Exhibit 10.6


 


SERVICES AGREEMENT


 


SERVICES AGREEMENT (this “Agreement”), dated as of June 24,
2005 (the “Effective Date”), by and between Morgans Hotel Group LLC, a
Delaware limited liability company (the “Company”) and Ian Schrager (“Consultant”).


 


WHEREAS, the Company is engaged in the business of owning and managing
hotels;


 


WHEREAS, Consultant is engaged in the Schrager Businesses;


 


WHEREAS, the Company has retained Consultant as an independent
contractor to provide certain services to the Company as more particularly set
forth in that certain Consulting Agreement, dated as of the date hereof,
between the Company and Consultant (the “Consulting Agreement”); and


 


WHEREAS, the Company and Consultant desire to
enter into a cost sharing arrangement in connection with the use of each other’s
employees for a transitional period;


 


NOW, THEREFORE, in consideration of the
premises and the mutual covenants and agreements herein contained, and
intending to be legally bound hereby, the Company and Consultant agree as
follows:


 


1.               All
terms used herein and not defined herein shall have the respective meanings
assigned to them in the Consulting Agreement.


 


2.               The
term (the “Term”) of this Agreement shall commence on the Effective Date
and shall expire at the end of the Cost Sharing Term (as defined below).


 


3.               Consultant
will employ and utilize separate employees for the conduct of the Schrager
Businesses.  Notwithstanding the
foregoing, for the period commencing on the Effective Date and ending on December 31,
2005 (such period, as the same may be extended pursuant to the terms hereof,
the “Cost Sharing Term”), Consultant will utilize existing design and
development personnel currently employed by the Company or the Management
Company each of which employees are listed on Exhibit A attached hereto and made a part hereof
(collectively, the “Existing Management Company Design Employees”) for
the performance of work in connection with the Schrager Businesses in a manner
consistent with past practice, including, without limitation, for the
properties commonly known as Bond Street and Gramercy Park.  The Existing Management Company Design
Employees’ time and attention shall be allocated, on an employee specific
basis, between the Schrager Businesses and the Company’s business in the exact
proportion as the same were allocated prior to the Effective Date (the “Time
Allocation”).  Consultant shall be
obligated to reimburse the Company on a monthly basis for fifty percent (50%)
of the costs actually incurred by the Company during the Cost Sharing Term for
the


 





















 


Existing
Management Company Design Employees and Excluded Employees, including, without
limitation, a reasonable allocation of corporate overhead, rent, and other
similar costs relating to the use of such Existing Management Company Design
Employees and Excluded Employees (such obligation, including the Company’s
obligation to reimburse Consultant for similar expenses as hereinafter set
forth, being hereinafter referred to as the “Cost Sharing Arrangement”).  Prior to calculating the amounts payable by
Consultant as a result of the Cost Sharing Arrangement, such costs shall be
reduced by the amount of development expenses reimbursed to the Company
pursuant to that certain (i) Sub-Development Agreement, dated as of February 26,
2004 (the “Gramercy Development Agreement”), by and between GP Hotel
Development LLC and the Management Company, and (ii) Sub-Development
Agreement, dated as of November 5, 2004 (the “Bond Street Development
Agreement”), by and between S/A Bond Street Developer LLC and the
Management Company.  Both Michael
Overington and Anda Andrei shall collectively be referred to herein as the “Excluded
Employees”.  The reimbursement
obligation of Consultant to the Company contained in this Section 3
shall survive the expiration or sooner termination of this Agreement;


 


4.               At
any time after September 30, 2005, either Company or Consultant may
provide the other with no less than ninety (90) days prior written notice (the “Cost
Sharing Termination Notice”) of the termination of the Cost Sharing
Arrangement.  No later than December 31,
2005 (or within a reasonable time following receipt of a Cost Sharing
Termination Notice delivered by the Company to Consultant prior to December 31,
2005), the Company and Consultant will use good faith efforts to develop and
implement an agreement pursuant to which the Company and Consultant will
reasonably cooperate on transitional matters and allow the Existing Management
Company Design Employees and the Excluded Employees to be reasonably available
to consult on projects in which they were actually involved in accordance with
the Time Allocation, whether for the Company or for Consultant.  Either the Company, or the Consultant, as
applicable, shall have the option, to elect to maintain the Cost Sharing
Arrangement in effect and extend the Cost Sharing Term for an additional six (6) months
following the original termination date of such Cost Sharing Arrangement but in
no event shall the Cost Sharing Arrangement and this Agreement be extended beyond
June 30, 2006.


