre-payment fee or any other costs payable by the
Operating Company and any fees and costs incurred in relation to the closing of
the Swap Agreement

 

1.4

The Sellers shall use their reasonable endeavours to procure that warranties
from the manufacturers and contractors in connection with the supply and
installation of the air conditioning works carried out at the St Martin’s Lane
Hotel (being one of the Properties) be delivered to the Buyer.

 

2.

BUYER’S OBLIGATIONS

 

2.1

On Completion, the Buyer must ensure that there is delivered to the Sellers:

 

  (a)

evidence satisfactory to the Sellers of the capacity and authority of each
person executing a document referred to in this schedule on the Buyer’s behalf;
and

 

Hogan Lovells

 

55

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

  (b)

evidence in a form satisfactory to the Sellers, acting reasonably, of the terms
of the repayment of the facility provided by Aareal Bank AG pursuant to the
Facility Agreement, including in particular the agreed position in respect of
the early repayment fee, signed for and on behalf of Aareal Bank AG.

 

2.2

On Completion the Buyer must:

 

  (a)

procure the Operating Company is put in funds by way of loan for £99,250,000,
being the principal amount required to be repaid under the Facility Agreement
(for the avoidance of doubt, any accrued interest on the principal amount, up to
and including the Completion Date, prepayment fees, or costs, associated with
closing the Swap Agreement shall be borne by the Operating Company and reflected
in the Completion Statement); and

 

  (b)

pay the amount of the Initial Consideration plus the Estimated Working Capital,
less (i) the Deposit (to the extent paid in accordance with clause 3.2) and
(ii) the amount of interest (if any) paid on the Deposit prior to the Completion
Date, into the account of the Sellers’ Solicitors by electronic transfer of
funds for same day value on account of the Purchase Price.

 

2.3

At Completion the Buyer shall to deliver either the non-disturbance agreement in
the agreed form signed by Aareal Bank AG or, in the event that the facility
provided by Aareal Bank AG is replaced by a facility provided by another lender
at Completion, a non-disturbance agreement signed by such other mortgagee,
trustee, lender, holder or ground lessor under a security agreement as the Buyer
may obtain financing from in each case in satisfaction of the obligation to
deliver a non-disturbance agreement under each of the New Management Agreements.

 

Hogan Lovells

 

56

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

SCHEDULE 7

SELLERS’ WARRANTIES

PART A—SELLERS’ SIGNING WARRANTIES

THE SELLER

 

1.

ENFORCEABILITY OF TRANSACTION DOCUMENTS

 

1.1

Capacity and authority

The Seller:

 

  (a)

has the right, power and authority to enter into and perform its obligations
under each Transaction Document to be entered into by it on or after the date of
this Agreement; and

 

  (b)

has taken all necessary corporate or other action to authorise the execution of,
and performance by it of its obligations under each Transaction Document.

 

1.2

Binding obligation

Each Transaction Document entered into by the Seller on the date of this
Agreement constitutes obligations binding on the Seller.

 

1.3

No approvals

No approval, waiver, registration, consultation or notification is required to
be obtained or made by the Seller in connection with the execution, performance
or enforceability of a Transaction Document entered into or to be entered into
by the Seller.

 

1.4

No breach

Neither the execution (and in the case of a deed, delivery) by the Seller of a
Transaction Document nor the performance by the Seller of any of its obligations
under a Transaction Document will violate or conflict with:

 

  (a)

a provision in the constitutional documents of the Seller;

 

  (b)

a provision in an agreement or instrument which is binding on the Seller;

 

  (c)

an order or judgement of a court, tribunal or governmental or regulatory body
(of the United Kingdom or elsewhere) which is binding on the Seller; or

 

  (d)

the laws of its country of incorporation.

 

1.5

Winding up, insolvency, etc

No resolution has been passed in relation to the Seller, and, so far as the
Seller is aware, no:

 

  (a)

step has been taken in relation to the Seller; or

 

  (b)

legal proceedings have been started, or threatened, against the Seller,

for its winding-up or dissolution, or for the appointment of a liquidator,
receiver, administrator, administrative receiver or similar officer over any or
all of its assets.

 

Hogan Lovells

 

57

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

CORPORATE AND CONSTITUTIONAL MATTERS AFFECTING THE TARGET GROUP

 

2.

SHARE CAPITAL AND CONSTITUTION OF THE TARGET GROUP

 

2.1

Due incorporation

Each Target Group Company is properly incorporated and validly existing under
the laws of England.

 

2.2

Share capital

 

  (a)

The Sale Shares comprise the whole of the allotted and issued share capital of
the Target Company.

 

  (b)

Each of the allotted and issued shares in the capital of the Operating Company
is solely legally and beneficially owned by the Target Company.

 

  (c)

Each of the allotted and issued shares in the capital of the Operating Company
is fully paid or is credited as fully paid.

 

2.3

Seller is the sole legal and beneficial owner of the Sale Shares

 

  (a)

the Sale Shares set opposite its name in column 2 of schedule 1 are fully paid
or are credited as fully paid; and

 

  (b)

it is the legal and beneficial owner of the Sale Shares set opposite its name in
column 2 of schedule 1.

 

2.4

No Encumbrance

 

  (a)

No person has an Encumbrance over any of the Sale Shares and no Seller’s Group
Company has agreed to create an Encumbrance over any of the Sale Shares.

 

  (b)

Except for the Permitted Encumbrance, no person has an Encumbrance over any of
the allotted and issued shares of the Operating Company and no Seller’s Group
Company has agreed to create an Encumbrance over any of the allotted and issued
shares of the Operating Company or any future shares in the capital of any
Target Group Company.

 

2.5

No other right over share capital

 

  (a)

No person has the right to require the allotment, issue, transfer, conversion or
redemption of any share or loan capital of any Target Group Company; and

 

  (b)

No Seller’s Group Company has agreed to create any right of the kind mentioned
in paragraph 2.5(a).

 

2.6

Constitutional documents

 

  (a)

The copy of the articles of association of each Target Group Company that is
annexed to the Disclosure Letter is up to date, true and complete.

 

  (b)

All statutory books and registers of the Target Group Companies have been
properly kept and no notice or allegation that any of them is incorrect or
should be rectified has been received.

 

  (c)

All returns, particulars, resolutions and other documents that the Target Group
Companies are required by law to file with or deliver to any authority in any
jurisdiction (including, in particular, the Registrar of Companies in England
and Wales) have been correctly made up and filed or, as the case may be,
delivered.

 

Hogan Lovells

 

58

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

2.7

The Target Group

Neither the Target Company nor the Operating Company:

 

  (a)

has, outside its country of incorporation, any branch or permanent
establishment; or

 

  (b)

has allotted or issued any securities that are convertible into shares.

 

3.

OTHER INVESTMENTS AND ASSOCIATED BUSINESSES

 

3.1

No other shares or securities owned

The Target Company is not the legal or beneficial owner of any shares or
securities issued by any person (whether incorporated in the United Kingdom or
not) and is not obliged to acquire any shares or other securities in any person
other than the Operating Company.

 

3.2

No joint ventures, partnerships, etc

The Target Company is not and has not agreed to become a member of a joint
venture, consortium, partnership or other unincorporated association.

 

4.

WINDING-UP, INSOLVENCY, ETC.

No resolution has been passed in relation to the Target Company, and, so far as
the Seller is aware, no:

 

  (a)

step has been taken in relation to the Target Company; or

 

  (b)

legal proceedings have been started, or threatened, against the Target Company,

for its winding-up or dissolution, or for the appointment of a liquidator,
receiver, administrator, administrative receiver or similar officer over any or
all of its assets.

 

5.

LICENCES AND CONSENTS

 

  (a)

The Target Group Companies have all operating licences, operating consents,
operating permits and operating authorities (including but not limited to liquor
licences) necessary to carry on its business in the places and in the manner in
which its business is now carried on, all of which are valid and subsisting.

 

  (b)

So far as each Seller is aware, there is no reason why any of those licences,
consents, permits and authorities should be suspended, cancelled, revoked or not
renewed on the same terms.

FINANCIAL MATTERS

 

6.

ACCOUNTS

 

6.1

True and fair view

As at the Balance Sheet Date, the Accounts give a true and fair view of the
consolidated financial position and state of affairs of the Target Group and of
its consolidated profits (or losses) for the period to which they relate and of
the financial position and the state of affairs of each Target Group Company.

 

Hogan Lovells

 

59

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

6.2

Compliance with UK GAAP

The Accounts have been prepared in accordance with accounting principles,
standards and practices generally accepted in the United Kingdom as at the
Balance Sheet Date and in compliance with statutes and regulations applicable as
at the Balance Sheet Date.

 

6.3

Accounts prepared on a consistent basis

Except:

 

  (a)

where the Accounts expressly state otherwise; or

 

  (b)

where changes were required in order to conform to changes in accounting
principles, standards and practices generally accepted in the United Kingdom
that came into effect during the relevant period,

the bases and policies adopted for the purpose of preparing the Accounts were
the same as those adopted in preparing the corresponding audited financial
statements for the preceding two financial years.

 

6.4

Management Accounts

In this paragraph 6, “Management Accounts” means the unaudited balance sheets
and the unaudited consolidated profit and loss accounts of each of the Target
Group Companies for the period of 5 months ended 31 May 2011 a copy of which are
attached to the Disclosure Letter.

The Management Accounts have been prepared on a basis consistent with that
employed in preparing the Accounts and fairly represent the income and
expenditure of the each of the Target Group Companies as at and to the date for
which they have been prepared.

 

6.5

Financial and other records

All financial and other records of the Target Group Companies:

 

  (a)

have been properly prepared and maintained;

 

  (b)

constitute an accurate record of all matters required by law to appear in them;

 

  (c)

do not contain any material inaccuracies or discrepancies; and

 

  (d)

are in the possession of the company to which they relate.

 

7.

