Document:

Exhibit 10.25

 

EMPLOYMENT AGREEMENT

 

AGREEMENT, dated as of the fourteenth day of February, 2006, between
Morgans Hotel Group Co., a Delaware corporation (the “Company”), and Marc Gordon (the “Executive”) which shall become effective
upon the closing date (the “Effective Date”)
of the initial public offering of the shares of common stock, par value $0.01
per share, (the “Common Stock”)
of the Company pursuant to the registration statement on Form S-1 (Reg.
No. 333-129277) (the “IPO”).

 

1.                                       Employment Period. The Company hereby
agrees to employ the Executive, and the Executive hereby agrees to work in the
employ of the Company, subject to the terms and conditions of this Agreement,
for the period commencing on the Effective Date and ending on the fourth anniversary
of the Effective Date (the “Employment
Period”). Commencing on the fourth anniversary of the Effective Date
and on each anniversary thereafter, the Employment Period shall be
automatically extended for one year terms unless either the Company or the Executive
shall give the other party not less than 90 days
prior written notice of the intention to not extend this Agreement (a “Non-Renewal Notice”).

 

2.                                       Terms of Employment.

 

(a)                                  Position and Duties.

 

(i)                                     During
the Employment Period, the Executive shall serve as Chief Investment Officer
and Executive Vice President of Capital Markets of the Company with the
appropriate authority, duties and responsibilities attendant to such position
and any other duties that may reasonably be assigned by the Company’s Chief
Executive Officer or the Company’s Board of Directors (the “Board”) consistent with his position as
Chief Investment Officer and Executive Vice President of Capital Markets.

 

(ii)                                  During
the Employment Period, and excluding any periods of vacation and sick leave to
which the Executive is entitled, the Executive agrees to devote substantially
all of the Executive’s business time, attention and energies to the performance
of the duties assigned to the Executive hereunder, and to perform such duties
faithfully, diligently and to the best of the Executive’s abilities and subject
to such laws, rules, regulations and policies from time to time applicable to
the Company’s other executives. Notwithstanding the above, Executive shall be
entitled to attend to personal and family affairs and investments, be involved
in not for profit, charitable and professional activities and serve on up to
two for profit boards, provided that the foregoing does not, in the aggregate,
materially interfere with Executive’s responsibilities hereunder. The Board
hereby approves Executive’s service on the boards set forth in Exhibit A
hereto.

 

 

(b)                                 Compensation.

 

(i)                                     Annual
Base Salary. During the Employment Period, the Executive shall receive an
annual base salary (“Annual Base Salary”)
of at least $650,000, which shall be subject to annual review and increase. No increase in Annual Base Salary shall limit
or reduce any other right of or obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced at any time (including after
any such increase) without the Executive’s written consent and the term Annual
Base Salary as utilized in this Agreement shall refer to Annual Base Salary as
so increased.

 

(ii)                                  Annual
Bonus. During the Employment Period, the Executive shall be paid an annual
cash bonus (“Annual Bonus”) with
a target level of 100% of Annual Base Salary and a maximum level of 120% of
Annual Base Salary. The applicable corporate and individual performance targets
shall be determined by the Compensation Committee of the Board (the “Compensation Committee”), after
consultation with the Executive, within the first 90 days of each calendar
year or within 30 days after the IPO if later. The actual Annual Bonus for
each calendar year shall be determined in good faith by the Compensation
Committee based upon actual corporate and individual performance for such year
and shall be payable in accordance with the procedures specified by the
Compensation Committee; provided that the Annual Bonus shall be paid no later
than March 15 of the following year. To the extent the Annual Bonus would
exceed 100 percent of Annual Base Salary, the Compensation Committee may
in its discretion pay such excess in the form of fully vested equity
compensation awards under Section 2(b)(v) (which may be subject to other
conditions that the Compensation Committee may determine).

 

(iii)                               IPO
Stock Options. On the Effective Date, the Executive shall be granted
options under the Company’s 2006 Omnibus Stock Incentive Plan (the “SIP”) to purchase $3,000,000 worth of
shares of the Common Stock (using the offering price shown on the cover of the
Company’s IPO Form S-1) at an exercise price equal to the offering price
shown on the cover of the Company’s IPO Form S-1 (the “IPO Stock Options”). Such IPO Stock
Options shall be evidenced by, and subject to, the stock option agreement
attached hereto as Exhibit B.

 

(iv)                              IPO
Units. On the Effective Date, the Executive shall be granted $3,750,000
worth of LTIP Units in Morgans Group LLC (for this purpose each unit shall be
valued at the offering price of a share of Common Stock shown on the cover of
the Company’s IPO Form S-1) in accordance with the Company’s SIP (the “IPO Units”). Such IPO Units shall be
evidenced by, and subject to, the unit agreement attached hereto as
Exhibit C.

 

(v)                                 Subsequent
Annual Equity Grants. The Company may grant the Executive at the end of
each year equity awards under the Company’s SIP, in an amount determined, and
on terms and conditions specified, by the Compensation Committee in its sole
discretion, which terms and conditions shall be no less favorable

 

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than the terms
and conditions of equity awards granted to other senior executives of the
Company.

 

(c)                                  Benefits.

 

(i)                                     Employee
Benefits. During the Employment Period, the Executive shall be entitled to
participate in all employee benefit and other plans, practices, policies and
programs and fringe benefits and perquisites on a basis no less favorable than
that provided to other executives of the Company. The Executive shall be
entitled to a car and driver, financial advisory and tax preparation assistance
and travel arrangements to the same extent currently provided by NorthStar
Capital Investment Corp.

