Exhibit 10.4


 


FORMATION
AND STRUCTURING AGREEMENT


 


THIS
FORMATION AND STRUCTURING AGREEMENT (the “Agreement”) is made as of October 25, 2005, by and among
Morgans Group LLC, a Delaware limited liability company (“Morgans
Group LLC”), Morgans Hotel Group LLC, a Delaware limited liability
company (“Morgans Hotel Group LLC”), NorthStar
Hospitality LLC, a Delaware limited liability company (“NorthStar
Hospitality”), NorthStar Partnership, L.P., a Delaware limited
partnership (“NorthStar LP” and, together with NorthStar
Hospitality, “NorthStar”), RSA Associates, L.P.,
a Delaware limited partnership (“RSA Associates”),
Michael Overington (“Overington”),
and Anda Andrei (“Andrei”) (Morgans
Hotel Group LLC, NorthStar, RSA Associates, Overington and Andrei, each, an “Interested Party” and
collectively, the “Interested
Parties”).


 


WHEREAS, Morgans Hotel
Group LLC has formed Morgans Group LLC and Morgans Hotel Group Co., a Delaware
corporation (“MHG Co.”), to be the sole managing
member of Morgans Group LLC;


 


WHEREAS, in connection
with the initial public offering (the “IPO”) of the common stock, par value $.01 per share (the “Common Stock”), of MHG
Co. pursuant to a registration statement to be filed on Form S-1 with the
Securities and Exchange Commission, the parties hereto desire to effect certain
formation and structuring transactions outlined in Exhibit A hereto
(the “Formation and Structuring Transactions”)
under the terms and conditions set forth herein;


 


NOW, THEREFORE, in
consideration of the mutual covenants and conditions set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Morgans Group LLC and the Interested Parties agree as
follows:


 


ARTICLE I.


 


FORMATION AND STRUCTURING
TRANSACTIONS


 


1.1                                 Consent and Waiver. Subject to the terms and conditions of
this Agreement, Morgans Group LLC and each of the Interested Parties hereby (i) consent
to each of the Formation and Structuring Transactions, (ii) waive any restrictions
set forth under any agreement to which it is party and rights that it may have to object to
any of the Formation and Structuring Transactions, and (iii) agree to take
all actions reasonably necessary or advisable to consummate the Formation and
Structuring Transactions.


 


1.2                                 Unit Transactions. Subject to the terms and conditions of
this Agreement, Morgans Group LLC and each of the Interested Parties hereby
agree to perform the following transactions (the “Unit
Transactions”) with respect to the issuance, distribution or
exchange of membership units of Morgans Group LLC (“Morgans
Group LLC Units”) as an integral part of the Formation and
Structuring Transactions:


 





















 


(a)                                  Contribution Transactions.


 


(i)                                     Interests Owned By Morgans Hotel Group LLC.  Morgans Hotel Group LLC is the owner of,
among its ownership interests, the following interests (collectively, together
with the assets and liabilities and rights and obligations related to such
ownership interests, the “Contributed Interests”):


 


•                  100% of the
membership interests in MMRDH Parent Holding Company LLC, a Delaware limited
liability company;


 


•                  100% of the
membership interests in Hudson Managing Member LLC, a Delaware limited
liability company;


 


•                  100% of the
membership interests in Shore Club Holdings LLC, a Delaware limited liability
company;


 


•                  100% of the
membership interests in Clift Holdings LLC, a Delaware limited liability
company;


 


•                  100% of the
membership interests in Royalton London LLC, a New York limited liability
company;


 


•                  100% of the
membership interests in Royalton Europe Holdings LLC, a Delaware limited
liability company;


 


•                  100% of the
membership interests (the “MHG Management Company
Interests”) in Morgans Hotel Management Group LLC, a Delaware
limited liability company (“MHG Management Company”);


 


•                  a 1% membership
interest in 495 Geary LLC, a Delaware limited liability company;


 


•                  a 50% membership
interest in SC London LLC, a Delaware limited liability company; and


 


•                  a 50% membership
interest in SC Restaurant LLC, a Delaware limited liability company.


