Exhibit 10.25


 


 


EMPLOYMENT AGREEMENT


 


AGREEMENT, dated as of the         
day of                         ,
2006, between Morgans Hotel Group Co., a Delaware corporation (the “Company”), and Marc Gordon (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 Chief Investment Officer and Executive Vice President of Capital
Markets 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 Chief Executive Officer or the Company’s Board of
Directors (the “Board”) consistent
with his position as Chief Investment Officer and Executive Vice President of
Capital Markets.


 


(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, 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 $650,000, 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 120% 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 $3,000,000 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 $3,750,000 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.


 


(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


 


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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 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


 


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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 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.


 


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(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; or


 


(vi)                              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.


 


(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


 


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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;


 


(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


 


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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
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:


 


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(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 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


 


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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
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


 


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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 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


 


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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 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


 


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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 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)


 


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(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 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


 


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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 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


 


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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
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


 


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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 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.


 


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(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.


 


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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.


 


	
   

  	
  MARC GORDON

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MORGANS HOTEL GROUP LLC

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
  Name: 

  
	
   

  	
   

  	
  Title:   

  
	
   

  	
   

  	
   

  



 


 


 


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