 

(ii)                                  Indemnification.
To the fullest extent permitted by law, the Company will indemnify the
Executive against any actual or threatened action, suit or proceeding, whether
civil, criminal, administrative or investigative, arising by reason of the
Executive’s status as a current or former director, officer, employee and/or
agent of the Company. The Executive shall be covered under any director and
officer insurance policy obtained by the Company, if any, and shall be entitled
to benefit from any officer indemnification arrangements adopted by the
Company, if any, to the same extent as other directors or senior executive
officers of the Company (including the right to such coverage or benefit
following the Executive’s employment to the extent liability continues to
exist). However, the Executive agrees to repay any expenses paid or reimbursed
by the Company if it is ultimately determined that the Executive is not legally
entitled to be indemnified by the Company.

 

(iii)                               Vacations.
The Executive shall be eligible for up to five weeks of annual vacation to be
accrued in accordance with the Company’s policy for its other executives.

 

3.                                       Termination of Employment.

 

(a)                                  Death or Disability. The Executive’s employment shall
terminate automatically upon the Executive’s death during the Employment Period.
If the Company determines in good faith that the Disability of the Executive
has occurred during the Employment Period (pursuant to the definition of
Disability set forth below), it may give to the Executive written notice in
accordance with Section 10(b) of its intention to terminate the Executive’s
employment. In such event, the Executive’s employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the “Disability Effective Date”), provided
that, within the 30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive’s duties. For purposes of
this Agreement, “Disability” shall mean the
inability of the Executive to perform the Executive’s duties with the Company
on a full-time basis for 180 business days during any consecutive twelve
month period as a result of incapacity due to mental or physical illness which
is

 

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determined to be total and permanent by a
physician selected by the Company and acceptable to the Executive or the
Executive’s legal representative or by the insurance company which insures the
Company’s long-term disability plan in which the Executive is eligible to
participate.

 

(b)                                 Cause. The Company may terminate the Executive’s employment
during the Employment Period with or without Cause. For purposes of this
Agreement, “Cause” shall mean that the Executive:

 

(i)                                     willfully
and continually refuses to substantially perform the Executive’s
responsibilities under this Agreement, after demand for substantial performance
has been given by the Board that specifically identifies how the Executive has
refused to perform such responsibilities;

 

(ii)                                  willfully
engages in misconduct (including violations of Sections 7(a), (b) or (c) of
this Agreement) which is materially and demonstrably injurious to the Company;
or

 

(iii)                               is
convicted of a felony or pleads guilty or nolo contendere to a felony.

 

For purposes of this provision, no act or omission on the part of the
Executive shall be considered “willful”
unless it is done or omitted in bad faith or without reasonable belief that the
act or omission was in the best interests of the Company. Any act or omission
based upon a resolution duly adopted by the Board or advice of counsel for the
Company shall be conclusively presumed to have been done or omitted in good
faith and in the best interests of the Company. The cessation of employment of
the Executive shall not be deemed to be for Cause unless and until there shall
have been delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than 75% of the entire membership of the Board
(excluding the Executive) at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board)
finding that, in the good faith opinion of the Board, the Executive is guilty
of the conduct described above, and specifying the particulars thereof in
detail. Notwithstanding the foregoing, if the Board reasonably believes in good
faith that facts exist that may justify a termination for Cause, the Board
retains the right to (i) immediately terminate the Executive’s employment
(without any obligation to pay or provide any benefits described in
Section 4) and (ii) call the Board meeting and comply with the other
requirements described in the preceding sentence within 30 days thereafter
(the “Determination Period”);
provided that promptly following the Determination Period, the Executive shall
be paid or provided the applicable benefits described in Section 4. If the
Company does not deliver to the Executive a Notice of Termination within 90 days after the Board has knowledge
that an event constituting Cause has occurred, the event will no longer
constitute Cause.

 

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(c)                                  Good Reason. The Executive’s employment may be terminated by
the Executive with or without Good Reason. For purposes of this Agreement, “Good Reason” shall mean in the absence of a written consent
of the Executive:

 

(i)                                     the
assignment to the Executive of duties materially inconsistent with the
Executive’s title, position, status, reporting relationships, authority, duties or responsibilities as contemplated
by Section 2(a)(i), or any other action by the Company which results in a
diminution in the Executive’s title, position, status, reporting relationships, authority, duties or
responsibilities, other than insubstantial or inadvertent actions not taken in
bad faith which are remedied by the Company promptly after receipt of notice
thereof given by the Executive;

 

(ii)                                  any
failure by the Company to comply with any of the provisions of Section 2(b)
or 2(c), other than insubstantial or inadvertent failures not in bad faith
which are remedied by the Company promptly after receipt of notice thereof
given by the Executive;

 

(iii)                               any
purported termination by the Company of the Executive’s employment otherwise
than as expressly permitted by this Agreement;

 

(iv)                              any
failure by the Company to comply with and satisfy Section 8(c);

 

(v)                                 following
a Change in Control (as defined in the SIP), any requirement that the Executive’s
principal place of employment be at a location more than 50 miles from New
York, New York; or

 

(vi)                              any
material failure by the Company to comply with any other material provision of
this Agreement (including the equity award agreements).

 

Notwithstanding the foregoing, placing the Executive on a paid leave
for up to 30 days, pending
the determination of whether there is a basis to terminate the Executive for
Cause, shall not constitute a “Good Reason” event; provided, further, that, if
the Executive is subsequently terminated for Cause, then the Executive shall
repay any amounts paid by the Company to the Executive during such paid leave
period. If the Executive does not deliver to the Company a Notice of
Termination (as defined below) within 90 days after the Executive has
knowledge that an event constituting Good Reason has occurred, the event will
no longer constitute Good Reason.