 


(ii)                                  As
contemplated by Steps (3) and (5) of Exhibit A, Morgans
Hotel Group LLC shall contribute, transfer, assign and convey to Morgans Group
LLC the Contributed Interests, and Morgans Group LLC shall acquire and accept
from Morgans Hotel Group LLC all right, title and interest of Morgans Hotel
Group LLC in (a) the Contributed Interests other than the MHG Management
Company Interests in connection with the initial formation of Morgans Group LLC,
as contemplated by Step (3) of Exhibit A and (b) the MHG Management
Company Interests in exchange for an aggregate number of Morgans Group LLC
Units with a value (based on the initial public offering price of the Common
Stock) equal to $20 million, as contemplated by Step (5) of Exhibit A,
which Morgans Group


 


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LLC Units are in each case exchangeable into Common Stock on a
one-for-one basis;


 


(b)                                 Distribution Transactions.


 


(i)                                     As
contemplated by Step (4) of Exhibit A, to the extent that
Overington and Andrei are entitled to a distribution under the Participation
Agreements, Morgans Hotel Group LLC shall distribute Morgans Group LLC Units to
Overington and Andrei, to the extent of their entitlements;


 


(ii)                                  As
contemplated by Step (4) of Exhibit A, Morgans Hotel Group LLC
shall distribute all of its Morgans Group LLC Units to NorthStar Hospitality
and RSA Associates, its members entitled to receive such a distribution, in
accordance with their membership interests in Morgans Hotel Group LLC; and


 


(iii)                               As contemplated by Step (4) of
Exhibit A, NorthStar Hospitality shall distribute all of the Morgans
Group LLC Units that it receives in the distribution referred to in Section 1.2(b)(ii) to
NorthStar LP, its sole member.


 


(c)                                  Exchange Transactions.  As
contemplated by Step (7) of Exhibit A, NorthStar shall
transfer all of its Morgans Group LLC Units to MHG Co. in exchange for an equal
number of shares of Common Stock, RSA Associates shall transfer all of its Morgans
Group LLC Units to MHG Co. in exchange for an equal number of shares of Common
Stock, Overington shall transfer all of his Morgans Group LLC Units to MHG Co.
in exchange for an equal number of shares of Common Stock, and Andrei shall
transfer all of her Morgans Group LLC Units to MHG Co. in exchange for an equal
number of shares of Common Stock.


 


1.3                                 Simultaneous Closing.  The Unit Transactions shall close simultaneously with
the closing of the IPO (the “Closing”).


 


1.4                                 Further Acts.  Subject
to Section 2.2 below, Morgans Group LLC and the Interested Parties shall
perform, execute, and deliver or cause to be performed, executed, and delivered
at the Closing or after the Closing, any and all further acts, instruments, and
agreements and provide such further assurances as the other parties may
reasonably require to consummate the Formation and Structuring Transactions
contemplated hereunder.


 


ARTICLE II.


 


CONDITIONS TO
CLOSING


 


2.1                                 Conditions to Closing.  The obligations of each Interested Party and Morgans
Group LLC hereunder are subject to the satisfaction of the conditions set forth
below on or before the Closing.  If for
any reason any of the conditions set forth in this Section 2.1 are not
satisfied or waived by each party entitled to the benefit of such conditions at
or prior to the Closing, or if the Closing shall not have occurred by June 30,
2006, then each party hereto by written notice given to the other parties
hereto shall have the right to elect to terminate this Agreement and each party
shall be released from their obligations hereunder and shall have no


 


3





















 


further liability hereunder except that nothing herein
shall relieve any party from liability for any breach of this Agreement prior
to such termination.


 


(a)                                  Representations and Warranties
True and Correct.
The representations and warranties of each other party hereto shall be true and
correct in all material respects as of the date of the Closing;


 


(b)                                 Closing of Unit Transactions. The closing of each of the Unit
Transactions applicable to each other party hereto shall occur simultaneously
therewith and all obligations of each other party hereto shall have been
performed or complied with in all material respects;


 


(c)                                  Closing of IPO. The IPO shall have been consummated simultaneously
with the closing of the Unit Transactions therewith; and


 


(d)                                 Registration Rights. MHG Co. shall have executed and
delivered a registration rights agreement with RSA Associates substantially in
the form attached as Exhibit B hereto and MHG Co. shall have
executed and delivered a registration rights agreement with NorthStar LP
containing terms substantially similar to the registration rights agreement
with RSA Associates, except that it will contemplate additional demand
registration rights, additional ability to undertake shelf takedown and
transfer rights (collectively, the “Registration Rights
Agreements”).


 


2.2                                 Abandonment of IPO. If at any time that either NorthStar LP
or Morgans Group LLC determines to abandon the IPO, NorthStar LP or Morgans
Group LLC, as applicable, shall so advise each other party hereto in writing
and thereupon each party shall be released from its obligations hereunder and
shall have no further liability hereunder.


