Exhibit 10.24


 


EMPLOYMENT AGREEMENT


 


AGREEMENT, dated as of the     
day of             ,
2006, between Morgans Hotel Group Co., a Delaware corporation (the “Company”), and W. Edward Scheetz (the “Executive”) which shall become effective
upon the closing date (the “Effective Date”)
of the initial public offering of the shares of common stock, par value $0.01
per share, (the “Common Stock”) of the Company
pursuant to the registration statement on Form S-1 (Reg. No. 333-129277)
(the “IPO”).


 


1.             Employment Period. 
The Company hereby agrees to employ the Executive, and the Executive
hereby agrees to work in the employ of the Company, subject to the terms and
conditions of this Agreement, for the period commencing on the Effective Date and
ending on the fourth anniversary of the Effective Date (the “Employment Period”).  Commencing on the fourth anniversary of the
Effective Date and on each anniversary thereafter, the Employment Period shall
be automatically extended for one year terms unless either the Company or the
Executive shall give the other party not less than 90 days
prior written notice of the intention to not extend this Agreement (a “Non-Renewal Notice”).


 


2.             Terms of Employment.


 


(a)           Position and Duties.


 


(i)            During
the Employment Period, the Executive shall serve as President and Chief
Executive Officer of the Company with the appropriate authority, duties and
responsibilities attendant to such position and any other duties that may reasonably
be assigned by the Company’s Board of Directors (the “Board”) consistent with his position as President
and Chief Executive Officer.  The Executive
shall be appointed to the Board on or prior to the Effective Date and the Company
shall use its reasonable best efforts to cause the Executive to be nominated and
elected to the Board during the Employment Period.


 


(ii)           During
the Employment Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote substantially
all of the Executive’s business time, attention and energies to the performance
of the duties assigned to the Executive hereunder, and to perform such duties
faithfully, diligently and to the best of the Executive’s abilities and subject
to such laws, rules, regulations and policies from time to time applicable to
the Company’s other executives. 
Notwithstanding the above, (x) nothing in this Agreement shall
preclude the Executive from devoting a portion of the Executive’s business
time, attention and energies to the performance of the Executive’s duties as
co-CEO of NorthStar Capital Investment Corp. (and such activity shall not
violate Section 7 of this Agreement) and (y) Executive shall be
entitled to attend to personal and family affairs and investments, be involved
in not for profit, charitable and professional activities and serve on up to
two for


 

















 


profit boards, provided that the foregoing does not, in the aggregate,
materially interfere with Executive’s responsibilities hereunder.  The Board hereby approves Executive’s service
on the boards set forth in Exhibit A hereto.


 


(b)           Compensation.


 


(i)            Annual
Base Salary.  During the Employment
Period, the Executive shall receive an annual base salary (“Annual Base Salary”) of at least $750,000,
which shall be subject to annual review and increase.  No increase in Annual Base Salary
shall limit or reduce any other right of or obligation to the Executive under
this Agreement.  Annual Base Salary shall
not be reduced at any time (including after any such increase) without the
Executive’s written consent and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased.


 


(ii)           Annual
Bonus.  During the Employment Period,
the Executive shall be paid an annual cash bonus (“Annual Bonus”) with a target level of 100% of Annual Base
Salary and a maximum level of 200% of Annual Base Salary.  The applicable corporate and individual
performance targets shall be determined by the Compensation Committee of the
Board (the “Compensation Committee”),
after consultation with the Executive, within the first 90 days of each
calendar year or within 30 days after the IPO if later.  The actual Annual Bonus for each calendar year
shall be determined in good faith by the Compensation Committee based upon
actual corporate and individual performance for such year and shall be payable
in accordance with the procedures specified by the Compensation Committee; provided
that the Annual Bonus shall be paid no later than March 15 of the
following year.  To the extent the Annual
Bonus would exceed 100 percent of Annual Base Salary, the Compensation
Committee may in its discretion pay such excess in the form of fully vested equity
compensation awards under Section 2(b)(v) (which may be subject to
other conditions that the Compensation Committee may determine).


 


(iii)          IPO
Stock Options.  On the Effective
Date, the Executive shall be granted options under the Company’s 2006 Omnibus Stock
Incentive Plan (the “SIP”) to
purchase $6,000,000 worth of shares of the Common Stock (using the offering price
shown on the cover of the Company’s IPO Form S-1) at an exercise price
equal to the offering price shown on the cover of the Company’s IPO Form S-1
(the “IPO
Stock Options”).  Such IPO
Stock Options shall be evidenced by, and subject to, the stock option agreement
attached hereto as Exhibit B.


