Document:

Exhibit 10.5

AMENDMENT #1
TO THE MASTER SALES AGREEMENT

BETWEEN VONAGE NETWORK INC. AND

TELECOMMUNICATIONS SYSTEMS, INC.

WHEREAS, Vonage
Network Inc. (“Vonage”) and Telecommunications Systems, Inc. (“TCS”) are
parties to the Master Sales Agreement dated June 8, 2005 including all
exhibits, amendments and statements of work thereto (together, the “Agreement”);
and

WHEREAS, the
Parties wish to modify and amend the Agreement effective as of June 1, 2006
solely to the extent set forth under this Amendment #1 to the Agreement (“Amendment
#1”); and

WHEREAS, the
Parties acknowledge and agree that all capitalized terms used but not
specifically defined herein shall have the same meaning as under the Agreement;
and

NOW THEREFORE,
for good and valuable consideration, the receipt and sufficiency of which is
acknowledged, the Parties agree that Exhibit B to the Agreement shall be
amended as follows:

1.             The
section identified as “Monthly Recurring Fee” under the header “Billing” within
Exhibit B to the Agreement is hereby stricken in its entirety and replaced with
the following:

Monthly Recurring Fee:

A.                                   The
Parties have determined that actual call volumes vary month-to-month within a
narrower range than originally anticipated by Vonage and TCS. To accommodate
this, the Monthly Recurring Fee is hereby revised and restated to create
average daily call volume buckets in 25 call increments, in lieu of the 100
daily call increments per the original pricing schedule under Exhibit B.

B.                                     Thus,
as of June 1, 2006, TCS shall calculate the Monthly Recurring Fees under the
Agreement based on Vonage’s actual volumes from the previous month, applying
the “Mid”-column in the following table (also
provided in paragraph C, below, is a narrative example of “Mid”-column pricing,
and an actual recalculation of Vonage’s June 2006 invoice using the “Mid”-column
pricing method):

*

*       Pages
where confidential treatment has been requested are stamped, “Confidential
treatment has been requested.  The
redacted 

 material has been separately filed with the Commission.”  All redacted material has been marked by an
asterisk (*).

 

 

Cells represent previous
pricing under Exhibit B for up to “Hi” number of average daily calls.  Cells represent Vonage’s new pricing schedule
restated with smaller volume buckets.

C.                                     *

2.             As an
administrative concern, this Amendment #1 shall be viewed by TCS as a “Change
Request” and executed as Work Order #011, and hereby adjusts Vonage’s June and
July 2006 invoices retroactively to the new pricing table, as described above.
To the extent this adjustment impacts any invoices that have already been
issued and paid by Vonage, TCS shall true-up any amounts paid in excess of the
adjusted amount and provide any applicable credits in the monthly invoice
immediately following execution of this Amendment #1.

3.             Except
as specifically amended herein, all terms, conditions and provisions contained
in the Agreement shall remain unchanged and in full force and effect.

4.             This
Amendment #1 may be executed in one or more counterparts, each of which shall
be deemed an original and all of which together shall constitute one and the
same agreement. Facsimile signatures shall be deemed original signatures.

5.             The individuals
named below who are executing this Amendment #1 on behalf of the parties are
duly authorized to make the representations contained herein.

IN WITNESS WHEREOF,
the Parties have executed this Amendment #1 on the day and year last set forth
below to be effective as of the June 1, 2006 invoice.

	
  VONAGE NETWORK INC.:

  	
  TELECOMMUNICATIONS SYSTEMS, INC.:

  
	
  By:

  	
  /s/ Timothy
  Smith

  	
   

  	
  By:

  	
  /s/ Richard A. Young

  	
   

  
	
  Printed Name:
  Timothy Smith

  	
  Printed Name: Richard A. Young

  
	
  Title: President

  	
  Title: Executive Vice President & COO

  
	
  Date: 8–4–06

  	
  Date of Signature: 8–8–06

  
						

*       Confidential
treatment has been requested.  The
redacted material has been separately filed with the Commission.

 

 2

 

[VONAGE LETTERHEAD]

November 2, 2006

VIA FAX AND OVERNIGHT MAIL

TeleCommunication Systems, Inc.

275 West Street

Annapolis, MD 21401

Attn: Celeste Ciecierski

Dear Ms. Ciecierski

An administrative
error has come to our attention regarding the naming of recent amendments to
the Master Sales Agreement between TeleCommunication Systems, Inc. (“TCS”) and
Vonage Network Inc. (“Vonage”) dated June 8, 2005 (the “Agreement”).  Specifically, our files contain the following
amendments to the Agreement:

·                                          “Amendment
to the Master Services Agreement Between Vonage Network Inc. and
TeleCommunications Systems, Inc.”; and

·                                          “Amendment #1 to the Master Sales Agreement Between Vonage Network Inc.
and TeleCommunications Systems, Inc.”.

This confirms that the respective documents should
correctly be identified and referred to as:

·                                          “Amendment
#1 to the Master Sales Agreement Between Vonage Network Inc. and
TeleCommunication Systems, Inc.”; and

·                                          “Amendment #2 to the Master Sales Agreement Between Vonage Network Inc.
and TeleCommunication Systems, Inc.”.

In addition, any
and all references to “Master Services Agreement” under new
Amendment #1 shall hereafter be read to mean “Master Sales Agreement,” and any
references to “Amendment” shall be read to mean “Amendment #1.”  Similarly, any and all references to
“Amendment #1” under new Amendment
#2 shall hereafter be read to mean “Amendment #2.”  References to “TeleCommunications Systems,
Inc.” shall hereafter be read to mean “TeleCommunication Systems, Inc.”
throughout both documents.

If you have any
questions, please do not hesitate to contact me directly at 732.231.6237.  Thank you for your attention to this matter.

	
  

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
  VONAGE NETWORKS
  INC.

  
	
   

  	
   

  
	
   

  	
  /s/ ED MULLIGAN by Marilyn Picot

  
	
   

  	
  Ed Mulligan

  
	
   

  	
  Vice President -
  Carrier Operations

  

 

 

 

	
  ACCEPTED AND AGREED:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ A. CELESTE CIECIERSKI

  	
   

  
	
   

  	
   

  	
   

  
	
  Name:

  	
  A. Celeste
  Ciecierski

  	
   

  
	
   

  	
   

  	
   

  
	
  Title:

  	
  Director of
  Contracts

  	
   

  

 

cc:                                 Dave
Rao

Joe Brucchieri

Zenas ChoiExhibit 10.1

CONTRIBUTION
AGREEMENT

by and between

DLJ MB IV HRH, LLC

a Delaware limited
liability company

and

Morgans Hotel Group Co.

a Delaware
corporation

Dated as of November 7, 2006

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  CLOSING

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  EVENTS OCCURRING ON OR PRIOR TO THE CLOSING DATE

  	
   

  	
  6

  
	
   

  	
  3.1.

  	
  Organization of Holdings and Assignment of Rights

  	
   

  	
  6

  
	
   

  	
  3.2.

  	
  Initial Capital Contributions

  	
   

  	
  7

  
	
   

  	
  3.3.

  	
  Deliveries by DLJMB

  	
   

  	
  7

  
	
   

  	
  3.4.

  	
  Deliveries by Morgans

  	
   

  	
  7

  
	
   

  	
  3.5.

  	
  Deliveries by Holdings

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  CLOSING CONDITIONS

  	
   

  	
  8

  
	
   

  	
  4.1.

  	
  Conditions Precedent to Obligations of DLJMB

  	
   

  	
  8

  
	
   

  	
  4.2.

  	
  Conditions Precedent to Obligations of Morgans

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  REPRESENTATIONS AND WARRANTIES OF DLJMB

  	
   

  	
  10

  
	
   

  	
  5.1.

  	
  Organization, Good Standing

  	
   

  	
  10

  
	
   

  	
  5.2.

  	
  Authorization; No Breach

  	
   

  	
  10

  
	
   

  	
  5.3.

  	
  Brokerage

  	
   

  	
  10

  
	
   

  	
  5.4.

  	
  Investment Representation

  	
   

  	
  10

  
	
   

  	
  5.5.

  	
  Sufficient Funds

  	
   

  	
  11

  
	
   

  	
  5.6.

  	
  Hart-Scott-Rodino

  	
   

  	
  11

  
	
   

  	
  5.7.

  	
  Equity Commitment Letter

  	
   

  	
  11

  
	
   

  	
  5.8.

  	
  Litigation

  	
   

  	
  11

  
	
   

  	
  5.9.

  	
  No Other Representations and Warranties

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  REPRESENTATIONS AND WARRANTIES OF THE MORGANS
  PARTIES

  	
   

  	
  12

  
	
   

  	
  6.1.

  	
  Organization, Good Standing, Qualification

  	
   

  	
  12

  
	
   

  	
  6.2.

  	
  Authorization; No Breach

  	
   

  	
  12

  
	
   

  	
  6.3.

  	
  No Knowledge of Misrepresentations or Omissions

  	
   

  	
  12

  
	
   

  	
  6.4.

  	
  Litigation

  	
   

  	
  13

  
	
   

  	
  6.5.

  	
  Escrow Deposits

  	
   

  	
  13

  
	
   

  	
  6.6.

  	
  Casino Lease

  	
   

  	
  13

  
	
   

  	
  6.7.

  	
  Brokerage

  	
   

  	
  14

  
	
   

  	
  6.8.

  	
  Investment Representation

  	
   

  	
  14

  
	
   

  	
  6.9.

  	
  Credit Facility Commitment Letter

  	
   

  	
  14

  
	
   

  	
  6.10.

  	
  No Prior Activities

  	
   

  	
  14

  
	
   

  	
  6.11.

  	
  No Other Representations and Warranties

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  ADDITIONAL COVENANTS

  	
   

  	
  15

  
	
   

  	
  7.1.

  	
  Access to Information

  	
   

  	
  15

  
	
   

  	
  7.2.

  	
  Payment of Expenses by Holdings

  	
   

  	
  15

  
	
   

  	
  7.3.

  	
  Actions Relating to the Acquisition Agreements

  	
   

  	
  16

  
	
   

  	
  7.4.

  	
  Actions with Respect to Debt Financing

  	
   

  	
  17

  
	
   

  	
  7.5.

  	
  Gaming Approvals

  	
   

  	
  18

  

 

 i
 

 

 

	
  

  	
  7.6.

  	
  Exclusivity

  	
  18

  
	
   

  	
  7.7.

  	
  Cooperation by DLJMB

  	
  19

  
	
   

  	
  7.8.

  	
  Actions with Respect to Equity Financing

  	
  19

  
	
   

  	
  7.9.

  	
  Actions with Respect to Casino Lease

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  TERMINATION

  	
  19

  
	
   

  	
  8.1.

  	
  Termination

  	
  19

  
	
   

  	
  8.2.

  	
  Effect of Termination

  	
  20

  
	
   

  	
  8.3.

  	
  Escrow Deposits

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  INDEMNIFICATION

  	
  22

  
	
   

  	
  9.1.

  	
  Survival of Representations and Warranties

  	
  22

  
	
   

  	
  9.2.

  	
  General Indemnification

  	
  23

  
	
   

  	
  9.3.

