Document:

Exhibit 10.4

HOTEL MANAGEMENT AGREEMENT

DATED AS OF AUGUST       , 2006

BETWEEN

1100 WEST PROPERTIES LLC,

AS OWNER,

AND

MORGANS HOTEL GROUP MANAGEMENT LLC,

AS OPERATOR,

FOR THE MANAGEMENT OF

MONDRIAN

(HOTEL AND RESIDENCES)

LOCATED

AT

1100 West Avenue

Miami Beach, Florida 33139

 

HOTEL
MANAGEMENT AGREEMENT

HOTEL MANAGEMENT AGREEMENT (this “Agreement”) made and
entered into this         day of August,
2006  by and between 1100 WEST PROPERTIES
LLC, a Delaware limited liability company (hereinafter called the “Owner”), and
MORGANS HOTEL GROUP MANAGEMENT LLC, a limited liability company organized and
existing under the laws of the State of Delaware (hereinafter called the “Operator”).

W I T N E S S E T H:

WHEREAS, the Owner is the owner of the property
located at 1100 West Avenue, Miami Beach, Florida 33139 (the “Premises”); and

WHEREAS, Owner intends to convert said Premises from
rental apartments to operation as a hotel; and

WHEREAS, Owner also intends to redevelop said Premises
as a hotel-condominium project, containing 342 condominium units, as well an
hotel-unit and other amenities; and

WHEREAS, the Owner desires to obtain the benefits of
the Operator’s expertise in the management and operation of the Hotel (as
hereinafter defined) by granting to the Operator complete and full control and
discretion in the operation, direction, management and supervision of the
Hotel, subject to the limitations in this Agreement, and the Operator desires
to assume such control and discretion upon the terms and conditions set forth
in this Agreement;

NOW, THEREFORE, in consideration of the mutual
promises herein contained, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:

ARTICLE 1

DEFINITIONS

1.1           Definitions.  The following terms shall have the following
meanings when used in this Agreement:

“Adjustment Date” shall have the meaning set
for the in Section 10.1 hereof.

“Affiliate” of any person or entity shall mean
any other person or entity controlling, controlled by or under common control
with the person or entity in question.

“Allocable Chain Expenses” for any period shall
mean the Hotel’s pro rata share of all Chain Expenses incurred during such
period.  The Hotel’s pro rata share of
Chain Expenses for any period shall bear the same ratio to the overall Chain
Expenses for such period as the Gross Revenues of the Hotel bears to the
aggregate gross revenues (calculated in a similar manner as the Gross Revenues
of the Hotel) of all hotels opened to the public and operated or managed during
such period by the Operator or its Affiliates and such Allocable Chain Expenses
shall be included in Gross Operating Expenses; provided that Allocable
Chain Expenses for any Calendar

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Year shall not exceed
3.0% of Gross Revenues for such Calendar Year. 
It is the intention of the parties with respect to Chain Services that
the Operator and the Owner will not have to duplicate such service or cost at
the property level, so the Owner will not incur a duplicate expense with
respect thereto.

“Annual Incentive Fee” shall have the meaning
set forth in Section 10.2 hereof and be in the amounts as shown on Schedule
10.2 hereof.

“Annual Profit and Loss Statement” shall mean a
profit and loss statement prepared in accordance with, for so long as same
shall be in effect and to the extent required by the Holder thereof, the
applicable requirements of the Owner’s Loan Documents (and thereafter, the
reasonable requirements of any loan documents evidencing or securing a loan
held by a third-party unaffiliated lender that replaces the Existing Loan), and
generally accepted accounting principles applicable to the operation of hotels
and which is consistent with the Uniform System, applied on a consistent basis,
and shall set forth the profit or loss of the operation of the Hotel for the
prior Calendar Year.

“Applicable Laws” shall mean all present and
future laws, rules, orders, ordinances, regulations, statutes, requirements,
codes, zoning and comprehensive land use laws, easements, restrictions,
limitations and conditions of record, including the Declaration (as hereinafter
defined) and executive orders of all federal, state or local governmental
authorities, whether now existing or hereafter created, affecting the Hotel or
the use, occupation, operation or maintenance thereof, including, without
limitation, the State Liquor Authority, it being expressly understood and
agreed however that where the term “Applicable Laws” is used with respect to
the obligations or liability of Operator, same shall not in any instance be
deemed to create or imply responsibility of or by Operator for or with respect
to the operations or obligations of any tenant or other concessionaire,
provided that same shall not limit any obligation that the Operator may have
pursuant to the terms of this Agreement to use commercially reasonable efforts
to seek to enforce, as against such tenant or concessionaire, the terms of the
applicable lease, license or other agreement with such tenant or concessionaire
requiring them to comply with “Applicable Laws.”

“Base Fee” shall have the meaning set forth in Section
10.1 hereof.

“Benchmark Hotel” shall mean the Mondrian Los
Angeles, located at 8440 Sunset Boulevard, Hollywood, California, or such other
hotel, as agreed to from time to time by the Owner and the Operator as the
Benchmark Hotel.  In the event that any
such hotel ceases to be managed or operated by the Operator or its Affiliate,
or ceases to be managed or operated by the Operator or its Affiliate
substantially in accordance with the standards in effect at the time at which
it is agreed that such hotel is the Benchmark Hotel, such hotel as it was last
operated by the Operator or Affiliate at the applicable standards shall
continue to be the Benchmark Hotel or, unless and until the Owner and the
Operator shall designate another hotel as the Benchmark Hotel.

“Building” or “Improvements” shall mean
the building or buildings on the Premises and all improvements, fixtures and
appurtenances and all alterations, replacements, additions and substitutions
therefor now or hereafter located thereon, including, without limitation, all

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apparatus, equipment or
articles now or hereafter therein or thereon used to supply heating, gas, air
conditioning, water, lighting, power, sanitation, laundry, refrigeration and
ventilation, and kitchen, elevator, millwork (and other architectural finishes)
and all other similar fixtures and equipment which are affixed thereto,
exclusive of FF&E.

“Business Plan” or “Budget” shall mean
the annual budget and forecast of operations determined in accordance with Section
9.4 hereof (which shall include credit policies) as such budget and
forecast may be modified from time to time in accordance herewith, and which
budget and forecast shall be prepared in a form and manner consistent with the
budgets and forecasts prepared by Operator or its Affiliate for the Benchmark
Hotels.

“Calendar Year” shall mean any consecutive
twelve-month period commencing upon the first day of January and ending upon
the last day of December during the Term (as hereinafter defined), except that
the first Calendar Year shall be the period from the Commencement Date to the
last day of December next following (provided that if such period would be a
period of greater than 18 months, then the first Calendar Year shall be a
pro-rated year from the Commencement Date to the last day of December next
following) and the last Calendar Year shall be the period from the first day of
January of the Calendar Year in which this Agreement terminates or expires to
the date of such termination or expiration.

“Cash Management Policies” shall mean those
policies established by the Operator and the Owner with respect to the handling
of Hotel funds; provided, that for so long as same shall be in effect
and to the extent required by the Holder thereof, such policies shall be
subject to the applicable requirements of the Owner’s Loan Documents, and
thereafter, to the extent required by the holder thereof, to the reasonable
requirements of any loan documents evidencing or securing a loan that replaces
the Owner’s Loan.

“Chain Expenses” for any period shall mean any
and all costs and expenses incurred during such period by the Operator or by
any of its Affiliates in respect of Chain Services.

“Chain Services” shall mean those financial
benefits, services and facilities provided by the Operator or its Affiliates
(as opposed to third parties) in connection with the operation and for the
benefit of the Hotel and the other Morgans Hotels, which are generally made
available by the Operator in a non-discriminatory manner from time to time
during the Term to Morgans Hotels.  These
essential benefits, services and facilities are typically those which would be
performed at the property level but which the Operator can usually perform more
effectively, efficiently and economically on a centralized basis because it
provides such essential benefits, services and facilities to various hotels or
because of some demonstrated expertise of the Operator.  Chain Services presently consist of (i)
convention, business and sales promotion services (including the maintenance
and staffing of the Operator’s home office sales and public relations force),
(ii) food and beverage (including promotions, restructuring of operations and
non-day-to-day supervision, but subject to the terms of the Existing Leases),
human resources, personnel and other operational departmental supervision and
control services, (iii) certain home office personnel and staff who are
directly involved in the operations of the Hotel from time to time but not
otherwise physically located at the Hotel or on the Hotel payroll, (iv) audits
(internal and external, financial and operational) and other accounting
services, (v) graphic design services, (vi) supervision of purchasing and
leasing, (vii) supervision of physical plant

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maintenance, (viii)
special tenant and banking relationships, (ix) real estate tax audits and
challenges, (x) Reservation System Services and (xi) labor negotiations.  The Operator shall have the right to increase
or decrease Chain Services for all Morgans Hotels from time to time in the
Operator’s sole discretion; provided, however, that the Operator
deems the increase or decrease in Chain Services, as applicable to the Hotel to
be beneficial and economical for the operation of Morgans Hotels.

“Condominium Association” shall mean the
condominium association established under the Declaration.

“Condominium Units” shall mean the individual
condominium units created by the Declaration.

“Condominium Unit Owner” shall mean the owner
of a Unit as defined in the Declaration.

“Commencement Date” shall mean the date hereof.

 “Competitive
Hotels” shall mean those hotels agreed to by the Owner and Operator prior
to the opening of the Hotel. In connection with the process for approving a
Budget for each succeeding Calendar Year, either party may request review of
and recommend revisions to the then-applicable list of Competitive Hotels and
any revisions shall be subject to the mutual agreement of Owner and
Operator.  Any disagreement between the
Owner and the Operator with respect to the hotels included in Competitive
Hotels will be resolved by arbitration in the manner provided in Section 9.6.  In no event shall the list of Competitive
Hotels contain fewer than five (5) hotels at any time.

“Consumable Supplies” shall mean office,
cleaning, engineering, laundry and valet supplies, food service supplies,
decorations, menus, guest supplies (including stationery, soap, matches, toilet
and facial tissues) and such other supplies as are customarily consumed on a
daily basis in the operation of a hotel as required by the Hotel Standards.

“Declaration” shall mean the declaration of
condominium and all related documents including, without limitation, the prospectus
and all exhibits and attachments thereto, and the articles and by-laws,
pursuant to which the Premises is submitted to the condominium form of
ownership all of which the Operator shall have the right to review and approve
(provided, to the extent the same is reviewed and approved by Mondrian Miami
Investment LLC (“Mondrian Miami”), an affiliate of Operator, which entity holds
an indirect interest in Owner, such approval shall constitute the deemed
approval of Operator).

“Existing Leases” shall mean those currently
existing leases with respect to the Property, if any.

“Existing Loan” shall mean that certain loan in
the original maximum principal amount of $124,000,000 from Eurohypo AG, New
York Branch, as administrative agent, and the participant banks from time to
time party to the Owner’s Loan Documents, and Owner.

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“FF&E” shall mean all furniture,
furnishings, fixtures and equipment, systems, apparatus, goods and other
personal property used in, or held in storage for use in or required in
connection with the operation of the Hotel and shall include Operating
Equipment, specialized hotel equipment, guest room, corridor, restaurant, and
lounge furnishings, office furniture and equipment, carpets, electrical
appliances, kitchen appliances and apparatus, floor coverings, soft
furnishings, artwork, decorative lighting, beverage and bar apparatus and
appliances, telephones and telephone system, signs, television receivers and
other electrical and electronic equipment, computer hardware and software,
laundry apparatus and appliances, maintenance and engineering apparatus and
appliances, function, banquet and conference furniture and apparatus, exterior
and interior signage, office and back of house apparatus and appliances, motor
vehicles and courtesy vehicles, and such other furnishings and equipment as are
used in connection with the operation of hotels, and all alterations,
substitutions, additions and replacements therefore; provided, however,
that FF&E shall not include Working Capital.

“FF&E Reserve” shall mean, following such
time as the Owner and the Operator shall agree for the first time to include an
FF&E Reserve in the Budget (any dispute as to the initial establishment of
an FF&E Reserve to be determined by arbitration pursuant to Section 9.6),
an FF&E reserve to be funded each Calendar Year thereafter out of Gross
Revenues (or otherwise by Owner if required by any Holder) in an amount equal
to four (4%) percent of Gross Revenues from room rentals as reduced by such
amounts collected by the Condominium Association or the Hotel Unit Owner (for
the upkeep of the Shared Facilities) under the Declaration.  The amount of the FF&E Reserve, and
payments into the FF&E Reserve, shall take into account assessments and
other sums collected, or to be collected, from Condominium Unit Owners (whether
paid to the Condominium Association, the Hotel Unit Owner or directly to the
Operator or otherwise available from the Condominium Association) which may be
used to pay for items otherwise to be pad for from funds in the FF&E
Reserve.

Provided that, to the extent that the Owner’s Loan
Documents require an FF&E or similar reserve, and thereafter, to the extent
that any loan documents evidencing or securing a loan that replaces the Owner’s
Loan reasonably require such a reserve (provided that unless the Operator
waives such requirement, any such replacement agreements shall not provide for
more stringent funding (i.e., higher required reserve amounts or
a requirement to fund the reserve irrespective of the availability of cash flow
and/or prior to items which the Owner’s Loan Documents permit to be funded or
paid before the FF&E Reserve) and disbursement requirements than the Owner’s  Loan Documents), the “FF&E Reserve”
shall mean such reserves required by the lender.

The FF&E Reserve shall not cover FF&E within
individual Participating Condominium Units. 
A separate account (the “Participating Units FF&E Reserve Account”)
shall be funded by each owner of a Participating Condominium Unit in an amount
up to four (4%) percent of the hotel room rentals generated by the owner’s
Participating Condominium Unit (prior to any division of revenues between
Condominium Unit Owner and the Hotel Unit Owner) as determined by the Hotel
Unit Owner and the Operator and reflected in the Unit Rental Agreement (any
dispute as to the establishment of an FF&E Reserve percentage from time to
time shall be determined by arbitration pursuant to Section 9.6), and shall be
utilized in connection with FF&E in the Participating Condominium Unit.  A separate ledger account shall be maintained
for each Participating Condominium Unit reflecting deposits to the
Participating Units FF&E Reserve Account in respect of such Participating
Condominium Unit as well as

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deductions therefrom in
respect of such Participating Condominium Unit. 
In the event that the amount credited to the account of any
Participating Condominium Unit is determined by Operator to be less than the
amount necessary to maintain such Unit in accordance with Hotel Standards,
Operator shall require an additional funding by such Participating Unit Owner
in an amount sufficient to allow such Unit to be maintained in accordance with
Hotel Standards and in the event that such additional amount is not funded
within the time period as determined by the Operator of receipt of written
demand, Operator shall advise such Participating Unit Owner that the Unit shall
be suspended from participation in the Rental Program until such additional
amount is funded.

“Force Majeure” shall mean (a) strikes, labor
lock-outs, other industrial disputes, accidents, inability to procure
materials, governmental action or restriction, regulation or control, failure
of power, water, fuel, electricity or other utilities, riots, insurrection,
civil commotion, enemy or terrorist action, war, acts of God, fire or other
casualty or (b) any other matter, cause or circumstances which is beyond the
reasonable control of the Operator and/or the Owner and which materially and
adversely affects the performance by the Operator and/or the Owner (as
applicable) of the terms and provisions of this Agreement in each case to the
extent the same has not arisen by reason of any breach by the Operator and/or
the Owner or any other person for whom the Operator and/or the Owner (as the
case may be) is responsible of any of the Operator’s and/or the Owner’s (as
applicable) obligations under this Agreement.

“Gross Operating Expenses” shall mean any and
all costs, fees, charges, liabilities, obligations and expenses of managing,
maintaining, repairing, marketing, promoting and operating the Hotel and
administering the Rental Program (including distributions made to Participating
Unit Owners) determined on an accrual basis, in accordance with generally
accepted accounting principles and consistent with the Uniform System,
including, without limitation, all salaries and employee expense and related
taxes (including, without limitation, all wages, bonuses and other compensation
of all employees of the Hotel and their social and fringe benefits which shall
include, but not be limited to, life, medical and disability insurance and
retirement benefits and other related employee costs), the cost of Consumable
Supplies, utilities, insurance to be provided under the terms of this Agreement
by the Operator (including without limitation the insurance described in Section
11.1(b) hereof) or by the Owner with the Operator’s approval, governmental
fees and assessments, food, beverages, laundry service expense, license fees,
advertising, marketing, reservation systems, and any and all other operating
expenses as are reasonably necessary for the proper and efficient operation of
the Hotel in accordance with the Hotel Standards incurred by the Operator in
accordance with the provisions hereof (including, without limitation, (i)
federal, state and municipal excise, gross receipts, cabaret, sales, use,
personal property, real estate, employee withholding and all other taxes,
levies or assessments paid over to federal, state or municipal governments by
the Operator with respect to the Hotel, (ii) the Base Fee, (iii) Allocable
Chain Expenses, (iv) deferred maintenance to the extent that same is not a
capital expense; all determined on an accrual basis in accordance with
generally accepted accounting principles and consistent with the Uniform
System).  Out-of-pocket expenses of the
Operator incurred for the account of or in connection with the Hotel
operations, including reasonable travel expenses of employees, officers and
other representatives and consultants of the Operator permitted by Section
6.1 hereof shall be deemed to be part of Gross Operating Expenses and such
persons shall be afforded reasonable accommodations, food, beverages, laundry,
valet and other such services by and at the Hotel without charge to such

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persons or the Operator.  Depreciation and amortization on the Hotel,
and the establishment or replenishing of all reasonable reserves (including,
without limitation, for FF&E, Working Capital and capital expenditures) at
the Hotel, shall not be Gross Operating Expenses.