 


(iv)          IPO
Units.  On the Effective Date, the
Executive shall be granted $6,500,000 worth of LTIP Units in Morgans Group LLC (for
this purpose each unit shall be valued at the offering price of a share of
Common Stock shown on the cover of the Company’s IPO Form S-1) in
accordance with the Company’s SIP (the “IPO Units”).  Such IPO Units shall be evidenced by, and
subject to, the unit agreement attached hereto as Exhibit C.


 


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(v)           Subsequent
Annual Equity Grants.  The Company may
grant the Executive at the end of each year equity awards under the Company’s
SIP, in an amount determined, and on terms and conditions specified, by the
Compensation Committee in its sole discretion, which terms and conditions shall
be no less favorable than the terms and conditions of equity awards granted to
other senior executives of the Company.


 


(c)           Benefits.


 


(i)            Employee
Benefits.  During the Employment
Period, the Executive shall be entitled to participate in all employee benefit
and other plans, practices, policies and programs and fringe benefits and
perquisites on a basis no less favorable than that provided to other executives
of the Company.  The Executive shall be
entitled to a car and driver, financial advisory and tax preparation assistance
and travel arrangements to the same extent currently provided by NorthStar
Capital Investment Corp.


 


(ii)           Indemnification.  To the fullest extent permitted by law, the
Company will indemnify the Executive against any actual or threatened action,
suit or proceeding, whether civil, criminal, administrative or investigative,
arising by reason of the Executive’s status as a current or former director,
officer, employee and/or agent of the Company.  The Executive shall be covered under any
director and officer insurance policy obtained by the Company, if any, and
shall be entitled to benefit from any officer indemnification arrangements
adopted by the Company, if any, to the same extent as other directors or senior
executive officers of the Company (including the right to such coverage or
benefit following the Executive’s employment to the extent liability continues
to exist).  However, the Executive agrees
to repay any expenses paid or reimbursed by the Company if it is ultimately
determined that the Executive is not legally entitled to be indemnified by the
Company.


 


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


 


3.             Termination of Employment.


 


(a)           Death
or Disability.  The Executive’s
employment shall terminate automatically upon the Executive’s death during the
Employment Period.  If the Company
determines in good faith that the Disability of the Executive has occurred
during the Employment Period (pursuant to the definition of Disability set
forth below), it may give to the Executive written notice in accordance with Section 10(b) of
its intention to terminate the Executive’s employment.  In such event, the Executive’s employment
with the Company shall terminate effective on the 30th day after receipt of
such notice by the Executive (the “Disability
Effective Date”), provided that, within the 30 days after such
receipt, the Executive shall not


 


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have returned to full-time performance of the Executive’s duties.  For purposes of this Agreement, “Disability” shall mean the inability of
the Executive to perform the Executive’s duties with the Company on a full-time
basis for 180 business days during any consecutive twelve month period as
a result of incapacity due to mental or physical illness which is determined to
be total and permanent by a physician selected by the Company and acceptable to
the Executive or the Executive’s legal representative or by the insurance
company which insures the Company’s long-term disability plan in which the
Executive is eligible to participate.


 


(b)           Cause.  The Company
may terminate the Executive’s employment during the Employment Period with or
without Cause.  For purposes of this
Agreement, “Cause” shall mean that the Executive:


 


(i)            willfully
and continually refuses to substantially perform the Executive’s
responsibilities under this Agreement, after demand for substantial performance
has been given by the Board that specifically identifies how the Executive has refused
to perform such responsibilities;


 


(ii)           willfully
engages in misconduct (including violations of Sections 7(a), (b) or (c) of
this Agreement) which is materially and demonstrably injurious to the Company;
or


 


(iii)          is
convicted of a felony or pleads guilty or nolo contendere to a felony.


 


For purposes
of this provision, no act or omission on the part of the Executive shall be
considered “willful” unless it is
done or omitted in bad faith or without reasonable belief that the act or
omission was in the best interests of the Company.  Any act or omission based upon a resolution
duly adopted by the Board or advice of counsel for the Company shall be
conclusively presumed to have been done or omitted in good faith and in the
best interests of the Company.  The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than 75% of the
entire membership of the Board (excluding the Executive) at a meeting of the
Board called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board) finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described above, and specifying
the particulars thereof in detail. 
Notwithstanding the foregoing, if the Board reasonably believes in good
faith that facts exist that may justify a termination for Cause, the Board
retains the right to (i) immediately terminate the Executive’s employment
(without any obligation to pay or provide any benefits described in Section 4)
and (ii) call the Board meeting and comply with the other requirements
described in the preceding sentence within 30 days thereafter (the “Determination Period”); provided that
promptly following the Determination Period, the Executive shall be paid or
provided the applicable benefits described in Section 4.  If the Company does not deliver to the
Executive a


 


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Notice of Termination within 90 days after the Board has knowledge
that an event constituting Cause has occurred, the event will no longer
constitute Cause.