  	
  Survival

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  MISCELLANEOUS

  	
  25

  
	
   

  	
  10.1.

  	
  Public Statements

  	
  25

  
	
   

  	
  10.2.

  	
  Injunctive Relief

  	
  25

  
	
   

  	
  10.3.

  	
  Governing Law/Choice of Law and Forum

  	
  25

  
	
   

  	
  10.4.

  	
  Entire Agreement; Amendment; Waiver

  	
  25

  
	
   

  	
  10.5.

  	
  Binding Effect/Nonassignment

  	
  25

  
	
   

  	
  10.6.

  	
  Invalidity of Provision

  	
  26

  
	
   

  	
  10.7.

  	
  Notices

  	
  26

  
	
   

  	
  10.8.

  	
  Headings; Execution in Counterparts

  	
  27

  
	
   

  	
  10.9.

  	
  No Strict Construction

  	
  27

  
	
   

  	
  10.10.

  	
  Survival

  	
  27

  

 

 

LIST OF EXHIBITS

Exhibits Referenced

	
  A

  	
  FORM OF LLC AGREEMENT

  
	
  B

  	
  ACQUISITION AGREEMENTS

  
	
  C

  	
  FORM OF MANAGEMENT AGREEMENT

  
	
  D

  	
  MERGER AGREEMENT

  
	
  E

  	
  FORM OF TECHNICAL SERVICES AGREEMENT

  
	
  F

  	
  CASINO LEASE

  
	
  G

  	
  PROPOSED TRANSACTION STRUCTURE CHART

  
	
  H

  	
  EQUITY COMMITMENT LETTER

  

 

 

 ii

 

CONTRIBUTION AGREEMENT

THIS CONTRIBUTION AGREEMENT (the “Agreement”)
is made and entered into as of November 7, 2006 (the “Effective Date”)
by and between DLJ MB IV HRH, LLC, a Delaware limited liability company (“DLJMB”),
and Morgans Hotel Group, Co., a Delaware corporation (“Morgans”).
Capitalized terms not otherwise defined in this Agreement shall have the
respective meanings specified in the form of Limited Liability Company
Agreement attached hereto as Exhibit A (the “LLC Agreement”).

RECITALS

A.            Hard
Rock Holdings, LLC, a Delaware limited liability company (“Holdings”), will be formed to effect the acquisition of the
Hard Rock Hotel & Casino (the “Hotel/Casino”) in Las Vegas, Nevada,
including (a) the capital stock of Hard Rock Hotel, Inc.; (b) the approximately
twenty-three (23) acres of land adjacent thereto and all related entitlements;
(c) the land under the Hard Rock Café site located adjacent to the
Hotel/Casino; (d) certain intellectual property and trademarks; and (e) any
other assets being acquired by the Morgans Parties under the Merger Agreement
or any related agreements with Peter Morton, PM Realty, LLC, Red, White and
Blue Pictures, Inc. and HR Condominium Investors (Vegas), LLC, as applicable
(collectively, as more specifically described in the Acquisition Agreements (as
defined below) the “Acquired Assets”). 
Upon the acquisition of the Acquired Assets (the “Acquisition”),
Holdings will own, manage, renovate and develop such Acquired Assets.

B.            The Morgans Parties (as defined below) previously entered
into agreements for the purchase of the Acquired Assets (together with all
documents, instruments, certificates, schedules and exhibits attached or
related thereto, as each may be amended, modified or supplemented from time to
time in accordance with the provisions of this Agreement, the “Acquisition
Agreements,” each of which is set forth on Exhibit B).

C.            As set forth in, and subject to the terms of, this
Agreement, the Morgans Parties intend to assign all of their right, title and
interest in the Acquisition Agreements and the Acquired Assets to Holdings, and
Holdings will assume the Acquisition Agreements.

D.            On
the Closing Date, and subject to the terms of this Agreement, (a) DLJMB will
contribute, and will cause DLJMB LLC to contribute the DLJMB Initial Capital
Commitment to Holdings and (b) Morgans will be deemed to have contributed the
Morgans Initial Capital Commitment to Holdings, in each case in exchange for
the respective Percentage Interest, as adjusted from time to time, and on the terms
and subject to the conditions set forth in the LLC Agreement.

E.             Following
the consummation of the transactions contemplated by this Agreement and the
Acquisition Agreements, and subject to the terms of this Agreement, Morgans
Management shall manage the Hard Rock Hotel and Casino pursuant to the terms
and conditions of the form of Management Agreement attached hereto as Exhibit
C.

 1
 

 

AGREEMENT

NOW, THEREFORE, for and in consideration of the
foregoing premises, and the mutual representations, warranties, covenants,
agreements and undertakings herein contained, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:

1.             DEFINITIONS

For purposes of this Agreement:

“Acquired Assets” has the
meaning specified in the Recitals.

“Acquisition” has the meaning
specified in the Recitals.

“Acquisition Agreements” has the
meaning specified in the Recitals.

“Affiliate” means, as to any
Person, any other Person that directly or indirectly controls, is controlled
by, or is under common control with such first Person.  For the purposes of this Agreement, a Person
shall be deemed to control another Person if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management,
policies and/or decision making of such other Person, whether through the
ownership of voting securities, by contract or otherwise.

“Agreement” has the meaning
specified in the Preamble.

“Assignment Agreements” has the
meaning set forth in Section 3.1(b).

“Breach” means, with respect to
a representation, warranty, covenant, obligation or other provision, any
inaccuracy in or breach of, or any failure to comply with or perform, such
representation, warranty, covenant, obligation or other provision.

“Break Up Amount” means (a) for
the period beginning on the termination date of the Merger Agreement through
the second anniversary thereof, an amount, not to exceed Twenty Five Million
Dollars ($25,000,000), equal to fifty percent (50%) of the aggregate amount of
funds released to the Selling Parties from the escrows established under the
Escrow Agreements; and (b) for the period after the second anniversary of the
termination date of the Merger Agreement, Twenty Five Million Dollars ($25,000,000),
less fifty percent (50%) of any amounts released from such escrows to the
Morgans Parties, in each case, exclusive of any interest or other investment
income earned thereon from and after May 11, 2006.

“Casino Lease” means that
certain Casino Sublease attached hereto as Exhibit F, dated as of
November 6, 2006, among Merger Sub, Morgans and Golden HRC, LLC or, in the
event that Golden HRC, LLC does not receive the Gaming Approvals before
Closing, such other casino lease as Holdings or an Affiliate of Holdings enters
into with another lessee on terms taken as a whole no less favorable to
Holdings or such Affiliate in any material respect, as amended, modified or
supplemented in accordance with the terms of this Agreement.

“Claim” has the meaning specified
in Section 9.2(d).

 2
 

 

“Closing” has the meaning
specified in Section 2.

“Closing Date” has the meaning
specified in Section 2.

“Credit Facility Commitment Letter” means
the commitment letter from Column Financial, Inc., dated as of May 11, 2006,
pursuant to which Column Financial committed to provide a credit facility with
an aggregate principal amount equal to the lesser of Seven Hundred Million
Dollars ($700,000,000) and eighty-two and one half percent (82.5%) of the
capitalized cost of the Acquisition, as amended, modified or supplemented from
time to time in accordance with this Agreement, or any substitute commitment
letter or definitive agreement, entered into by the Morgans Parties or Holdings
in accordance with Section 7.4.

“Debt Financing” has the meaning
specified in Section 6.9.

“DLJMB” has the meaning
specified in the Preamble.

“DLJMB Condition Failure” has
the meaning specified in Section 8.1(c).

“DLJMB Expenses” has the meaning
specified in Section 7.2.

“DLJMB Initial Capital Commitment” has
the meaning specified in Section 3.2(a).

“DLJMB LLC” means the entity
identified as DLJMB VoteCo, LLC, a Delaware limited liability company, in the
LLC Agreement.

“DLJMB Termination Notices” has
the meaning specified in Section 7.3.

“DLJMB’s Cap” has the meaning
set forth in Section 9.2(b).

“Effective Date” has the meaning
set forth in the Preamble.

“Encumbrance” means any lien,
pledge, hypothecation, charge, mortgage, security interest, encumbrance,
equity, trust, equitable interest, claim, preference, right of possession,
lease, tenancy, license, encroachment, covenant, infringement, interference,
Order, proxy, option, right of first refusal, preemptive right, community
property interest, legend, defect, impediment, exception, reservation,
limitation, impairment, imperfection of title, condition or restriction of any
nature (including any restriction on the voting of any security, any
restriction on the transfer of any security or other asset, any restriction on
the receipt of any income derived from any asset, any restriction on the use of
any asset and any restriction on the possession, exercise or transfer of any
other attribute of ownership of any asset).

 “Entity”
means any corporation (including any nonprofit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust or company (including any limited liability company or joint
stock company).

“Equity Commitment Letter” means
the commitment letter attached hereto as Exhibit H from DLJ Merchant
Banking Partners IV, L.P. and certain of its affiliated entities dated as of
November 7, 2006, pursuant to which such entities committed to provide One 

 3
 

 

Hundred Million Dollars ($100,000,000) of equity
capital to DLJMB in connection with the transactions contemplated by this
Agreement.

“Escrow Agreements” means,
collectively, the Escrow Agreement dated May 11, 2006 by and among Lily Pond
Investments, Inc., Morgans, and Chicago Title Agency of Nevada, Inc. and the
Escrow Agreement dated May 11, 2006 by and among PM Realty, LLC, Red, White and
Blue Pictures, Inc., Peter A. Morton, 510 Development Corporation, Morgans
Group LLC, and Chicago Title Agency of Nevada, Inc.

“Escrow Deposits” means the
aggregate amount of Fifty Million Dollars ($50,000,000) deposited into escrow
by the Morgans Parties pursuant to the Acquisition Agreements, plus any
interest accrued thereon from and after the date of such deposit in accordance
with the Acquisition Agreements.

“Financing Waiver Date” has the
meaning specified in Section 4.1(f).

“Gaming Approvals” means all
licenses, permits, approvals, authorizations, registrations, findings of
suitability, franchises, entitlements, waivers and exemptions issued by any
Gaming Authority required to permit the parties hereto to consummate the transactions
contemplated by this Agreement, including for the avoidance of doubt, all
liquor licenses and all such approvals issued by a Gaming Authority as may be
required to permit the operation under the Casino Lease of the casino at the
Hotel/Casino.

“Gaming Authorities” means any
governmental authority or agency with regulatory control or jurisdiction over
the conduct of lawful gaming or gambling, including the Nevada Gaming
Commission, the Nevada State Gaming Control Board and the Clark County Liquor
and Gaming Licensing Board.

“Governmental Body” means any
(a) nation, principality, state, province, territory, county, municipality,
district or other jurisdiction of any nature; (b) Federal, state, local,
municipal, foreign or other government; or (c) individual, Entity or body
exercising, or entitled to exercise, any executive, legislative, judicial,
administrative, regulatory, police, military or taxing authority or power of
any nature.

“Holdings” has the meaning
specified in the Recitals.

“Hotel/Casino” has the meaning
specified in the Recitals.