BUSINESS SINCE THE BALANCE SHEET DATE

 

7.1

Changes since Balance Sheet Date

Since the Balance Sheet Date:

 

  (a)

the Target Company has operated its business in the ordinary course and so as to
maintain it as a going concern;

 

  (b)

the Target Company has not made any capital expenditure or entered into any
commitments involving capital expenditure exceeding £100,000 in aggregate;

 

  (c)

except in the ordinary course of business, the Target Company has not assumed or
incurred, or agreed to assume or incur, a liability or obligation (including a
contingent liability) which involves or is likely to involve expenditure in
excess of £35,000;

 

Hogan Lovells

 

60

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

  (d)

no dividend or distribution has been declared, paid or made by the Target
Company except as specifically disclosed in the Accounts;

 

  (e)

the Target Company has not:

 

  (i)

issued, or agreed to issue, any share or loan capital; or

 

  (ii)

repaid, or become liable to repay (wholly or partly) any loan capital or
preference capital;

 

  (f)

no resolution of the Target Company’s members has been passed, except for a
resolution representing the ordinary business of an annual general meeting;

 

  (g)

the Target Company has not repaid any indebtedness in the nature of bank finance
in advance of the due date for its repayment, except as required under the terms
on which any such debt financing was made available.

 

8.

FINANCING AND INDEBTEDNESS

 

8.1

Indebtedness of the Target Company

The Target Company does not have any outstanding borrowing or indebtedness in
the nature of borrowing, and has not agreed to create or incur any borrowing or
indebtedness of that nature in the future, in each case other than:

 

  (a)

trade debts incurred in the ordinary course of the Target Company’s business; or

 

  (b)

indebtedness in the nature of bank finance or capital leases.

 

8.2

Financial facilities made available by the Target Company

The Target Company has not provided a loan or other financial facility to a
third party or either of the Sellers or any member of either Seller’s Group
which remains outstanding as at the date of this Agreement or has agreed to
provide a loan or financial facility of that kind in the future, in each case
other than trade credit arising in the normal course of business.

 

8.3

No guarantees, indemnities, etc provided by Target Company

The Target Company is not liable under a guarantee, indemnity or under another
agreement or arrangement to incur a financial or other obligation arising by
reference to another person’s obligation or liability (other than an obligation
or liability of a Seller’s Group Company).

 

8.4

No discounting or factoring of book debts

The Target Company has not discounted or factored any of its debts.

Assets

 

9.

OWNERSHIP OF ASSETS OF TARGET COMPANY

 

9.1

Exclusions from title warranties

The warranty contained in paragraph 9.2 does not apply to:

 

  (a)

stock that the Target Company has sold or will sell in the ordinary course of
its business;

 

  (b)

a receivable arising in the ordinary course of the Target Company’s business; or

 

Hogan Lovells

 

61

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

  (c)

an asset which is subject to a lease, hire, rent or hire purchase agreement.

 

9.2

Ownership of assets of the Target Group

 

  (a)

Each asset which is material to the conduct of the Target Group’s usual business
is:

 

  (i)

legally and beneficially owned by the relevant Target Group Company;

 

  (ii)

where capable of possession, in the possession or under the control of the
relevant Target Group Company; and

 

  (iii)

free from all Encumbrances other than any lien or retention arrangement arising
in the ordinary course of the relevant Target Group Company’s business;

 

  (b)

Save for leased or rented items specified in the Disclosure Letter, all assets
contained in the Properties and used in the ordinary course of Target Group’s
usual business at each of the Properties are, at Completion and other than such
items belonging to guests or lessees, legally and beneficially owned by the
relevant Target Group Company.

 

9.3

No obligation to dispose of Target Company assets

The Target Company is not obliged to dispose of a right or an interest in an
asset which is material to the operation of its business.

 

9.4

Assets which are subject to a lease, hire, rent or hire purchase agreement

A list of all material assets used by the Target Company, but not owned by it is
included in the Disclosure Letter.

 

10.

INTELLECTUAL PROPERTY

 

10.1

No infringement by Target Company

So far as each Seller is aware, the carrying on of the business of the Target
Company in the 24 months ending on the date of this Agreement does not
constitute a material infringement of any Intellectual Property of another
person.

 

10.2

No claims against Target Company or by the Target Company

So far as each Seller is aware, there is no existing, pending or threatened
claim against the Target Company in respect of infringement of the Intellectual
Property of another person or by the Target Company against another person in
respect of infringement of the Intellectual Property of the Target Company or
the Operating Company.

TRADING AND COMMERCIAL ARRANGEMENTS

 

11.

CONTRACTS

 

11.1

Disclosure of material contracts

The Sellers have disclosed to the Buyer in the Disclosure Letter the material
terms of all outstanding agreements or binding arrangements to which the Target
Company is party and which fall within any of the categories described in
paragraph 11.2 (a) to (g) below

 

Hogan Lovells

 

62

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

11.2

No material contracts other than those disclosed

Except for those agreements and arrangements which have been disclosed in the
manner described in paragraph 11.1, the Target Company is not party to an
agreement or binding arrangement:

 

  (a)

which has been entered into by the Target Company other than in the ordinary
course of its business; and

 

  (b)

which requires or which is likely to require payment or expenditure by the
Target Company of more than £35,000 in a 12 month period; and

 

  (c)

which will, or is likely to, continue for more than 12 months after the date of
this Agreement and:

 

  (i)

cannot be terminated at all by the Target Company in accordance with its terms
without cause and without penalty; or

 

  (ii)

can only be terminated by the Target Company in accordance with its terms
without cause and without penalty if the Target Company gives more than six
months’ notice; and

 

  (d)

which relates to an agency, licensing, franchising or distributorship
arrangement; and

 

  (e)

which was not entered into by the Target Company as a bargain at arm’s length;
and

 

  (f)

which is likely to result in a loss to the Target Company which is not fully
provided for in the Accounts; and

 

  (g)

which restricts the Target Company’s right to conduct its business or compete
freely with any other business, including a restriction on the geographic scope
of its business or a restriction on the kind of business that it is entitled to
carry on.

 

11.3

No outstanding tenders, bids, etc

There is no outstanding tender, bid, offer or other arrangement which, if
accepted by another person, or if an order is made pursuant to it by another
person, would result in the Target Company becoming bound by an agreement or
other arrangement of the sort described in paragraphs 11.2 (a) to (g) above.

 

11.4

No contract terminable, etc

So far as each Seller is aware, no person that is party to an agreement to which
the Target Company is also party and which is material to the business of the
Target Company:

 

  (a)

has claimed that an agreement of that kind is invalid; or

 

  (b)

has claimed that it has the right to terminate (other than by way of notice
without cause), repudiate or avoid an agreement of that kind.

 

12.

CUSTOMERS AND SUPPLIERS

 

12.1

For the purposes of this paragraph 12.1,

 

Hogan Lovells

 

63

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

  (a)

“Major Customers” shall mean Deutsche Bank; Goldman Sachs; Nike; WPP; Microsoft;
Credit Suisse; JP Morgan; Apple; PricewaterhouseCoopers; and British American
Tobacco; and

 

  (b)

“Major Suppliers” shall mean City of Westminster; Conditioned Environment
Services LTD; EDF Energy Cust Field Services; Imperial Recruitment Agency;
Pegasus Commission Processing; Orchid Human Resources Limited; McGill of
Kensington; Metropol Security; Apex Lift and Escalator; and GazProm.

 

12.2

In the three month period preceding the date of this Agreement, no Target Group
Company has received a written notice of termination from any Major Customer or
any Major Supplier in respect of any agreement (excluding for the avoidance of
doubt with regard to Major Customers the cancellation or rebooking of hotel
rooms at the Properties).

 

12.3

As far as each Seller is aware, no representations or assurances were made to
Amy Sacco in respect of Bungalow 8 which were not contained in the consultancy
agreement.

 

13.

INSURANCE

 

13.1

Definitions

In this paragraph 12, “Insurance Policy” means a current insurance or indemnity
policy in which the Target Company has an interest.

 

13.2

Details of policies disclosed

The Disclosure Letter contains details of each Insurance Policy.

 

13.3

Validity of policies

So far as each Seller is aware:

 

  (a)

each Insurance Policy is in full force and effect;

 

  (b)

the Target Company has not done or omitted to do anything which might:

 

  (i)

make an Insurance Policy void, voidable or unenforceable; or

 

  (ii)

entitle an insurer to decline to pay (wholly or partly) a claim made under an
Insurance Policy.

 

13.4

Premiums

 

  (a)

All premiums in connection with an Insurance Policy have been paid when due.

 

  (b)

No insurer has notified the Target Company in writing that it intends or is
contemplating increasing a premium for an Insurance Policy.

 

13.5

Claims

No claim made under an Insurance Policy exceeding £35,000 is outstanding, other
than as disclosed in the Disclosure Letter. There are no outstanding claims in
respect of the validity of, any Insurance Policies and, so far as the Sellers
are aware, there are no circumstances likely to give rise to any claim in
respect of the validity of any Insurance Policy.

 

Hogan Lovells

 

64

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

REAL ESTATE

 

14.

REAL ESTATE

 

14.1

Properties

The Properties comprise all of the land and premises owned, occupied or
otherwise used by the Target Group Companies. Such of the Properties as are
freehold are set out in schedule 3 part A and such of the Properties as are
leasehold are set out in schedule 3 part B. The particulars of the Properties
shown in schedule 3 are true, complete and correct;

 

14.2

No agreements in respect of land

The Target Group Companies have not entered into any agreement to acquire or
dispose of any land or premises or any interest therein which has not been
completed nor have any Target Group Companies any rights of ownership, right of
use, option, right of first refusal or any other interest whatsoever in any land
or buildings other than the Properties.

 

14.3

Previously-owned Property

In this paragraph 14 “Previously-owned Property” means any land and buildings
that have at any time before the date of this agreement been owned (under
whatever tenure) and/or occupied and/or used by the Target Group Companies but
which are no longer owned occupied or used by the Target Group Companies.