 


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


 


(i)            the
assignment to the Executive of duties materially inconsistent with the
Executive’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated
by Section 2(a)(i), or any other action by the Company which results in a
diminution in the Executive’s title, position, status, reporting relationships, authority, duties or
responsibilities, other than insubstantial or inadvertent actions not taken in
bad faith which are remedied by the Company promptly after receipt of notice
thereof given by the Executive;


 


(ii)           any
failure by the Company to comply with any of the provisions of Section 2(b) or
2(c), other than insubstantial or inadvertent failures not in bad faith which
are remedied by the Company promptly after receipt of notice thereof given by
the Executive;


 


(iii)          any
purported termination by the Company of the Executive’s employment otherwise
than as expressly permitted by this Agreement;


 


(iv)          any
failure by the Company to comply with and satisfy Section 8(c);


 


(v)           following
a Change in Control (as defined in the SIP), any requirement that the Executive’s
principal place of employment be at a location more than 50 miles from New
York, New York;


 


(vi)          if
Executive is not re-elected to the Board; or


 


(vii)         any
material failure by the Company to comply with any other material provision of
this Agreement (including the equity award agreements).


 


Notwithstanding
the foregoing, placing the Executive on a paid leave for up to 30 days, pending the determination of
whether there is a basis to terminate the Executive for Cause, shall not
constitute a “Good Reason” event; provided, further, that, if the Executive is
subsequently terminated for Cause, then the Executive shall repay any amounts
paid by the Company to the Executive during such paid leave period.  If the Executive does not deliver to the
Company a Notice of Termination (as defined below) within 90 days after
the Executive has knowledge that an event constituting Good Reason has
occurred, the event will no longer constitute Good Reason.


 


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(d)           Notice of Termination. 
Any termination by the Company or by the Executive shall be communicated
by Notice of Termination to the other party hereto given in accordance with Section 10(b).  For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon, (ii) to
the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such
notice, specifies the Date of Termination. 
The failure by the Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the Executive’s or the
Company’s rights hereunder.


 


(e)           Date of Termination.  “Date of Termination” means (i) if the Executive’s
employment is terminated by the Company other than for Disability, the date of
receipt of the Notice of Termination or any later date specified therein within
30 days of such notice, (ii) if the Executive’s employment is
terminated by the Executive, 30 days after receipt of the Notice of
Termination (provided, that, the Company may accelerate the Date of Termination
to an earlier date by providing the Executive with notice of such action, or,
alternatively, the Company may place the Executive on paid leave during such
period) and (iii) if the Executive’s employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of the
Executive or the Disability Effective Date, as the case may be.


 


4.             Obligations of the Company upon Termination.


 


(a)           Other Than for Cause; For Good Reason.  If, during the Employment Period, the Company
shall terminate the Executive’s employment other than for Cause or Disability,
or the Executive shall terminate employment for Good Reason (or the Executive
dies after delivery of a valid Notice of Termination for Good Reason or without
Cause) (each, a “Qualifying Termination”),
except as provided in Sections 2(c)(ii) and 6 of this Agreement, the
Company shall have no further obligations to the Executive other than:


 


(i)            the
Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination an amount equal to the sum of (A) the amount
equal to the Executive’s Annual Base Salary through the Date of Termination to
the extent theretofore unpaid plus (B) a pro-rated bonus based upon
the number of days in the year of termination through the Date of Termination
relative to 365 and the greater of (i) the target Annual Bonus in the year
the Date of Termination occurs and (ii) the average of the Annual Bonuses
earned for the two years prior to the year the Date of Termination occurs (the
higher of (i) and (ii), the “Applicable Bonus Amount”)
plus (C) 2.5 times the
sum of the Annual Base Salary plus the Applicable Bonus Amount;


 


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(ii)           for
30 months following the Date
of Termination, the Company shall continue to provide medical and dental and
life insurance benefits to the Executive, his spouse and his eligible
dependents on the same basis and at the same cost as such benefits are then
currently provided to the Executive (the “Welfare
Benefits”); provided that such benefits shall be secondary to any
other coverage obtained by the Executive; provided, however, that if the
Company’s welfare plans do not permit such coverage, the Company will provide
the Executive the Welfare Benefits with the same after tax effect;


 


(iii)          if
applicable, the Executive shall be deemed to have an additional 30 months of
service credit under the Company’s retirement plans, programs, practices and
policies;


 