“Indemnitee” has the meaning
specified in Section 9.2(d).

“Indemnitor” has the meaning
specified in Section 9.2(d).

“Initial Capital Commitments”
means the DLJMB Initial Capital Commitment and the Morgans Initial Capital
Commitment as set forth in Section 3.2(a).

“Knowledge”
means the actual knowledge of Edward Scheetz, Marc Gordon, David Smail,
Jennifer Nellany, Matt Armstrong, Arthur Blee and Ana Nekhamkin after 

 4
 

 

reasonable inquiry; and the knowledge of no other
Person shall be imputed to any such individual.

“LLC Agreement” has the meaning
specified in the Preamble.

“Loss” or “Losses” means
any loss, liability, demand, claim, action, cause of action, cost, damage,
diminution in value, deficiency, tax, penalty, fine or expense, whether or not
arising out of third party claims (including interest, penalties, reasonable
attorneys’ fees and expenses and all amounts paid in investigation, defense or
settlement of any of the foregoing and the enforcement of any rights
hereunder).

“Management Agreement” means
that certain Hotel Management Agreement in substantially the form attached
hereto as Exhibit C to be entered into at the Closing by Morgans
Management, Holdings and the other parties thereto.

“Material Adverse Effect” has
the meaning specified in the Merger Agreement.

“Merger Agreement” means that
certain Agreement and Plan of Merger, dated May 11, 2006, by and among Morgans,
MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter H. Morton as attached
to this Agreement as Exhibit D, as amended, modified or supplemented
from time to time in accordance with this Agreement.

“Merger Sub” has the meaning
specified in Section 6.6.

“Morgans” has the meaning
specified in the Preamble.

“Morgans Condition Failure” has
the meaning specified in Section 8.1(b).

“Morgans Expenses” has the
meaning specified in Section 7.2.

“Morgans Initial Capital Commitment”
shall have the meaning specified in Section 3.2(b).

“Morgans Management” shall mean
Morgans Hotel Group Management LLC, a Delaware limited liability company.

“Morgans Parties” means,
collectively, Morgans and any Affiliate of Morgans that is a party to any of
the Acquisition Agreements or any of the Exhibits to this Agreement; provided,
however, that Holdings shall not be deemed to be a Morgans Party.

“Order” means any (a) order,
judgment, injunction, edict, decree, ruling, subpoena, writ or award that is or
has been issued, made, entered, rendered or otherwise put into effect by or
under the authority of any court, administrative agency or other Governmental
Body or any arbitrator or arbitration panel; or (b) contract or agreement with
any Governmental Body that is or has been entered into in connection with any
proceeding.

“Percentage Interest” means the
percentage interests in Holdings specified in Exhibit E of the LLC Agreement.

 5
 

 

“Person” means any individual,
Entity or Governmental Body.

“Proposed Transaction Structure Chart”
means the Proposed Transaction Structure Chart attached hereto as Exhibit G,
as may be modified from time to time by Morgans with the prior written consent
of DLJMB, which consent shall not be unreasonably withheld, delayed or
conditioned.

“Securities Act” means the
Securities Act of 1933, as amended.

“Selling Parties” means,
collectively, Hard Rock Hotel, Inc., Peter H. Morton, PM Realty, LLC, Red,
White and Blue Pictures, Inc. and HR
Condominium Investors (Vegas), L.L.C.

“Technical Services Agreement”
means that certain Technical Services Agreement in substantially the form
attached hereto as Exhibit E to be entered into at Closing by Morgans
Management, Holdings and the other parties thereto with such changes and
modifications as may be mutually agreed in writing.

2.             CLOSING

If the conditions in Article 4 have been
satisfied or waived, then the closing of the contribution of assets provided
for in this Agreement (the “Closing”) shall be held at the offices of
Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, on the same
date as the closing of the transactions contemplated by the Merger Agreement,
at 9:00 a.m. New York time, or at such other time and place as may be fixed by
mutual agreement of all the parties hereto (the “Closing Date”).

3.             EVENTS OCCURRING ON OR PRIOR TO THE CLOSING DATE

3.1.                            Organization
of Holdings and Assignment of Rights.

On or prior to the Closing Date:

(a)           Morgans shall cause Holdings to be formed as a limited
liability company under the laws of the State of Delaware, and shall take such
other steps as may be necessary to form the subsidiaries contemplated in the
Proposed Transaction Structure Chart.

(b)           The Morgans Parties shall assign all of their right, title
and interest in the Acquisition Agreements to Holdings and Morgans and DLJMB
shall cause Holdings to (i) assume all of the obligations of the Morgans
Parties thereunder and (ii) indemnify the Morgans Parties from and against any
Losses in connection therewith (except to the extent Morgans has indemnity or
other contractual obligations to DLJMB with respect to such Losses under this
Agreement) pursuant to one or more assignment, transfer and conveyance
agreements in form and substance reasonably satisfactory to the Morgans Parties
and DLJMB (collectively, the “Assignment Agreements”).  At the Closing, the Escrow Deposits shall be
credited towards the purchase price of the Acquisition (as described in the
Acquisition Agreements) and DLJMB and Morgans shall cause Holdings to pay to
Morgans the entire amount by which the amount of the Escrow Deposits exceeds
the amount of the Morgans Initial Capital Commitment.

 6
 

 

3.2.                            Initial
Capital Contributions.

(a)           DLJMB Initial Capital Contribution.  At the Closing,
DLJMB and DLJMB LLC shall contribute to Holdings an aggregate of One
Hundred Million Dollars ($100,000,000) in cash (the “DLJMB Initial Capital
Commitment”) via wire transfer of immediately available funds to a bank
account of Holdings designated by Morgans at least three (3) business days
before Closing.

(b)           Morgans Initial
Capital Contribution.  At the Closing,
Morgans shall contribute to Holdings an aggregate of Fifty Million Dollars
($50,000,000) in cash (the “Morgans Initial Capital Commitment”); provided,
however, that the amount to be contributed by Morgans at Closing
pursuant to this Section 3.2(b) shall be deemed satisfied by the
application of the Escrow Deposits as contemplated by Section 3.1(b), to
the extent that the amount of the Escrow Deposits credited is equal to or
greater than Fifty Million Dollars ($50,000,000).

3.3.         Deliveries by DLJMB.  On the Closing Date, DLJMB shall execute and
deliver, or cause to be executed and delivered, as applicable, the following:

(a)           LLC
Agreement.  Two originals of the LLC
Agreement to Morgans, each duly executed by DLJMB and DLJMB LLC, substantially
in the form attached hereto as Exhibit A.

(b)           DLJMB
Initial Capital Commitment. The DLJMB Initial Capital Commitment to
Holdings.

(c)           Officer’s
Certificate.  An officer of DLJMB
shall deliver to Morgans an officer’s certificate confirming, with respect to
DLJMB, the items set forth in (a) and (b) of Section 4.2.

3.4.         Deliveries by Morgans.  On the Closing Date, Morgans shall execute
and deliver, or cause to be executed and delivered, as applicable, the
following:

(a)   LLC Agreement.  Two
originals of the LLC Agreement to DLJMB, each duly executed by Morgans.

(b)   Management Agreement. 
Two originals of the Management Agreement to DLJMB, each duly executed
by Morgans Management.

(c)   Technical Services Agreement.  Two originals of the Technical Services
Agreement to DLJMB, each duly executed by Morgans Management.

(d)   Morgans Initial Capital Commitment.  Officers of the Morgans Parties shall deliver
to DLJMB an officers’ certificate confirming that the Morgans Initial Capital
Commitment has been credited to the purchase price of the Acquisition.

 7
 

 

(e)   Officer’s Certificate. 
An officer of Morgans shall deliver to DLJMB an officer’s certificate
confirming, with respect to Morgans, the items set forth in (a) and (b) of Section
4.1.

(f)    Assignment Agreements. 
Two originals of each Assignment Agreement to DLJMB, each duly executed
by the applicable Morgans Parties, as assignors.

3.5.         Deliveries by Holdings.  On the Closing Date, Morgans and DLJMB shall
cause Holdings to execute and deliver the following:

(a)   Assignment Agreements. 
Two originals of each Assignment Agreement to DLJMB and Morgans, each
duly executed by Holdings, as assignee.

(b)   LLC Agreement.  Two
originals of the LLC Agreement to each of DLJMB and Morgans, each duly executed
by Holdings.

(c)   Management Agreement. Two originals of the Management
Agreement to each of DLJMB, Morgans, and Morgans Management, each duly executed
by Holdings.

(d)   Technical Services Agreement.  Two originals of the Technical Services
Agreement to each of DLJMB, Morgans, and Morgans Management, each duly executed
by Holdings.

4.             CLOSING CONDITIONS

4.1.         Conditions Precedent to Obligations
of DLJMB. 
The obligations of DLJMB to execute and deliver the LLC Agreement and to
pay the DLJMB Initial Capital Commitment in accordance with Section 3.2(a)
shall be subject to the satisfaction on or prior to the Closing Date, of the
following conditions, any of which may be waived, in writing, by DLJMB in its
discretion:

(a)           All
of the representations and warranties of the Morgans Parties contained in Article
6 of this Agreement shall be true and correct in all material respects on
the date of this Agreement and, in the case of the representations and
warranties contained in Sections 6.1, 6.2, 6.5, 6.6,
6.7, 6.8, 6.9, 6.10 and 6.11 of this
Agreement only, on the Closing Date (other than with respect to matters
consented to in writing by DLJMB in accordance with this Agremeent) as if made
at and as of such date (or, in the case of representations and warranties which
address matters only as of a particular date, as of such date);

(b)           The
Morgans Parties shall have complied with and performed in all material respects
all of their respective covenants contained herein which are to be performed by
them on or prior to the Closing Date;

(c)           All
of the conditions to the obligations of the Morgans Parties to close under the
Merger Agreement (as set forth in Section 5.1 and 5.2 of the Merger Agreement)
shall have been satisfied and the transactions contemplated by such agreements
shall occur concurrently with the Closing hereunder;

 8
 

 

(d)           There
shall be no temporary restraining order or preliminary or permanent injunction
of any court or administrative agency of competent jurisdiction prohibiting the
consummation of any transactions contemplated by this Agreement;

(e)           Either (i) Golden HRC, LLC or one of its Affiliates shall
have obtained the Gaming Approvals or (ii) Holdings (or a direct or
indirect subsidiary of Holdings) shall have entered into a Casino Lease with
another casino operator and such other casino operator shall have obtained the
Gaming Approvals such that the casino at the Hard Rock Hotel & Casino is
able to be open for business on the date following the Closing Date; and

(f)            DLJMB
in its sole and absolute discretion shall have been satisfied based on one or
more financing proposals, term sheet or other discussions with lenders that
there will be available on or prior to the Outside Date the proceeds from one
or more bank, mezzanine, CMBS or other debt facilities in an amount sufficient
(as determined by DLJMB in its sole and absolute discretion based on its
anticipated requirements concerning the sources and uses of funds) to permit
Holdings to (i) consummate the Acquisition and pay all expenses related
thereto, (ii) finance the ongoing operations of Holdings and its subsidiaries,
(iii) finance the development and construction of the proposed Expansion
Project (as defined in the LLC Agreement), including any modifications thereto
contemplated by DLJMB, in the manner which DLJMB considers appropriate, and
(iv) to pay all such other costs, liabilities 
and amounts as DLJMB considers necessary or appropriate, in each case,
on terms and conditions (including, without limitation, as to required equity
amounts, guarantees and similar matters) which are acceptable to DLJMB in its
sole and absolute discretion; provided, however, that,
notwithstanding anything in this Agreement that would otherwise require notice,
the condition contained in this clause (f) shall be deemed to have been
permanently satisfied automatically and with no further action being required
by any of the parties for all purposes hereunder if DLJMB has not notified
Morgans of its election to terminate this Agreement pursuant to Section
8.1(c) hereof on or prior to 5:00 p.m. Eastern Standard Time on Monday,
November 20, 2006 (the “Financing Waiver Date”).

