Filed by Bowne Pure Compliance



 




Exhibit 4.1




EXECUTION COPY




STOCKHOLDER PROTECTION RIGHTS AGREEMENT




dated as of




October 9, 2007




between




MORGANS HOTEL GROUP CO.




and

MELLON INVESTOR SERVICES LLC,




as Rights Agent



 


 









 





STOCKHOLDER PROTECTION RIGHTS AGREEMENT




Table of Contents




	 	 	 	 	 	 	 
	 	 	 	 	Page
	 
	 	 	 	 	 	 
	ARTICLE I

	 
	 	 	 	 	 	 
	DEFINITIONS

	 
	 	 	 	 	 	 
	1.1
	 	Definitions	 	 	1	 
	 
	 	 	 	 	 	 
	ARTICLE II

	 
	 	 	 	 	 	 
	THE RIGHTS

	 
	 	 	 	 	 	 
	2.1
	 	Summary of Rights	 	 	7	 
	2.2
	 	Legend on Common Stock Certificates	 	 	7	 
	2.3
	 	Exercise of Rights; Separation of Rights	 	 	8	 
	2.4
	 	Adjustments to Exercise Price; Number of Rights	 	 	10	 
	2.5
	 	Date on Which Exercise is Effective	 	 	11	 
	2.6
	 	Execution, Authentication, Delivery and Dating of Rights Certificates	 	 	12	 
	2.7
	 	Registration, Registration of Transfer and Exchange	 	 	12	 
	2.8
	 	Mutilated, Destroyed, Lost and Stolen Rights Certificates	 	 	13	 
	2.9
	 	Persons Deemed Owners	 	 	14	 
	2.10
	 	Delivery and Cancellation of Certificates	 	 	14	 
	2.11
	 	Agreement of Rights Holders	 	 	14	 
	 
	 	 	 	 	 	 
	ARTICLE III

	 
	 	 	 	 	 	 
	ADJUSTMENTS TO THE RIGHTS IN THE EVENT OF CERTAIN TRANSACTIONS

	 
	 	 	 	 	 	 
	3.1
	 	Flip-in	 	 	15	 
	3.2
	 	Flip-over	 	 	17	 
	 
	 	 	 	 	 	 
	ARTICLE IV

	 
	 	 	 	 	 	 
	THE RIGHTS AGENT

	 
	 	 	 	 	 	 
	4.1
	 	General	 	 	18	 
	4.2
	 	Merger or Consolidation or Change of Name of Rights Agent	 	 	19	 
	4.3
	 	Duties of Rights Agent	 	 	19	 
	4.4
	 	Change of Rights Agent	 	 	22	 






 




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	ARTICLE V

	 
	 	 	 	 	 	 
	MISCELLANEOUS

	 
	 	 	 	 	 	 
	5.1
	 	Redemption	 	 	22	 
	5.2
	 	Expiration	 	 	23	 
	5.3
	 	Issuance of New Rights Certificates	 	 	23	 
	5.4
	 	Supplements and Amendments	 	 	23	 
	5.5
	 	Fractional Shares	 	 	24	 
	5.6
	 	Rights of Action	 	 	24	 
	5.7
	 	Holder of Rights Not Deemed a Stockholder	 	 	25	 
	5.8
	 	Notice of Proposed Actions	 	 	25	 
	5.9
	 	Notices	 	 	25	 
	5.10
	 	Suspension of Exercisability	 	 	26	 
	5.11
	 	Costs of Enforcement	 	 	26	 
	5.12
	 	Successors	 	 	26	 
	5.13
	 	Benefits of this Agreement	 	 	26	 
	5.14
	 	Determination and Actions by the Board of Directors, etc	 	 	27	 
	5.15
	 	Descriptive Headings; Section References	 	 	27	 
	5.16
	 	GOVERNING LAW	 	 	27	 
	5.17
	 	Counterparts	 	 	27	 
	5.18
	 	Severability	 	 	27	 






EXHIBITS




	 	 	 
	Exhibit A

	 	Form of Rights Certificate (together with Form of Election to
Exercise)
	Exhibit B

	 	Form of Certificate of Designation and Terms of Participating
Preferred Stock






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STOCKHOLDER PROTECTION RIGHTS AGREEMENT




STOCKHOLDER PROTECTION RIGHTS AGREEMENT (as amended from time to time, this “Agreement”),
dated as of October 9, 2007, between Morgans Hotel Group Co., a Delaware corporation (the
“Company”), and Mellon Investor Services LLC, a New Jersey limited liability company, as Rights
Agent (the “Rights Agent,” which term shall include any successor Rights Agent hereunder).



WITNESSETH:




WHEREAS, the Board of Directors of the Company has (a) authorized and declared a dividend of
one right (“Right”) in respect of each share of Common Stock (as hereinafter defined) held of
record as of the close of business on October 19, 2007 (the “Record Time”) payable in respect of
each such share upon the later of October 19, 2007 and certification by The Nasdaq Stock Market,
Inc. to the Securities and Exchange Commission that the Rights have been approved for listing and
registration (the “Payment Time”) and (b) as provided in Section 2.4, authorized the issuance of
one Right in respect of each share of Common Stock issued after the Record Time and prior to the
Separation Time (as hereinafter defined) and, to the extent provided in Section 5.3, each share of
Common Stock issued after the Separation Time;



WHEREAS, subject to the terms and conditions hereof, each Right entitles the holder thereof,
after the Separation Time, to purchase securities or assets of the Company (or, in certain cases,
securities of certain other entities) pursuant to the terms and subject to the conditions set forth
herein; and



WHEREAS, the Company desires to appoint the Rights Agent to act on behalf of the Company, and
the Rights Agent is willing so to act, in connection with the issuance, transfer, exchange and
replacement of Rights Certificates (as hereinafter defined), the exercise of Rights and other
matters referred to herein;



NOW THEREFORE, in consideration of the premises and the respective agreements set forth
herein, the parties hereby agree as follows:



ARTICLE I




DEFINITIONS




1.1 Definitions. For purposes of this Agreement, the following terms have the
meanings indicated:



“Acquiring Person” shall mean any Person who is or becomes the Beneficial Owner of 15% or more
of the outstanding shares of Common Stock; provided, however, that the term
“Acquiring Person” shall not include any Person (i) who is the Beneficial Owner of 15% or more of
the outstanding shares of Common Stock on the date of this Agreement, or who shall become the
Beneficial Owner of 15% or more of the



 


 









 






outstanding shares of Common Stock solely as a result of an acquisition by the Company of
shares of Common Stock, until such time hereafter or thereafter as such Person shall become the
Beneficial Owner (other than by means of a stock dividend or stock split) of any additional shares
of Common Stock while such Person is or as a result of which such Person becomes the Beneficial
Owner of 15% or more of the outstanding shares of Common Stock, (ii) who becomes the Beneficial
Owner of 15% or more of the outstanding shares of Common Stock but who acquired Beneficial
Ownership of shares of Common Stock without any plan or intention to seek or affect control of the
Company, if such Person promptly divests, or promptly enters into an agreement with, and
satisfactory to, the Company, in its sole discretion, to divest (without exercising or retaining
any power, including voting power, with respect to such shares), sufficient shares of Common Stock
(or securities convertible into, exchangeable into or exercisable for Common Stock) so that such
Person ceases to be the Beneficial Owner of 15% or more of the outstanding shares of Common Stock
or (iii) who Beneficially Owns shares of Common Stock consisting solely of one or more of (A)
shares of Common Stock Beneficially Owned pursuant to the grant or exercise of an option granted to
such Person (an “Option Holder”) by the Company in connection with an agreement to merge with, or
acquire, the Company entered into prior to a Flip-in Date, (B) shares of Common Stock (or
securities convertible into, exchangeable into or exercisable for Common Stock) Beneficially Owned
by such Option Holder or its Affiliates or Associates at the time of grant of such option, and (C)
shares of Common Stock (or securities convertible into, exchangeable into or exercisable for Common
Stock) acquired by Affiliates or Associates of such Option Holder after the time of such grant
that, in the aggregate, amount to less than 1% of the outstanding shares of Common Stock. In
addition, the Company, any Subsidiary of the Company and any employee stock ownership or other
employee benefit plan of the Company or a Subsidiary of the Company (or any entity or trustee
holding shares of Common Stock for or pursuant to the terms of any such plan or for the purpose of
funding any such plan or funding other employee benefits for employees of the Company or of any
Subsidiary of the Company) shall not be an Acquiring Person.



“Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule
12b-2 under the Exchange Act, as such Rule is in effect on the date of this Agreement.



“Agreement” shall have the meaning set forth in the Preamble.



A Person shall be deemed the “Beneficial Owner,” and to have “Beneficial Ownership” of, and to
“Beneficially Own,” any securities as to which such Person or any of such Person’s Affiliates or
Associates is or may be deemed to be the beneficial owner of pursuant to Rule 13d-3 and 13d-5 of
the General Rules and Regulations under the Exchange Act, as such Rules are in effect on the date
of this Agreement, as well as any securities as to which such Person or any of such Person’s
Affiliates or Associates has the right to become Beneficial Owner (whether such right is
exercisable immediately or only after the passage of time or the occurrence of conditions) pursuant
to any agreement, arrangement or understanding (other than customary agreements with and between



 


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underwriters and selling group members with respect to a bona fide public offering of
securities), or upon the exercise of conversion rights, exchange rights, rights (other than the
Rights), warrants or options, or otherwise; provided, however, that a Person shall
not be deemed the “Beneficial Owner,” or to have “Beneficial Ownership” of, or to “Beneficially
Own,” any security (i) solely because such security has been tendered pursuant to a tender or
exchange offer made by such Person or any of such Person’s Affiliates or Associates until such
tendered security is accepted for payment or exchange or (ii) solely because such Person or any of
such Person’s Affiliates or Associates has or shares the power to vote or direct the voting of such
security pursuant to a revocable proxy or consent given in response to a public proxy or consent
solicitation made to more than ten holders of shares of a class of stock of the Company registered
under Section 12 of the Exchange Act and pursuant to, and in accordance with, the applicable rules
and regulations under the Exchange Act, except if such power (or the arrangements relating thereto)
is then reportable under Item 6 of Schedule 13D under the Exchange Act (or any similar provision of
a comparable or successor report). For purposes of this Agreement, in determining the percentage
of the outstanding shares of Common Stock with respect to which a Person is the Beneficial Owner,
all shares as to which such Person is deemed the Beneficial Owner shall be deemed outstanding.



“Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking
institutions in New York, New York and the State of New Jersey are generally authorized or
obligated by law or executive order to close.



“Close of Business” on any given date shall mean 5:00 p.m. New York City time on such date or,
if such date is not a Business Day, 5:00 p.m. New York City time on the next succeeding Business
Day.



“Common Stock” shall mean the shares of Common Stock, par value $0.01 per share, of the
Company.