(iv)          all
Company equity awards (including, without limitation, the IPO Stock Options and
IPO Units) shall fully vest and all stock options and stock appreciation rights
shall remain exercisable for the lesser of (x) 30 months after the Date of
Termination or (y) the remainder of their term; and


 


(v)           to
the extent not theretofore paid or provided, the Company shall timely pay or provide
to the Executive any other amounts or benefits required to be paid or provided
or which the Executive is eligible to receive under any plan, program, policy
or practice or other contract or agreement of the Company and its affiliated
companies through the Date of Termination, including, but not limited to, any
accrued but unused vacation, any unreimbursed business expenses and the
percentage of target bonus payable to other senior executives of the Company
with respect to any unpaid bonus for any completed fiscal year prior to the
Date of Termination (such other amounts and benefits shall be hereinafter
referred to as the “Other Benefits”).


 


(b)           Death;
Disability.  If, during the
Employment Period, the Executive’s employment shall terminate on account of
death (other than via death after delivery of a valid Notice of Termination for
Good Reason or without Cause) or Disability, except as provided in Sections
2(c)(ii) and 6 of this Agreement, the Company shall have no further
obligations to the Executive other than to provide the Executive (or his
estate):  (i) the Annual Base Salary
through the Date of Termination to the extent theretofore unpaid, (ii) a pro-rated bonus as set forth in Section 4(a)(i)(B),
(iii) the Other Benefits and (iv) all Company equity awards shall be treated
as set forth in Section 4(a)(iv).


 


(c)           For Cause; Other than For Good Reason; End of Employment Period.  If, during the Employment Period, the Company
shall terminate the Executive’s employment for Cause or the Executive terminates
his employment without Good Reason, except as provided in Sections 2(c)(ii) and
6 of this Agreement, the Company shall have no further obligations to the
Executive other than the obligation to pay to the Executive:  (i) the Annual Base Salary through the
Date of Termination to the extent theretofore unpaid and (ii) the


 


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Other Benefits (but there shall be no payment for any unpaid bonus for
any completed fiscal year prior to the Date of Termination).


 


(d)           Non-Renewal by the Company.  If the Employment
Period is not extended by the Company pursuant to a Non-Renewal Notice as
provided for in Section 1 of this Agreement, except as provided in Sections 2(c)(ii) and
6 of this Agreement, the Company shall have no further obligations to the
Executive other than:


 


(i)            the
Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination an amount equal to the sum of (A) the amount
equal to the Executive’s Annual Base Salary through the Date of Termination to
the extent theretofore unpaid plus (B) 1.0 times the sum of the Annual Base Salary
plus the Applicable Bonus Amount;


 


(ii)           for
12 months following the Date
of Termination, the Company shall continue to provide the Executive the Welfare
Benefits; provided that such benefits shall be secondary to any other coverage
obtained by the Executive; provided, however, that if the Company’s welfare
plans do not permit such coverage, the Company will provide the Executive the
Welfare Benefits with the same after tax effect; and


 


(iii)          any
Company equity awards that would have vested during the 12 month period
following the Date of Termination shall immediately vest and all vested stock
options and stock appreciation rights shall remain exercisable for the lesser
of (x) the remainder of their term or (y) 12 months after the
Date of Termination; and


 


(iv)          to
the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive the Other Benefits.


 


(e)           Condition.  The
Company shall not be required to make the payments and provide the benefits
specified in this Section 4 unless the Executive executes and delivers to
the Company an agreement releasing the Company, its affiliates and its
officers, directors and employees from all liability (other than the payments
and benefits under this Agreement) in the form attached hereto as Exhibit D
(the “Release Agreement”);
provided, however, that the Company shall release the Executive from all
liability to the Company and its affiliates that any Board members (other than
the Executive) have actual knowledge of on the Date of Termination under the
Release Agreement.


 


(f)            Resignation from Certain Directorships.  Unless the Company agrees in writing to waive
this requirement, upon the termination of the Executive’s employment for any
reason, the Executive agrees to promptly resign from (i) office as a
director of the Company, any subsidiary or affiliate of the Company or any
other entity to which the Company appoints the Executive to serve as a director,
(ii) from all offices held by the Executive in any or all of such entities
in clause (i) above, and (iii) all fiduciary positions
(including as trustee) held


 


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by the Executive with respect to any pension plans or trusts
established by any such entities in clause (i) above.


 


5.             Full Settlement.  The Company’s obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others.  In no event shall
the Executive be obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under any of the
provisions of this Agreement, and such amounts shall not be reduced whether or
not the Executive obtains other employment.


