Exhibit 10.24


 


EMPLOYMENT AGREEMENT


 


AGREEMENT, dated as of the fourteenth day of February,
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


 


12

















 


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)


 


(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

  
	
   

  	
   

  
	
   

  	
  /s/ W. Edward Scheetz

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MORGANS HOTEL GROUP CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Marc Gordon

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  Marc Gordon

  
	
   

  	
   

  	
  Title: 

  	
  Chief Investment Officer and Executive Vice President of Capital
  Markets

  
						



 


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