“Gross Revenues” shall mean any and all
revenues, profits, receipts and income of any kind determined derived directly
or indirectly by the Operator from the Hotel (exclusive of any sums credited or
payable to Owner that are duplicative of sums credited or payable to any
Condominium Unit Owner other than the Owner) including, without limitation,
rentals, reimbursements or other payments from tenants, hotel guests, lessees,
licenses or concessionaires, on an accrual basis, paid or collected, determined
in accordance with generally accepted accounting principles and consistent with
the Uniform System including revenue from off-site catering, net vending
machine revenues, the gross receipts of any Hotel Amenities and the fair
trading value of reasonable barter transactions, and excluding, however:
(i) funds furnished by the Owner (or Participating Unit Owners, including
assessments imposed on them) and interest earned on the Owner’s funds, (ii)
subject to the provisions of Articles 14 and 15, proceeds of insurance and
condemnation other than business interruption insurance, (iii) gratuities
to employees and sales and other taxes collected by the Operator, (iv) all loan
proceeds from financings or refinancings of the Hotel or interest therein or
components thereof, (v) judgments and awards, except any net proceeds
thereof arising from normal business operations of the Hotel and paid in lieu
of operating income, (vi) proceeds of a sale of condominium units or a sale of
the Property, (vii) actual bad debts arising from Gross Revenues, provided that
any recovered bad debts shall again become part of Gross Revenues in the
Calendar Year in which they are recovered, (viii) complimentary rooms, food or
beverage provided to employees by the Operator as required by this Agreement,
(ix) proceeds of sales received or receivable at the Hotel for other hotel
accommodations, goods and services unrelated to the operation of the Hotel or
to be provided at other hotels, although arranged by the Operator, (x)
revenues, including gains or losses arising from the sale or other disposition
of capital assets, including FF&E no longer required for the operation of
the Hotel, (xi) proceeds, or awards arising from a taking or condemnation of
capital property other than an award for temporary use, (xii) receipts or
credits for settlement of claims for loss or theft of or damage to personal
property or furnishings, or any recoveries relating to breach of warranty or
guaranty, excluding, however, those amounts that are compensation for items that
would otherwise be included in Gross Revenues hereunder, (xiii) receipts of a
capital nature, including any financing of the Hotel, (xiv) revenue,
income and proceeds of sales of tenants, licensees and concessionaires
(distinct from rentals and fees paid by said parties to Owner) except where
Owner holds an interest in any such tenant, licensee or concessionaire, and
(xv) for purposes of calculating Net Operating Profits, without duplication of
exclusions set forth above, revenue, income and proceeds of sales of tenants,
licensees and concessionaires (distinct from rentals and fees paid by such
parties to Owner) regardless of whether Owner has an interest in any such
tenant, licensee or concessionaire, and sums credited or payable to any
Condominium Unit Owner (other than Owner), in either case to the extent the
same are not paid to the Owner or paid to the Operator on behalf of the Owner.

“Holder” shall mean any mortgagee, trustee,
lender, holder or ground lessor under a Security Agreement, expressly including
the lender with respect to an Existing Loan.

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“Hotel” shall mean the Property, less any
portions thereof which are not a part of the hotel operation on the Property.

“Hotel Amenities” shall mean all recreational,
food and beverage, and entertainment facilities located in the hotel which are
available to guests (whether or not a fee for usage is charged) including
without limitation all restaurants, bars, clubs, spas and similar facilities.

“Hotel Standards” shall mean the operation and
maintenance of the Hotel consistent with the standards established by the
Operator for the operation and maintenance of the Benchmark Hotel and otherwise
as a first class full service hotel.

“Hotel Unit” shall mean the “Hotel Unit,” as
defined in the Declaration.

“Hotel Unit Owner” shall mean the Owner, its
successors and/or assignees that own the Hotel Unit.

“Indebtedness” shall mean all obligations,
contingent or otherwise, which in accordance with generally accepted accounting
principles should be classified upon the obligor’s balance sheet as
liabilities, excluding trade payables or other payables in the ordinary course
of business, but in any event including liabilities secured by any mortgage,
pledge, lien or other security interest existing on property owned or acquired
by the obligor involved, whether or not the liability secured thereby shall
have been assumed by such obligor, and all guarantees, endorsements or other
contingent obligations in respect of indebtedness of others.

“Management Fee” shall mean, collectively, the
Base Fee and the Annual Incentive Fee.

“Marketing and Advertising Services” shall mean
marketing and advertising services consistent with such marketing and
advertising services as are provided on a non-discriminatory basis by the
Operator or its Affiliates with respect to the Benchmark Hotels, to the extent
that the same are operated by the Operator or its Affiliates.

“Monthly Report” shall have the meaning set
forth in Section 9.3 hereof.

“Morgans Hotels” shall mean such hotels which
are managed or operated by the Operator or its Affiliates.

“Net Operating Profits” shall mean (A) the sum
of (i) the Gross Revenues for the Hotel, and (ii) to the extent not previously
included in Gross Revenues (or to the extent previously included in Gross
Operating Expenses as an allowance for bad or uncollected debt), receipts of
the Hotel which either would have been Gross Revenues but which were treated as
bad debts, or for which a bad or uncollected debt allowance was included in
Gross Operating Expenses, in any prior accounting period, less (B) the
Gross Operating Expenses for the Hotel; provided, however, that
as used herein, Gross Operating Expenses shall exclude interest expense
or fees to any lender (including any Holder), Taxes and amortization, but shall
include, without duplication, the FF&E Reserve (it being accordingly
understood that such expenses then actually incurred shall be excluded from
Gross Operating Expenses for the purpose of this calculation).

“OME Milestone” shall have the meaning set
forth in Section 10.2.

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“Operating Account” or “Operating Accounts”
shall mean the bank account or accounts selected by the Operator, and
reasonably acceptable to the Owner, into which funds from the Hotel, subject
for so long as same shall be in effect and to the extent required by the Holder
thereof, to the applicable requirements of the Owner’s Loan Documents and any
Cash Management Policies, shall be deposited and from which the Operator shall
withdraw funds to pay, or to reimburse itself for payments made, for expenses
of the Hotel, subject to the terms hereof, and for so long as same shall be in
effect and to the extent required by the Holder thereof, the applicable
requirements of the Owner’s Loan Documents. 
All funds shall be kept separate and apart in accounts designated for
the Hotel alone (in the Owner’s name, to the extent permitted by the Cash
Management Policies) with signatory authority limits established pursuant to
the Cash Management Policies, it being understood that the Owner will not have
signatory authority on such accounts.

“Operating Agreement” shall mean the Operating
Agreement of the Owner.

“Operating Equipment” shall mean chinaware,
glassware, linens, silverware, and other items of a similar nature, and all
replacements, additions and substitutions therefor.

“Operator’s Materials” shall have the meaning
set forth in Section 3.3 hereof.

“Operator’s Tradename” shall mean the name of “Mondrian,”
“Morgans,” “Morgans Hotel” or any derivation thereof and/or any other
tradenames, trademarks, service marks, logos or designs owned or licensed to
the Owner by the Operator or any Affiliate.

“Other Managed Elements” shall have the meaning
set forth in Section 10.1 hereof.

“Other Morgans Hotels” shall have the meaning
set forth in Section 4.11 hereof.

“Owner’s Loan” shall mean the loan or loans
evidenced and secured by the Owner’s Loan Documents.

“Owner’s Loan Documents” shall mean those
certain documents evidencing and securing any loan or loans obtained by the
Owner from time to time and secured by a mortgage on the Hotel (or any portions
thereof) or any pledge of interests in the Owner.

“Owner’s Tradename” shall have the meaning set
forth in Section 3.2(b) hereof.

“Participating Condominium Units, Participating
Units and Participating Condominium Hotel Room Keys” shall mean at any time,
and from time to time, the Hotel Condominium Units that are then subject to a
Unit Rental Agreement and are therefore part of the Rental Program.

“Participating Unit Owner” shall mean the owner
of a Participating Condominium Unit.

“Prime Rate” shall have the meaning set forth
in Section 8.4(b) hereof.

“Premises” shall mean the parcel of land
described in Exhibit A attached hereto and made a part hereof and all
the rights, privileges, easements and appurtenances thereunto belonging or

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in any way appertaining
in any streets, alleys or other public ways (before or after vacation thereof)
adjacent to the site.

“Project” or “Property” shall mean and refer to the
Hotel, the Premises and the Building (the land and the improvements thereon).

“Projected NOP” shall mean, for each Calendar
Year, the projected Net Operating Profits of the Hotel for such Calendar Year
as set forth in the applicable Budget for the Hotel; provided, however,
that if at any time the Owner and the Operator shall be unable to agree on
Projected NOP (or Projected NOP shall not have been finally determined
by arbitration in accordance with Section 9.6) with respect to the
Approved Budget for any such Calendar Year, Projected NOP for such Calendar
Year shall be deemed to equal 100% of the NOP for the prior Calendar Year.

“Property” shall mean the Premises and all
improvements thereon submitted to the condominium form of ownership, under
Florida law, pursuant to the Declaration.

“Qualified Transferee” means a party that, in
the reasonable opinion of the Operator, is Creditworthy, and is not an
Affiliate of: (i) a Competitor of the Operator; (ii) a person controlled by, or
associated with organized crime, a felon, a person convicted of a capital
crime; (iii) a person directly or indirectly owned or controlled by the
government of any country that is subject to a United States Embargo; or (iv) a
person any of whose owners or officers, directors or executive employees or
officers, directors or executive employees of such owners are name as a “Specially
Designated National and Blocked Persons” as designated by the United States
Department of the Treasury’s Office of Foreign Assets Control (a listing of
which is currently published under the internet website address www.ustres.gove/terrorism.html),
or as a person or nation designated in Presidential Executive Order 13224 as a
person or nation who commits, threatens to commit, or supports terrorism.  As used herein, a “Competitor” or Operator or
any of its Affiliates shall mean any party who engages in the operation or
management of hotels as a primary component of its business activities, and “Creditworthy”
shall mean any person seeking to be a Qualified Transferee prior to the third
anniversary of the official opening date of the Hotel (as determined by Owner
and Operator) who has a net worth (the excess of total assets over total
liabilities) of at least One Hundred Million Dollars ($100,000,000), and
following the third anniversary of the official opening date of the Hotel (as
determined by Owner and Operator) shall mean a person who has a net worth of
$25,000,000.  For purposes of determining
the net worth of a party, the aggregate net worth of the principals, parent,
Affiliates, holding companies or related persons of the party shall be
considered as if such principals, parents, Affiliates, holding companies or
related persons were the party.  A
Qualified Person shall also mean the owner of any “Morgan’s Hotel,” from time
to time, or any Affiliate thereof and any current member of “Sanctuary West
Management LLC” (or any trusts or family partnerships controlled by or
established for the benefit of the members or the family of said members of
Sanctuary West Management LLC) or any member admitted from time to time in
accordance with the LLC Operating Agreement of Owner.

“Remedial Payment” shall have the meaning set
forth in Section 16.2 hereof.

 11

 

“Rental Program” shall mean that certain
program whereby Participating Unit Owners make the Condominium Units available
to Owner to be occupied on a transient basis as part of the Hotel, each
pursuant to a Unit Rental Agreement.

“Reservation System Services” shall mean
booking and reservation services consistent with such booking and reservation
services as are provided on a non-discriminatory basis by the Operator or its
Affiliates with respect to the Benchmark Hotels, to the extent that the same
are operated by the Operator or its Affiliates. 

“RevPAR” shall mean gross rooms revenue per
available room.

“Security Agreement” shall mean any mortgage,
deed of trust, security agreement or ground lease of or affecting the Hotel,
the Premises, or the ownership interests in the Owner, which is held by a
third-party unaffiliated with the Owner or any member therein.

“Shared Facilities” shall have the meaning set
forth in the Declaration for shared facilities or such other, similar term.

“Taxes” shall mean all income taxes and other
taxes payable on the receipt of revenues and capital proceeds, but shall not
include, inter  alia, real estate, sales, excise or other taxes.

“Term” shall mean that period beginning on the
Commencement Date and ending at midnight on the day immediately preceding the
date of the twentieth (20th) anniversary of the Commencement Date, unless
sooner terminated or extended pursuant to terms of this agreement,.

“Uniform System” shall mean the “Uniform System
of Accounts for the Lodging Industry (9th revised edition, Copyright 1996)” by the Hotel
Association of New York City, Inc. and published by the Educational Institute
of the American Hotel & Motel Association, as the same may be revised from
time to time.

“Unit Rental Agreements” shall mean one or more
agreements, each pertaining to one or more Participating Condominium Units,
entered into between the Hotel Unit Owner and the Participating Condominium
Unit Owner, pursuant to which the subject Participating Condominium Unit or
Units are made part of the Rental Program.

“Working Capital” shall mean such cash as is
necessary for the operation of the Hotel in accordance with the Budget,
including, without limitation, amounts sufficient for the maintenance or
payment of Indebtedness of the Hotel other than Indebtedness secured by
mortgage or deeds of trust on the Hotel, current repair and replacement of
FF&E, charge and petty cash funds, operating bank accounts, payrolls,
accounts payable and accrued current liabilities.

ARTICLE 2

ENGAGEMENT OF THE OPERATOR

2.1           Engagement
of the Operator.  The Owner hereby
engages the Operator as the Owner’s agent to manage and operate the Hotel in
accordance with the Hotel Standard, and the

 12
 

 

Operator hereby accepts
such engagement, upon the terms and conditions of this Agreement, and each
party undertakes and agrees to perform all of the terms, covenants and
conditions required of it by, and to comply with all of, the provisions of this
Agreement.  The Owner covenants that
during the Term the Operator’s engagement hereunder shall be exclusive and
undisturbed, subject only to the limitations of this Agreement.

2.2           Optional
Condominium Services.  Owner and
Operator shall agree from time to time on certain services to be provided to
Hotel Condominium Unit Owners, whether or not enrolled in the Rental Program
(the “Optional Condominium Services”). 
To the extent provided for in the Budget, charges for the Optional
Condominium Services shall be established by Operator from time to time and
collections thereof shall be included in Gross Revenue. The Owner hereby
engages the Operator as the Owner’s agent to manage and operate the Hotel in
accordance with the Hotel Standard, and the Operator hereby accepts such
engagement, upon the terms and conditions of this Agreement, and each party
undertakes and agrees to perform all of the terms, covenants and conditions
required of it by, and to comply with all of, the provisions of this
Agreement.  

2.3           Pre-Opening
Services.  From and after the
Commencement Date, the Operator shall provide services in the planning and
programming of the Property as necessary to create the applicable Hotel
Standard pursuant to a Technical Services Agreement executed simultaneously
herewith.  Furthermore the Operator shall
cooperate and participate with the Owner in the sales and marketing of the
Condominium Units including, without limitation, marketing to clientele of the
Other Hotels under its control.  The
Hotel shall open for business with the public on a date to be mutually agreed
upon by the Owner and Operator.

ARTICLE 3

TERM

3.1           Term.  (a)               The Term of this
Agreement shall commence on the Commencement Date and expire on the day
immediately preceding the date of the twentieth (20th) anniversary of the
Commencement Date, unless sooner terminated pursuant to the terms hereof. 

(b)           This Agreement shall automatically renew for
two (2) successive periods of ten (10) years each (each such period an “Extended
Term” and both such periods referred to collectively as the “Extended Terms”) provided that, as
of that expiration date of the initial term or the applicable renewal term, no
Event of Default with respect to the Operator shall then exist and be uncured
unless the Operator provides the Owner with prior written notice that it
desires not to extend the then current Term at least ninety (90) days prior to
the expiration of the then current Term. 
The same terms and conditions of this Agreement shall apply to the
Extended Terms, except as may be modified by mutual agreement of the parties,
as evidenced by a written amendment to this Agreement executed by both parties.

 13
 

 

3.2           Primary
Name; Other Marks. 

(a)           During
the Term of this Agreement, the Hotel shall at all times be known and
designated  as the “Mondrian” or other
name incorporating the word “Mondrian” as mutually agreed upon by the Owner and
the Operator, (the “Primary Name”); Furthermore the Primary Name and the name “Morgans,”
“A Morgans Hotel” or any abbreviation or derivation thereof may be used by the
Owner or Operator in the marketing of the Hotel and in the marketing and sales
of the Condominium Units and the Operator. 
The Operator represents and warrants to the Owner that the Operator or
an entity owned or controlled by the Operator is the lawful owner of the trade
names “Mondrian” and “Morgans Hotel,” and the Operator may grant to Owner the
right to use same without the consent, approval or joinder of any third party.

(b)           To
the extent that the Owner owns any trade names, trademarks, service marks,
symbols, logos and designs (collectively, the “Owner’s Tradename”), and
the Owner’s Tradename is to be used in connection with the Hotel, the Owner
shall retain the rights to the same; provided, however, that
during the Term, the Operator shall have the right to utilize the same, without
payment of any fee or royalty, in connection with the operation and management
of the Hotel under the terms and conditions of this Agreement, provided further
that such Owner’s Tradename shall only be used for and in connection with the
Hotel, and neither the Owner nor the Operator shall use the same in
contravention of such limitation.  Upon
the termination of this Agreement for any reason, all further rights of the
Operator to use the Owner’s Tradename, shall terminate and revert to the Owner
and the Operator shall not have any further rights thereto.

(c)           In
the event that this Agreement is terminated prior to the expiration of the
Term, the Owner or its designee shall have the right to continue using the
Primary Name [and any other Operator Tradenames that are used in connection
with the Hotel] pursuant to the terms of this Agreement or any separate license
agreement, for a transition period not to exceed one hundred twenty (120) days
after the termination of this Agreement (the ”Transition Period”).  The Owner hereby acknowledges that it has no
right, title or interest in and to the Primary Name or any of Operator’s
Tradenames and covenants (i) not to claim any such interest and (ii) to take
such steps as are reasonable, in the negotiation, execution and delivery of
agreements with third parties, in advertising and marketing materials and in
any other circumstances which might otherwise suggest erroneously that the
Primary Name or any of the Operator’s Tradenames are the property of the Owner,
to represent that the Operator’s Primary Name and/or the other Operator
Tradenames are the property of the Operator.

