Filed by Bowne Pure Compliance



 




Exhibit 10.1


EMPLOYMENT AGREEMENT


This Employment
Agreement (this “Agreement”) is made and entered into intending to
be effective on December 10, 2007 (the “Commencement Date”) by
and between Morgans Hotel Group Co., with a principal place of business at 475
Tenth Avenue, New York, NY 10018 (the “Company” or
“Employer”) and Fred J. Kleisner (“Employee”).


WHEREAS, the
Company employed the Employee as its interim Chief Executive Officer effective
September 20, 2007 pursuant to an employment agreement dated as of that
date (the “Interim Employment Agreement”) ;


WHEREAS, the
Company now desires to employ Employee as its full time Chief Executive
Officer, and Employee desires to be employed by the Company in that capacity on
the terms and conditions stated below;


WHEREAS, the
Interim Employment Agreement will be terminated effective as of the
Commencement Date, subject to the final performance of payment and other
obligations accrued thereunder through the Commencement Date.


NOW, THEREFORE, the
Parties agree as follows:


1.       Employment.


a.       Company hereby
agrees to employ Employee and Employee hereby accepts such employment, upon the
terms and conditions contained in this Agreement.


b.       Employee will
perform the job duties of Chief Executive Officer, or such other duties as the
Board of Directors of the Company (the “Board”) may assign Employee
from time to time, in its sole discretion, consistent with the duties and
responsibilities of a Chief Executive Officer. Employee agrees to continue to
devote substantially his full time, energies and best efforts to the
performance of his duties for the Company, to the exclusion of all other
business or employment activities.


c.       During the term of
this Agreement, Employee shall report to the Board, and he shall serve as a
member of the Board, for so long as he is so elected by the shareholders.
Employee’s office shall be located in Manhattan.


2.        Compensation.


The Company shall
pay to the Employee, and the Employee hereby accepts, as payment for the
services Employee renders to the Company remuneration in the following amounts
and forms:


a.        Initial
Stock Option Grant. Promptly after the Commencement Date, the Company shall
grant Employee 215,000 options (“Stock Options”) to purchase shares
of Common Stock under the Company’s 2007 Omnibus Stock Incentive Plan
(the “2007 SIP”) 95,000 of which shall have a strike price equal to
the share price of the grant date and 120,000 of which shall have a strike
price that is 140 percent of the share price on the grant date.





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b.        Initial
Matching Grant. Promptly after the Commencement Date, Employee will
purchase shares of the Company’s Common Stock equal to Five Hundred
Thousand ($500,000) Dollars. Upon completion of such purchase, the Company will
grant Employee 55,000 LTIP Units (as defined in the 2007 SIP) under the 2007
SIP.


c.        Salary.
The Company will pay Employee a base salary equal to $900,000 per year,
($37,500 semi-monthly), which may be increased at the Company’s sole
discretion from time to time (the “Base Salary”). The Company
customarily conducts annual performance reviews and at that time the
Compensation Committee may reevaluate Employee’s Base Salary, provided,
however, that Employee’s Base Salary shall not be less than $900,000 per
year.


