Document:

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                                                                     EXHIBIT 4.8

                          REGISTRATION RIGHTS AGREEMENT

          THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 28, 2005
(this "Agreement"), is made by and among ADVANCED TECHNOLOGY INDUSTRIES, INC., a
Delaware corporation, with headquarters located at 211 Madison Avenue, #28B, New
York, New York 10016 (the "Company"), and the entity (other than the Company)
named on the signature page hereto (the "Investor").

                              W I T N E S S E T H:

          WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of even date, between the Investor and
the Company (the "Securities Purchase Agreement"; capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Investor the Debentures; and

          WHEREAS, the Debentures are convertible into shares of Common Stock
(the "Conversion Shares"; which term, for purposes of this Agreement, shall
include shares of Common Stock of the Company issuable in lieu of accrued
interest through the Maturity Date (as that term is defined in the Debentures))
upon the terms and subject to the conditions contained in the Debentures; and

          WHEREAS, upon and subject to the terms of the Securities Purchase
Agreement, the Company has agreed to issue the Warrants to the Investor in
connection with the issuance of the Debentures, and the Warrants may be
exercised for the purchase of shares of Common Stock (the "Warrant Shares") upon
the terms and conditions of the Warrants; and

          WHEREAS, to induce the Investor to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Registrable Securities (as defined
below);

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          NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Investor hereby agree as follows:

          1. DEFINITIONS. As used in this Agreement, the following terms shall
have the following meanings:

          (a) "Effective Date" means the date the SEC declares a Registration
Statement covering Registrable Securities and otherwise meeting the conditions
contemplated hereby to be effective.

          (b) "Held Shares Value" means, for shares of Common Stock acquired by
the Investor upon a conversion of a Debenture within the thirty (30) days
preceding the Restricted Sale Date, but not yet sold by the Investor, the
principal amount of the Debentures converted into such Conversion Shares;
provided, however, that if the Investor effected more than one such conversion
during such thirty (30) day period and sold less than all of such shares, the
sold shares shall be deemed to be derived first from the conversions in the
sequence of such conversions (that is, for example, until the number of shares
from the first of such conversions have been sold, all shares shall be deemed to
be from the first conversion; thereafter, from the second conversion until all
such shares are sold).

          (c) "Investor" means the Investor and any permitted transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof and who holds Debentures, Warrants or
Registrable Securities.

          (d) "Payment Shares" means shares of Common Stock issued by the
Company as provided in Section 2(b) below.

          (e) "Potential Material Event" means any of the following: (i) the
possession by the Company of material information not ripe for disclosure in a
registration statement, which shall be evidenced by a determination in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a registration statement
at such time; in each case where such determination shall be accompanied by a
good faith determination by the Board of Directors of the Company that the
registration statement would be materially misleading absent the inclusion of
such information.

          (f) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").

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          (g) "Registrable Securities" means, collectively, the Conversion
Shares, the Warrant Shares and the Payment Shares.

          (h) "Registration Statement" means a registration statement or
amendment thereto of the Company under the Securities Act covering Registrable
Securities on Form S-3, if the Company is then eligible to file using such form,
and if not eligible, on Form S-2 or other appropriate form which shall include
only the Registrable Securities and the such other securities as may be
permitted by Section 5(b) hereof.

          (i) "Required Effective Date" means the relevant Initial Required
Effective Date or Increased Required Effective Date (as those terms are defined
below).

          (j) "Required Filing Date" means December 14, 2005.

          (k) "Restricted Sale Date" means the first date, other than a date
during a Permitted Suspension Period (as defined below), on which the Investor
is restricted from making sales of Registrable Securities covered by any
previously effective Registration Statement.

          2. REGISTRATION.

          (A) MANDATORY REGISTRATION.

          (i) The Company shall prepare and file with the SEC by the Required
Filing Date an amendment to the Registration Statement filed by the Company
November 1, 2005 registering for resale by the Investor a sufficient number of
shares of Common Stock for the Investor to sell the Registrable Securities, but
in no event less than the number of shares equal to one hundred fifty percent
(150%) of the aggregate of (x) the number of shares into which the Debentures
and all interest thereon through the Maturity Date would be convertible at the
time of filing of such Registration Statement (assuming for such purposes that
all Debentures had been issued, had been eligible to be converted, and had been
converted, into Conversion Shares in accordance with their terms, whether or not
such issuance, eligibility, accrual of interest or conversion had in fact
occurred as of such date) and (y) the number of Warrant Shares which would be
issuable on exercise of the Warrants (assuming for such purposes that all
Warrants had been issued, had been eligible for exercise and had been exercised
for Warrant Shares in accordance with their terms, whether or not such issuance,
eligibility or exercise had in fact occurred as of such date). Unless otherwise
specifically agreed to in writing in advance by the Investor, the Registration
Statement shall state that, in accordance with Rule 416 and 457 under the
Securities Act, it also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon conversion of the Debentures or
exercise of the Warrants to prevent dilution resulting from stock splits, or
stock dividends. The Company will use its reasonable best efforts to cause such
Registration Statement to be declared effective on a date (the "Initial Required
Effective Date") which is no later than the earlier of (Y) five (5) days after
oral or written notice by the SEC that it may be declared effective or (Z)
December 29, 2005.

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          (ii) If at any time (an "Increased Registered Shares Date") after a
Registration Statement has been filed with the SEC, the number of shares of
Common Stock represented by the Registrable Shares, issued or to be issued as
contemplated by the Transaction Agreements, exceeds the aggregate number of
shares of Common Stock then registered or sought to be registered in a
Registration Statement which has not yet been declared effective, the Company
shall either

     (X) amend the relevant Registration Statement filed by the Company pursuant
     to the preceding provisions of this Section 2, if such Registration
     Statement has not been declared effective by the SEC at that time, to
     register, in the aggregate, at least the number of shares (the "Increased
     Shares Amount") equal to (A) the number of shares theretofore issued on
     conversion of the Debentures (including any interest paid on conversion by
     the issuance of Conversion Shares) , plus (B) the number of shares
     theretofore issued on exercise of the Warrants, plus (C) the sum of:

          (I) the number of shares into which the unconverted Debentures and all
          interest thereon through the Maturity Date would be convertible at the
          date of such filing (assuming for such purposes that all such
          Debentures had been issued, had been eligible to be converted, and had
          been converted, into Conversion Shares in accordance with their terms,
          whether or not such issuance eligibility, accrual of interest, or
          conversion had in fact occurred as of such date), and

          (II) the number of Warrant Shares which would be issuable on exercise
          of the unexercised Warrants (assuming for such purposes that all such
          Warrants had been issued, had been eligible for exercise and had been
          exercised for Warrant Shares in accordance with their terms, whether
          or not such issuance, eligibility or exercise had in fact occurred as
          of such date), or

     (Y) if such Registration Statement has been declared effective by the SEC
     at that time, file with the SEC an additional Registration Statement (an
     "Additional Registration Statement") to register the number of shares equal
     to the excess of the Increased Shares Amount over the aggregate number of
     shares of Common Stock already registered.

The Company will use its reasonable best efforts to cause such Registration
Statement to be declared effective on a date (each, an "Increased Required
Effective Date") which is no later than (q) with respect to a Registration
Statement under clause (X) of this subparagraph (ii), the Initial Required
Effective Date and (r) with respect to an Additional Registration Statement, the
earlier of (I) five (5) days after notice by the SEC that it may be declared
effective or (II) thirty (30) days after the Increased Registered Shares Date.

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          (B) PAYMENTS BY THE COMPANY.

          (i) If the Registration Statement covering the Registrable Securities
is not filed in proper form with the SEC by the Required Filing Date, the
Company will make payment to the Investor in such amounts and at such times as
shall be determined pursuant to this Section 2(b).

          (ii) If the Registration Statement covering the Registrable Securities
is not effective by the relevant Required Effective Date or if there is a
Restricted Sale Date, then the Company will make payments to the Investor in
such amounts and at such times as shall be determined pursuant to this Section
2(b).

          (iii) The amount (the "Periodic Amount") to be paid by the Company to
the Investor shall be determined as of each Computation Date (as defined below)
and such amount shall be equal to the Periodic Amount Percentage (as defined
below) of the Purchase Price for all Debentures held by the Investor for the
period from the date following the relevant Required Filing Date or the Required
Effective Date or a Restricted Sale Date, as the case may be, to the first
relevant Computation Date, and thereafter to each subsequent Computation Date.
The "Periodic Amount Percentage" means (A) one percent (1%) of the Purchase
Price of all Debentures for the first two Computation Dates after the relevant
Required Filing Date; and (B) two percent (2%) of the Purchase Price of all
Debentures to any Computation Date thereafter. Anything in the preceding
provisions of this paragraph (iii) to the contrary notwithstanding, after the
relevant Effective Date the Purchase Price shall be deemed to refer to the sum
of (X) the principal amount of all Debentures not yet converted and (Y) the Held
Shares Value. By way of illustration and not in limitation of the foregoing, if
the Registration Statement is filed on or before the Required Filing Date, but
is not declared effective by February 27, 2006, the Periodic Amount will
aggregate two percent (2%).

          (iv) Each Periodic Amount will be payable by the Company, except as
provided in the other provisions of subparagraph (v), in cash or other
immediately available funds to the Investor (1) on the day after the Required
Filing Date, the Required Effective Date or a Restricted Sale Date, as the case
may be, and (2) on the earlier of (A) each thirtieth day thereafter, (B) the
third business day after the date the Registration Statement is filed or is
declared effective, or (C) the third business day after the Registration
Statement has its restrictions removed after the relevant Effective Date, in
each case without requiring demand therefor by the Investor.

          (v) Notwithstanding the provisions of the immediately preceding
subparagraph (iv),

     (i) at the option of the Company, exercisable in its discretion on the date
     the Periodic Amount is due; provided, however, that the Company may
     exercise this discretion if, but only if the Registration Statement
     covering the Payment Shares is then effective; or

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     (ii) at the option of the Investor, exercisable in its sole and absolute
     discretion by written notice to the Company at any time before the Periodic
     Amount is paid,

all or a portion of the Periodic Amount shall be paid by the issuance of
additional shares of Common Stock to such Investor ("Payment Shares") in an
amount equal to the Periodic Amount being paid thereby divided by the then
applicable Conversion Price; provided, further that the Delivery Date for the
Payment Shares shall be three (3) business days after the date the Periodic
Amount is due (if the election is made by the Company) or after the Investor
gives the notice contemplated by clause (ii) of this subparagraph.

          (vi) The parties acknowledge that the damages which may be incurred by
the Investor if the Registration Statement is not filed by the Required Filing
Date or the Registration Statement has not been declared effective by a Required
Effective Date, including if the right to sell Registrable Securities under a
previously effective Registration Statement is suspended or the shares of the
Company's stock are not listed on the Principal Trading Market, may be difficult
to ascertain. The parties agree that the amounts payable pursuant to the
foregoing provisions of this Section 2(b) represent a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages.

          (vii) Notwithstanding the foregoing, the amounts payable by the
Company pursuant to this provision shall not be payable to the extent any delay
in the filing or effectiveness of the Registration Statement occurs because of
an act of, or a failure to act or to act timely by the Investor or its counsel.

          (viii) "Computation Date" means (A) the date which is the earlier of
(1) thirty (30) days after the Required Filing Date, any relevant Required
Effective Date or a Restricted Sale Date, as the case may be, or (2) the date
after the Required Filing Date, such Required Effective Date or Restricted Sale
Date on which the Registration Statement is filed (with respect to payments due
as contemplated by Section 2(b) hereof) or is declared effective or has its
restrictions removed or the shares of the Company's stock are listed on the
Principal Trading Market (with respect to payments due as contemplated by
Section 2(b)(ii) hereof), as the case may be, and (B) each date which is the
earlier of (1) thirty (30) days after the previous Computation Date or (2) the
date after the previous Computation Date on which the Registration Statement is
filed (with respect to payments due as contemplated by Section 2(b) hereof) or
is declared effective or has its restrictions removed or the shares of the
Company's stock are listed on the Principal Trading Market (with respect to
payments due as contemplated by Section 2(b)(ii) hereof), as the case may be.

          (ix) Notwithstanding anything herein to the contrary the remedy set
forth in this Section 2(b) shall be the sole remedy for the Investor if the
Registration Statement covering the Registrable Securities is not filed in
proper form with the SEC by the Required Filing Date or if the Registration
Statement covering the Registrable Securities is not effective by the relevant
Required Effective Date or if there is a Restricted Sale Date.

          3. OBLIGATIONS OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:

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          (a) Prepare promptly, and file with the SEC by the Required Filing
Date and a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times, other than during
Permitted Suspension Periods, during the period (the "Registration Period")
continuing until the earlier of (i) the date when the Investor may sell all
Registrable Securities under Rule 144 without volume or other restrictions or
limits or (ii) the date the Investor no longer own any of the Registrable
Securities, which Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;

          (b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period (except during Permitted Suspension Periods), and, during
the Registration Period, comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement;

          (c) Permit a single firm of counsel designated by the Investor (which,
until further notice, shall be deemed to be Krieger & Prager LLP, Attn: Samuel
Krieger, Esq., which firm has requested to receive such notification; each, an
"Investor's Counsel") to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects, unless the Company reasonably
determines that such document is required by law to be so filed;

          (d) Notify the Investor and the Investor's Counsel and any managing
underwriters immediately (and, in the case of (i)(A) below, not less than three
(3) business days prior to such filing) and (if requested by any such person)
confirm such notice in writing no later than one (1) business day following the
day (i)(A) when a Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed; (B) whenever
the SEC notifies the Company whether there will be a "review" of such
Registration Statement; (C) whenever the Company receives (or a representative
of the Company receives on its behalf) any oral or written comments from the SEC
in respect of a Registration Statement (copies or, in the case of oral comments,
summaries of such comments shall be promptly furnished by the Company to the
Investor); and (D) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the SEC or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the SEC of any stop order

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suspending the effectiveness of the Registration Statement covering any or all
of the Registrable Securities or the initiation of any proceedings for that
purpose; (iv) if at any time any of the representations or warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose; and (vi) of the occurrence of any event that to the
best knowledge of the Company makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investor's
Counsel with copies of all intended written responses to the comments
contemplated in clause (C) of this Section 3(d) not later than one (1) business
day in advance of the filing of such responses with the SEC so that the Investor
shall have the opportunity to comment thereon;

          (e) Furnish to the Investor and to Investor's Counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement thereto,
and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as the Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by the Investor;

          (f) As promptly as practicable after becoming aware thereof, notify
the Investor of the happening of any event of which the Company has knowledge,
as a result of which the prospectus included in the Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and, subject to Section 4(c), use its best efforts promptly to
prepare a supplement or amendment to the Registration Statement or other
appropriate filing with the SEC to correct such untrue statement or omission,
and deliver a number of copies of such supplement or amendment to the Investor
as the Investor may reasonably request;

          (g) [intentionally omitted ]

          (h) Comply with Regulation FD or any similar rule or regulation
regarding the dissemination of information regarding the Company, and in
furtherance of the foregoing, and not in limitation thereof, not disclose to the
Investor any non-public material information regarding the Company;

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          (i) Use its reasonable efforts to secure and maintain the designation
of all the Registrable Securities covered by the Registration Statement on the
Principal Trading Market and the quotation of the Registrable Securities on the
Principal Trading Market;

          (j) Provide a transfer agent ("Transfer Agent") and registrar, which
may be a single entity, for the Registrable Securities not later than the
initial Effective Date;

          (k) Cooperate with the Investor to facilitate the timely preparation
and delivery of certificates for the Registrable Securities to be offered
pursuant to the Registration Statement and enable such certificates for the
Registrable Securities to be in such denominations or amounts as the case may
be, as the Investor may reasonably request, and, within five (5) business days
after a Registration Statement which includes Registrable Securities is ordered
effective by the SEC, the Company shall deliver, and shall cause legal counsel
selected by the Company to deliver, to the Transfer Agent for the Registrable
Securities (with copies to the Investor) an appropriate instruction and opinion
of such counsel, which shall include, without limitation, directions to the
Transfer Agent to issue certificates of Registrable Securities (including
certificates for Registrable Securities to be issued after the Effective Date
and replacement certificates for Registrable Securities previously issued)
without legends or other restrictions, subject to compliance with applicable
law, including, without limitation, prospectus delivery requirements; and

          (l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.