 


6.             Certain Additional Payments by the Company.


 


(a)           Gross-Up.  Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment, award, benefit or distribution (or any
acceleration of any payment, award, benefit or distribution) by the Company (or
any of its affiliated entities) or any entity which effectuates a Change in
Control (as defined in the SIP) (or any of its affiliated entities) to or for
the benefit of the Executive (whether pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this Section 6) (the “Payments”) would be subject to the excise tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the “Code”),
or any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties, are
hereinafter collectively referred to as the “Excise Tax”), then the Company shall pay to
the Executive an additional payment (a “Gross-Up Payment”) in an amount such that
after payment by the Executive of all taxes (including, without limitation, any
income taxes and any interest and penalties imposed with respect thereto, and
any excise tax) imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the sum of (x) the Excise Tax
imposed upon the Payments and (y) the product of (A) any deductions
disallowed because of the inclusion of the Gross-Up Payment in the Executive’s
adjusted gross income and (B) the highest applicable marginal rate of
federal income taxation for the calendar year in which the Gross-Up Payment is
to be made.  For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to (i) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made, (ii) pay
applicable state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-Up Payment is to be made, net
of the maximum reduction in federal income taxes which could be obtained from
deduction of such state and local taxes and (iii) have otherwise allowable
deductions for federal income tax purposes at least equal to those which could
be disallowed because of the inclusion of the Gross-Up Payment in the Executive’s
adjusted gross income.


 


(b)           Determination.  Subject to the provisions of Section 6(a),
all determinations required to be made under this Section 6, including
whether and when a Gross-Up Payment is required, the amount of such Gross-Up
Payment, the amount of any Option


 


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Redetermination (as defined below) and the assumptions to be utilized
in arriving at such determinations, shall be made by the public accounting firm
that is retained by the Company as of the date immediately prior to the Change
in Control (the “Accounting
Firm”) which shall provide detailed supporting calculations both to
the Company and the Executive within fifteen (15) business days of the receipt
of notice from the Company or the Executive that there has been a Payment, or
such earlier time as is requested by the Company (collectively, the “Determination”).  Notwithstanding the foregoing, in the event (i) the
Board shall determine prior to the Change in Control that the Accounting Firm
is precluded from performing such services under applicable auditor
independence rules, (ii) the Audit Committee of the Board determines that
it does not want the Accounting Firm to perform such services because of
auditor independence concerns or (iii) the Accounting Firm is serving as
accountant or auditor for the person(s) effecting the Change in Control, the
Board shall appoint another nationally recognized public accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). 
All fees and expenses of the Accounting Firm shall be borne solely by
the Company and the Company shall enter into any agreement requested by the
Accounting Firm in connection with the performance of the services
hereunder.  The Gross-Up Payment under
this Section 6 with respect to any Payments shall be made no later than
thirty (30) days following such Payment. 
If the Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall furnish the Executive with a written opinion to such
effect, and to the effect that failure to report the Excise Tax, if any, on the
Executive’s applicable federal income tax return will not result in the
imposition of a negligence or similar penalty. 
The Determination by the Accounting Firm shall be binding upon the
Company and the Executive.  As a result
of the uncertainty in the application of Section 4999 of the Code at the
time of the Determination, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (“Underpayment”)
or Gross-Up Payments are made by the Company which should not have been made (“Overpayment”),
consistent with the calculations required to be made hereunder.  In the event the amount of the Gross-Up
Payment is less than the amount necessary to reimburse the Executive for his Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code)
shall be promptly paid by the Company to or for the benefit of the
Executive.  In the event the amount of
the Gross-Up Payment exceeds the amount necessary to reimburse the Executive
for his Excise Tax, the Accounting Firm shall
determine the amount of the Overpayment that has been made and any such
Overpayment (together with interest at the rate provided in Section 1274(b)(2) of
the Code) shall be promptly paid by the Executive to or for the benefit of the
Company.  The Executive shall cooperate,
to the extent his expenses are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with the
Excise Tax.  In the event that the
Company determines that the value of any accelerated vesting of stock options
held by the Executive shall be redetermined within the context of Treasury
Regulation §1.280G-1 Q/A 33 (the “Option
Redetermination”), the Executive shall (i) file with the
Internal Revenue Service an amended federal income tax return that claims a
refund of the overpayment of the Excise Tax attributable to such Option
Redetermination and (ii) promptly pay the refundable


 


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Excise Tax to the Company; provided that the Company shall pay all
reasonable professional fees incurred in the preparation of the Executive’s
amended federal income tax return.