 

(d)                                 Notice of Termination. Any termination by the Company or by
the Executive shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 10(b). For purposes of this
Agreement, a “Notice of Termination” means a
written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination
of the Executive’s employment under

 

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the provision so indicated and (iii) if
the Date of Termination (as defined below) is other than the date of receipt of
such notice, specifies the Date of Termination. The failure by the Executive or
the Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive’s or the Company’s rights hereunder.

 

(e)                                  Date of Termination. “Date of Termination”
means (i) if the Executive’s employment is terminated by the Company other
than for Disability, the date of receipt of the Notice of Termination or any
later date specified therein within 30 days of such notice, (ii) if
the Executive’s employment is terminated by the Executive, 30 days after
receipt of the Notice of Termination (provided, that, the Company may
accelerate the Date of Termination to an earlier date by providing the
Executive with notice of such action, or, alternatively, the Company may place
the Executive on paid leave during such period) and (iii) if the Executive’s
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.

 

4.                                       Obligations of the Company upon Termination.

 

(a)                                  Other Than for Cause; For Good Reason. If, during the
Employment Period, the Company shall terminate the Executive’s employment other
than for Cause or Disability, or the Executive shall terminate employment for
Good Reason (or the Executive dies after delivery of a valid Notice of
Termination for Good Reason or without Cause) (each, a “Qualifying
Termination”), except as provided in Sections 2(c)(ii) and 6 of
this Agreement, the Company shall have no further obligations to the Executive
other than:

 

(i)                                     the
Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination an amount equal to the sum of (A) the amount
equal to the Executive’s Annual Base Salary through the Date of Termination to
the extent theretofore unpaid plus (B) a pro-rated bonus based upon
the number of days in the year of termination through the Date of Termination
relative to 365 and the greater of (i) the target Annual Bonus in the year
the Date of Termination occurs and (ii) the average of the Annual Bonuses
earned for the two years prior to the year the Date of Termination occurs (the
higher of (i) and (ii), the “Applicable
Bonus Amount”) plus (C) 2.5 times the sum of the Annual Base Salary plus the Applicable
Bonus Amount;

 

(ii)                                  for
30 months following the Date
of Termination, the Company shall continue to provide medical and dental and
life insurance benefits to the Executive, his spouse and his eligible dependents
on the same basis and at the same cost as such benefits are then currently
provided to the Executive (the “Welfare
Benefits”); provided that such benefits shall be secondary to any
other coverage obtained by the Executive; provided, however, that if the
Company’s welfare plans do not permit such

 

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coverage, the
Company will provide the Executive the Welfare Benefits with the same after tax
effect;

 

(iii)                               if
applicable, the Executive shall be deemed to have an additional 30 months of
service credit under the Company’s retirement plans, programs, practices and
policies;

 

(iv)                              all
Company equity awards (including, without limitation, the IPO Stock Options and
IPO Units) shall fully vest and all stock options and stock appreciation rights
shall remain exercisable for the lesser of (x) 30 months after the Date of
Termination or (y) the remainder of their term; and

 

(v)                                 to
the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive any other amounts or benefits required to be paid or
provided or which the Executive is eligible to receive under any plan, program,
policy or practice or other contract or agreement of the Company and its
affiliated companies through the Date of Termination, including, but not
limited to, any accrued but unused vacation, any unreimbursed business expenses
and the percentage of target bonus payable to other senior executives of the
Company with respect to any unpaid bonus for any completed fiscal year prior to
the Date of Termination (such other amounts and benefits shall be hereinafter
referred to as the “Other Benefits”).

 

(b)                                 Death; Disability. If, during the Employment Period, the
Executive’s employment shall terminate on account of death (other than via
death after delivery of a valid Notice of Termination for Good Reason or
without Cause) or Disability, except as provided in Sections 2(c)(ii) and 6 of
this Agreement, the Company shall have no further obligations to the Executive
other than to provide the Executive (or his estate):  (i) the Annual Base Salary through the
Date of Termination to the extent theretofore unpaid, (ii) a pro-rated
bonus as set forth in Section 4(a)(i)(B), (iii) the Other Benefits
and (iv) all Company equity awards shall be treated as set forth in
Section 4(a)(iv).

 

(c)                                  For Cause; Other than For Good Reason; End of Employment Period.
If, during the Employment Period, the Company shall terminate the Executive’s
employment for Cause or the Executive terminates his employment without Good
Reason, except as provided in Sections 2(c)(ii) and 6 of this Agreement,
the Company shall have no further obligations to the Executive other than the
obligation to pay to the Executive:  (i) the
Annual Base Salary through the Date of Termination to the extent theretofore
unpaid and (ii) the Other Benefits (but there shall be no payment for any
unpaid bonus for any completed fiscal year prior to the Date of Termination).

 

(d)                                 Non-Renewal by the Company. If the Employment Period is not extended
by the Company pursuant to a Non-Renewal Notice as provided for in
Section 1 of this Agreement, except as provided in Sections 2(c)(ii)
and 6 of this Agreement, the Company shall have no further obligations to the
Executive other than:

 

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(i)                                     the
Company shall pay to the Executive in a lump sum in cash within 30 days
after the Date of Termination an amount equal to the sum of (A) the amount
equal to the Executive’s Annual Base Salary through the Date of Termination to
the extent theretofore unpaid plus (B) 1.0 times the sum of the Annual Base Salary
plus the Applicable Bonus Amount;

 

(ii)                                  for
12 months following the Date
of Termination, the Company shall continue to provide the Executive the Welfare
Benefits; provided that such benefits shall be secondary to any other coverage
obtained by the Executive; provided, however, that if the Company’s welfare
plans do not permit such coverage, the Company will provide the Executive the
Welfare Benefits with the same after tax effect; and

 

(iii)                               any
Company equity awards that would have vested during the 12 month period
following the Date of Termination shall immediately vest and all vested stock
options and stock appreciation rights shall remain exercisable for the lesser
of (x) the remainder of their term or (y) 12 months after the
Date of Termination; and

 

(iv)                              to
the extent not theretofore paid or provided, the Company shall timely pay or
provide to the Executive the Other Benefits.