          4. OBLIGATIONS OF THE INVESTOR. In connection with the registration of
the Registrable Securities, the Investor shall have the following obligations:

          (a) The Investor, by the Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless the Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement;

          (b) The Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(d)(iii)
or 3(f), above, the Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until the Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(d)(iii) or 3(f)
and, if so directed by the Company, the Investor shall deliver to the Company
(at the expense of the Company) or destroy (and deliver to the Company a
certificate of destruction) all copies in the Investor's possession, of the
prospectus covering such Registrable Securities current at the time of receipt
of such notice;

          (c) Notwithstanding anything in this Agreement to the contrary, if at
any time or from time to time after the date of effectiveness of the
Registration Statement, the Company notifies the Investor in writing that the
effectiveness of the Registration Statement is suspended for any reason, whether
due to a Potential Material Event or otherwise, the Investor shall not offer or
sell any Registrable Securities, or engage in any other transaction involving or

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relating to the Registrable Securities, from the time of the giving of such
notice until the Investor receives written notice from the Company that such the
effectiveness of the Registration Statement has been restored, whether because
the Potential Material Event has been disclosed to the public or it no longer
constitutes a Potential Material Event or otherwise; provided, however, that the
Company may not so suspend the right to such holder of Registrable Securities
during the periods the Registration Statement is required to be in effect other
than during a Permitted Suspension Period (and the applicable provisions of
Section 2(b) shall apply with respect to any such suspension other than during a
Permitted Suspension Period) . The term "Permitted Suspension Period" means up
to two such suspension periods during any consecutive 12-month period, each of
which suspension period shall not either (i) be for more than ten (10) business
days or (ii) begin less than ten (10) business days after the last day of the
preceding suspension (whether or not such last day was during or after a
Permitted Suspension Period)

          5. EXPENSES OF REGISTRATION. (a) All reasonable expenses (other than
underwriting discounts and commissions of the Investor) incurred in connection
with registrations, filings or qualifications pursuant to Section 3, but
including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company shall be borne by the Company.

          (b) Except for the Registration Rights Agreements attached as Exhibits
to any filing made by the Company with the SEC prior to the date hereof (the
"Filed Registration Rights Agreements") neither the Company nor any of its
subsidiaries has, as of the date hereof, nor shall the Company nor any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except for the Filed Registration Rights Agreements neither the Company nor any
of its subsidiaries has previously entered into any agreement granting any
registration rights with respect to any of its securities to any Person that is
currently in effect. The Company shall be entitled to include all the shares
required to be registered hereunder, under the Filed Registration Rights
Agreements and under any registration rights agreement entered into after the
date of this Agreement and prior to December 14, 2005, that is not inconsistent
with the rights granted to the Holders in this Agreement or that otherwise
conflicts with the provisions hereof on a single registration statement under
the Securities Act.

          6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:

          (a) To the extent permitted by law, the Company will indemnify and
hold harmless the Investor, the directors, if any, of the Investor, the
officers, if any, of the Investor, and each Lender Control Person (each, an
"Lender Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Securities Exchange Act of
1934, as amended (the "Exchange Act") or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)

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arise out of or are based upon: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading or
(iii) any violation or alleged violation by the Company of the Securities Act,
the Exchange Act, any state securities law or any rule or regulation under the
Securities Act, the Exchange Act or any state securities law (the matters in the
foregoing clauses (i) through (iii) being, collectively referred to as
"Violations"). Subject to clause (b) of this Section 6, the Company shall
reimburse the Investor, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable expenses incurred by
them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) apply to any Claim
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of such Lender Indemnified Party expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(b) hereof; (II) be available to the extent such Claim is
based on a failure of any Lender Indemnified Party to deliver or cause to be
delivered the prospectus made available by the Company or the amendment or
supplement thereto made available by the Company; (III) be available to the
extent such Claim is based on the delivery of a prospectus by any Lender
Indemnified Party after receiving notice from the Company under Section
3(d)(iii) or 3(f) or Section 4(c) hereof (other than a notice regarding the
effectiveness of the Registration Statement or any amendment or supplement
thereto), or (IV) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld or delayed. The Investor will
indemnify the Company and its officers, directors and agents and each Company
Control Person (each, an "Company Indemnified Party", and together with each
Lender Indemnified Party, each an "Indemnified Party") against any claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on behalf
of the Investor, expressly for use in connection with the preparation of the
Registration Statement or the amendment or supplement thereto, subject to such
limitations and conditions as are applicable to the indemnification provided by
the Company to this Section 6. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Party and shall survive the transfer of the Registrable Securities by the
Investor pursuant to Section 9.

          (b) Promptly after receipt by an Indemnified Party under this Section
6 of notice of the commencement of any action (including any governmental
action), such Indemnified Party shall, if a Claim in respect thereof is to be
made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Party. In

                                       11
<PAGE>

case any such action is brought against any Indemnified Party, and it notifies
the indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such Indemnified Party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such Indemnified Party
under this Section 6 for any legal or other reasonable out-of-pocket expenses
subsequently incurred by such Indemnified Party in connection with the defense
thereof other than reasonable costs of investigation, unless the indemnifying
party shall not pursue the action to its final conclusion. The Indemnified Party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and reasonable out-of-pocket
expenses of such counsel shall not be at the expense of the indemnifying party
if the indemnifying party has assumed the defense of the action with counsel
reasonably satisfactory to the Indemnified Party provided such counsel is of the
opinion that all defenses available to the Indemnified Party can be maintained
without prejudicing the rights of the indemnifying party. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Party under this Section 6, except to the extent
that the indemnifying party is prejudiced in its ability to defend such action.
The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.

          7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
except where the seller has committed fraud (other than a fraud by reason of the
information included or omitted from the Registration Statement as to which the
Company has not given notice as contemplated under Section 3 hereof) or
intentional misconduct, contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.

          8. REPORTS UNDER SECURITIES ACT AND EXCHANGE ACT. With a view to
making available to the Investor the benefits of Rule 144 promulgated under the
Securities Act or any other similar rule or regulation of the SEC that may at
any time permit the Investor to sell securities of the Company to the public
without Registration ("Rule 144"), for a period of two years after the date
hereof, the Company agrees to:

          (a) make and keep public information available, as those terms are
understood and defined in Rule 144;

                                       12
<PAGE>

          (b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and

          (c) furnish to the Investor so long as the Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) if not available on the SEC's EDGAR system, a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company and (iii) such other information as may be
reasonably requested to permit the Investor to sell such securities pursuant to
Rule 144 without Registration; and

          (d) at the request of the Investor, give its Transfer Agent
instructions to the effect that, upon the Transfer Agent's receipt from such
Holder of

     (i) a certificate (a "Rule 144 Certificate") certifying (A) that the
     Investor's holding period (as determined in accordance with the
     provisions of Rule 144) for the shares of Registrable Securities which
     the Investor proposes to sell (the "Securities Being Sold") is not
     less than (1) year and (B) as to such other matters as may be
     appropriate in accordance with Rule 144 under the Securities Act, and

     (ii) an opinion of counsel acceptable to the Company for which purpose
     it is agreed that Investor's Counsel shall be deemed acceptable if not
     given by Ropes and Gray that, based on the Rule 144 Certificate,
     Securities Being Sold may be sold pursuant to the provisions of Rule
     144, even in the absence of an effective Registration Statement,

the Transfer Agent is to effect the transfer of the Securities Being Sold and
issue to the buyer(s) or transferee(s) thereof one or more stock certificates
representing the transferred Securities Being Sold without any restrictive
legend and without recording any restrictions on the transferability of such
shares on the Transfer Agent's books and records (except to the extent any such
legend or restriction results from facts other than the identity of the
Investor, as the seller or transferor thereof, or the status, including any
relevant legends or restrictions, of the shares of the Securities Being Sold
while held by the Investor). If the Transfer Agent reasonably requires any
additional documentation at the time of the transfer, the Company shall deliver
or cause to be delivered all such reasonable additional documentation as may be
necessary to effectuate the issuance of an unlegended certificate.

          9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investor to any transferee of the Registrable
Securities (or all or any portion of any unconverted Debentures) only if the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee or
assignee, (b) the securities with respect to which such registration rights are
being transferred or assigned and (c) written evidence of the transferee's
assumption of the Investor's obligations under this Agreement.

                                       13
<PAGE>

          10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Investor. Any amendment or waiver
effected in accordance with this Section 10 shall be binding upon the Investor
and the Company.

          11. MISCELLANEOUS.

          (a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.

          (b) Notices required or permitted to be given hereunder shall be given
in the manner contemplated by the Securities Purchase Agreement, if to the
Company or to the Investor, to their respective address contemplated by the
Securities Purchase Agreement, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b).

          (c) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.

          (d) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York for contracts to be wholly performed in
such state and without giving effect to the principles thereof regarding the
conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on FORUM NON COVENIENS, to the bringing of any such proceeding in such
jurisdictions.

          (e) The Company and the Investor hereby waive a trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other in respect of any matter arising out of or in connection with
this Agreement or any of the other Transaction Agreements.

          (f) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.

          (g) Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.

                                       14
<PAGE>

          (h) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.

          (i) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.

          (j) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.

          (k) Neither party shall be liable for consequential damages as a
result of any delay under this Agreement.

          (l) This Agreement (including to the extent relevant the provisions of
other Transaction Agreements) constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       15
<PAGE>

          IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.

                            COMPANY:

                            ADVANCED TECHNOLOGY  INDUSTRIES, INC.

                            By:__________________________________
                            Name:
                            Title:

<PAGE>

                            INVESTOR:

                            MONARCH CAPITAL FUND, LTD.

                            By:  NAVIGATOR MANAGEMENT LTD.

                                 By:_________________________________
                                      David SimsExhibit 10.21

 

JAMES HOTEL SCOTTSDALE, LLC

 

SELLER

 

 

- and -

 

 

MORGANS HOTEL GROUP LLC

 

PURCHASER

 

 

AGREEMENT OF PURCHASE AND SALE

James Hotel Scottsdale

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I

  	
  INTERPRETATION

  	
  1

  
	
   

  	
   

  	
   

  
	
  1.1

  	
  Definitions

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II

  	
  AGREEMENT OF
  PURCHASE AND SALE

  	
  7

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Agreement of
  Purchase and Sale

  	
  7

  
	
  2.2

  	
  Intentionally
  Omitted

  	
  7

  
	
  2.3

  	
  Settlement
  of Documents

  	
  7

  
	
   

  	
   

  	
   

  
	
  ARTICLE III

  	
  PURCHASE
  PRICE

  	
  7

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Deposit

  	
  7

  
	
  3.2

  	
  Method of
  Payment of Purchase Price and Allocation of Purchase Price

  	
  8

  
	
  3.3

  	
  Adjustments

  	
  8

  
	
  3.4

  	
  Adjustments
  - Post Closing

  	
  10

  
	
  3.5

  	
  Disputes

  	
  11

  
	
  3.6

  	
  Payment
  Provisions

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV

  	
  CONDITIONS

  	
  12

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Conditions
  for Seller

  	
  12

  
	
  4.2

  	
  Conditions
  for Purchaser

  	
  12

  
	
   

  	
   

  	
   

  
	
  ARTICLE V

  	
  CLOSING
  DOCUMENTS

  	
  13

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Closing
  Arrangements

  	
  13

  
	
  5.2

  	
  Seller’s
  Deliveries

  	
  13

  
	
  5.3

  	
  Purchaser’s
  Deliveries

  	
  14

  
	
  5.4

  	
  Recordation
  and Other Costs

  	
  15

  
	
  5.5

  	
  Vacant
  Possession

  	
  15

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI

  	
  REPRESENTATIONS
  AND WARRANTIES, ETC.

