Exhibit 10.1





Exhibit 10.1




WAIVER AGREEMENT




WAIVER AGREEMENT (this “Agreement”), dated as of April 21, 2010, is made by and among MORGANS
HOTEL GROUP CO., a Delaware corporation (the “Company”), and YUCAIPA AMERICAN ALLIANCE FUND II,
L.P., a Delaware limited partnership (“YAAF II”), and YUCAIPA AMERICAN ALLIANCE (PARALLEL) FUND II,
L.P., a Delaware limited partnership (“YAAF II-P” and together with YAAF II, the “Investors”).



WHEREAS, the Company and each of the Investors have entered into that certain Securities
Purchase Agreement, dated as of October 15, 2009, as amended by Amendment No. 1 thereto, dated as
of December 11, 2009 (as amended, the “Securities Purchase Agreement”) that, among other things,
prohibits the Investors from acquiring beneficial ownership of securities of the Company and its
subsidiaries under certain circumstances;



WHEREAS, on April 21, 2010, in connection with the proposed acquisition by the Investors of
the Company’s 2.375% Senior Subordinated Convertible Notes due 2014 (the “Convertible Notes”), the
Company entered into Amendment No. 2 to its Amended and Restated Stockholder Protection Rights
Agreement (as amended, the “Rights Agreement”), dated as of October 1, 2009, between the Company
and Mellon Investors Services LLC, as Rights Agent, to exempt under certain circumstances the
ownership of the Convertible Notes by any person from the determination of the beneficial ownership
of common stock of the Company (the “Common Stock”) by such person under the Rights Agreement; and



WHEREAS, in connection with the proposed acquisition of Convertible Notes by the Investors,
the Company has agreed to waive certain provisions of the Securities Purchase Agreement and any
other provisions of agreements and Company policies to which either of the Investors may be subject
that would prohibit the Investors from acquiring Convertible Notes (together, the “Company
Restrictions”), as set forth herein.



NOW, THEREFORE, in consideration of the foregoing and the agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto hereby agree as follows:



1. Waiver of Standstill Provisions. Subject to compliance by each Investor with the
provisions of this Agreement, the Company hereby waives the applicable provisions of Section 5.13
of the Securities Purchase Agreement and all other Company Restrictions that, in each case, would
prohibit the Investors from acquiring Convertible Notes, but only with respect to the acquisition
by the Investors of up to $88,000,000 in aggregate principal amount of Convertible Notes within six
months of the date hereof. For the avoidance of doubt, no waiver of the applicable provisions of
Section 5.13 of the Securities Purchase Agreement or any other Company Restrictions is given for
the conversion by the Investors of Convertible Notes into Common Stock. Should the Investors
determine to purchase or enter into an agreement to purchase Convertible Notes (a) prior to the end
of the 2nd Nasdaq Global Market trading day after issuance by the Company of its first quarter 2010
earnings report, prior thereto, the Investors shall obtain from the seller a nondisclosure and
lock-up agreement in the form attached



 


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hereto as Exhibit A (a “Nondisclosure and Standstill Agreement”), and only engage in such
purchase or enter into such agreement following disclosure of such information as the Company
agrees is required to be disclosed or (b) after such 2nd Nasdaq Global Market trading day but
within six months of the date hereof at a time at which insiders at the Company are not permitted
to trade in Company securities or otherwise when any officers, directors, members, partners,
managers or employees of the Investors have material non-public information concerning the Company
or its Affiliates, prior thereto, the Investors shall obtain from the seller a nondisclosure and
lock-up agreement substantially similar to Exhibit A, which the Company shall be a party to, and
only engage in such purchase or enter into such agreement following disclosure of such information
as the Company agrees is required to be disclosed. Subject to compliance by each Investor with the
provisions of this Agreement, the Company hereby waives the provisions of any Company Restrictions
applicable to the disclosure by Investor of Evaluation Material (as defined in the Nondisclosure
and Standstill Agreement) to any potential seller of Convertible Notes party to a Nondisclosure and
Standstill Agreement. 



2. Full Force and Effect. Except as expressly set forth herein, the Securities
Purchase Agreement (including the provisions thereof relating to the purchase or other
acquisition of Common Stock, including upon conversion of the Convertible Notes) and other
Company Restrictions shall continue in full force and effect in accordance with the provisions
thereof.