 

(e)                                  Condition. The Company shall not be required to make the
payments and provide the benefits specified in this Section 4 unless the
Executive executes and delivers to the Company an agreement releasing the
Company, its affiliates and its officers, directors and employees from all
liability (other than the payments and benefits under this Agreement) in the
form attached hereto as Exhibit D (the “Release
Agreement”); provided, however, that the Company shall release the
Executive from all liability to the Company and its affiliates that any Board
members (other than the Executive) have actual knowledge of on the Date of
Termination under the Release Agreement.

 

(f)                                    Resignation from Certain Directorships. Unless the Company
agrees in writing to waive this requirement, upon the termination of the
Executive’s employment for any reason, the Executive agrees to promptly resign
from (i) office as a director of the Company, any subsidiary or affiliate
of the Company or any other entity to which the Company appoints the Executive
to serve as a director, (ii) from all offices held by the Executive in any
or all of such entities in clause (i) above, and (iii) all fiduciary
positions (including as trustee) held by the Executive with respect to any
pension plans or trusts established by any such entities in clause (i)
above.

 

5.                                       Full Settlement. The Company’s obligation
to make the payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts

 

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payable to the
Executive under any of the provisions of this Agreement, and such amounts shall
not be reduced whether or not the Executive obtains other employment.

 

6.                                       Certain Additional Payments by the Company.

 

(a)                                  Gross-Up. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment, award,
benefit or distribution (or any acceleration of any payment, award, benefit or
distribution) by the Company (or any of its affiliated entities) or any entity
which effectuates a Change in Control (as defined in the SIP) (or any of its
affiliated entities) to or for the benefit of the Executive (whether pursuant
to the terms of this Agreement or otherwise, but determined without regard to
any additional payments required under this Section 6) (the “Payments”) would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Company shall pay to the Executive an
additional payment (a “Gross-Up Payment”)
in an amount such that after payment by the Executive of all taxes (including,
without limitation, any income taxes and any interest and penalties imposed
with respect thereto, and any excise tax) imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the sum of
(x) the Excise Tax imposed upon the Payments and (y) the product of
(A) any deductions disallowed because of the inclusion of the Gross-Up
Payment in the Executive’s adjusted gross income and (B) the highest
applicable marginal rate of federal income taxation for the calendar year in
which the Gross-Up Payment is to be made. For purposes of determining the
amount of the Gross-Up Payment, the Executive shall be deemed to (i) pay
federal income taxes at the highest marginal rates of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made,
(ii) pay applicable state and local income taxes at the highest marginal
rate of taxation for the calendar year in which the Gross-Up Payment is to be
made, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes and (iii) have
otherwise allowable deductions for federal income tax purposes at least equal
to those which could be disallowed because of the inclusion of the Gross-Up
Payment in the Executive’s adjusted gross income.

 

(b)                                 Determination. Subject to the provisions of
Section 6(a), all determinations required to be made under this
Section 6, including whether and when a Gross-Up Payment is required, the
amount of such Gross-Up Payment, the amount of any Option Redetermination (as
defined below) and the assumptions to be utilized in arriving at such
determinations, shall be made by the public accounting firm that is retained by
the Company as of the date immediately prior to the Change in Control (the “Accounting Firm”) which shall provide detailed supporting
calculations both to the Company and the Executive within fifteen (15) business
days of the receipt of notice from the Company or the Executive that there has
been a Payment, or such earlier time as is requested by the Company
(collectively, the “Determination”).
Notwithstanding the foregoing, in the event (i) the Board shall determine
prior to the Change in Control that the Accounting Firm is precluded from
performing such

 

9

 

services under applicable auditor
independence rules, (ii) the Audit Committee of the Board determines that
it does not want the Accounting Firm to perform such services because of
auditor independence concerns or (iii) the Accounting Firm is serving as
accountant or auditor for the person(s) effecting the Change in Control, the
Board shall appoint another nationally recognized public accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company and the Company shall
enter into any agreement requested by the Accounting Firm in connection with
the performance of the services hereunder. The Gross-Up Payment under this
Section 6 with respect to any Payments shall be made no later than thirty (30)
days following such Payment. If the Accounting Firm determines that no Excise
Tax is payable by the Executive, it shall furnish the Executive with a written
opinion to such effect, and to the effect that failure to report the Excise
Tax, if any, on the Executive’s applicable federal income tax return will not
result in the imposition of a negligence or similar penalty. The Determination
by the Accounting Firm shall be binding upon the Company and the Executive. As
a result of the uncertainty in the application of Section 4999 of the Code
at the time of the Determination, it is possible that Gross-Up Payments which
will not have been made by the Company should have been made (“Underpayment”) or Gross-Up Payments are made by the Company
which should not have been made (“Overpayment”),
consistent with the calculations required to be made hereunder. In the event
the amount of the Gross-Up Payment is less than the amount necessary to
reimburse the Executive for his Excise
Tax, the Accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) shall be promptly paid by
the Company to or for the benefit of the Executive. In the event the amount of
the Gross-Up Payment exceeds the amount necessary to reimburse the Executive
for his Excise Tax, the Accounting
Firm shall determine the amount of the Overpayment that has been made and any
such Overpayment (together with interest at the rate provided in
Section 1274(b)(2) of the Code) shall be promptly paid by the Executive to
or for the benefit of the Company. The Executive shall cooperate, to the extent
his expenses are reimbursed by the
Company, with any reasonable requests by the Company in connection with any
contests or disputes with the Internal Revenue Service in connection with the
Excise Tax. In the event that the Company determines that the value of any
accelerated vesting of stock options held by the Executive shall be
redetermined within the context of Treasury Regulation §1.280G-1 Q/A 33 (the “Option Redetermination”), the Executive shall (i) file
with the Internal Revenue Service an amended federal income tax return that
claims a refund of the overpayment of the Excise Tax attributable to such
Option Redetermination and (ii) promptly pay the refundable Excise Tax to
the Company; provided that the Company shall pay all reasonable professional
fees incurred in the preparation of the Executive’s amended federal income tax
return.