  	
  16

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Seller’s
  Representations

  	
  16

  
	
  6.2

  	
  Purchaser’s
  Representations

  	
  18

  
	
  6.3

  	
  Survival of
  Representations

  	
  19

  
	
  6.4

  	
  Limitations
  on Seller’s Representations and Warranties

  	
  19

  
	
  6.5

  	
  Third Party
  Claims

  	
  20

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII

  	
  OPERATION
  UNTIL CLOSING

  	
  22

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Operation
  Before Closing

  	
  22

  
	
  7.2

  	
  Damage
  Before Closing

  	
  22

  
	
  7.3

  	
  Leasing and
  Hotel Contracts

  	
  23

  
	
  7.4

  	
  Assignment
  of Hotel Contracts and Hotel Permits

  	
  23

  

 

 

	
  7.5

  	
  Employees

  	
  25

  
	
  7.6

  	
  Trade-Marks
  and Other Intellectual Property Rights

  	
  27

  
	
  7.7

  	
  Change of
  Circumstances

  	
  27

  
	
  7.8

  	
  Hotel
  FF&E and Hotel Inventory

  	
  27

  
	
  7.9

  	
  Purchaser’s
  Access to Hotel

  	
  27

  
	
   

  	
   

  	
   

  
	
  ARTICLE VIII

  	
  GENERAL

  	
  28

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Gender and
  Number

  	
  28

  
	
  8.2

  	
  Captions

  	
  28

  
	
  8.3

  	
  Obligations
  as Covenants

  	
  28

  
	
  8.4

  	
  Applicable
  Law

  	
  28

  
	
  8.5

  	
  Currency

  	
  28

  
	
  8.6

  	
  Invalidity

  	
  28

  
	
  8.7

  	
  Amendment of
  Agreement

  	
  28

  
	
  8.8

  	
  Time

  	
  29

  
	
  8.9

  	
  Entire
  Agreement

  	
  29

  
	
  8.10

  	
  Waiver

  	
  29

  
	
  8.11

  	
  Attorneys as
  Agents and Tender

  	
  29

  
	
  8.12

  	
  Successors
  and Assigns

  	
  29

  
	
  8.13

  	
  Real Estate
  Commissions

  	
  29

  
	
  8.14

  	
  Notice

  	
  30

  
	
  8.15

  	
  No
  Registration of Agreement

  	
  31

  
	
  8.16

  	
  Counterparts

  	
  31

  
	
  8.17

  	
  Survival

  	
  31

  
	
  8.18

  	
  Conflicts
  between Agreement and Closing Documents

  	
  31

  
	
  8.19

  	
  Assignment

  	
  31

  
	
  8.20

  	
  Confidentiality

  	
  31

  
	
  8.21

  	
  Like-Kind
  Exchange

  	
  32

  
	
  8.22

  	
  Transition

  	
  32

  

 

 

	
  SCHEDULES

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “A”

  	
   

  	
  -

  	
   

  	
  Legal Description of the Land

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “B”

  	
   

  	
  -

  	
   

  	
  Form of Assignment and Assumption of
  Hotel Contracts

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “C”

  	
   

  	
  -

  	
   

  	
  Intentionally Omitted

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “D”

  	
   

  	
  -

  	
   

  	
  List of Certain Permitted Encumbrances

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “E”

  	
   

  	
  -

  	
   

  	
  Schedule of Hotel Contracts to be
  Assumed

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “F”

  	
   

  	
  -

  	
   

  	
  Allocation of Purchase Price

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “G”

  	
   

  	
  -

  	
   

  	
  Room Reservations

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “H”

  	
   

  	
  -

  	
   

  	
  Litigation

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “I”

  	
   

  	
  -

  	
   

  	
  Employees

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “J”

  	
   

  	
  -

  	
   

  	
  Insurance

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Schedule “K”

  	
   

  	
  -

  	
   

  	
  Transition

  

 

 

THIS AGREEMENT OF PURCHASE AND SALE made
as of the        day of December, 2005.

 

BETWEEN:

 

JAMES HOTEL
SCOTTSDALE, LLC, 

an Arizona limited liability company or such other entity as shall be the owner
of the Hotel Assets at Closing (hereinafter referred to as the “Seller”)

 

- and -

 

MORGANS HOTEL GROUP LLC 

a Delaware limited liability company (hereinafter referred to as the “Purchaser”)

 

WHEREAS the Seller
and the Purchaser have agreed that the Seller shall sell, transfer, assign, set
over and convey all of its right, title and interest in and to the Hotel Assets
to the Purchaser and the Purchaser shall purchase all of the Seller’s right,
title and interest in and to the Hotel Assets, all on and subject to the terms
and conditions set forth in this Agreement.

 

NOW THEREFORE, in
consideration of the mutual covenants and agreements set forth in this
Agreement and the sum of Ten Dollars ($10.00) paid by each of the Seller and
the Purchaser to the other and for other good and valuable consideration (the
receipt and sufficiency of which is hereby acknowledged), the parties hereto
covenant and agree as follows:

 

ARTICLE I

INTERPRETATION

 

1.1                               Definitions

 

The terms defined in this Section shall have, for all purposes of
this Agreement, the following meanings, unless the context expressly or by
necessary implication otherwise requires:

 

“Adjustments” has
the meaning ascribed thereto in Section 3.3.

 

“Affiliate” means, with
respect to Seller or Purchaser , any Person: (i) which owns more than 51%
of the voting interests in such entity; or (ii) in which such entity owns
more than 51% of the voting interests; or (iii) in which more than 51% of
the voting interests are owned by such entity who has a relationship with the
Member described in clause (i) or (ii) above, or (iv) who
otherwise controls, is controlled by, or under common control with, another
Person.

 

“Agreement” means this
agreement of purchase and sale together with all Schedules hereto, as amended
from time to time.

 

 

“Applicable Laws” means
all statutes, laws, by-laws, regulations, ordinances, orders and requirements
of Governmental Authorities having jurisdiction.

 

“Approved Additional Employees”
means employees of the Hotel Business hired after the Execution Date without
contravening Section 7.5 (g) .

 

“Approved Hotel Contracts”
means Hotel Contracts created after the Execution Date without contravening Section 7.3.

 

“Article”, “Section” and “Subsection” mean and refer to the specified article, section and
subsection of this Agreement.

 

“Assignment and Assumption of Hotel
Contracts” means an assignment of the interest of the Seller in all
Existing Hotel Contracts to be assigned to and assumed by Purchaser at Closing
pursuant to the terms of this Agreement, all Room Reservations in force at
Closing and any Approved Hotel Contracts in force at Closing, and an assumption
of any and all obligations relating thereto, such document to be substantially
in the form attached hereto as Schedule ”B”.

 

“Balance” has the meaning
ascribed thereto in Section 3.2.

 

“Bill of Sale” means a
bill of sale for the Seller’s interest in Hotel FF&E and the Hotel
Inventory to be in a form reasonably acceptable to Seller and Purchaser and
their respective Arizona counsel.

 

“Block Reservations” means
Room Reservations in respect of guests pursuant to contracts for multiple
rooms on predetermined fixed dates such as, but without limitation, tour groups,
airline and railway crews, and similar groups.

 

“Building” means,
collectively, all buildings, structures and fixed improvements located on, in
or under the Land and improvements and fixtures contained in or on such
buildings and structures used in the operation of the Building, but excluding
those improvements and fixtures which are owned by any Tenant or which are
removable by any Tenant pursuant to its Lease or otherwise at law.

 

“Business Day” means any
day other than a Saturday, Sunday or statutory holiday in Scottsdale, Arizona.

 

“Claiming Party” means a
party hereto making a claim under Section 6.5 (a) .

 

“Claims” means all past,
present and future claims, suits, proceedings, liabilities, obligations,
losses, damages, penalties, judgments, costs, expenses, fines, disbursements,
legal fees on attorney and client basis, interest, demands and actions of any
nature or any kind whatsoever.

 

“Closing” means the
closing of the Transaction, including without limitation the payment of the
Purchase Price and the delivery of the Closing Documents.

 

2

 

“Closing Date” means April 30,
2006, WITH TIME OF THE ESSENCE, or
such earlier date as the parties may mutually agree upon in their sole and
absolute discretion.

 

“Closing Documents” means
the agreements, instruments and other documents to be delivered by the Seller
pursuant to Section 5.2 and the agreements, instruments and other
documents to be delivered by the Purchaser pursuant to Section 5.3.

 

“Confidential Information”
has the meaning ascribed in, and shall be governed by that certain
Confidentiality Agreement, dated as of October       ,
2005, between Seller and Purchaser (the “Confidentiality
Agreement”) which is incorporated herein by reference and shall
survive the Closing.

 

“Deed of Sale” means the
Deed of Sale from the Seller to the Purchaser of the Property.

 

“Deposit” has the meaning
ascribed thereto in Section 3.1 (a) .

 

“Employees” means all
individuals (other than Excluded Employees) employed by the Seller in
connection with the Hotel Business, provided that each such individual works on
site, is identified in the List of Employees or is an Approved Additional
Employee.

 

“Encumbrance” means any
hypothecation agreement, mortgage, pledge, charge, lien, debenture, trust deed,
assignment by way of security, security interest, conditional sales contract or
other title retention agreement, registrations in respect of leases, or other
instrument charging, or creating a security interest in, or otherwise encumbering,
the Hotel Assets.

 

“Execution Date” means the
date upon which this Agreement is executed and delivered by each of the parties
hereto.

 

“Existing Hotel Contracts”
means all Hotel Contracts in existence as of the Execution Date as set forth on
Schedule E annexed hereto and made a part hereof.

 

“Expert” has the meaning
ascribed thereto in Section 3.5.

 

“Final Adjustment Date”
means the 180th day after the Closing Date.

 

“GAAP” means generally
accepted accounting principles applied consistently.

 

“Governmental Authority”
means any government, legislature, municipality, regulatory authority, agency,
commission, department, board or court or other law, regulation or rule-making
entity.

 

“Hotel” means the hotel
known as the James Hotel Scottsdale, 7353 East Indian Road, Scottsdale, Arizona
85251 and all related facilities, land and appurtenances.

 

“Hotel Assets” means the
Property, the Hotel FF&E, the Hotel Contracts, the Hotel Intangibles and
the Hotel Inventory.

 

3

 

“Hotel Business” means the
business of offering and providing to the general public lodging and
accommodation at the Hotel, with related recreational and meeting facilities at
the Hotel, food and beverages services and other services that are ancillary
thereto.

 

“Hotel Contracts” means
all non-cancelable contracts, agreements, and commitments having a term of
greater than forty-five (45) days made by, or binding upon, the Seller in
connection with the Hotel Business or the Hotel Assets, excluding Hotel
Intangibles, contracts relating to the intellectual and industrial property
rights which are excluded from the Hotel Assets pursuant to Section 7.6
and policies of insurance; without limiting the generality of the foregoing,
the Hotel Contracts shall include all agreements with Employees, the unexpired
warranties of manufacturers or sellers which apply to any of the Hotel Assets,
and are assignable (if any), all maintenance contracts (including, without
limitation, the elevator maintenance contract), equipment leases in respect of
any Hotel Assets, any existing pay-for-view movie contracts and Room Reservations.

 

“Hotel FF&E” means all
machinery, tools, chattels, movables, furniture, furnishings, artwork and
equipment and accessories of every nature and kind, including, without
limitation, computer hardware owned by the Seller and used or held for use on
site at the Hotel as of the Execution Date.

 

“Hotel Intangibles” means
all of the Seller’s files, records (including all those stored in electronic form
pertaining to the Hotel Business but excluding any corporate files and records
which relate primarily to the Seller as opposed to the Hotel Business),
documents, market studies, customer lists, guest reservation cards, advance
reservations, correspondence, telephone numbers, computer software other than
any software license from any Person or rights thereunder which are not by its
terms freely transferable and the Seller’s proprietary software but including
the information relating to the Hotel stored in electronic form using such
software) and goodwill relating, in each case, primarily to the Hotel and all
other rights (other than rights otherwise included in Hotel Assets) owned by
the Seller and used primarily in connection with the Hotel (with the exception
of all intellectual and industrial property rights which are excluded from the
Hotel Assets pursuant to Section 7.6 
and all of the Seller’s files and records relating to the Hotel and the
Hotel Business (other than the corporate files and records as aforesaid).

 

“Hotel Inventory” means
the Seller’s interest in:

 

(a)                                                                                                                                                                             the
inventory of any unopened and saleable food and beverages, used or held for use
on site at the Hotel; and

 

(b)                                                                                                                                                                            all
unopened and useable stock of paper products, guest supplies, guest room
supplies and similar items (but excluding stocks of china, glassware,
silverware, linen, uniforms and office supplies which shall form part of the
Hotel FF&E) located in the storage areas of the Hotel.

 

4

 

“Hotel Permits” means all licenses and permits
issued by any Governmental Authorities and used in connection with or
pertaining to the operation of the Hotel Business (but expressly excluding the
Liquor License).

 

“Hotel Receivables” means all accounts
receivable arising out of the Hotel Business or the Leases and outstanding as
of the day prior to the Closing Date.

 

“Knowledge” or “knowledge” or any similar term or phrase,
when used in the context of the Purchaser’s knowledge, means actual knowledge of
the Purchaser arising from written information Disclosed to the Purchaser.

 

“Land” means the
land and premises described in Schedule ”A” attached hereto.

 

“Leases” means all
of the leases, subleases, concessions and other similar occupancy agreements entered
into by Seller (or a predecessor-in-interest) as landlord, together with all
amendments, renewals, modifications entered into in accordance with the terms
of this Agreement, and guaranties thereof, if any, other than Short Term
Leases.

 

“Liquor License”
means all of the licenses and permits held in respect of the Hotel pursuant to
which the sale of alcoholic beverages is permitted in the Hotel or the
restaurants (other than the Independent Restaurant), bars, function rooms or
guest rooms located therein.

 

“List of Employees”
shall mean the List of Employees set forth on Exhibit ”I” annexed hereto
and made a part hereof.

 

“Non-Assignable Rights”
has the meaning ascribed thereto in Section 7.4 (a) .

 

“Notice” has the
meaning ascribed thereto in Section 8.14.

 

“Permitted Encumbrances”
means:

 

(a)                             those
Encumbrances described on Schedule ”D”; and

 

(b)                            all
other Encumbrances entered into or granted by the Seller after the Execution
Date with the consent of the Purchaser, which consent may be withheld by the Purchaser
in its sole discretion.

 

“Person” means an
individual, partnership, corporation, trust, unincorporated organization,
Governmental Authority, and the successors and assigns thereof or the heirs,
executors, administrators or other legal representatives of an individual.

 

“Post Closing Adjustments”
has the meaning ascribed thereto in Section 3.4(a) .

 

“Property” means,
collectively, the Land and the Building.

 

“Property Conditions”
has the meaning ascribed thereto in Section 6.4(b) .

 

5

 

“Purchase Price”
means FORTY SIX MILLION THREE HUNDRED SIXTY FIVE THOUSAND DOLLARS
($46,365,000).

 

“Purchaser’s Affiliates”
means any past, present or future:  (i) shareholder,
partner, member, manager or owner of Purchaser; (ii) entity in which
Purchaser or any past, present or future shareholder, partner, member, manager
or owner of Purchaser has or had an interest; (iii) entity that, directly
or indirectly, controls, is controlled by or is under common control with Purchaser;
and (iv) the heirs, executors, administrators, personal or legal
representatives, successors and assigns of any or all of the foregoing.

 

“Purchaser’s Attorneys”
means McDermott Will & Emery LLP or such other firm or firms of
attorneys or agents as are appointed by the Purchaser from time to time and
notice of which is provided to the Seller.

 

“Responding Party”
means a party hereto subject to a Claim pursuant to Section 6.5(a) .

 

“Room Reservations”
means reservations for guest rooms, function rooms or other facilities of the
Hotel.

 

“Seller’s Attorneys”
means Herrick, Feinstein LLP or such other firm or firms of attorneys or agents
as are appointed by the Seller from time to time and notice of which is
provided to the Purchaser.

 

“Seller’s Closing Certificate”
has the meaning ascribed thereto in Section 5.2(f) .

 

“Short Term Leases”
means occupancy cards or agreements which relate to the use of rooms in the
Hotel by Transient Guests, or the use of parking stalls, if any, in the
Building.

 

“Substantial Damage”
has the meaning ascribed thereto in Section 7.2(a) .

 

“Survival Period”
has the meaning ascribed thereto in Section 6.3.

 

“Third Party Claim”
has the meaning ascribed thereto in Section 6.5(a) .

 

“Transaction” means
the transaction of purchase and sale of the Hotel Assets provided for in this
Agreement.

 

“Transient Guests”
means all room guests of the Hotel other than those staying at the Hotel
pursuant to Block Reservations.