“Company” shall have the meaning set forth in the preamble.



“Election to Exercise” shall have the meaning set forth in Section 2.3(d).



“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.



“Exchange Ratio” shall have the meaning set forth in Section 3.1(c).



“Exchange Time” shall mean the time at which the right to exercise the Rights shall terminate
pursuant to Section 3.1(c).



“Exercise Price” shall mean, as of any date, the price at which a holder may purchase the
securities issuable upon exercise of one whole Right. Until adjustment thereof in accordance with
the terms hereof, the Exercise Price shall equal $100.00.


 


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“Expansion Factor” shall have the meaning set forth in Section 2.4(a).



“Expiration Time” shall mean the earliest of (i) the Exchange Time, (ii) the Redemption Time,
(iii) the Close of Business on the first anniversary of the date of this Agreement, unless, for
purposes of this clause (iii), extended by action of the Board of Directors (in which case the
applicable time shall be the time at which it has been so extended) and (iv) immediately prior to
the effective time of a consolidation, merger or statutory share exchange that does not constitute
a Flip-over Transaction or Event.



“Flip-in Date” shall mean the tenth business day after any Stock Acquisition Date or such
earlier or later date and time as the Board of Directors of the Company may from time to time fix
by resolution adopted prior to the Flip-in Date that would otherwise have occurred.



“Flip-over Entity,” for purposes of Section 3.2, shall mean (i) in the case of a Flip-over
Transaction or Event described in clause (i) of the definition thereof, the Person issuing any
securities into which shares of Common Stock are being converted or exchanged and, if no such
securities are being issued, the other Person that is a party to such Flip-over Transaction or
Event and (ii) in the case of a Flip-over Transaction or Event referenced in clause (ii) of the
definition thereof, the Person receiving the greatest portion of the (A) assets or (B) operating
income or cash flow being transferred in such Flip-over Transaction or Event, provided in
all cases if such Person is a Subsidiary of another Person, the ultimate parent entity of such
Person shall be the Flip-over Entity.



“Flip-over Stock” shall mean the capital stock (or similar equity interest) with the greatest
voting power in respect of the election of directors (or other persons similarly responsible for
the direction of the business and affairs) of the Flip-over Entity.



“Flip-over Transaction or Event” shall mean a transaction or series of transactions, on or
after a Flip-in Date, in which, directly or indirectly, (i) the Company shall consolidate or merge
or participate in a statutory share exchange with any other Person if, at the time of consummation
of the consolidation, merger or statutory share exchange or at the time the Company enters into any
agreement with respect to any such consolidation, merger or statutory share exchange, the Acquiring
Person is the Beneficial Owner of 90% or more of the outstanding shares of Common Stock or controls
the Board of Directors of the Company and either (A) any term of or arrangement concerning the
treatment of shares of capital stock in such consolidation, merger or statutory share exchange
relating to the Acquiring Person is not identical to the terms and arrangements relating to other
holders of the Common Stock or (B) the Person with whom the transaction or series of transactions
occurs is the Acquiring Person or an Affiliate or Associate of the Acquiring Person or (ii) the
Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or
otherwise transfer) assets (A) aggregating more than 50% of the assets (measured by either book
value or fair market value) or (B) generating more than 50% of the operating income or cash flow,
of the Company and



 


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its Subsidiaries (taken as a whole) to any Person (other than the Company or one
or more of
its wholly owned Subsidiaries) or to two or more such Persons that are Affiliates or
Associates or otherwise acting in concert, if, at the time of the entry by the Company (or any such
Subsidiary) into an agreement with respect to such sale or transfer of assets, the Acquiring Person
or any of its Affiliates or Associates controls the Board of Directors of the Company. For
purposes of the foregoing description, the term “Acquiring Person” shall include any Acquiring
Person and its Affiliates and Associates, counted together as a single Person. An Acquiring Person
shall be deemed to control the Company’s Board of Directors when, on or following a Stock
Acquisition Date, the persons who were directors of the Company (or persons nominated and/or
appointed as directors by vote of a majority of such persons) before the Stock Acquisition Date
shall cease to constitute a majority of the Company’s Board of Directors.



“Market Price” per share of any securities on any date shall mean the average of the daily
closing prices per share of such securities (determined as described below) on each of the 20
consecutive Trading Days through and including the Trading Day immediately preceding such date;
provided, however, that if any event described in Section 2.4, or any analogous
event, shall have caused the closing prices used to determine the Market Price on any Trading Days
during such period of 20 Trading Days not to be fully comparable with the closing price on such
date, each such closing price so used shall be appropriately adjusted in order to make it fully
comparable with the closing price on such date. The closing price per share of any securities on
any date shall be the last reported sale price, regular way, or, in case no such sale takes place
or is quoted on such date, the average of the closing bid and asked prices, regular way, for each
share of such securities, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on the New York Stock
Exchange, Inc. or, if the securities are not listed or admitted to trading on the New York Stock
Exchange, Inc., as reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national securities exchange on which the securities are
listed or admitted to trading or, if the securities are not listed or admitted to trading on any
national securities exchange, as reported by the National Association of Securities Dealers, Inc.
Automated Quotation System or such other system then in use, or, if on any such date the securities
are not listed or admitted to trading on any national securities exchange or quoted by any such
organization, the average of the closing bid and asked prices as furnished by a professional market
maker making a market in the securities selected by the Board of Directors of the Company;
provided, however, that if on any such date the securities are not listed or
admitted to trading on a national securities exchange or traded in the over-the-counter market, the
closing price per share of such securities on such date shall mean the fair value per share of such
securities on such date as determined in good faith by the Board of Directors of the Company, after
consultation with a nationally recognized investment banking firm, and set forth in a certificate
delivered to the Rights Agent.



“Option Holder” shall have the meaning set forth in the definition of Acquiring Person.


 


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“Payment Time” shall have the meaning set forth in the Recitals.



“Person” shall mean any individual, firm, partnership, limited liability company, association,
group (as such term is used in Rule 13d-5 under the Exchange Act, as such Rule is in effect on the
date of this Agreement), corporation or other entity.



“Preferred Stock” shall mean the series of Participating Preferred Stock, par value $0.01 per
share, of the Company created by a Certificate of Designation and Terms in substantially the form
set forth in Exhibit B hereto appropriately completed.



“Record Time” shall have the meaning set forth in the Recitals.



“Redemption Price” shall mean an amount equal to one cent, $0.01.



“Redemption Time” shall mean the time at which the right to exercise the Rights shall
terminate pursuant to Section 5.1.



“Right” shall have the meaning set forth in the Recitals.



“Rights Agent” shall have the meaning set forth in the Preamble.



“Rights Certificate” shall have the meaning set forth in Section 2.3(c).



“Rights Register” shall have the meaning set forth in Section 2.7(a).



“Separation Time” shall mean the earlier of (i) the Close of Business on the tenth Business
Day (or such later date as the Board of Directors of the Company may from time to time fix by
resolution adopted prior to the Separation Time that otherwise would have occurred) after the date
on which any Person commences a tender or exchange offer that, if consummated, would result in such
Person’s becoming an Acquiring Person and (ii) the time of the first event causing a Flip-in Date
to occur; provided, that if the foregoing results in the Separation Time being prior to the
Record Time, the Separation Time shall be the Record Time and provided further,
that if any tender or exchange offer referenced in clause (i) of this paragraph is cancelled,
terminated or otherwise withdrawn prior to the Separation Time without the purchase of any shares
of Common Stock pursuant thereto, such offer shall be deemed, for purposes of this paragraph, never
to have been made.



“Stock Acquisition Date” shall mean the earlier of (i) the first date on which there shall be
a public announcement by the Company (by any means) that a Person has become an Acquiring Person or
(ii) the date and time on which any Acquiring Person becomes the Beneficial Owner of more than 90%
of the outstanding shares of Common Stock.



“Subsidiary” of any specified Person shall mean any corporation or other entity of which a
majority of the voting power of the equity securities or a majority of the
equity or membership interest is Beneficially Owned, directly or indirectly, by such Person.


 


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“Trading Day,” when used with respect to any securities, shall mean a day on which the New
York Stock Exchange, Inc. is open for the transaction of business or, if such securities are not
listed or admitted to trading on the New York Stock Exchange, Inc., a day on which the principal
national securities exchange on which such securities are listed or admitted to trading is open for
the transaction of business or, if such securities are not listed or admitted to trading on any
national securities exchange, a Business Day.



ARTICLE II




THE RIGHTS




2.1 Summary of Rights. As soon as practicable after the Record Time, the Company will
mail a letter summarizing the terms of the Rights to each holder of record of Common Stock as of
the Record Time, at such holder’s address as shown by the records of the Company.



2.2 Legend on Common Stock Certificates. Certificates for the Common Stock issued on
or after the Payment Time but prior to the Separation Time shall evidence one Right for each share
of Common Stock represented thereby and shall have impressed on, printed on, written on or
otherwise affixed to them a legend in substantially the following form:




Until the Separation Time (as defined in the Rights Agreement referred to below), this
certificate also evidences and entitles the holder hereof to certain Rights as set forth in
the Rights Agreement, dated as of October 9, 2007 (as such may be amended from time to
time, the “Rights Agreement”), between Morgans Hotel Group Co. (the “Company”) and Mellon
Investor Services LLC, as Rights Agent, the terms of which are hereby incorporated herein
by reference and a copy of which is on file at the principal executive offices of the
Company. Under certain circumstances, as set forth in the Rights Agreement, such Rights
may be redeemed, may become exercisable for securities or assets of the Company or
securities of another entity, may be exchanged for shares of Common Stock or other
securities or assets of the Company, may expire, may become void (if they are “Beneficially
Owned” by an “Acquiring Person” or an Affiliate or Associate thereof, as such terms are
defined in the Rights Agreement, or by any transferee of any of the foregoing) or may be
evidenced by separate certificates and may no longer be evidenced by this certificate. The
Company will mail or arrange for the mailing of a copy of the Rights Agreement to the
holder of this certificate without charge after the receipt of a written request therefor.



Certificates representing shares of Common Stock that are issued and outstanding at the Payment
Time shall, together with the letter mailed pursuant to Section 2.1, evidence one
Right for each share of Common Stock evidenced thereby notwithstanding the absence of the foregoing
legend.


 


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If the Common Stock issued after the Payment Time but prior to the Separation Time shall be
uncertificated, the registration of such Common Stock on the stock transfer books of the Company
shall evidence one Right for each share of Common Stock represented thereby and the Company shall
mail to every Person that holds such Common Stock a confirmation of the registration of such Common
Stock on the stock transfer books of the Company, which confirmation will have impressed, printed,
written or stamped thereon or otherwise affixed thereto the above legend. The Company shall mail
or arrange for the mailing of a copy of this Agreement to any Person that holds Common Stock, as
evidenced by the registration of the Common Stock in the name of such Person on the stock transfer
books of the Company, without charge after the receipt of a written request therefor.