d.        Annual
Bonus and Annual Grant. Employee will be eligible for an annual cash bonus
each calendar year (the “Annual Bonus”) with a target payout of 75%
of Base Salary, and an annual equity bonus with a maximum value on the grant
date (determined in accordance with the Black-Scholes valuation model or other
customary equity valuation models) of up to Two Million Four Hundred Twenty
Five Thousand ($2,425,000) Dollars (the “Annual Grant”). Before the
last day of February of each calendar year, Employee and the Compensation
Committee of the Board (the “Compensation Committee”) shall, in
good faith, set objective performance metrics (the “Performance
Metrics”) against which the Compensation Committee will evaluate
Employee’s performance in determining the amount, if any, of the Annual
Bonus and Annual Grant. The exact amount of Employee’s Annual Bonus and
the exact value of the Annual Grant and type of Equity Award that comprises the
Annual Grant shall be determined by the Compensation Committee in its sole
discretion, provided, however, that the Compensation Committee will base
75 percent of the Annual Bonus and Annual Grant on the Performance
Metrics, and it will base 25 percent on Employee’s subjective
performance as determined by the Compensation Committee. Employee’s
Annual Bonus will be paid and certificates or other evidence of the Equity
Award delivered annually, no later than four months after the end of the
calendar year. Except as provided in paragraph 3 of this Agreement,
Employee must be employed by the Company on the date bonuses are paid to
Company employees in order to be entitled to receive a bonus. Employee shall
remain eligible to receive the prorata annual bonus provided for in the Interim
Employment Agreement for the period of September 20, 2007 through
December 10, 2007 in accordance with its terms.


e.        Expenses.
During the term of this Agreement, Employee shall be entitled to reimbursement
of all reasonable and actual out-of-pocket expenses incurred by him in the
performance of his services to the Company consistent with corporate policies,
provided that the expenses are properly accounted for, on the same basis as
other, similarly situated employees, and provide further that Employee’s
travel expenses shall include first class travel and accommodations. The
Company will reimburse Employee for such other reasonable and necessary
business expenses as the Compensation Committee specifically approves.


f.        Relocation
Expenses. The Company will reimburse Employee for reasonable moving
expenses associated with the shipment of household goods and personal effects
of Employee and his family to New York. Employee shall obtain at least two bids
with regard to such expenses and shall accept the lower of such bids. Employee
shall provide copies of invoices or other appropriate documentation with
respect to such expenses. The Company agrees to use its reasonable best efforts
to cooperate with the Executive in minimizing the tax on such amount.





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g.        Fringe
Benefits. Employee will be eligible for benefits, including medical,
dental, life insurance and 401(k), and paid vacation on the same basis as
other, similarly situated employees and in accordance with the terms of the
various plans governing these benefits.


h.        Equity
Agreements. The Stock Options and LTIP Units awarded pursuant to this
paragraph 2 (the “Equity Awards”) shall be evidenced by award
agreements (the “Equity Agreements”) in the form approved by the
Board and which have been signed by the Employee and the Company from time to
time. The Equity Awards shall vest one-third on each of the first three
anniversaries of the effective date of grant. The terms of the Equity
Agreements will govern the Equity Awards, provided, however, that
notwithstanding the foregoing or anything else contained in this Agreement or
in the Equity Agreements to the contrary, if Employee’s employment is
terminated without Cause (as defined below) or with Good Reason (as defined
below), the period of time after such termination during which the Employee may
exercise those Stock Options that have vested on or before the termination date
shall be one year from and after the Employee’s termination date. To the
extent of any conflict between the terms of this Agreement and the terms of any
Equity Agreement with respect to the definitions of Cause, Good Reason or
otherwise, the terms of this Agreement shall prevail. In addition to the Equity
Agreements, this paragraph 2.g. and paragraph 3.g. of this Agreement shall be
deemed an Award Agreement as such term is defined in the 2007 SIP. All
corporate actions necessary for the authorization and approval of the Equity
Agreements and this Agreement by the Board or any Committee thereof have been
taken or will be taken promptly after the execution of this Agreement.


i.        Vacations.
Employee shall be eligible for up to five weeks vacation per calendar year
accrued in accordance with Employer’s policy for other senior executives.