 

6

 

ARTICLE II

AGREEMENT OF
PURCHASE AND SALE

 

2.1                               Agreement
of Purchase and Sale 

 

The Seller hereby agrees to sell, transfer, assign, set over and
convey, all of the Seller’s right, title and interest in and to the Hotel
Assets to the Purchaser (or to cause the same to be done) and the Purchaser
hereby agrees to purchase and acquire all of the Seller’s right, title and
interest in and to the Hotel Assets for the Purchase Price, all on and subject
to the terms and conditions of this Agreement.

 

2.2                               Intentionally
Omitted.

 

2.3                               Settlement
of Documents

 

The Closing Documents (to the extent that they require preparation and
can be prepared by the Seller) shall be prepared by the Seller’s Attorneys in
conjunction with and for review by the Purchaser’s Attorneys. The parties shall
proceed diligently and in good faith to agree upon the contents of all Closing
Documents to be executed and delivered by the Seller and the Purchaser;
provided that in the case of any Closing Documents to be executed and delivered
in the form set out in a schedule to this Agreement, such form shall not
be subject to further negotiations and the Seller shall provide all details
and/or information necessary to complete such documents, subject to the
Purchaser’s approval of the accuracy of such details and information, such
approval not to be unreasonably withheld.

 

ARTICLE III

PURCHASE PRICE

 

3.1                               Deposit

 

(a)                                  Simultaneously
with the execution of this Agreement, 
the Purchaser shall pay Four Million Five Hundred Thousand Dollars
($4,500,000)  (the “Deposit”) by certified check or negotiable
bank draft or wire transfer to the Seller.

 

(b)                                 If
the Transaction is not completed for any reason whatsoever, other than the
default of the Seller or other failure of Seller to close on the Closing Date
(other than as a result of Purchaser’s default), the Deposit, together with all
interest earned thereon, shall be forfeited to the Seller as liquidated damages.  In
such event, this Agreement shall terminate, neither party shall be further
obligated hereunder, towards the other, save to the extent provided for in the
immediately preceding sentence and the parties shall not have any claim for
damages or other recourses against the other.

 

(c)                                  If
the Transaction is completed, the Deposit and all interest earned thereon shall
be credited against the Purchase Price due on Closing; provided that in the
case of such interest, the Seller shall be entitled to elect prior to Closing,
by giving notice

 

7

 

of such election in writing to
the Purchaser, that instead of crediting such interest against the Purchase
Price the interest shall be paid to the Purchaser; and if the Seller makes such
election prior to Closing, then there shall be no credit against the Purchase
Price for the interest earned on the Deposit and instead the Seller shall pay
directly to the Purchaser on Closing, or as soon thereafter as is possible, an
amount equal to the interest earned on the Deposit.

 

3.2                               Method
of Payment of Purchase Price and Allocation of Purchase Price

 

On Closing the Purchase Price shall be satisfied by payment by
certified check or negotiable bank draft or by wire transfer to the Seller, as
the Seller directs in writing, of an amount (the “Balance”) equal to the Purchase Price less the amounts
described in Section 3.1(c), as adjusted pursuant to Section 3.3
which shall be allocated in accordance with Schedule F.

 

3.3                               Adjustments

 

The Purchase Price shall be adjusted as set out in this Section (such
adjustments being referred to as the “Adjustments”).  Except as otherwise expressly provided for in
this Agreement, all revenues and expenses with respect to the Property, the
Hotel Assets and the Hotel Business accrued prior to the Closing Date shall
belong to, and be for the account of, the Seller, and all revenues and expenses
with respect to the Property, the Hotel Assets and the Hotel Business accrued
on or after the Closing Date shall belong to, and be for the account of, the
Purchaser.  Without limiting the
foregoing, the Adjustments to be made as of the Closing Date shall include:

 

(a)                                  Taxes.  All real estate taxes, personal property
taxes; local improvement charges; levies; taxes and rates; business taxes and
surtaxes; retail sales taxes and other assessments and similar taxes, rates or
charges levied or assessed by a municipal or other Governmental Authority,
whether special or general, (including water and sewer service charges and
other charges for governmental services) in respect of the Hotel Business or
Hotel Assets for the period prior to (but excluding) the Closing Date shall be
the responsibility of the Seller and all of those for the period from and
including the Closing Date shall be the responsibility of the Purchaser.

 

(b)                                 Prepaid
Revenues.  Prepaid amounts received
by the Seller, in respect of the Hotel Business or the Hotel Assets including
prepaid rents, security deposits and any other amounts paid in advance by
Tenants, prepaid amounts and deposits in respect of Block Reservations and
other advance bookings, parking spaces and all other prepaid amounts and
prepaid room commissions for services to be provided on or after the Closing
Date shall be credited to the Purchaser.

 

(c)                                  Hotel
Contracts.  With respect to Hotel
Contracts which are to be assumed by Purchaser (as set forth in Schedule ”E”
annexed hereto and made a part hereof), unpaid amounts owing by the Seller
under any Hotel Contracts relating to the supply of goods, equipment or
services delivered or performed prior to the Closing Date shall be credited to
the Purchaser.

 

8

 

(d)                                 Room Charges.  The Seller shall receive a credit for all of
the Hotel room rents and other charges of Transient Guests owing prior to the
night before the Closing Date.  One-half
of the aggregate of all room rents and other such charges for the night before
the Closing Date shall be credited to the Purchaser and the other half shall be
credited to the Seller.  For greater certainty, the “night before the
Closing Date” means the night which begins on the day before the Closing Date
and ends on the Closing Date.

 

(e)                                  Utilities.  To the extent possible, all meters in respect
of the Hotel Assets will be read on the Closing Date.  Any water and sewer charges, hydro, gas, oil
and charges for all other utilities or governmental services (if any) shall be
adjusted as of the Closing Date.

 

(f)                                    Cash
On Hand.  The Seller will transfer to
the Purchaser on the Closing Date any cash hand normally used in connection
with the operation of the Hotel and the Purchase Price will be adjusted
accordingly, with the Seller receiving a credit on the statement of Adjustments
for the full amount of such cash on hand.

 

(g)                                 Hotel
Inventory.  The Seller shall be
credited with the book value (less rebates or discounts, if any, paid or
accruing due to the Seller to the extent that such rebates or discounts, if
any, are not already reflected in such book value) of all of the Hotel
Inventory on hand on the night before the Closing Date, such book value to be
determined by reference to the most recent purchase invoices for the relevant
items.

 

(h)                                 Prepaid
Costs.  The Seller shall be credited
with any amounts prepaid by the Seller in respect of the Hotel Assets or the
Hotel Business in respect of services, goods, equipment or other supplies
provided or performed after the Closing Date (and including such Closing Date,
if applicable) and which are not otherwise credited to the Seller, provided,
however, there shall be no credit to Seller for prepaid costs in respect
of Hotel Contracts which are not to be assumed by Purchaser.

 

(i)                                     Employee
Related Adjustments. All items in respect of Employees that require
adjustment pursuant to Section 6.5(b).

 

Further Adjustments shall be made as reasonable in the circumstances
based upon generally accepted accounting principles applicable to the hotel
industry.  Notwithstanding the foregoing,
no Adjustments shall be made with respect to:

 

(i)                                     insurance
premiums (and the Purchaser shall not assume or take an assignment of the
Seller’s insurance policies);

 

(ii)                                  any
Hotel Receivables; or

 

9

 

(iii)                               any
bank accounts or cash (other than the cash floats referred to in Section 3.3(f));

 

none of which is included in Hotel Assets and all of which shall remain
the sole property of the Seller.  The
Purchaser shall not do anything to compromise the Hotel Receivables or impair
their collection by the Seller.  If
requested by the Seller, the Purchaser shall (without being obliged to incur
any expense with respect thereto or in any way becoming liable therefor)
co-operate with the Seller in its efforts to collect the Hotel Receivables,
provided that such cooperation shall not in any way adversely affect the
Purchaser’s right to collect receivables arising as a result of the operation
of the Hotel Business on and after the Closing Date.  These provisions shall survive Closing.

 

The Seller shall deliver a proposed draft statement of Adjustments to
the Purchaser not later than the fourth Business Day prior to the Closing.  If the Purchaser does not approve any item in
such statement, it will advise the Seller of any such items at least
twenty-four hours prior to the Closing Date. 
The Seller and the Purchaser shall cooperate so as to resolve any
disagreement with respect to any such disputed item prior to the Closing
Date.  On the night before the Closing
Date, the parties shall cause a physical count and tally of the Hotel Inventory
to be prepared by representatives of the Seller and the Purchaser, and the results
of such physical count and tally shall be incorporated in the statement of
Adjustments.  The parties shall cause the
statement of Adjustments to be finalized by Closing.

 

3.4                               Adjustments
- Post Closing

 

(a)                                  If
the cost or amount of any item which is to be adjusted pursuant to Section 3.3
cannot be finally determined at Closing, then an initial adjustment for such
item shall be made at Closing, such amount to be estimated by the Seller,
acting reasonably, as of the Closing Date on the basis of the best information
available at the Closing as to what the final cost or amount of such item will
be (and such item will be identified as being an “estimate” on the Statement of
Adjustments referred to in Section 3.3). 
All amounts which have been estimated as at the Closing Date because
they have not been finally determined at that date or which are not included in
such Statement of Adjustments (the “Post
Closing Adjustments”) shall be finally adjusted on a post-closing
basis once they have been determined and finalized in accordance with the
provisions set out below.

 

(b)                                 In
each case when Post Closing Adjustments in an aggregate amount of at least TEN
THOUSAND DOLLARS ($10,000) can be finally determined, the Seller or the
Purchaser, as the case may be, shall provide to the other party hereto a
complete written statement of such final Post Closing Adjustments, together
with reasonable details relating thereto (in each case, such statement being
referred to herein as a “Proposed Final
Determination”).  If by the 45th
day prior to the Final Adjustment Date there are Post Closing Adjustments which
in aggregate are less than TEN THOUSAND DOLLARS ($10,000) and in respect of
which a Proposed Final Determination has not been issued, then either the
Seller or the Purchaser, as the case may be, shall be entitled to issue the
Proposed Final

 

10

 

Determination relating
thereto.  In the case of each Post
Closing Adjustment for which a Proposed Final Determination has been issued,
the parties shall attempt to reach final agreement upon such Post Closing
Adjustment within 15 days after the relevant Proposed Final Determination has
been issued, but if the parties are unable to reach such final agreement before
the expiry of such 15 day period then either of them shall be entitled to refer
the final determination of such Post Closing Adjustment to the Expert pursuant
to Section 3.5 hereof.

 

(c)           The
Purchaser shall provide the Seller and its auditors, during normal business
hours at any time and from time to time after Closing, upon reasonable prior
notice to the Purchaser, and subject to the supervision of the Purchaser,
access to the books, files and records of the Purchaser relating exclusively to
the Hotel Assets and the Hotel Business, for the purpose of calculating or verifying
the amount of any Post Closing Adjustments and dealing with any real estate tax
appeals.

 

(d)           The
Seller shall pay to the Purchaser (or to whom the Purchaser may direct) the
redemption cost of any outstanding gift certificates or coupons, if any, issued
prior to the Execution Date by the Seller, any affiliate of the Seller or any
previous owner or manager of the Hotel, for use of Hotel rooms or other Hotel
facilities but redeemed on or after the Closing Date, provided that reasonable
evidence of such redemption is provided to the Seller.  The costs of such redemptions shall be deemed
one of the “Post Closing Adjustments” within the meaning of this Article 3.

 

(e)           The
provisions of this Section 3.4 shall survive the Closing and, in
confirmation thereof, the Seller and Purchaser shall execute and deliver on the
Closing Date an undertaking to readjust and to pay the amount of any
Post-Closing Adjustments as may be owing pursuant to the provisions of this
Agreement.

 

3.5                               Disputes

 

If there is any dispute concerning Adjustments or Post Closing
Adjustments, either party may submit such dispute to a nationally recognized
accounting firm, with an office in New York, New York, agreed to by the Seller
and the Purchaser or otherwise selected pursuant to this Section and which
does not act for either of the parties (the “Expert”)
for resolution and the Expert shall be given access to all materials and
information reasonably required for such purpose.  The Expert’s determination of all such
matters shall be final and binding on both parties and shall not be subject to
appeal by either party.  The fees and
expenses of the Expert shall be borne equally by the parties.  If the parties are unable to agree on the
Expert within five Business Days of notification of the intent of one party to
bring a dispute to an Expert as herein provided, then the Seller shall, within
the immediately following five (5) Business Days, submit to the Purchaser
a list of two nationally recognized accounting firms, with offices in New York,
New York, that do not act for either party. 
The Purchaser shall then select, within two Business Days after having
been provided with such list, one firm from such list to act as the Expert, and
such firm shall constitute the Expert for all purposes of this Section.  If the Seller does not

 

11

 

submit the foresaid list of two nationally
recognized accounting firms within such five (5) Business Day period, the
Purchaser shall designate a nationally recognized accounting firm, with an
office in New York, New York, that does not act for either party as the Expert
and advise the Seller of such accounting firm and such firm shall constitute
the Expert for all purposes of this section.

 

3.6                               Payment
Provisions

 

When a Post Closing Adjustment has been finalized pursuant to Section 3.4
(or 3.5, if applicable), the party which owes the other party money as a result
of such Post Closing Adjustment shall pay such amount to the other party within
five Business Days after such final determination.

 

ARTICLE IV

CONDITIONS

 

4.1                               Conditions
for Seller

 

The obligation of the Seller to complete the Transaction shall be
subject to fulfillment of each of the following conditions on or before the
Closing Date or such earlier date or time as may be herein specified:

 

(a)                                  payment
by the Purchaser of the Purchase Price and all of the other terms, covenants
and conditions of this Agreement to be complied with or performed by the
Purchaser shall have been complied with or performed in all material respects
(including, without limitation, the delivery of all of the Closing Documents on
the part of the Purchaser to be delivered pursuant to this Agreement);

 

(b)                                 on
Closing, the representations and warranties of the Purchaser set out in Section 5.7
shall be true and accurate in all material respects as if made as of the
Closing; and

 

(c)                                  Purchaser
shall have assumed all obligations under the Hotel Contracts identified on Schedule ”E-1”
annexed hereto.

 

The conditions set forth in this Section are for the benefit of
the Seller and may be waived in whole or in part by the Seller by notice to the
Purchaser.

 

4.2                               Conditions
for Purchaser

 

The obligation of the Purchaser to complete the Transaction shall be
subject to fulfillment of each of the following conditions on or before the
Closing Date or such earlier date or time as may be herein specified:

 

(a)                                  all
of the material terms, covenants and conditions of this Agreement to be
complied with or performed by the Seller shall have been complied with or
performed in all material respects (including, without limitation, the delivery
of

 

12

 

all Closing Documents on the
part of the Seller to be delivered pursuant to this Agreement);

 

(b)                                 on
Closing, the representations and warranties of the Seller set out in Section 6.1
shall be true and accurate in all material respects;

 

(c)                                  Except
for Permitted Encumbrances, there shall be no Encumbrances recorded against, or
affecting, the Hotel Assets.