(d)           Except
as otherwise expressly provided herein, the Owner shall have no right, at any
time, to use the Primary Name or the Operator’s name, or any derivation
thereof, or the name “Morgans,” or any derivation thereof, for any reason or
purpose whatsoever, without obtaining the prior written consent of the
Operator, which consent may be withheld in the Operator’s sole and absolute
discretion.  In the event that such
consent is granted, such consent will be conditioned upon the execution of a
separate license or sublicense agreement between the Owner and the Operator.

(e)           As
between the Owner and the Operator, all right, title and interest in the
Primary Name and any other Operator Tradename shall, at all times, remain with
the Operator.  Upon the termination of
this Agreement for any reason or upon termination of the license agreement
governing the use of the Primary Name and other Operator Tradename, but subject
at

 14
 

 

all time to the
applicability of the Transition Period, the Owner shall remove, or cause to be
removed, the Primary Name and the Operator Tradename from the Hotel and from
all items (including, by way of example and not by limitation, the Building,
all Facilities, FF&E, advertising and marketing materials and Consumable
Supplies) used at, in connection with or in reference to the Hotel, such
removal to be at the Operator’s expense in the event that this Agreement is
terminated by the Owner based on an Event of Default by the Operator.

(f)            Except
as provided below, the Owner agrees that the Operator shall have the right to
cease using the Primary Name or any other Operator Tradenames with respect to
the Hotel if at any time the Owner fails to fund in accordance with the Budget
and thereby prevents the Operator from operating the Hotel at a level
consistent with the Hotel Standards and shall not cure such failure within
thirty (30) days after receipt of written notice from the Operator.  The foregoing sentence shall have no
applicability under this Agreement unless (i) the Owner is no longer the owner
of the Hotel or (ii) the Operator, or an Affiliate of Operator, shall no longer
hold membership interests in Owner as a result of the “Buy-Sell” provisions of
the operating agreement of 1100 West Holdings, LLC having been initiated by
Sanctuary West Avenue, LLC or its successors. 
The Operator agrees that the Operator will not charge the Owner a
license fee for the use by the Operator of the Primary Name or the Operator’s
Tradenames in connection with the Hotel.

3.3           Operator’s
Property.  The Owner acknowledges
that in the operation and management of the Hotel the Operator will make use of
materials, files, lists, records, compilations and methods of operation which
constitute valuable proprietary information, trade secrets and the Operator’s
work product, including, by way of example and not of limitation, marketing
techniques, customer and mailing lists and reservation systems (collectively,
the “Operator’s Materials”).  The
Owner hereby acknowledges that it has no right, title or interest in or to the
Operator’s Materials and covenants (i) not to claim any such interest, (ii) not
to disclose or distribute, or contract to disclose or distribute, the Operator’s
Materials to any person except to the extent required by law, (iii) not to use
the Operator’s Materials in any manner except with the prior consent of
Operator which may be withdrawn at any time, and (iv) upon termination of this
Agreement for any reason, but subject at all times to the applicability of the
Transition Period, to cease all use of Operator’s Materials (or any part
thereof) and return to Operator all copies of the Operator’s Materials in its
possession.  When using the Operator’s
Materials with the Operator’s consent, the Owner shall use same only for the
purpose of furthering the business of the Hotel and not for any other
reason.  All right, title and interest in
and to the Operator’s Materials, including without limitation all copyrights
and trade secret rights, shall always remain with the Operator, and the Owner
shall have no rights with respect thereto.

The Owner acknowledges
that the Operator’s Materials and the Operator’s Tradename are of great
commercial value and that, without the covenants contained herein with respect
thereto and with respect to Operator’s employees set forth in Section 3.4
below, the Operator would not enter into this Agreement.

Notwithstanding any
provision to the contrary herein, guest lists that are maintained exclusively
for guests of the Hotel shall not constitute Operator’s Materials.

 15
 

 

3.4           Operator’s
Employees.  The Owner shall not, and
shall ensure that its Affiliates do not, directly, or indirectly, for itself or
on behalf of any other person, firm, corporation or other entity, solicit,
hire, retain as a consultant, or use the services of, any person who is or was
an employee of the Operator or any of its Affiliates at, in connection with or
with respect to the Hotel, unless at least twelve (12) months have passed from
the time that such employee has left the employment of the Operator or its
Affiliate, to the date of solicitation, hiring or retention of such employee by
the Owner or any of its Affiliates (whichever is earliest); provided that
following the termination of this Agreement, such restriction shall not apply
to those persons who were, as of the date of such termination, hired to work at
the Hotel.  Operator shall not solicit,
hire or retain employees of Owner, as distinct employees of the Hotel or
Operator, unless at least twelve (12) months have passed from the time that
such employee has left the employment of Owner.

3.5           Restriction
on Competing Properties.  (a) Within
the area comprise of the (i) the Island of Miami Beach, Florida, (including the
areas of Surfside and Bal Harbour), (ii) Downtown Miami, Florida and (iii) the
area Miami, Florida bounded on the west by I-95, on the north by 125th Street,
on the east by the Miami shoreline and on the south by South 22nd Street (being
hereinafter the “First Restricted Area”) for so long as this Agreement remains
in full force and effect (including the Transition Period) (such period being
the “First Restricted Period”), Operator will not own, operate or manage
another hotel under the “Mondrian” designation.

(b)           Within
the areas known as (i) North Miami, (ii) Key Biscayne, (iii) Coral Gables and
(iv) Coconut Grove, all in the State of Florida (hereinafter collectively
referred to as the “Second Restricted Area”) for the shorter of (x) ten (10)
years, or (y) the term of this Agreement (such period being hereinafter the “Second
Restricted Period”), Operator will not own, operate or manage another hotel
under the “Mondrian” designation. 

(c)           The
Operator acknowledges that the Operator’s Materials and Operator’s Tradename
are of material value to the Owner, and but for the foregoing restrictions
Owner would not have entered into this Agreement.  Nothing herein shall be or be construed as a
restriction of any kind on the right of Operator to (A) use and/or license the
Mondrian designation outside of the First Restricted Area and/or the Second
Restricted Area, (B) to use and license the Mondrian designation and to own,
operate and/or manage a hotel under the Mondrian designation within the First
Restricted Area, except during the First Restricted Period, or (C) to use and
license the Mondrian designation and to own, operate and/or manage a hotel
under the Mondrian designation within the Second Restricted Area, except during
the Second Restricted Period.  Nothing in
this Agreement shall limit in any way Operator’s rights to own, operate or
manage another hotel under a different designation.

ARTICLE 4

USE AND OPERATION OF HOTEL

4.1           Operation
of the Hotel.  The Operator shall
manage and operate the Hotel in a highly professional manner so as to maximize
the value of the Owner’s investment, at a level, with respect to the Hotel,
consistent with the Hotel Standards, and the reasonable requirements of any
unaffiliated third-party lenders to the Owner (including as to Budget approval
and reporting

 16
 

 

requirements), and shall
provide or cause to be provided all amenities in connection therewith which are
reasonable, customary and usual to such an operation, to the extent the Owner
does not impair the Operator’s ability to maintain a hotel at a level
consistent with the Hotel Standards by failing to provide sufficient funds in
contravention of the terms hereof or failing to perform the obligations imposed
on the Owner pursuant to this Agreement.

4.2           The
Operator’s Control and Discretion. 
Subject to the terms of this Agreement, and the Declaration, the
Operator shall manage and operate the Hotel as the Owner’s agent.  Without limiting the generality of the
foregoing but subject to the other provisions of this Agreement, the Operator’s
control and discretion shall include, and the Operator shall be responsible
for, the operation of the Hotel for all customary purposes, and without
limitation thereof, the Owner shall permit the Operator to do the following in
the name and for the account of the Owner, in all events subject to the Budget
and any other limitations contained herein:

(a)           Select,
appoint and supervise the general manager, financial controller and chief
engineer; provided, that the Operator shall consult with the Owner with
respect to, and deliver notice to the Owner upon, the selection and appointment
of each of the foregoing; provided  further, however, that
except for the general manager (who shall be subject to the Owner’s approval),
the Owner shall have no approval right with respect to any such
appointment.  The appointment and
supervision of all other employees and personnel of the Hotel, who shall be
employees of the Operator, shall be done by the Operator.  Such authority or any part thereof may be
delegated by the Operator to one or more persons employed by the Operator.  The Owner shall have no right to supervise,
discharge or direct any such employees or personnel and covenants and agrees
not to attempt to so supervise, direct or discharge; provided, however,
that the Owner shall have the right to cause the Operator to remove or
terminate any Hotel employee in the event that the Owner can establish to the
Operator’s reasonable satisfaction that such employee has committed an act or
acts which (i) constitutes a crime and which may cause a material injury to the
reputation, community standing of the Hotel, the Owner or a constituent member
of the Owner (including, without limitation, a loss of any licenses or permits
to serve alcohol on the premises), and (ii) such act constitutes a breach of a
regulation or compliance requirement applicable to the Hotel, the Owner or any
constituent member of Owner.  In the
event the Owner wishes to exercise its rights set forth in the preceding
sentence, the Owner shall provide to the Operator a written notice (with
accompanying documentation as appropriate) setting forth the basis for the
Owner’s demand for the termination of such employee.  The Operator shall perform appropriate
background investigations on candidates for the positions of the Hotel’s general
manager and financial controller as is customary and reasonable in the hotel
industry in Miami Beach, Florida, prior to the Operator hiring such
personnel.  To the extent that any
employee of the Operator shall be devoting substantial time to a special
project for the Hotel which is extraordinary, nonrecurring and non-routine, if
such project has been approved by the Owner, to the extent required hereunder,
or the cost of such project is covered by the Budget, then in lieu of including
such expenses as an Allocable Chain Expense, the Operator shall have the right
to treat such employee as an employee of the Hotel for the duration of such
project, and allocate such employee’s salary and benefits, accordingly.

(b)           Determine
and implement all labor policies (other than entering into a collective
bargaining agreement with a labor union, which shall require the Owner’s
approval), including with respect to wage and salary rates and terms, fringe
benefits, pension, retirement,

 17
 

 

bonus and employee
benefit plans and collective bargaining agreements; provided that the foregoing
shall not in any way limit or reduce the rights and authority of the Operator
pursuant to Section 4.2(a); and provided  further that if
such policies shall be materially different from those applicable to the
Benchmark Hotel same shall be subject to the approval of the Owner, which
approval shall not be unreasonably withheld.

(c)           Supervise
and maintain accurate books and records as described in Section 9.2
hereof, including, without limitation, the books of account and accounting
procedures of the Hotel.

(d)           Subject,
for so long as same shall be in effect and to the extent required by the Holder
thereof, to the applicable requirements of the Owner’s Loan Documents (and
thereafter, to the extent that the holder thereof requires, to the reasonable
requirements of any loan documents evidencing or securing a loan that replaces
the Owner’s Loan), negotiate and enter into leases, subleases, licenses and
concession agreements for stores, restaurants, bars, other Hotel Amenities,
commercial and office space and services at the Hotel in the name of the Owner
subject to the Owner’s consent, not to be unreasonably withheld; provided
that Owner’s consent shall not be required if (i) any such agreement contains
economic terms which are intended to result in the Owner receiving the fair
market value rental or income for the applicable space consistent with then
prevailing market conditions, (ii) such lease, license or agreement is subject
to the Budget (does not cause the Budget, subject to permitted adjustments
under this Agreement, to be exceeded), and (iii) such lease, license or
agreement has a term of less than one year, or a term of greater than one year
so long as such agreement is terminable on notice of 30 days or less.  

(e)           Make
or cause to be made all necessary repairs and replacements to the Hotel so that
it shall be adequately maintained and furnished at a level consistent with the
Hotel Standards.

(f)            Negotiate
and enter into service contracts in the Owner’s or the Operator’s name (as
disclosed agent for the Owner) required in the ordinary course of business in
operating the Hotel to the extent provided in the Budget, including, without
limitation, contracts for electricity, gas, telephone, detective agency
protection, trash removal, extermination and other services which the Operator
deems advisable, provided that any such contract having a term exceeding one
(1) year and not terminable after the first year upon a maximum of 30 days’
notice, shall be subject to the Owner’s consent, not to be unreasonably
withheld.

(g)           Select
and obtain Consumable Supplies, Operating Equipment and FF&E for the
operation of the Hotel in the normal course of business and subject to the
Budget (or as otherwise permitted pursuant to the terms of this
Agreement),  and give the Owner the
benefit of whatever discounts or other financial benefits may be received with
respect to the same for bulk purchasing; the Operator shall use all reasonable
efforts to obtain such discounts and benefits.

(h)           Determine
all terms for admittance and charges to be made for guest and function rooms,
commercial space privileges, and, subject to any applicable terms of the
Existing Leases, entertainment and food and beverages policies.

 18
 

 

(i)            Determine
all credit policies with respect to the operation of the Hotel, including
entering into customary agreements with credit card and barter organizations.

(j)            Establish
entertainment and amusement policies (including pricing) with respect to the
Hotel.

(k)           Subject
to any applicable terms of the Existing Leases, establish food and beverage
policies (including pricing) with respect to the Hotel, including the right to
conduct catering operations outside the Hotel but for the account of the Hotel.

(l)            Hire
such persons or organizations as the Operator may reasonably deem necessary to
provide advice with respect to the Hotel’s performance or the Operator’s
obligations hereunder, including, without limitation, attorneys (other than in
connection with litigation where the Owner’s decision shall govern in
connection with hiring an attorney), accountants (subject, if such accountant
shall be other than a “big four” accounting firm, to the Owner’s approval which
shall not be unreasonably withheld), and other professionals and specialists.

(m)          Establish
and implement all advertising, public relations and promotional policies with
respect to the Hotel including, without limitation, exercising the sole and
exclusive control over all paid advertising, press releases and conferences,
except that the Operator shall not mention the name of any of the principals in
the Owner or their Affiliates without obtaining prior consent of the parties to
be mentioned.

(n)           Subject,
for so long as same shall be in effect and to the extent required by the Holder
thereof, to the applicable requirements of the Existing Loan Documents,
negotiate and enter into equipment leases, provided that, except where such
leases are entered into in accordance with the Budget, same shall be subject to
the Owner’s reasonable approval.

(o)           Subject
to, for so long as same shall be in effect and to the extent required by the
Holder thereof, the applicable requirements of the Owner’s Loan Documents,
establish any other policy or perform any other act or function which in the
reasonable discretion of the Operator is necessary to operate the Hotel on a
day-to-day basis in accordance with the Hotel Standards.

4.3           Compliance
with the Budget.  The Operator shall
use reasonable efforts to comply with and to cause employees of the Hotel to
comply with the Budget.

4.4           Control
of Gross Revenues.  Subject to this
Agreement, the Budget, and, for so long as same shall be in effect, the
applicable requirements of the Owner’s Loan Documents, the Operator shall, as
soon as practicable on behalf of the Owner, deposit all Gross Revenues (which
for this purpose shall not be deemed to include the gross receipts of any
Facility) and other monies involved in the operation of the Hotel, all of which
will be the property of the Owner, into the Operating Account.  All funds used in the operation of the Hotel,
and all receipts and disbursements thereof (except insofar as petty cash is
maintained in the Hotel) shall be deposited in and withdrawn from one or more
Operating Accounts from time to time established in the name of the Owner.  All risk of loss arising from insolvency of
the depository institution with respect to funds in the Operating Account shall
be borne solely by the Owner, and the available

 19
 

 

depository insurance
proceeds, if any, shall be promptly turned over to the Owner to the extent
required pursuant to this Agreement.

4.5           Discharge
of Encumbrances.  Subject to the
Owner’s right to contest such items in good faith, the Owner shall provide
sufficient cash to remove or provide by bond for the discharge of all
encumbrances suffered to be placed on the Hotel or any part thereof contrary to
any provision of this Agreement to the extent such encumbrances create civil or
criminal liability to a governmental entity for the Operator, except to the
extent that such encumbrances are caused by any gross negligence, fraud or
willful misconduct or breach on the part of the Operator hereunder.  This provision shall not extend to any
mortgages encumbering the Hotel entered into in connection with the acquisition
of the Premises and mortgages incurred in connection with the renovation and
alteration of the Hotel, and all renewals, refinancings, extensions and
modifications thereof.

4.6           Complimentary
Services. 

(a)           The
Operator may provide such guest rooms or other facilities, and any food or
beverages, on a complimentary or discount basis to any employee of the Owner or
the Operator or other guests as the Operator may reasonably determine to be
advisable.  However, any such
complimentary or discount room, food and beverage shall be made available for
the best interests of the Owner and with integrity.

(b)           The
Operator, in its reasonable discretion, may provide food for Hotel employees,
and allow the general manager of the Hotel and the general manager’s family
suitable living quarters within or outside of the Hotel and the use of all the
facilities of the Hotel.

(c)           The
Operator shall permit the members, and the members in the members (including,
in each case, the principals thereof), of the Owner and their immediate family
members to stay at the Hotel from time to time on a complimentary or discount
basis, provided that such privilege shall not be abused.  However, any complimentary or discount rooms,
food and beverage shall be made available for the best interests of the Owner
and Operator and with integrity.

(d)         Any
disagreement between the Owner and the Operator with respect to the provision
of guest rooms or other facilities, food, beverages or other goods and services
on a complimentary or discount basis will be resolved by arbitration in the
manner provided in Section 9.6.  

4.7           Inspection
of the Hotel.  The Owner and its
representatives may have reasonable access to and enter in and upon the Hotel
at all reasonable times and upon reasonable notice to examine the condition
thereof; provided, however, that such entry shall not interfere
with the use, operation or management of the Hotel and shall be consistent with
Applicable Laws and the rights of guests, tenants, lessees and concessionaires
of the Hotel.

4.8           Standard
of Liability.  Notwithstanding any
other provision of this Agreement to the contrary, the Operator shall not be
liable to the Owner in any respect other than for the gross negligence, fraud
or willful misconduct (including willful breach of a material provision of this

 20
 

 

Agreement) on the part of
the Operator in connection with the performance of its obligations hereunder.