4.2.         Conditions Precedent to Obligations
of Morgans. 
The obligations of Morgans to execute and deliver the LLC Agreement and
to pay the Morgans Initial Capital Commitment in accordance with Section
3.2(a) shall be subject to the satisfaction on or prior to the Closing
Date, of the following conditions, any of which may be waived, in writing, by
Morgans in its discretion:

(a)           The
representations and warranties of DLJMB contained in Article 5 of this
Agreement shall be true and correct in all material respects both on the date
of this Agreement and the Closing Date as if made at and as of such date (or,
in the case of representations and warranties which address matters only as of
a particular date, as of such date);

(b)           DLJMB
shall have complied with and performed in all material respects, its covenants
contained herein which are to be performed by DLJMB on or prior to the Closing
Date;

(c)           All
of the conditions to the obligations of any of the Morgans Parties to close
under the Merger Agreement (as set forth in Section 5.1 and 5.2 of the Merger
Agreement) 

 9
 

 

shall have been satisfied and the transactions contemplated by such
agreements shall occur concurrently with the Closing hereunder; and

(d)           There
shall be no temporary restraining order or preliminary or permanent injunction
of any court or administrative agency of competent jurisdiction prohibiting the
consummation of any transactions contemplated by this Agreement.

5.             REPRESENTATIONS AND WARRANTIES
OF DLJMB

Except as specifically
set forth in certain schedules provided by DLJMB to Morgans and attached to
this Agreement, which are numbered to correspond to the Section numbers of this
Agreement, DLJMB hereby represents and warrants to Morgans as of the Effective
Date and as of the Closing Date as follows:

5.1.         Organization, Good Standing.  DLJMB is a Delaware limited liability
company, duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. 
DLJMB has the requisite power and authority necessary to carry out the
transactions contemplated by this Agreement.

5.2.         Authorization; No Breach.  This Agreement has been duly authorized,
executed and delivered by DLJMB. 
Assuming that this Agreement is a valid and binding obligation of
Morgans, this Agreement constitutes a valid and binding obligation of DLJMB,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy laws, other similar laws affecting creditors’ rights and
general principles of equity affecting the availability of specific performance
and other equitable remedies.  The
execution, delivery and performance by DLJMB of this Agreement does not and
shall not (i) conflict with any of the provisions of the articles of incorporation,
bylaws or similar organizational documents of DLJMB (ii) conflict with,
result in a breach of the terms, conditions or provisions of, or constitute a
default under (whether with or without the passage of time, the giving of
notice or both) any agreement, contract or instrument to which DLJMB is
subject, (iii) result in the creation of any lien or Encumbrance upon
Holdings’ equity interests or assets or any equity interests or assets that
comprise part of the Acquired Assets, other than as contemplated herein or by
the Credit Facility Commitment Letter, (iv) result in a violation of any
law, statute, rule, regulation, order, judgment or decree to which DLJMB is
subject or (v) require any authorization, consent, approval, exemption or
other action by or notice or declaration to, or filing with, any third party or
any Governmental Body.

5.3.         Brokerage.  There are no claims for brokerage
commissions, finders’ fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement made by or on behalf of DLJMB or any of its respective Affiliates.

5.4.         Investment Representation.  Each of DLJMB and DLJMB LLC is making the
DLJMB Initial Capital Commitment for its own account with the present intention
of holding its interests in Holdings for investment purposes and not with a
view to or for sale in connection with any public distribution of such
interests in violation of any federal or state securities laws.  Each of DLJMB and DLJMB LLC is an “accredited
investor” as defined in Regulation D promulgated under the Securities Act.  Each of DLJMB and DLJMB LLC acknowledges that
it 

 10
 

 

is informed as to the risks of the
transactions contemplated hereby and of ownership of interests in
Holdings.  Each of DLJMB and DLJMB LLC
acknowledges that the interests in Holdings have not been registered under the
Securities Act or any state or foreign securities laws and that such interests
may not be sold, transferred, offered for sale, pledged hypothecated or
otherwise disposed of unless such transfer, sale, assignment, pledge,
hypothecation or other disposition is pursuant to the terms of an effective
registration statement under the Securities Act and are registered under any
applicable state or foreign securities laws or pursuant to an exemption from registration
under the Securities Act and any applicable state or foreign securities laws.

5.5.         Sufficient Funds.  DLJMB and DLJMB LLC have (and at Closing will
have) sufficient unrestricted cash available to enable them to satisfy their
respective obligations hereunder on and after the Closing Date.

5.6.         Hart-Scott-Rodino. Neither DLJMB nor DLJMB LLC is required to
make a filing under Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the “HSR Act”), in
connection with the Acquistion or the performance of DLJMB’s obligations under
this Agreement.

5.7.         Equity Commitment Letter.  A true and correct copy of the Equity
Commitment Letter is attached hereto as Exhibit H.  Pursuant to the Equity Commitment Letter, DLJ
Merchant Banking Partners IV, L.P. and certain of its affiliated entities have
agreed to provide DLJMB an aggregate amount of equity financing for the
transactions contemplated by this Agreement equal to One Hundred Million
Dollars ($100,000,000).  The Equity
Commitment Letter has not been amended, modified or supplemented and is in full
force and effect and no event has occurred which, with or without notice, the
lapse of time or both, would constitute a default on the part of DLJMB under
the Equity Commitment Letter.  There are
no conditions precedent or other contingencies related to the funding of the
full amount of such equity, other than as set forth in the Equity Commitment
Letter.

5.8.         Litigation.  There are no actions, suits, proceedings,
orders or claims pending, or to the knowledge (after reasonable inquiry) of
DLJMB, threatened in writing against DLJMB or DLJMB LLC at law or in equity, by
any Person or before or by any Governmental Body which would reasonably be
expected to materially adversely affect DLJMB’s performance under this
Agreement, which relate to the transactions contemplated by this Agreement or
which would reasonably be expected to materially adversely affect the
consummation of the transactions contemplated by this Agreement.

5.9.         No Other Representations and Warranties.  Other than the representations and warranties
expressly set forth in this Article 5, DLJMB shall not be deemed to
have made any other representation or warranty to Morgans in connection with
this Agreement or the transactions contemplated hereby, and no other Person
shall be deemed to have made any representation or warranty to Morgans in
connection with this Agreement or the transactions contemplated hereby.

 

 11

 

 

6.             REPRESENTATIONS
AND WARRANTIES OF THE MORGANS PARTIES

Except as specifically
set forth in certain schedules provided by the Morgans Parties to DLJMB and
attached to this Agreement, which are numbered to correspond to the Section
numbers of this Agreement, Morgans hereby represents and warrants to DLJMB as
of the Effective Date as follows (provided, that the representations and
warranties set forth in Sections  6.3 and 6.4 shall be true
and correct only as of the Effective Date and shall not be deemed to be made as
of the Closing Date:

6.1.          Organization, Good Standing, Qualification.  Morgans is a Delaware corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization.  Morgans
has the requisite power and authority necessary to carry out the transactions
contemplated by this Agreement.

6.2           Authorization; No Breach.  This Agreement has been duly authorized,
executed and delivered by Morgans.  No
vote of the shareholders of Morgans is required for Morgans to authorize,
execute, deliver and perform this Agreement. 
Assuming that this Agreement is a valid and binding obligation of DLJMB,
this Agreement constitutes a valid and binding obligation of Morgans,
enforceable in accordance with its terms, except as enforceability may be
limited by bankruptcy laws, other similar laws affecting creditors’ rights and
general principles of equity affecting the availability of specific performance
and other equitable remedies.  Except as
set forth on Schedule 6.2, the execution, delivery and performance by
Morgans of this Agreement (including, without limitation, the assignment of the
Morgans Parties’ rights under the Acquisition Agreements to Holdings) does not
and shall not (i) conflict with any of the provisions of the articles of
incorporation or bylaws of Morgans (ii) conflict with, result in a breach
of the terms, conditions or provisions of, or constitute a default under
(whether with or without the passage of time, the giving of notice or both) any
agreement, contract or instrument to which Morgans is bound, (iii) result
in the creation of any lien or Encumbrance upon Holdings’ equity interests or
assets or any equity interests or assets that comprise part of the Acquired
Assets, other than as contemplated herein or by the Credit Facility Commitment
Letter, (iv) result in a violation of any law, statute, rule, regulation,
order, judgment or decree to which Morgans is subject or (v) except for
Gaming Approvals, require any authorization, consent, approval, exemption or other
action by or notice or declaration to, or filing with, any third party or any
Governmental Body.  Except as set forth
on Schedule 6.2, none of the Morgans Parties is (and following the
assignment of the Acquisition Agreements to Holdings, Holdings will not be)
bound by any agreement, or party to any written non-binding term sheet, (a)
with respect to the Acquired Assets (including, without limitation, any
agreement to sell or dispose of any interests therein), or (b) committing it to
issue or sell any equity interest in Holdings to a third party.  The Acquisition Agreements identified in Exhibit
B are the only agreements among the Morgan Parties, or any of their
Affiliates, and the Selling Parties, or any of their Affiliates, which are in
existence as of the date hereof in connection with the Acquisition.

6.3           No Knowledge of Misrepresentations or Omissions.  Morgans has no Knowledge that the
representations and warranties of any party to the Acquisition Agreements
(including, but not limited to, the Morgans Parties) are untrue or incorrect in
any material respect.  The Morgans
Parties have not Breached, and Morgans has no Knowledge that any other

 12
 

 

 

party to the Acquisition Agreements has Breached, any
of the material covenants, agreements, representations or warranties in any of
the Acquisition Agreements.  Except as
set forth in Schedule 6.2, none of the actions and transactions
contemplated by this Agreement and the agreements contemplated hereby and none
of the terms, covenants or agreements in this Agreement or the agreements
contemplated hereby, in any way Breach or will Breach any of the material
terms, covenants or agreements of the Morgans Parties under the Acquisition
Agreements.  To Morgans’ Knowledge, there
has not been any change, event or effect that has had a Material Adverse
Effect.  Morgans has delivered to DLJMB
copies of all material reports, investigations, analyses and other similar
materials or information relating to the proposed Acquisition or the Acquired
Assets (a) prepared or created for Morgans by its representatives; or (b)
prepared or created by Morgans internally (to the extent such internal reports,
investigations, analyses and other materials or information summarize due
diligence findings in a manner comparable to that of third parties).