None of the Target Group Companies has any actual or contingent liability in
respect of Previously-owned Property.

None of the Target Group Companies has given any guarantee or indemnity for any
liability relating to any land or buildings which are not the Properties.

 

14.4

Certificates of Title

So far as each Seller is aware, the information provided by the Operating
Company to Macfarlanes LLP in connection with preparation of the Certificates of
Title is true, complete and accurate in all material respects.

 

14.5

Wells Mews Warranties

For the purposes of this sub-clause, “Wells Mews” means the leasehold property
known as Second Floor, 11 Wells Mews, London W1 more particularly described in
Part B of Schedule 3.

 

  (a)

The Target Group Companies are in possession and actual occupation of the whole
of Wells Mews on an exclusive basis, and no right of occupation or enjoyment has
been acquired or is in the course of being acquired by any other third party,
and the Target Group Companies have not granted, or agreed to grant, any right
of occupation or enjoyment in respect of Wells Mews to any third party, SUBJECT,
in each respect, to the rights of the tenant pursuant to the terms of the Wells
Mews lease to share occupation with a member of the same group which the Target
Group Companies have and may exercise from time to time.

 

  (b)

The Seller has in its control copies of the following original title deeds and
documents to Wells Mews (the “Wells Mews Deeds”) which are the only title deeds
and documents to Wells Mews:

 

Hogan Lovells

 

65

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

  (i)

lease dated 2 April 2007 between Leavesdon Holdings Limited (1) and Morgans
Hotel Group London Limited (2) (“the Lease”);

 

  (ii)

rent deposit deed dated 2 April 2007 between Leavesdon Holdings Limited (1) and
Morgans Hotel Group London Limited (2);

 

  (iii)

licence to carry out works dated 16 August 2007 between Leavesdon Holdings
Limited (1) and Morgans Hotel Group London Limited (2);

 

  (iv)

form of notice that section 24 to 28 of the Landlord and Tenant Act 1954 are not
to apply to a business tenancy from Leavesdon Holdings Limited to Morgans Hotel
Group London Limited dated 19 February 2007;

 

  (v)

a consent to dealing in respect of title LN243794 from Kleinwort Benson (Channel
Islands) Limited to HM Land Registry dated 27 February 2007; and

 

  (vi)

Land Transaction Return Certificate (Number 0014449994) issue date 23 April 2007
in respect of Second Floor Mews, 11 Wells Mews, London, W1T 3HD.

 

  (c)

The requisite SDLT return was filed following the grant of the Lease and no
further SDLT return filing is required.

 

  (d)

The unexpired residue of the term granted by the Lease is vested in the
Operating Company and is valid and subsisting.

 

  (e)

In relation to the Lease, the tenant has not received written notice from the
landlord of any outstanding material breach of any covenants, restrictions,
stipulations or other encumbrances set out in that lease and the tenant is not
aware of any material breaches of any such matters save as may be apparent from
inspection.

 

  (f)

Wells Mews is free from:

 

  (i)

any mortgage, debenture, charge (whether legal or equitable and whether fixed or
floating), rent charge, lien or other right in the nature of security; and

 

  (ii)

any agreement for sale, estate contract, option, right of pre-emption or right
of first refusal given by the Operating Company, and there is no agreement or
commitment to give or create any of them.

 

  (g)

Wells Mews is not subject to the payment of any outgoings other than business
rates, water and sewerage charges and utilities and there are no outstanding
amounts due in relation to such outgoings as at the date of this Agreement.

 

  (h)

So far as the Seller is aware there are no matters which although are not
registered are capable of being registered as local land charges.

 

  (i)

No formal notices, complaints or requirements have been received by the
Operating Company from any competent authority exercising statutory or delegated
powers in relation to Wells Mews or its current use which remains outstanding
and the Operating Company is not aware of any matters which could lead to the
service of such notices, complaints or requirements.

 

Hogan Lovells

 

66

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

  (j)

No notice of dispute between the Operating Company, and the owner or occupier of
any other premises adjacent to or neighbouring Wells Mews has been received by
the Operating Company which continues to be outstanding (so far as the Operating
Company is aware) and the Operating Company is not aware of any matters which
could lead to any such dispute.

 

14.6

Air conditioning works at the St. Martin’s Lane Hotel (being one of the
Properties) (the “Works”)

No payments are outstanding in respect of the Works.

REGULATORY, COMPLIANCE AND LITIGATION

 

15.

COMPLIANCE WITH LAW

During the time when the Target Company has been a member of the Seller’s Group,
the Target Company has dealt with its assets, and conducted its business and
corporate affairs, in all material respects, in compliance with:

 

  (a)

so far as each Seller is aware, all applicable laws and regulations (in the
United Kingdom and elsewhere); and

 

  (b)

its Articles of Association.

 

16.

LITIGATION AND INVESTIGATIONS

 

16.1

No current, pending or threatened court or arbitration proceedings

 

  (a)

The Target Company is not currently involved in any court, tribunal or
arbitration proceedings which, if adversely determined might reasonably be
expected to result in a liability for the Target Group of more than £35,000.

 

  (b)

So far as each Seller is aware no proceedings of the kind and scale described in
paragraph 16.1(a) are pending or threatened by or against the Target Company.

 

16.2

No administrative proceedings, investigations, etc

So far as each Seller is aware, no administrative proceedings, investigation or
enquiry by a governmental, administrative or regulatory body concerning:

 

  (a)

the Target Company or its business; or

 

  (b)

an agreement or arrangement to which the Target Company is party,

is ongoing, pending or threatened.

 

16.3

No order or judgement

There is no order or judgement of a court, tribunal or a governmental or
regulatory body or administrative entity or body (of the United Kingdom or
elsewhere) relating to the Target Company or any of its assets which may have a
material adverse effect upon the ability of the Target Company to deal freely
with its assets or freely conduct its business anywhere in the world, and the
Target Group Companies have not given any undertakings arising from legal
proceedings or administrative proceedings to a court, governmental agency,
regulator or third party.

 

17.

ENVIRONMENTAL AND HEALTH AND SAFETY MATTERS

 

17.1

No claims

 

Hogan Lovells

 

67

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

Neither the Sellers nor the Target Group Companies, during the two years prior
to the date of this Agreement, received a written notice or written claim from a
regulator or another person specifying a material breach of, or a material
liability under, Environmental Law.

 

17.2

Environmental Permits

So far as each Seller is aware:

 

  (a)

all material Environmental Permits have been applied for, obtained and
maintained and are and at all times have been in full force and effect and will
continue to be in full force and effect immediately following Completion;

 

  (b)

no action has been taken to vary, revoke or suspend any material Environmental
Permit during the two years prior to the date of this Agreement; and

 

  (c)

copies of all Environmental Permits have been disclosed to the Buyer.

So far as each Seller is aware, all information provided by or on behalf of any
Target Group Company to any relevant enforcement authority, and all records and
data required to be maintained by the Sellers or any Target Group Company under
the provisions of any material Environmental Law regarding the operation of the
business of the Target Group Companies are complete and accurate in all material
respects.

 

17.3

So far as each Seller is aware, the Target Group Companies are operating and
have, during the two years prior to the date of this Agreement, operated the
business in compliance with all material Environmental Law.

 

17.4

So far as each Seller is aware, there is no contamination at, in, under, on or
escaping from the Properties.

 

17.5

Neither the Sellers nor the Target Group Companies have given any warranties or
indemnities in respect of any liabilities, duties or obligations that have
arisen under Environmental Law.

 

17.6

Neither the Sellers nor the Target Group Companies hold an environmental
insurance policy for the Properties and have not applied for such a policy in
the past either successfully or unsuccessfully.

 

17.7

All material environmental reports in the possession of the Seller or Target
Group Companies have been disclosed to the Buyer.

EMPLOYMENT AND RETIREMENT BENEFITS

 

18.

EMPLOYEES AND DIRECTORS

 

18.1

Information about the employees

 

  (a)

The Disclosure Letter contains a list of the job title, remuneration and
benefits of each employee who is engaged by the relevant Target Group Company at
Completion on the Operating Companies tier 1 or tier 2 employment contract
(together “Key Employees”).

 

  (b)

The Disclosure Letter states the total number of Employees and a breakdown of
each tier of employment as at 3 October 2011.

 

  (c)

So far as each Seller is aware (having relied on information provided by the
relevant employee), neither the Target Company nor the Operating Company employs
any employee who does not have any right to work in the United Kingdom.

 

Hogan Lovells

 

68

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

  (d)

At Completion the Operating Company is the only member of the Target Group that
employs any employees or engages any agency workers.

 

18.2

Employment contracts and terms

Annexed to the Disclosure Letter are examples of the standard terms and
conditions, staff handbooks and policies which apply to the Employees and no
Employee is employed on terms other than these terms and conditions nor is
entitled to any benefits either contractually or on a discretionary basis other
than as set out in these terms and conditions.

 

18.3

Termination of employment contracts

The relevant Target Group Company can terminate the employment contracts with
its Employees by giving to the Employee no more than three months’ notice
without giving rise to a claim for damages or compensation (except statutory
compensation).

 

18.4

Resignations and dismissals

In the six months ending on the date of this Agreement, the relevant Target
Group Company has not received a notice of resignation from, or given notice of
termination of employment to any of the Key Employees.

 

18.5

Outstanding sums and liabilities to employees

The Target Company does not owe any sum to a current or former director, officer
or employee except for base salary, bonus and other benefits accrued since the
last normal pay date, accrued holiday pay for the current holiday year or for
the reimbursement of properly incurred and approved expenses.

 

18.6

Redundancies or transfers of employees

Within the period of six months ending on the date of this Agreement, the Target
Company has not:

 

  (a)

given notice of a redundancy to the relevant authority or body or started
consulting about making any employees redundant with an independent trade union,
works council or employee representative body under any applicable statutory
provisions; or

 

  (b)

been party to the transfer of an undertaking as defined in the Transfer of
Undertakings (Protection of Employment) Regulations 2006 or failed to comply
with a duty to inform and consult an independent trade union, works council or
employee representative body under such Regulations.