2.3 Exercise of Rights; Separation of Rights. (a) Subject to Sections 3.1, 5.1 and
5.10 and subject to adjustment as herein set forth, each Right will entitle the holder thereof, at
or after the Separation Time and prior to the Expiration Time, to purchase, for the Exercise Price,
one one-hundredth of a share of Preferred Stock.



(b) Until the Separation Time, (i) no Right may be exercised and (ii) each Right will be
evidenced by the certificate for the associated share of Common Stock (or, if the Common Stock
shall be uncertificated, by the registration of the associated Common Stock on the stock transfer
books of the Company and the confirmation thereof provided for in Section 2.2), together, in the
case of certificates issued prior to the Payment Time, with the letter mailed to the record holder
thereof pursuant to Section 2.1, and will be transferable only together with, and will be
transferred by a transfer (whether with or without such letter or confirmation) of, such associated
share.



(c) Subject to the terms and conditions hereof, at or after the Separation Time and prior to
the Expiration Time, the Rights (i) may be exercised and (ii) may be transferred independent of
shares of Common Stock. Promptly following the Separation Time, the Company will give written
notice to the Rights Agent, and the Rights Agent will mail to each holder of record of Common Stock
as of the Separation Time (other than any Person whose Rights have become void pursuant to Section
3.1(b)), at such holder’s address as shown by the records of the Company (the Company hereby
agreeing to furnish copies of such records to the Rights Agent for this purpose), (x) a certificate
(a “Rights Certificate”) in substantially the form of Exhibit A hereto appropriately completed,
representing the number of Rights held by such holder at the Separation Time and having such marks
of identification or designation and such legends, summaries or endorsements printed thereon as the
Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or
as may be required to comply with any law or with any rule or regulation made pursuant thereto or
with any rule or regulation of any national securities exchange or quotation system on which the
Rights
may from time to time be listed or traded, or to conform to usage, and (y) a disclosure
statement describing the Rights.


 


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(d) Subject to the terms and conditions hereof, Rights may be exercised on any Business Day on
or after the Separation Time and prior to the Expiration Time by submitting to the Rights Agent the
Rights Certificate evidencing such Rights with an Election to Exercise (an “Election to Exercise”)
substantially in the form attached to the Rights Certificate duly completed, accompanied by payment
in cash, or by certified or official bank check or money order payable to the order of the Company,
of a sum equal to the Exercise Price multiplied by the number of Rights being exercised and a sum
sufficient to cover any transfer tax or charge that may be payable in respect of any transfer
involved in the transfer or delivery of Rights Certificates or the issuance or delivery of
certificates (or, if uncertificated, the registration on the stock transfer books of the Company)
for shares or depositary receipts (or both) in a name other than that of the holder of the Rights
being exercised.



(e) Upon receipt of a Rights Certificate, with an Election to Exercise properly completed and
duly executed, accompanied by payment as set forth in Section 2.3(d), and subject to the terms and
conditions hereof, the Rights Agent will thereupon promptly (i) (A) requisition from a transfer
agent stock certificates evidencing such number of shares or other securities to be purchased or,
in the case of uncertificated shares or other securities, requisition from a transfer agent a
notice setting forth such number of shares or other securities to be purchased for which
registration will be made on the stock transfer books of the Company (the Company hereby
irrevocably authorizing its transfer agents to comply with all such requisitions), and (B) if the
Company elects pursuant to Section 5.5 not to issue certificates (or effect registrations on the
stock transfer books of the Company) representing fractional shares, requisition from the
depositary selected by the Company depositary receipts representing the fractional shares to be
purchased or requisition from the Company the amount of cash to be paid in lieu of fractional
shares in accordance with Section 5.5 and (ii) after receipt of such certificates, depositary
receipts, notices and/or cash, deliver the same to or upon the order of the registered holder of
such Rights Certificate, registered (in the case of certificates, depositary receipts or notices)
in such name or names as may be designated by such holder.



(f) In case the holder of any Rights shall exercise less than all of the Rights evidenced by
such holder’s Rights Certificate, a new Rights Certificate evidencing the Rights remaining
unexercised will be issued by the Rights Agent to such holder or to such holder’s duly authorized
assigns.



(g) The Company covenants and agrees that it will (i) take all such action as may be necessary
to ensure that all shares delivered (or evidenced by registration on the stock transfer books of
the Company) upon exercise of Rights shall, at the time of delivery of the certificates (or
registration) for such shares (subject to payment of the Exercise Price), be duly and validly
authorized, executed, issued and delivered (or



 


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registered) and fully paid and nonassessable; (ii) take all such action as may be necessary to
comply with any applicable requirements of the Securities Act of 1933, as amended or the Exchange
Act, and the rules and regulations thereunder, and any other applicable law, rule or regulation, in
connection with the issuance of any shares upon exercise of Rights; and (iii) pay when due and
payable any and all taxes and charges that may be payable in respect of the original issuance or
delivery of the Rights Certificates or of any shares issued upon the exercise of Rights,
provided, that the Company shall not be required to pay any tax or charge that may be
payable in respect of any transfer involved in the transfer or delivery of Rights Certificates or
the issuance or delivery of certificates (or the registration) for shares in a name other than that
of the holder of the Rights being transferred or exercised.



(h) Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor
the Company shall be obligated to undertake any action with respect to any purported transfer,
split up, combination or exchange of any Rights Certificate or exercise or assignment of a Rights
Certificate unless the registered holder of such Rights Certificate shall have (i) properly
completed and duly signed the certificate following the form of assignment or the form of election
to purchase, as applicable, set forth on the reverse side of the Rights Certificate surrendered for
such transfer, split up, combination, exchange, exercise or assignment and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) thereof
and of the Rights evidenced thereby and Affiliates and Associates thereof as the Company or the
Rights Agent may reasonably request.



2.4 Adjustments to Exercise Price; Number of Rights. (a) In the event the Company
shall at any time after the Record Time and prior to the Separation Time (i) declare or pay a
dividend on Common Stock payable in Common Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a smaller number of shares of Common Stock, (x) the
Exercise Price in effect after such adjustment will be equal to the Exercise Price in effect
immediately prior to such adjustment divided by the number of shares of Common Stock including any
fractional shares in lieu of which such holder received cash (the “Expansion Factor”) that a holder
of one share of Common Stock immediately prior to such dividend, subdivision or combination would
hold thereafter as a result thereof and (y) each Right held prior to such adjustment will become
that number of Rights equal to the Expansion Factor, and the adjusted number of Rights will be
deemed to be distributed among the shares of Common Stock with respect to which the original Rights
were associated (if they remain outstanding) and the shares issued in respect of such dividend,
subdivision or combination, so that each such share of Common Stock will have exactly one Right
associated with it. Each adjustment made pursuant to this paragraph shall be made as of the
payment or effective date for the applicable dividend, subdivision or combination.


 


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In the event that the Company shall at any time after the Record Time and prior to the
Separation Time issue any shares of Common Stock otherwise than in a transaction referenced in the
preceding paragraph, each such share of Common Stock so
issued shall automatically have one new Right associated with it, which Right shall be
evidenced by the certificate representing such share (or, if the Common Stock shall be
uncertificated, such Right shall be evidenced by the registration of such Common Stock on the stock
transfer books of the Company and the confirmation thereof provided for in Section 2.2). Rights
shall be issued by the Company in respect of shares of Common Stock that are issued or sold by the
Company after the Separation Time only to the extent provided in Section 5.3.



(b) In the event that the Company shall at any time after the Record Time and prior to the
Separation Time issue or distribute any securities or assets in respect of, in lieu of or in
exchange for Common Stock (other than pursuant to any non-extraordinary periodic cash dividend or a
dividend paid solely in Common Stock) whether by dividend, in a reclassification or
recapitalization (including any such transaction involving a merger, consolidation or statutory
share exchange), or otherwise, the Company shall make such adjustments, if any, in the Exercise
Price, number of Rights and/or securities or other property purchasable upon exercise of Rights as
the Board of Directors of the Company, in its sole discretion, may deem to be appropriate under the
circumstances in order to adequately protect the interests of the holders of Rights generally, and
the Company and the Rights Agent shall amend this Agreement as necessary to provide for such
adjustments.



(c) Each adjustment to the Exercise Price made pursuant to this Section 2.4 shall be
calculated to the nearest cent. Whenever an adjustment to the Exercise Price is made pursuant to
this Section 2.4, the Company shall (i) promptly prepare a certificate setting forth the facts and
calculations accounting for such adjustment and a brief statement of the facts accounting for such
adjustment and (ii) promptly file with the Rights Agent and with each transfer agent for the Common
Stock a copy of such certificate. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment or statement contained therein and shall have no duty or
liability with respect to and shall not be deemed to have knowledge of such adjustment or event
unless and until it shall have received such certificate.



(d) Rights Certificates shall represent the right to purchase the securities purchasable under
the terms of this Agreement, including any adjustment or change in the securities purchasable upon
exercise of the Rights, even though such certificates may continue to express the securities
purchasable at the time of issuance of the initial Rights Certificates.



2.5 Date on Which Exercise is Effective. Each Person in whose name any certificate
for shares is issued (or registration on the stock transfer books is effected) upon the exercise of
Rights shall for all purposes be deemed to have become the holder of record of the shares
represented thereby on the date upon which the Rights Certificate evidencing such Rights was duly
surrendered and payment of the Exercise Price for such Rights (and any applicable taxes and other
charges payable by the exercising holder hereunder) was made; provided, however,
that if the date of such surrender and payment
is a date upon which the stock transfer books of the Company are closed, such Person shall be
deemed to have become the record holder of such shares on, and such certificate (or registration)
shall be dated, the next succeeding Business Day on which the stock transfer books of the Company
are open.


 


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2.6 Execution, Authentication, Delivery and Dating of Rights Certificates. (a) The
Rights Certificates shall be executed on behalf of the Company by its Chief Executive Officer,
Chief Investment Officer, Chief Financial Officer or General Counsel, under its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Rights Certificates may be manual or facsimile.



Rights Certificates bearing the manual or facsimile signatures of individuals who were at any
time the proper officers of the Company shall bind the Company, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the countersignature and
delivery of such Rights Certificates.



Promptly after the Separation Time, the Company will provide written notification to the
Rights Agent of such Separation Time and will deliver Rights Certificates executed by the Company
to the Rights Agent for countersignature, and, subject to Section 3.1(b), the Rights Agent shall
manually countersign and deliver such Rights Certificates to the holders of the Rights pursuant to
Section 2.3(c). No Rights Certificate shall be valid for any purpose unless manually countersigned
by the Rights Agent.



(b) Each Rights Certificate shall be dated the date of countersignature thereof.