6.4           Litigation.  There are no actions, suits, proceedings,
orders or claims pending, or to the Knowledge of Morgans, threatened in writing
against the Morgans Parties or Holdings at law or in equity, by any Person or
before or by any Governmental Body which would reasonably be expected to
materially adversely affect Morgans’ performance under this Agreement, which
relate to the transactions contemplated by this Agreement or which would
reasonably be expected to materially adversely affect the consummation of the
transactions contemplated by this Agreement.

6.5           Escrow Deposits.  An aggregate of Fifty Million Dollars
($50,000,000) has been deposited into escrow under the Acquisition
Agreements.  On the date hereof, the
amount held in such escrows aggregate an amount equal to at least Fifty Million
Dollars ($50,000,000).

6.6           Casino Lease.  The Casino Lease has been duly authorized,
executed and delivered by MHG HR Acquisition Corp. (“Merger Sub”).  Assuming that the Casino Lease is a valid and
binding obligation of the lessee therunder, the Casino Lease constitutes a
valid and binding obligation of Merger Sub, subject to the terms and conditions
thereof, enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy laws, other similar laws affecting creditors’ rights
and general principles of equity affecting the availability of specific
performance and other equitable remedies. 
Except as set forth on Schedule 6.2, the execution, delivery and
performance of the Casino Lease by Merger Sub does not and, upon consummation
of the Acquisition, the assumption by the surviving corporation of the
obligations of Merger Sub thereunder, shall not (i) conflict with any of the
provisions of the organizational documents of Merger Sub or the surviving
corporation, as applicable, (ii) conflict with, result in a breach of the
terms, conditions or provisions of, or constitute a default under (whether with
or without the passage of time, the giving of notice or both) any agreement,
contract or instrument to which Merger Sub or the surviving corporation, as
applicable is bound, (iii) result in the creation of any lien or
Encumbrance upon Merger Sub’s or the surviving corporation’s equity interests
or assets, as applicable, or any equity interests or assets that comprise part
of the Acquired Assets, other than as contemplated herein or by the Credit
Facility Commitment Letter, (iv) result in a violation of any law,
statute, rule, regulation, order, judgment or decree to which Merger Sub or the
surviving corporation is subject or (v) require any authorization,
consent, approval, exemption or other action by or notice or declaration to, or
filing with, any third party or any Governmental Body.

 13
 

 

 

6.7           Brokerage.  Except as set forth on Schedule 6.7,
there are no claims for brokerage commissions, finders’ fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of any of the
Morgans Parties.

6.8           Investment Representation.  Morgans is making the Morgans Initial Capital
Commitment for its own account with the present intention of holding its
interests in Holdings for investment purposes and not with a view to or for
sale in connection with any public distribution of such interests in violation
of any federal or state securities laws. 
Morgans is an “accredited investor” as defined in Regulation D
promulgated by the Securities Act. 
Morgans acknowledges that it is informed as to the risks of the
transactions contemplated hereby and of ownership of interests in
Holdings.  Morgans acknowledges that the
interests in Holdings have not been registered under the Securities Act or any
state or foreign securities laws and that such interests may not be sold,
transferred, offered for sale, pledged hypothecated or otherwise disposed of
unless such transfer, sale, assignment, pledge, hypothecation or other
disposition is pursuant to the terms of an effective registration statement
under the Securities Act and are registered under any applicable state or
foreign securities laws or pursuant to an exemption from registration under the
Securities Act and any applicable state or foreign securities laws.

6.9           Credit Facility Commitment Letter.  As of the date hereof, Morgans have delivered
to DLJMB a true and correct copy of the Credit Facility Commitment Letter
pursuant to which Column Financial, Inc. has agreed to an aggregate principal
amount of debt financing in connection with the transactions contemplated by
the Acquisition Agreements (together with any additional or replacement
financing therefor, the “Debt Financing”) equal to the lesser of Seven
Hundred Million Dollars ($700,000,000) and Eighty-Two and Five-Tenths Percent
(82.5%) of the capitalized costs of the Acquisition.  The Credit Facility Commitment Letter has not
been amended, modified or supplemented and is in full force and effect and no
event has occurred which, with or without notice, the lapse of time or both,
would constitute a default on the part of the Morgans Parties under the Credit
Facility Commitment Letter.  There are no
conditions precedent or other contingences related to the funding of the full
amount of the Debt Financing, other than as set forth in the Credit Facility
Commitment Letter.  The Morgans Parties
have received no written notice from the lenders under the Credit Facility
Commitment Letter causing them to believe that the financing under the Credit
Facility Commitment Letter will not be funded.

6.10        No Prior Activities.  As of the Closing Date, Holdings and each of
its subsidiaries will have been formed for the purpose of consummating the
transactions contemplated by this Agreement and will not have engaged in any
business activities of any type whatsoever, or entered into any agreements or arrangements
with any Person or become subject to or bound by any obligation or undertaking
(other than as contemplated hereby or by the Credit Facility Commitment Letter
or the Proposed Transaction Structure Chart). 
As of the Closing Date, none of Holdings or any of such subsidiaries has
or will have any liabilities or assets of any kind prior to Closing Date (other
than as contemplated hereby or by the Credit Facility Commitment Letter or the
Proposed Transaction Structure Chart). 
As of the Closing Date, all interests in Holdings will be owned
beneficially and of record by Morgans or one of its Affiliates free can clear
of all liens or Encumbrances.  When
acquired by Holdings pursuant to the Acquisition Agreements, the Acquired
Assets will not have any lien, Encumbrance, defect or any

 14
 

 

 

other type of limitation or Loss resulting from,
arising from or related to any actions or omissions of the Morgans Parties
(other than as contemplated hereby or by the Credit Facility Commitment Letter
or the Proposed Transaction Structure Chart).

6.11        No Other Representations and Warranties.  Other than the representations and warranties
expressly set forth in this Article 6, Morgans shall not be deemed
to have made any other representation or warranty to DLJMB in connection with
this Agreement or the transactions contemplated hereby, and no other Person
shall be deemed to have made any representation or warranty to DLJMB in
connection with this Agreement or the transactions contemplated hereby.

7.             ADDITIONAL
COVENANTS

7.1           Access to Information.  The Morgans Parties shall, to the extent
permitted and authorized under the terms of the Acquisition Agreements,
reasonably request that the Selling Parties, fully cooperate with any due
diligence investigation by DLJMB and its representatives of the Acquired
Assets.  Without limiting the foregoing,
to the extent that any of the following is permitted and authorized under the
terms of the Acquisition Agreements, the Morgans Parties shall permit, and the
Morgans Parties shall use reasonable efforts to cause the Selling Parties to
permit, DLJMB and its representatives (including legal counsel and accountants)
(i) to have full access during normal business hours to all premises,
properties, books, records, financial information, contracts, documents,
employees, personnel, agents or other representatives of the Selling Parties or
related to the Acquired Assets, (ii) to make copies of any such books, records,
financial information, contracts or documents, (iii) to enter, inspect and perform
testing on any properties, assets and equipment that comprise the Acquired
Assets, and (iv) have access to the work papers of the independent accountants
of any of the Selling Parties.  In
addition, promptly upon request of DLJMB or its representatives, the Morgans
Parties shall, and the Morgans Parties shall, to the extent permitted and
authorized under the terms of the Acquisition Agreements, reasonably request
that the Selling Parties promptly furnish all such additional documents and
information with respect to the Selling Parties and Acquired Assets as DLJMB or
its representatives shall reasonably request. 
To the extent that the Selling Parties do not permit DLJMB access to the
books, records, financial information, contracts, documents or other information
as provided in this Section 7.1, upon DLJMB’s request, the Morgans
Parties will promptly request copies of such books, records, financial
information, contracts, documents or other information from the Selling Parties
and deliver such materials to DLJMB, to the extent permitted and authorized
under the terms of the Acquisition Agreements.

7.2           Payment of Expenses by Holdings.  Morgans represents and warrants to DLJMB that
as of the date of this Agreement the Morgans Parties have paid in connection with
this Agreement, the Acquisition Agreements and the transactions contemplated
hereby and thereby only the out-of-pocket costs and expenses (including legal,
accounting and financing expenses) listed and described on Schedule 7.2.  Schedule 7.2 also sets forth Morgans’
reasonable estimate of the additional out-of-pocket costs and expenses the
Morgans Parties and Holdings expect to incur in connection with this Agreement,
the Acquisition Agreements and the transactions contemplated hereby and thereby
through the Closing Date.  At least three
(3) business days prior to the Closing, Morgans shall provide DLJMB with a
reasonably updated and detailed list of all out-of-pocket costs and expenses
incurred or reasonably expected to be incurred by the

 15
 

 

 

Morgans Parties or Holdings since the date of this
Agreement through the Closing and related to the transactions contemplated by
this Agreement and the Acquisition Agreements. 
Upon the Closing, DLJMB and Morgans shall cause Holdings to pay all
reasonable out-of-pocket costs and expenses of the Morgans Parties related to
the transactions contemplated by this Agreement and the Acquisition Agreements,
including, without limitation, any costs and expenses incurred or reasonably
expected to be incurred through the Closing in connection with the Credit
Facility Commitment Letter (collectively, the “Morgans Expenses”), by
wire transfer of immediately available funds to an account designated by
Morgans.  At least three (3) business
days prior to the Closing, DLJMB shall provide Morgans with a reasonably
detailed list of all out-of-pocket costs and expenses incurred or reasonably
expected to be incurred through the Closing by it related to the transactions
contemplated by this Agreement and the Acquisition Agreements.  Upon the Closing, DLJMB and Morgans shall
cause Holdings to pay all reasonable out-of-pocket costs and expenses of DLJMB
related to the transactions contemplated by this Agreement and the Acquisition
Agreements (collectively, the “DLJMB Expenses”), by wire transfer of
immediately available funds to an account designated by DLJMB; provided
that if Morgans terminates this Agreement pursuant to Section 8.1(b)(ii)(B)
and prior to June 11, 2007 consummates the Acquisition with a third party
equity investor, then Morgans shall pay to DLJMB the DLJMB Expenses upon
consummation of such transaction. 
Notwithstanding anything to the contrary in this Section 7.2,
costs (a) incurred by Morgans and DLJMB for fees and expenses of their
respective outside counsel in connection with the preparation, negotiation and
finalization of this Agreement, the LLC Agreement, the Management Agreement,
the Casino Lease, the Technical Services Agreement, the Debt Financing and the
applications for the Gaming Approvals and (b) attorneys’ fees and expenses paid
or payable by Morgans to its outside counsel in connection with the
preparation, negotiation and finalization of the Acquisition Agreements and the
consummation of the transactions contemplated thereby, shall be deemed to be
part of the Morgans Expenses or the DLJMB Expenses, as applicable, and paid or
reimbursed by Holdings in accordance with this Section 7.2.