 


ARTICLE III.


 


REPRESENTATIONS
AND WARRANTIES


 


3.1                                 Representations
by Morgans Group LLC. Morgans Group LLC hereby represents and
warrants to the Interested Parties as follows, as of the date of this Agreement
and as of the date of Closing:


 


(a)                                  Organization
and Power. Morgans Group LLC is duly organized,
validly existing, and in good standing under the laws of the State of Delaware,
and has full right, power, and authority to enter into this Agreement and to
assume and perform all of its obligations under this Agreement.  The execution, delivery and performance of
this Agreement have been duly authorized by Morgans Group LLC, and this
Agreement constitutes the legal, valid and binding obligation of Morgans Group
LLC, enforceable against Morgans Group LLC in accordance with its terms,
subject to bankruptcy, reorganization, insolvency and other similar laws
affecting the enforcement of creditors’ rights generally and to general
principles of equity.


 


(b)                                 Litigation. There
is no action, suit, or proceeding, pending or known to be threatened, against Morgans
Group LLC in any court or before any arbitrator or before any federal, state,
municipal, or other governmental department, commission, board, bureau, agency
or instrumentality that could materially and adversely affect the business,
financial position, or


 


4





















 


results of
operations of Morgans Group LLC or the ability of Morgans Group LLC to perform
its obligations hereunder.


 


(c)                                  Consents. Each consent, approval, authorization,
order, license, certificate, permit, registration, designation, or filing by or
with any governmental agency or body necessary for the execution, delivery, and
performance of this Agreement or the transactions contemplated hereby by Morgans
Group LLC shall be obtained as of Closing.


 


3.2                                 Representations by Interested
Parties. Each
Interested Party hereby severally and not jointly represents and warrants to Morgans
Group LLC as follows, as of the date of this Agreement and as of the date of
Closing:


 


(a)                                  Organization and Power. Such Interested Party (if not an
individual) is duly organized, validly existing and in good standing under the
laws of the state of its formation and has full right, power, and authority to
enter into this Agreement and to assume and perform all of its obligations
under this Agreement. The execution, delivery and performance of this Agreement
have been duly authorized by such Interested Party, and this Agreement
constitutes the legal, valid and binding obligation of such Interested Party,
enforceable against such Interested Party in accordance with its terms, subject
to bankruptcy, reorganization, insolvency and other similar laws affecting the
enforcement of creditors’ rights generally and to general principles of equity.


 


(b)                                 Litigation. There is no action, suit, claim, or
proceeding pending or, to the Interested Party’s knowledge, threatened against
such Interested Party or such Interested Party’s interests in any court, before
any arbitrator, or before or by any governmental body or other regulatory
authority that would materially and adversely affect the ability of such
Interested Party to perform its obligations hereunder or otherwise delay the
consummation of any of the transactions contemplated hereby.  Such Interested Party is not subject to any
judgment, decree, injunction, rule, or order of any court relating to such
Interested Party’s participation in the transactions contemplated by this
Agreement.


 


(c)                                  No Consents. No authorization, consent, approval,
permit, or license of, or filing with, any governmental or public body or
authority, or any other person or entity is required to authorize, or is
required in connection with, the execution, delivery, and performance of this
Agreement on the part of such Interested Party other than as may be required under
the provisions the following agreements, which shall be deemed to have been
provided pursuant to Section 1.1 hereof: (i) Fifth Amended and
Restated Limited Liability Company Agreement of Morgans Hotel Group LLC, (ii) Limited
Liability Company Agreement of NorthStar Hospitality LLC, (iii) Agreement
of Limited Partnership of NorthStar Partnership, L.P., and (iv) Amended
and Restated Limited Partnership Agreement of RSA Associates, L.P.


 


(d)                                 Securities Law Matters.


 


(i)                                     In
acquiring Morgans Group LLC Units and/or Common Stock, such Interested Party is
not relying upon any representations made to it by Morgans Group LLC or MHG Co.,
or any of their officers, employees, or agents that are not contained herein.
The Interested Party is aware of the risks involved in investing in Morgans
Group LLC Units and/or


 


5





















 


Common Stock. 
Such Interested Party has had an opportunity to ask questions of, and to
receive answers from Morgans Group LLC and MHG Co., or a person or persons
authorized to act on their behalf, concerning the terms and conditions of this
investment and the financial condition, affairs, and business of MHG Co.,
including MHG Co.’s intent to qualify as a real estate investment trust under
federal income tax laws and the associated restrictions that will apply to holders
of the Common Stock under federal tax laws and under MHG Co.’s charter and
bylaws.  Such Interested Party confirms
that all documents, records, and information pertaining to its investment in Morgans
Group LLC Units and/or Common Stock that have been requested by it, have been
made available or delivered to it prior to the date hereof.