2.7 Registration, Registration of Transfer and Exchange. (a) After the Separation
Time, the Company will cause to be kept a register (the “Rights Register”) in which, subject to
such reasonable regulations as it may prescribe, the Company will provide for the registration and
transfer of Rights. The Rights Agent is hereby appointed “Rights Registrar” for the purpose of
maintaining the Rights Register for the Company and registering Rights and transfers of Rights
after the Separation Time as herein provided. In the event that the Rights Agent shall cease to be
the Rights Registrar, the Rights Agent will have the right to examine the Rights Register at all
reasonable times after the Separation Time.



After the Separation Time and prior to the Expiration Time, upon surrender for registration of
transfer or exchange of any Rights Certificate, and subject to the provisions of Sections 2.7(c)
and (d), the Company will execute, and the Rights Agent will countersign and deliver, in the name
of the holder or the designated transferee or transferees, as required pursuant to the holder’s
instructions, one or more new Rights Certificates evidencing the same aggregate number of Rights as
did the Rights Certificate so surrendered.


 


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(b) Except as otherwise provided in Section 3.1(b), all Rights issued upon any registration of
transfer or exchange of Rights Certificates shall be the valid obligations of the Company, and such
Rights shall be entitled to the same benefits under this Agreement as the Rights surrendered upon
such registration of transfer or exchange.



(c) Every Rights Certificate surrendered for registration of transfer or exchange shall be
duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the
Company or the Rights Agent, as the case may be, duly executed by the holder thereof or such
holder’s attorney duly authorized in writing. As a condition to the issuance of any new Rights
Certificate under this Section 2.7, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation thereto.



(d) The Company shall not register the transfer or exchange of any Rights that have become
void under Section 3.1(b), been exchanged under Section 3.1(c) or been redeemed under Section 5.1.



2.8 Mutilated, Destroyed, Lost and Stolen Rights Certificates. (a) If any mutilated
Rights Certificate is surrendered to the Rights Agent prior to the Expiration Time, then, subject
to Sections 3.1(b), 3.1(c) and 5.1, the Company shall execute and the Rights Agent shall
countersign and deliver in exchange therefor a new Rights Certificate evidencing the same number of
Rights as did the Rights Certificate so surrendered.



(b) If there shall be delivered to the Company and the Rights Agent prior to the Expiration
Time (i) evidence to their satisfaction of the destruction, loss or theft of any Rights Certificate
and (ii) such security or indemnity as may be required by them to save each of them and any of
their agents harmless, then, subject to Sections 3.1(b), 3.1(c) and 5.1 and in the absence of
notice to the Company or the Rights Agent that such Rights Certificate has been acquired by a
bona fide purchaser, the Company shall execute and upon its request the Rights
Agent shall countersign and deliver, in lieu of any such destroyed, lost or stolen Rights
Certificate, a new Rights Certificate evidencing the same number of Rights as did the Rights
Certificate so destroyed, lost or stolen.



(c) As a condition to the issuance of any new Rights Certificate under this Section 2.8, the
Company and the Rights Agent may require the payment of a sum sufficient to cover any tax or other
charge that may be imposed in relation thereto and any other expenses (including the fees and
expenses of the Rights Agent) connected therewith.



(d) Every new Rights Certificate issued pursuant to this Section 2.8 in lieu of any destroyed,
lost or stolen Rights Certificate shall evidence an original additional contractual obligation of
the Company, whether or not the destroyed, lost or stolen Rights Certificate shall be at any time
enforceable by anyone, and, subject to Section 3.1(b) shall be entitled to all the benefits of this
Agreement equally and proportionately with any and all other Rights duly issued hereunder.


 


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2.9 Persons Deemed Owners. Prior to due presentment of a Rights Certificate (or,
prior to the Separation Time, the associated Common Stock certificate or notice of transfer, if
uncertificated) for registration of transfer, the Company, the Rights Agent and any agent of the
Company or the Rights Agent may deem and treat the Person in whose name such Rights Certificate
(or, prior to the Separation Time, such Common Stock certificate or Common Stock registration, if
uncertificated) is registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever, including the payment of the Redemption Price and neither the Company nor
the Rights Agent shall be affected by any notice to the contrary. As used in this Agreement,
unless the context otherwise requires, the term “holder” of any Rights shall mean the registered
holder of such Rights (or, prior to the Separation Time, the associated shares of Common Stock).



2.10 Delivery and Cancellation of Certificates. All Rights Certificates surrendered
upon exercise or for registration of transfer or exchange shall, if surrendered to any Person other
than the Rights Agent, be delivered to the Rights Agent and, in any case, shall be promptly
cancelled by the Rights Agent. The Company may at any time deliver to the Rights Agent for
cancellation any Rights Certificates previously countersigned and delivered hereunder that the
Company may have acquired in any manner whatsoever, and all Rights Certificates so delivered shall
be promptly cancelled by the Rights Agent. No Rights Certificates shall be countersigned in lieu
of or in exchange for any Rights Certificates cancelled as provided in this Section 2.10, except as
expressly permitted by this Agreement. The Rights Agent shall destroy all cancelled Rights
Certificates and deliver a certificate of destruction to the Company.



2.11 Agreement of Rights Holders. Every holder of Rights by accepting the same
consents and agrees with the Company and the Rights Agent and with every other holder of Rights
that:



(a) prior to the Separation Time, each Right will be transferable only together with, and will
be transferred by a transfer of, the associated share of Common Stock;



(b) after the Separation Time, the Rights Certificates will be transferable only on the Rights
Register as provided herein;



(c) prior to due presentment of a Rights Certificate (or, prior to the Separation Time, the
associated Common Stock certificate or Common Stock registration, if uncertificated) for
registration of transfer, the Company, the Rights Agent and any agent of the Company or the Rights
Agent may deem and treat the Person in whose name the Rights Certificate (or, prior to the
Separation Time, the associated Common Stock certificate or Common Stock registration, if
uncertificated) is registered as the absolute owner thereof and of the Rights evidenced thereby for
all purposes whatsoever, and neither the Company nor the Rights Agent shall be affected by any
notice to the contrary;


 


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(d) Rights Beneficially Owned by certain Persons will, under the circumstances set forth in
Section 3.1(b), become void; and



(e) this Agreement may be supplemented or amended from time to time pursuant to Section 2.4(b)
or 5.4.



ARTICLE III




ADJUSTMENTS TO THE RIGHTS IN

THE EVENT OF CERTAIN TRANSACTIONS




3.1 Flip-in. (a) In the event that prior to the Expiration Time a Flip-in Date shall
occur, except as provided in this Section 3.1, each Right shall constitute the right to purchase
from the Company, upon exercise thereof in accordance with the terms hereof (but subject to Section
5.10), that number of shares of Common Stock having an aggregate Market Price on the Stock
Acquisition Date that gave rise to the Flip-in Date equal to twice the Exercise Price for an amount
in cash equal to the Exercise Price (such right to be appropriately adjusted in order to protect
the interests of the holders of Rights generally in the event that on or after such Stock
Acquisition Date any of the events described in Section 2.4(a) or (b), or any analogous event,
shall have occurred with respect to the Common Stock).



(b) Notwithstanding the foregoing, any Rights that are or were Beneficially Owned on or after
the Stock Acquisition Date by an Acquiring Person or an Affiliate or Associate thereof or by any
transferee, direct or indirect, of any of the foregoing shall become void and any holder of such
Rights (including transferees) shall thereafter have no right to exercise or transfer such Rights
under any provision of this Agreement. If any Rights Certificate is presented for assignment or
exercise and the Person presenting the same will not complete the certification set forth at the
end of the form of assignment or notice of election to exercise and provide such additional
evidence of the identity of the Beneficial Owner and its Affiliates and Associates (or former
Beneficial Owners and their Affiliates and Associates) as the Company shall reasonably request,
then the Company shall be entitled conclusively to deem the Beneficial Owner thereof to be an
Acquiring Person or an Affiliate or Associate thereof or a transferee of any of the foregoing and
accordingly will deem the Rights evidenced thereby to be void and not transferable or exercisable.



(c) The Board of Directors of the Company may, at its option, at any time after a Flip-in Date
and prior to the time that an Acquiring Person becomes the Beneficial Owner of more than 50% of the
outstanding shares of Common Stock elect to exchange all (but not less than all) of the then
outstanding Rights (which shall not include Rights that have become void pursuant to the provisions
of Section 3.1(b)) for shares of Common Stock at an exchange ratio of one share of Common Stock per
Right, appropriately adjusted in order to protect the interests of holders of Rights generally in
the event that after the Separation Time any of the events described in Section 2.4(a) or
(b), or any analogous event, shall have occurred with respect to the Common Stock (such
exchange ratio, as adjusted from time to time, being hereinafter referred to as the “Exchange
Ratio”).


 


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Immediately upon the action of the Board of Directors of the Company electing to exchange the
Rights, without any further action and without any notice, the right to exercise the Rights will
terminate and each Right (other than Rights that have become void pursuant to Section 3.1(b)),
whether or not previously exercised, will thereafter represent only the right to receive a number
of shares of Common Stock equal to the Exchange Ratio. Promptly after the action of the Board of
Directors electing to exchange the Rights, the Company shall give written notice thereof
(specifying the steps to be taken to receive shares of Common Stock in exchange for Rights) to the
Rights Agent and the holders of the Rights (other than Rights that have become void pursuant to
Section 3.1(b)) outstanding immediately prior thereto by mailing such notice in accordance with
Section 5.9.



Each Person in whose name any certificate for shares is issued (or for whom any registration
on the stock transfer books of the Company is made) upon the exchange of Rights pursuant to this
Section 3.1(c) or Section 3.1(d) shall for all purposes be deemed to have become the holder of
record of the shares represented thereby on, and such certificate (or registration on the stock
transfer books of the Company) shall be dated (or registered as of), the date upon which the Rights
Certificate evidencing such Rights was duly surrendered and payment of any applicable taxes and
other charges payable by the holder was made; provided, however, that if the date
of such surrender and payment is a date upon which the stock transfer books of the Company are
closed, such Person shall be deemed to have become the record holder of such shares on, and such
certificate (or registration on the stock transfer books of the Company) shall be dated (or
registered as of), the next succeeding Business Day on which the stock transfer books of the
Company are open.



(d) Whenever the Company shall become obligated under Section 3.1(a) or (c) to issue shares of
Common Stock upon exercise of or in exchange for Rights, the Company, at its option, may substitute
therefor shares of Preferred Stock, at a ratio of one one-hundredth of a share of Preferred Stock
for each share of Common Stock so issuable.