 

The conditions set forth in Section 4.2 are for the benefit of the
Purchaser, and may be waived in whole or in part by the Purchaser by notice to
the Seller.

 

ARTICLE V

CLOSING DOCUMENTS

 

5.1                               Closing
Arrangements

 

The Closing shall commence at 10:00 a.m. (Eastern Standard Time)
on the Closing Date WITH TIME OF THE ESSENCE at the office of the Seller’s
Attorneys in New York, New York, or, at Purchaser’s request, at the offices of
Purchaser’s lender or its attorneys in New York, New York or at such other time
(on such date) or place as the parties shall mutually agree upon in writing.

 

5.2                               Seller’s
Deliveries

 

On or before Closing, subject to the provisions of this Agreement,
including those requiring prior execution and delivery, the Seller shall
deliver, or cause to be delivered, to the Seller’s Attorneys (who shall act as
escrow agent under the Escrow Agreement) the following:

 

(a)                                  a
duly executed deed of sale (the “Deed of Sale”)
transferring to the Purchaser all of the Seller’s interest in the Property, in
a form to be reasonably acceptable to Seller and Purchaser and their respective
Arizona Counsel;

 

(b)                                 the
Assignment and Assumption of Hotel Contracts;

 

(c)                                  the
Bill of Sale in favor of the Purchaser in a form to be reasonably acceptable to
Seller and Purchaser and their respective Arizona counsel;

 

(d)                                 a
direction as to the payee or payees, which must be acceptable to the Purchaser
acting reasonably,  of the Purchase
Price, the whole, subject to the provisions of Section 3.2 hereof;

 

(e)                                  an
undertaking by the Seller to re-adjust the Adjustments in accordance with Section 3.3;

 

(f)                                    a
certificate of an officer of the Seller, (solely on behalf of the Seller and
without personal liability) (the “Seller’s
Closing Certificate”) to the effect that the

 

13

 

representations and warranties
set forth in Section 6.1, unless expressed to be true and correct only on
a date prior to the Closing Date, are, as at the Closing Date true and correct
in all material respects.

 

(g)                                 a
Certificate of Non-Foreign Status from Seller in the form required by law in
order to establish that Seller is not a foreign person or a nonresident person
for purposes of Section 1445 of the Internal Revenue Code of 1986.

 

(h)                                 complete
copies of all Hotel Contracts which will be the subject of the Assignment and
Assumption of Hotel Contracts (other than Room Reservations which are not
Block Reservations) and are identified on Schedule ”E” annexed hereto;

 

(i)                                     complete
copies of all Hotel Permits which are in the possession or control of the
Seller, or any affiliate of the Seller;

 

(j)                                     an
agreement made by the Seller in favor of the Purchaser providing for the
indemnities by the Seller provided for in Section 6.5 in form reasonably
acceptable to Seller and Purchaser and their respective counsel;

 

(k)                                  to
the extent in the Seller’s possession, all books and records relating to the
Property held by or for the account of Seller, all Plans and Specifications and
all keys to the Property in Seller’s possession, provided, however, Seller
shall retain all customer lists, guest history information, information
relating to standard operating procedures and all similar proprietary and
confidential information of Seller and its affiliates;

 

(l)                                     a
customary title company affidavit as to mechanic’s and materialmen’s liens, the
absence of parties in possession and such other matters as Purchaser’s title
insurance company may reasonably require;

 

(m)                               written
consent of the City of Scottsdale to the assignment to Purchaser by Seller of
that certain Lease Agreement (the “Patio Lease”), dated July 1, 2003, by
and between the City of Scottsdale and James Hotel Scottsdale, LLC;

 

(n)                                 a
Room Reservation list, updated as of the closing; and

 

(o)                                 all
other conveyancing documents which the Purchaser reasonably requests to give
effect to the Transaction and to result in the proper sale, transfer and
assignment of the Hotel Assets by the Seller to the Purchaser in accordance
with the terms of this Agreement.

 

5.3                               Purchaser’s
Deliveries

 

On or before Closing, subject to the terms and conditions of this
Agreement, including those requiring prior execution and delivery, the
Purchaser shall execute (where it is a party

 

14

 

thereto) and shall deliver or cause to be
delivered to the Seller’s Attorneys (who shall act as the escrow agent under
the Escrow Agreement) the following:

 

(a)                                  the
Balance in accordance with and subject to the provisions of Section 3.2;

 

(b)                                 the
Assignment and Assumption of Hotel Contracts;

 

(c)                                  an
undertaking by the Purchaser to re-adjust the Adjustments in accordance with Section 3.3;

 

(d)                                 an
assumption in favor of the Seller by the Purchaser of (and full indemnification
by the Purchaser of the Seller from all Claims which arise or accrue during, or
relate to, the period after the Closing Date) in respect of all Permitted
Encumbrances;

 

(e)                                  the
duly executed Bill of Sale;

 

(f)                                    a
certificate of an officer of the Purchaser (solely on behalf of the Purchaser
and without personal liability) to the effect that the representations and
warranties of the Purchaser set forth in Section 6.2, unless expressed to
be true and correct only on a date prior to the Closing Date, are, as at the
Closing Date, true and correct in all material respects;

 

(g)                                 an
agreement made by the Purchaser in favor of the Seller providing for the
indemnities by the Purchaser provided for in Section 6.5 in form
reasonably acceptable to Seller and Purchaser and their respective counsel; and

 

(h)                                 confirmation
that the Seller retains ownership of the Hotel Receivables;

 

5.4                               Recordation
and Other Costs

 

The Seller and the Purchaser shall be responsible for the costs of the
Seller’s Attorneys and the Purchaser’s Attorneys, respectively, in respect of
this Agreement and the Transaction.  The
Purchaser shall be responsible for and pay, in addition to the Purchase Price,
all recording fees payable in respect of recordation by it of any documents on
Closing.

 

5.5                               Vacant
Possession

 

The Seller will deliver to the Purchaser vacant possession of all of
the Hotel Assets immediately upon completion of the Transaction on the Closing
Date, subject only to hotel guests and Permitted Encumbrances.

 

15

 

ARTICLE VI

REPRESENTATIONS
AND WARRANTIES, ETC.

 

6.1                               Seller’s
Representations

 

The Seller hereby represents and warrants to and in favor of the
Purchaser that:

 

(a)                                  the
Seller is a limited liability company organized under the laws of the State of
Arizona and has the necessary authority, power and capacity to own the Hotel
Assets and carry on the Hotel Business, as presently conducted, enter into this
Agreement and the documents and transactions contemplated herein and to
complete the Transaction on the terms and conditions herein contained;

 

(b)                                 this
Agreement and the obligations of the Seller hereunder, and the documents and
transactions contemplated herein, have been duly and validly authorized by all
requisite corporate proceedings and constitute, and will constitute at Closing
(or, in the case of Closing Documents, will constitute when executed and
delivered) legal, valid and binding obligations of the Seller enforceable
against the Seller in accordance with its and their terms; and neither the
entering into and delivery of this Agreement nor the completion by the Seller
of the Transaction will conflict with or constitute a default under any
Applicable Laws;

 

(c)                                  except
as has been disclosed to the Purchaser, to the best of Seller’s knowledge, the
Seller has not received written notice of any pending condemnation proceedings,
or written notice of changes concerning zoning or variances that would render
the Hotel Business illegal or nonconforming with Applicable Laws;

 

(d)                                 the
Seller is not a party to any collective agreement with respect to any of its
Employees;

 

(e)                                  on
the Date of Closing, the Seller will be the sole legal and beneficial owner of
the Hotel Assets, free and clear of all Encumbrances except for the Permitted
Encumbrances (including the equipment leases scheduled in Schedule ”1” to Schedule ”E”
of this Agreement).

 

(f)                                    To
the best of Seller’s knowledge, the execution and delivery of this Agreement by
Seller and the consummation by Seller of the transactions contemplated hereby (i) do
not violate any judgment, order, injunction, decree, regulation or ruling of
any court or Government Authority actually known to Seller, or (ii) result
in a breach of, or constitute a default under the organizational documents of
Seller, any note or other evidence of indebtedness, any mortgage, deed of trust
or indenture, or any lease or other material agreement or instrument known to
Seller by which Seller is bound.

 

16

 

(g)                                 Seller
is not a “foreign person” or “foreign corporation” as those terms are defined
in the Internal Revenue Code of 1960, as amended, and the regulations
promulgated thereunder.

 

(h)                                 To
the best of Seller’s knowledge, Schedule G contains a complete list
of the Room Reservations as of the Execution Date.  There are no oral Room Reservations.

 

(i)                                     Except
as set forth on Schedule H, to the best of Seller’s knowledge,
there are no actions, suits, arbitrations, governmental investigations or other
proceedings pending and served against Seller or the Property before any court
or Governmental Authority, which (i) are not adequately covered by
existing insurance or (ii) if adversely determined, would adversely affect
the value of the Property, the continued operations thereof, or Seller’s
ability to consummate the transaction contemplated hereby.

 

(j)                                     To
the best of Seller’s knowledge, Schedule I contains a complete list
of all Employees as of the Execution Date.

 

(k)                                  To
the best of Seller’s knowledge, Seller has not received written notice from any
city, county, state, or other Governmental Authority of any violation of any
statute, ordinance, regulation or administrative or judicial order with respect
to the Property, including those relating to environmental matters, which
violation has not been corrected.

 

(l)                                     To
the best of Seller’s knowledge, Seller has all permits, licenses, approvals,
certificates and other governmental authorizations and registration necessary
to conduct its businesses at the Property as presently conducted, including,
without limitation, an appropriate license issued by the State of Arizona for
the sale of alcohol on the Property.

 

(m)                               To
the best of Seller’s knowledge, The list of and information with respect to the
Hotel Contracts in Schedule E is true and complete.  To Seller’s knowledge, there is no material
default, or event that with notice or lapse of time or both would constitute a
material default, by any party to any Hotel Contract listed on Schedule E.  Seller has received no notice that any party
to any Hotel Contract listed on Schedule E intends to cancel or
terminate such agreement.

 

(n)                                 There
are no Leases existing as of the Execution Date.  There are no leasing commissions due nor will
any become due in connection with any previously expired or terminated Lease,
and no understanding or agreement exists in regard to payment of any leasing
commissions or fees for future Leases.

 

(o)                                 The
insurance policies presently in effect with respect to the Property are as set
forth in Schedule J annexed hereto and made a part hereof (the “Existing Insurance”).

 

17

 

(p)                                 To
the best of Seller’s knowledge, the financial information as to the Hotel
delivered to Purchaser in connection with this Agreement is true and complete
in every material respect.

 

(q)                                 All
Hotel FFE, other than that which is subject to an equipment lease which is one
of the Hotel Contracts, is owned by Seller free of lien or encumbrance, other
than mortgage financing which will be satisfied on or before Closing.

 

(r)                                    The
Patio Lease is in full force and effect, it has not been amended and Seller is
not in default thereunder, Seller has received no notice of default or
termination from the lessor under the Patio Lease and, to Seller’s knowledge,
there exists no condition, which, with the passage of time or the giving of
notice, or both, would constitute an event of default by the Seller under the
Patio Lease.

 

6.2                               Purchaser’s
Representations

 

The Purchaser hereby represents and warrants to and in favor of the
Seller that:

 

(a)                                  the
Purchaser is a limited liability company organized under the laws of Delaware
and has the necessary authority, power and capacity to acquire the Hotel Assets
and to enter into this Agreement and to complete the Transaction on the terms
and conditions herein contained;

 

(b)                                 this
Agreement and the obligations of the Purchaser hereunder and the documents and
transactions contemplated herein have been duly and validly authorized by all
requisite proceedings and constitute and will constitute at Closing (or, in the
case of Closing Documents, will constitute when executed and delivered) legal,
valid and binding obligations of the Purchaser enforceable against the
Purchaser in accordance with its and their terms; and neither the entering into
and delivery of this Agreement nor the completion by the Purchaser of the Transaction
will conflict with or constitute a default under any Applicable Laws;

 

(c)                                  To
Purchaser’s actual knowledge, there are no judgments, orders, or decrees of any
kind against Purchaser unpaid or unsatisfied of record, nor any actions, suits
or other legal or administrative proceedings pending or, threatened against
Purchaser, which would have any material adverse effect on the ability of
Purchaser to consummate the transactions contemplated by this Agreement; and

 

(d)                                 Purchaser
is not, and will not become, a person or entity with whom United States persons
or entities are restricted or prohibited from doing business under regulations
of the Office of Foreign Asset Control (“OFAC”)
of the Department of the Treasury (including those named on OFAC’s specially
designated and blocked persons list) or under any statute, executive order
(including the September 24, 2001, Executive Order Blocking Property and
Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or
Support

 

18

 

Terrorism), or other
governmental action and is not and will not engage in any dealings or
transactions or be otherwise associated with such persons or entities.

 

6.3                               Survival
of Representations

 

The representations, warranties and certifications contained in this
Agreement or in any Closing Documents shall not merge on Closing but shall
survive for a period of six (6) months after the Closing Date (the “Survival Period”).  The party which has received a
representation, warranty or certification, whether in this Agreement or in any
Closing Document, shall give written notice to the other party of each breach
of the representation, warranty or certification, together with details
thereof, promptly after becoming aware of the breach .  Notwithstanding any other provision of this
Agreement or of any Closing Document, no claim may be asserted or pursued
against any party hereto, or any action, suit or other proceedings commenced or
pursued, for or in respect of any breach of any representation, warranty or
certification made by such party in this Agreement or in any Closing Document
unless written notice of such claim is received by such party describing in
detail the facts and circumstances with respect to the subject matter of such
Claim on or prior to the last day of the Survival Period, irrespective of
whether the subject matter of such Claim shall have occurred before or after
such date; and upon the expiry of the Survival Period all such representations,
warranties and certifications shall cease to have any effect except to the
extent a written notice of Claim has been previously given in respect thereof
in accordance with this Section.

 

6.4                               Limitations
on Seller’s Representations and Warranties

 

(a)                                  Except
as expressly provided in this Agreement, the Hotel Assets are being sold and
purchased, and the Transaction is to be completed, on an “as is, where is”
basis, at the Purchaser’s entire risk and peril, and without any
representation, warranty or covenant of any nature whatsoever, legal or
conventional.