 


(ii)                                  Such
Interested Party understands that Morgans Group LLC Units and/or Common Stock
issuable to such Interested Party hereunder has not been registered under the Securities
Act of 1933, as amended (the “Securities Act”),
or any state securities laws and is instead being offered and sold in reliance
on an exemption from such registration requirements. Morgans Group LLC Units
and/or Common Stock issuable to such Interested Party are being acquired solely
for the Interested Party’s own account, for investment, and are not being
acquired with a view to, or for resale in connection with, any distribution,
subdivision, or fractionalization thereof, in violation of such laws, and such
Interested Party does not have any present intention to enter into any
contract, undertaking, agreement, or arrangement with respect to any such
resale.  Each of NorthStar LP, RSA
Associates, Overington and Andrei understands that the certificates
representing the Common Stock issuable to such Interested Party will contain
appropriate legends reflecting the requirement that the Common Stock not be
resold by such Interested Party without registration under such laws or the
availability of an exemption from such registration.


 


(e)                                  Investment Decision. Such Interested Party is capable of
making an informed investment decision based on its knowledge, sophistication
and experience in financial and business matters together with the business and
financial experience of those persons, if any, retained by it, and other
relevant information it may have received with respect to the matters set forth
in this Agreement.


 


(f)                                    Brokers. Such Interested Party has not engaged the services
of any agent, broker, finder or any other person or entity for any brokerage or
finder’s fee, commission or other amount with respect to the transactions
described herein.


 


3.3                                 Acknowledgement of RSA Associates. 
RSA Associates acknowledges and agrees that nothing herein shall in any
way supplement, waive or amend any of its rights and obligations under the Fifth
Amended and Restated Limited Liability Company Agreement of Morgans Hotel Group
LLC, including the agreements set forth in Section 6.10(c) with
respect to an IPO Transaction, each of which shall remain in full force and
effect notwithstanding this Agreement.


 


6





















 


ARTICLE IV.


 


MISCELLANEOUS


 


4.1                                 Survival and Indemnity.  The
representations and warranties contained herein shall survive the Closing.  Each Interested Party, severally and not
jointly, agrees to indemnify, defend and hold harmless Morgans Group LLC and
each other party hereto and Morgans Group LLC agrees to indemnify, defend and
hold harmless each Interested Party from and against all costs, expenses,
losses and damages (including, without limitation, reasonable attorney’s fees
and expenses, but excluding consequential damages) incurred by Morgans Group
LLC or such other party resulting from any misrepresentation or breach of
warranty made by it.


 


4.2                                 Entire Agreement; Modifications
and Waivers; Cumulative Remedies.  This
Agreement supersedes any existing letter of intent between the parties,
constitutes the entire agreement among the parties hereto and may not be modified
or amended except by instrument in writing signed by the parties hereto, and no
provisions or conditions may be waived other than by a writing signed by the
party waiving such provisions or conditions.  No delay or omission in the exercise of any
right or remedy accruing to Morgans Group LLC or an Interested Party upon any
breach under this Agreement shall impair such right or remedy or be construed
as a waiver of any such breach theretofore or thereafter occurring.  The waiver by Morgans Group LLC or an
Interested Party of any breach of any term, covenant, or condition herein
stated shall not be deemed to be a waiver of any other breach, or of a
subsequent breach of the same or any other term, covenant, or condition herein
contained.  All rights, powers, options,
or remedies afforded to Morgans Group LLC or an Interested Party either
hereunder or by law shall be cumulative and not alternative, and the exercise
of one right, power, option, or remedy shall not bar other rights, powers,
options, or remedies allowed herein or by law, unless expressly provided to the
contrary herein.


 


4.3                                 Notices.  Any
notice provided for by this Agreement and any other notice, demand, or
communication which any party may wish to send to another shall be in writing
and either delivered in person (including by confirmed facsimile transmission)
or sent by registered or certified mail or overnight courier, return receipt
requested, in a sealed envelope, postage prepaid, and addressed to the party
for which such notice, demand or communication is intended at such party’s
address as set forth in this Section.  Morgans
Group LLC’s address for all purposes under this Agreement shall be as follows:


 


475 10th
Avenue


New York, New York 10018


Fax No: (212) 277-4260


 


The address of each of the Interested Parties for all
purposes under this Agreement shall be as follows:


 


Morgans Hotel Group LLC:


 


c/o NorthStar
Partnership, L.P.