 

7.                                       Covenants Not to Compete or Solicit Company Clients
and Employees; Confidential Information.

 

(a)                                  Non-Compete. During the Executive’s employment with the
Company, and for a one year period after the date the Executive’s employment is
terminated for

 

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any reason (other than a Qualifying
Termination), the Executive shall not directly or indirectly (without the prior
written consent of the Company):

 

(i)                                     hold
a 10% or greater equity (including stock options whether or not exercisable),
voting or profit participation interest in a Competitive Enterprise (excluding
any investments of the Executive held as of the Effective Date as set forth in
Exhibit E hereto), or

 

(ii)                                  associate
(including as a director, officer, employee, partner, consultant, agent or
advisor) with a Competitive Enterprise and in connection with the
Executive’s association engage, or directly or indirectly manage or supervise
personnel engaged, in any activity:

 

(A)                              that
is substantially related to any activity that the Executive was engaged in with
the Company or its subsidiary companies during the 12 months prior to the
Date of Termination, or

 

(B)                                that
is substantially related to any activity for which the Executive had direct
managerial or supervisory responsibility with the Company or its subsidiary
companies during the 12 months prior to the Date of Termination.

 

Notwithstanding
the foregoing, this Section 7(a)(ii) and Sections 7(b)(i), 7(b)(ii) and
7(b)(iii) (provided that with respect to Section 7(b)(iii) only to the extent
that an action under Section 7(b)(iii) occurs solely as a result of an action
set forth in Section 7(b)(i) or Section 7(b)(ii)) below shall not prevent the
Executive from having a managerial or supervisory role at a Competitive
Enterprise that does not primarily engage in a Competitive Activity or that
holds a 20 percent or greater equity, voting or profit participation interest
in any enterprise that engages in a Competitive Activity, as long as the
Executive (1) has no direct role in such Competitive Activity and (2) does not
Solicit any Client with respect to such Competitive Activity.

 

For purposes of this Agreement, “Competitive Enterprise” means any business
enterprise that either (A) engages in the management and operation of a “full
service hotel” business in North America or Western Europe (a “Competitive
Activity”) or (B) holds a 20 percent or greater equity, voting or profit
participation interest in any enterprise that engages in a Competitive
Activity.

 

(b)                                 Non-Solicit. During the Executive’s employment with the
Company, and for a one year period after the Executive’s employment is
terminated for any reason, the Executive shall not, in any manner, directly or
indirectly (without the prior written consent of the Company):  (i) solicit any Client to transact
business with a Competitive Enterprise or to reduce or refrain from doing any
business with the Company, (ii) transact business with any Client that
would cause the Executive to be a Competitive Enterprise,

 

11

 

(iii) interfere with or damage any
relationship between the Company and a Client or (iv) solicit anyone who
is then an employee of the Company (or who was an employee of the Company
within the prior 12 months) to resign from the Company or to apply for or
accept employment with any other business or enterprise (other than general
advertising not specifically directed at such current or former employees of
the Company), provided, however, that the covenants in Sections 7(b)(i),
7(b)(ii) and 7(b)(iii) (provided that with respect to Section 7(b)(iii) only to
the extent that an action under Section 7(b)(iii) occurs solely as a result of
an action set forth in Section 7(b)(i) or Section 7(b)(ii))shall cease to apply
after a Qualifying Termination.

 

For purposes of this Agreement, a “Client”
means any corporation, individual or other entity that constitutes one of the
top twenty clients of the Company or one of its subsidiary companies over the
preceding twelve month period (each a “Top
Twenty Client”) to whom the Executive provided services or for whom
the Executive transacted business in any manner, directly or indirectly. A
client shall be considered a Top Twenty Client where the total revenue derived
from such client, either directly or indirectly, over the preceding calendar
year period ranks it as one of the Company’s twenty highest revenue generating
clients. The Company will provide the Executive a list of the Top Twenty
Clients at the end of each calendar year during the Employment Period.

 

(c)                                  Confidential Information. The Executive hereby acknowledges
that, as an employee of the Company, he will be making use of, acquiring and
adding to Confidential Information of a special and unique nature and value
relating to the Company and its strategic plan and financial operations. The
Executive further recognizes and acknowledges that all Confidential Information
is the exclusive property of the Company, is material and confidential, and is
critical to the successful conduct of the business of the Company. Accordingly,
the Executive hereby covenants and agrees that he will use Confidential
Information for the benefit of the Company only and shall not at any time,
directly or indirectly, during the term of this Agreement and thereafter
divulge, reveal or communicate any confidential information to any person,
firm, corporation or entity whatsoever, or use any confidential information for
his own benefit or for the benefit of others. Notwithstanding the foregoing,
the Executive shall be authorized to disclose Confidential Information
(A) as may be required by law or legal process after providing the Company
with prior written notice and an opportunity to respond to such disclosure
(unless such notice is prohibited by law), (B) in any criminal proceeding
against him after providing the Company with prior written notice and an
opportunity to seek protection for such confidential information and
(C) with the prior written consent of the Company.