(e) In the event that there shall not be sufficient treasury shares or authorized but unissued
shares of Common Stock or Preferred Stock of the Company to permit the exercise or exchange in full
of the Rights in accordance with Section 3.1(a) or if the Company so elects to make the exchange
referenced in Section 3.1(c), the Company shall take such action as shall be necessary to ensure
and provide, as and when and to the maximum extent permitted by applicable law and any agreements
or instruments in effect on the Stock Acquisition Date (and remaining in effect) to which it is a
party, that each Right shall thereafter constitute the right to receive, (x) at the Company’s
option, either (A) in return for the Exercise Price, debt or equity securities or



 


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other assets (or a combination thereof) having a fair value equal to twice the Exercise Price,
or (B) without payment of consideration (except as otherwise required by applicable law), debt or
equity securities or other assets (or a combination thereof) having a fair value equal to the
Exercise Price, or (y) if the Board of Directors of the Company elects to exchange the Rights in
accordance with Section 3.1(c), debt or equity securities or other assets (or a combination
thereof) having a fair value equal to the product of the Market Price of a share of Common Stock on
the Flip-in Date times the Exchange Ratio in effect on the Flip-in Date, where in any case set
forth in (x) or (y) above the fair value of such debt or equity securities or other assets shall be
as determined in good faith by the Board of Directors of the Company, after consultation with a
nationally recognized investment banking firm.



3.2 Flip-over. (a) Prior to the Expiration Time, the Company shall not enter into
any agreement with respect to, consummate or permit to occur any Flip-over Transaction or Event
unless and until it shall have entered into a supplemental agreement with the Flip-over Entity, for
the benefit of the holders of the Rights (the terms of which shall be reflected in an amendment to
this Agreement entered into with the Rights Agent), providing that, upon consummation or occurrence
of the Flip-over Transaction or Event (i) each Right shall thereafter constitute the right to
purchase from the Flip-over Entity, upon exercise thereof in accordance with the terms hereof, that
number of shares of Flip-over Stock of the Flip-over Entity having an aggregate Market Price on the
date of consummation or occurrence of such Flip-over Transaction or Event equal to twice the
Exercise Price for an amount in cash equal to the Exercise Price (such right to be appropriately
adjusted in order to protect the interests of the holders of Rights generally in the event that
after such date of consummation or occurrence any of the events described in Section 2.4(a) or (b),
or any analogous event, shall have occurred with respect to the Flip-over Stock) and (ii) the
Flip-over Entity shall thereafter be liable for, and shall assume, by virtue of such Flip-over
Transaction or Event and such supplemental agreement, all the obligations and duties of the Company
pursuant to this Agreement.



(b) Prior to the Expiration Time, unless the Rights will be redeemed pursuant to Section 5.1
pursuant to an agreement entered into by the Company prior to a Flip-in Date, the Company shall not
enter into any agreement with respect to, consummate or permit to occur any Flip-over Transaction
or Event if (i) at the time thereof there are any rights, warrants or securities outstanding or any
other arrangements, agreements or instruments that would eliminate or otherwise diminish in any
material respect the benefits intended to be afforded by this Rights Agreement to the holders of
Rights upon consummation of such transaction, (ii) prior to, simultaneously with or immediately
after such Flip-over Transaction or Event, the stockholders of the Person who constitutes, or would
constitute, the Flip-over Entity shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates, or (iii) the form or nature of organization of
the Flip-over Entity would preclude or limit the exercisability of the Rights.


 


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(c) The provisions of this Section 3.2 shall apply to successive Flip-over Transactions or
Events.



ARTICLE IV




THE RIGHTS AGENT




4.1 General. (a) The Company hereby appoints the Rights Agent to act as agent for
the Company in accordance with the terms and conditions hereof, and the Rights Agent hereby accepts
such appointment. The Company agrees to pay to the Rights Agent reasonable compensation for all
services rendered by it hereunder and, from time to time, on demand of the Rights Agent,
reimbursement for its reasonable expenses and counsel fees and other disbursements incurred in the
preparation, negotiation, delivery, amendment, administration and execution of this Agreement and
the exercise and performance of its duties hereunder. The Company also agrees to indemnify the
Rights Agent for, and to hold it harmless against, any loss, liability, damage, judgment, fine,
penalty, claim, demand, settlement, cost or expense (including, without limitation, the reasonable
fees and expenses of legal counsel), incurred without gross negligence, bad faith or willful
misconduct on the part of the Rights Agent (which gross negligence, bad faith or willful misconduct
must be determined by a final, non-appealable order, judgment, decree or ruling of a court of
competent jurisdiction), for any action taken, suffered or omitted by the Rights Agent in
connection with the acceptance, administration, exercise and performance of its duties under this
Agreement, including the costs and expenses of defending against any claim of liability. The costs
and expenses incurred in enforcing this right of indemnification shall be paid by the Company. The
provision of this Section 4.1 and Section 4.3 below shall survive the termination of this
Agreement, the exercise of or expiration of the Rights and the resignation, replacement, removal of
the Rights Agent.



(b) The Rights Agent shall be authorized and protected and shall incur no liability for or in
respect of any action taken, suffered or omitted by it in connection with its acceptance or
administration of this Agreement and the exercise and performance of its duties hereunder, in
reliance upon any certificate for securities (or registration on the stock transfer books of the
Company) purchasable upon exercise of Rights, Rights Certificate, certificate for other securities
of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit,
letter, notice, direction, consent, certificate, statement, or other paper or document believed by
it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons or otherwise upon the advice of counsel as set forth in Section 4.3. The
Rights Agent shall not be deemed to have knowledge of any event of which it was supposed to have
received notice thereof hereunder, and the Rights Agent shall be fully protected and shall incur no
liability for failing to take any action in connection therewith unless and until it has received
such notice.


 


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4.2 Merger or Consolidation or Change of Name of Rights Agent. (a) Any Person into
which the Rights Agent or any successor Rights Agent may be merged or with which it may be
consolidated, or any Person resulting from any merger or consolidation to which the Rights Agent or
any successor Rights Agent shall be a party, or any Person succeeding to the shareholder services
business of the Rights Agent or any successor Rights Agent, will be the successor to the Rights
Agent under this Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto, provided that such Person would be eligible for
appointment as a successor Rights Agent under the provisions of Section 4.4. In case at the time
such successor Rights Agent succeeds to the agency created by this Agreement any of the Rights
Certificates have been countersigned but not delivered, any such successor Rights Agent may adopt
the countersignature of the predecessor Rights Agent and deliver such Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates have not been countersigned,
any successor Rights Agent may countersign such Rights Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in all such cases such
Rights Certificates will have the full force provided in the Rights Certificates and in this
Agreement.



(b) In case at any time the name of the Rights Agent is changed and at such time any of the
Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so countersigned; and in case
at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may
countersign such Rights Certificates either in its prior name or in its changed name; and in all
such cases such Rights Certificates shall have the full force provided in the Rights Certificates
and in this Agreement.



4.3 Duties of Rights Agent. The Rights Agent undertakes the duties and obligations
expressly imposed by this Agreement (and no implied duties) upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance
thereof, shall be bound:



(a) The Rights Agent may consult with legal counsel (who may be legal counsel for the
Company), and the advice or opinion of such counsel will be full and complete authorization and
protection to the Rights Agent and the Rights Agent shall incur no liability for or in respect of
as to any action taken, suffered or omitted by it and in accordance with such advice or opinion.



(b) Whenever in the performance of its duties under this Agreement the Rights Agent deems it
necessary or desirable that any fact or matter (including, without limitation, the identity of any
Acquiring Person) be proved or established by the Company prior to taking, suffering or omitting to
take any action hereunder, such fact or matter (unless other evidence in respect thereof be herein
specifically prescribed) may be deemed to be conclusively proved and established by a certificate
signed by a person believed by the Rights Agent to be the Chief Executive Officer, Chief Investment
Officer, Chief Financial Officer or General Counsel of the Company and delivered to the Rights
Agent; and such certificate will be full and complete authorization and protection to the Rights
Agent and the Rights Agent shall incur no liability for or in respect of any action taken or
suffered by it under the provisions of this Agreement in reliance upon such certificate.


 


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(c) The Rights Agent will be liable hereunder only for its own gross negligence, bad faith or
willful misconduct (which gross negligence, bad faith or willful misconduct must be determined by a
final, non-appealable order, judgment, decree or ruling of a court of competent jurisdiction).
Anything to the contrary notwithstanding, in no event shall the Rights Agent be liable for special,
punitive, indirect, consequential or incidental loss or damage of any kind whatsoever (including
but not limited to loss profits), even if the Rights Agent has been advised of the likelihood of
such loss or damage. Any liability of the Rights Agent under this Agreement will be limited to the
amount of the annual fees paid by the Company to the Rights Agent.



(d) The Rights Agent will not be liable for or by reason of any of the statements of fact or
recitals contained in this Agreement or in the certificates, if any, for securities purchasable
upon exercise of Rights or the Rights Certificates (except its countersignature thereof) nor shall
it be required to verify the same, but all such statements and recitals are and will be deemed to
have been made by the Company only.



(e) The Rights Agent will not be under any responsibility in respect of the validity of this
Agreement or the execution and delivery hereof (except the due authorization, execution and
delivery hereof by the Rights Agent) or in respect of the validity or execution of any certificate,
if any, for securities purchasable upon exercise of Rights or Rights Certificate (except its
countersignature thereof); nor will it be responsible for any breach by the Company of any covenant
or condition contained in this Agreement or in any Rights Certificate; nor will it be responsible
for any change in the exercisability of the Rights (including the Rights becoming void pursuant to
Section 3.1(b)) or any adjustment required under the provisions of Section 2.4, 3.1 or 3.2 or
responsible for the manner, method or amount of any such adjustment or the ascertaining of the
existence of facts that would require any such adjustment (except with respect to the exercise of
Rights after receipt of the certificate contemplated by Section 2.4 describing any such
adjustment); nor will it by any act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any securities purchasable upon exercise of Rights or any
Rights or as to whether any securities purchasable upon exercise of Rights will, when issued, be
duly and validly authorized, executed, issued and delivered and fully paid and nonassessable.



(f) The Company agrees that it will perform, execute, acknowledge and deliver or cause to be
performed, executed, acknowledged and delivered all such further and other acts, instruments and
assurances as may reasonably be required by the Rights Agent for the carrying out or performing by
the Rights Agent of the provisions of this Agreement.


 


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(g) The Rights Agent is hereby authorized and directed to accept instructions with respect to
the performance of its duties hereunder from any person believed by the Rights Agent to be the
Chief Executive Officer, Chief Investment Officer, Chief Financial Officer or General Counsel of
the Company, and to apply to such persons for advice or instructions in connection with its duties,
and it shall not be liable for any action taken or suffered by it in good faith in accordance with
instructions of any such person.



(h) The Rights Agent and any stockholder, director, officer or employee of the Rights Agent
may buy, sell or deal in Common Stock, Rights or other securities of the Company or become
pecuniarily interested in any transaction in which the Company may be interested, or contract with
or lend money to the Company or otherwise act as fully and freely as though it were not Rights
Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any
other capacity for the Company or for any other Person.