7.3           Actions Relating to the Acquisition Agreements.  The Morgans Parties will disclose to DLJMB in
writing, promptly (within three (3) Business Days) after Morgans has Knowledge
thereof (without obligation of reasonable inquiry), (i) any Breach, variance,
update or modification of or to any material representations or warranties of
any party to any of the Acquisition Agreements, (ii) any Breach or variance of
or to any material covenant or agreement of any party to any of the Acquisition
Agreements, (iii) any notice, request for waiver, consent, approval or
amendment (in each case made in writing) to or regarding any of the Acquisition
Agreements by any party to any of the Acquisition Agreements, or (iv) any
material request to enter into any new or additional agreements, arrangements,
terms or conditions (by any Person) binding upon the Acquired Assets or related
to the transactions contemplated by the Acquisition Agreements or this
Agreement or to which any of the Selling Parties or any of their Affiliates are
party.  Without the prior written consent
of DLJMB, which may not be unreasonably withheld, delayed or conditioned, the
Morgans Parties shall not (a) intentionally Breach any material representation,
warranty, covenant or agreement in any of the Acquisition Agreements, (b) give
any material notice under or request any waiver, approval, supplement or
amendment to any of the Acquisition Agreements, (c) grant any material waiver
or approval related to any of the Acquisition Agreements or enter into or agree
to any supplement or amendment to any of the Acquisition Agreements, or (d)
enter into any material new or additional agreements, arrangements, terms or
conditions (with any Person) binding upon the Acquired Assets or

 16
 

 

 

relating to the transactions contemplated by the
Acquisition Agreements or this Agreement or which otherwise involve the Selling
Parties (other than in connection with any financing in accordance with Section
7.4).  Notwithstanding the foregoing
sentence, the Morgans Parties shall be permitted to take the actions
contemplated by the Merger Agreement to retire, redeem or defease the Company
Bonds (as defined in the Merger Agreement) pursuant to Section 4.4 thereof
without the prior written consent of DLJMB. 
The Morgans Parties shall use their reasonable best efforts to cause the
conditions to closing in the Acquisition Agreements to be satisfied and to
consummate the transactions contemplated therein.  Notwithstanding this Section 7.3, if
Morgans has reasonable grounds to conclude that a Material Adverse Effect has
occurred or is reasonably likely to occur, then the Morgans Parties may,
without the consent of DLJMB, deliver written notices under the Acquisition
Agreements to terminate such agreements in accordance with their terms.  If DLJMB has reasonable grounds to conclude
that a Material Adverse Effect has occurred or is reasonably likely to occur,
then DLJMB may in its discretion notify Morgans in writing of its election to
cause the Morgans Parties to terminate the Acquisition Agreements, in which
case the Morgans Parties shall promptly deliver written notices under the
Acquisition Agreements to terminate such agreements in accordance with their
terms (the “DLJMB Termination Notices”). 
In the event that Morgans is required to deliver the DLJMB Termination
Notices, Morgans shall at the direction of DLJMB diligently and promptly pursue
and enforce all rights and remedies of the Morgans Parties under the
Acquisition Agreements for the return of the Escrow Deposits to the Morgans
Parties.  Without limiting the generality
of the foregoing, in the reasonable discretion of DLJMB, Morgans shall commence
litigation, arbitration or other proceedings against the Selling Parties to
enforce such rights and remedies, which shall be prosecuted according to DLJMB’s
instructions and, at DLJMB’s election, by counsel selected and retained by
DLJMB in its reasonable discretion; provided, however, that DLJMB
shall not settle such litigation, arbitration or proceedings without Morgans’
consent, which consent shall not be unreasonably withheld, delayed or
conditioned.  The costs and expenses
incurred by Morgans to prosecute such litigation, arbitration or proceedings
shall be promptly reimbursed by DLJMB; provided, that if all or any
portion of the Escrow Deposits are returned to the Morgans Parties as a result
of the conclusion or settlement of such litigation, arbitration or other
proceedings, then the parties shall equally bear the costs and expenses thereof
(and Morgans shall promptly after such conclusion or settlement pay to DLJMB
one-half of any such costs and expenses previously reimbursed by DLJMB).

7.4           Actions with Respect to Debt Financing.  The Morgans Parties will perform all
obligations required to be performed by them in accordance with and pursuant to
the Credit Facility Commitment Letter, will use their commercially reasonable
efforts to maintain the same in full force and effect, and will not amend,
terminate or waive any material provisions under such Credit Facility
Commitment Letter without the prior written consent of DLJMB, which consent
shall not be unreasonably withheld, delayed or conditioned (it being understood
that any failure by DLJMB to approve material changes to the economic terms of
the Debt Financing shall not be deemed to be unreasonable).  The Morgans Parties will promptly from time
to time provide such information as DLJMB may reasonably request regarding the
status of such financing and related negotiations.  If, and as requested by, DLJMB, DLJMB and its
representatives may fully participate in negotiations regarding the financing
contemplated by the Credit Facility Commitment Letter and any substitute or
additional financing.  The Morgans
Parties will provide prompt written notice to DLJMB (i) if they have Knowledge
that the financing contemplated by the Credit Facility Commitment Letter will
not be made available to

 17
 

 

 

the Morgans Parties or Holdings on the Closing Date
and (ii) following any receipt of notification in writing by any financing
source under the Credit Facility Commitment Letter or in connection with any
substitute debt or other financing of such source’s refusal or intended refusal
to provide the financing described in the applicable Credit Facility Commitment
Letter and, in each case, the stated reasons therefor (if any).  In any such event, the Morgans Parties will
use their commercially reasonable efforts to arrange substitute financing on
terms and conditions reasonably satisfactory to the Morgans Parties and DLJMB
as promptly as practicable (it being understood that any failure by DLJMB to
approve material changes to the economic terms of the Debt Financing shall not
be deemed to be unreasonable).  Neither
the Morgans Parties nor Holdings or any of its subsidiaries will enter into or
execute any agreements, arrangements, documents or instruments related to the
financing contemplated by the Credit Facility Commitment Letter, any substitute
or additional financing or any other Debt Financing, without the prior written
consent of DLJMB, which consent shall not be unreasonably withheld, delayed or
conditioned (it being understood that any failure by DLJMB to approve material
changes to the economic terms of the Debt Financing shall not be deemed to be
unreasonable).  Morgans shall promptly
provide DLJMB with copies of all draft and final agreements, documents and
instruments related to the Debt Financing.

7.5           Gaming Approvals.  Each of DLJMB and Morgans shall use its
reasonable best efforts to cause the Persons listed under its name on Schedule
7.5 to promptly as practicable, but in no event later than December 10,
2006, file or cause to be filed gaming applications in connection with
obtaining the Gaming Approvals, and thereafter to promptly respond to requests
for additional information or documents as reasonably requested by the Gaming
Authorities and cause counsel to such party to schedule and attend any hearings
or meetings with Gaming Authorities as reasonably necessary.  Each party shall (a) notify the other party
of the receipt of any comments or requests from the Gaming Authorities with
respect to such applications, (b) upon the reasonable request by the other
party, supply it with copies of all such correspondence, and (c) otherwise keep
the other party reasonably informed of the status of such applications.  Notwithstanding anything to the contrary,
nothing herein shall require DLJMB to submit, or cause the submission of,
gaming applications for Persons other than the investment committee of DLJ
Merchant Banking Partners IV, L.P.

7.6           Exclusivity.  From and after the Financing
Waiver Date (prior to which time the provisions of the first and last sentences
of this Section 7.6 will not be effective), the Morgans Parties will
not, will cause Holdings not to and each of the Morgans Parties will cause
their respective officers, directors, affiliates, representatives and agents
not to, directly or indirectly, solicit, initiate or knowingly encourage any
inquiries or proposals from, discuss or negotiate with, provide any information
to, or enter into any contract or agreement with, any Person (other than DLJMB
and its representatives) relating to (i) any merger, consolidation,
reorganization, business combination, asset sale, stock sale, equity investment
or similar transaction involving the Acquired Assets or Holdings, or (ii) any
equity investment, partnership, joint venture or other transactions in
connection with the Acquired Assets that is similar in structure or purpose to
those contemplated by this Agreement (except as disclosed to and approved by
DLJMB in writing).  Notwithstanding the
preceding sentence, the parties acknowledge that the Morgans Parties have had
and may have discussions with interested parties with respect to potential
transactions (to be consummated after Closing) regarding real estate and
intellectual property comprising a part of the Acquired Assets; provided
that no agreement may be entered into as a

 18
 

 

 

result of such discussoins except in accordance with
the provisions of Section 7.3. 
The Morgans Parties will, and will cause their respective officers,
directors, affiliates, representatives and agents to, promptly notify DLJMB if
any proposal, with respect to the foregoing, or any inquiry or contact with any
Person with respect thereto is made, and such notification shall contain the
material terms of such proposal, inquiry or contact.

7.7           Cooperation by DLJMB.  Subject to the other terms and conditions of
this Agreement, DLJMB shall reasonably cooperate with the Morgans Parties and
use its commercially reasonable efforts to assist the Morgans Parties, Holdings
and/or its subsidiaries (as the borrower under the Credit Facility Commitment
Letter) (in all cases, without being obligated to make any payment, guarantee
any indebtedness or otherwise incur liability to any third party) to consummate
the closings contemplated by the Acquisition Agreements and the Credit Facility
Commitment Letter, including (without limitation) (a) providing to the lender
under the Credit Facility Commitment Letter any documents, agreements,
information and materials relating to DLJMB as such lender may reasonably
request, (b) subject to DLJMB’s approval rights under Section 7.4,
executing all closing documents, certificates or agreements as such lender may
reasonably request to consummate the Credit Facility Commitment Letter or as
the Morgans Parties may reasonably to consummate the closing under the
Acquisition Agreements, and (c) organizing the subsidiaries contemplated in the
Proposed Transaction Structure Chart attached hereto as Exhibit G.  Nothing in this Section 7.7 shall be
deemed to require DLJMB to take any action, or cause any Affiliate to take any
action, with respect to the Gaming Approvals, which shall be governed
exclusively by Section 7.5

7.8           Actions with Respect to Equity Financing.  DLJMB will use its commercially reasonable
efforts to maintain the Equity Commitment Letter in full force and effect, and
will not amend, terminate or waive any provisions under such Equity Commitment
Letter without the prior written consent of Morgans, which consent shall not be
unreasonably withheld, delayed or conditioned. 
DLJMB will not enter into or execute any agreements, arrangements,
documents or instruments related to the financing contemplated by the Equity
Commitment Letter, without the prior written consent of Morgans, which consent
shall not be unreasonably withheld, delayed or conditioned.

7.9           Actions with Respect to Casino Lease.  Morgans shall not, and shall not permit
Merger Sub to, amend, terminate or waive any provisions under such Casino Lease
without the prior written consent of DLJMB, which consent shall not be
unreasonably withheld, delayed or conditioned (it being understood that any
failure by DLJMB to approve material changes to the economic terms of the
Casino Lease shall not be deemed to be unreasonable).  Morgans will, and will cause Merger Sub to,
perform all obligations required to be performed by them in accordance with and
pursuant to the Casino Lease, and will use their commercially reasonable
efforts to maintain the same in full force and effect.