 

18.7

Trade union recognition

The Target Company has:

 

  (a)

no agreement or arrangement to recognise a trade union; or

 

  (b)

not agreed or arranged to negotiate or consult with a works council, staff
association or other employee representative body.

 

Hogan Lovells

 

69

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

18.8

Disputes with trade unions

The Target Group Company is not involved in a dispute with a trade union, works
council or employee representative body.

 

18.9

Outstanding offers

The Disclosure Letter contains a list of outstanding offers of employment made
by or on behalf of the Target Group Companies at Completion of jobs that would,
if accepted, fall within the definition of “Key Employees” as defined in
paragraph 18.1(a) above.

 

18.10

Agency workers

The Disclosure Letter contains a list of the names and types of roles filled by
each employment agency engaged by the Target Group Companies at Completion.

 

18.11

Absence

The Disclosure Letter contains a list of the job titles, remuneration and
expected return date of each employee of the Target Group Companies who is on
long term absence at Completion.

 

19.

RETIREMENT BENEFIT PLANS

 

19.1

Definitions

In this Agreement:

 

  (a)

“Relevant Benefit” means a retirement, death or similar benefit and “Relevant
Benefits” means all those kinds of benefit;

 

  (b)

“Relevant Person” means:

 

  (i)

an Employee; or

 

  (ii)

a former employee of the Target Company; and

 

  (c)

“Group Scheme” means funded defined contribution scheme held with Standard Life
and administered by Origin.

 

19.2

No pension schemes other than Group Scheme

Apart from under the Group Scheme, the Target Company has no:

 

  (a)

obligation (actual or contingent and whether legally enforceable or not) to
provide or contribute to; or

 

  (b)

announced a proposal to provide or contribute to,

an arrangement providing a Relevant Benefit in respect of a Relevant Person.

 

19.3

Details of the Group Scheme disclosed

There has been disclosed to the Buyer:

 

  (a)

material details of the Group Scheme, including copies or details of each
document, resolution, action, practice or other matter which confers or
describes an actual, prospective or contingent right to benefits under the Group
Scheme

 

Hogan Lovells

 

70

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

  (b)

a list of current employees by job title who are members, or who have any rights
to benefits under, the Group Scheme; and

 

  (c)

details of the benefits payable or prospectively or contingently payable under
the Group Scheme in respect of a Relevant Person.

 

19.4

Each amount due to the Group Scheme has been paid

Each amount due to the trustees or administrators of the Group Scheme from the
Target Company or another person in respect of a Relevant Person has been paid.
The Target Company has paid each cost relating to the Group Scheme that it is
required to pay.

 

19.5

No proceedings or claims against the Group Scheme

There is no proceeding or claim (other than routine claims for benefits)
outstanding, pending or threatened in writing against:

 

  (a)

the trustees or administrators of the Group Scheme; or

 

  (b)

the Target Company,

in connection with the Group Scheme or the provision of a Relevant Benefit. So
far as each Seller is aware, no fact or circumstance exists which may give rise
to a proceeding or claim of that kind.

 

19.6

Registered scheme

The Group Scheme is a registered scheme under Chapter 2 of the Finance Act 2004.

 

20.

INSOLVENCY

20.1 None of the Target Group Companies:

 

  (a)

is insolvent or unable to pay its debts within the meaning of the Insolvency Act
1986 or any other insolvency legislation applicable to the company concerned;
and

 

  (b)

has stopped paying its debts as they fall due.

 

20.2

No step has been taken in any applicable jurisdiction by any Target Group
Company to initiate any process by or under which:

 

  (a)

the ability of the creditors of the Target Group Companies, to take any action
to enforce their debts is suspended, restricted or prevented; or

 

  (b)

some or all of the creditors of the Target Group Companies accept, by agreement
or in pursuance of a court order, an amount less than the sums owing to them in
satisfaction of those sums with a view to preventing the dissolution of any of
the Target Group Companies; or

 

  (c)

a person is appointed to manage the affairs, business and assets of a Target
Group Company, on behalf of its or creditors; or

 

  (d)

the holder of a charge over all or any of the Target Group Companies assets is
appointed to control the business and/or all or any assets of the Target Group
Companies.

 

Hogan Lovells

 

71

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

20.3

No:

 

  (a)

resolution has been passed in relation to a Target Group Company;

 

  (b)

step has been taken in relation to a Target Group Company, so far as each Seller
is aware; or

 

  (c)

legal proceedings have been started, or threatened against a Target Group
Company, so far as each Seller is aware,

for its winding-up or dissolution, or for the appointment of a liquidator,
receiver, administrator, administrative receiver or similar officer over any or
all of its assets.

OTHER MATTERS

 

21.

ACCURACY OF INFORMATION

The information contained in schedule 2 of this Agreement is true and accurate.

PART B—SELLERS’ COMPLETION WARRANTIES

 

1.

The statements set out in paragraphs 1, 2, 3, 4, 6, 8, 14.1, 14.2, 14.3, 20 and
21 of part A of this schedule 7; and

 

2.

OPERATIONS OF THE OPERATING COMPANY BETWEEN SIGNING AND COMPLETION

The Sellers have complied with the requirements set out in schedule 5.

 

Hogan Lovells

 

72

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

SCHEDULE 8

BUYER’S WARRANTIES

 

1.

ENFORCEABILITY OF TRANSACTION DOCUMENTS

 

1.1

Capacity and authority

The Buyer:

 

  (a)

has the right, power and authority to enter into and perform its obligations
under each Transaction Document to be entered into by it on or after the date of
this Agreement; and

 

  (b)

has taken all necessary corporate or other action to authorise the execution of,
and performance by it of its obligations under each Transaction Document.

 

1.2

Binding obligation

Each Transaction Document entered into by the Buyer on the date of this
Agreement constitutes obligations binding on the Buyer.

 

1.3

No approvals

No approval, waiver, registration, consultation or notification is required to
be obtained or made by the Buyer in connection with the execution, performance
or enforceability of a Transaction Document entered into or to be entered into
by the Buyer. For the purposes of this paragraph 1.3, an approval, waiver,
registration, consultation or notification will be considered as being required
to be obtained or made if failure to do so properly could materially adversely
affect a Seller’s Group Company.

 

1.4

No breach

Neither the execution (and in the case of a deed, delivery) by the Buyer of a
Transaction Document nor the performance by the Buyer of any of its obligations
under a Transaction Document will violate or conflict with:

 

  (a)

a provision in the constitutional documents of the Buyer;

 

  (b)

a provision in an agreement or instrument which is binding on the Buyer;

 

  (c)

an order or judgement of a court, tribunal or governmental or regulatory body
(of the United Kingdom or elsewhere) which is binding on the Buyer.

 

1.5

Winding up, insolvency, etc

No resolution has been passed in relation to the Buyer, and, so far as the Buyer
is aware, no:

 

  (a)

other step has been taken in relation to the Buyer; or

 

  (b)

legal proceedings have been started, or threatened, against the Buyer,

for its winding-up or dissolution, or for the appointment of a liquidator,
receiver, administrator, administrative receiver or similar officer over any or
all of its assets.

 

2.

NO KNOWLEDGE OF BREACH OF SELLERS’ WARRANTY

The Buyer has no actual knowledge of any fact, matter or circumstance which
would entitle it to claim that a Sellers’ Warranty is untrue, inaccurate or
misleading. For the purposes of this paragraph, the Buyer is deemed to have
actual knowledge of anything of which a director, officer or employee of the
Buyer has actual knowledge.

 

Hogan Lovells

 

73

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

SCHEDULE 9

LIMITATIONS ON SELLERS’ LIABILITY

 

1.

MAXIMUM TOTAL LIABILITY OF SELLERS

 

1.1

Notwithstanding paragraph 1.2 of this schedule 9, the total aggregate amount of
each Seller’s liability in respect of all Claims (including elements relating to
interest and costs) other than Claims in respect of the Title Warranties and the
Tax Covenant is limited to the amounts set forth opposite its name in column
(5) of schedule 1.

 

1.2

The total aggregate amount of each Seller’s liability in respect of all Claims
(including elements relating to interest and costs), including in respect of the
Title Warranties and the Tax Covenant, is limited to the amount set forth
opposite its name in column (4) of schedule 1.

 

2.

THRESHOLDS FOR SELLER’S LIABILITY

 

2.1

The Sellers will not be liable in respect of a Claim unless its total liability
in respect of that Claim (excluding elements relating to interest and costs)
would (but for this paragraph 2.1) exceeds £35,000 (a Claim not meeting the
threshold in this paragraph 2.1 is referred to as a “De Minimis Claim”).

 

2.2

The Sellers will not be liable in respect of a Claim unless the total liability
of the Sellers in respect of all Claims notified by the Buyer to the Sellers in
accordance with paragraph 3 (excluding any De Minimis Claims), would (if the
Claim succeeded) exceed £250,000, in which case, the Buyer shall be able to
claim the whole amount of such Claims and not merely the excess.

 

2.3

The following amounts are to be discounted in calculating the amount of a
Seller’s liability for the purposes of this paragraph 2:

 

  (a)

amounts for which the Sellers have no liability or by which its liability is
reduced as a result of the operation of the other provisions of this schedule 9;
or

 

  (b)

amounts which are paid to such Seller as a result of the operation of paragraph
5.3 of this schedule 9.

 

3.

TIME LIMITS FOR CLAIMS

The Sellers will not be liable in respect of a Non-Tax Claim unless the Buyer
has:

 

  (a)

served a written notice on the Sellers on or before date falling 18 months after
the Completion Date, which sets out those details of the Non-Tax Claim that the
Buyer has, including the Buyer’s then best estimate of the amount of the Non-Tax
Claim; and

 

  (b)

properly issued and served proceedings in respect of the Non-Tax Claim within
six months of serving the written notice described in paragraph 3.1(a) on the
Sellers.