(i) The Rights Agent may execute and exercise any of the rights or powers hereby vested in it
or perform any duty hereunder either itself (through its directors, officers or employees) or by or
through its attorneys or agents, and the Rights Agent will not be answerable or accountable for any
act, omission, default, neglect or misconduct of any such attorneys or agents or for any loss to
the Company or any other Person resulting from any such act, default, neglect or misconduct, absent
gross negligence, bad faith or willful misconduct in the selection and continued employment thereof
(which gross negligence, bad faith or willful misconduct must be determined by a final,
non-appealable order, judgment, decree or ruling of a court of competent jurisdiction).



(j) No provision of this Agreement shall require the Rights Agent to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of its duties hereunder
or in the exercise of its rights if there shall be reasonable grounds for believing that repayment
of such funds or adequate indemnification against such risk or liability is not assured to it.



(k) If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise,
transfer, split up, combination or exchange, either (i) the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not been completed or
indicates an affirmative response to clause 1 and/or 2 thereof, or (ii) the Rights Agent has
received notice of a suspension, the Rights Agent shall not take any further action with respect to
such requested exercise, transfer, split up, combination or exchange, without first consulting with
the Company, and shall thereafter take further action with respect thereto only in accordance with
the Company’s written instructions.


 


-21-









 





4.4 Change of Rights Agent. The Rights Agent may resign and be discharged from its
duties under this Agreement upon 90 days’ notice (or such lesser
notice as is acceptable to the Company) in writing mailed to the Company and to each transfer
agent of Common Stock known to the Rights Agent by registered or certified mail, and to the holders
of the Rights in accordance with Section 5.9. The Company may remove the Rights Agent upon 30
days’ notice in writing, mailed to the Rights Agent and to each transfer agent of the Common Stock
by registered or certified mail, and to the holders of the Rights in accordance with Section 5.9.
If the Rights Agent should resign or be removed or otherwise become incapable of acting, the
Company will appoint a successor to the Rights Agent. If the Company fails to make such
appointment within a period of 30 days after such removal or after it has been notified in writing
of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder
of any Rights (which holder shall, with such notice, submit such holder’s Rights Certificate for
inspection by the Company), then the holder of any Rights may apply to any court of competent
jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a Person organized and doing business under
the laws of the United States or any state of the United States, in good standing, which is
authorized under such laws to exercise the powers of the Rights Agent contemplated by this
Agreement and is subject to supervision or examination by federal or state authority and which has
at the time of its appointment as Rights Agent a combined capital and surplus of at least
$50,000,000. After appointment, the successor Rights Agent will be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights Agent without
further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor
Rights Agent any property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of
any such appointment, the Company will file notice thereof in writing with the predecessor Rights
Agent and each transfer agent of the Common Stock, and mail a notice thereof in writing to the
holders of the Rights. Failure to give any notice provided for in this Section 4.4, however, or
any defect therein, shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may be.



ARTICLE V




MISCELLANEOUS




5.1 Redemption. (a) The Board of Directors of the Company may, at its option, at any
time prior to the close of business on the Flip-in Date, elect to redeem all (but not less than
all) the then outstanding Rights at the Redemption Price and the Company, at its option, may pay
the Redemption Price either in cash or shares of Common Stock or other securities of the Company
deemed by the Board of Directors, in the exercise of its sole discretion, to be at least equivalent
in value to the Redemption Price.


 


-22-









 





(b) Immediately upon the action of the Board of Directors of the Company electing to redeem
the Rights (or, if the resolution of the Board of Directors electing to
redeem the Rights states that the redemption will not be effective until the occurrence of a
specified future time or event, upon the occurrence of such future time or event), without any
further action and without any notice, the right to exercise the Rights will terminate and each
Right, whether or not previously exercised, will thereafter represent only the right to receive the
Redemption Price in cash or securities, as determined by the Board of Directors. Promptly after
the Rights are redeemed, the Company shall give written notice of such redemption to the Rights
Agent and the holders of the then outstanding Rights by mailing such notice in accordance with
Section 5.9.



5.2 Expiration. The Rights and this Agreement shall expire at the Expiration Time and
no Person shall have any rights pursuant to this Agreement or any Right after the Expiration Time,
except, if the Rights are exchanged or redeemed, as provided in Section 3.1 or 5.1, respectively.



5.3 Issuance of New Rights Certificates. Notwithstanding any of the provisions of
this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect
any adjustment or change in the number or kind or class of shares of stock purchasable upon
exercise of Rights made in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock by the Company following the
Separation Time and prior to the Expiration Time pursuant to the terms of securities convertible or
redeemable into shares of Common Stock (other than any securities issued or issuable in connection
with the exercise or exchange of Rights) or to options, in each case issued or granted prior to,
and outstanding at, the Separation Time, the Company shall issue to the holders of such shares of
Common Stock, Rights Certificates representing the appropriate number of Rights in connection with
the issuance or sale of such shares of Common Stock; provided, however, in each
case, (i) no such Rights Certificate shall be issued, if, and to the extent that, the Company shall
be advised by counsel that such issuance would create a significant risk of material adverse tax
consequences to the Company or to the Person to whom such Rights Certificates would be issued, (ii)
no such Rights Certificates shall be issued if, and to the extent that, appropriate adjustment
shall have otherwise been made in lieu of the issuance thereof, and (iii) the Company shall have no
obligation to distribute Rights Certificates to any Acquiring Person or Affiliate or Associate of
an Acquiring Person or any transferee of any of the foregoing.



5.4 Supplements and Amendments. The Company and the Rights Agent may from time to
time supplement or amend this Agreement without the approval of any holders of Rights (i) prior to
the Close of Business on the Flip-in Date, in any respect and (ii) after the Close of Business on
the Flip-in Date, to make any changes that the Company may deem necessary or desirable and that
shall not materially adversely affect the interests of the holders of Rights generally or in order
to cure any ambiguity or to correct or supplement any provision contained herein which may be
inconsistent with any other provisions herein or otherwise defective. The Rights Agent will duly
execute and deliver any supplement or amendment hereto requested by the Company which



 


-23-









 






satisfies the terms of the preceding sentence, provided that any supplement or
amendment shall become effective immediately upon execution by the Company, whether or not also
executed by the Rights Agent. Notwithstanding anything herein to the contrary, the Rights Agent
shall not be obligated to enter into any supplement or amendment that adversely affects the Rights
Agent’s own right, duties, obligations or immunities under this Agreement, and the Rights Agent
shall not be bound by supplements or amendments not executed by it.



5.5 Fractional Shares. If the Company elects not to issue certificates representing
(or register on the stock transfer books of the Company) fractional shares upon exercise,
redemption or exchange of Rights, the Company shall, in lieu thereof, in the sole discretion of the
Board of Directors, either (a) evidence such fractional shares by depositary receipts issued
pursuant to an appropriate agreement between the Company and a depositary selected by it, providing
that each holder of a depositary receipt shall have all of the rights, privileges and preferences
to which such holder would be entitled as a beneficial owner of such fractional share, or (b) pay
to the registered holder of such Rights the appropriate fraction of the Market Price per share in
cash. If the Company elects to issue fractional shares, whenever a payment for fractional Rights
or fractional shares is to be made by the Rights Agent upon exercise of a Right, the Company shall
(i) as promptly as practicable prepare and deliver to the Rights Agent a certificate setting forth
in reasonable detail the facts related to such payments and the prices and/or formulas utilized in
calculating such payments, and (ii) provide immediately available funds to the Rights Agent
sufficient to make such payments. The Rights Agent shall be fully protected in relying upon such a
certificate and shall have no duty with respect to, and shall not be deemed to have knowledge of
any payment for fractional Rights or fractional shares under any Section of this Agreement relating
to the payment of fractional Rights or fractional shares unless and until the Rights Agent shall
have received such a certificate and funds.



5.6 Rights of Action. Subject to the terms of this Agreement (including Sections
3.1(b) and 5.14), rights of action in respect of this Agreement, other than rights of action vested
solely in the Rights Agent, are vested in the respective holders of the Rights; and any holder of
any Rights, without the consent of the Rights Agent or of the holder of any other Rights, may, on
such holder’s own behalf and for such holder’s own benefit and the benefit of other holders of
Rights, enforce, and may institute and maintain any suit, action or proceeding against the Company
to enforce, or otherwise act in respect of, such holder’s right to exercise such holder’s Rights in
the manner provided in such holder’s Rights Certificate and in this Agreement. Without limiting
the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged
that the holders of Rights would not have an adequate remedy at law for any breach of this
Agreement and will be entitled to specific performance of the obligations under, and injunctive
relief against actual or threatened violations of, the obligations of any Person subject to this
Agreement.


 


-24-









 





Notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights
Agent shall have any liability to any holder of a Right or other Person as a result of its
inability to perform any of its obligations under this Agreement by reason of any preliminary or
permanent injunction or other order, judgment, decree or ruling (whether interlocutory or final)
issued by a court of competent jurisdiction or by a governmental regulatory, self-regulatory or
administrative agency or commission, or any statute, rule, regulation, or executive order
promulgated or enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however that the Company shall use
commercially reasonable efforts to have any such injunction, order, judgment, decree or ruling
lifted or otherwise overturned as soon as possible.



5.7 Holder of Rights Not Deemed a Stockholder. No holder, as such, of any Rights
shall be entitled to vote, receive dividends or be deemed for any purpose the holder of shares or
any other securities that may at any time be issuable on the exercise of such Rights, nor shall
anything contained herein or in any Rights Certificate be construed to confer upon the holder of
any Rights, as such, any of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action, or to receive notice of meetings or other actions
affecting stockholders (except as provided in Section 5.8), or to receive dividends or subscription
rights, or otherwise, until such Rights shall have been exercised or exchanged in accordance with
the provisions hereof.



5.8 Notice of Proposed Actions. In case the Company shall propose at or after the
Separation Time and prior to the Expiration Time (i) to effect or permit a Flip-over Transaction or
Event or (ii) to effect the liquidation, dissolution or winding up of the Company, then, in each
such case, the Company shall give to the Rights Agent and to each holder of a Right, in accordance
with Section 5.9, a notice of such proposed action, which shall specify the date on which such
Flip-over Transaction or Event, liquidation, dissolution, or winding up is to take place, and such
notice shall be so given at least 20 Business Days prior to the date of the taking of such proposed
action.



5.9 Notices. Notices or demands authorized or required by this Agreement to be given
or made by the Rights Agent or by the holder of any Rights to or on the Company shall be
sufficiently given or made if delivered or sent by first-class mail, postage prepaid, addressed
(until another address is filed in writing with the Rights Agent) as follows:




Morgans Hotel Group Co.