 

For purposes of this Agreement, “Confidential
Information” shall mean confidential or proprietary information,
knowledge or data concerning the Company and its subsidiary companies’
businesses, strategies, operations, financial affairs, organizational matters,
personnel matters, budgets, business plans, marketing plans, studies, policies,
procedures, products, ideas, processes, software systems, trade secrets and
technical know-how. Notwithstanding the foregoing, Confidential Information
shall not include information which (i) is or becomes generally available
to the public or is, at the time in question, in the public domain other than
as

 

12

 

a result of a disclosure by Executive, (ii) was available to
Executive on a non-confidential basis prior to the date of this Agreement or
(iii) becomes available to Executive from a source other than the Company,
its agents or representatives (or former agents or representatives)

 

(d)                                 Survival. Any termination of the Executive’s employment or
of this Agreement (or breach of this Agreement by the Executive or the Company)
shall have no effect on the continuing operation of this Section 7.

 

(e)                                  Validity. The terms and provisions of this Section 7
are intended to be separate and divisible provisions and if, for any reason,
any one or more of them is held to be invalid or unenforceable, neither the
validity nor the enforceability of any other provision of this Agreement shall
thereby be affected. The parties hereto acknowledge that the potential
restrictions on the Executive’s future employment imposed by this
Section 7 are reasonable in both duration and geographic scope and in all
other respects. If for any reason any court of competent jurisdiction shall
find any provisions of this Section 7 unreasonable in duration or
geographic scope or otherwise, the Executive and the Company agree that the
restrictions and prohibitions contained herein shall be effective to the
fullest extent allowed under applicable law in such jurisdiction.

 

(f)                                    Consideration. The parties acknowledge that this Agreement
would not have been entered into and the benefits described in Section 2,
4 or 6 would not have been promised in the absence of the Executive’s promises
under this Section 7.

 

(g)                                 Cease Payments. In the event that the Executive materially
breaches Section 7(a), 7(b) or 7(c), the Company’s obligation to make or
provide payments or benefits under Section 4 or 6 shall cease, provided,
however, that this Section 7(g) shall cease to apply after a Change in Control
(as defined in the SIP).

 

(h)                                 Non-disparagement. For a one year period after the Executive’s
employment is terminated for any reason, (i) the Executive shall not, in any
manner, directly or indirectly make or publish any statement (orally or in
writing) that would libel, slander, disparage, denigrate, ridicule or criticize
the Company, any of its affiliates or any of their employees, officers or
directors and (ii) the Board members and the Company’s executive officers shall
not, in any manner, directly or indirectly make or publish any statement
(orally or in writing) that would libel, slander, disparage, denigrate,
ridicule or criticize the Executive.

 

8.                                       Successors.

 

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

 

13

 

(b)                                 This
Agreement shall inure to the benefit of and be binding upon the Company and its
successors and assigns, provided that the Company may not assign this Agreement
other than as described in Section 8(c) below.

 

(c)                                  The
Company will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business
and/or assets of the Company to assume expressly and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used in this
Agreement, “Company” shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid.

 

9.                                       Disputes.

 

(a)                                  Mandatory Arbitration. Subject to the provisions of this
Section 9, any controversy or claim between the Executive and the Company
arising out of or relating to or concerning this Agreement (including the
covenants contained in Section 7) or any aspect of the Executive’s
employment with the Company or the termination of that employment (together, an
“Employment Matter”) will be finally
settled by arbitration in the County of New York administered by the American
Arbitration Association (the “AAA”) under its
Commercial Arbitration Rules then in effect. However, the AAA’s Commercial
Arbitration Rules will be modified in the following ways:  (i) notwithstanding any provision of the AAA
rules to the contrary, the arbitration shall be heard by a panel of three
neutral arbitrators, with each party appointing one arbitrator, who shall jointly
appoint a third, (ii) each arbitrator will agree to treat as confidential
evidence and other information presented to them, (iii) there will be no
authority to award punitive damages (and the Executive and the Company agree
not to request any such award), (iv) the optional Rules for Emergency Measures
of Protections will apply, (v) there will be no authority to amend or modify
the terms of this Agreement except as provided in Section 10(a) (and the
Executive and the Company agree not to request any such amendment or
modification) and (vi) a decision must be rendered within ten business days of
the parties’ closing statements or submission of post-hearing briefs.

 

(b)                                 Injunctions and Enforcement of Arbitration Awards. The
Executive or the Company may bring an action or special proceeding in a state
or federal court of competent jurisdiction sitting in the County of New York to
enforce any arbitration award under Section 9(a). Also, the Company may
bring such an action or proceeding, in addition to its rights under
Section 9(a) and whether or not an arbitration proceeding has been or is
ever initiated, to temporarily, preliminarily or permanently enforce any part
of Section 7. The Executive agrees that (i) violating any part of
Section 7 would cause damage to the Company that cannot be measured or
repaired, (ii) the Company therefore is entitled to seek an injunction,
restraining order or other equitable relief restraining any actual or
threatened violation of Section 7, (iii) no bond will need to be
posted for the Company to receive such an injunction, order or other relief and
(iv) no proof will be required that monetary damages for violations of
Section 7 would be difficult to calculate and that remedies at law would
be inadequate.

 

14

 

(c)                                  Jurisdiction and Choice of Forum. The
Executive and the Company irrevocably submit to the exclusive jurisdiction of
any state or federal court located in the County of New York over any
Employment Matter that is not otherwise arbitrated or resolved according to
Section 9(a). This includes any action or proceeding to compel
arbitration or to enforce an arbitration award. Both the Executive and the
Company (i) acknowledge that the forum stated in this Section 9(c)
has a reasonable relation to this Agreement and to the relationship between the
Executive and the Company and that the submission to the forum will apply even
if the forum chooses to apply non-forum law, (ii) waive, to the extent
permitted by law, any objection to personal jurisdiction or to the laying of
venue of any action or proceeding covered by this Section 9(c) in the
forum stated in this Section 9(c), (iii) agree not to commence any
such action or proceeding in any forum other than the forum stated in this Section 9(c)
and (iv) agree that, to the extent permitted by law, a final and
non-appealable judgment in any such action or proceeding in any such court will
be conclusive and binding on the Executive and the Company. However, nothing in
this Agreement precludes the Executive or the Company from bringing any action
or proceeding in any court for the purpose of enforcing the provisions of
Section 9(a) and this Section 9(c).