8.             TERMINATION.

8.1           Termination.  This Agreement may be terminated at any time
prior to the Closing:

(a)           by mutual written
consent of Morgans and DLJMB;

 

 19

 

(b)           by Morgans, by
written notice to DLJMB, if (A)(i) DLJMB shall have breached or failed to
perform in any material respect any of its representations, warranties,
covenants (including, without limitation, Section 7.5) or other
agreements contained in this Agreement, which breach or failure to perform
would give rise to the failure of a condition set forth in Section 4.2
(the “Morgans Condition Failure”), and (ii) such Morgans Condition
Failure is incapable of being cured by DLJMB or, if curable, is not cured by
DLJMB within three (3) business days following receipt of written notice from
Morgans of such Morgans Condition Failure or (B) on or prior to the Financing Waiver Date,
Morgans in its sole and absolute discretion delivers written notice to DLJMB
that it is electing to terminate this Agreement pursuant to this Section
8.1(b);

(c)           by DLJMB, by written notice to Morgans, if
(A)(i) the Morgans Parties shall have breached or failed to perform in any
material respect any of their representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform
would give rise to the failure of a condition set forth in Section 4.1
(the “DLJMB Condition Failure”), and (ii) such DLJMB Condition Failure
is incapable of being cured by Morgans or, if curable, is not cured by Morgans
within three (3) business days following receipt; or (B) on or prior to the
Financing Waiver Date, DLJMB shall have concluded, in its sole and absolute
discretion, that the condition set forth in Section 4.1(f) is not, or
will not be, satisfied for any reason, including, without limitation, its own
failure to be satisfied with any aspect of the available  financing;

(d)           by DLJMB or Morgans,
by written notice to the other, if the Merger Agreement has been terminated; or

(e)           by either Morgans or
DLJMB, by written notice to the other, if the Closing has not occurred on or
before the Outside Date (as defined in the Merger Agreement as in effect on the
date hereof); provided, however, that if the Outside Date under
the Merger Agreement has been extended to allow for additional time to obtain
the Gaming Approvals (the terms of which extension, notwithstanding anything to
the contrary in this Agreement, may be agreed to by Morgans without the consent
of DLJMB, so long as after giving effect to any such extension the terms of the
transactions contemplated by this Agreement and the Acquisition Agreements
taken as a whole are substantially similar to the economic or other terms of
the transactions contemplated by this Agreement and the Acquisition Agreements
taken as a whole prior to such extension), then the Outside Date for purposes
of this Agreement shall be extended to the new Outside Date under the Merger
Agreement, not to occur subsequent to the earlier of June 11, 2007 and the
expiration date of the Credit Facility Commitment Letter.

Notwithstanding anything contained in this Agreement
to the contrary, except as provided in Section 8.1(a), in no event shall
a party who has breached or failed to perform in any material respect any if
its representations, warranties or covenants contained in this Agreement, which
breach or failure to perform would give rise to the failure of, in the case of
a breach of failure to perform by Morgans, a condition set forth in Section
4.1 and, in the case of a breach of failure to perform by DLJMB, a
condition set forth in Section 4.2, to be satisfied on or before the
Outside Date.

8.2.         Effect
of Termination.         In
the event of termination of this Agreement by either Morgans or DLJMB as set
forth above, the provisions of this Agreement shall immediately

 20
 

 

become void and of no further force and effect (other
than Section 7.2, Section 8.1, this Section 8.2, Section
8.3, Article 9 and Article 10, which provisions shall survive
the termination of this Agreement).

8.3.         Escrow
Deposits.

(a)           Each party
acknowledges and agrees that notwithstanding DLJMB’s entry into this Agreement
and obligation to provide the DLJMB Initial Capital Commitment, subject to the
terms and conditions of this Agreement, DLJMB shall have no obligation or
liability to any Person with respect to the Escrow Deposits, including without
limitation any obligation or liability to the Morgans Parties as a result of
any failure of all or any portion of the Escrow Deposits to be returned or
credited to the Morgans Parties.

(b)           Notwithstanding the
foregoing if (A) the Merger Agreement is terminated pursuant to Section 6.1(e)
thereof by the Selling Parties (other than as a result of the Morgans Parties
material Breach of any representation, covenant or condition of the Merger
Agreement) and (B) prior to such termination by the Selling Parties all of the
conditions set forth in Section 4.1 of this Agreement to the obligations
of DLJMB shall have been satisfied or waived by DLJMB (except for the
occurrence of the Closing as referenced in Section 4.1(c)), then in the
event that the failure of the Closing to occur on or prior to the Outside Date
(as defined in the Merger Agreement) was:

(i)            primarily
caused by DLJMB’s Breach of its material obligations hereunder; or

(ii)           not
primarily caused by any Breach by either the Morgans Parties or DLJMB of their
respective material obligations hereunder; or

(iii)          attributable
to the election of DLJMB to cause the Morgans Parties to deliver the DLJMB
Termination Notices to the Selling Parties prior to the Outside Date, which
termination is either (A) sent solely by DLJMB without the concurrence of
Morgans, or (B) sent jointly by Morgans and DLJMB;

(c)           If, as a result of
the foregoing matters described in Section 8.3(b), the Escrow Deposits
are either released to the Selling Parties pursuant to the terms of the Merger
Agreement or not released to either the Selling Parties or the Morgans Parties
pending the resolution of any dispute related thereto, then, in each case,
DLJMB shall pay the Break-Up Amount to Morgans on the 20th business day after
the earliest of (x) the date on which the Escrow Deposits are released to the
Selling Parties pursuant to Section 6.2(b)(v) of the Merger Agreement, (y) the
date on which all disputes relating to the release of such Escrow Deposits are
finally resolved and (z) the second anniversary of the termination date of the
Merger Agreement.

(d)           If DLJMB is required
to pay Morgans the Break-Up Amount under Section 8.3(b)(iii) above, then
DLJMB shall pay to Morgans, concurrently with the payment of the Break-Up
Amount, interest on the Break-Up Amount, for the period beginning on the
termination date of the Merger Agreement to the date on which the Escrow
Deposits are released to the Selling Parties in accordance with Section
8.3(c), at a rate per annum equal to the interest earned on the Escrow
Deposits for the same period.  In the
event that after DLJMB has paid

 21
 

 

Morgans the Break-Up Amount all or any portion of the Escrow Deposits
are returned or credited to the Morgans Parties, then Morgans shall promptly
repay to DLJMB a pro rata portion of the amount of interest it received from
DLJMB on the Break-Up Amount calculated based on the proportion such repaid
amount bears to the entire Break-Up Amount.

 

(e)           Any payment pursuant
to this Section 8.3 shall be made by the payor to the payee via wire
transfer of immediately available funds to a bank account designated by the
payee at least three (3) business days prior to the applicable payment date.

(f)            The payment by
DLJMB of any amounts required to be paid by this Section 8.3 shall be
the sole remedy of the Morgans Parties against DLJMB and its Affiliates in the
event that the all or any portion of the Escrow Deposits are not returned or
credited to the Morgans Parties, which payments shall be compensation and
liquidated damages as provided in Section 8.3(g).

(g)           BY INITIALING BELOW,

	
   

  	
  On behalf of Morgans:

  	
   

  	
  On behalf of DLJMB:

  	
   

  
	
   

  	
  Initials:

  	
  MG

  	
   

  	
  Initials:

  	
  SR

  	
   

  
	
   

  	
  Name:

  	
  Marc Gordon

  	
   

  	
  Name:

  	
  Steven Rattner

  	
   

  
	
   

  	
  Title:

  	
  Chief Investment

  Officer and Executive

  Vice President

  	
   

  	
  Title:

  	
   

  	
   

  

 

EACH OF THE PARTIES HERETO AGREES THAT IT WOULD BE
IMPRACTICAL OR EXTREMELY DIFFICULT TO FIX ACTUAL DAMAGES IF ALL OR ANY PORTION
OF THE ESCROW DEPOSITS ARE NOT RETURNED OR CREDITED TO THE MORGANS PARTIES
UNDER THE ACQUISITION AGREEMENTS, AND, THEREFORE, EACH OF THE MORGANS PARTIES
AND DLJMB AGREES THAT THE PAYMENTS PROVIDED IN SECTION 8.3 SHALL BE THE
SOLE AND EXCLUSIVE REMEDY OF THE MORGANS PARTIES FROM DLJMB AND ITS AFFILIATES
UPON, AND LIQUIDATED DAMAGES FOR, ANY FAILURE OF THE ESCROW DEPOSITS TO BE
RETURNED OR CREDITED TO THEM, AND SUCH REMEDY SHALL BE LIMITED TO THE PAYMENT
STIPULATED IN SECTION 8.3.

9.             INDEMNIFICATION

9.1.         Survival
of Representations and Warranties.  The
representations and warranties in this Agreement and the Schedules attached
hereto shall survive the Closing and terminate on the date which is one year
(1) year after the Closing Date; provided that any representation or
warranty in respect of which indemnity may be sought under Section 9.2,
and the indemnity with respect thereto, shall survive the time at which it
would otherwise terminate pursuant to this Section 9.1 with respect to a
specific alleged breach thereof if written notice of such inaccuracy or breach
giving rise to such right or potential right of indemnity shall have been given
to the party against whom such indemnity may be sought prior to such time
(regardless of when Losses in respect thereof may actually be incurred).  The representations and warranties in this
Agreement and the Schedules attached hereto or in any writing delivered by any
party to another party in connection with this Agreement shall survive for the
periods set forth in this Section 9.1 and shall in no event be affected
by any investigation, inquiry or examination made

 22
 

 

for or on behalf of any party, or the knowledge of any
party’s officers, directors, shareholders, employees or agents or the
acceptance by any party of any certificate or opinion hereunder.

9.2.                            General
Indemnification.

(a)           Indemnification by Morgans.  Morgans
shall indemnify DLJMB and save and hold DLJMB harmless against and pay on
behalf of or reimburse DLJMB as and when incurred for any Losses which it may
suffer, sustain or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of: (i) any breach of any representation
or warranty of Morgans under this Agreement or any of the Schedules attached
hereto, or in any of the documents or certificates furnished by any of them
pursuant to this Agreement (other than the Acquisition Agreements); (ii) any
nonfulfillment or breach of any covenant, agreement or other provision by
Morgans, under this Agreement or any of the Schedules attached hereto required
to be performed or complied with by any of them at or prior to the Closing; and
(iii) any nonfulfillment or breach of any covenant, agreement or other
provision by Morgans under this Agreement or any of the Schedules attached
hereto required to be performed or complied with by any of them after the
Closing.