 


5.               Consultant
and the Company have had, and shall continue to have after the date hereof, the
right to approach any Existing Management Company Design Employee and, in the
case of the Company, to offer such Existing Management Company Design Employee
the right to continue to work for the Management Company and/or the Company,
and in the case of the Consultant, to offer such Existing Management Company
Design Employee employment with Consultant. Such elections may be made by the
Existing Management Company Design Employees at any time after the date hereof;
provided, however, that with respect to the Existing Management
Company Design Employees who elect to be employed by Consultant, such employees
shall remain employees of the Company until and through the Hiring Date and
shall not be hired by Consultant until the Hiring Date.  Each of Consultant and


 


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the
Company shall continue to share such employees during the Cost Sharing Term in
accordance with the Time Allocation; provided, however, that in
the event any of the Existing Management Company Design Employees or the
Excluded Employees accept employment with Consultant, or an entity formed by
Consultant, at any time during the Cost Sharing Term, the Company will
reimburse Consultant, or such entity, on a monthly basis, for fifty percent
(50%) of the costs actually incurred during the Cost Sharing Term for the
Existing Management Company Design Employees and Excluded Employees on Consultant’s,
or such entity’s, payroll, including, without limitation, a reasonable
allocation of corporate overhead, rent, and other similar costs relating to the
use of all such employees.  The
reimbursement obligation of the Company to Consultant contained in this Section 5
shall survive the expiration or sooner termination of this Agreement;


 


6.               Consultant’s
rights with respect to the hiring, supervision and termination of employees
shall be as follows:


 


(a)                                  From
and after the Effective Date, the Company shall consult with Consultant with
respect to the (x) firing of any Existing Management Company Design Employee,
and (y) hiring and firing of design and development personnel other than the
Existing Management Company Design Employees (each such new employee, a “New
Management Company Design Employee”). 
The Company’s decision to fire any Existing Management Company Design
Employee, or hire or fire any New Management Company Design Employee, shall be
final notwithstanding a disagreement with Consultant.  In the event the Company fires an Existing
Management Company Design Employee or a New Management Company Design Employee,
Consultant shall have the right, but not the obligation, to hire such employee.


 


(b)                                 From
and after the Effective Date, and throughout the Term, Consultant shall have
the sole and exclusive right to supervise the Existing Management Company
Design Employees and the Excluded Employees, and the right to supervise the New
Management Company Design Employees, in each case notwithstanding that such
employees may be on the payroll of the Company; provided, however,
that the New Management Company Design Employees shall only work on Company
business.  In the event this Agreement is
terminated prior to July 30, 2006, Consultant shall continue to have the
sole and exclusive right to supervise any of the Existing Management Company
Design Employees who have elected to remain employed by the Company until July 30,
2006. This Section 6(b) shall survive the expiration or sooner
termination of this Agreement;


 


(c)                                  During
the Cost Sharing Term, in the event Consultant is not satisfied with the
performance of any Existing Management Company Design Employee, Consultant
shall have the right to terminate the Cost Sharing Arrangement with respect to
such Existing Management Company Design Employee by providing ten (10) days
prior written notice to the Company of such termination.  In such event, the Company shall have the
right to fire such Existing Management Company Design Employee without
consulting with Consultant.


 


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(d)                                 The
Company shall consult with Consultant with respect to the hiring and firing of
any senior personnel employed by the Company and assisting Consultant in the
performance of his duties hereunder (other than the Existing Management Company
Design Employees, the New Management Company Design Employees and the Excluded
Employees to which this Section 6(d) shall not apply).


 


(e)                                  Notwithstanding
anything contained herein or in the Consulting Agreement to the contrary, in no
event shall Consultant have any authority to, and Consulting shall not (i) enter
into any contract or otherwise bind the Company in any respect whatsoever, and (ii) otherwise
incur any third party liabilities on behalf of the Company.