4.9           Meeting
and Consultation with Owner.  The
Operator agrees to meet  with the Owner
from time to time upon the Owner’s reasonable request to review the operations
of the Hotel  and current matters of
import; provided that the Owner shall not call such meetings more
frequently than monthly, and in each instance, the Owner shall give the
Operator adequate advance notice, in no event to be less than ten (10) days.

4.10         Agreements
with Affiliates.  The Operator shall
not without the Owner’s consent (a) enter into any agreement or amend the terms
of any agreement with an Affiliate of the Operator in the name and for the account
of the Owner which is on terms materially less favorable to the Owner than if
the same had been entered into with a person that is not an Affiliate following
good faith, arm’s-length negotiations and with the exercise of reasonable
business judgment, or (b) except pursuant to or as contemplated by this
Agreement, pay or approve to be paid any fees or commissions to any Affiliate
of the Operator.

ARTICLE 5

EXPENSES BORNE BY THE OWNER

5.1           Expenses
Borne by the Owner.  Everything done
by the Operator in the performance of its obligations under this Agreement and
in compliance herewith, and all reasonable costs and expenses incurred pursuant
hereto within the authority granted to the Operator herein, shall be for and on
behalf of the Owner and for its account, except for (only) the services
referred to in Article 6 to be rendered and performed by the Operator at the
Operator’s expense to the extent provided therein.  In furtherance and not in limitation of the
foregoing, the Owner shall be obligated (a) to fund all items in the Budget and
(b) to pay all reasonable costs and expenses for items necessary to the
operation and management of the Hotel, whether or not set forth in the Budget,
including, without limitation, extraordinary repairs, restorations and
replacements (only to the extent that sufficient insurance proceeds or awards
from a condemnation, compulsory purchase or other such taking exist for such
purposes, in circumstances where the need for such repairs, restorations or
replacements result from a casualty or condemnation and the Owner, and not the
Declaration, the Condominium Association nor any other third party, controls
the disposition) unless the Owner elects to and does, rather than making such
extraordinary repairs, restorations or replacements or making such other
expenditure not set forth in the Budget, permanently close and cease operating
the Hotel; provided, that (y) notwithstanding the Owner’s so
electing, this Agreement (including, without limitation, the provisions hereof
governing the extension of the Term) shall, to the extent necessary to give
effect to the provisions of clause (z) immediately following, remain in effect
and (z) if the Owner thereafter sells, assigns, transfers or conveys the Hotel
or a controlling interest therein to a purchaser or transferee who restores the
Hotel to an operable condition and operates the Hotel as a hotel, and such
operation commences within one year after the Hotel closed, then, for the
avoidance of doubt, at the Operator’s option, the provisions of Article 20
hereof shall be applicable to such sale or transfer and this Agreement shall
then be and remain in full force and effect with respect to any then remaining
balance of the Term.

 21
 

 

5.2           Debts
and Liabilities.  All debts and
liabilities reasonably incurred to third parties by the Operator on behalf of
the Owner within the authority granted to the Operator herein are and shall be
the obligations of the Owner.  The
foregoing provision shall not create any rights in favor of third parties and
is solely for the benefit of the Operator. 
Other than pursuant to the Budget (or as otherwise permitted pursuant to
the terms of this Agreement), the Operator shall not incur any Indebtedness on
behalf of the Hotel without the Owner’s consent.

5.3           Payment
of Claim.  If any claim, whether for
taxes or otherwise, shall be asserted against the Owner or against the Hotel,
and the Operator in good faith shall determine that such claim constitutes an
immediate threat to, or would otherwise immediately materially jeopardize or
materially interfere with its operation of the Hotel as herein contemplated,
the Operator shall have the right, after giving the Owner the opportunity to
consult with the Operator with respect thereto, to pay such claim on behalf of
the Owner, with rights to immediate reimbursement by the Owner therefore,
unless the Owner prohibits such expenditure; provided, however,
that where the expenditure is necessitated by a dangerous condition, the
Operator shall be under no obligation to give the Owner the opportunity to
consult with the Operator with respect thereto, but shall to the extent
practicable, give prior notice to the Owner; provided  further,
that in no event shall such payment for such dangerous condition be in excess
of $100,000 (subject to an annual increase of 2.5%) without the Owner’s prior
approval.

ARTICLE 6

EXPENSES BORNE BY THE OPERATOR

6.1           Expenses
Borne by the Operator.  The Operator
shall be reimbursed from Gross Revenues (which for purposes of this provision
shall not be deemed to include the gross receipts of any Facilities) for:  (i) all reasonably incurred out-of-pocket
expenses (including, without limitation, all airfare and other travel expenses,
telephone, courier services, car services, air express and other incidental
expenses) as may have been incurred by any of the Operator’s personnel in
connection with the operation of the Hotel; (ii) subject to the Owner’s prior
approval (if same are not covered by the Budget), extraordinary types of
expenses for projects such as labor negotiations, renovation or rehabilitation
programs and special market, environmental, engineering or other studies which
involve a substantial time commitment of the Operator’s personnel or the
engagement of outside professionals who shall be selected by the Operator to
the extent the cost of same is reasonable; (iii) Allocable Chain Expenses; and
(iv) such reasonable portion of the salary, benefits and other compensation of
each of the Operator’s employees under the circumstances described in the last
sentence of Section 4.2(a) hereof as is reasonably allocable to the time
such employee has devoted to such special project(s); provided that (A)
in no case shall the Operator receive reimbursement for the same cost more than
once under separate heads of expenses, and (B) the Operator shall not receive
compensation for design and/or development services undertaken by the Operator
in connection with the transition of the operations of the Hotel, it being
expressly understood and agreed that (x) this shall not be deemed to require
the Operator to incur actual costs for its own account or prohibit the
reimbursement of costs actually incurred, whether paid to third parties or paid
to or for the cost of employees or Affiliates of the Operator if the same
relates to services the cost of which would otherwise have to be paid to others
if provided by them (unless specifically excluded above); provided  further,
that the Base Fee shall not be deemed a reimbursement.

 22
 

 

ARTICLE 7

COMPLIANCE WITH LAWS

7.1           Compliance
with Laws.  The Operator shall, and
cause the Hotel to, comply with and abide by all Applicable Laws and the
requirements of insurance companies covering any of the risks against which the
Hotel is insured.  The Operator shall notify
the Owner in writing of any material allegations of non-compliance with, or
violations of, Applicable Laws.  Further
to the foregoing, the Operator shall maintain in effect such license of the
Operator as may be required by Applicable Law for the management of the Hotel
by the Operator in accordance with the terms of this Agreement.

7.2           Right
of Contest.  The Owner shall have the
right to contest any alleged violations, and postpone compliance pending the
determination of such contest, as permitted by Applicable Laws, except to the
extent such contest might result in the exposure of the Operator to criminal
liability.  In such event, the Owner
shall indemnify and save harmless the Operator and its employees from any and
all loss, cost, damage, claim or expense (including, without limitation,
reasonable attorneys’ fees and disbursements) arising as a result of the Owner
contesting such violation, except to the extent that such violation was caused
by the Operator’s fraud, gross negligence or willful misconduct.

ARTICLE 8

FLOW OF FUNDS; WORKING CAPITAL

8.1           Deposit
of Money.  Subject to the Cash
Management Policies, all monies received by the Operator in the operation of
the Hotel, including, without limitation, cash for Working Capital furnished by
the Owner, shall be deposited in the Operating Account.

8.2           Checks.  All checks or other documents of withdrawal
relating to the payment of any and all taxes, payroll, the Management Fee and
any and all other items contained in or consistent with the Business Plan may
be signed by representatives of the Operator.

8.3           Surplus
Funds.  The Business Plan shall
determine to what extent and in what manner funds in the Operating Account are
retained, disbursed or expended.

8.4           Funding Operation.

(a)           Nothing
in this Agreement shall be construed as to require the Operator to provide any
funds for the operation of the Hotel.  In
the event that the operation of the Hotel requires additional funding, the
Owner shall procure and deliver or cause to be delivered to the Operator
additional Working Capital upon thirty (30) days’ (or, in the case of an
emergency or if called for in the Budget, ten (10) days’ prior notice, provided
that after the first full Calendar Year following the Calendar Year in which
the Commencement Date occurs, said ten (10) days’ notice shall increase to
twenty (20) days.  The Owner’s provision
of any such additional Working Capital shall not be deemed a waiver of any
rights of approval of any Hotel expense that may be provided for in this
Agreement.

 23
 

 

(b)           In
furtherance of Sections 5.1 and 8.4(a) hereof, if the Owner does
not provide such additional Working Capital within the specified time period in
breach of this Agreement, after the Operator’s request therefore as provided
for in subsection (a) above, the Operator, unless (solely where same is not in
the Budget) the Owner notifies the Operator that the Operator is not permitted
to do so, may elect to provide such additional funds, and shall be promptly
reimbursed therefore by the Owner out of the Owner’s separate funds (and not
those of the Hotel) with interest thereon at a rate equal to four (4)
percentage points above the prime commercial lending rate of Citibank, N.A. in
New York in effect from time to time (the “Prime Rate”) or the highest
legal rate, whichever is lower, such interest accruing from the date of the
funding by the Operator through and including the date of reimbursement.

(c)           If
the Operator is not reimbursed by the Owner within five (5) days after the
Operator so provides such additional funds, the Operator may reimburse itself
(with interest as set forth above) out of Gross Revenues, which reimbursement
shall not be a Gross Operating Expense (provided that, as applicable, the
expenses  paid for with such funds shall
be treated as a Gross Operating Expense).

(d)           In
addition to the foregoing, the Operator shall also have the right, in the event
of the failure by the Owner timely to make any payments to the Operator as set
forth above, to elect to terminate this Agreement, without payment of the
Termination Fee, upon sixty (60) days’ prior notice to the Owner, and unless
such payment is made within such sixty (60)-day period, this Agreement shall
thereupon automatically terminate without prejudice to the Operator’s right to
sue the Owner for damages.

(e)           The
aforementioned rights of reimbursement and termination shall be in addition to
any other rights which the Operator may have with respect to any provision of
this Agreement or otherwise.

ARTICLE 9

FINANCIAL REPORTING

9.1           Financial
Reporting.  As soon as may be
available following each Calendar Year of the Term, but in no event later than
ninety (90) days after the end of each Calendar Year of the Term, the Operator
shall submit to the Owner a complete set of financial statements which shall be
in accordance with generally accepted accounting principles and consistent with
the Uniform System, including a balance sheet, an Annual Profit and Loss
Statement, and a cashflow statement, along with such other financial
information for the Hotel as the Owner may reasonably require.  The Owner may require that the annual
financial statements be certified by the accountant retained by the Operator
for the Hotel in accordance with Section 4.2(l) of this Agreement.

9.2           Books
of Account.  (a)  The Operator shall keep or cause to be kept,
for the account of the Owner, accurate books of account and other records
reflecting the results of occupancy and operation of the Hotel on an accrual
basis in accordance with the Uniform System with such exceptions as may be
required by the provisions of this Agreement, and in

 24
 

 

accordance with generally
accepted accounting principles applicable to the operation of hotels.  The books and records shall be the property
of the Owner.

(b)           The
Owner may, at its sole cost and expense, and through its duly appointed agents
and representatives, upon reasonable prior notice, inspect and copy all such
operating reports, books and records at reasonable times and during normal
daytime business hours at the office of the Operator, at the address then
current for purposes of notice pursuant to Section 22.1 hereof.

(c)           The
Operator shall provide to the Owner upon request a copy of such daily rate and
occupancy report as it may prepare and deliver to its home office.

9.3           Profit
and Loss Statement.  (a)  The Operator shall use its reasonably
diligent efforts to submit to the Owner, within twenty (20) days after the end
of each month, but in no event more than thirty (30) days after the end of each
month, a profit and loss statement showing the results of operations of the
Hotel for such month, together with the results of operations for the period
from the beginning of the Calendar Year to the end of such month  and a comparison of actual results to the
Budget (collectively, the “Monthly Report”).  Such statement shall:  (i) be in the customary form, in the same
detail as generally prepared by the Operator or its Affiliates in connection
with other hotels operated or managed by it or them and of the minimum standard
required by the Uniform System; (ii) be taken from the books and records
maintained by the Operator; (iii) follow the general form set forth in the
Uniform System; and (iv) be accompanied by an income/expense statement, a
balance sheet  and cash flow statement,
and any other financial statement reasonably requested by the Owner (to the
extent same is customarily provided by the Operator or its Affiliates in
connection with the other hotels operated or managed by it or them or is
otherwise consistent with the Uniform System or required by the Holder of the
Existing Loan Documents pursuant to the terms thereof).  If necessary, a request for funds for Working
Capital for the following month or months shall be submitted with each Monthly
Report.

(b)           Within
forty-five (45) days of the last day of each calendar quarter, Operator shall
furnish to Owner (and upon request of Owner to the Holder of the Existing Loan)
a detailed operating statement (showing quarterly activity and year to date)
showing operating revenues, operating expenses, operating income, net operating
cash flow and capital improvements for the calendar quarter just ended (a “Quarterly
Report”).  Such statement shall:  (i) be in the customary form, in the same
detail as generally prepared by the Operator or its Affiliates in connection
with other hotels operated or managed by it or them and of the minimum standard
required by the Uniform System; (ii) be taken from the books and records
maintained by the Operator; (iii) follow the general form set forth in the
Uniform System; and (iv) be accompanied by an income/expense statement, a
balance sheet and cash flow statement, and any other financial statement
reasonably requested by the Owner (to the extent same is customarily provided
by the Operator or its Affiliates in connection with the other hotels operated
or managed by it or them or is otherwise consistent with the Uniform System or
required by the Holder of the Existing Loan Documents pursuant to the terms
thereof).  If necessary, a request for
funds for Working Capital for the following month or months shall be submitted
with each Quarterly Report.

 25

 

9.4           Business Plan.

(a)           Not
later than ninety (90) days after the commencement of each Calendar Year
following the Calendar Year in which the official opening of the Hotel occurs,
or at such earlier time as may be required by the Owner’s Loan Documents (but
subject in such instances to the Operator’s right to submit for approval in
accordance with this Section a modified Business Plan following the
commencement of the Calendar Year to which such Business Plan relates), the
Operator shall submit to the Owner for its approval (which approval is not to
be unreasonably withheld or delayed) a Business Plan for the operation of the
Hotel including estimated cashflow, any proposed expenditure for that Calendar
Year and an estimate of Net Operating Profits, together with a description of
the assumptions used in preparing the Business Plan in narrative form.  In the event that the Owner and the Operator
shall be unable to agree upon the Business Plan for Calendar Year 2008 (assuming
the official opening of the Hotel occurs in 2007) within thirty (30) days
following the submission of same by the Operator to the Owner for approval,
such matter (or any line items that are in dispute, if said Business Plan shall
be partially agreed upon) shall be submitted to arbitration in accordance with
Section 9.6 hereof.  In the event that
the Owner and the Operator shall be unable to agree upon any Business Plan
(after the Business Plan for Calendar Year 2008) for any Calendar Year during
the Term, until any dispute regarding the Business Plan is settled, those line
items in dispute, if any, other than expenditures for any capital improvements
which pursuant to the terms hereof require the Owner’s approval, shall be the
same as was provided in respect of such line items in the Business Plan for the
prior Calendar Year increased by the lesser of (i) five (5%) percent or (ii)
the percentage increase so requested for such disputed line item by
Operator.  Further to the foregoing, said
Business Plan may include line items which were not in the Business Plan for
the prior Calendar Year to the extent same are reasonable in relation to the
business of the Hotel, and the overall
Budget, taking into account all permissible increases in line items from the
prior Calendar Year and the addition of the new line items, does not increase
by more than five (5%) percent.

(b)           Notwithstanding
the foregoing provisions of this Section 9.4 or any other provision of
this Agreement to the contrary, the Operator may make additions, deletions or
other changes to the Budget, including, without limitation, the services
comprising Chain Services and reallocations between line items (including Chain
Services) set forth in a Budget as the Operator may determine in its sole
discretion to be appropriate without the prior approval of the Owner  and, in connection therewith, may increase
any line item by up to ten (10%) percent (or more if, as a result thereof, the
overall Budget shall not increase by more than five (5%) percent; provided
that (v) in no event shall an increase in the salaries of the Operator’s senior
employees increase more than five (5%) percent (and such increases shall not
cause an increase in the overall Budget of more than two and one-half (2.5%)
percent, (w) the Operator delivers notice of each change or reallocation to the
Owner together with an explanation of the reasons for such reallocation, (x)
the purpose of such reallocation may not be to increase profits paid to
Affiliates of the Operator, (y) such change or reallocation shall not be
permissible hereunder to the extent that it will result in the failure of the
Operator to operate the Hotel in accordance with the Hotel Standards and (z)
the calculation of the amount of funds available for any such change or
reallocation shall account for all funds actually expended, all funds committed
to expenditure under any agreements for materials, goods or services and all
funds whose expenditure shall be necessary in order to operate the Hotel in
accordance with the Hotel Standards.  For
the

 26
 

 

avoidance of doubt, in no
event shall any such reallocation result in the overall Budget being exceeded
by more than five (5%) percent.

9.5           Estimates
and Projections.  All estimates and
projections of the economic results of the operation of the Hotel made by the
Operator in contemplation of or in the course of implementing this Agreement
(including, without limitation, those made pursuant to Section 9.4) need
not take into account, or make provision for, any then unknown Force Majeure,
and the Operator does not warrant or guarantee such projections in any way
whatsoever.  The Operator, however, shall
utilize its expertise in preparing the same. 
Any use of this information by the Owner or any other person is based on
this understanding. 