(b)           Indemnification by DLJMB.  DLJMB
shall indemnify Morgans and save and hold it harmless against and pay on behalf
of or reimburse Morgans as and when incurred for any Losses which it may
suffer, sustain or become subject to, as a result of, in connection with,
relating or incidental to or by virtue of: (i) any breach of any representation
or warranty of DLJMB under this Agreement or any of the Schedules attached
hereto, or in any of the documents or certificates furnished by it pursuant to
this Agreement; (ii) any nonfulfillment or breach of any covenant, agreement or
other provision by DLJMB under this Agreement or any of the Schedules attached
hereto required to be performed or complied with by it at or prior to the
Closing; and (iii) any nonfulfillment or breach of any covenant, agreement
or other provision by DLJMB under this Agreement or any of the Schedules
attached hereto required to be performed or complied with by any of them after
the Closing, in each case, other than Losses for which DLJMB is required to pay
Morgans liquidated damages pursuant to Section 8.3.  Notwithstanding anything to the contrary, the
maximum amount of Losses for which DLJMB shall be liable for any breach or
nonfulfillment of any or all representations, warranties, covenants, agreements
or other provisions of this Agreement or any Schedule attached hereto, or for
any other Losses arising under or relating to this Agreement or such Schedules,
shall be Twenty Five Million Dollars ($25,000,000) (“DLJMB’s Cap”).  For the avoidance of doubt, if DLJMB is
required to pay Twenty Five Million Dollars ($25,000,000) of liquidated damages
pursuant to Section 8.3, then the amount of DLJMB’s Cap shall be reduced
to zero (0).

(c)           Manner of Payment.  In
the event that the Merger Agreement is terminated prior to Closing, DLJMB shall
not be required to make any payment to Morgans pursuant to this Section 9.2
until all disputes relating to the Escrow Deposits have been finally
resolved.  Subject to the preceding
sentence, any indemnification obligation of DLJMB or Morgans pursuant to this Section
9.2 shall be paid within ten (10) days after the determination
thereof.  Any such indemnification
payment shall be effected by wire transfer of immediately available funds from
the Indemnitor to a bank account designated by the Indemnitee.  Any indemnification payment shall include
interest at the rate of three percent (3%) per annum calculated on the basis of
the

 23
 

 

actual number of days elapsed from the date
any such Loss is suffered or sustained to the date of payment.

(d)           Defense of Third Party Claims.  Any
person making a Claim for indemnification under this Section 9.2 (an “Indemnitee”)
shall notify  the indemnifying party (an “Indemnitor”) of the
claim in writing promptly after receiving written notice of any action,
lawsuit, proceeding, investigation or other claim (a “Claim”) against it
(if by a third party), describing the claim, the amount thereof (if known and
quantifiable) and the basis thereof, provided that the failure to so
notify an Indemnitor shall not relieve the Indemnitor of its obligations
hereunder except to the extent that (and only to the extent that) such failure
shall have caused the damages for which the Indemnitor is obligated pursuant to
this Agreement to be greater than such damages would have been had the
Indemnitee given the Indemnitor prompt notice hereunder.  The Indemnitor shall be entitled to participate
in the defense of such Claim giving rise to an Indemnitee’s Claim for
indemnification at the Indemnitor’s expense, and at the Indemnitor’s option
(subject to the limitations set forth below) shall be entitled at any time to
assume the defense thereof by appointing a reputable counsel reasonably
acceptable to the Indemnitee to be the lead counsel in connection with such
defense, provided that, prior to the Indemnitors assuming control of
such defense the Indemnitor shall first (i) verify to the Indemnitee in writing
that such Indemnitor shall be fully responsible (with no reservation of any
rights) for all liabilities and obligations relating to such Claim for
indemnification and that it shall provide full indemnification (whether or not
otherwise required hereunder) to the Indemnitee with respect to such Claim
giving rise to such Claim for indemnification hereunder and (ii) enter into an
agreement with the Indemnitee in form and substance satisfactory to the
Indemnitee which agreement unconditionally guarantees the payment and performance
of any liability or obligation which may arise with respect to such action,
lawsuit, proceeding, investigation or facts giving rise to such Claim for indemnification hereunder; and
provided, further, that: (x) the Indemnitee shall be entitled to
participate in the defense of such Claim and to employ counsel of its choice
for such purpose, provided that the reasonable fees and expenses of such
separate counsel shall be borne by the Indemnitee (other than any reasonable
fees and expenses of such separate counsel that are incurred prior to the date
the Indemnitor effectively assumes control of such defense which,
notwithstanding the foregoing, shall be borne by the Indemnitor, and except
that the Indemnitor shall pay all of the reasonable fees and expenses of such
separate counsel if the Indemnitee has been advised by counsel that a
reasonable likelihood exists of a conflict of interest between the Indemnitor
and the Indemnitee); (y) the Indemnitor shall not be entitled to assume control
of such defense (unless otherwise agreed to in writing by the Indemnitee) and
shall pay the reasonable fees and expenses of counsel retained by the
Indemnitee if (A) the Claim for indemnification relates to or arises in
connection with any criminal or quasi-criminal proceeding, action,
indictment, allegation or investigation; (B) the Indemnitee reasonably
believes an adverse determination with respect to the Claim giving rise to such
Claim for indemnification would be materially detrimental to or materially
injure the Indemnitee’s reputation or future business prospects; (C) the Claim
seeks an injunction or equitable relief against the Indemnitee; (D) the
Indemnitee has been advised by counsel that a reasonable likelihood exists of a
conflict of interest between the Indemnitor and the Indemnitee; or (E) upon
petition by the Indemnitee, the appropriate court rules that the Indemnitor
failed or is failing to vigorously prosecute or defend such Claim; and (z) if
the Indemnitor shall control the defense of any such Claim, the Indemnitor
shall obtain the prior written consent of the Indemnitee before entering into
any settlement of a Claim or ceasing to defend such Claim if,

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pursuant to or as a result of such settlement or cessation, injunctive
or other equitable relief will be imposed against the Indemnitee or if such
settlement does not expressly and unconditionally release the Indemnitee from
all liabilities and obligations with respect to such Claim, without prejudice.

9.3.         Survival.  This
Article 9 shall survive the termination of this Agreement.

10.          MISCELLANEOUS

10.1.       Public
Statements.  No party or its Affiliates or
representatives will make any public statement regarding the existence of or
the details of the matters contemplated by this Agreement without the prior
written consent of the other parties hereto, and the parties hereto will
consult with each other upon any issued news release with respect to such
arrangements, unless such party is compelled to make such statements by
judicial or administrative process or in the reasonable opinion of its counsel
by the requirements of law or the applicable regulations of any relevant stock
exchange, gaming authorities or other Governmental Body.

10.2.       Injunctive
Relief.  Each party hereto acknowledges that it
will be impossible to measure in money the damages that shall be suffered if
any party fails to comply with any of the obligations herein imposed on such
party and that in the event of any such failure, an aggrieved person will be
irreparably damaged and will not have an adequate remedy at law.  Any such Person shall, therefore, be entitled
to injunctive relief and/or specific performance (without the requirement of
posting a bond or other security) to enforce such obligations, and if any action
should be brought in equity to enforce any of the provisions of this Agreement,
none of the parties shall raise the defense that there is an adequate remedy at
law.

10.3.       Governing
Law/Choice of Law and Forum.  This Agreement
shall be governed by and construed in accordance with the laws of the State of
New York (without giving effect to the choice of law principle thereof).  All Claims, demands, controversies, disputes,
actions or causes of action of any nature or character arising out of or in
connection with this Agreement, whether legal or equitable, known or unknown,
contingent or otherwise shall be resolved in the United States District Court
for the Southern District of New York and any appellate courts thereto, or if
federal jurisdiction is lacking, then the courts of the State of New York.  The prevailing party in any such action shall
be entitled to reasonable attorneys’ fees and costs.

10.4.       Entire
Agreement; Amendment; Waiver.  This Agreement
together with the Exhibits and Schedules hereto (a) contain the entire
agreement among the parties with respect to the subject matter hereof, and (b)
supersede all prior written agreements and negotiations and oral
understandings, if any, with respect thereto. 
This Agreement may not be amended, supplemented or modified except by an
instrument or counterparts thereof in writing signed by Morgans and DLJMB.  No waiver of any term or provision of this
Agreement shall be effective unless in writing signed by the party to be
charged.  The waiver by any party of a
breach of any term or provision of this Agreement shall not be construed as a
waiver of any subsequent breach.

10.5.       Binding
Effect/Nonassignment.  This Agreement shall be
binding on and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, except that neither this Agreement nor any of
the rights, interests or obligations hereunder may be assigned or delegated by
(i) Morgans to any Person that is not its Affiliate without the prior

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written consent of DLJMB or (ii) by DLJMB to any
Person that is not its Affiliate without the prior written consent of Morgans.

10.6.       Invalidity
of Provision.  The invalidity or
unenforceability of any provision of this Agreement in any jurisdiction shall
not affect the validity or enforceability of the remainder of this Agreement in
that jurisdiction or the validity or enforceability of this Agreement,
including that provision, in any other jurisdiction.

10.7.       Notices.  All
notices and other communications required or permitted to be given under this
Agreement shall be in writing and shall be delivered by (a) personal delivery,
or (b) overnight DHL, FedEx, UPS or other similar courier service, or shall be
transmitted by facsimile (provided that a copy of such facsimile transmission
together with confirmation of such facsimile transmission is delivered to the
addressee in the manner provided in (a) or (b) above by no later than the
second (2nd) business
day following such transmission), to the following addresses:

If to DLJMB:

DLJ Merchant Banking Partners IV, L.P.

Eleven Madison Avenue, 16th Floor

New York, NY 10010

Attention:  Steven Rattner

Facsimile:  (646) 935-7910

with a copy to:

Latham & Watkins LLP

633 West Fifth Street, Suite 4000

Los Angeles, CA 90071-2007

Attention:  Thomas C. Sadler, Esq.

Facsimile:  (213) 891-8763

If to Morgans:

Morgans Hotel Group

475 Tenth Avenue

New York, New York 10018

Attention:  David Smail

Facsimile:  (212) 277-4270

with a copy to:

Wachtell, Lipton, Rosen & Katz

51 West 52nd Street

New York, New York 10019

Attention: Stephen G. Gellman, Esq.

Facsimile:  (212) 403-2000

 26
 

 

or to such other address as any party shall hereafter
specify by notice in writing to the other parties.  Any such notice or communication shall be
deemed to have been received by the party to whom such notice or other
communication is sent upon (i) delivery to the address of the recipient party
(or transmission by facsimile to the facsimile number of the recipient party),
provided that such delivery is made prior to 5:00 p.m. (local time for the
recipient party) on a business day, and otherwise the following business day,
or (ii) the attempted delivery of such notice or other communication if such
recipient party refuses delivery.

10.8.       Headings;
Execution in Counterparts.  The headings and
captions contained herein are for convenience of reference only and shall not
control or affect the meaning or construction of any provision hereof.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original and all of
which together shall constitute one and the same instrument.

10.9.       No
Strict Construction.  The language used in this
Agreement shall be deemed to be the language chosen by the parties hereto to
express their mutual intent, and no rule of strict construction shall be
applied against any party.

10.10.     Survival.  This
Article 10 shall survive the termination of this Agreement.

(Signature Page
Follows)

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

	
  

  	
  MORGANS HOTEL GROUP CO.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Marc Gordon

  
	
   

  	
   

  	
  Name:

  	
  Marc Gordon

  
	
   

  	
   

  	
  Title:

  	
  Chief Investment Officer

  and Executive Vice President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  DLJ MB IV HRH, LLC,

  
	
   

  	
  a Delaware limited liability company

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Steven Rattner

  
	
   

  	
   

  	
  Name:

  	
  Steven Rattner

  
	
   

  	
   

  	
  Title:

  	
   

  

 

 S-1

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