3.        Term
and Termination.


a.        Term.
This Agreement shall commence on the Commencement Date and shall terminate on
December 31, 2010 (the “Employment Period”), unless earlier
terminated by either party as provided below. If the parties have failed to
extend this Agreement or enter into a new agreement on or before the end of the
Employment Period, and Employee’s employment terminates, for any reason,
at the end of the Employment Period, the Company’s only obligation to
Employee upon such termination will be to accelerate the vesting of all Equity
Awards granted prior to December 31, 2010 and to pay any remaining earned
but unpaid Base Salary. Notwithstanding the foregoing or anything else
contained in this Agreement to the contrary, if Employee is employed through
December 31, 2010, the Board shall determine the amount of any Annual
Bonus and/or Annual Grant, if any, to award Employee for calendar year 2010
based on the criteria set forth in paragraph 2. d. of this Agreement, and shall
pay such award or make such grant, if any, on the date in 2011 on which the
Company’s other Employees receive bonuses, regardless of whether Employee
in employed by the Company on that date.


b.        Termination
by Employee without Good Reason. Employee may terminate this Agreement by
providing the Company with written notice of his intent to terminate employment
90 days in advance of the date of such termination.





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c.        Termination
by Employee with Good Reason. Employee may terminate this Agreement for
Good Reason, as defined below, by notifying the Company of his intent to
terminate his employment with Good Reason, and, thereafter, the Employer shall:
(1) pay Employee his pro-rata Annual Bonus, if any, for the current
calendar year through the date of termination; (2) continue to pay
Employee his Base Salary for twenty four (24) months after his date of
termination; and (3) continue paying for Employee’s health insurance
benefits for a period of twenty four (24) months after such termination.
Employee must notify the Company, in writing, within sixty (60) days after
Employee has knowledge that an event constituting Good Reason has occurred, in
order for such event to constitute Good Reason. The term Good Reason shall mean
the occurrence of one or more of the following without Employee’s written
consent: (i) any failure by the Company to comply with any of the
provisions of paragraph 2 of this Agreement, 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 Employee; (ii) the
assignment to Employee, or the removal from Employee, of any duties or
responsibilities that result in a material diminution of Employee’s
authority; (iii) a material diminution of the budget over which Employee
has responsibility, other than for a bona fide business reason; (iv) any
failure by the Company to comply with and satisfy Section 8(c) of this
Agreement; (v) the imposition of any requirement that Employee relocate
his office to a location other than Manhattan; or (vi) a material breach
by the Company of any written agreement between the Company and Employee;
provided, however, that no termination for Good Reason shall be effective
unless the acts or omissions providing Good Reason to terminate are capable of
being cured and such acts or omissions continue after Employee has given the
Company notice thereof and 30 days in which to cure the same.


d.        Termination
Upon Death or Disability. The Employee’s employment shall terminate
automatically upon the Employee’s death. If the Board determines in good
faith that the Disability of the Employee, as defined below, has occurred
during the term of this Agreement, it may give to the Employee written notice
of its intention to terminate the Employee’s employment. In such event,
the Employee’s employment with the Company shall terminate effective on
the 30th day after receipt of such notice to the Employee (the
“Disability Effective Date”), provided that, within the
30 days after such receipt, the Employee shall not have returned to
full-time performance of the Employee’s duties. For purposes of this
Agreement, “Disability” shall mean the inability of the Employee to
perform his essential duties for the Company on a full-time basis for 180
calendar days during any consecutive twelve month period as a result of
incapacity due to mental or physical illness. Upon termination as the result of
Disability or death, Employer shall pay Employee his pro-rata Annual Bonus
through the last day on which he performed services for Employer prior to his
Disability or death, and Employer shall have no further obligations to Employee
hereunder.





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e.        Termination
by the Company for Cause. The Company may terminate Employee’s
employment at any time during the term of this Agreement for Cause, as defined
below, and the Company shall have no obligations to Employee other than to pay
Employee’s Base Salary through the date of termination. As used in this
Agreement, “Cause” shall mean: (i) Employee’s repeated
failure to perform his duties commensurate with his position as determined in
the sole discretion of the Board; (ii) Employee’s refusal to follow
the lawful policies and directives of the Board; (iii) Employee’s
material breach of the provisions of this Agreement; (iv) Employee’s
engagement in any act of dishonesty, gross negligence or willful misconduct
that may have an adverse effect on the Company, its business operations,
financial condition, assets, prospects or reputation; (v) Employee’s
breach of any fiduciary duty owed to the Company or (vi) Employee’s
knowing violation of any law, rule or regulation that affects his performance
of or ability to perform any of his duties or responsibilities with the
Company; provided, however, that no termination pursuant to clause (i),
(ii) or (iii) shall be effective unless the conduct providing Cause
to terminate continues after Employee has been given notice thereof and
30 days in which to cure the same.