527 Madison Avenue, 16th
Floor


New York, New York 10022


Fax No: (212) 319-4557


 


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NorthStar Hospitality LLC


 


c/o NorthStar
Partnership, L.P.


527 Madison Avenue, 16th
Floor


New York, New York 10022


Fax No: (212) 319-4557


 


NorthStar Partnership,
L.P.


 


527 Madison Avenue, 16th
Floor


New York, New York 10022


Fax No: (212) 319-4557


 


RSA Associates, L.P.


 


c/o Ian Schrager Company


818 Greenwich Street


New York, New York 10014


Fax No: (212) 898-1162


 


Michael Overington


 


c/o Ian Schrager Company


818 Greenwich Street


New York, New York 10014


Fax No: (212) 898-1162


 


Anda Andrei


 


c/o Ian Schrager Company


818 Greenwich Street


New York, New York 10014


Fax No: (212) 898-1162


 


Any address or name
specified above may be changed by a notice given by the addressee to the other parties.  Any notice, demand or other communication
shall be deemed given and effective as of the date of delivery in person or
receipt set forth on the return receipt. 
The inability to deliver because of changed address of which no notice
was given, or rejection or other refusal to accept any notice, demand or other communication,
shall be deemed to be receipt of the notice, demand or other communication as
of the date of such attempt to deliver or rejection or refusal to accept.


 


4.4                                 Exhibits.  All
exhibits referred to in this Agreement and attached hereto are hereby
incorporated in this Agreement by reference.


 


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


 


4.6                                 Severability.  In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never
been contained herein.


 


4.7                                 Successors and Assigns.  This Agreement may not be assigned by Morgans Group
LLC or any Interested Party without the prior approval of Morgans Group LLC and
each other Interested Party; provided, however, that Morgans
Group LLC may assign its rights under this Agreement (but not its obligations)
to a direct or indirect wholly-owned subsidiary of Morgans Group LLC without
the prior approval of the Interested Parties. 
This Agreement shall be binding upon, and inure to the benefit of, Morgans
Group LLC, the Interested Parties, and their respective legal representatives,
successors, and permitted assigns.


 


4.8                                 Headings.  Article headings and article and section numbers
are inserted herein only as a matter of convenience and in no way define,
limit, or prescribe the scope or intent of this Agreement or any part hereof
and shall not be considered in interpreting or construing this Agreement.


 


4.9                                 Recitals.  The recital and introductory paragraphs hereof are a
part hereof, form a basis for this Agreement and shall be considered prima facie
evidence of the facts and documents referred to therein.


 


4.10                           Counterparts. This Agreement may be executed in any number
of counterparts and by any party hereto on a separate counterpart, each of
which when so executed and delivered shall be deemed an original and all of
which taken together shall constitute but one and the same instrument.  Copies of executed counterparts transmitted
by telecopy, telefax or other electronic transmission service shall be
considered original executed counterparts.


 


4.11                           Specific Performance.  Each
party to this Agreement agrees that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached.  Each party to this Agreement agrees that each
other party hereto will be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the provisions of this
Agreement in any federal or state court located in the State of New York (as to
which each party to this Agreement agrees to submit to jurisdiction for
purposes of such action), this being in addition to any other remedies to which
such party may be entitled under this Agreement or otherwise at law or in
equity.


 


4.12                           Time of the Essence.  Time
is of the essence with respect to all obligations of each party under this
Agreement.


 


[Signature pages follow.]


 


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


 


	
   

  	
  MORGANS GROUP LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Morgans Hotel Group LLC,

  
	
   

  	
   

  	
  its sole member

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ W. Edward Scheetz

  	
   

  
	
   

  	
   

  	
   

  	
  Name: W. Edward Scheetz

  
	
   

  	
   

  	
   

  	
  Title:   Chief Executive Officer

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  MORGANS HOTEL GROUP LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ W. Edward
  Scheetz

  	
   

  
	
   

  	
   

  	
   Name:  W. Edward Scheetz

  
	
   

  	
   

  	
   Title:    Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
  NORTHSTAR HOSPITALITY LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Richard
  McCready

  	
   

  
	
   

  	
   

  	
   Name:  Richard McCready
 Title:   Authorized
  Person

  
	
   

  	
   

  	
   

  
	
   