475 10th Avenue

New York, New York 10018

Attention: Secretary


 


-25-









 





Any notice or demand authorized or required by this Agreement to be given or made by the Company or
by the holder of any Rights to or on the Rights Agent shall be sufficiently given or made if
delivered or sent by first-class mail, postage prepaid, addressed (until another address is filed
in writing with the Company) as follows:




Mellon Investor Services LLC

480 Washington Boulevard

Jersey City, NJ 07310

Attention: General Counsel

Telecopier No.: (201) 680-4637



Notices or demands authorized or required by this Agreement to be given or made by the Company or
the Rights Agent to or on the holder of any Rights shall be sufficiently given or made if delivered
or sent by first-class mail, postage prepaid, addressed to such holder at the address of such
holder as it appears upon the registry books of the Rights Agent or, prior to the Separation Time,
on the registry books of the transfer agent for the Common Stock. Any notice that is mailed in the
manner herein provided shall be deemed given, whether or not the holder receives the notice.



5.10 Suspension of Exercisability. To the extent that the Company determines in good
faith that some action will or need be taken pursuant to Section 3.1 or to comply with federal or
state securities laws, the Company may suspend the exercisability of the Rights for a reasonable
period in order to take such action or comply with such laws. In the event of any such suspension,
the Company shall issue as promptly as practicable a public announcement (with prompt written
notice thereof to the Rights Agent) stating that the exercisability or exchangeability of the
Rights has been temporarily suspended. Notice thereof pursuant to Section 5.9 shall not be
required.



Failure to give a notice pursuant to the provisions of this Agreement shall not affect the
validity of any action taken hereunder; provided that nothing in this Section 5.10 shall affect the
rights and obligations of the Rights Agent pursuant to the other terms of this Agreement (including
under Section 4.1(b)).



5.11 Costs of Enforcement. The Company agrees that if the Company or any other Person
the securities of which are purchasable upon exercise of Rights fails to fulfill any of its
obligations pursuant to this Agreement, then the Company or such Person will reimburse the holder
of any Rights for the costs and expenses (including legal fees) incurred by such holder in actions
to enforce such holder’s rights pursuant to any Rights or this Agreement.



5.12 Successors. All the covenants and provisions of this Agreement by or for the
benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective
successors and assigns hereunder.



5.13 Benefits of this Agreement. Nothing in this Agreement shall be construed to give
to any Person other than the Company, the Rights Agent and the
holders of the Rights any legal or equitable right, remedy or claim under this Agreement and
this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the
holders of the Rights.


 


-26-









 





5.14 Determination and Actions by the Board of Directors, etc. The Board of Directors
of the Company shall have the exclusive power and authority to administer this Agreement and to
exercise all rights and powers specifically granted to the Board or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including, without limitation, the
right and power to (i) interpret the provisions of this Agreement and (ii) make all determinations
deemed necessary or advisable for the administration of this Agreement. All such actions,
interpretations and determinations (including, for purposes of clause (y) below, all omissions with
respect to the foregoing) done or made by the Board, shall (x) be final, conclusive and binding on
the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject
the Board of Directors of the Company to any liability to the holders of the Rights.



5.15 Descriptive Headings; Section References. Descriptive headings appear herein for
convenience only and shall not control or affect the meaning or construction of any of the
provisions hereof. Where a reference in this Agreement is made to a Section, such reference shall
be to a Section of this Agreement unless otherwise indicated.



5.16 GOVERNING LAW. THIS AGREEMENT AND EACH RIGHT ISSUED HEREUNDER SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF DELAWARE AND FOR ALL PURPOSES SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND
PERFORMED ENTIRELY WITHIN SUCH STATE; EXCEPT THAT ALL PROVISIONS REGARDING THE RIGHTS, DUTIES AND
OBLIGATIONS OF THE RIGHTS AGENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.



5.17 Counterparts. This Agreement may be executed in any number of counterparts and
each of such counterparts shall for all purposes be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.



5.18 Severability. If any term or provision hereof or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or unenforceable, such term
or provision shall be ineffective as to such jurisdiction to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining terms and provisions
hereof or the application of such term
or provision to circumstances other than those as to which it is held invalid or
unenforceable.


 


-27-









 





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



	 	 	 	 	 
	 	MORGANS HOTEL GROUP CO.

 	 
	 	By:  	/s/ Richard Szymanski
	 
	 	 	Name: 	Richard Szymanski	 
	 	 	Title: 	Chief Financial Officer	 
	 
	 	MELLON INVESTOR SERVICES LLC

 	 
	 	By:  	/s/
Sajoo Samuel	 
	 	 	Name:  	Sajoo Samuel	 
	 	 	Title:  	Vice President	 
	 




 


-28-












 




EXHIBIT A




FORM OF RIGHTS CERTIFICATE




			
	 	 	 
	Certificate No. W-
	 	                     Rights






THE RIGHTS ARE SUBJECT TO REDEMPTION OR MANDATORY EXCHANGE, AT THE OPTION
OF THE COMPANY, ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. RIGHTS
BENEFICIALLY OWNED BY ACQUIRING PERSONS OR AFFILIATES OR ASSOCIATES
THEREOF (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT) OR TRANSFEREES
OF ANY OF THE FOREGOING WILL BE VOID.



Rights Certificate




MORGANS HOTEL GROUP CO.




This certifies that                                         , or registered assigns, is the registered holder of
the number of Rights set forth above, each of which entitles the registered holder thereof, subject
to the terms, provisions and conditions of the Stockholder Protection Rights Agreement, dated as of
October 9, 2007 (as amended from time to time, the “Rights Agreement”), between Morgans Hotel Group
Co, a Delaware corporation (the “Company”), and Mellon Investor Services LLC, a New Jersey limited
liability company, as Rights Agent (the “Rights Agent”, which term shall include any successor
Rights Agent under the Rights Agreement), to purchase from the Company at any time after the
Separation Time (as such term is defined in the Rights Agreement) and prior to the close of
business on October 9, 2008, one one-hundredth of a fully paid share of Participating Preferred
Stock, par value $0.01 per share (the “Preferred Stock”), of the Company (subject to adjustment as
provided in the Rights Agreement) at the Exercise Price referred to below, upon presentation and
surrender of this Rights Certificate with the Form of Election to Exercise duly executed at the
principal office of the Rights Agent in The City of New York. The Exercise Price shall initially
be $100.00 per Right and shall be subject to adjustment in certain events as provided in the Rights
Agreement.



In certain circumstances described in the Rights Agreement, the Rights evidenced hereby may
entitle the registered holder thereof to purchase securities of an entity other than the Company or
securities of the Company other than Preferred Stock or assets of the Company, all as provided in
the Rights Agreement.



This Rights Certificate is subject to all of the terms, provisions and conditions of the
Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by
reference and made a part hereof and to which Rights Agreement reference is hereby made for a full
description of the rights, limitations of rights, obligations, duties and immunities hereunder of
the Rights Agent, the Company and the holders of the Rights Certificates. Copies of the Rights
Agreement are on file at the principal office of the Company and are available without cost upon
written request.



This Rights Certificate, with or without other Rights Certificates, upon surrender at the
office of the Rights Agent designated for such purpose, may be exchanged for another Rights
Certificate or Rights Certificates of like tenor evidencing an aggregate number of Rights equal to
the aggregate number of Rights evidenced by the Rights Certificate or Rights Certificates
surrendered. If this Rights Certificate shall be exercised in part, the registered holder shall be
entitled to receive, upon surrender hereof, another Rights Certificate or Rights Certificates
for the number of whole Rights not exercised.


 


 









 





Subject to the provisions of the Rights Agreement, each Right evidenced by this Certificate
may be (a) redeemed by the Company under certain circumstances, at its option, at a redemption
price of $0.01 per Right or (b) exchanged by the Company under certain circumstances, at its
option, for one share of Common Stock per Right (or, in certain cases, other securities or assets
of the Company), subject in each case to adjustment in certain events as provided in the Rights
Agreement.



No holder of this Rights Certificate, as such, shall be entitled to vote or receive dividends
or be deemed for any purpose the holder of any securities which may at any time be issuable on the
exercise hereof, nor shall anything contained in the Rights Agreement or herein be construed to
confer upon the holder hereof, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of
meetings or other actions affecting stockholders (except as provided in the Rights Agreement), or
to receive dividends or subscription rights, or otherwise, until the Rights evidenced by this
Rights Certificate shall have been exercised or exchanged as provided in the Rights Agreement.



This Rights Certificate shall not be valid or obligatory for any purpose until it shall have
been countersigned by the Rights Agent.




WITNESS the facsimile signature of the proper officers of the Company and its corporate seal.



Date: _______________, ____




	 	 	 	 	 	 	 
	ATTEST:	 	MORGANS HOTEL GROUP CO.
	 
	 	 	 	 	 	 
	 

	 	 	 	By	 	 
	 	 	 	 	 
	Secretary	 	 	 	 
	 
	 	 	 	 	 	 
	Countersigned:	 	 	 	 
	 
	 	 	 	 	 	 
	MELLON INVESTOR SERVICES LLC	 	 	 	 
	 
	 	 	 	 	 	 
	By
	 	 	 	 	 	 
	 

	 	 	 	 	 	 
	Authorized Signature	 	 	 	 







 


-2-









 







[Form of Reverse Side of Rights Certificate]




FORM OF ASSIGNMENT




(To be executed by the registered holder if such

holder desires to transfer this Rights Certificate.)




FOR VALUE RECEIVED                                          hereby



	 	 	 
	sells, assigns and transfers unto
	 	 
	 

	 	 
	 

	 	(Please print name and address of transferee)






 





this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint                      Attorney, to transfer the within Rights

Certificate on the books of the within-named Company, with full power of substitution.



Dated: _______________, ____




	 	 	 
	Signature Guaranteed:
	 	 
	 

	 	 
	 

	 	Signature
	 

	 	(Signature must correspond to name as written upon
the face of this Rights Certificate in every
particular, without alteration or enlargement or any
change whatsoever)






Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion
Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion
Signature Program.


 


 









 





 




(To be completed if true)




The undersigned hereby represents, for the benefit of all holders of Rights and shares of Common
Stock, that the Rights evidenced by this Rights Certificate are not, and, to the knowledge of the
undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).



	 	 	 
	 

	 	 
	 

	 	Signature






NOTICE




In the event the certification set forth above is not completed in connection with a purported
assignment, the Company and the Rights Agent will deem the Beneficial Owner of the Rights evidenced
by the enclosed Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will
deem the Rights evidenced by such Rights Certificate to be void and not transferable or
exercisable.


 


-2-









 





[To be attached to each Rights Certificate]




FORM OF ELECTION TO EXERCISE




(To be executed if holder desires to

exercise the Rights Certificate.)




TO: MORGANS HOTEL GROUP CO.