f.       Termination by
the Company without Cause. The Company may terminate Employee’s
employment at any time during the term of this Agreement without Cause (as
defined above) by notifying the Employee in writing of its intent to terminate
Employee’s employment, and, thereafter, the Employer shall: (1) pay
Employee his pro-rata Annual Bonus, if any, for the current calendar year
through the date of termination; (2) continue to pay Employee his Base
Salary for twenty four (24) months after his date of termination; and
(3) continue paying for Employee’s health insurance benefits for a
period of twenty four (24) months after such termination.


g.        Termination
as the Result of a Change in Control. If, at the time of or during the
one-year period following a Change in Control, the Company terminates
Employee’s employment or Employee resigns for Good Reason: (1) pay
Employee his pro-rata Annual Bonus, if any, for the current calendar year
through the date of termination; (2) the Company shall pay Employee an amount
equal to two times his then Base Salary; (3) the Company shall continue to
pay his health insurance benefits for a period of Twenty Four (24) months
after the date of his termination; and (4) all equity awards granted to
Employee by the Employer and held by Employee on the closing date of the Change
in Control (the “Closing Date”), which have not previously vested,
shall become immediately vested and exercisable as of the Closing Date. As used
in this Agreement, a “Change in Control” shall mean a
“Corporate Transaction” as set forth in the 2007 SIP.


h.        Release of
Claims. Notwithstanding the foregoing or anything else contained in this
Agreement to the contrary, prior to the payment by Employer of the termination
payments and benefits provided for in clause (c), (f) or (g) of this
paragraph 4, and as a condition to such payments, Employee shall sign a
customary general release of all potential claims he may have against the
Company. The Company shall have no obligation to provide Employee with any of
the payments or benefits set forth in such clauses of this paragraph 4 until
Employee delivers such release.





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4.        Treatment
of Confidential Information.


As a Company
employee, Employee will acquire Confidential Information in the course of
Employee’s employment. Employee agrees that, in consideration of
employment with the Company, Employee will treat such Confidential Information
as strictly confidential. Employee will not, directly or indirectly, at any
time during employment with the Company or any time thereafter, and without
regard to when or for what reason, if any, such employment shall terminate, use
or cause to be used any such Confidential Information, in connection with any
activity or business except in the normal course of performing his designated
duties for the Company. Employee shall not disclose or cause to be disclosed
any such Confidential Information to any third parties unless such disclosure
has been authorized in writing by the Company or except as may be required by
regulatory body or governmental body. “Confidential Information” is
any Company confidential information not generally known to the public,
including but not limited to trade secrets, mailing lists, financial
information, business plans and/or policies, methods of operations, customer
lists and information, sales and marketing plans, research and development
plans, strategic plans, and any other information Employee acquires in the
course of employment with the Company that is not readily available to the
public.


5.        Non-solicitation.


During the period
that Employee is employed by the Company, and for a period of two
(2) years thereafter, regardless of the reason Employee’s employment
with the Company terminates, Employee will not directly or indirectly, either
individually or through any entity with which Employee may become associated,
cause, solicit, entice or induce any present or future employee of the Company
to leave the employ of the Company and/or directly hire or directly or
indirectly cause, solicit, entice or induce any present or future employee of
the Company to become employed or associated in any capacity with a competitor
of the Company.