 

4.

NO DOUBLE RECOVERY

The Sellers will not be liable in respect of a Claim to the extent that the loss
that is the subject of the Claim has already been recovered in respect of
another Claim.

 

Hogan Lovells

 

74

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

5.

RECOVERY FROM INSURERS AND OTHER THIRD PARTIES

 

5.1

If the Buyer or a Target Group Company has a right of recovery or indemnity
against a person, including an insurer, in respect (in whole or in part) of a
matter which has given rise to, or could give rise to, a Non-Tax Claim (a “right
of recovery”), the Buyer must:

 

  (a)

notify the Sellers of the right of recovery as soon as practicable following it
coming to the notice of the Buyer or to the notice of any member of the Buyer’s
Group;

 

  (b)

exercise and enforce, and ensure that the Target Group Company exercises and
enforces, each right of recovery in full; and

 

  (c)

if a Seller requests, permit such Seller to take sole conduct in the name of the
Buyer or the Target Group Company of any actions that such Seller considers
appropriate in connection with exercising and enforcing each right of recovery
and provide such Seller and its advisers with all information and assistance
that such Seller reasonably requires for that purpose.

 

5.2

A Seller will not be liable in respect of a Non-Tax Claim to the extent that the
Buyer or a Target Group Company

 

  (a)

has recovered from a third party, including an insurer, an amount which relates
to the matter that gave rise to the Non-Tax Claim (in whole or in part);

 

  (b)

has a right of recovery under a policy of insurance in respect of the matter
that gave rise to the Non-Tax Claim (in whole or in part); or

 

  (c)

would have been recovered under a policy of insurance an amount which relates to
the matter that gave rise to the Non-Tax Claim (in whole or in part) if policies
of insurance effected by or for the benefit of the Buyer or the Target Company
had been maintained after Completion, to the extent that such coverage is
obtainable in the market, on no less favourable terms than those maintained
immediately before Completion.

 

5.3

If a Seller pays an amount to the Buyer in respect of a Non-Tax Claim and the
Buyer subsequently recovers from a third party (including an insurer) an amount
which relates (in whole or in part) to the matter that gave rise to the Non-Tax
Claim, the Buyer must notify such Seller of that fact and the amount recovered
and:

 

  (a)

if the amount paid by such Seller to the Buyer is less than the amount recovered
from the third party (after taking into account Tax thereon and costs reasonably
incurred in the recovery), the Buyer must pay such Seller an amount equal to the
amount that such Seller paid to the Buyer; or

 

  (b)

if the amount paid by such Seller to the Buyer is more than the amount recovered
from the third party (after taking into account Tax thereon and costs reasonably
incurred in the recovery), the Buyer must pay such Seller an amount equal to the
amount recovered from the third party.

 

6.

CONDUCT OF CLAIMS

 

6.1

If the Buyer becomes aware of a claim against a Target Group Company by a third
party or of any other fact, matter or circumstance, which in either case may
result in the Buyer being entitled to pursue a Non-Tax Claim against a Seller
(each a “Relevant Matter”):

 

  (a)

the Buyer must notify the Sellers of any Relevant Matter as soon as practicable
(and in any event within five Business Days) following it coming to the notice
of the Buyer or to the notice of any member of the Buyer’s Group;

 

Hogan Lovells

 

75

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

  (b)

the Buyer must give the Sellers or their duly authorised representatives such
assistance as any Seller may reasonably require and the Buyer must ensure that
each Target Group Company gives the Sellers and their advisers access to
relevant employees and premises of such Target Group Company and access to (and
permission to take copies of) all relevant documents and correspondence in order
to allow the Sellers to investigate the Relevant Matter and take the actions
referred to in this paragraph 6.1;

 

  (c)

the Buyer must ensure that such Target Group Company takes whatever action the
Sellers request in order to avoid, dispute, resist, defend, appeal, compromise,
mitigate or remedy any Relevant Matter;

 

  (d)

the Buyer must keep the Sellers fully informed as to the progress of the
Relevant Matter including the receipt of any material communications;

 

  (e)

if requested to do so by the Sellers, the Buyer must:

 

  (i)

allow, and ensure that such Target Group Company allows, the Sellers to take
sole conduct in the name of the Buyer or the Target Group Company of any actions
that the Sellers consider appropriate in connection with the Relevant Matter;
and/or

 

  (ii)

use, and ensure that such Target Group Company uses, professional advisers
chosen by the Sellers in connection with the conduct of any actions relating to
the Relevant Matter; and

 

  (f)

the Buyer and such Target Group Company must not admit any liability or make or
agree any payment or compromise in respect of any Relevant Matter without first
obtaining the written consent of each of the Sellers.

 

6.2

The Buyer is entitled to refuse to comply with the actions described in clause
6.1(c) to (e) unless it obtains an undertaking from the Sellers, agreeing to
indemnify the Buyer and such Target Group Company against any costs, liability
or losses that may result from the Buyer or such Target Group Company complying
with the terms of clause 6.1(c) to (e).

 

7.

CONTINGENT CLAIMS

Where the Buyer serves a notice in accordance with paragraph 3 of schedule 9
with respect to a Non-Tax Claim arising in connection with a contingent
liability of the Buyer or a Target Group Company, a Seller will not be liable to
make any payment in respect of that Non-Tax Claim unless the Buyer or the Target
Group Company has become finally liable to make payment in respect of the
contingent liability before the third anniversary of the Completion Date.

 

8.

MATTERS CAPABLE OF REMEDY

If a fact or circumstance that gives rise to a Non-Tax Claim is capable of
remedy by a Seller, such Seller will not be liable in respect of that Non-Tax
Claim to the extent that it remedies the relevant breach within 30 days
following notification of the fact or circumstance by the Buyer to the Sellers
under paragraph 6.1(a).

 

9.

BUYER’S OBLIGATION TO MITIGATE

Nothing in this schedule 9 limits the Buyer’s or the Target Group Company’s
general obligation at law to mitigate loss or damage resulting from a fact,
matter or circumstance that gives rise to a Claim.

 

Hogan Lovells

 

76

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

10.

SUBSEQUENT EVENTS

A Seller will not be liable in respect of a Non-Tax Claim, to the extent that
the Non-Tax Claim is attributable to or increased by:

 

  (a)

an act or thing done or omitted to be done under the terms of a Transaction
Document;

 

  (b)

a voluntary act, omission, transaction or arrangement of the Buyer or another
member of the Buyer’s Group on or after Completion otherwise than in the normal
and usual course of the relevant Target Group Company’s business as carried on
before Completion;

 

  (c)

an admission of liability made after the date of this Agreement by the Buyer or
another member of the Buyer’s Group;

 

  (d)

the passing of, or a change in, a law or regulation or in its interpretation or
administration by the English courts or a regulatory authority (whether or not
having the force of law) after the date of this Agreement (whether or not that
change has retrospective effect); or

 

  (e)

a change in an accounting or Tax policy or practice or length of any accounting
period of the Buyer or any Target Group Company introduced or having effect
after Completion.

 

11.

PROVISIONS

A Seller will not be liable in respect of a Non-Tax Claim if (and to the extent
of such provision reserve or reduction of asset value) a specific provision,
reserve or reduction of asset value is expressly stated in the Accounts in
respect of any of the matters giving rise to that Non-Tax Claim.

 

12.

GENERAL

 

12.1

Nothing in this schedule 9 has the effect of limiting or restricting any
liability of the Sellers in respect of a Claim arising as a result of any fraud.

 

12.2

A Seller will not be liable for any:

 

  (a)

loss of profit;

 

  (b)

loss of business;

 

  (c)

loss of contract; or

 

  (d)

indirect or consequential loss or damages incurred by the Buyer in respect of a
Claim,

save as expressly stated in a Transaction Document.

 

Hogan Lovells

 

77

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

SCHEDULE 10

TAX COVENANT AND TAX WARRANTIES

Part A

Tax Covenant

 

1.

DEFINITIONS

 

1.1

In this schedule:

“Accounts Relief” means a Relief, the availability of which has been shown as an
asset in the Final Completion Statement.

“Actual Tax Liability” means any liability of a Target Group Company to make an
actual payment of Tax or a payment on account of Tax to a Tax Authority,

“Buyer’s Tax Group” means the Buyer and each other company which:

 

  (a)

at Completion;

 

  (b)

after Completion; or

 

  (c)

within the six year period ending on the Completion Date,

is or for a Tax purpose is treated as being a member of the same group as, or
otherwise connected or associated in any way with, the Buyer;

“Buyer’s Relief” means:

 

  (a)

any Accounts Relief;

 

  (b)

any Post-Completion Relief;

 

  (c)

any Relief arising to any member of the Buyer’s Tax Group (other than a Target
Group Company);

“Corporation Tax” means UK corporation tax;

“Deemed Tax Liability” means:

 

  (a)

the loss of or failure to obtain an Accounts Relief;

 

  (b)

the use or set off of a Buyer’s Relief in circumstances where, but for such use
or set off, a Target Group Company would have had an Actual Tax Liability in
respect of which the Sellers would have had a liability under this schedule;

“Demand” means:

 

  (a)

the issue of a notice, demand, assessment, letter or other document by or on
behalf of any Tax Authority, or

 

  (b)

the taking of any other action by or on behalf of any Tax Authority (including
the imposition, or any document referring to the possible imposition, of any
withholding of or on account of Tax); or

 

  (c)

the preparation or submission to a Tax Authority of any notice, return,
assessment, letter or other document by the Buyer, a Target Group Company or any
other person, from which it appears that a Tax Liability may be incurred by or
may be imposed on a Target Group Company;

 

 

Hogan Lovells

 

78

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

“Event” means any transaction (including the Transaction), act, event,
circumstance, state of affairs or omission, (including any change in the
residence of any person for the purposes of any Tax, the death of any person, a
failure to take any action which would avoid an apportionment or deemed
distribution of income regardless of whether the taking of any such action after
Completion could have avoided such apportionment or deemed distribution);