9.6           Arbitration.
In the event that the parties cannot agree on the identity of the Competitive
Hotels, Business Plan, Budget for any Calendar Year or revisions to the Budget
subject to Owner approval as provided in this Article 9, or in the event any
other matter in this Agreement is expressly subject to arbitration, any dispute
in connection therewith (and no other matters) may be submitted, by either
party, to binding arbitration in Miami-Dade County, Florida under the Expedited
Procedures provisions in the current edition of the Commercial Arbitration
rules of the American Arbitration Association or any successor thereto.  The decision of the arbitrator shall be final
and conclusive with respect to such submitted matter(s) and the arbitrator
shall not have any right or power to consider, determine or resolve any other
issue or dispute between the parties, or to alter, modify or amend any of the
provisions of this Agreement.  The party
subject to an adverse arbitral determination shall be responsible for all
reasonable costs and fees of such arbitration (to the extent such arbitral
determination is adverse to such party), but each party shall separately pay
for its own attorneys’ fees and disbursements. Notwithstanding the foregoing,
in the event the dispute involves the Business Plan or Budget, the parties
shall select, as the sole arbitrator of the dispute,  a member of a national accounting firm which
has a substantial hospitality practice and who shall not have been hired by
either party (or any Affiliate thereof), within twenty-four (24) months prior
thereto.  The arbitrator may conduct the
arbitration informally and without strict adherence to the rules of evidence
and may, applying such arbitrator’s experience, consider such matters as such
arbitrator deems appropriate to reach a decision.  Each party will cooperate with such
arbitrator and will provide to such arbitrator all data and information
reasonably requested by such arbitrator to the end that such
arbitrator/accountant may reach a decision as to the Competitive Hotels
Business Plan or Budget disputes as rapidly as possible.  Except as expressly set forth in Section 9.6
to the contrary, the parties hereto each reserve all rights and remedies, at
law or in equity, with respect to any and all disputes in relation to this
Agreement other than disputes expressly subject to arbitration under this
Agreement.

9.7           Operator
shall maintain at the Hotel books and records reflecting the results of
operation and maintenance of the Rental Program, in accordance with the Unit
Rental Agreements.  The foregoing books
and records shall, to the extent related to the Hotel, be kept in all material
respects in accordance with the then latest edition of the Uniform System of
Accounts, and otherwise in accordance with the generally accepted accounting
principles. 

 27
 

 

ARTICLE 10

THE OPERATOR’S FEES

10.1         Base
Fee.  In addition to any
reimbursements required hereunder (including, without limitation, for Chain
Services), the Owner shall pay or cause to be paid to the Operator a “Base Fee”
consisting of the sum of (a) in consideration of the Operator’s performance of
managerial services hereunder with respect to the Hotel, other than the Other
Managed Elements, as hereinafter defined, and for each Calendar Year, or
portion thereof, during the Term hereof, an amount equal to four (4%) percent
of Gross Revenues, plus; (b) in consideration of the Operator’s performance of
managerial services hereunder with respect to condominium units owned other
than by the Owner, any voluntary rental program for the rental of condominium
units owned other than by the Owner, and any and all elements of the Building
or the Hotel that are not owned by the Owner (all of such non-owner owned
elements of the Building or the Hotel being collectively referred to as the “Other
Managed Elements”) and for each Calendar Year, or portion thereof, during the
Term hereof, an amount equal to ten (10%) percent of Gross Revenues
attributable to or derived from only the Other Managed Elements; provided,
however, that once Base Fees paid to Operator in a Calendar Year exceed
Two Million Dollars ($2,000,000.00) (the “OME Milestone”), adjusted as
described below, the fee for the management of the Other Managed Elements shall
thereafter be an amount equal to four (4%) percent of the Gross Revenues
attributable to or derived from only the Other Managed Elements; said Base Fee
shall be payable in advance in monthly installments based each month upon the
actual Gross Revenues for the prior month, subject to adjustments for
overpayment or underpayment for the prior month(s) when actual Gross Revenues
are determined  The monthly payment for
the first month of the Term shall be based on a pro forma estimate of
anticipated Gross Revenues for said month. 
On or before March 31 of each Calendar Year, the Operator and the Owner
shall make any required further adjustment for any overpayment or underpayment
of the Base Fee during the preceding Calendar Year or portion thereof based
upon the audited annual financial statements for the Hotel contemplated by Section
9.1.

If the first or last
years of the Term of this Agreement are less than full Calendar Years, then for
such partial calendar year, the OME Milestone shall be adjusted
accordingly.  Additionally, beginning on
January 1 of the second full calendar year of the Term, and annually on January
1 of each succeeding year thereafter (the “Adjustment Date”), the OME Milestone
shall be adjusted to the extent of any increase based upon the U.S. Daily
Average, (the “Adjustment Rate”) all Urban Consumers (CPI-U) all items (198284
= 100) prepared by the United States Department of Labor (the “CPI”), whereby
the CPI in effect on January 1 of the year preceding the Adjustment Date shall
be considered as the base, and the price index in effect for the most recent
CPI available on the Adjustment Date shall be compared with this base index
figure; provided, however, in no event shall the adjusted OME Milestone exceed
the prior OME Milestone by more than the percentage increase in the RevPAR
Index for the Competitive Hotels as set forth on the Smith Travel-Star Market
Report (or a successor index, appropriately adjusted; provided, that,
if there shall be no successor index, a substitute index reasonably acceptable
to the Operator and the Owner; and provided  further, if the
Operator and the Owner shall be unable to agree upon a substitute index, such
dispute shall be resolved by arbitration in the manner provided for in Section
9.6), for the same period.

 28
 

 

10.2         Annual Incentive Fee.

(a)           In
addition to the Base Fee payable to the Operator hereunder for each Calendar
Year or portion thereof during the Term, the Operator shall be entitled to
receive an Annual Incentive Fee for each Calendar Year or portion thereof
equivalent to the percentage of the Net Operating Profits per Calendar Year set
forth on Schedule 10.2, attached hereto and made a part hereof.  The Annual Incentive Fee shall be payable by
the Owner to the Operator within fifteen (15) Business Days after receipt by
the Owner of the Operator’s statement of Net Operating Profits and the Annual
Incentive Fee for the preceding Calendar Year.

(b)           Notwithstanding
the foregoing, except in connection with a termination of this Agreement, in
which case any and all amounts on account of the Annual Incentive Fee, whether
due in connection with the termination or previously accrued and unpaid, shall
be due and payable in accordance with the terms of this Agreement, to the
extent that the Net Operating Cash Flow (as defined in the Operating Agreement)
shall be insufficient to pay the same currently, such unpaid amounts shall
accrue and the Operator shall receive interest thereon at the rate of five (5%)
percent per annum, compounding until paid. 
Such amounts shall be paid as soon as and to the extent there exists Net
Operating Cash Flow or Capital Event Proceeds (as defined in the Operating
Agreement).

10.3         Disbursement
of Fees.  The Operator is authorized
to disburse to itself from the Operating Account the amounts owing as the Base
Fee but, if insufficient funds are available to do so, such amounts shall
accrue and the Owner shall pay same to the Operator within five (5) days after
notice from the Operator. 
Notwithstanding the foregoing, in the event that, at any time, available
Net Operating Profits are insufficient to pay the amounts owing as the Base
Fee, payment of up to one-half of the Base Fee shall be deferred (except in the
case of the initial Calendar Year, wherein the greater of (x) one-half of the
Base Fee or (y) an amount equal to 4.5% of revenues generated from
Participating Condominium Units shall be deferred) until Net Operating Profits
are available to pay same, but not beyond three years.

10.4         Payment
on Termination.  (a)  As provided in Section 18.1, in the
event of a termination of this Agreement, the Base Fee and Annual Incentive Fee
to which the Operator would be entitled shall be prorated for the Calendar Year
in which such termination occurred to the date of termination and shall be paid
to the Operator within sixty (60) days after the date of termination.

10.5         Franchise
Fee.  In connection with the sale of
Units, the Operator shall be paid a franchise fee (the “Franchise Fee”) which
shall consist of a base fee equal to one percent (1%) of a Unit’s Gross Sales
Price (as below defined), up to that portion of the Gross Sales Price attributable
to a price of $800.00 per square foot (the “Base Franchise Fee”), and ten
percent (10%) of the Unit’s Gross Sales Price attributable to a sales price
greater than $800.00 per square foot (the “Incentive Franchise Fee”).  For example, if a Unit containing 1,000
square feet is sold for $1,000,000.00 ($1,000.00 per foot), the Operator would
receive $28,000.00.  The Franchise Fee is
to be paid out of the proceeds of Unit sales. Payment of the Incentive Franchise Fee by Owner is subject to deferment
as currently described in Section 11.2 of the Operating Agreement of 1100 West
Holdings, LLC, which Operator agrees to be bound by. For purpose of
calculating the Franchise Fee, the Gross Sales Price of a Unit shall mean the
gross sales price net of the

 29
 

 

portion of the such gross sales price attributable to
non-standard upgrades and seller concessions, if any.

ARTICLE 11 

INSURANCE

11.1         Insurance.

(a)           In
the name and for the account of the Owner, with any costs incurred hereunder to
be paid by the Owner and treated as a Gross Operating Expense, the Operator
shall use its reasonable efforts to obtain (i) the insurance reasonably
required by Owner and approved by the Operator, (ii) (to the extent such
insurance is available), insurance against such other risks against which it is
hereafter customary to insure in the operation of similar properties, having
regard for the nature of the business and the geological and climatic nature of
the Hotel’s location, and (iii) (to the extent such insurance is available), business
interruption and such other insurance as shall be necessary to pay to the
Operator its Base Fee following a casualty as contemplated by this
Agreement.  The Operator shall not be
paid a separate fee for its efforts to obtain any such insurance.

(b)           The
Operator shall, to the extent the same is available, obtain at the Owner’s sole
cost and expense such industry standard professional liability coverage in
respect of the Operator’s liabilities pursuant to this Agreement as the
Operator reasonably determines is required.

11.2         Certificates.  The Operator shall deliver certificates of
all insurance containing a thirty (30) days’ notice of cancellation clause
pertaining to the Hotel to the Owner upon request.  Such policies shall be written to insure the
Owner, the Operator (for liability policies only) and any Holders, as their
respective interests may appear.

11.3         Blanket
Coverage Permitted.  The Operator may
maintain any insurance permitted or required by this Agreement under a blanket
policy, subject to the approval of any Holder.

11.4         Owner’s
Approval.  Owner’s approval shall be
required for all insurance obtained by the Operator to the extent that the cost
thereof is not covered by the Budget. 
Notwithstanding the foregoing, the Operator may obtain as an expense of
the Hotel, such industry standard liability coverage as the Operator reasonably
determines is required in the event the Owner fails to approve such coverage.

11.5         No
Right of Subrogation.  All policies
of insurance shall provide that the insurance company shall have no right of
subrogation against either party hereto, their agents, principals or
employees.  The Owner assumes all risks
in connection with the adequacy of any insurance and waives any claim against
the Operator for all liabilities, costs or expenses arising out of any
partially or totally uninsured claim, of any nature whatsoever, except where
the Operator has failed to place and maintain insurance in accordance with the
provisions hereof.

 30
 

 

11.6         Alternative
Insurance.  If, at any time during
the Term hereof, the Owner is able to obtain alternative insurance in respect
of the Hotel affording coverage equivalent to that which the Operator is
required to provide hereunder by companies of recognized responsibility and at
a lower cost than obtainable by the Operator, then the Owner shall be entitled
to procure such insurance for the Hotel at such lower cost upon the same terms
required under this Article 11.

ARTICLE 12

12.1         Property
Taxes.  Except to the extent that
money is deposited in escrow with a mortgagee for payment of the same, the
Operator shall pay when and as the same are due and payable (unless same are
contested by the Owner or the Operator with the Owner’s consent), in the name
and for the account of the Owner, in such installments as permitted by
Applicable Law, all water charges, real estate taxes and assessments, (which,
at the Owner’s direction, may be paid prior to delinquency), use and sales
taxes, personal property taxes, historic or landmark district assessments,
betterment assessments and withholding taxes levied or assessed on or against
the Hotel or any portion thereof or with respect thereto for any fiscal period
of the taxing authority, all or any part of which period is included in the
Term of this Agreement.  The portion of
any such amount so paid which is allocable to a period during the Term shall be
included in the Annual Profit and Loss Statement for the Calendar Year in which
such amount is determined.

12.2         Right
of Contest.  Upon prior notice to the
Owner, the Operator may in good faith, and provided that same does not create
civil or criminal liability for the Owner, or constitute a default under any
Security Agreement then in effect, at any time contest the validity or the
amount of any such tax or assessment in the name of the Owner, and any refund
or rebate less related costs shall be included in the Annual Profit and Loss
Statement for the Calendar Year in which such refund or rebate is determined,
the refund or rebate shall be included in Gross Revenues and the related cost
in obtaining such refund or rebate shall be deemed a Gross Operating Expense,
provided that any refund (and related expenses) attributable to a period
outside of the Term shall not be included in Gross Revenues (Gross Operating
Expenses).  The Owner shall have the
right to so contest the validity or amount of any tax or assessment in its own
name as an operating expense of the Hotel.

ARTICLE 13

MAINTENANCE AND REPAIRS

13.1         Maintenance and
Repairs.

(a)           Subject
to provisions for the necessary Working Capital in the Business Plan, the
Operator shall, from time to time, make such expenditures for repairs and
maintenance as it deems necessary to keep the Hotel in good operating condition
consistent with the Hotel Standards.

(b)           In
order to maintain the Hotel in accordance with the Hotel Standards, the
Operator may, without the consent of (but on notice to) the Owner, make
expenditures for repair and maintenance to the Hotel in amounts not in excess
of ten (10%) percent over and above any line item in the then-current Business
Plan providing for repair and maintenance without being

 31
 

 

obliged to reallocate
such funds from other line items contained therein, provided that same shall be
subject to the overall limitations on increases in the Budget pursuant to
Article 9.  The Operator further agrees
that prior to making such expenditures in excess of a line item in the Budget,
the Operator shall first pay for same from any FF&E Reserve held by Owner
or Operator, from any condominium assessment or assessments made for the use of
Shared Facilities or request the release of funds from any then existing
FF&E Reserve being held by any Holder for the purpose of paying for same; provided,
however, that the failure or refusal of any lender to make such funds available
shall not limit or effect the Operator’s right to take the action contemplated
by this Section.

(c)           The
Owner may, from time to time at its separate expense, make such further
alterations, additions or improvements in or to the Hotel as the Operator shall
approve, such approval not to be unreasonably withheld or delayed, all of which
shall be made without material interference to the operation of the Hotel.  The Owner shall consider, but shall not be
required to make (unless same are necessary to operate the Hotel at or to
maintain the Hotel Standards or in compliance with Applicable Law), any
alterations, additions or improvements recommended by the Operator.

(d)           If
structural or extraordinary repairs or changes in the Hotel shall be required
at any time during the Term of this Agreement to maintain the Hotel in good
operating condition, or structural or extraordinary repairs or changes in the
Hotel or extraordinary alterations to the Hotel shall be required at any time
during the Term of this Agreement by reason of any laws, ordinances, rules or
regulations now or hereafter in force, or by order of any governmental or
municipal power, department, agency, authority or officer, or otherwise, or
because the Owner, subject to the Operator’s approval, such approval not to be
unreasonably withheld or delayed, determines the desirability thereof, then, in
such event, subject to the Owner’s rights to not make the same under Section
5.1 hereof, all such repairs, changes or replacements shall be made by the
Owner, or by the Operator if directed by the Owner, and at the Owner’s expense
subject to funding for any FF&E Reserve, condominium assessments, or Shared
Facilities assessments.  Notwithstanding
the foregoing, the Owner shall have the right to contest the need for any such
repairs, changes or replacements required by any law, ordinance, regulation or
order of governmental authority and may postpone compliance therewith, if so
permitted by law, unless the Operator reasonably determines that such repairs,
changes or replacements are required to prevent the continuation of a dangerous
condition.

(e)           Each
Participating Unit Owner shall be responsible for providing the funds necessary
to maintain the FF&E within its Participating Condominium Unit in good
repair and in condition consistent with the Hotel Standards.  Notwithstanding anything to the contrary set
forth herein, the responsibility to provide funds for repairs, replacements,
corrections, and maintenance within a Participating Condominium Unit shall be
with the owner of the subject Hotel Condominium Unit, Operator shall have the
right to suspend a Participating Condominium Unit from participation in the
Rental Program in the event that sufficient finds to enable Operator to
maintain such Participating Condominium Unit in accordance with the Hotel
Standards are not made available to Operator by deposit to the Participating
Condominium Unit’s FF&E Reserve Account or otherwise.

 32
 

 

ARTICLE 14

DAMAGE BY FIRE OR OTHER CASUALTY

14.1         Damage by Fire or
Other Casualty.

(a)           If
the Hotel or any portion thereof shall be damaged or destroyed at any time or
times during the Term by fire, casualty or any other cause, the Owner may
decide, but shall not be obligated, at the Owner’s sole cost and expense and
with due diligence, to repair, rebuild or replace the same so that after such
repairing, rebuilding or replacing, the Hotel shall be substantially the same
as prior to such damage or destruction. 
If the Owner decides to so repair, rebuild or replace, the Owner shall
undertake such work within ninety (90) days after the proceeds of any insurance
are made available to the Owner, subject to the rights of any Holder of any
Security Agreement, for such repairing, rebuilding or replacing, and shall
complete the same diligently.  Without
limiting the Operator’s rights to terminate this Agreement pursuant to Section
14.2 hereof, if the Owner elects not to undertake such work in accordance
with the provisions of this Section 14.1, the Operator may, by notice to
the Owner made within thirty (30) days following the expiration of the period
allotted to the Owner to commence such work, terminate this Agreement, such
termination to be effective as of the date of such notice.

(b)           At
all times during the period that all or any part of the Hotel is damaged or
destroyed, and until operations of the Hotel are fully recommenced, or Owner
notifies Operator the Hotel will not be rebuilt by the Owner, the Operator
shall be paid by the Owner (from and to the extent that business interruption
insurance or other comparable coverage is in place and sufficient to make such
payments) each month during such period of damage or destruction, an amount
equal to the greater of (i) the Management Fee earned during such month
calculated in accordance with the terms hereof, and (ii) the average total
monthly payments paid to the Operator for the twelve (12) months preceding the
damage or destruction (or such lesser actual period if the Hotel has been
managed by the Operator for less than twelve (12) months).