6.        Non-compete.


Employee shall not
directly or indirectly compete with the business activities conducted by the
Company by providing any services to any other company, entity or individual
engaged in the business of owning and/or operating hotels, as an employee,
officer, director, agent, independent contractor, consultant, joint venturer,
shareholder (other than owning less than 1% of the stock of a public company),
partner, proprietor or any other type of principal in any person, firm or
business entity during the period Employee is employed by the Company, and for
a period of two (2) years after Employee’s employment with the
Company terminates, for any reason.





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7.        Remedies.


Employee
acknowledges that the breach or threatened breach of this Agreement will cause
the Company irreparable harm to its business and good will, for which there may
be no adequate remedy at law. Consequently, in the event that Employee breaches
or threatens to breach the Agreement, the Company shall be entitled to both:
(i) the issuance by a court of competent jurisdiction of an injunction,
restraining order, or other equitable relief in favor of itself, without the
necessity of posting a bond, restraining Employee from committing or continuing
to commit any violation; and (ii) monetary damages insofar as they can be
determined. Any right to obtain an injunction, restraining order or other
equitable relief under this paragraph 6 shall not be deemed a waiver of any
right to assert any other remedy the Company may have at law or in equity.


8.        Tax
Liability


a.        Anything in
this Agreement to the contrary notwithstanding, if (A) on the date of
termination of Employee’s employment with the Company, any of the
Company’s stock is publicly traded on an established securities market or
otherwise (within the meaning of Section 409A(a)(2)(B)(i) of the Code,
(B) if it is determined that Employee is a “specified
employee” within the meaning of Section 409A(a)(2)(B) of the Code,
(C) the payments exceed the amounts permitted to be paid pursuant to
Treasury Regulations section 1.409A-1(b)(9)(iii) and (D) such delay is
required to avoid the imposition of the tax set forth in
Section 409A(a)(1) of the Code as a result of such termination, Employee
would receive any payment that, absent the application of this Section 7,
would be subject to interest and additional tax imposed pursuant to
Section 409A(a) of the Code as a result of the application of
Section 409A(2)(B)(i) of the Code, then no such payment shall be payable
prior to the date that is the earliest of (1) 6 months after
Employee’s termination date, (2) Employee’s death or
(3) such other date as will cause such payment not to be subject to such
interest and additional tax (with a catch-up payment equal to the sum of all
amounts that have been delayed to be made as of the date of the initial
payment).


b.        It is the
intention of the parties that payments or benefits payable under this Agreement
not be subject to the additional tax imposed pursuant to Section 409A of
the Code. To the extent such potential payments or benefits could become
subject to such Section, the parties shall cooperate to amend this Agreement
with the goal of giving Employee the economic benefits described herein in a
manner that does not result in such tax being imposed.


9.
       Successors.


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





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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.