“FA” means Finance Act;

“Income, Profits or Gains” means income, profits, gains or any other standard or
measure for the purposes of any Tax and references to Income, Profits or Gains
earned, accrued or received on or before a particular date (including, without
limitation, Completion) shall include Income, Profits or Gains deemed or treated
for Tax purposes as earned, accrued or received on or before that date;

“Instalment Regulations” means the Corporation Tax (Instalment Payments)
Regulations 1998 (SI 1998 No.3175);

“Post-Completion Relief” means any Relief which arises to a Target Group
Company:

 

  (a)

as a consequence of any Event occurring (or being treated for Tax purposes as
occurring), or

 

  (b)

from Income, Profits or Gains earned, accrued or received, after Completion;

“Relief” means:

 

  (a)

any relief, allowance, credit, deduction, exemption or set off in respect of any
Tax or relevant to the computation of any Income, Profits or Gains; or

 

  (b)

any right to repayment of or saving of Tax,

and any reference to the use or set off of a Relief shall be construed
accordingly;

“Seller’s Tax Group” means, with respect to each Seller, the Seller and any
other company or companies (other than the Target Group Companies) which:

 

  (a)

at Completion;

 

  (b)

after Completion; or

 

  (c)

within the six year period ending on the Completion Date,

is or for a Tax purpose is treated as being a member of the same group as, or
otherwise connected or associated in any way with, that Seller for any Tax
purpose;

“Surrender” means:

 

  (a)

the surrender of losses or other amounts eligible for group relief in accordance
with Part 5 of the Corporation Tax Act 2010; and/or

 

  (b)

the surrender of the benefit of any advance corporation tax capable pursuant to
regulation 15 of the Corporation Tax (Treatment of Unrelieved Surplus Advance
Corporation Tax) Regulations 1999 (SI 1999/358); and/or

 

Hogan Lovells

 

79

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

  (c)

the notional transfer of any asset or reallocation of a gain or loss in
accordance with section 171A or section 179A of the Taxation of Chargeable Gains
Act 1992 (“TCGA”); and/or

 

  (d)

the surrender of eligible unrelieved foreign tax in accordance with The Double
Taxation Relief (Surrender of Relievable Tax Within a Group) Regulations 2001
(S.I. 2001 No. 1163); and/or

 

  (e)

any reallocation of a chargeable realisation gain in accordance with section 792
of the Corporation Tax Act 2009;

“Tax Liability” means an Actual Tax Liability or a Deemed Tax Liability;

“Tax Refund” means any amount which may be surrendered pursuant to Chapter 4 of
Part 22 of the Corporation Tax Act 2010;

“VAT” means value added tax; and

“VATA” means the Value Added Tax Act 1994.

 

1.2

References in this schedule to paragraphs are to paragraphs in part A of this
schedule unless otherwise stated.

 

2.

COVENANT

 

2.1

Sellers’ Covenant to Pay

The Sellers jointly and severally covenant with the Buyer to pay to the Buyer an
amount equal to:

 

  (a)

any Actual Tax Liability arising:

 

  (i)

as a consequence of or by reference to any Event which occurs (or is treated for
Tax purposes as occurring) on or before Completion; or

 

  (ii)

in respect of or by reference to any Income, Profits or Gains earned, accrued or
received on or before Completion;

 

  (b)

a Deemed Tax Liability;

 

  (c)

each cost reasonably and properly incurred by the Buyer, a Target Group Company
or any other member of the Buyer’s Tax Group in connection with:

 

  (i)

a Tax Liability of the kind referred to in paragraph 2.1(a) or (b); or

 

  (ii)

successfully taking or defending any action under this schedule.

 

2.2

Amount of Deemed Tax Liability

For the purposes of this schedule, the amount of a Deemed Tax Liability of a
Target Group Company is:

 

  (a)

in the case of a loss of or failure to obtain an Accounts Relief:

 

  (i)

where the Accounts Relief is a right to repayment of Tax, the amount of the
Relief lost or not obtained;

 

  (ii)

in any other case, the amount of Tax which is payable by a Target Group Company
which would not have been payable but for the loss or failure to obtain the
Accounts Relief;

 

Hogan Lovells

 

80

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

  (b)

in the case of a use or set off of a Buyer’s Relief, the amount of Tax which
would have been payable by a Target Group Company but for the use or set off of
the Buyer’s Relief,

and, for the purposes of paragraphs 2.2(a)(ii) and (b), it will be assumed that
Reliefs which are not Buyer’s Reliefs are used, so far as legally possible, in
priority to Buyer’s Reliefs.

 

3.

LIMITATIONS AND EXCLUSIONS

 

3.1

Limitations and Exclusions

The Sellers shall not be liable under the covenant contained in paragraph 2.1 or
2.2 or for a breach of the Tax Warranties in respect of any Tax Liability of a
Target Group Company (or in respect of any costs relating to the Tax Liability
of a Target Group Company):

 

  (a)

unless the Buyer has served on the Sellers a written notice on or before the
seventh anniversary of the end of the accounting period in which the Completion
Date falls giving such details of the claim as the Buyer then has;

 

  (b)

to the extent that specific provision or reserve was made in the balance sheet
in the Final Completion Statement in respect of the Tax Liability;

 

  (c)

to the extent that the Tax Liability arises or is increased:

 

  (i)

by any change in legislation (including regulations);

 

  (ii)

the publication of any practice or concession by a Tax Authority;

 

  (iii)

any change in published practice or concession;

 

  (iv)

a change in the judicial interpretation of the law; or

 

  (v)

an increase in the rates of Tax,

in each case taking effect retrospectively and not actually in force at the date
hereof;

 

  (d)

to the extent that it would not have arisen but for a voluntary act or omission
of the Buyer or a Target Group Company or any other member of the Buyer’s Tax
Group after Completion unless such act was carried out:

 

  (i)

pursuant to an obligation of the Buyer, a Target Group Company or any other
member of the Buyer’s Tax Group incurred prior to the Completion Date;

 

  (ii)

in order to comply with any law or regulation; or

 

  (iii)

with the written agreement or at the written request of the Sellers;

 

  (e)

to the extent that the Tax Liability would not have arisen or would have been
reduced or eliminated but for a Target Group Company ceasing to carry on any
trade or business after Completion or effecting a major change after Completion
in the nature or conduct of any trade or business carried on by it;

 

  (f)

to the extent that the Tax Liability would not have arisen or would have been
reduced or eliminated but for any change of the date to which a Target Group
Company makes up its accounts or any change to any of its accounting policies,
methods, bases or practices (including the treatment of timing differences and
the basis on which the Company values its assets) in either case after
Completion;

 

Hogan Lovells

 

81

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

  (g)

to the extent that the Tax Liability would not have arisen or would have been
reduced or eliminated but for the failure or omission on the part of a Target
Group Company:

 

  (i)

to comply with a request of the Sellers or their duly authorised advisers
pursuant to paragraph 6;

 

  (ii)

to make any valid claim, election, surrender or disclaimer;

 

  (iii)

to give any valid notice or consent; or

 

  (iv)

to do any other thing,

under the provisions of any enactment or regulation relating to Tax after
Completion as requested by the Sellers, the making, giving or doing of which was
taken into account in the Final Completion Statement;

 

  (h)

to the extent that a Relief (other than a Buyer’s Relief) is available to the
relevant Target Group Company (or would have been available but for the use of
the Relief to set against or mitigate a liability of any company for which the
Sellers are not liable under this schedule) to set against or otherwise mitigate
the Tax Liability provided it has not already been taken into account under
paragraph 8 and is not a Relief in respect of which a payment has been made
under paragraph 10;

 

  (i)

to the extent that the Tax Liability would not have arisen or would have been
reduced or eliminated but for any claim, election, surrender or disclaimer made
or notice or consent given after Completion by the Buyer, a Target Group Company
or any other member of the Buyer’s Tax Group under the provisions of any
enactment or regulation relating to Tax other than any claim, election,
surrender, disclaimer, notice or consent assumed to have been made, given or
done in the Final Completion Statement;

 

  (j)

to the extent that the Tax Liability comprises interest or penalties arising by
virtue of an underpayment of Tax under the Instalment Regulations prior to
Completion, insofar as such underpayment would not have been an underpayment but
for a bona fide estimate made prior to Completion of the amount of Income,
Profits or Gains to be earned, accrued or received after Completion proving to
be incorrect, or but for any other Event or Events which occur (or are treated
for Tax purposes as occurring) after Completion;

 

  (k)

to the extent that the Tax Liability relates to Income, Profits or Gains
actually earned, accrued or received before Completion and not taken into
account in the Final Completion Statement;

 

  (l)

to the extent that the amount of the Tax Liability has been recovered from any
person (excluding the Buyer, the Target Group Companies and any other member of
the Buyer’s Tax Group but including a Tax Authority);

 

  (m)

to the extent that the Tax Liability would not have arisen but for the failure
of the Buyer to comply with its obligations contained in paragraph 4 or 6;

 

  (n)

to the extent that the Tax Liability arises as a result of:

 

  (i)

the sale of an asset; or

 

Hogan Lovells

 

82

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

  (ii)

as a result of any other Event (including the expiry of a time period),

which causes the crystallisation of a chargeable gain by:

 

  (1)

the Buyer;

 

  (2)

a Target Group Company; or

 

  (3)

another person connected with any of them,

at any time after Completion; and

 

  (o)

to the extent that the Tax Liability arises as a result of changes in the value
of an asset at any time after Completion.

 

3.2

Paragraphs 1.2, 2 and 4 of schedule 9 shall apply to this Tax Covenant as if
expressly set out herein.

 

4.