14.2         Right
of Termination Upon Total Destruction. 
If the Hotel shall be totally or substantially destroyed by fire or
other casualty, each party shall have the option to terminate this Agreement by
notice served upon the other within one hundred twenty (120) days after such
fire or other casualty; provided, however, that in the event that the decision
not to rebuild is solely within the discretion of Owner, and is not controlled
or influenced by, a Holder, the Declaration or the Hotel Condominium
Association, the Owner shall only have such termination right to the extent
that the Owner elects, in its sole discretion, not to rebuild the, or otherwise
construct a, Hotel, and in connection therewith, pays to the Operator on the
effective date of such termination, an amount equal to the Termination Fee (as
hereinafter defined).  Any such notice of
termination shall become effective thirty (30) days after the giving of the
same.

ARTICLE 15

CONDEMNATION

15.1         Total
Taking.  If all of the Hotel shall be
the subject of a taking or condemnation in any eminent domain, condemnation or
like proceeding by any competent authority, or if such

 33
 

 

a portion thereof shall
be taken or condemned as to make it imprudent or unreasonable, in the
reasonable opinion of the Owner or the Operator to use the remaining portion as
a hotel of the type and class of the Hotel immediately preceding such taking or
condemnation, then, in either event, this Agreement shall cease and terminate
as of the date upon which the Owner or the Operator determines that the parties
shall surrender possession.  Any award
for such taking or condemnation shall belong in its entirety to the Owner, and
the Operator waives any right to such proceeds and assigns to the Owner any
rights it may otherwise have therein, provided that in connection with any such
taking, the Owner shall pay to the Operator on the effective date of such
termination, an amount equal to the Termination Fee (as hereinafter defined).

15.2         Partial
Taking.  If only a part of the Hotel
shall be the subject of a taking or condemnation, and the Owner does not
terminate this Agreement under Section 15.1, the Owner may repair any
damage or alter or modify the Hotel, to the extent of the award recovered, in
accordance with plans and specifications reasonably approved by the
Operator.  In the event of a partial
taking, the Operator shall be entitled to terminate this Agreement if any
material construction is required and not completed by the Owner within two
years following the taking or condemnation. 
Any amount of the award not expended for such work shall belong to the
Owner.  At all times until operations of
the Hotel are fully recommenced, the Operator shall be paid by the Owner each
month an amount equal to the greater of (i) the Management Fee earned during
such month calculated in accordance with the terms hereof, and (ii) the average
total monthly payments paid to the Operator for the twelve (12) months
preceding the taking or condemnation (or such lesser actual period if the Hotel
has been managed by the Operator for less than twelve (12) months); provided,
however, that to the extent the payment to Operator exceeds the amount
due pursuant to clause (i) of this subsection (b), such excess shall be paid
from and to the extent of insurance or a condemnation award received for the
purpose of compensating for lost revenues.

ARTICLE 16

TERMINATION OF AGREEMENT BY THE OWNER

16.1         Termination
of Agreement by the Owner.  If one or
more of the following events shall occur they shall be deemed to constitute an “Event
of Default” hereunder, and the Owner may terminate this Agreement (without
payment of a Termination Fee) by sixty (60) days’ prior written notice to the
Operator specifying the details of such event:

(a)           If
the Operator or Morgans Hotel Group LLC shall apply for or consent to the
appointment of a receiver, trustee or liquidator of the Operator or of all or a
substantial part of its assets, file a voluntary petition in bankruptcy, or
admit in writing its inability to pay debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer seeking
reorganization or rearrangement with creditors or to take advantage of any
insolvency proceeding, or if any order, judgment or decree shall be entered
into by any court of competent jurisdiction, on the application of a creditor,
adjudicating the Operator a bankrupt or insolvent or approving a petition
seeking reorganization of the Operator or appointing a receiver, trustee or
liquidator of the Operator or of all or a substantial part of its assets; or

 34
 

 

(b)           If
the Operator shall commit fraud or willful misconduct with respect to the
Hotel; or

(c)           If
the Operator shall fail to perform its obligations under this Agreement, (i)
resulting in the Hotel or material portions thereof being shut down by
governmental authorities, or (ii) the result of which is the threatened
shut-down by governmental authorities of the Hotel or material portions
thereof, and the Operator does not remedy such failure or stay such shut-down
prior to the date threatened therefore by the governmental authorities; or

(d)           If
there is a default by the Operator hereunder in the performance of any material
term, covenant or condition of this Agreement not otherwise specified in this
Article, and Operator (i) shall not commence to cure the same twenty (20) days
after receipt of written notice from the Owner specifying such default, and
continuously make commercially reasonable efforts to cure the same thereafter
(provided if such default by Operator shall constitute an Event of Default of
Owner under the Existing Loan, Operator shall cause such default to be cured
within the applicable grace period currently provided for under Owner’s Loan
Documents with respect to the Existing Loan), or (ii) after acknowledging such default,
Operator shall provide notice to Owner that Operator does not intend to cure
the same; or

(e)           If
the Operator’s interest under this Agreement shall be taken on execution of a
judgment or foreclosure; or

(f)            If
the Operator defaults under any subordination agreement with any Holder and
such Holder declares a default and successfully effects a termination of this
Agreement pursuant to said subordination agreement; or

(g)           If
the Operator assigns this Agreement in violation of the terms of this Agreement.

16.2         Termination
for Failure to Meet Performance Standard.  
(a)  In addition to the Owner’s
rights to terminate set forth in Section 16.1, the Owner may terminate this
Agreement by sixty (60) days’ prior written notice to the Operator, without
paying any Termination Fee, in the event that, following the first full
Calendar Year of operation of the Hotel by the Operator, the Hotel thereafter,
in each of three (3) consecutive Calendar Years fails to generate Net  Operating Profits for each such Calendar Year
equal to or greater than eighty-five (85%) percent of the Projected NOP for
such Calendar Year; provided, however, that the Projected NOP for
any such Calendar Year shall be equitably adjusted in a fair and reasonable
manner to take into account any Force Majeure affecting the Hotel and its
operations during such Calendar Year.

(b)           Notwithstanding
anything to the contrary contained herein, and subject to paragraph (c) below,
the Operator may avoid a termination of the type provided for in this Section
16.2 by (i) paying to the Owner, within thirty (30) days of receipt of the
Owner’s notice to terminate, an amount equal to the difference between Net
Operating Profit and eighty-five (85%) percent of the Projected NOP for the
second or third of the three Calendar Years of measurement, or (ii) in the
consecutive year (or years) following a Calendar Year in which Operator has
made a payment (or loan, as the case may be) as provided in subsection (i)
above, making a loan to the Owner in the amount of the actual deficit from
Hotel Operations sufficient

 35
 

 

to produce a Net
Operating Profit for such Calendar year (a “Remedial Loan”).  A Remedial Loan shall accrue no interest and
shall be repayable to the extent of any Net Operating Profit in any subsequent
calendar year (or years) (provided in any such year in which the Operator shall
accept a repayment of a Remedial Loan, Net Operating Profit shall exceed 85% of
Projected NOP).

(c)           The
Hotel shall not be deemed to have failed to reach the Projected NOP for any
Calendar Year in which the Hotel’s RevPAR is equal to or greater than one
hundred (100%) percent of the RevPAR Index for the Competitive Hotels as set
forth on the Smith Travel-Star Market Report (or a successor index,
appropriately adjusted; provided, that, if there shall be no
successor index, a substitute index reasonably acceptable to the Operator and
the Owner; and provided  further, if the Operator and the Owner
shall be unable to agree upon a substitute index, such dispute shall be
resolved by arbitration in the manner provided for in Section 9.6).

16.3         No
Limitation of Rights and Remedies. 
The rights of termination granted to the Owner in this Article 16 shall
be in addition to any other right or remedy that may otherwise be available to
the Owner.  Subject to the provisions of Section
22.8 hereof, the Owner shall be entitled to obtain specific performance
from the Operator and any actual damages arising from the Operator’s default
but shall not be allowed to sue for consequential damages.

ARTICLE 17

TERMINATION OF AGREEMENT BY THE OPERATOR

17.1         Termination
of Agreement by the Operator.  If one
or more of the following events shall occur they shall be deemed to constitute
an “Owner Default” hereunder, and the Operator may terminate this Agreement by
sixty (60) days’ (or thirty (30) in the case of a monetary default) prior
written notice to the Owner specifying the details of such event, unless, with
respect to an Owner Default of the type set forth in paragraph (a) below, the
Owner shall have cured same within such sixty (60)-day period or the Owner
shall be diligently attempting to cure same in accordance with the terms of
paragraph (a) below, as the case may be:

(a)           if
there is a material default by the Owner hereunder which is not cured within
sixty (60) days after receipt of written notice from the Operator specifying
such default, provided, however, that if such a material default is not able to
be cured within sixty (60) days but is susceptible to being cured, the same
shall not be deemed an Owner Default hereunder unless the Owner fails to
commence the cure of such default within such sixty (60)-day period or
thereafter fails to diligently prosecute such cure to completion; or

(b)           if
the Owner shall be in default in the performance of any material monetary term,
covenant or condition which this Agreement requires the Owner to perform, and
shall fail to cure such default within thirty (30) days after receipt of
written notice from the Operator specifying such default; or

(c)           if
the Owner shall apply for or consent to the appointment of a receiver, trustee
or liquidator of the Owner or of all or a substantial part of its assets, file
a voluntary

 36
 

 

petition in bankruptcy,
or admit in writing its inability to pay debts as they come due, make a general
assignment for the benefit of creditors, file a petition or an answer seeking
reorganization or rearrangement with creditors or to take advantage of any
insolvency proceeding, or if any order, judgment or decree shall be entered
into by any court of competent jurisdiction, on the application of a creditor,
adjudicating the Owner a bankrupt or insolvent or approving a petition seeking
reorganization of the Owner or appointing a receiver, trustee or liquidator of
the Owner or of all or a substantial part of its assets.

17.2         No
Limitation of Rights and Remedies. 
The right of termination granted to the Operator in this Article 17
shall be in addition to any other right or remedy that may otherwise be
available to the Operator.  Subject to
the provisions of Section 22.8 hereof, the Operator shall be entitled to
sue the Owner for specific performance and any actual damages arising from the
Owner’s default but shall not be allowed to sue for consequential damages.

ARTICLE 18

THE OPERATOR’S RIGHT UPON TERMINATION

18.1         The Operator’s Rights
Upon Termination.

(a)           Upon
termination of this Agreement for any reason (including, without limitation,
any termination pursuant to Section 8.4(d), Section 14.2, Section
15.1, Section 15.2, Section 16.1, Section 16.2, or Section
17.1 hereof, to the extent provided therein), and so long as the Operator
is not in default hereunder, the Operator shall be entitled to receive the
following sums: (i) reimbursement of all expenses incurred prior to termination
with respect to the Hotel to the extent the Operator is permitted to obtain
reimbursement from the Hotel or the Owner under this Agreement; (ii) payment of
all of its Management Fees to which it would be entitled under Article 10
to date of termination in accordance with calculations under such article
through the date of termination; and (iii) payment of any other sums due the
Operator hereunder to the date of termination. 
Upon termination of this Agreement, the Operator shall render a final
accounting within sixty (60) days after the end of the month of termination,
regardless of the reason for such termination and all of the foregoing items as
set forth in such final accounting shall be due and payable by the Owner to the
Operator within fifteen (15) days after the delivery of same, unless the Owner
shall dispute a portion of the items claimed to be owed by the Operator, in
which event the Owner shall within said fifteen (15)-day period pay to the
Operator any amounts which are not in dispute and provide a detailed list as to
the items that the Owner is disputing and the reasons therefor.

(b)           Upon
termination of this Agreement, without limiting the Owner’s obligations under Section
3.2 hereof, and subject to the application of the Transition Period under
Section 3.2 hereof, the Operator shall have the right to remove, or cause to be
removed, the Operator’s Tradename from the Hotel and from all items (including,
by way of example and not by limitation, the Building, all Facilities,
FF&E, advertising and marketing materials and Consumable Supplies) used at,
in connection with or in reference to the Hotel.

(c)           The
Operator shall peacefully vacate and surrender the Hotel to Owner on the
effective date of such termination.

 37

 

(d)           Operator
shall assign and transfer to the Owner, to the extent assignable without
premium or penalty (unless such premium or penalty shall be paid by the Owner):

(i)            all
books and records of the Hotel in accordance with Section 18.1(e),
excluding in either case that which constitutes the Operator’s proprietary
information;

(ii)           all
of the Operator’s right, title and interest in and to all liquor, restaurant
and any other licenses and permits, if any, held by the Operator in connection
with the operation of the Hotel; but only to the extent such assignment or
transfer is permitted by applicable law, and such licenses and permits are
exclusive to the Hotel (and not part of any larger license or permit used or
obtained by the Operator) and not proprietary to the Operator or any Affiliate;
and

(iii)          all
of the Operator’s right, title and interest (if any) in and to any and all
contracts (including, without limitation, collective bargaining agreements and
pension plans, leases, licenses or concession agreements and maintenance and
service contracts) in effect with respect to the Hotel as of the date of the
termination of this Agreement, but only to the extent that such assignment or
transfer is permitted by applicable law, and same are exclusive to the Hotel and
not proprietary to the Operator or any Affiliate.

(e)           The
Operator shall provide the Owner with copies of such guest information relating
to existing guests and guests with pending reservations as is reasonably
necessary for the Owner to provide services to such guests and to honor such
pending reservations (together with guest lists and histories.  In addition, upon the expiration or
termination of this Agreement, all of the books of account and financial
records which are the property of the Owner shall be turned over forthwith to
the Owner so as to ensure the orderly continuance of the operation of the
Hotel, but all of such information shall be retained by the Owner and made
available to the Operator at the Hotel, at all reasonable times, for inspection,
audit, examination and copying (at Owner’s expense) for at least three (3)
years subsequent to the date of such expiration or termination.

18.2         Post-Termination
Liability.  Upon termination for any
reason, to the extent that any prospective purchaser, lessee or operator shall
not agree in writing to be responsible to provide and/or does not provide any
of the services contracted for in connection with the business booked for the
Hotel to and including the date of termination, including any and all business
so booked as to which facilities or services are to be furnished subsequent to
the date of termination, provided same were contracted for in accordance with
the Operator’s rights or obligations hereunder, the Owner shall be responsible
and hereby undertakes to perform and provide same, and the Owner hereby agrees
to indemnify and hold harmless the Operator from and against all liability,
loss, damage, cost or expense (including, without limitation, reasonable
attorneys’ fees and disbursements) arising therefrom.

 38
 

 

ARTICLE 19

ASSIGNMENT OF AGREEMENT

19.1         Binding
on Successors and Assigns.  Except as
otherwise expressly provided herein, the terms, covenants and conditions under
this Agreement required to be performed and observed by the Operator or the
Owner shall be binding upon the Operator or the Owner, as the case may be, and
their respective successors and assigns and shall inure to the benefit of the
Owner or the Operator, as the case may be, and their respective permitted
successors and assigns.

19.2         The
Operator’s Right of Assignment.  On
thirty (30) days’ prior written notice to the Owner, the Operator shall have
the right to assign this Agreement in connection with a merger of the Operator
into, or a transfer of substantially all of the assets of the Operator to, any
corporation, limited liability company, partnership or other business entity,
provided that (a) the assignee shall assume the obligations of the Operator
under this Agreement, and (b) the assignee has experience in the operation of
hotels and provides reasonable assurance to the Owner that the Hotel will
continue to be operated as a Morgans Hotel (or a hotel of the same general
style and quality), along with the other then existing Morgans Hotels, in
substantially the same manner as it was operated prior to such transfer.

19.3         The
Owner’s Right of Assignment.  In
connection with the transfer of the Hotel as contemplated in Section 20.1
hereof, on thirty (30) days’ prior written notice to the Operator, the Owner
shall have the right to assign this Agreement to the purchaser under such
transfer, in all cases subject to and in accordance with the provisions of Section
20.1 hereof.

19.4         No
Third-Party Beneficiaries.  Nothing
in this Agreement, express or implied, shall confer upon any person or entity,
other than the parties hereto, their authorized successors and assigns, any
rights or remedies under or by reason of this Agreement.

19.5         Continuing
Liability.  All references to the “Owner”
and the “Operator” throughout this Agreement shall include and apply to their
respective successors and assigns; provided, however, that no
assignment of this Agreement shall relieve the assignor of its obligations and
liabilities under this Agreement for the period prior to the effective date of
such assignment.

ARTICLE 20

SALE OF HOTEL

20.1         Sale
of Hotel.  If the Owner shall sell,
assign, transfer or convey the Hotel or a controlling interest therein at any
time during the Term hereof (collectively, a “Transfer”), this Agreement shall
not terminate or be terminable as a result thereof, but shall continue in full
force and effect and bind the Operator and the Owner’s successors and assigns,
provided that in connection with any such Transfer after the date which is the
third (3rd)
anniversary of the Commencement Date, the Owner shall be entitled to terminate
this Agreement on thirty (30) days’ prior written notice to the Operator,
provided that on any such termination 
the Owner pays to the Operator a sum (the “Termination Fee”)
equal to (i) the net present value, using a ten

 39
 

 

(10%) percent discount
rate, of payments on account of the Base Fee and the Incentive Fee that would
be payable for that period which is then the shorter of (A) the balance of the
Term, or (B) ten (10) years following the date of termination. For purposes of
the foregoing calculation of the net present value of the remaining Base Fee
and Incentive Fee,  the Base Fee and
Incentive Fee for each Calendar Year shall be projected by growing the then
budgeted Base Fee (and Incentive Fee) for the Calendar Year in which the
termination occurs by an amount equal to the lesser of (x) the average increase
in revenues over the prior three (3)-year period, and (y) three (3%) percent
per annum.  In the case of a transfer to
(i) an entity having at least fifty (50%) percent common ownership with the
Owner, or (ii) a Qualified Transferee, upon the transferee assuming in writing
the obligations of the Owner under this Agreement, the transferor shall be
released from liability under this Agreement. 
Notwithstanding the foregoing, the Termination Fee shall not include the
net present value of the Incentive Fee as above provided unless (i) the Owner
is no longer the owner of the Hotel or (ii) the Operator, or an Affiliate of
Operator, shall no longer hold membership interests in Owner as a result of the
“Buy-Sell” provisions of the operating agreement of 1100 West Holdings, LLC
having been initiated by Sanctuary West Avenue, LLC or its successors.