3. Company Right of First Refusal and First Offer. From and after the date hereof:



(a) (i) Subject to the further terms and conditions of this Section 3, if an Investor proposes
to sell Convertible Notes in a single transaction or series of related transactions at a time when
the market price of a share of Common Stock exceeds the then effective Conversion Price (as defined
in that certain Indenture, dated as of October 17, 2007 and as amended from time to time, by and
among the Company, as issuer, Morgans Group LLC, as guarantor, and The Bank of New York, as
trustee, relating to the Convertible Notes (the “Indenture”)), such Investor shall give the Company
prior written notice thereof (an “Investor Notice”), including in reasonable detail the price and
aggregate principal amount of Convertible Notes to be sold, and the other general terms, if any,
upon which such Investor proposes to sell such Convertible Notes. Each such Investor Notice shall
constitute an irrevocable offer by such Investor to the Company to sell all (but not less than all)
of the Convertible Notes included in such Investor Notice upon the terms and conditions reflected
in such Investor Notice. Notwithstanding the requirement to deliver an Investor Notice, the
Investors shall use their commercially reasonable best efforts to advise the Company two Business
Days prior to delivery of the Investor Notice of the development of any plans or proposals to sell
Convertible Notes.



(ii) If at any time when the market price of a share of Common Stock is equal to or less than
the then effective Conversion Price, if an Investor proposes to sell Convertible Notes in a single
transaction or series of related transactions, such Investor shall give the Company prior written
notice of such intent and set forth the aggregate principal amount of Convertible Notes which the
Investor is proposing to sell to the Company (the “Offer Notice”). Within two Business Days after
receipt of the Offer Notice, the Company may either decline in writing to offer to buy any such
Convertible Notes, or may propose in writing a price at which the



 


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Company offers to buy all (but not less than all) such Convertible Notes (the “Company
Offer”). The Investor shall have two Business Days after the receipt of the Company Offer to either
accept in writing the Company Offer (an “Offer Acceptance”) or to decline in writing the Company
Offer. If the Investor declines the Company Offer, the Investor may thereafter, for a period of
thirty days after the date of the Company Offer, sell or enter into an agreement to sell any of the
Convertible Notes covered by the Offer Notice at a price equal to or greater than the price offered
in the Company Offer. If the Company declines to make a Company Offer, the Investor may
thereafter, for a period of thirty days after the Company declines to make a Company Offer (or
thirty two days after the delivery of the Offer Notice if the Company does not respond) sell the
Convertible Notes covered by the Offer Notice at any price. If the Investor does not sell or enter
into an agreement to sell the Convertible Notes within such period, any subsequent sale of such
Convertible Notes shall be subject to the terms of this Section 3.



(b) The Company shall have the right to agree to purchase all (but not less than all) of the
Convertible Notes described in an Investor Notice by delivering written notice (the “Company
Notice”) to such Investor of its election to purchase such Convertible Notes prior to 4:00 p.m.
(New York City time) on the second Business Day following the delivery of the applicable Investor
Notice. The Company shall effect the purchase of all such Convertible Notes pursuant to the Company
Notice or an Offer Acceptance, including payment of the purchase price, not later than 4:00 p.m.
(New York City time) on the third Business Day after delivery of the Company Notice or, in the
event of an Offer Acceptance, on the third Business Day after delivery of the Offer Acceptance. If
an Investor Notice or an Offer Notice, Company Offer or Offer Acceptance is delivered after 4:00
p.m., New York City time, on any Business Day (as defined in the Securities Purchase Agreement), it
shall be deemed received on the next succeeding Business Day.



(c) If and to the extent that the Company fails to exercise its right to purchase all of the
Convertible Notes described in any Investor Notice pursuant to the foregoing clause (a)(i) within
the period required for such election, then the Investor shall have 60 days thereafter to sell such
Convertible Notes on terms no less favorable to the Investor (taken as a whole) than the terms set
forth in the Investor Notice.