MANNER OF MAKING AND CONDUCT OF CLAIMS

 

4.1 (a)

If the Buyer or a Target Group Company becomes aware of any Demand which could
give rise to a liability for the Sellers under this Tax Covenant or for breach
of any of the Tax Warranties, the Buyer must give notice to the Sellers of the
Demand (including reasonably sufficient details of the Demand) as soon as
possible (and in any event not more than 10 days after the Buyer or the relevant
Target Group Company becomes aware of the Demand) and must take (or procure that
a Target Group Company will take) such action as the Sellers may reasonably
request to avoid, dispute, resist, appeal, compromise or defend the Demand or
any matter relating to the Demand.

 

  (b)

The Sellers will have the right (if they wish) to control any proceedings taken
in connection with the action referred to in paragraph 4.1(a), and must be kept
fully informed of any actual or proposed developments (including any meetings)
and must be provided with copies of all correspondence and documentation
relating to the Demand or action, and any other information, assistance and
access to records and personnel as it requires.

 

4.2

The Sellers shall indemnify (on an after-Tax basis) the Buyer, the relevant
Target Group Company and any other member of the Buyer’s Tax Group against all
costs reasonably and properly incurred in connection with any action referred to
in paragraph 4.1.

 

4.3

The Buyer will procure that no matter relating to the Demand as is referred to
in paragraph 4.1 is settled or otherwise compromised without the Sellers’ prior
written consent and the Buyer will, and will procure that each other member of
the Buyer’s Tax Group and their advisers will not submit any correspondence or
return or send any other document to any Tax Authority where the Buyer or a
member of the Buyer’s Tax Group or their advisers is aware or could reasonably
be expected to be aware that the effect of submitting the correspondence or
return or sending the document would or could be to put the Tax Authority on
notice of any matter which could give rise to, or could increase, a claim under
this Tax Covenant or for breach of any of the Tax Warranties.

 

4.4

If the Sellers do not request the Buyer to take, or procure the taking of, any
appropriate action within 30 days of notice to the Sellers under paragraph 4.1,
or does not indemnify the Buyer, the relevant Target Group Company and any other
member of the Buyer’s Tax Group as stated in paragraph 4.2, the Buyer will be
free to satisfy or settle the relevant Tax Liability on such terms as it may
reasonably think fit.

 

Hogan Lovells

 

83

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

5. PAYMENT OF CLAIMS

 

5.1

Payments by the Sellers of any liability under paragraph 2 must be made in
cleared and immediately available funds on the days specified in paragraph 5.2.

 

5.2

The days referred to in paragraph 5.1 are as follows:

 

  (a)

in the case of an Actual Tax Liability, the day which is the later of five
Business Days after demand is made for payment by or on behalf of the Buyer, and
three Business Days before the date on which that Tax becomes due and payable to
the relevant Tax Authority;

 

  (b)

in the case of a Deemed Tax Liability, the later of five Business Days after
demand is made for payment by or on behalf of the Buyer and:

 

  (i)

in the case of the loss of or failure to obtain an Accounts Relief which is a
right to repayment of Tax, the day on which the Tax would otherwise have been
repaid by the relevant Tax Authority;

 

  (ii)

in the case of the loss of or failure to obtain any other Accounts Relief, three
Business Days before Tax which would otherwise have been saved becomes due and
payable to the relevant Tax Authority;

 

  (iii)

in the case of the use or set-off of a Buyer’s Relief, the day on which the Tax
which would have been payable but for the use or set-off is due and payable to
the relevant Tax Authority;

 

  (c)

in any other case, five Business Days after the date on which demand is made for
payment by or on behalf of the Buyer.

 

5.3

For the purposes of this paragraph 5, the date on which Corporation Tax does or
would become due and payable is:

 

  (a)

in any accounting period of the taxpaying company (the “Taxpayer”) ending on or
after 1 July 1999 in which the Taxpayer is a “large company” within the meaning
of the Instalment Regulations, the date or dates upon which the Corporation Tax
would be provided to be due and payable by Regulations 4 and 5 of the Instalment
Regulations on the assumption that the Corporation Tax payable by the Taxpayer
is the “total liability” of the Taxpayer for that period within the meaning of
the said Regulations 4 and 5; or

 

  (b)

in any other accounting period of the Taxpayer, the date which is nine months
following the end of such accounting period.

 

5.4

For the purposes of this paragraph 5, references to the day on which an amount
of Tax which is not Corporation Tax becomes due and payable to the relevant Tax
Authority shall be the last day on which the Tax may by law be paid without
incurring any penalty or liability for interest in respect of the Tax.

 

6.

TAX RETURNS AND COMPUTATIONS

 

6.1

The Sellers or their duly authorised agents will be responsible for, and have
the conduct of preparing, submitting to and agreeing with the relevant Tax
Authorities all Tax returns and computations of each Target Group Company,
including claims, elections, surrenders, notices or consents in respect of any
Surrender, for all Tax accounting periods of the such Target Group Company
ending on or before Completion.

 

Hogan Lovells

 

84

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

6.2

For the purposes of paragraph 6.1:

 

  (a)

the Buyer must afford (or procure the affordance) to the Sellers or their duly
authorised agents all information and assistance which may reasonably be
required to prepare, submit and agree all such outstanding Tax returns and
computations;

 

  (b)

the Sellers must as soon as reasonably practicable deliver to the Buyer copies
of all correspondence sent to or received from any Tax Authority;

 

  (c)

the Buyer undertakes to procure that any relevant Target Group Company will at
the request of the Sellers sign and submit to the relevant Tax Authority all
such notices of claim, surrender or consent to surrender (including provisional
or protective notices of claim, surrender or consent to surrender in cases where
any relevant Tax computations have not yet been agreed) and all the other
documents and returns that the Sellers may request to give effect to the
foregoing provisions provided that the Buyer will not be obliged to procure that
a Target Group Company signs and submits a document which contains a manifest
error.

 

6.3

The provisions of paragraphs 6.1 and 6.2(a) and (b) will apply in respect of the
Tax accounting period of a Target Group Company in which Completion falls as if
the word “Sellers” reads “Buyer” and the word “Buyer” reads “Sellers”.

 

7.

NO WITHHOLDINGS, ETC

 

7.1

All sums payable by either party under this Agreement (including, but not
limited to, this schedule) must be paid free of and without any rights of
counterclaim or set off, and without deduction or withholding on any ground
whatsoever, save only as may be required by law. If any deduction or withholding
is required by law (save in respect of interest under clause 14 of this
Agreement) the payer must:

 

  (a)

provide such evidence of the relevant withholding as the payee may reasonably
require; and

 

  (b)

pay to the payee such amount as will ensure that, after any deduction or
withholding has been made, the payee will have received a sum equal to the
amount that the payee would otherwise have received in the absence of the
deduction or withholding.

 

7.2

To the extent that any deduction or withholding in respect of which an
additional amount has been paid under paragraph 7.1 results in the payee
obtaining a Relief, the payee must pay to the payer, within 10 Business Days of
the use or set off of the Relief, an amount equal to the lesser of the Tax saved
as a result of such use or set off and the additional sum paid under paragraph
7.1 provided that the payee will not be obliged to pay to the payer an amount in
excess of the amount which will leave it (after that payment) in the same after
Tax position as it would have been in had there been no payment under this
Agreement in respect of which such deduction or withholding arose.

 

7.3

If any Tax Authority charges to Tax any sum other than the Purchase Price paid
(the “original payment”) to the payee under this Agreement the payer shall be
obliged to pay to the payee such additional amount (the “additional payment”) as
will ensure that, after the payment of the Tax so charged on the original
payment and any Tax chargeable on the additional payment, there shall remain a
net sum equal to the amount of the original payment, the additional payment to
be paid three Business Days after the payee has served notice that Tax on the
original payment has become due and payable, or would have become due and
payable but for the availability of, in the case of a payment by the Sellers, a
Buyer’s Relief or, in the case of a payment by the Buyer, any Relief.

 

Hogan Lovells

 

85

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

7.4

No payer for the purposes of paragraph 7.1 or 7.3 will be liable to make any
payment under either paragraph to the extent that the payment exceeds that which
would have been payable if the payee were the original Buyer or one of the
original Sellers (as applicable) as at Completion.

 

8.

CORRESPONDING SAVINGS AND THIRD PARTY RECOVERY

 

8.1

If any Tax Liability which has resulted in a payment having been made by the
Sellers under this Tax Covenant or for breach of any of the Tax Warranties has
given rise to a Relief (other than a Buyer’s Relief) which would not otherwise
have arisen, then:

 

  (a)

the Buyer must procure that full details of such Relief are given to the Sellers
as soon as reasonably practicable; and

 

  (b)

to the extent that a liability to make an actual payment of Tax is reduced as a
result of the use or set off of the Relief, the Buyer must pay to the Sellers on
the date when the Buyer or any relevant Target Group Company would have been
under an obligation to make the reduced payment of tax an amount equal to the
lower of:

 

  (i)

the amount by which the liability is reduced; and

 

  (ii)

the amount of the payment previously made by the Sellers in respect of the Tax
Liability giving rise to the Relief,

and, for these purposes, any Relief as is referred to in this paragraph 8.1
shall be deemed, insofar as legally possible, to be used in priority to any
other Relief and the Sellers shall be entitled to require that the relevant
Target Group Company’s auditors (acting as experts and not arbitrators) shall
certify the amount and date of use of the relief, which certification shall, in
the absence of manifest error, be final and binding on the parties.