  	
  NORTHSTAR PARTNERSHIP, L.P.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  NorthStar Capital Investment Corp.,

  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  By:

  	
    /s/ Richard McCready

  
	
   

  	
   

  	
   

  	
   

  	
    Name: 
  Richard McCready

  
	
   

  	
   

  	
   

  	
   

  	
    Title: 
   Chief Operating Officer

  
									



 


[FORMATION AND STRUCTURING AGREEMENT]


 





















 


	
   

  	
  RSA ASSOCIATES, L.P.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  RSA GP Corp.,

  its General Partner

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Ian Schrager

  	
   

  
	
   

  	
   

  	
   

  	
  Name:  Ian
  Schrager

  
	
   

  	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  /s/ Michael Overington

  	
   

  
	
   

  	
  Michael Overington

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Anda Andrei

  	
   

  
	
   

  	
  Anda Andrei

  
							



 


[FORMATION AND STRUCTURING AGREEMENT]


 





















 


EXHIBIT A(1)


 


1.                                       Prior
to the closing of the initial public offering of Common Stock, MHG Management
Company will borrow funds from an unaffiliated lender (the “MHG Management Company Loan”).  Morgans Hotel Group LLC will guarantee
payments under the MHG Management Company Loan on a pari passu basis with its
other indebtedness.


 


2.                                       MHG
Management Company will distribute the proceeds of the MHG Management Company
Loan to Morgans Hotel Group LLC, which will use those amounts to repay existing
indebtedness.


 


3.                                       Morgans
Hotel Group LLC will form Morgans Group LLC and contribute to Morgans Group LLC
the Contributed Interests other than the Management Company Interests for no
consideration.  The limited liability
company agreement of Morgans Group LLC will provide for:


 


•                                          a managing
member interest that will be held by MHG Co., which will give MHG Co. the
exclusive responsibility and power to manage the business and affairs of Morgans
Group LLC;


 


•                                          conversion of
membership interests into units (the “Morgans Group LLC Units”);


 


•                                          redemption/exchange
for Common Stock of Morgans Group LLC Units held by non-managing members.


 


4.                                       After
making any distributions of Morgans Group LLC Units to Overington and Andrei
under the Participation Agreements (the “Participation Agreements”),
dated as of December 15, 1999, by and between Morgans Hotel Group LLC and
each of Overington and Andrei (to the extent that a distribution is required
thereunder), Morgans Hotel Group LLC will distribute all of its Morgans Group
LLC Units to NorthStar Hospitality and RSA Associates, its members entitled to
receive such a distribution, in accordance with their membership interests in
Morgans Hotel Group LLC.  NorthStar
Hospitality will distribute all of the Morgans Group LLC Units that it receives
in the foregoing distribution to NorthStar LP, its sole member.


 


5.                                       Morgans
Hotel Group LLC will contribute the MHG Management Company Interests to Morgans
Group LLC in return for a number of Morgans Group LLC Units equal to (i) $20
million divided by (ii) the initial public offering price of the Common
Stock in the IPO.  Morgans Group LLC will
assume Morgans Hotel Group LLC’s guarantee of the MHG Management Company Loan.


 










(1)                                  Except
as otherwise indicated, each transaction shall be consummated contemporaneously
on the closing date for the initial public offering of the Common Stock.


 





















 


6.                                       In
connection with the contribution above, Morgans Hotel Group LLC will provide a
guarantee of certain indebtedness of Morgans Group LLC.  In addition, David T. Hamamoto, W. Edward
Scheetz, Ian Schrager and other current and former direct or indirect partners
in NorthStar LP may elect to agree to reimburse Morgans Hotel Group LLC for a
portion of any amount that Morgans Hotel Group LLC is required to pay under its
guarantee.


 


7.                                       NorthStar
LP will transfer all of its Morgans Group LLC Units to MHG Co. in exchange for an
equal number of shares of Common Stock. 
RSA Associates will transfer all of its Morgans Group LLC Units to MHG
Co. in exchange for an equal number of shares of Common Stock.  Overington will transfer all of his Morgans
Group LLC Units, if any, to MHG Co. in exchange for an equal number of shares
of Common Stock.  Andrei will transfer
all of her Morgans Group LLC Units, if any, to MHG Co. in exchange for an equal
number of shares of Common Stock.


 


8.                                       After
completing the transactions described above, MHG Co. will complete the IPO.  MHG Co. will contribute the net proceeds (after
deducting underwriters’ compensation) to Morgans Group LLC in exchange for Morgans
Group LLC Units equal to the number of shares issued.