 


7.               Following
the earliest to occur of (v) the termination of the Cost Sharing
Arrangement, (w) December 31, 2005, (x) the date Consultant procures
separate office space, and (y) as to any specific Existing Management Company
Design Employee who elects to become an employee of Consultant, the date
Consultant elects to hire such Existing Management Company Design Employee,
(such earliest date being referred to herein as the “Hiring Date”;
provided, that the term Hiring Date shall be defined independently with respect
to each employee to the extent such date is determined by the foregoing clause
(y)), the Company hereby acknowledges and agrees that (i) there will be no
restriction on Consultant’s ability to hire and employ any of the Existing
Management Company Design Employees, any such employees to be hired by
Consultant no earlier than the Hiring Date, and (ii) to the extent hired
by Consultant or Consultant’s Affiliates, the Existing Management Company
Design Employees shall be automatically released from any and all
non-competition and non-solicitation covenants and all other restrictions on
their activities which otherwise would be effective following termination of
their employment with the Company, and (iii) the Company shall have no
rights or remedies against such employees in connection with the termination by
such employees of their employment or the commencement of their employment with
Consultant.


 


8.               Provided
that the Company is not in default of its obligations to Consultant hereunder
and under the Company Operating Agreement, from the date hereof until six (6) months
following the termination of the Consulting Agreement, Consultant shall not,
directly or indirectly, solicit (the “Non-Solicitation Covenant”) any
employee of the Company who is not an Existing Management Company Design
Employee or an Excluded Employee (each, an “Operations Employee”) while
such Operations Employee is employed at any time prior to the end of the Term; provided,
however, that if any Operations Employee’s employment with the Company
is terminated prior to the termination of such six (6) month period either
by the Company or at the election of such Operations Employee, such Operations
Employee shall be free to be engaged or retained by Consultant or any of
Consultant’s Affiliates. The Non-Solicitation Covenant shall not apply to any
secretaries or administrative assistants working for Consultant at the Company.
This Section 8 shall survive the expiration or sooner termination
of this Agreement.


 


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9.               On
the Effective Date, (i) subject to Consultant complying with clause (iii) of
this Section 9, the Company will terminate the services provided by
the Excluded Employees, (ii) Consultant will make an offer of employment
to the Excluded Employees, and (iii) as a condition to the termination of
services by the Company and in consideration of Consultant’s offer of
employment, Consultant will obtain from each of the Excluded Employees, a
release in favor of the Company in substantially the form attached hereto as Exhibit B.  The Company hereby further agrees that it
will continue to honor its obligations to the applicable Excluded Employee under
that certain (w) Participation Agreement, dated as of December 15, 1999,
by and between the Company and Michael Overington; (x) Option Agreement, dated
as of December 15, 1999, by and between the Company and Michael
Overington; (y) Participation Agreement, dated as of December 15, 1999, by
and between the Company and Anda Andrei; and (z) Option Agreement, dated as of December 15,
1999, by and between the Company and Anda Andrei (collectively, the “Excluded
Employee Agreements”). To the extent requested by either of the Excluded
Employees, the Company will confirm the survival of the Company’s obligations
under the Excluded Employee Agreements.


 


10.         Each
of the Company and the Management Company hereby acknowledge that, following
the Effective Date, (i) they shall not, directly or indirectly, solicit or
hire the Excluded Employees, and (ii) they shall waive any rights they may
have to enforce any non-competition or non-solicitation covenants against the
Excluded Employees.


 


11.   Following the
Effective Date, Consultant shall promptly pay, or reimburse the Company for any
costs authorized and incurred, directly or indirectly, by the Company following
the Effective Date relating to the personal support services provided to
Consultant by Mr. Nigel McKenna.


 


12.   The Company shall
cooperate with Consultant to allocate and coordinate the time devoted by the
Existing Management Company Design Employees, who remain as employees of the
Company, to the Company projects and the Schrager Businesses in accordance with
the Time Allocation.  In furtherance of
the foregoing, the Company covenants that it shall not interfere with, or
hinder, the work performed by the Existing Management Company Design Employees
for the Schrager Business.  In addition,
to the extent Existing Management Company Design Employees are working on projects
other than the Schrager Businesses, Consultant covenants that he shall not
interfere with, or hinder, the work performed by such Existing Management
Company Design Employees thereon.


 


13.   Consultant and the
Company hereby acknowledge and agree that the terms of this Agreement are
subject to the confidentiality obligations of the parties under the Consulting
Agreement.


 


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14.   This Agreement and
the Consulting Agreement sets forth the entire agreement between the parties
with respect to its subject matter and merges and supersedes all prior
discussions, agreements and understandings of every kind and nature between
them (including, without limitation, the Original Employment Agreement) and
neither party shall be bound by any term or condition other than as expressly
set forth or provided for in the Consulting Agreement and this Agreement.  This Agreement may not be changed or modified
except by an agreement in writing, signed by the parties hereto.