 

(b)                                 Except
as expressly provided in Section 6.1, the Seller makes no representations
or warranties of any nature whatsoever with respect to any information or
documentation disclosed to the Purchaser, nor with respect to the Hotel Assets
(including, without limitation, the Seller’s title to the Property and any
Encumbrances against the Property), the Hotel or the Hotel Business or the
Transaction including, without limitation, (i) the structural integrity or
any other aspect of the physical condition of the Building or any other Hotel
Assets, (ii) the conformity of the Building or any other Hotel Assets to
any plans or specifications for the Property (including, but not limited to,
any plans and specifications that may have been or which may be provided to the
Purchaser), (iii) the conformity of the Property to past, current or
future applicable zoning or building code requirements or other Applicable
Laws, (iv) the existence of soil instability, past soil repairs, soil
additions or conditions of soil fill for any other matter affecting the
stability or integrity of the Land, or any Building situated on or as part of a
Property, (v) the sufficiency of any drainage, (vi) whether the
Property is located wholly or partially in a flood plain or a flood hazard
boundary or similar area, (vii) the existence or non-existence of
underground storage tanks,

 

19

 

(viii) the availability of
public utilities and services for the Property, (ix) the fitness or
suitability of the Property for occupancy or any intended use (including
matters relating to health and safety and the environment), (x) the potential
for further development of the Property, (xi) the existence of land use, zoning
or building entitlements affecting the Property, (xii) the status of any Hotel
Contracts or Permitted Encumbrances or the financial condition of any present
or prospective tenant of the Property or any contractor or whether any of the
Hotel Permits, Hotel Contracts or Permitted Encumbrances are assignable or in
good standing, or (xiii) the presence of toxic wastes, hazardous materials or
contaminants in, on or about the Property or any other environmental issue or
condition (collectively, the “Property
Conditions”).

 

(c)                                  The
Purchaser hereby unconditionally and irrevocably waives any and all actual or
potential rights or claims the Purchaser might have against the Seller pursuant
to any warranty, express or implied, legal or conventional, of any kind or
type, other than those representations and warranties expressly set forth in Section 6.1,
relating to the Transaction, the Hotel Assets, the Hotel, the Hotel Business or
the Property Conditions.  Such waiver is
absolute, unlimited and includes, but is not limited to, waiver of express
warranties, implied warranties, warranties of fitness for a particular use,
warranties of merchantability, warranties of occupancy, strict liability and
claims of every kind and type, including, but not limited to, claims regarding
defects, whether or not discoverable or latent, product liability claims, or
similar claims, and to all other extant or later created or conceived of strict
liability or strict liability type claims and rights.

 

(d)                                 The
provisions of this Section 6.4 shall survive the Closing or the
termination of this Agreement regardless of the cause of such termination.

 

6.5                               Third
Party Claims

 

(a)                                  In
the case of Claims made by a third party after the Closing (a “Third Party Claim”) against the Seller, the
Purchaser or the Hotel Assets with respect to which the Purchaser or the
Seller, as the case may be, (in this Section 6.5 “Claiming Party”) seeks to make a Claim
against the other party (in this Section 6.5, the “Responding Party”) as a result of, or
arising from or related to, the breach by the Responding Party of any
representation, warranty, certification or covenant made by such Responding
Party in or pursuant to this Agreement or any Closing Document or pursuant to
an indemnity set out in this Agreement or any Closing Documents, the Claiming
Party shall give written notice to the Responding Party of any such Third Party
Claim forthwith after receiving notice thereof. 
If the Claiming Party fails to give such written notice to the
Responding Party, such failure shall not preclude the Claiming Party from
making such claim against the Responding Party, but its right to
indemnification may be reduced to the extent that such delay prejudiced the
defense of the Third Party Claim or increased the amount of liability or the
cost of the defense.

 

20

 

(b)                                 The
Responding Party shall have the right, by written notice to the Claiming Party
given not later than 30 days after receipt of the notice referred to in Section 6.5(a) to
assume the control of the defense, compromise or settlement of the Third Party
Claim.

 

(c)                                  Upon
the assumption of control of any Third Party Claim by the Responding Party as
contemplated by Section 6.5(b), the Responding Party shall diligently
proceed with the defense, compromise or settlement of the Third Party Claim at
its sole expense, including, if necessary, employment of counsel reasonably
satisfactory to the Claiming Party and, in connection therewith, the Claiming
Party shall co-operate fully (but at the expense of the Responding Party with
respect to any reasonable out-of-pocket expenses incurred by the Claiming
Party) to make available to the Responding Party all pertinent information and
witnesses under the Claiming Party’s control, make such assignments and take
such other steps as in the opinion of counsel for the Responding Party, acting
reasonably, are reasonably necessary to enable the Responding Party to conduct
such defense.  The Claiming Party shall
have the right to participate in the negotiation, settlement or defense of any
Third Party Claim at its own expense and no Third Party Claim shall be settled,
compromised or otherwise disposed of without the prior written consent of the
Claiming Party, such consent not to be unreasonably withheld or delayed.  If the Responding Party elects to assume
control of the Third Party Claim as contemplated by Section 6.5(b), the
Claiming Party shall not pay, or permit to be paid, any part of the Third Party
Claim unless the Responding Party consents in writing, such consent not to be
unreasonably withheld, to such payment or unless the Responding Party, subject
to the last sentence of Section 6.5(d), withdraws from the defense of such
Third Party Claim or unless a final judgment from which no appeal may be taken
by or on behalf of the Responding Party is entered against the Claiming Party
in respect of such Third Party Claim.

 

(d)                                 If
the Responding Party fails to give written notice to the Claiming Party as
contemplated by Section 6.5(b), the Claiming Party shall be entitled to make
such settlement of the Third Party Claim, or otherwise deal therewith, as it
deems appropriate, acting reasonably, at the sole cost of the Responding Party,
and such settlement or any other final determination of the claim or demand
shall be binding upon the Responding Party. 
If the Responding Party fails to defend or, if after commencing or
undertaking such defense, fails to prosecute or withdraws from such defense,
the Claiming Party shall have the right to undertake the defense or settlement
thereof, at the sole cost of the Responding Party.  If the Claiming Party assumes the defense of
any Third Party Claim and proposes to settle it prior to a final judgment
thereon or to forego any appeal with respect thereto, then the Claiming Party
shall give the Responding Party prompt written notice thereof, and the
Responding Party shall have the right, by written notice to the Claiming Party
given not later than 10 days after receipt of the notice referred to in this
sentence of Section 6.5, to participate in the settlement or assume or

 

21

 

reassume the defense of such
Third Party Claim, in which event, the preceding provisions of this Section 6.5
shall apply, mutatis mutandis.

 

(e)                                  This
Section 6.5 shall survive the Closing.

 

ARTICLE VII

OPERATION UNTIL
CLOSING

 

7.1                               Operation
Before Closing

 

From the date hereof until Closing, the Seller shall cause the Hotel
Assets and the Hotel Business to be operated as at present.

 

7.2                               Damage
Before Closing

 

The Hotel Assets shall be at the risk of the Seller until the Closing
Date.  If loss or damage to the Hotel
Assets occurs at any time prior to Closing, then:

 

(a)                                  if
such loss or damage is of such a nature and to such an extent that the cost of
repair or restoration, in the opinion of the Seller’s independent architect or
engineer, will exceed an amount in aggregate equal to FIVE MILLION DOLLARS
($5,000,000) (“Substantial Damage”),
then the Purchaser may by notice to the Seller within seven Business Days after
it receives written notice of the occurrence of such Substantial Damage, elect
to terminate this Agreement, in which case, the Deposit and any accrued
interest thereon shall be paid to Purchaser; and

 

(b)                                 if
such loss or damage does not constitute Substantial Damage, or does constitute
Substantial Damage but the Purchaser has elected not to exercise its right of
termination,  then neither party shall
have any right to terminate this Agreement by virtue thereof, the Purchaser
shall be entitled to all proceeds of insurance in respect of such loss or
damage (except insofar as such proceeds relate to lost income on or before the
Closing Date which shall be entirely the property of the Seller), and the
parties shall complete the Transaction, provided that the Purchase Price shall
be reduced by an amount equal to the deductible under the applicable property
insurance, if the Seller has not already paid the deductible, and uninsured
losses, if any.

 

The Seller has delivered to the Purchaser a certificate or certificates
of insurance setting out the property coverage for the Hotel Assets, which
shall be for full replacement cost, subject to deductibles.  The Seller covenants with the Purchaser that
the Seller will, from the Execution Date to the Closing Date, maintain such
Existing Insurance over the Hotel Assets. 
If the damage or destruction occurs at such time that there is
insufficient time for the Purchaser to make its election hereunder, the Closing
Date shall be postponed to a date which is five Business Days after the last day
of the period for the Purchaser’s election, or if such date is not a Business
Day, then the next Business Day thereafter.

 

22

 

7.3                               Leasing
and Hotel Contracts

 

(a)                                  The
Seller agrees that it shall not enter into any new Lease or Hotel Contract
(other than Room Reservations, including advance group bookings, in a
manner consistent with the Hotel Business as operated at present) without the
prior approval of the Purchaser, acting reasonably, unless such Lease or Hotel
Contract may be terminated by Seller as of a date prior to the Closing
Date.  Such approval must be given by the
Purchaser within three Business Days following request for such approval, which
request shall include a copy of the proposed new Lease or Hotel Contract.

 

(b)                                 The
Seller agrees that it shall not amend, terminate, or voluntarily accept a
surrender of, any Lease or Hotel Contract (other than Room Reservations or
Hotel Contracts which are not to be assumed by Purchaser), or release any Person
from its liability under its Hotel Contract (other than Room Reservations
or Hotel Contracts which are not to be assumed by Purchaser) without the prior
written approval of the Purchaser, acting reasonably. Such approval of the
Purchaser must be given within three Business Days following request therefore
which request shall include a copy of the proposed amendment, termination or
surrender.

 

(c)                                  Seller
agrees to use commercially reasonable efforts to obtain, prior to the Closing
Date,  an estoppel certificate from the
City of Scottsdale indicating that the Patio Lease is in full force and effect,
has not been amended and that no default by tenant exists thereunder.

 

7.4                               Assignment
of Hotel Contracts and Hotel Permits

 

(a)                                  Provided
that Seller shall obtain any necessary consents, Seller shall assign to
Purchaser, and Purchaser shall assume from Seller, all the Hotel Contracts set
forth on Schedule ”E” annexed hereto and made a part hereof; provided,
however:

 

(i) with
respect to the first three (3) elements of the Valley Leasing equipment
lease identified on Schedule 1 to Schedule ”E” known as
Micros-Fidelio-Opera (i.e., Software Licenses, Implementation and System
Maintenance, and having an initial value of $275,499 as follows: Software
Licenses-$117,288, Implementation-$109,990, and System Maintenance-$48,171)
(collectively, ‘Micros”), there shall be a reduction of the Purchase Price
equal to 50% of the present value of the Micros as of the Closing Date and the
Micros element shall be retained by Seller for its use or disposal;

 

(ii) with
respect to the NXTV contract identified on Schedule 2 to Schedule ”E”,
Purchaser may elect prior to the Closing for such contract to be terminated,
and in such event, there shall be a reduction of the Purchase Price in an
amount equal to 50% of the termination fee set forth in the NXTV contract or
such lower fee as can be negotiated by Seller and/or Purchaser, it being agreed
that both Seller and Purchaser shall cooperate to try and negotiate the lowest
termination fee of the NXTV contract; and in

 

23

 

the event the NXTV contract is
so terminated, any equipment relating to the NXTV contract shall be retained by
Seller for its use and disposal to the extent permitted by NXTV; and

 

(iii) 
with respect to each of the equipment leases set forth on Schedule 1 to Schedule ”E”
that is guaranteed by Donato Errico and/or Stephen Hanson, Purchaser shall
cause Morgans Hotel Group, LLC as of the Closing Date to, at Seller’s election,
either act as a substitute guarantor or, alternatively, be a back up guarantor
to Donato Errico and/or Stephen Hanson, as the case may be. If Seller elects
for Morgans Hotel Group, LLC to be the substitute guarantor but the
substitution cannot be completed as of the Closing Date due to the applicable
lessor, then Morgans Hotel Group, LLC will provide a back up guaranty until
such time as the substitution is completed.

 

(b)                                 Nothing
in this Agreement shall be construed as an assignment of, or an attempt to
assign to the Purchaser, any Hotel Contract or Hotel Permit which is (i) not
assignable, or (ii) not assignable without the approval or consent of the
other party or parties thereto, without first obtaining such approval or
consent (collectively “Non-Assignable Rights”).  The Purchaser shall apply for and use all
reasonable efforts, at its own cost, to obtain all necessary consents or
approvals in respect of any Hotel Contracts and Hotel Permits which the
Purchaser wishes to have assigned to it and the Seller shall not have any
responsibility to obtain such consents or approvals but will cooperate with the
Purchaser in this regard. 
Notwithstanding anything contained in this Agreement to the contrary,
and without limiting the generality of the foregoing, the Seller shall not be
required to spend any monies to obtain any such approval or consent and the
failure to obtain any such approval or consent shall not constitute a default
on the part of the Seller nor shall such failure entitle the Purchaser to
terminate this Agreement or to any other remedy whatsoever.

 

(c)                                  The
Seller shall, if requested by the Purchaser, co-operate with the Purchaser in
any reasonable and lawful arrangements designed to provide the benefits of such
Non-Assignable Rights to the Purchaser (including without limitation, holding
any such Non-Assignable Rights in trust for the Purchaser or acting as agent
for the Purchaser), provided that such arrangements shall terminate no later
than the 180th day after the Closing Date and that the Purchaser shall
fully indemnify the Seller in respect of any and all costs and liabilities
incurred by the Seller and arising from such arrangements.

 

(d)                                 Nothing
in this Agreement shall be construed as an assignment of the Liquor License or
attempt to transfer the Liquor License to the Purchaser.  Forthwith after the date hereof, the
Purchaser will promptly execute and file with the applicable Governmental
Authority an application for the issuance of a new liquor license for the
Hotel.  Simultaneously with the filing of
the application for a new liquor license for the Hotel, the Purchaser shall
file with the applicable Governmental Authority an application for a temporary
liquor license allowing the Purchaser to continue the operation of the Hotel
during the period the

 

24

 

application for a new liquor
license is pending.  The Purchaser
specifically acknowledges and agrees that should the application for a new
liquor license to the Purchaser, at any time be temporarily or finally denied
or delayed for any reason, such denial or delay shall not affect in any manner
whatsoever the obligations of the parties under this Agreement, and the Closing
shall take place without delay or interruption.

 

(e)                                  For
greater certainty, it is confirmed that the Seller is not making any
representations or warranties to the Purchaser that any Hotel Contracts and/or
Hotel Permits are assignable to the Purchaser or that the Purchaser will be
successful in obtaining its own liquor license for the Hotel. There are no
conditions in favor of the Purchaser with respect to Hotel Contracts, the Hotel
Permits or the Liquor License being assignable to the Purchaser .

 

7.5                               Employees

 

(a)                                  From
the date hereof until the date which shall be eighteen (18) months after the
Closing Date, Seller shall not solicit any Employee to work for Seller outside
of the Hotel.  The provisions of this subsection 7.5(a) shall
survive the Closing.