10.        Indemnification.


a.        If the
Employee is made a party, is threatened to be made a party, or reasonably
anticipates being made a party, to any Proceeding (as defined below) by reason
of the fact that he is or was a director, officer, employee, agent, manager,
trustee, consultant or representative of the Company or any of its affiliates
or is or was serving at the request of the Company or any of its affiliates, or
in connection with his service hereunder, as a director, officer, member,
employee, agent, manager, trustee, consultant or representative of another
person or entity, or if any Claim (as defined below) is made, is threatened to
be made, or is reasonably anticipated to be made, that arises out of or relates
to the Employee’s service in any of the foregoing capacities, then the
Employee shall promptly be indemnified and held harmless to the fullest extent
permitted or authorized by the Certificate of Incorporation or Bylaws of the
Company, or if greater, by applicable law, against any and all costs, expenses,
liabilities and losses (including, without limitation, attorneys’ and
other professional fees, judgments, interest, expenses of investigation,
penalties, fines, ERISA excise taxes or penalties and amounts paid or to be
paid in settlement) incurred or suffered by the Employee in connection
therewith or in connection with seeking to enforce his rights under this
paragraph 9, and such indemnification shall continue as to the Employee even if
he has ceased to be a director, member, employee, agent, manager, trustee,
consultant or representative of the Company or other person or entity and shall
inure to the benefit of the Employee’s heirs, executors and
administrators. The Employee shall be entitled to prompt advancement of any and
all costs and expenses (including, without limitation, attorneys’ and
other professional fees and other charges) incurred by him in connection with
any such Proceeding or Claim, or in connection with seeking to enforce his
rights under this paragraph 9, any such advancement to be made within
15 days after he gives written notice, supported by reasonable
documentation, requesting such advancement. Such notice shall include, to the
extent required by applicable law, an undertaking by the Employee to repay the
amount advanced if he is ultimately determined not to be entitled to
indemnification against such costs and expenses. Nothing in this Agreement
shall operate to limit or extinguish any right to indemnification, advancement
of expenses, or contribution that the Employee would otherwise have (including,
without limitation, by agreement or under applicable law). For purposes of this
Agreement, “Claim” shall include, without limitation, any
claim, demand, request, investigation, dispute, controversy, threat, discovery
request, or request for testimony or information and
“Proceeding” shall include, without limitation, any actual,
threatened, or reasonably anticipated, action, suit or proceeding, whether
civil, criminal, administrative, investigative, appellate, formal, informal or
other.





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b.        A
directors’ and officers’ liability insurance policy (or policies)
shall be kept in place, during the Employment Period and thereafter until the
later of (x) the sixth anniversary of the date on which the
Employee’s employment with the Company terminates and (y) the date
on which all claims against the Employee that would otherwise be covered by the
policy (or policies) would become fully time barred, providing coverage to the
Employee that is no less favorable to him in any respect (including, without
limitation, with respect to scope, exclusions, amounts, and deductibles) than
the coverage then being provided to any other present or former senior
executive or director of the Company.


11.        Severability.


If a court of
competent jurisdiction holds any provision of this Agreement to be illegal,
invalid or unenforceable, the remainder of the provisions of this Agreement
shall continue in full force and effect. Further, if any court of competent
jurisdiction construes any portion of any of the covenants contained in this
Agreement to be unenforceable or unreasonable as to scope, the court may and is
requested by the Parties to modify and enforce the covenants to the extent
reasonable.


12.        Entire
Agreement; Amendment.


This Agreement
expresses the entire and exclusive understanding of the parties to this
Agreement only with respect to the matters covered by this Agreement and
incorporates any and all prior agreements, understandings, negotiations and
discussions relating hereto, whether written or oral, all of which are hereby
terminated and canceled. This Agreement may be modified or amended only by a
written instrument manually signed by all parties to this Agreement.


13.        Applicable
Law.


This Agreement has
been made under and shall be construed and enforced in accordance with the laws
of the State of New York, notwithstanding its choice of law rules to the
contrary.


14.        Notice.


Any notice,
statement or demand required to be given under this Agreement shall be in
writing and shall be sent by hand delivery against receipt, certified mail,
return receipt requested or by a nationally recognized overnight carrier to the
address of the parties first listed above.


15.        Waiver.


The failure of
either party to insist upon strict performance of any of the terms or
provisions of this Agreement or to exercise any option, right or remedy
contained in this Agreement, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision of this Agreement shall be deemed to have
been made unless expressed in writing and signed by such party.





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IN WITNESS WHEREOF,
the undersigned have executed this Agreement as of the date first written above.





	 	 	 	 	 
	EMPLOYER:	 	EMPLOYEE:
	 
	 	 	 	 
	MORGANS HOTEL GROUP CO.	 	 
	 
	 	 	 	 
	By:

	 	/s/ David Hamamoto
	 	/s/ Fred J. Kleisner
	 

	 	 
	 	 
	 

	 	David Hamamoto,
	 	Fred J. Kleisner
	 

	 	Chairman, Board of Directors	 	 











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