 

8.2

If the Sellers at any time pay to the Buyer an amount under this Tax Covenant or
for breach of any of the Tax Warranties and the Buyer or a Target Group Company
or any other member of the Buyer’s Tax Group is or becomes entitled to recover
from some other person (other than a member of the Buyer’s Tax Group but
including any Tax Authority) a sum in respect of the matter giving rise to the
payment (other than by reason of the use or set off of a Buyer’s Relief), the
Buyer, if so required by the Sellers, will (and will procure that the relevant
Target Group Company or member of the Buyer’s Tax Group will) take all
reasonable steps to enforce the recovery (provided that neither the relevant
Target Group Company nor the Buyer nor the relevant member of the Buyer’s Tax
Group will be obliged to take any action which it reasonably considers to be
prejudicial to its interests), and the Buyer must within two Business Days of
the recovery, pay to the Sellers the lesser of:

 

  (a)

the sum recovered by the Buyer or the Target Group Company or the member of the
Buyer’s Tax Group (as applicable) from the other person (including sums
recovered in respect of costs and any interest or repayment supplement received
in respect of the sum recovered, but less any costs of recovery not previously
reimbursed and less any Tax chargeable on the sum recovered); and

 

  (b)

the amount paid by the Sellers to the Buyer as referred to above plus any
interest or repayment supplement received in respect of the sum recovered, less
any Tax chargeable thereon, to the extent that the interest or repayment
supplement is attributable to any period following the payment by the Sellers to
the Buyer as referred to above.

 

Hogan Lovells

 

86

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

9.

SECONDARY LIABILITIES

 

9.1

The Buyer covenants with the Sellers to pay to the Sellers an amount equivalent
to any Tax or any amount on account of Tax which any member of a Seller’s Tax
Group is required to pay as a result of a failure by a Target Group Company, or
any other member of the Buyer’s Tax Group, to discharge that Tax.

 

9.2

The Sellers covenant with the Buyer to pay to the Buyer an amount equivalent to
any Tax or any amount on account of Tax which a Target Group Company, or any
other member of the Buyer’s Tax Group is required to pay as a result of a
failure by any member of a Seller’s Tax Group to discharge that Tax.

 

9.3

The covenants contained in paragraphs 9.1 and 9.2 shall:

 

  (a)

extend to any costs incurred in connection with the Tax or a successful claim
under paragraph 9.1 or 9.2, as the case may be;

 

  (b)

in the case of paragraph 9.1, not apply to Tax to the extent that the Buyer
could claim payment in respect of it under paragraph 2 or for breach of the Tax
Warranties, except to the extent a payment has been made pursuant to paragraph 2
and the Tax to which it relates was not paid by the relevant Target Group
Company or any person on its behalf; and

 

  (c)

not apply to Tax to the extent it has been recovered under any relevant
statutory provision (and the Buyer or the Sellers, as the case may be, will
procure that no recovery is sought to the extent that payment is made
hereunder).

 

9.4

Paragraphs 4 and 5 (conduct of claims and due date for payment) shall apply to
the covenants contained in paragraphs 9.1 and 9.2 as they apply to the covenants
contained in paragraph 2, replacing references to the “Sellers” by the “Buyer”
(and the other way round) where appropriate, and making any other necessary
modifications.

 

10.

OVER PROVISIONS

 

10.1

If a Target Group Company shall receive a repayment of tax which:

 

  (a)

is not reflected in the Final Completion Statement;

 

  (b)

does not arise from the use of a Buyer’s Relief; and

 

  (c)

is not a Relief to which paragraph 8 (corresponding savings and third party
recovery) applies, which has been taken into account in paragraph 3.1(h);

the Buyer will procure that the relevant Target Group Company will pay to the
Sellers an amount equal to the amount of the repayment within three Business
Days of being in receipt of the repayment.

 

10.2

If the Sellers become liable in respect of any claim arising under this Tax
Covenant or for breach of any of the Tax Warranties credit must be given to the
Sellers against the liability for any amount referred to in paragraph 10.3 (a
“Relevant Amount”) which must be dealt with in accordance with paragraph 10.5.

 

10.3

A Relevant Amount for the purposes of paragraph 10.2 is:

 

  (a)

the amount by which any provision for Tax (other than a provision for deferred
tax) contained in the Final Completion Statement proves to be an over provision;
or

 

  (b)

the amount of any Tax saved by the Buyer, a Target Group Company or any other
member of the Buyer’s Tax Group for which the Sellers are not liable under this

 

Hogan Lovells

 

87

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

 

Tax Covenant or for breach of the Tax Warranties as a result of the use or set
off of a Relief (other than a right to a repayment of Tax) arising to a Target
Group Company on or prior to Completion (other than a Buyer’s Relief, a Relief
which has been taken into account in paragraph 3.1(h), or a Relief to which
paragraph 8 applies.

 

10.4

If the Buyer becomes aware that there are or may be amounts of the kind referred
to in paragraph 10.3, it must (or must procure that a Target Group Company will)
promptly inform the Sellers of that fact. If the auditors for the time being of
a Target Group Company are requested by either of the parties to this Agreement
to certify any of the amounts as are referred to above the relevant party must
procure that the auditors are instructed to give and will (at the expense of the
party requesting) give as soon as practicable the certificate and in so doing
they will act as experts and not as arbitrators and (in the absence of manifest
error) their decision will be final and binding on the parties hereto.

 

10.5

Each Relevant Amount is to be dealt as follows:

 

  (a)

the Relevant Amount must first be set off against any payment then due from the
Sellers under this Tax Covenant or for breach of the Tax Warranties; and

 

  (b)

to the extent there is an excess of the Relevant Amount after any amounts have
been set off under paragraph 10.5(a) the excess shall be paid to the Sellers.

 

10.6

Where any certification as is mentioned in paragraph 10.4 has been made, the
Sellers or the Buyer may request the auditors to review the certification in the
light of all relevant circumstances, including any facts which have become known
only since such certification, and to certify whether the certification remains
correct or whether, in the light of those circumstances, the amount that was the
subject of such certification should be amended.

 

10.7

If the auditors certify under paragraph 10.6 that an amount previously certified
should be amended, that amended amount will be substituted for the purposes of
paragraph 10.5 as the Relevant Amount in respect of the certification in
question in place of the amount originally certified, and an adjusting payment
(if any) as may be required by virtue of the above mentioned substitution must
be made as soon as practicable by the Sellers or the Buyer, as the case may be.

 

Hogan Lovells

 

88

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

Part B

Tax Warranties

 

11.

GENERAL

 

11.1

The Accounts of each Target Group Company make provision or reserve within
generally accepted accounting principles in respect of any period ended on or
before the Balance Sheet Date for all Tax assessed or liable to be assessed on
any Target Group Company or for which it is accountable at the Balance Sheet
Date whether or not the Target Group Company has or may have a right to
reimbursement against any other person and proper provision has been made and
shown in the Accounts of each Target Group Company for deferred taxation in
accordance with generally accepted accounting principles.

 

11.2

Each Target Group Company has paid all Tax which it has become liable to pay and
is not; and has not in the six years ending on the date of this Agreement been,
liable to pay a penalty, surcharge fine or interest in connection with Tax;

 

11.3 (a)

Each Target Group Company has within applicable time limits made all returns,
provided all information, given all notices and maintained all records in
relation to Tax as it is required to make, provide, give or maintain.

 

  (b)

So far as the Sellers are aware, all the returns, information and notices are
correct and accurate in all material respects, and are not the subject of any
dispute.

 

  (c)

Each Target Group Company has fully complied on a timely basis with all notices
served on it and any other requirements lawfully made of it by any Tax
Authority.

 

11.4

No Target Group Company is involved in a dispute in relation to Tax with a Tax
Authority.

 

12.

VALUE ADDED TAX OR TURNOVER TAX

 

12.1

Each Target Group Company is a member of the group for VAT purposes of which the
Target Company is the representative member and the Disclosure Letter contains
full details of such group registration including details of each company which
is, or has been in the past six years, a member of that group.

 

12.2

No Target Group Company is, nor has it been in the last six years, a member of a
group of companies for VAT purposes other than the group of companies referred
to in warranty 12.1.

 

12.3

Each Target Group Company:

 

  (a)

makes no supplies other than taxable supplies for the purposes of VAT;

 

  (b)

obtains credit for all input tax paid or suffered by it;

 

  (c)

is not the grantor or grantee of any interest in land in respect of which an
election has been made to waive exemption from VAT; and

 

  (d)

has no interest in any capital items in respect of which it is or may be subject
to any restriction or adjustment of the amount of input credit available to it
for the purposes of VAT.

 

12.4

No Target Group Company is, nor has it agreed to become, an agent, manager or
factor of, or fiscal representative of or for, any person not resident in its
jurisdiction for the purpose of the relevant VAT legislation.

 

Hogan Lovells

 

89

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

13.

STAMP DUTY

 

13.1

All documents which are necessary:

 

  (a)

to establish the title of any Target Group Company to any asset; or

 

  (b)

to enforce any rights and in respect of which any stamp duty or other similar
tax is payable (whether as a condition to the validity, registrability or
otherwise),

have been duly stamped.

 

14.

STAMP DUTY RESERVE TAX

Each Target Group Company has paid all stamp duty reserve tax to which it is
liable.

 

15.

STAMP DUTY LAND TAX

Each Target Group Company has paid all stamp duty land tax to which it is
liable.

 

16.

TAX CLEARANCES

The Disclosure Letter contains details of all transactions, schemes or
arrangements during the six years prior to Completion in respect of which a
Target Group Company has been a party or has otherwise been involved in respect
of which a statutory clearance application was made, together with copies of all
relevant applications for clearances and copies of all clearances obtained
pursuant thereto, all such clearances having been obtained on the basis of full
and accurate disclosure of all material facts and considerations relating
thereto.

 

17.

RESIDENCE

No Target Group Company is liable to Tax in a jurisdiction other than the
jurisdiction in which it is incorporated.

 

18.

GROUPS

 

18.1

No Target Group Company is, nor has it been during the six years prior to
Completion, a member of a group of companies.

 

18.2

Each Target Group Company is resident in the United Kingdom for Tax purposes.

 

19.

ANTI AVOIDANCE

So far as each Seller is aware, no Target Group Company has, in the last 18
months, been party to, nor has been otherwise involved in, any transaction,
scheme or arrangement designed wholly or mainly for the purpose of avoiding or
deferring Tax or reducing a liability to Tax (including amounts to be accounted
for under PAYE).

 

Hogan Lovells

 

90