ARTICLE 21

INDEMNITIES

21.1         Indemnities.

(a)           The
Owner shall indemnify and save harmless the Operator from all liability, loss,
damage, cost or expense (including, without limitation, reasonable attorneys’
fees and disbursements) arising from or relating to the management, operation
or maintenance of the Hotel prior to termination of this Agreement, as required
hereunder, except for those liabilities caused by the Operator’s gross
negligence, willful misconduct or fraud in connection with the performance of
its obligations hereunder.  In no event,
however, shall this provision be deemed to create a third-party beneficiary
relationship between the Owner and any third party or give rise to any claim
for consequential damages on the part of the Operator.  In case of any action, suit or proceeding
brought against the Operator and covered by the aforesaid indemnity, the
Operator will notify the Owner of such action, suit or proceeding and the Owner
may and, upon the Operator’s request, shall, at the Owner’s sole cost and
expense, defend such action, suit or proceeding, or cause the same to be
defended by counsel designated by the Owner and approved by the Operator,
except for allegations involving the Operator’s gross negligence, willful
misconduct or fraud.

(b)           The
Operator shall indemnify and save harmless the Owner from all liability, loss,
damage, cost or expense (including, without limitation, reasonable attorneys’
fees and disbursements) arising solely from the Operator’s gross negligence,
willful misconduct (including willful breach of this Agreement) or fraud in
connection with the performance of its obligations hereunder.  In no event, however, shall this provision be
deemed to create a third-party beneficiary relationship between the Operator
and any third party or give rise to any claim for consequential damages on the
part of the Owner. In case of any action, suit or proceeding brought against
the Owner arising from the Operator’s gross negligence, willful misconduct or
fraud in connection with the performance of its obligations hereunder, the
Owner will notify the

 40
 

 

Operator of such action,
suit or proceeding and the Operator may and, upon the Owner’s request, shall,
at the Operator’s sole cost and expense, defend such action, suit or
proceeding, or cause the same to be defended by counsel designated by the
Operator and approved by the Owner, except for allegations for which the Owner
may be liable.

(c)           Provided
that the Owner has (i) furnished sufficient funds for the payment thereof and
(ii) executed, acknowledged and delivered any and all tax returns, agreements
and other documents required by the Operator in connection therewith, the
Operator shall indemnify the Owner from any interest charges, penalties or
fines incurred solely as a result of the Operator’s failure to file sales tax
returns, payroll tax returns or local tax returns on behalf of the Hotel, other
than the Owner’s income tax returns, for any tax period commencing on or after
the date hereof.

(d)           Notwithstanding
any contrary provision herein, both parties shall first look to their own
insurance policies with respect to all losses, damages, costs and expenses
otherwise subject to a demand for indemnification hereunder.

ARTICLE 22

MISCELLANEOUS

22.1         Notices.  All notices required to be given under this
Agreement shall be in writing and shall be sent by hand, by facsimile, by
certified or registered mail, return receipt requested, postage prepaid, or by
overnight courier, as follows:

	
  If to Owner:

  	
   

  	
  Sanctuary West Avenue LLC

  
	
   

  	
   

  	
  4770 Biscayne
  Blvd.

  
	
   

  	
   

  	
  Suite 400

  
	
   

  	
   

  	
  Miami,
  Florida  33137

  
	
   

  	
   

  	
  Attention:  Abraham Galbut

  
	
   

  	
   

  	
  Facsimile (786)
  427-6203

  
	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
  Greenberg Traurig, LLP

  
	
   

  	
   

  	
  1221 Brickell
  Avenue

  
	
   

  	
   

  	
  Miami,
  Florida  33131

  
	
   

  	
   

  	
  Attention Steven
  Goldman, Esq.

  
	
   

  	
   

  	
  Facsimile: (305)
  961-5561

  
	
   

  	
   

  	
   

  
	
  If to Operator:

  	
   

  	
  Morgans Hotel Group Management LLC

  
	
   

  	
   

  	
  475 Tenth Avenue

  
	
   

  	
   

  	
  New York, New York 10018

  
	
   

  	
   

  	
  Attention: 
  Marc Gordon

  
	
   

  	
   

  	
  Facsimile: (212) 277-4260

  
	
   

  	
   

  	
   

  
	
  with copies to:

  	
   

  	
  McDermott Will & Emery LLP

  
	
   

  	
   

  	
  340 Madison Avenue

  
	
   

  	
   

  	
  New York, New York 10017

  

 

 41
 

 

 

	
  

  	
   

  	
  Attention:  Keith
  M. Pattiz, Esq.

  
	
   

  	
   

  	
  Facsimile: (212) 547-5444

  

 

or to such other person
or place as may be designated by notice of one party to the other, and all
notices shall be deemed effective when received.  Unless otherwise notified in writing, each
party shall direct all sums payable to the other party at its address for
notice purposes.  The attorney for any
party may give notices under this Agreement on behalf of such party.

22.2         Governing
Law.  This Agreement is being
executed and delivered in the State of New York and shall be governed by and
construed and interpreted in accordance with the laws of the State of New York
without regard to such jurisdiction’s principles of conflicts of law.   The parties hereby agree to submit to the
jurisdiction of the state or federal courts in the State of Florida for
purposes of any proceeding from or arising out of this Agreement, and further
agree that venue shall be in Miami-Dade County, Florida.

22.3         Captions.  The captions and headings throughout this
Agreement and its table of contents are for convenience and reference only, and
they shall in no way be held or deemed to define, modify or add to the meaning,
scope or intent of any provision of this Agreement.

22.4         Consents.  Except as otherwise expressly provided herein,
whenever in this Agreement the consent, determination, decision or approval of
the Owner or the Operator is required, such consent, determination, decision or
approval shall be in the sole discretion of such party and shall be in writing,
signed by a duly authorized officer or agent of the party granting such consent
or giving such approval.  Whenever in
this Agreement consent or approval is required, the failure to respond within
ten (10) days (unless different time periods are specified herein) of the receipt
of the written request for such consent or approval and the written request
indicates, on the face thereof, that it is a request for consent or approval
the failure to reply to which will be deemed an approval shall be conclusively
deemed to constitute approval.

22.5         The
Operator as Agent.  The Operator will
perform all of its duties hereunder as agent for the Owner, and nothing herein
contained shall constitute or be construed to be or create a co-partnership,
joint venture, trustee, or landlord/tenant relationship between the Owner and
the Operator with respect to the management of the Hotel as provided for in
this Agreement.

22.6         No
Waiver.  No assent, expressed or
implied, by the Owner or the Operator to any breach of or default in any term,
covenant or condition which this Agreement requires to be performed or observed
by the other party shall constitute a waiver of or assent to any succeeding
breach of or default in the same or any other term, covenant or condition
hereof.

22.7         Severability.  In the event that any one or more of the
phrases, sentences, clauses or paragraphs contained in this Agreement shall be
declared invalid by a final or unappealable order, decree or judgment of any
court, this Agreement shall be construed as if it did not contain such phrases,
sentences, clauses or paragraphs.

22.8         No
Recourse.  (a)  Except as provided below, the Operator shall
look solely and only to the Owner’s interest in the Hotel and the Owner’s
interest in any other hotel managed by the Operator and, after receipt by the
Owner, the net insurance proceeds, net condemnation or similar taking awards,
net sale or refinancing proceeds and/or net revenues thereof, for the

 42
 

 

payment, performance and
observance of any amount, obligation or provision on the Owner’s part to be
paid, performed or observed to, or for the benefit of, the Operator under this
Agreement.  Neither any partner, member,
manager, director, officer or shareholder in the Owner nor any disclosed or
undisclosed principal for whom the Owner may be acting (“shareholder or
principal”), nor any of the respective heirs, administrators, executors,
personal representatives, successors or assigns of any of the shareholders or
principals of the Owner, shall have any personal liability or other personal
obligation for a deficiency for or with respect to any payment, performance or
observance of any amount, obligation, liability or provision on the Owner’s
part to be paid, performed or observed under this Agreement or any of the
representations, warranties, covenants, indemnifications or other undertakings
of the Owner hereunder and, except as otherwise provided herein, the Operator
agrees not to seek or obtain a money or other judgment against any shareholder
of the Owner or against any disclosed or undisclosed principal for whom the
Owner may be acting or against any of their respective heirs, administrators,
executors, personal representatives, successors or assigns; provided, however,
nothing herein contained shall be construed to impair the rights or remedies of
the Operator to proceed against the Owner’s interest in the Hotel properties,
or the insurance proceeds, compulsory purchase or similar taking awards, sale
or refinancing proceeds, and/or net revenues thereof, in the event of an Owner’s
Default on the Owner’s part hereunder to the extent permitted above; and provided
further, that the foregoing provisions of this Section shall not (a)
constitute a waiver by the Operator of any obligation of the Owner in this
Agreement or (b) limit the right of the Operator to name any transferee of the
Owner as a party defendant in any action or suit seeking enforcement of the
provisions of this Agreement so long as, in either case, no judgment in the
nature of a personal monetary judgment shall be enforced against any shareholder
or principal of the Owner. 
Notwithstanding any other provision in this Agreement, the Owner shall
in no circumstances (other than for using the Operator’s Tradename or the
Operator’s Materials in violation of the terms hereof, for which Owner shall be
fully liable, including, without limitation, for consequential damages) be
liable to the Operator for any consequential loss or damage suffered by the
Operator (including, without limitation, any loss of profit or loss of value of
goodwill or reputation) arising as a result of any breach by the Owner of its
obligations under the terms of this Agreement or arising in tort or otherwise.

(b)           No
shareholder, director, partner, officer, employee, principal or member of the
Operator shall have liability to the Owner (whether in contract or tort or
otherwise) in connection with the operation of the Hotel or the performance of
the Operator’s obligations hereunder and the Owner’s sole right shall be to
terminate this Agreement in accordance with the provisions hereof and/or to
seek compensation for damages from the proceeds of the insurance described in Section
11.1(b) hereof as more particularly described below; provided that
the foregoing provisions of this Section shall not (a) constitute a waiver by
the Owner of any obligation of the Operator in this Agreement or (b) limit the
right of the Owner to name the Operator as a party defendant in any action or
suit seeking enforcement of the provisions of this Agreement so long as, in
either case, no judgment in the nature of a personal monetary judgment shall be
sought or enforced against the Operator or any partner, director, shareholder,
officer, employee, member or principal of the Operator; provided  further,
that notwithstanding any other provision in this Agreement, the Operator shall
in no circumstances (other than in the case of fraud or fraudulent
misrepresentation) be liable to the Owner for any consequential loss or damage
suffered by the Owner (including, without limitation, any loss of profit or
loss of value

 43
 

 

of goodwill or
reputation) arising as a result of any breach by the Operator of its
obligations under the terms of this Agreement or arising in tort or otherwise.

22.9         Entire
Agreement.  This Agreement
constitutes the entire agreement between the parties hereto relating to the
subject matter hereof, superseding all prior agreements or undertakings, oral
or written.  The Owner has not relied on
any projection of earnings, statements as to the possibility of future success
or other similar matter which may have been prepared by the Operator, and
understands that no representations, warranties or guaranties are, have been or
will be made or implied by the Operator as to the future financial success of
the Hotel.

22.10       Supplemental
Agreements.  The Owner and the
Operator shall execute and deliver all other appropriate supplemental
agreements and other instruments, and take any other action necessary to make
this Agreement fully and legally effective, binding and enforceable as between
them and as against third parties, including the Owner’s filing in appropriate
governmental offices pursuant to any statute, ordinance, rule or regulation
requiring such filing by persons or entities doing business in a name other
than their own, of a certificate or similar document indicating that the Owner
is engaging in the hotel business at the Hotel under the name of the
Hotel.  Failure to execute such
supplemental agreements shall not affect the validity of this Agreement and
this Agreement shall continue to be a valid and binding obligation of the
parties hereto irrespective thereof.

22.11       Estoppel
Certificates.  The Operator and the
Owner each agree, at any time and from time to time, upon not less than thirty
(30) days’ prior notice by the other party hereto, to provide a statement in
writing certifying that this Agreement is unmodified and in full force and
effect (or, if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), and stating whether or
not to the knowledge of the signer of such certificate, there exists any
default in the performance of any obligation contained in this Agreement, and
if so, specifying each such default of which the signer may have knowledge, it
being intended that any such statement delivered pursuant hereto may be relied
upon by the Operator, the Owner, any proposed assignee or transferee of the
Owner or the Operator, or the Holder of any Security Agreement or any
prospective mortgagee in respect of any mortgage placed, or about to be placed,
on the Hotel, as the case may be.

22.12       The
Operator Not a Trustee.  The Operator’s
undertaking to deposit into and hold “all monies in the Operating Account or
Accounts” herein is intended solely to make apparent the ownership interest of
the Owner in the funds in the Operating Account or Accounts from time to time,
and the Operator shall not be held accountable as a “trustee” or fiduciary, in
accordance with Applicable Laws, relative to the Operating Account or Accounts
and the funds therein from time to time, except to the extent that Applicable
Laws impose a mandatory fiduciary duty with respect thereto.  Notwithstanding the foregoing, Operator shall
adhere to standards of good faith and fair dealing in connection with the
handling of money consistent with the practices at other hotels managed by
Operator.

22.13       No
Oral Modification.  This Agreement
may not be modified, amended, surrendered or changed, except by a written
instrument signed by the parties hereto.

 44
 

 

22.14       Force
Majeure.  Notwithstanding anything to
the contrary contained in this Agreement, in the event that the Operator or the
Owner shall be delayed or hindered in or prevented from the performance of any
act required under this Agreement by reason of Force Majeure, then the performance
of such act shall be excused for the period of delay, and the period for the
performance of any such act shall be extended for a period equivalent to the
period of such delay, except as provided otherwise in Section 16.1 of
this Agreement.  A Force Majeure delay
shall be deemed to exist only if the Owner or the Operator, as the case may be,
notifies the other party of such delay in writing with reasonable promptness,
together with an explanation of the nature or cause of the delay; provided,
however, that any delay in so notifying the other party of any event of
Force Majeure shall not negate such event of Force Majeure but shall shorten
the period thereof to the extent that such other party was prejudiced by the
delay in giving such notice.

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

22.16       Not
an Interest in Real Estate.  The
Operator and the Owner agree that it is not the intention of the parties to
this Agreement to convey or create an interest in real property.  Neither party shall have the right to record
this Agreement or any memorandum thereof without obtaining the prior written
consent of the other party hereto.

22.17       Emergencies.  The Operator shall inform the Owner of any
and all emergencies as soon as practicable. 
The Operator shall use its best efforts to obtain the Owner’s prior
approval of any action in response to an emergency.

22.18       Litigation.  The Operator shall institute any necessary or
desirable legal actions or proceedings to collect charges or other income of
the Hotel or to evict or dispossess non-paying or legally undesirable persons
in possession, or cancel or terminate or sue for damages under any agreement
relating to the operation of the Hotel other than this Agreement, provided that
the Operator shall not institute any such action or proceeding without the
prior written consent of the Owner.  The
Operator shall only use counsel approved by the Owner and shall supply the
Owner with a copy of all pleadings and other pertinent papers relating to such
litigation as they become available to the Operator.  The Owner shall be kept informed of the
progress of all such litigation and shall have the right to take control of the
litigation.

22.19       Licenses
and Permits.  Subject to the
requirement that in any case all licenses will be held in accordance with the
provisions of Applicable Laws, the Operator will seek, on behalf of and in the
name of the Owner (unless the law requires that a particular license be in the
name of the Operator, in which case the Operator will give notice to the Owner
and will assign such license to any subsequent operator at the designation of the
Owner as may be allowed by law), the necessary licenses and permits as may be
required for the conduct and operation at the Hotel of the business herein
contemplated.  The Owner agrees to
cooperate fully with the operator in applications for such licenses and permits
and to apply for the same directly if required by Applicable Laws.

 45
 

 

22.20       Mortgage
Lender.  The Owner shall use best
efforts to obtain for the benefit of the Operator a subordination and
non-disturbance agreement from the holder of any such replacement or other loan
encumbering the Hotel on terms, and subject to fees, as are then standard in
the market.  In the event that despite
the exercise of best efforts by the Owner such subordination and non-disturbance
agreement is not obtained, this Agreement shall remain in effect without such
subordination.

22.21       Unit Rental Agreements
and Declaration.

(a)           The
Hotel and the operation of the Hotel shall be subject to the terms of the
Declaration.  Owner acknowledges that the
Operator shall have the right to review and (A) in its reasonable discretion,
to approve, prior to their finalization (i) the Declaration and, in Operator’s
reasonable discretion, any modifications thereto, over which the Owner has
control (through the exercise of voting rights or otherwise), (ii) the form of
purchase contract to be used by Owner with respect to the sale of Hotel
Condominium Units, and (iii) the form of Unit Rental Agreement to be used by
the Owner in connection with the Rental Program, and (B) in its reasonable discretion,
review and approve any modification to the Declaration over which the Owner has
control which is: (a) likely to adversely affect the Operator’s ability to
operate the Hotel in accordance with the Hotel Standards; (b) likely to
adversely affect the Owner’s ability to ensure that all components of the Hotel
and Project are constructed, operated and maintained in accordance with the
Hotel Standards; (c) likely to alter the Operator’s responsibilities or its
ability to perform its obligations under the Agreement; or (d) likely to
violate any applicable laws, including, but not limited to, state or federal
securities laws, or cause the Operator to incur material liability under
applicable laws or to third parties.

(b)           The
Operator shall maintain copies of executed counterparts of all Unit Rental
Agreements for review by Owner.