 

(b)                                 The
parties shall adjust on Closing for all unpaid wages, salaries, bonuses, profit
sharing entitlement, earnings, bonuses (but only to the extent Seller is
contractually obliged to provide same), 
monies, remittances, assessments, benefit plan contributions, vacation
pay, sick pay and other monetary obligations which, pursuant to Applicable Laws
or other contracts (including oral contracts) with the Employees, are due or
accruing due to the Employees as of the Closing Date.  The Purchaser shall pay and be responsible
for all such amounts which accrue due to the Employees after the Closing
Date.  The Seller shall pay and be
responsible for all such amounts which shall accrue to employees prior to the
Closing Date.

 

(c)                                  The
Purchaser shall indemnify and save harmless the Seller and its shareholders,
directors, officers, employees and agents from any and all Claims relating to
the period from and including the Closing Date incurred, suffered or sustained,
whensoever or howsoever arising, in respect of or relating to any of the
Employees (including, without limitation, Claims against the Seller by any and
all Employees claiming that any variations in the terms of employment -
including, without limitation, compensation and job function - as of or after
Closing constitute or constituted a constructive dismissal by the Purchaser of
such Employees).  The Seller shall
indemnify and save harmless the Purchaser and its shareholders, directors,
officers, employees and agents from any and all Claims relating to the period
prior to the Closing Date (but not any time after such period) incurred, suffered
or sustained, whensoever or howsoever arising, in respect of or relating to any
of the Employees, or that relate to or arise out of Claims by Employees
claiming that any variations in the terms of employment - including, without
limitation, compensation and job function - as of or after Closing constitute
or constituted a constructive dismissal of such Employees.  The

 

25

 

provisions of Section 6.5
of this Agreement shall be applicable to the foregoing indemnities.

 

(d)                                 The
Purchaser acknowledges and agrees that: (i) the Seller makes no
representation or warranty that any Employees will continue their employment
with the Purchaser; and (ii) the willingness of the Employees to continue
their employment shall not constitute a condition to the Purchaser’s obligation
to complete the Transaction.

 

(e)                                  The
Purchaser and its representatives shall not communicate with any Employees of
the Seller without the prior approval of the Seller (which approval shall not
be unreasonably withheld or delayed provided Seller is afforded the opportunity
to have a representative present) and thereafter such communication shall, if
the Seller so requires, take place with a representative of the Seller present.

 

(f)                                    By
3:00 p.m. on the Business Day prior to the Closing Date, the Seller shall
provide the Purchaser with an updated List of Employees.

 

(g)                                 The
Seller may, without the consent of the Purchaser, but with notice to Purchaser,
hire additional employees (the “Approved
Additional Employees”) to replace any Employees who are terminated
by the Seller or who voluntarily terminate their employment with the Seller
during such period of time, provided that any Approved Additional Employee will
be hired on no more favorable terms and conditions of employment, including,
without limitation, salary and benefits, than were applicable to the Employee
being replaced by the Approved Additional Employee and that after the third
Business Day prior to the Closing Date the Seller shall not hire any additional
Employees unless such additional Employees can be terminated without cause on
thirty (30) days’ notice or less.

 

(h)                                 At
the election of Purchaser made to Seller in writing, Seller shall terminate all
of the Employees as of the Closing Date. 
In such event (i) Purchaser will offer employment to a sufficient
number of the Employees in a manner such that the actions of the parties
pursuant to this Agreement will not trigger the application of the Worker
Adjustment and Retraining Notification Act (or similar local or state laws or
regulations) (collectively, the “WARN Act”);
(ii) Purchaser will notify Seller at least seven (7) days prior to
the Closing Date of the Employees to whom Purchaser will not offer employment; (iii) Purchaser
shall have no responsibility for wages, benefits or vacation time (including
personal days) which accrued or arose prior to the Closing with respect to the
Employees, all of which Seller shall pay and satisfy or cause to be paid and
satisfied at Closing; (iv) Seller shall not be responsible for COBRA
liability or other termination liability for the Employees to whom Purchaser
does not offer employment or that do not accept positions with Purchaser; (v) Purchaser
shall be responsible for COBRA liability any other termination liability for
the Employees to whom Purchaser does not offer employment or that do not accept
positions with Purchaser.

 

26

 

(i)                                     The
provisions of this Section 7.5 shall survive Closing.

 

7.6                               Trade-Marks
and Other Intellectual Property Rights

 

All right, title and interest of the Seller in and to all of its
existing and future trade-marks, trade-names, logos, commercial symbols,
business names, internet domain names, copyrights, patents, trade secrets or any
other intellectual or industrial property rights are hereby specifically
reserved and excluded from the Hotel Assets, notwithstanding any other
provision of this Agreement, including the definitions.  The Purchaser further acknowledges that it is
not acquiring any rights of any nature whatsoever to or in respect of (1) the
“James Hotel” or “Fiamma” or “J Bar” or “The Gym” or trade-marks, trade-names,
logos, commercial symbols, business names and any other property whatsoever
owned by James Hotels or BR Guest or any of its successors or assigns or (2) any
signage containing any of the foregoing.  
The provisions of this Section 7.6 shall survive Closing.

 

7.7                               Change
of Circumstances

 

For greater certainty, it is agreed that no defaults by any Persons
under any Permitted Encumbrances or Hotel Contracts (including, without
limitation, any bankruptcy or event of insolvency, other than with respect to
the Seller) or repudiation or termination thereof, or proceeding for relief
therefrom, at any time, and no other change adverse to the Hotel, the Hotel
Business, the Hotel Assets or the Property or their value at any time other
than a change caused by the willful default of the Seller shall entitle the
Purchaser to any right or remedy whatsoever. 
The foregoing does not relieve, however, the Seller from the
consequences of any breach by the Seller of its representations, warranties or
covenants set out in this Agreement.

 

7.8                               Hotel
FF&E and Hotel Inventory

 

From the date hereof until Closing, the Seller will:

 

(a)                                  Subject
to reasonable wear and tear, maintain and repair the Hotel FF&E, subject to
additions and replacements in the ordinary course of the Hotel Business; and

 

(b)                                 maintain
Hotel Inventory at a level approximately equal to the level maintained by the
Seller prior to Closing.

 

It is confirmed that the Hotel Inventory are subject to disposition and
replacement in the ordinary course of the Hotel Business prior to Closing,
provided the Seller complies with Section 7.8(b).

 

7.9                               Purchaser’s
Access to Hotel

 

Between the date hereof and the Closing Date, Purchaser shall have the
right, at reasonable times and upon reasonable notice, and subject to rights of
guests, to (i) have access to the Hotel and the Hotel records, in the
presence of an employee designated by Seller, for the purpose of preparing for
the transition in ownership, although such preparation may not entail any
physical destruction or construction, (ii) interview, in the presence of
an employee

 

27

 

designated by Seller, current employees of
the Hotel and (iii) ”shadow” the Manager of the Hotel;  that is, work with the Manger for the purpose
of understanding Hotel operations.

 

ARTICLE VIII

GENERAL

 

8.1                               Gender
and Number

 

Words importing the singular include the plural and vice versa.  Words importing gender include all genders.

 

8.2                               Captions

 

The caption and headings contained herein are for reference only and in
no way affect this Agreement or its interpretation.

 

8.3                               Obligations
as Covenants

 

Each agreement and obligation of any of the parties hereto in this
Agreement, even though not expressed as a covenant, is considered for all
purposes to be a covenant.

 

8.4                               Applicable
Law

 

This Agreement shall be construed and enforced in accordance with the
laws of the State of New York applicable thereto.  The parties agree to attorn to the exclusive
jurisdiction of the courts of New York for any dispute arising during the
effective period of this Agreement or which arise as a result of the
Transaction contemplated by this Agreement.

 

8.5                               Currency

 

All reference to currency in this Agreement shall be deemed to be
reference to United States dollars.

 

8.6                               Invalidity

 

If any immaterial covenant, obligation, agreement or part thereof or
the application thereof to any Person or circumstance, to any extent, shall be
invalid or unenforceable, the remainder of this Agreement or the application of
such covenant, obligation or agreement or part thereof to any Person, party or
circumstance other than those to which it is held invalid or unenforceable
shall not be affected thereby.

 

8.7                               Amendment
of Agreement

 

No supplement, modification, waiver or termination (other than a
termination pursuant to the terms of this Agreement) of this Agreement shall be
binding unless executed in writing by the parties hereto in the same manner as
the execution of this Agreement.

 

28

 

8.8                               Time

 

Time shall be of the essence of this Agreement.  If anything herein is to be done on a day
which is not a Business Day, the same shall be done on the next succeeding
Business Day.  Unless otherwise provided
herein, all references to time shall mean Eastern Standard Time.  Further Assurances

 

Each of the parties hereto shall from time to time hereafter and upon
any reasonable request of the other, execute and deliver, make or cause to be
made all such further acts, deeds, assurances and things as may be required or
necessary to more effectually implement and carry out the true intent and
meaning of this Agreement.

 

8.9                               Entire
Agreement

 

This Agreement and any agreements, instruments and other documents
herein contemplated to be entered into between, by or including the parties
hereto constitute the entire agreement between the parties hereto pertaining to
the agreement of purchase and sale provided for herein and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, with respect thereto, and there are no other warranties or
representations and no other agreements between the parties hereto in
connection with the agreement of purchase and sale provided for herein except
as specifically set forth in this Agreement.

 

8.10                        Waiver

 

No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provision (whether or not similar) nor
shall any waiver constitute a continuing waiver unless otherwise expressed or
provided.

 

8.11                        Attorneys
as Agents and Tender

 

Any notice, approval, waiver, agreement, instrument, document or
communication permitted, required or contemplated in this Agreement may be
given or delivered and accepted or received by the Purchaser’s Attorneys on
behalf of the Purchaser and by the Seller’s Attorneys on behalf of the Seller
and any tender of Closing Documents and the Balance may be made upon the Seller’s
Attorneys and the Purchaser’s Attorneys, as the case may be.

 

8.12                        Successors
and Assigns

 

All of the covenants and agreements in this Agreement shall be binding
upon the parties hereto and their respective successors and assigns and shall
enure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns.

 

8.13                        Real
Estate Commissions

 

Each of Seller and Purchaser represents to the other that it has had no
dealings, negotiations, or consultations with any broker, representative,
employee, agent or other intermediary in connection with the Agreement or the
sale of the Property other than Larry

 

29

 

Russo, whom shall be paid by Purchaser
pursuant to a separate agreement.  Seller
and Purchaser agree that each will indemnify, defend and hold the other free
and harmless from the claims of any broker(s), representative(s), employee(s),
agent(s) or other intermediary(ies) other than Larry Russo, whom shall be paid
by Seller pursuant to a separate agreement, claiming to have represented Seller
or Purchaser, respectively, or otherwise to be entitled to compensation in
connection with this Agreement or in connection with the sale of the Property.

 

8.14                        Notice

 

Any notice, demand, approval, consent, information, agreement, offer,
payment, request or other communication (hereinafter referred to as a “Notice”) to be given under or in connection
with this Agreement shall be in writing and shall be given by delivery or by
telecopier or other electronic communication which results in a written or
printed notice being given, addressed or sent as set out below or to such other
address or electronic number as may from time to time be the subject of a
Notice:

 

(a)                                  Purchaser:

 

Morgans Hotel Group LLC

475 Tenth Avenue

New York, New York 10018

Attention:  Marc Gordon

Fax:                           (212)
277-4270

 

with a copy to:

 

McDermott Will & Emory LLP

50 Rockefeller Plaza

New York, New York 10020

Attention:  Keith M. Pattiz, Esq.

Fax:                           (212)
547-5444

 

To the Seller:

 

James Hotel Scottsdale, LLC
c/o James Hotels

206 Spring Street

New York, New York 10012

Attention:

Fax:

 

and with a copy to:

 

Herrick, Feinstein LLP

2 Park Avenue

New York, New York 10016

 

30

 

Attention:                                         Jeffrey
H. Kaufman, Esq.

Fax:                           212-545-3345

 

or to any other address that a party has notified the other parties in
the foregoing manner.

 

Any Notice, if delivered, shall be deemed to have been validly and
effectively given and received on the date of such delivery and if sent by
telecopier or other electronic communication with confirmation of transmission,
shall be deemed to have been validly and effectively given and received on the
Business Day next following the day it was received.

 

8.15                        No
Registration of Agreement

 

The Purchaser shall not record this Agreement, or any memorandum of
this Agreement, on or against title to the Land.  Breach of this provision shall constitute a
fundamental breach of this Agreement.

 

8.16                        Counterparts

 

This Agreement may be executed in counterparts and by the facsimile
transmission of an originally executed document.

 

8.17                        Survival

 

Except as otherwise expressly provided in this Agreement, no
representations, warranties, covenants or agreements of the Seller and
Purchaser in this Agreement shall survive the Closing.  This provision survives the Closing.

 

8.18                        Conflicts
between Agreement and Closing Documents

 

In the event of any conflict or inconsistency between the provisions of
this Agreement and any Closing Document or Closing Documents, the provisions of
this Agreement shall prevail in all respects. 
This provision shall survive Closing.

 

8.19                        Assignment

 

Purchaser shall not assign its rights hereunder without Seller’s prior
written consent, which may be granted or withheld in Seller’s sole
discretion.  Notwithstanding the
foregoing, Purchaser, without the prior consent of Seller, may (i) assign
this Agreement to any of Purchaser’s Affiliates, and/or (ii) designate an
entity to accept title to the Property as Purchaser’s designee hereunder.

 

8.20                        Confidentiality

 

Purchaser and Seller agree to be bound by the Confidentiality
Agreement, which shall survive the Closing.

 

31

 

8.21                        Like-Kind
Exchange

 

Seller may consummate the sale of the Property as part of a so-called
like kind exchange (“Exchange”)
pursuant to §1031 of the Internal Revenue Code (the “Code”),
and Seller is expressly entitled to assign its rights hereunder to an affiliate
of Seller and/or to a Qualified Intermediary as provided in the Code and the
Treasury Regulations promulgated thereunder, on or before the Closing Date,
provided that Seller shall remain liable for all of its obligations under this
Agreement, including those which survive Closing.  Purchaser agrees that it shall execute and
deliver to Seller or to the Qualified Intermediary at or prior to the Closing
any and all documents reasonably required or requested by Seller or the
Qualified Intermediary to complete such Exchange.

 

8.22                        Transition

 

Transition in ownership will be in accordance with the agreement
annexed hereto and made a part hereof as Schedule K.

 

8.23                        Litigation

 

Seller shall cause the litigation set forth on Schedule ”H”
annexed hereto to be dismissed or bonded prior to the Closing Date.

 

 

IN WITNESS WHEREOF
the parties hereto have executed this Agreement by their properly authorized
signatories in that behalf as of the day and year first above written.

 

 

	
   

  	
   

  	
  JAMES HOTEL SCOTTSDALE, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  I am authorized to bind the Seller.