 

(d)                                 Waiver of Jury Trial. To the
extent permitted by law, the Executive and the Company waive any and all rights
to a jury trial with respect to any Employment Matter.

 

(e)                                  Governing Law. This Agreement
will be governed by and construed in accordance with the law of the State of
New York applicable to contracts made and to be performed entirely within that
State.

 

(f)                                    Costs. The Company will reimburse as
incurred any reasonable expenses, including reasonable attorney’s fees, the
Executive incurs as a result of any Employment Matter, provided that the
Executive shall promptly return any such reimbursements if found by an
arbitrator to have brought or defended such Employment Matter in bad faith.

 

10.                                 Miscellaneous.

 

(a)                                  The
captions of this Agreement are not part of the provisions hereof and shall have
no force or effect. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.

 

(b)                                 All
notices and other communications hereunder shall be in writing and shall be
given by hand delivery to the other party or by registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:

 

If to the Executive:

 

at the Executive’s primary residential address

as shown on the records of the Company

 

15

 

If to the Company:

 

Morgans Hotel Group Co.

475 Tenth Avenue

New York, NY 10018

Telecopy Number:  

Attention:  General Counsel

 

or to such other address as either party shall have furnished to the
other in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.

 

(c)                                  The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement.

 

(d)                                 The
Company may withhold from any amounts payable under this Agreement such
Federal, state, local or foreign taxes as shall be required to be withheld
pursuant to any applicable law or regulation.

 

(e)                                  If
any compensation or benefits provided by this Agreement may result in the
application of Section 409A of the Code, the Company shall, in
consultation with the Executive, modify the Agreement in the least restrictive
manner necessary in order to, where applicable, (a) exclude such compensation
from the definition of “deferred compensation” within the meaning of such
Section 409A or (b) comply with the provisions of Section 409A,
other applicable provision(s) of the Code and/or any rules, regulations or
other regulatory guidance issued under such statutory provisions and to make
such modifications, in each case, without any diminution in the value of the
payments to the Executive. To the extent required in order to comply with
Section 409A of the Code, amounts and benefits to be paid or provided to the
Executive under Section 4 of this Agreement shall be paid or provided to
the Executive on the first business day after the date that is six months
following the Date of Termination. To the extent that the Welfare Benefits are
so delayed, the Executive shall be entitled to COBRA continuation coverage
under Section 4980B of the Code (“COBRA Coverage”)
during such period of delay, and the Company shall reimburse the Executive for
any Company portions of such COBRA Coverage in the seventh month following the
Date of Termination.

 

(f)                                    The
Executive’s or the Company’s failure to insist upon strict compliance with any
provision of this Agreement or the failure to assert any right the Executive or
the Company may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section 3(c)
(subject to the limitation in the last sentence of Section 3(c)) or the
Company’s right to terminate the Executive for Cause pursuant to
Section 3(b) (subject to the limitation in the last sentence of
Section 3(b)), shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.

 

16

 

(g)                                 It
is the parties’ intention that this Agreement not be construed more strictly
with regard to the Executive or the Company.

 

(h)                                 From
and after the Effective Date, this Agreement shall supersede any other
employment or severance agreement or arrangements between the parties (and the
Executive shall not be eligible for severance benefits under any plan, program
or policy of the Company).

 

(i)                                     Any
reference to a Section herein is a reference to a section of this Agreement
unless otherwise stated.

 

(j)                                     If
the IPO does not occur by July 1, 2006 this Agreement shall be null
and void and shall have no force or effect.

 

17

 

IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.

 

	
   

  	
  MARC GORDON

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Marc Gordon

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MORGANS HOTEL GROUP CO.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ W. Edward Scheetz

  	
   

  
	
   

  	
   

  	
  Name: 

  	
  W. Edward Scheetz

  
	
   

  	
   

  	
  Title: 

  	
  Chief Executive OfficerExhibit 10.28

 

MORGANS HOTEL GROUP CO.
 ANNUAL BONUS PLAN

 

1.                                       PURPOSE OF PLAN

 

The
purpose of the Morgans Hotel Group Co. Annual Bonus Plan (the “Plan”) is to
attract, retain and motivate selected employees of Morgans Hotel Group Co. (the
“Company”) and its subsidiaries
and affiliates who are executives and employees of the Company in order to
promote the Company’s long-term growth and profitability.

 

2.                                       ADMINISTRATION

 

The
Plan shall be administered by the Compensation Committee (the “Committee”) of
the Board of Directors (the “Board”) of the Company. The Committee shall have
complete control over the administration of the Plan and shall have the
authority in its sole and absolute discretion to: (i) exercise all of the
powers granted to it under the Plan; (ii) construe, interpret and implement the
Plan; (iii) prescribe, amend and rescind rules and regulations relating to the
Plan, including rules and regulations governing its own operations; (iv) make
all determinations necessary or advisable in administering the Plan (including,
without limitation, calculating the size of the bonus payable to each
participant); (v) correct any defect, supply any omission and reconcile
any inconsistency in the Plan; and (vi) amend the Plan to reflect changes in or
interpretations of applicable law, rules or regulations. The determination of
the Committee (or the Board, as applicable) on all matters relating to the Plan
and any amounts payable thereunder shall be final, binding and conclusive on
all parties. The Committee may allocate among its members and may delegate some
or all of its authority or administrative responsibility to such individual or
individuals who are not members of the Committee as it shall deem necessary or
appropriate.