4. Conversion Cap. In consideration of the waiver granted hereunder, and without
limitation to the provisions of Section 5.13 of the Securities Purchase Agreement or other Company
Restrictions that restrict the conversion by Investors of Convertible Notes into Common Stock, but
in addition thereto, the Investors hereby agree that:



(a) Subject to Section 4(b) below, an Investor or any Affiliate (as defined in Section 4(c)
below) thereof holding Convertible Notes (a “Holder”) shall not be entitled to convert any
Convertible Notes to the extent, and only to the extent, such conversion would cause such Holder,
together with its Affiliates, to become the beneficial owner of more than 9.9% of the issued and
outstanding shares of the Common Stock, as determined pursuant to Section 13 of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). The Company shall, within one Business Day
of delivery by a Holder of a Conversion Notice (as defined in Section 4(c) below), notify such
Holder in writing of (i) the number of shares of Common Stock that would be issuable to such Holder
if such conversion requested in such Conversion Notice were effected in full and (ii) the number of
issued and outstanding shares of Common Stock (as determined



 


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pursuant to Section 13 of the Exchange Act) as of the most recent date such information is
available to the Company, whereupon, notwithstanding anything to the contrary set forth herein,
such Holder may within one Business Day of its receipt of the notice from the Company required by
this Section revoke such Conversion Notice to the extent that it determines that such exercise
would result in such Holder, together with its Affiliates, owning in excess of 9.9% of the issued
and outstanding shares of Common Stock, as determined pursuant to Section 13 of the Exchange Act.



(b) Section 4(a) shall not limit a Holder from converting all or any portion of the
Convertible Notes if: (i) the Holders and the Licensed Affiliates (as defined in Section 4(c)
below) have obtained all Gaming Approvals necessary to hold, and to exercise or convert (as the
case may be) in full, any and all exercisable or convertible securities of the Company (the
“Company Securities”) held by the Holders and their Affiliates, and a Holder has notified the
Company in writing thereof and has not revoked such notification, or (B) none of the Holders or the
Licensed Affiliates are required under the Gaming Laws (as defined in Section 4(c) below) to obtain
any Gaming Approval (as defined in Section 4(c) below) to hold, or to exercise or convert (as the
case may be) in full, any such Company Securities (e.g., the Company does not own or hold any
assets or rights that subject it to the authority or jurisdiction of a Gaming Authority (as defined
in Section 4(c) below)), and a Holder has notified the Company in writing thereof and has not
revoked such notification. In connection with the foregoing, the Company shall use its reasonable
best efforts to keep the Investors apprised of all material facts pertaining to the business and
affairs of the Company which have, or would reasonably be expected to have, a bearing upon the
determination of whether any such Gaming Approvals are or continue to be required, including,
without limitation, information pertaining to any acquisitions or dispositions of assets by the
Company or any of its Affiliates that are subject to regulation under Gaming Laws, and shall, upon
request from a Holder from time to time, provide any documents and records in its possession or in
the possession of its Affiliates (to the extent available to the Company) that such Holder
reasonably requests in order to determine whether such Gaming Approvals are required;
provided, that, prior to receiving any documents and records, such Holder shall agree to
comply with the Company’s insider trading policies as in effect and shall agree to keep the
information contained therein confidential, including to the extent required so that the Company’s
provision of such documents and records does not cause the Company to breach any confidentiality
agreement to which it is a party.



(c) For purposes of this Section 4, the following capitalized terms shall have the following
meanings ascribed thereto:



(i) “Affiliate” has the meaning ascribed to such term in Section 12 of the Exchange Act;
provided, that, the existence of a management contract primarily for operational services
provided by the Company or an Affiliate of the Company shall not be deemed to be control by the
Company or such Affiliate, as the case may be.



(ii) “Conversion Notice” has the meaning ascribed to such term in the Indenture.



(iii) “Gaming Approval” means any approval or consent required under Gaming Laws to be
obtained from any Gaming Authority, including, without limitation, any



 


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registration, finding of suitability or approval of an acquisition of control.



(iv) “Gaming Authority” means any governmental entity with regulatory control, authority or
jurisdiction over casino, pari-mutuel, lottery or other gaming activities and operations within the
State of Nevada, including, without limitation, the Nevada Gaming Commission, the Nevada State
Gaming Control Board, the Clark County Liquor and Gaming Licensing Board and the City of Las Vegas.