 


7.             Covenants Not to Compete or Solicit Company Clients and Employees;
Confidential Information.


 


(a)           Non-Compete.  During
the Executive’s employment with the Company, and for a one year period after
the date the Executive’s employment is terminated for any reason (other than a
Qualifying Termination), the Executive shall not directly or indirectly
(without the prior written consent of the Company):


 


(i)            hold
a 10% or greater equity (including stock options whether or not exercisable),
voting or profit participation interest in a Competitive Enterprise (excluding
any investments of the Executive held as of the Effective Date as set forth in Exhibit E
hereto), or


 


(ii)           associate
(including as a director, officer, employee, partner, consultant, agent or
advisor) with a Competitive Enterprise and in connection with the
Executive’s association engage, or directly or indirectly manage or supervise
personnel engaged, in any activity:


 


(A)          that
is substantially related to any activity that the Executive was engaged in with
the Company or its subsidiary companies during the 12 months prior to the
Date of Termination, or


 


(B)           that
is substantially related to any activity for which the Executive had direct
managerial or supervisory responsibility with the Company or its subsidiary
companies during the 12 months prior to the Date of Termination.


 


Notwithstanding the foregoing, this Section 7(a)(ii) and
Sections 7(b)(i), 7(b)(ii) and 7(b)(iii) (provided that with respect
to Section 7(b)(iii) only to the extent that an action under Section 7(b)(iii) 
occurs solely as a result of an action set forth in Section 7(b)(i) or
Section 7(b)(ii)) below shall not prevent the Executive from having a
managerial or supervisory role at a Competitive Enterprise that does not
primarily engage in a Competitive Activity or that holds a 20 percent or
greater equity, voting or profit participation interest in any enterprise that
engages in a Competitive Activity, as long as the Executive (1) has no
direct role in such Competitive Activity and (2) does not Solicit any
Client with respect to such Competitive Activity.


 


For purposes of this Agreement,
“Competitive Enterprise” means
any business enterprise that either (A) engages in the management and
operation of a “full service hotel” business in North America or Western Europe
(a “Competitive Activity”) or (B) holds
a 20 percent or greater


 


11

















 


equity, voting or profit
participation interest in any enterprise that engages in a Competitive Activity.


 


(b)           Non-Solicit.  During
the Executive’s employment with the Company, and for a one year period after
the Executive’s employment is terminated for any reason, the Executive shall
not, in any manner, directly or indirectly (without the prior written consent of
the Company):  (i) solicit any
Client to transact business with a Competitive Enterprise or to reduce or
refrain from doing any business with the Company, (ii) transact business
with any Client that would cause the Executive to be a Competitive Enterprise, (iii) interfere
with or damage any relationship between the Company and a Client or (iv) solicit
anyone who is then an employee of the Company (or who was an employee of the
Company within the prior 12 months) to resign from the Company or to apply
for or accept employment with any other business or enterprise (other than
general advertising not specifically directed at such current or former
employees of the Company), provided, however, that the covenants in Sections 7(b)(i),
7(b)(ii) and 7(b)(iii) (provided that with respect to Section 7(b)(iii) only
to the extent that an action under Section 7(b)(iii) occurs solely as
a result of an action set forth in Section 7(b)(i) or Section 7(b)(ii))
shall cease to apply after a Qualifying Termination.


 


For purposes
of this Agreement, a “Client”
means any corporation, individual or other entity that constitutes one of the
top twenty clients of the Company or one of its subsidiary companies over the
preceding twelve month period (each a “Top Twenty Client”)
to whom the Executive provided services or for whom the Executive transacted
business in any manner, directly or indirectly. A client shall be considered a
Top Twenty Client where the total revenue derived from such client, either
directly or indirectly, over the preceding calendar year period ranks it as one
of the Company’s twenty highest revenue generating clients.  The Company will provide the Executive a list
of the Top Twenty Clients at the end of each calendar year during the
Employment Period.


 


(c)           Confidential Information. 
The Executive hereby acknowledges that, as an employee of the Company,
he will be making use of, acquiring and adding to Confidential Information of a
special and unique nature and value relating to the Company and its strategic
plan and financial operations.  The
Executive further recognizes and acknowledges that all Confidential Information
is the exclusive property of the Company, is material and confidential, and is
critical to the successful conduct of the business of the Company.  Accordingly, the Executive hereby covenants
and agrees that he will use Confidential Information for the benefit of the
Company only and shall not at any time, directly or indirectly, during the term
of this Agreement and thereafter divulge, reveal or communicate any
confidential information to any person, firm, corporation or entity whatsoever,
or use any confidential information for his own benefit or for the benefit of
others. Notwithstanding the foregoing, the Executive shall be authorized to
disclose Confidential Information (A) as may be required by law or legal
process after providing the Company with prior written notice and an opportunity
to respond to such disclosure (unless such notice is prohibited by law), (B) in
any criminal proceeding against him after providing the Company with prior
written notice and an


 


12

















 


opportunity to seek protection for such confidential information and (C) with
the prior written consent of the Company.