  
					

 

32

 

	
   

  	
   

  	
  MORGANS HOTEL GROUP LLC

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  I am authorized to bind the Purchaser.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  The undersigned are executing this
  Agreement of Purchase and Sale for the sole purpose of guaranteeing to the
  Purchaser any obligation Seller may have pursuant to the terms of this
  Agreement of Purchase and Sale to return the Deposit and/or interest earned
  thereon, to Purchaser

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Donato Errico

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Stephen Hanson

  	
   

  
								

 

 

33

 

 

Schedule “A”

 

LEGAL DESCRIPTION OF LAND

 

PARCEL NO. 1:

 

Lot A, SCOTTSDALE MALL, a subdivision
recorded in Book 170 of Maps, page 2, records of Maricopa County, Arizona:

 

EXCEPT the following described property
identified as Parcel A and Parcel B as follows:

 

PARCEL “A”:

 

That parcel of real property conveyed to the
City of Scottsdale in instrument recorded August 28, 1985 in Recording No. 85-407038
and more particularly described as follows:

 

COMMENCING at the Northeast corner of the
Northwest quarter of the Northwest quarter of Section 26, Township 2
North, Range 4 East of the Gila and Salt River Base and Meridian, Maricopa
County, Arizona;

 

thence North 89 degrees 45 minutes 50 seconds
West, a distance of 30.00 feet along the North section line of said Section 26;

 

thence South 00 degrees 07 minutes 52 seconds
West, a distance of 65.00 feet to a point on the West right-of-way of Civic
Center Plaza, said point being the TRUE POINT OF BEGINNING;

 

thence South 00 degrees 07 minutes 52 seconds
West, a distance of 267.60 feet along said right-of-way;

 

thence North 02 degrees 24 minutes 17 seconds
West, a distance of 70.51 feet;

 

thence North 00 degrees 05 minutes 47 seconds
East, a distance of 200.41 feet;

 

thence South 44 degrees 48 minutes 59 seconds
East, a distance of 4.59 feet to the TRUE POINT OF BEGINNING.

 

PARCEL “B”:

 

That parcel of real property Quit-Claimed to
the City of Scottsdale in instrument recorded September 9, 1985 in
Recording No. 85-444862 and more particularly described as follows:

 

The East 10 feet of the North 10.03 feet of
the South 255.09 feet of Lot A Scottsdale Mall.

 

TOGETHER WITH the East 14 feet of the North
182.59 feet to the South 245.06 feet of Lot A Scottsdale Mall.

 

TOGETHER WITH the East 25 feet of the South
62.47 feet of Lot A Scottsdale Mall.

 

 

SCHEDULE “B”

 

FORM OF ASSIGNMENT AND ASSUMPTION OF
HOTEL CONTRACTS

 

AGREEMENT made as of
the • day of •, 2006.

 

B E T W E E N:

 

JAMES HOTEL SCOTTSDALE, LLC,

An Arizona limited liability
company

(hereinafter referred to as the “Assignor”),

 

 

– and –

 

 

MORGANS
HOTEL GROUP LLC,

A Delaware limited liability
company,

 

(hereinafter referred to as the
“Assignee”).

 

WHEREAS the Assignor, and Assignee have entered into an agreement of
purchase and sale made as of November , 2005 (such agreement, as amended,
supplemented and/or restated to the date hereof, the “Purchase Agreement”);

 

AND WHEREAS pursuant to the Purchase Agreement, the Assignor has agreed
to execute and deliver this assignment of its interest in the Assigned Hotel
Contracts (as defined below);

 

NOW THEREFORE in consideration of the mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
covenant and agree as follows:

 

1.             Definitions.  Unless otherwise defined herein, all
capitalized terms used in this agreement (this “Agreement”) shall have the
respective meanings ascribed to them in the Purchase Agreement.

 

2.             Assignment.  The Assignor hereby assigns absolutely and
transfers unto the Assignee all of the Assignor’s right, title and interest in,
to and under all Hotel Contracts listed or described on Schedule “A”
hereto and also all Room Reservations in force as of the date hereof not
listed on Schedule “A” hereto (collectively, the “Assigned Hotel
Contracts”).

 

3.             Assumption and Indemnity.  The Assignee hereby accepts the assignment
and transfers contained in Section 2 hereof and covenants and agrees with
the Assignor that, from and after the date hereof, the Assignee will observe,
perform and fulfill each and every covenant, proviso, obligation, term and
condition of, or applicable to, the Assignor under the Assigned Hotel Contracts
that is applicable at any time from and including the date of this Agreement.  The

 

 

Assignee hereby agrees to fully indemnify and
save harmless the Assignor from and against any and all liabilities, damages,
costs, expenses, causes of action, suits, claims and judgments arising from or
in connection with, or resulting from, any breach by the Assignee of its
obligations hereunder and/or any act or omission of the Assignee or those for
whom the Assignee is legally responsible with respect to the Assigned Hotel
Contracts.

 

4.             Indemnity by Assignor.  The Assignor hereby agrees to fully indemnify
and save harmless the Assignee from and against any and all liabilities,
damages, costs, expenses, causes of action, suits, claims and judgments arising
from or in connection with, or resulting from, any breach by the Assignor of
its obligations under the Assigned Hotel Contracts at any time prior to Closing
and/or any act or omission of the Assignor or those for whom the Assignor is
legally responsible with respect to the Assigned Hotel Contracts at any time
prior to the Closing.

 

5.             Successors and Assigns.  This Agreement shall enure to the benefit of
and shall be binding upon the parties hereto and their respective successors
and assigns.

 

6.             Governing Law.  This Agreement shall be construed and
enforced in accordance with the laws of the State of New York applicable
therein .

 

7.             Counterparts.  This Agreement may be executed in several
counterparts and by facsimile transmission of an originally executed document,
each of which shall be deemed to be an original, and all such counterparts
shall constitute one and the same instrument.

 

8.             Headings, Extended Meanings.  The headings in this Agreement are inserted
for convenience of reference only and shall not constitute a part hereof and
are not to be considered in the interpretation hereof.  In this Agreement, words importing the
singular include the plural and vice versa; words importing the masculine
gender include the feminine and vice versa; and words importing persons include
firms or corporations and vice versa.

 

3

 

IN WITNESS WHEREOF the parties have executed this Agreement as of the
date first mentioned.

 

 

	
   

  	
   

  	
  JAMES
  HOTEL SCOTTSDALE, LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
  MORGANS
  HOTEL GROUP LLC

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  

 

 

SCHEDULE “C”

 

INTENTIONALLY OMITTED

 

 

SCHEDULE “D”

 

LIST OF CERTAIN PERMITTED ENCUMBRANCES

 

GENERAL

 

1.             Encumbrances
for real property taxes (which term consists of municipal taxes, school taxes
and surtax) or charges for electricity, power, gas, water and other services
and utilities in connection with the Property that (i) have accrued but
are not yet due and owing or, if due and owing, are adjusted for pursuant to Section 3.3,
or (ii) the validity of which is being contested in good faith.

 

2.             Any
subsisting restrictions, reservations, limitations, provisos, exceptions or
conditions (including, with limitation, royalties, reservation of mines,
mineral rights and timber rights, access to navigable waters and similar
rights) of record.

 

3.             All
Short Term Leases and all Existing Hotel Contracts (including those amended or
restated in accordance with Section 7.3 of the Agreement) and Approved
Hotel Contracts and registered notices, memorials or other registrations with respect
to such Hotel Contracts.

 

4.             Second
installment of 2005 taxes, a lien, payable on or before March 1, 2006, and
delinquent May 1, 2006.

 

5.             Reservations
or Exceptions in Patents, or in Acts authorizing the issuance thereof.

 

6.             Water
rights, claims or title to water, whether or not shown by the public records.

 

7.             Restrictions,
dedications, conditions, reservations, easements and other matters shown on the
plat of Scottsdale Mall, as recorded in Plat Book 170 of Maps, Page(s) 2, but
deleting any covenant, condition or restriction indicating a preference,
limitation or discrimination based on race, color, religion, sex, handicap,
familial status or national origin to the extent such covenants, conditions or
restrictions violate 42 USC 3604(c).

 

8.             An
easement for underground public utilities and incidental purposes in the
document recorded as Docket 10917, Page 141 of Official Records.

 

9.             An
easement for underground public utilities and incidental purposes in the
document recorded as Docket 10917, Page 143 of Official Records.

 

10.           An
easement for public pedestrian and incidental purposes in the document recorded
as Docket 10917, Page 145 of Official Records.

 

11.           An
easement for fire hydrants, water meters and underground public utilities and incidental
purposes in the document recorded as Docket 11046, Page 772 of Official Records.

 

 

12.           Any
facts, rights, interests or claims that may exist or arise by reason of the
following matters disclosed by an ALTA/ACSM survey made by Gene C. Harrison, II
on January 31, 2005, designated Job Number 22762.

 

13.           The
rights of parties in possession by reason of any unrecorded lease or leases or
month to month tenancies affecting any portion of the within described
property.

 

 

SCHEDULE “E”

 

HOTEL CONTRACTS TO BE ASSUMED

 

A.            All
equipment leases (the “Equipment Leases”), as shown in Schedule “1”
annexed hereto and made a part hereof.

 

B.            All
Hotel Contracts set forth on Schedule “2” annexed hereto and made a part
hereof, provided, however, that notwithstanding the foregoing,  Seller shall, within 10 business days of
request therefor by Purchaser, give written notice of termination with respect
to any Hotel Contract which is identified on Schedule “2” as terminable.
If Purchaser shall have given Seller sufficient time to terminate a Hotel
Contract (after giving effect to the 10 day business day written notice
period), Purchaser shall not assume such Hotel Contract. Notwithstanding the
foregoing, if Purchaser shall have not given Seller sufficient time to
terminate a Hotel Contract (after giving effect to the 10 business day written
notice period) prior to the Closing Date, Seller will send the termination
notice but Purchaser shall assume such Hotel Contract for the period between
the Closing Date and the effective date of termination of such Hotel Contract.

 

C.            Any
Hotel Contracts, including, in particular, any “distribution contracts” which
are not otherwise set forth in this Schedule E and which are identified by
Purchaser, on or before March 25, 2006, as contracts which (i) are
assignable, (ii) extend in term beyond the Closing Date and (iii) are
contracts which Purchaser has advised Seller it wants to assume.

 

 

SCHEDULE 1 TO SCHEDULE E

 

EQUIPMENT LEASES

 

(SEE ATTACHED)

 

9

 

SCHEDULE 2
TO SCHEDULE E

 

ALL HOTEL CONTRACTS

 

(SEE ATTACHED)

 

 

SCHEDULE “F”

 

	
  Land:

  	
   

  	
  $

  	
  10,000,000

  	
   

  
	
  Building:

  	
   

  	
  $

  	
  32,350,000

  	
   

  
	
  Goodwill

  	
   

  	
  $

  	
  1,965,000

  	
   

  
	
  FF&E (including computer equipment):

  	
   

  	
  $

  	
  1,400,000

  	
   

  
	
  Land
  Improvements

  	
   

  	
  $

  	
  650,000

  	
   

  
						

 

 

SCHEDULE “G”

 

ROOM RESERVATIONS

 

(SEE ATTACHED)

 

 

SCHEDULE “H”

 

LITIGATION

 

1.               James vs. Howard S.
Wright Construction Corporation (“HSW”):

 

James had a signed construction contract to
receive delivery of the hotel by January 10, 2004.  Due to the failure of James’ general
contractor, HSW, the property was not delivered on January 10th.  As a result, James withheld payment, and is
seeking to fulfill its contractual liquidated damages rights against HSW.  Both James and HSW are currently deposing
various people in preparation for trial or settlement.

 

2.               James vs. Extreme
Clean Ltd.

 

Upon the opening of James – Scottsdale, James
hired Extreme Clean to provide ongoing cleaning services in the lobby
areas.  Without a signed contract,
Extreme Clean billed James almost double the going market rate for its
services.  James refused to pay and is
currently litigating over the amount owed for four months of lobby cleaning
services.

 

 

SCHEDULE “I”

 

EMPLOYEES

 

(SEE ATTACHED)

 

 

SCHEDULE “J”

 

INSURANCE

 

(SEE ATTACHED)

 

 

SCHEDULE K

 

Transition

 

Transition cooperation agreement

 

James Hotels agrees to cooperate to make a smooth
transition post closing.

 

To allow for a smooth transition, from the closing
date until and through May 31, 2006, James shall allow Morgans the use of
all of the James or BR Guest names, trademarks and logos used by James Hotels
in connection with the operation of the hotel, including, without limitation,
the names “James Scottsdale”, “J Bar” and “The Gym”.  During this time Morgans will make their best
effort to avoid any situation that would cause damage to the James name and
will communicate to guests via verbiage agreed to by both parties that the
James Scottsdale is no longer associated with the James brand or James Chicago.

 

James will provide switch letters for each GDS
thirty days prior to the closing date allowing Travel Click to transfer all
property GDS codes to MHG and their chain code. 
While MHG will not have access to the James name after May 31,
2006, MHG will inherit all property specific GDS codes. . James will cooperate
fully in this effort, but is not able to guarantee that Travel Click will be
able to accommodate this request and Travel Click may charge fees to Morgans
which James can not anticipate nor is James responsible for any such fee or the
inability of Travel Click to meet Morgans needs.

 

James will turn over all information related to
reservations on the books, all transient account contracts in effect and all
future group and banquet contracts and information to Morgans upon closing.

 

Morgans will have sole use of the hotel phone
numbers 480.308.1100 and 480.308.1111, but will not receive use of any James
toll free numbers. James will transfer Scottsdale specific calls to the hotel
through May 31, 2006.  Following May 31,
2006, James will use best efforts in giving callers inquiring about James
Scottsdale the appropriate number for reservations.

 

James will not forward any URLs or web inquiries to
Morgans.

 

BR Guest restaurants will enter into a management
agreement with Morgans to operate the hotel restaurant post closing, under the
current Fiamma name for a maximum of 6 months, based on Morgans’ need, at a fee
of 5% of gross revenue under management. BRG and James will not be liable for
any expenses or losses of the operation during this period. During this period
BR Guest will work to the best of their ability to maintain all operations of
the restaurant while assisting as needed with the transition needs of an
outside restaurant operator to be named by Morgans. At the conclusion of the
management agreement Morgans agrees that BR Guest will remove proprietary
systems and related data and such information will not be shared with a third
party restaurant operator. It is understood that BR Guests may not be able to
hold onto the staff due to the transitional period unless Morgans makes
arrangements to keep such staff and Morgans will be responsible for recruiting
and hiring if turnover does occur.

 

16

 

After the expiration of the respective transition
periods for hotel and restaurant noted above, Morgans agrees not to use any of
the James or BR Guest names, trademarks or logos in the operation of the hotel.

 

In exchange Morgans agrees that they will not
announce the purchase of James until after February 28, 2006 or a date
agreed to by James and at no time will Morgans announce the purchase price
publically.  Notwithstanding the
foregoing, it is understood that, prior to February 28, 2006, the sale of
the hotel to Morgans may be incorporated in documents that are available to the
public as part of the process of Morgans filing for an IPO.

 

17

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