(v) “Gaming Laws” means all laws, regulations, rules, ordinances or other pronouncements
pursuant to which any Gaming Authority possesses regulatory, licensing or permit authority over
casino, pari-mutuel, lottery or other gaming activities in any jurisdiction, including all rules
and regulations established by any Gaming Authority.



(vi) “Licensed Affiliate” means a person who is associated or affiliated with a Holder or any
of their respective Affiliates and is required under Gaming Laws to obtain a Gaming Approval for
any Holder to hold, or to exercise in full, the Company Securities.



5. Agreement Regarding a Refinancing Transaction. In consideration of the waiver
granted hereunder, the Investors hereby agree that, at any time any Investor is a holder of
Convertible Notes, should any member of the Company’s board of directors initially designated or
nominated by an Investor fail to recuse himself or herself with respect to any vote on any
proposal or plan proposed by management of the Company to effect a repayment, extension or other
refinancing of the Convertible Notes, such Investor or Investors will promptly take all action
permissible under applicable law to designate or nominate a replacement for such director as
promptly as possible. It is understood that the Investors, as holders of Convertible Notes,
are not agreeing hereby to elect to participate in any such repayment, extension or other
refinancing transaction.



6. Entire Agreement. This Agreement contains the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings relating to such subject matter.



7. Counterparts. This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement, and shall become effective when one or
more such counterparts have been signed by each of the parties hereto and delivered to the other
parties hereto.



8. Consent to Jurisdiction. All actions and proceedings arising out of or relating
to this Agreement shall be heard and determined exclusively in any New York state or federal
court sitting in the Borough of Manhattan of The City of New York. The parties hereto hereby (a)
submit to the exclusive jurisdiction of any state or federal court sitting in the Borough of
Manhattan of The City of New York for the purpose of any Action arising out of or relating to
this Agreement brought by any party hereto, and (b) irrevocably waive, and agree not to assert
by way of motion, defense, or otherwise, in any such action, any claim that it is not subject
personally to the jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that the action or proceeding is brought
in an inconvenient forum, that the venue of the action is improper, or that this Agreement
or the transactions contemplated



 


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by this Agreement may not be enforced in or by any of the
above-named courts.



9. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.



10. Severability. If any provision of this Agreement (or any portion thereof) or
the application of any such provision (or any portion thereof) to any person or circumstance
shall be held invalid, illegal or unenforceable in any respect by a court of competent
jurisdiction, such invalidity, illegality or unenforceability shall not affect any other
provision hereof (or the remaining portion thereof) or the application of such provision to any
other persons or circumstances.



11. Amendments and Waivers. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto. Any failure of any party
to comply with any obligation, agreement or condition herein may be waived by the party entitled
to the benefits thereof only by a written instrument signed by the party granting such waiver,
but such waiver shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. The failure of any party to this Agreement to assert any of its rights under this
Agreement or otherwise shall not constitute a waiver of such rights.



12. Assignment. This Agreement and the rights and obligations hereunder shall not
be assignable or transferable by any party without the prior written consent of the other
parties hereto. Any attempted assignment in violation of this Section 12 shall be void.



[Signatures on next page.]






 


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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year
first above written.



	 	 	 	 	 
	 	MORGANS HOTEL GROUP CO.

 	 
	 	By:  	/s/ Marc Gordon
 	 
	 	 	Name:  	Marc Gordon 	 
	 	 	Title:  	President 	 
	 
	 	YUCAIPA AMERICAN ALLIANCE FUND II, L.P.

 	 
	 	By:  	Yucaipa American Alliance Fund II, LLC
 	 
	 	Its: 	General Partner 	 
	 	 	 	 
	 	 	 
	 	By:  	                                            /s/ Robert P. Bermingham
 	 
	 	 	Name:  	Robert P. Bermingham 	 
	 	 	Title:  	Vice President 	 
	 
	 	YUCAIPA AMERICAN ALLIANCE (PARALLEL)
 FUND II, L.P.

 	 
	 	By:  	Yucaipa American Alliance Fund II, LLC
 	 
	 	Its: 	General Partner 	 
	 	 	 	 
	 	 	 
	 	By:  	                                            /s/  Robert P. Bermingham
 	 
	 	 	Name:  	Robert P. Bermingham 	 
	 	 	Title:  	Vice President