 


For purposes of this Agreement, “Confidential Information”
shall mean confidential or proprietary information, knowledge or data
concerning the Company and its subsidiary companies’ businesses, strategies,
operations, financial affairs, organizational matters, personnel matters,
budgets, business plans, marketing plans, studies, policies, procedures,
products, ideas, processes, software systems, trade secrets and technical
know-how. Notwithstanding the foregoing, Confidential Information shall not
include information which (i) is or becomes generally available to the
public or is, at the time in question, in the public domain other than as a
result of a disclosure by Executive, (ii) was available to Executive on a
non-confidential basis prior to the date of this Agreement or (iii) becomes
available to Executive from a source other than the Company, its agents or
representatives (or former agents or representatives)


 


(d)           Survival.  Any
termination of the Executive’s employment or of this Agreement (or breach of
this Agreement by the Executive or the Company) shall have no effect on the
continuing operation of this Section 7.


 


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


 


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


 


(g)           Cease
Payments.  In the event that
the Executive materially breaches Section 7(a), 7(b) or 7(c), the
Company’s obligation to make or provide payments or benefits under Section 4
or 6 shall cease, provided, however, that this Section 7(g) shall
cease to apply after a Change in Control (as defined in the SIP).


 


(h)           Non-disparagement.  For a one year period after the Executive’s
employment is terminated for any reason, (i) the Executive shall not, in
any manner, directly or indirectly make or publish any statement (orally or in
writing) that would libel, slander, disparage, denigrate, ridicule or criticize
the Company, any of its affiliates or any of their employees, officers or
directors and (ii) the Board members and the Company’s executive


 


13

















 


officers shall not, in any manner, directly or indirectly make or publish
any statement (orally or in writing) that would libel, slander, disparage,
denigrate, ridicule or criticize the Executive.


 


8.             Successors.


 


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


 


(b)           This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and assigns,
provided that the Company may not assign this Agreement other than as described
in Section 8(c) below.


 


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


 


9.             Disputes.


 


(a)           Mandatory
Arbitration.  Subject to the
provisions of this Section 9, any controversy or claim between the
Executive and the Company arising out of or relating to or concerning this
Agreement (including the covenants contained in Section 7) or any aspect
of the Executive’s employment with the Company or the termination of that
employment (together, an “Employment Matter”)
will be finally settled by arbitration in the County of New York administered
by the American Arbitration Association (the “AAA”)
under its Commercial Arbitration Rules then in effect.  However, the AAA’s Commercial Arbitration Rules will
be modified in the following ways:  (i) notwithstanding
any provision of the AAA rules to the contrary, the arbitration shall be
heard by a panel of three neutral arbitrators, with each party appointing one
arbitrator, who shall jointly appoint a third, (ii) each arbitrator will
agree to treat as confidential evidence and other information presented to
them, (iii) there will be no authority to award punitive damages (and the
Executive and the Company agree not to request any such award), (iv) the
optional Rules for Emergency Measures of Protections will apply, (v) there
will be no authority to amend or modify the terms of this Agreement except as
provided in Section 10(a) (and the Executive and the Company agree
not to request any such amendment or modification) and (vi) a decision
must be rendered within ten business days of the parties’ closing statements or
submission of post-hearing briefs.


 


(b)           Injunctions and Enforcement of Arbitration Awards.  The Executive or the Company may bring an
action or special proceeding in a state or federal court of competent
jurisdiction sitting in the County of New York to enforce any arbitration award
under Section 9(a).  Also, the
Company may bring such an action or proceeding, in addition to its


 


14

















 


rights under Section 9(a) and whether or not an arbitration
proceeding has been or is ever initiated, to temporarily, preliminarily or
permanently enforce any part of Section 7. 
The Executive agrees that (i) violating any part of Section 7
would cause damage to the Company that cannot be measured or repaired, (ii) the
Company therefore is entitled to seek an injunction, restraining order or other
equitable relief restraining any actual or threatened violation of Section 7,
(iii) no bond will need to be posted for the Company to receive such an
injunction, order or other relief and (iv) no proof will be required that
monetary damages for violations of Section 7 would be difficult to
calculate and that remedies at law would be inadequate.