 

Notwithstanding
anything to the contrary contained herein, the Board may, in its sole
discretion, at any time and from time to time, administer the Plan. The Board
shall have all of the authority and responsibility granted to the Committee
herein.

 

No
member of the Board or the Committee, nor any officer or employee of the
Company or any individual acting on behalf of the Board or the Committee, shall
be personally liable for any action, determination, or interpretation taken or
made in good faith with respect to the Plan, and all members of the Board or
the Committee and each and any officer or employee of the Company or any
individual acting on their behalf shall, to the extent permitted by law, be
fully indemnified and protected by the Company in respect of any such action,
determination or interpretation.

 

3.                                       PARTICIPANTS

 

Eligibility
to participate in the Plan is limited to those executives and employees who, in
the Committee’s judgment based on the recommendations of the

 

 

Company’s chief executive officer (the “CEO”), have an
influence on the Company’s long-term corporate performance. The Committee shall
designate the individual executives and employees eligible to participate in
the Plan for each performance period. At anytime during a performance period,
the Committee in its sole discretion may add executives and employees to the
Plan for that performance period or remove executives and employees from the
Plan for that performance period. Participation in any performance period does
not ensure participation in future performance periods. An individual’s active
participation in any performance period shall cease in the event that he or she
ceases to be employed by the Company during such period.

 

4.                                       PERFORMANCE PERIODS

 

Unless
otherwise determined by the Committee, the term over which performance shall be
measured shall be a single calendar year. The first performance period shall be
the 2006 calendar year and thereafter each performance period shall be one full
calendar year, unless otherwise determined by the Committee.

 

5.                                       PERFORMANCE GOALS

 

The
Committee shall establish in writing the performance goals for such performance
period. The Committee reserves the right, in its sole discretion, to adjust
performance goals to reflect such quantitative or qualitative considerations as
the Committee deems relevant.

 

6.                                       TARGET AND MAXIMUM BONUS OPPORTUNITIES

 

The
Committee shall establish the target bonus opportunity and maximum bonus
opportunity for each participant at the same time that it establishes the
performance goals for such performance period. In the event any participant is
added to the Plan, the Committee may set the target bonus opportunity and
maximum bonus opportunity for such person at that time.

 

7.                                       ACTUAL BONUS AMOUNT

 

Upon
the completion of each performance period, the Committee shall evaluate the
Company’s performance against the established performance goals and shall
determine the amount of bonuses payable to each participant. The Committee may,
in its sole discretion, increase or decrease the amount of the bonuses payable
to any participant to reflect such quantitative or qualitative considerations
as the Committee deems relevant. The actual bonus earned under the Plan shall
be payable in cash or, to the extent permissible by applicable law and at the
Committee’s sole discretion, in shares of stock of the Company or in equity
awards (which may be subject to vesting and transfer restrictions) with respect
to the shares of stock of the Company under one of the Company’s equity
compensation plans. The value of any such stock or equity awards and the terms
of any equity awards shall be determined by the Committee in its sole
discretion.

 

2

 

A
participant whose active participation in the Plan ceases before the last day
of the performance period, or whose employment terminates before the bonus
amounts are paid under the Plan, shall not be entitled to a bonus hereunder.

 

8.                                       ADOPTION DATE AND EFFECTIVE DATE

 

The
Plan was adopted by the Board on                    ,
2006 and approved by the stockholders of the Company on                    ,
2006. The Plan shall become effective on the day prior to the date of the
consummation of the initial public offering of shares of common stock of the
Company (the “IPO Date”). In the event that the IPO Date has not occurred by
July 1, 2006, the Plan shall expire and be null and void without any force or
effect.

 

9.                                       AMENDMENT AND TERMINATION

 

The
Board may suspend or terminate the Plan, in whole or in part, at any time, and
may from time to time amend the Plan in such respects as the Board may deem
advisable.

 

10.                                 MISCELLANEOUS

 

(a)           The
establishment of the Plan shall not be construed as conferring any legal rights
upon any participant for a continuation of employment, nor shall it interfere
with the rights of the Company to discharge a participant and treat him or her
without regard to the effect which such treatment might have upon him or her as
a participant in this Plan.

 

(b)           The
Company shall have the right to deduct from any amounts otherwise payable to a
participant, whether pursuant to the Plan or otherwise, or otherwise collect
from the participant, any required minimum withholding taxes with respect to
benefits under the Plan.

 

(c)           The
Company, in its sole discretion, may assign the Plan and all obligations and
liabilities hereunder to any parent organization without any prior notice to or
consent of any participant. In the event of any assignment to any such parent
organization, such parent organization shall be treated as a successor to the
Company and shall exercise all rights of the Company under the Plan.

 

(d)           Subject
to any applicable law, no benefit under the Plan shall be subject in any manner
to, nor shall the Company be obligated to recognize, any purported
anticipation, alienation, sale, transfer (otherwise than by will or the laws of
descent and distribution), assignment, pledge, encumbrance or charge, and any
attempt to do so shall be void. No such benefit shall in any manner be liable
for or subject to garnishment, attachment, execution, or a levy, or liable for
or subject to the debts, contracts, liabilities, engagements or torts of the
participants.

 

3

 

(e)           The
Plan shall not be construed as conferring on a participant any right, title, interest
or claim in or to any specific asset, reserve, account or property of any kind
possessed by the Company. To the extent that a participant or any such person
acquires a right to receive payments from the Company, such rights shall be no
greater than the rights of an unsecured general creditor.

 

(f)            ALL RIGHTS AND OBLIGATIONS UNDER THE PLAN SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO PRINCIPLES OF CONFLICT OF LAWS.

 

4

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