 


15.         Unless
specifically set forth in a particular provision of this Agreement, the failure
of either party to this Agreement to enforce any of its terms, provisions or
covenants shall not be construed as a waiver of the same or of the right of
such party to enforce the same.  Waiver
by either party hereto of any breach or default by the other party of any term
or provision of this Agreement shall not operate as a waiver of any other
breach or default.


 


16.         In
the event that any one or more of the provisions of this Agreement shall be
held to be invalid, illegal or unenforceable, the validity, legality or
enforceability of the remainder of the Agreement shall not in any way be
affected or impaired thereby.  Moreover,
if any one or more of the provisions contained in this Agreement shall be held
to be excessively broad as to duration, activity or subject, such provisions
shall be construed by limiting and reducing them so as to be enforceable to the
maximum extent allowed by applicable law.


 


17.         Any
disputes arising out of the interpretation or application of this Agreement
shall be resolved by arbitration before a panel of three (3) arbitrators,
to be selected in accordance with the Employment Dispute Resolution Rules of
the American Arbitration Association then pertaining.  The panel’s award shall be final and binding
on the parties hereto, and such award may be entered as a judgment in any court
of competent jurisdiction.


 


18.         Any
notice given hereunder shall be in writing and shall be deemed to have been
given when delivered by messenger or courier service (against appropriate
receipt), or mailed by registered or certified mail (return receipt requested),
addressed as follows:


 


If to the
Company:


 


MORGANS HOTEL GROUP LLC


c/o NorthStar Hospitality LLC


527 Madison Avenue


New York, NY 10022


Attn: 
W. Edward Scheetz


 


With a copy to:


 


WACHTELL, LIPTON, ROSEN & KATZ


51 West 52nd Street


New York, NY 
10019


Attn: 
Robin Panovka, Esq.


 


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If to
Consultant:


 


IAN SCHRAGER


c/o Morgans Hotel Group LLC


475 Tenth Avenue


11th Floor


New York, NY 10018


 


With a copy
to:


 


SKADDEN, ARPS, SLATE,


MEAGHER & FLOM LLP


Four Times Square


New York, NY 10036


Attn: 
Benjamin F. Needell, Esq.


 


or at such
other address as shall be indicated to either party in writing.  Notice of change of address shall be
effective only upon receipt.


 


19.         The
Company shall not have the right to assign its rights and obligations under
this Agreement to any third party without the prior written consent of
Consultant (which consent shall not be unreasonably withheld, conditioned, or
delayed); provided, however, that the Company shall be permitted
to assign its rights and obligations under this Agreement to an Affiliate (as
such term is defined in the Company Operating Agreement) of the Company without
the consent of Ian Schrager, provided, that (i) the Company deliver prior
written notice to Ian Schrager, and (ii) this Agreement is assigned to the
same party to which the Consulting Agreement is assigned.  This Agreement is personal to Consultant, and
Consultant may not assign his rights and obligations under this Agreement to
any third party, without the prior written consent of the Company (which
consent shall be granted or withheld in the Company’s sole and absolute
discretion); provided, however, that with respect to the hiring
of any employees as set forth herein, such rights shall inure to the benefit of
Consultant and Consultant’s Affiliates.


 


20.         Except
in the event of Consultant’s bad faith or willful misconduct, the Company’s
sole remedy for any breach by Consultant of the terms of this Agreement shall
be to terminate this Agreement. The Company acknowledges that the term willful
misconduct shall not be deemed to relate in any way to the manner, means, details and methods used by
Consultant in performing the duties and responsibilities required pursuant to
the terms hereof, nor to the amount of time invested by Consultant in the
performance of such duties.


 


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21.         This
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, without regard to New York conflict of law rules.


 


22.         This
Agreement may be executed in one or more counterparts, which, together, shall
constitute one and the same agreement.


 


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


 


 


	
   

  	
  COMPANY

  
	
   

  	
   

  
	
   

  	
  MORGANS HOTEL GROUP LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Edward Scheetz

  
	
   

  	
   

  	
  Name: 
  W. Edward Scheetz

  
	
   

  	
   

  	
  Title:   
  Manager

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CONSULTANT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  /s/ Ian Schrager

  
	
   

  	
   

  	
  Ian Schrager

  



 


ACKNOWLEDGED AND


AGREED TO:


 


Morgans Hotel Group Management LLC


 


 


	
  By:

  	
    /s/ W. Edward Scheetz

  	
   

  
	
   

  	
  Name:  W. Edward Scheetz

  
	
   

  	
  Title:   
  Manager

  



 


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