 


(c)           Jurisdiction and Choice of Forum. The Executive and the Company
irrevocably submit to the exclusive jurisdiction of any state or federal court
located in the County of New York over any Employment Matter that is not
otherwise arbitrated or resolved according to Section 9(a).  This includes any action or proceeding to
compel arbitration or to enforce an arbitration award.  Both the Executive and the Company (i) acknowledge
that the forum stated in this Section 9(c) has a reasonable relation
to this Agreement and to the relationship between the Executive and the Company
and that the submission to the forum will apply even if the forum chooses to
apply non-forum law, (ii) waive, to the extent permitted by law, any
objection to personal jurisdiction or to the laying of venue of any action or
proceeding covered by this Section 9(c) in the forum stated in this Section 9(c),
(iii) agree not to commence any such action or proceeding in any forum
other than the forum stated in this Section 9(c) and (iv) agree
that, to the extent permitted by law, a final and non-appealable judgment in
any such action or proceeding in any such court will be conclusive and binding
on the Executive and the Company. 
However, nothing in this Agreement precludes the Executive or the
Company from bringing any action or proceeding in any court for the purpose of
enforcing the provisions of Section 9(a) and this Section 9(c).


 


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


 


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


 


(f)            Costs.  The Company will
reimburse as incurred any reasonable expenses, including reasonable attorney’s
fees, the Executive incurs as a result of any Employment Matter, provided that the
Executive shall promptly return any such reimbursements if found by an
arbitrator to have brought or defended such Employment Matter in bad faith.


 


10.           Miscellaneous.


 


(a)           The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect.  This Agreement may not be amended or modified


 


15

















 


otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.


 


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


 


If to the
Executive:


 


at the
Executive’s primary residential address

as shown on the records of the Company


 


If to the
Company:


 


Morgans Hotel Group Co.

475 Tenth Avenue

New York, NY 10018
Telecopy Number:  

Attention:  General Counsel


 


or to such
other address as either party shall have furnished to the other in writing in
accordance herewith.  Notice and
communications shall be effective when actually received by the addressee.


 


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


 


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


 


(e)           If any compensation or benefits
provided by this Agreement may result in the application of Section 409A
of the Code, the Company shall, in consultation with the Executive, modify the
Agreement in the least restrictive manner necessary in order to, where
applicable, (a) exclude such compensation from the definition of “deferred
compensation” within the meaning of such Section 409A or (b) comply
with the provisions of Section 409A, other applicable provision(s) of the
Code and/or any rules, regulations or other regulatory guidance issued under
such statutory provisions and to make such modifications, in each case, without
any diminution in the value of the payments to the Executive.  To the extent required in order to comply
with Section 409A of the Code, amounts and benefits to be paid or provided
to the Executive under Section 4 of this Agreement shall be paid or
provided to the Executive on the first business day after the date that is six
months following the Date of Termination. 
To the extent that the Welfare Benefits are so delayed, the Executive
shall be entitled to COBRA continuation coverage under Section 4980B of
the Code (“COBRA Coverage”)
during such


 


16

















 


period of delay, and the Company shall reimburse the Executive for any
Company portions of such COBRA Coverage in the seventh month following the Date
of Termination.


 


(f)            The Executive’s or the Company’s
failure to insist upon strict compliance with any provision of this Agreement or
the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 3(c) (subject
to the limitation in the last sentence of Section 3(c)) or the Company’s
right to terminate the Executive for Cause pursuant to Section 3(b) (subject
to the limitation in the last sentence of Section 3(b)), shall not be
deemed to be a waiver of such provision or right or any other provision or right
of this Agreement.


 


(g)           It is the parties’ intention that
this Agreement not be construed more strictly with regard to the Executive or
the Company.


 


(h)           From and after the Effective Date,
this Agreement shall supersede any other employment or severance agreement or
arrangements between the parties (and the Executive shall not be eligible for
severance benefits under any plan, program or policy of the Company).


 


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


 


(j)            If the IPO does not occur by July 1, 2006
this Agreement shall be null and void and shall have no force or effect.


 


17

















 


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


 


	
   

  	
  W. EDWARD
  SCHEETZ

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MORGANS
  HOTEL GROUP CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  



 


18

















 


Exhibit A


 


Carmichael Training Systems


 


Loyalist Insurance Group


 


Morgans Hotel Group


 


NorthStar Realty Finance Corp.


 


NorthStar Capital Investment Corp.


 


Tutor.com


 


401Kexchange.com


 

















 


Exhibit B


 

















 


Exhibit C


 

















 


Exhibit D


 

















 


Exhibit E


 


107 Portfolio


 


American R/E Partners


 


Apollo Real Estate Advisors II


 


Apollo Real Estate Capital Partners


 


Apollo Real Estate Investment Fund I


 


Apollo Real Estate Investment Fund II


 


Apollo Real Estate Investment Fund II Co-Investors


 


Dr Boulevard


 


Golf Host Holdings


 


Hallwood Realty Partners


 


NorthStar Capital Partner


 


NS NM LLC


 


Pam Centre