The undersigned hereby irrevocably elects to exercise                      whole Rights
represented by the attached Rights Certificate to purchase the shares of Participating Preferred
Stock issuable upon the exercise of such Rights and requests that certificates for such shares be
issued in the name of:



	 	 	 	 	 
	 

	 	 	 	 
	 

	 	Address:
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	Social Security or Other Taxpayer	 	 
	 

	 	Identification Number:	 	 
	 

	 	 	 	 






If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new
Rights Certificate for the balance of such Rights shall be registered in the name of and delivered
to:



	 	 	 	 	 
	 

	 	 	 	 
	 

	 	Address:
	 	 
	 

	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	Social Security or Other Taxpayer	 	 
	 

	 	Identification Number:	 	 
	 

	 	 	 	 






Dated: _______________, ____




	 	 	 
	Signature Guaranteed:
	 	 
	 

	 	 
	 

	 	Signature
	 

	 	(Signature must correspond to name as written upon
the face of this Rights Certificate in every
particular, without alteration or enlargement or any
change whatsoever)






Signatures must be guaranteed by a participant in the Securities Transfer Agent Medallion
Program, the Stock Exchanges Medallion Program or the New York Stock Exchange, Inc. Medallion
Signature Program.


 


 









 





 




(To be completed if true)




The undersigned hereby represents, for the benefit of all holders of Rights and shares of Common
Stock, that the Rights evidenced by the attached Rights Certificate are not, and, to the knowledge
of the undersigned, have never been, Beneficially Owned by an Acquiring Person or an Affiliate or
Associate thereof (as defined in the Rights Agreement).



	 	 	 
	 

	 	 
	 

	 	Signature






NOTICE




In the event the certification set forth above is not completed in connection with a purported
exercise, the Company and the Rights Agent will deem the Beneficial Owner of the Rights evidenced
by the attached Rights Certificate to be an Acquiring Person or an Affiliate or Associate thereof
(as defined in the Rights Agreement) or a transferee of any of the foregoing and accordingly will
deem the Rights evidenced by such Rights Certificate to be void and not transferable or
exercisable.



 




-2-





 


 












 




EXHIBIT B




FORM OF CERTIFICATE OF DESIGNATION AND TERMS

OF PARTICIPATING PREFERRED STOCK OF MORGANS HOTEL GROUP CO.




Pursuant to Section 151 of the General

Corporation Law of the State of Delaware




We, the undersigned,                      and                     , the                     
and                     , respectively, of Morgans Hotel Group Co., a Delaware corporation (the
“Corporation”), do hereby certify as follows:



Pursuant to authority granted by Article FOURTH of the Amended and Restated Certificate of
Incorporation of the Corporation, and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Board of Directors of the Corporation has
adopted the following resolutions fixing the designation and certain powers, preferences and other
rights of a new series of the Corporation’s Preferred Stock, par value $0.01 per share, and certain
qualifications, limitations and restrictions thereon:




RESOLVED, that there is hereby established a series of Preferred Stock, par value
$0.01 per share, of the Corporation, and the designation and certain powers, preferences
and other rights of the shares of such series, and certain qualifications, limitations and
restrictions thereon, are hereby fixed as follows:




(i) The distinctive serial designation of this series shall be “Participating
Preferred Stock” (hereinafter called “this Series”). Each share of this Series
shall be identical in all respects with the other shares of this Series except as
to the dates from and after which dividends thereon shall be cumulative.




(ii) The number of shares in this Series shall initially be [•],1
which number may from time to time be increased or decreased (but not below the
number then outstanding) by the Board of Directors. Shares of this Series
purchased by the Corporation shall be cancelled and shall revert to authorized but
unissued shares of Preferred Stock undesignated as to series. Shares of this
Series may be issued in fractional shares which are whole number multiples of one
one-hundredth of a share, which fractional shares shall entitle the holder, in
proportion to such holder’s fractional share, to all rights of a holder of a whole
share of this Series.





 




			
	1	 	Insert number equal to the number of shares of
Common Stock outstanding on date prior to filing certificate of designation
divided by 100.




 


 









 






(iii) The holders of full or fractional shares of this Series shall be
entitled to receive, when and as declared by the Board of Directors, but only out
of funds legally available therefor, dividends, (A) on each date
that dividends or other distributions (other than dividends or distributions
payable in Common Stock of the Corporation) are payable on or in respect of Common
Stock comprising part of the Reference Package (as defined below), in an amount per
whole share of this Series equal to the aggregate amount of dividends or other
distributions (other than dividends or distributions payable in Common Stock of the
Corporation) that would be payable on such date to a holder of the Reference
Package and (B) on the last day of March, June, September and December in each
year, in an amount per whole share of this Series equal to the excess (if any) of
$[•]2 over the aggregate dividends paid per whole share of this Series
during the three month period ending on such last day. Each such dividend shall be
paid to the holders of record of shares of this Series on the date, not exceeding
sixty days preceding such dividend or distribution payment date, fixed for the
purpose by the Board of Directors in advance of payment of each particular dividend
or distribution. Dividends on each full and each fractional share of this Series
shall be cumulative from the date such full or fractional share is originally
issued; provided that any such full or fractional share originally issued after a
dividend record date and on or prior to the dividend payment date to which such
record date relates shall not be entitled to receive the dividend payable on such
dividend payment date or any amount in respect of the period from such original
issuance to such dividend payment date.




The term “Reference Package” shall initially mean 100 shares of Common Stock,
par value $0.01 per share (“Common Stock”), of the Corporation. In the event the
Corporation shall at any time after the close of business on [•]3 (A)
declare or pay a dividend on any Common Stock payable in Common Stock, (B)
subdivide any Common Stock or (C) combine any Common Stock into a smaller number of
 shares, then and in each such case the Reference Package after such event shall be
the Common Stock that a holder of the Reference Package immediately prior to such
event would hold thereafter as a result thereof.




Holders of shares of this Series shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess of full cumulative dividends,
as herein provided on this Series.





 




			
	2	 	Insert an amount equal to 1/4 of the Exercise
Price.
	 
	3	 	For a certificate of designation relating to shares
to be issued pursuant to Section 2.3 of the Rights Agreement, insert the
Separation Time. For a certificate of designation relating to shares to be
issued pursuant to Section 3.1(d) of the Rights Agreement, insert the Flip-in
Date.




 


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So long as any shares of this Series are outstanding, no dividend (other than
a dividend in Common Stock or in any other stock ranking junior to this Series as
to dividends and upon liquidation) shall be declared or paid or set aside for
payment or other distribution declared or made upon the Common Stock or upon any
other stock ranking junior to this Series as to dividends or upon liquidation,
unless the full cumulative dividends (including the dividend to be paid upon
payment of such dividend or other distribution) on all outstanding shares of this
Series shall have been, or shall contemporaneously be, paid. When dividends are
not paid in full upon this Series and any other stock ranking on a parity as to
dividends with this Series, all dividends declared upon shares of this Series and
any other stock ranking on a parity as to dividends shall be declared pro rata so
that in all cases the amount of dividends declared per share on this Series and
such other stock shall bear to each other the same ratio that accumulated dividends
per share on the shares of the Series and such other stock bear to each other.
Neither the Common Stock nor any other stock of the Corporation ranking junior to
or on a parity with this Series as to dividends or upon liquidation shall be
redeemed, purchased or otherwise acquired for any consideration (or any moneys be
paid to or made available for a sinking fund for the redemption of any shares of
any such stock) by the Corporation (except by conversion into or exchange for stock
of the Corporation ranking junior to this Series as to dividends and upon
liquidation), unless the full cumulative dividends (including the dividend to be
paid upon payment of such dividend, distribution, redemption, purchase or other
acquisition) on all outstanding shares of this Series shall have been, or shall
contemporaneously be, paid.




(iv) In the event of any merger, consolidation, reclassification or other
transaction in which the shares of Common Stock are exchanged for or changed into
other stock or securities, cash and/or any other property, then in any such case
the shares of this Series shall at the same time be similarly exchanged or changed
in an amount per whole share equal to the aggregate amount of stock, securities,
cash and/or any other property (payable in kind), as the case may be, that a holder
of the Reference Package would be entitled to receive as a result of such
transaction.




(v) In the event of any liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, the holders of full and
fractional shares of this Series shall be entitled, before any distribution or
payment is made on any date to the holders of the Common Stock or any other stock
of the Corporation ranking junior to this Series upon liquidation, to be paid in
full an amount per whole share of



 


-3-









 






this Series equal to the greater of (A) $[•]4 or (B) the aggregate
amount distributed or to be distributed in connection with such liquidation,
dissolution or winding up to a holder of the Reference Package (such greater amount
being hereinafter referred to as the “Liquidation Preference”), together with
accrued dividends to such distribution or payment date, whether or not earned or
declared. If such payment shall have been made in full to all holders of shares of
this Series, the holders of shares of this Series as such shall have no right or
claim to any of the remaining assets of the Corporation.




In the event the assets of the Corporation available for distribution to the
holders of shares of this Series upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, shall be insufficient to pay in
full all amounts to which such holders are entitled pursuant to the first paragraph
of this Section (v), no such distribution shall be made on account of any shares of
any other class or series of Preferred Stock ranking on a parity with the shares of
this Series upon such liquidation, dissolution or winding up unless proportionate
distributive amounts shall be paid on account of the shares of this Series, ratably
in proportion to the full distributable amounts for which holders of all such
parity shares are respectively entitled upon such liquidation, dissolution or
winding up.




Upon the liquidation, dissolution or winding up of the Corporation, the
holders of shares of this Series then outstanding shall be entitled to be paid out
of assets of the Corporation available for distribution to its stockholders all
amounts to which such holders are entitled pursuant to the first paragraph of this
Section (v) before any payment shall be made to the holders of Common Stock or any
other stock of the Corporation ranking junior upon liquidation to this Series.




For the purposes of this Section (v), the consolidation or merger of, or
binding statutory share exchange by, the Corporation with any other corporation
shall not be deemed to constitute a liquidation, dissolution or winding up of the
Corporation.




(vi) The shares of this Series shall not be redeemable.





 




			
	4	 	Insert an amount equal to 100 times the Exercise
Price in effect as of the Separation Time.




 


-4-









 






(vii) In addition to any other vote or consent of stockholders required by law
or by the Amended and Restated Certificate of Incorporation, as amended, of the
Corporation, and except as otherwise required by law, each share (or fraction
thereof) of this Series shall, on any
matter, vote as a class with any other capital stock comprising part of the
Reference Package and shall have the number of votes thereon that a holder of the
Reference Package would have.



IN WITNESS WHEREOF, the undersigned have signed and attested this certificate on the
 _____ 

day
of
 _____ 

..
 _____ 

..



	 	 	 
	 
	 	 
	 

	 	 






	 	 	 
	Attest:

	 	 
	 
	 	 
	 
	 	 
	 
	 	 







 


-5-