(c)           As
part of its operation of the Hotel, the Operator shall administer the Owner’s
duties and responsibilities under the Declaration and shall administer the
Declaration through the exercise of the rights of Owner thereunder.  In carrying out these responsibilities,
Operator will not be responsible for any of the Owner’s obligations under the
Master Declaration which result from the Owner’s failure to pay sums due from
the Owner or which are unique to Owner (e.g., bankruptcy or other
default which is personal to the Owner).

22.22       Rental Program.

Owner will enter into
separate Unit Rental Agreements with those Hotel condominium Unit Owners
desiring to submit their Condominium Units to the Rental Program (becoming
Participating Condominium Units) for the exclusive rental of the same by
Operator (on the Owner’s behalf as part of the Hotel rooms inventory).  As part of the Hotel operation, Operator
shall manage all Participating Condominium Units in accordance with the Unit
Rental Agreements and this Agreement, and will offer such Participating
Condominium Units for rental to guests of the Hotel; provided, however,
that Operator shall not be responsible for any of Owner’s obligations under the
Unit Rental Agreements which result from the Owner’s failure to pay sums due
from the Owner, unless the Operator collects and administers the income under
the Unit Rental Agreements or which are unique to the Owner (e.g.,
bankruptcy or other default

 46
 

 

which is personal to the
Owner).  The Owner and Operator agree to
use commercially reasonable efforts to maximize the number of residential
Condominium Units participating in the Rental Program.  The Owner shall deliver to the Operator
copies of each Rental Agreement executed with an owner of a Condominium Unit,
and shall not materially amend nor modify the same in a manner likely to have
an adverse effect upon the interests of the Operator without obtaining the
prior written consent of the Operator. 
As part of its operation of the Rental Program in accordance with this
Agreement and the Unit Rental Agreements, Operator shall be required to make,
on a periodic basis as determined by the Operator payments to each
Participating Unit owner representing such owner’s share of rental income from
the commitment of its Participating Condominium Unit to the Rental
Program.  With the exception of model
units, all Condominium Units that have not been transferred to bona fide third
parties shall be a part of the Hotel guest room inventory, and shall be treated
as Participating Condominium Units within the Rental Program until legal title
to the unit is conveyed by the Owner to a third-party purchaser.

22.23       Special Procedures in
connection with Participating Unit Owners.

(a)           Among
the Hotel personnel shall be an employee retained by Operator on Owner’s behalf
to interface with Participating Unit Owners (the “Owner Relations Director”).  The selection of the Owner Relations Director
shall be subject to the reasonable approval of the Owner.  Operator shall maintain a log of material
issues with respect to (a) the Rental Program and (b) compliance with the Unit
Rental Agreements that are raised with it by the Participating Unit Owners.  Such list of issues shall be furnished to the
Owner on a periodic basis, but not more frequently than weekly, as requested by
the Owner, and shall be incorporated in the Operator’s monthly reporting called
for pursuant to the Agreement.  Owner may
provide input to the Operator at its periodic meetings with the Operator on the
matters raised by the Participating Unit Owners although the Operator shall
have operational discretion, consistent with the Declaration Documents, in
determining how such matters are to be addressed provided that such discretion
shall not relieve Operator of its covenant set forth above to carry out Owner’s
responsibilities pursuant to Unit Rental Agreements and the Declaration
Documents.  The Owner and the Operator
acknowledge and agree that concerns on the part of the Participating Unit
owners shall be directed to the Owner Relations Director for proper handling.

(b)           In
the event of a default by the Owner under a Unit Rental Agreement which has
been caused solely by the Operator’s failure to fulfill its covenant under Sections
22.22 or 22.24, which is not cured within the applicable cure periods (a “Breach”),
Owner may send a notice to the general manager of the Hotel with a copy to the
Operator specifically identifying the Breach and requesting a meeting with the
employee of the Operator that has responsibility for hotel management
operations, to who the Hotel general manager reports directly, or indirectly
through interim personnel.

(c)           Subject
to the availability of the Owner’s representative, the Operator’s designated employee
shall confer with the Owner’s representative via telephone or in person within
ten (10) Business Days after the Operator’s receipt of the notice to discuss
the Breach and shall consider the Owner’s proposals related to the Breach.

(d)           If
the Operator’s representative and the owner agree in writing, signed by both
parties, that any specific follow-up action is necessary, including, without
limitation, an

 47
 

 

action plan setting forth
expected time frames, the Operator shall cause on-site Hotel employees to carry
out such follow-up action and shall take appropriate steps to ascertain that
the same has occurred and that longer-term steps to avoid similar Breaches in
the future have been implemented, which shall include personnel changes to the
extent the Operator determines that the same is necessary.  If the Owner requests a personnel changes in
writing but the Operator does not comply, the Operator shall state the reasons
for the Operator’s refusal to comply via telephone to Owner within ten (10)
days.

22.24       Operating Agreement.

As long as an affiliate
of the Operator is a Member of the Owner, the terms and conditions of the
Operating Agreement as between its members shall be controlling in the event of
any conflict between the terms contained in the Operating Agreement and this
Management Agreement.

 48
 

 

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

	
   

  	
  OWNER:

  
	
   

  	
   

  	
   

  
	
   

  	
  1100 WEST PROPERTIES, LLC,

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  	
   

  	
   

  
	
   

  	
  OPERATOR:

  
	
   

  	
   

  	
   

  
	
   

  	
  MORGANS HOTEL GROUP MANAGEMENT LLC, a Delaware
  limited liability company

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Morgans Hotel Group LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
   

  	
  Title:

  
						

 49
 

 

EXHIBIT A

[Description of Premises]

Parcel 1:

Lots 7 and 8 and the North 50 feet of Lot 9, Block 80, SUBDIVISION OF
BLOCK EIGHTY OF THE ALTON BEACH REALTY COMPANY, A PART OF ALTON BEACH BAY FRONT
SUBDIVISION, according to the Plat thereof, as recorded in Plat Book 6, at Page
12, of the Public Records of Miami-Dade County, Florida; also described as:

Commence at the Northwest corner of West Avenue and 10th Street in Miami Beach, Florida, said corner
also being the intersection of Tangents at the Southeast corner of Block 80,
and run Northerly along the Easterly line of said Block 80, along the Westerly
line of West Avenue, a distance of 350.00 feet to the Southerly line of the
North 50.00 feet of said Lot 9 and the Point of Beginning (P.O.B.) of the tract
of land hereinafter described:   Thence
continue along the Easterly line of said Block 80, along the Westerly line of
West Avenue, a distance of 299.85 feet to the Northeast corner of the above
referenced Lot 7; thence deflecting 90°00’00” to the left, run Westerly along
the Northerly line of said Lot 7, a distance of 337.96 feet to the face of a
concrete bulkhead cap and the face of deck; thence run Southerly along the face
of deck and cap, a distance of 301.70 feet to the Southerly line of the North
50.00 feet of Lot 9; thence run Easterly along the Southerly line of the North
50.00 feet of said Lot 9, a distance of 304.67 feet to the Point of Beginning.

Together with the easement rights as contained in Master Declaration of
Covenants, Conditions and Restrictions for Mirador South Beach, filed December
30, 2004, in Official Records Book 22959, at Page 886, of the Public Records of
Miami-Dade County, Florida.

Parcel 2:

Condominium Unit CU12, MIRADOR 1000, A CONDOMINIUM, together with an
undivided interest in the common elements, according to the Declaration of
Condominium thereof, as recorded in Official Records Book 22959, at Page 1727,
as amended from time to time, of the Public Records of Miami-Dade County,
Florida.

Together with the Leasehold Estate, as created by Sovereignty Submerged
Lands Lease Renewal and Modification to Reflect Change in Ownership between the
Board of Trustees of the Internal Improvement Trust Fund of the State of
Florida, as Lessor, and Mirador 1000, LLC, a Delaware limited liability company,
as Lessee, filed December 16,

 50
 

 

2004, in Official Records Book 22913, at Page 825, of the Public
Records of Miami-Dade County, Florida.

 51
 

 

Parcel 3:

Condominium Unit CU10, MIRADOR 1200, A CONDOMINIUM, together with an
undivided interest in the common elements, according to the Declaration of
Condominium thereof, as recorded in Official Record Book 23543, at Page 3930,
as amended from time to time, of the Public Records of Miami-Dade County,
Florida.

Together with the Leasehold Estate, as created by Sovereignty Submerged
Lands Lease Renewal between the Board of Trustees of the Internal Improvement
Trust Fund of the State of Florida, as Lessor, and 1200 West Realty, LLC, a
Delaware limited liability company, as Lessee, filed January 12, 2006, in
Official Records Book 24141, at Page 1866, of the Public Records of Miami-Dade
County, Florida.

 52
 

 

SCHEDULE 10.2

Annual Incentive Fee

The
Annual Incentive Fee shall be paid based upon Net Operating Profits in any
Calendar Year* as follows:

1. When
Net Operating Profits are less than $4,000,000: Annual Incentive Fee shall be
$0.

2. When
Net Operating Profits are between $4,000,000 and $5,500,000: Annual Incentive
Fee shall be 10% of incremental Net Operating Profits above $4,000,000 (the “First
Tier Incentive Fee”);

3. When
Net Operating Profits are greater than $5,500,000, the Annual Incentive Fee
shall be the sum of (i) the First Tier Incentive Fee plus 20% of Net Operating
Profits above $5,500,000.

By way of
example, in the event that Net Operating Profits in a given Calendar Year shall
be $6,000,000, the Incentive Fee would be $250,000 (10% of 1,500,000, plus 20%
of $500,000).

* Beginning on January 1
of the fourth Calendar Year of the Term, and annually on January 1 of each
succeeding year thereafter (the “Adjustment Date”), each base amount of Net
Operating Profits for purposes of calculating the Annual Incentive Fee as above
provided (the “Base Amount”),  shall be
adjusted based upon the U.S. Daily Average, (the “Adjustment Rate”) all Urban
Consumers (CPI-U) all items (198284 = 100) prepared by the United States
Department of Labor (the “CPI”), whereby the CPI in effect on January 1 of the
year preceding the Adjustment Date shall be considered as the base, and the
price index in effect for the most recent CPI available on the Adjustment Date shall
be compared with this base index figure; provided, however, in no event shall
the adjusted Base Amount exceed the prior Base Amount by more than three
percent (3%).

 53Exhibit
10.1

 

 

 

 

 

WILLIAMS
SCOTSMAN INTERNATIONAL, INC.

 

 

 

 

 

EXECUTIVE
DEFERRED COMPENSATION PLAN

Effective
July 25, 2006

 

 

WILLIAMS
SCOTSMAN INTERNATIONAL, INC.

EXECUTIVE
DEFERRED COMPENSATION PLAN

Effective
July 25, 2006

	
  

  	
   

  	
  Page

  
	
  ARTICLE
  I — DEFINITIONS

  	
   

  	
  1

  
	
   

  	
   

  	
   

  
	
  ARTICLE II — ELIGIBILITY AND PARTICIPATION

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE III — ELECTIVE DEFERRALS

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE IV — ALLOCATION OF FUNDS

  	
   

  	
  2

  
	
   

  	
   

  	
   

  
	
  ARTICLE V — ENTITLEMENT TO BENEFITS

  	
   

  	
  3

  
	
   

  	
   

  	
   

  
	
  ARTICLE VI — BENEFICIARIES; PARTICIPANT DATA

  	
   

  	
  4

  
	
   

  	
   

  	
   

  
	
  ARTICLE VII — ADMINISTRATION

  	
   

  	
  5

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  VIII — AMENDMENT

  	
   

  	
  6

  
	
   

  	
   

  	
   

  
	
  ARTICLE
  IX — TERMINATION

  	
   

  	
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  ARTICLE
  X — MISCELLANEOUS

  	
   

  	
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WILLIAMS
SCOTSMAN INTERNATIONAL, INC.

EXECUTIVE
DEFERRED COMPENSATION PLAN

Effective
July 25, 2006

This
Plan allows non-employee directors of Williams Scotsman International, Inc. to
defer the receipt of compensation, to accumulate amounts deferred with earnings
as specified herein, and to receive payment at termination of service as a
director or upon the occurrence of other specified events.  The Plan is intended to be a “top hat” plan
(i.e., an unfunded deferred compensation plan maintained for a select group of
management or highly compensated employees) within the meaning of Sections
201(2), 301(a)(3) and 401(a)(1) of ERISA.

The
Plan is intended to comply with Section 409A of the Code, and the Treasury
Regulations or any other authoritative guidance issued under Section 409A of
the Code.

ARTICLE I
— DEFINITIONS

The following
definitions apply to this Plan:

1.1  Account  means the account
established for a Participant on the books of the Employer as provided in
Article IV.

1.2  Beneficiary
means any person or persons so designated in accordance with Article VI.

1.3  Change in Control
means any one or more of the following conditions or events as prescribed
under Code Section 409A, and Treasury Regulations promulgated thereunder:

A.            The acquisition by a person, or by
more than one person acting as a coordinated group, of more than 50% of the
total fair market value or total voting power of the stock of Williams Scotsman
International, Inc.;

B.            Any sale, lease, exchange, transfer,
or other disposition of 40% or more of the gross fair market value of the
business assets of Williams Scotsman International, Inc., over a period of not
more than twelve months;

C.            The acquisition by a person, or more
than one person acting as a coordinated group, of more than 35% of the total
voting power of the stock of Williams Scotsman International, Inc., over a
period of not more than twelve months;

D.            A change in the composition of the
Board of Directors of Williams Scotsman International, Inc., such that, during
any twelve month period, individuals who, at the beginning of such twelve month
period constitute the Board of Directors of Williams Scotsman International,
Inc., cease for any reason to constitute at least the majority of the Board of
Directors of Williams Scotsman International, Inc., unless the election of each
new director has been endorsed or approved by directors representing at least a
majority of the directors then in office who were directors as of the beginning
of such twelve month period; or

E.             The consummation of any series of
transactions that result in any of the transactions described above.

1.4  Code means
the Internal Revenue Code of 1986, as amended from time to time.

1.5  Committee
means the Board of Directors of the Williams Scotsman International, Inc., or such
other Committee as the Board of Directors may designate to undertake
administrative responsibilities with respect to the Plan.

1.6  Director Fees
means amounts paid to an Eligible Employee in recognition of the Eligible
Employee’s service as a member of the Board of Directors of Williams Scotsman
International, Inc.

1.7  Election Period
means one of the following:

A.            An election to make Elective
Deferrals shall be made between December 1 and December 31 of the Plan Year
prior to the Plan Year for which the Directors Fees are deferred.

B.            With respect to an Eligible
Employee’s first year of participation in the Plan, an election to make
Elective Deferrals shall be made within 30 days after the date the Eligible
Employee becomes eligible to participate in the Plan and shall be effective
only with respect to Director Fees paid for services performed after the date
of the initial election.

1.8  Elective Deferral
means a deferral of Director Fees.

1.9  Eligible Employee means a member of
the Board of Directors of Williams Scotsman International, Inc. who is not an
employee of the Employer.

1.10                Employer
means Williams Scotsman International, Inc., and any organization required to
be included as a single employer with Williams Scotsman, Inc. under Sections
414(b) and 414(c) of the Code.

1.11                ERISA
means the Employee Retirement Income Security Act of 1974, as amended from time
to time.

1.12                Participant
means any person with an Account.

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1.13                Permissible
Investments means the investment options designated by the Committee
from time to time from which a Participant may specify one or more investment
options as the basis for the gain or loss adjustment applicable to the
Participant’s Account.

1.14                Plan
means the Williams Scotsman International, Inc. Executive Deferred Compensation
Plan, as amended from time to time.

1.15                Plan
Year means the twelve month period ending each December 31.

1.16                Valuation
Date means December 31 of each Plan Year or the date of any
distribution under Article V of the Plan.

ARTICLE
II — ELIGIBILITY AND PARTICIPATION

2.1  Requirements.  Every Eligible Employee shall become a
Participant when Elective Deferrals are first credited to his or her Account.

2.2. Change of Category.  A Participant shall not be eligible to make
Elective Deferrals during any period after which the Participant ceases to be
an Eligible Employee.

ARTICLE
III — ELECTIVE DEFERRALS

A
Participant may elect under this Plan to defer Director Fees which are due to
be earned and which would otherwise be paid to the Participant.  A Participant shall elect in writing the
amount of his or her Elective Deferrals with respect to such Plan Year during
the applicable Election Period.  Except
as otherwise provided in Section 5.3, once made, an Elective Deferral election
may not be changed with respect to Director Fees otherwise payable during the
Plan Year to which the election relates. 
The election shall continue in force with respect to Director Fees
otherwise payable during future Plan Years until changed by the Participant
during a subsequent Election Period.

ARTICLE
IV — ALLOCATION OF FUNDS

4.1  Separate Accounts.  The Employer shall establish and maintain a
separate bookkeeping Account under the Plan to reflect each Participant’s
Elective Deferrals under the Plan, adjusted for gain or loss as described in
Section 4.2.

4.2  Gain or Loss Adjustment.  Each Participant’s separate Account as
established under the Plan in accordance with Section 4.1 shall be adjusted as
of each Valuation Date to take into account the gain or loss adjustment as determined
under this Section 4.2 for such period applicable to such separate
Account.  For purposes of the Plan, the
gain or loss adjustment applicable to a Participant’s separate Account shall be
determined as follows:

A.            Each Participant shall be permitted to
specify an investment or investments (from among Permissible Investments),
which shall be the basis for determining the gain or loss adjustment applicable
to such Participant’s separate Account in accordance with such rules as may be
established by the Committee.  The
Participant shall be permitted to change such specifications in accordance with
such rules, and at such times as the Committee may permit.  Such rules shall also include provisions
requiring the Participant to provide advance notice to the Committee of
intended changes in investment specifications. 
The length of time required for such advance notice shall be as
determined by the Committee.

B.            On each Valuation Date, each
Participant’s separate Account shall be adjusted to reflect the gain or loss
that would have been realized if an amount equal to the Participant’s separate
Account balance as of the prior Valuation Date, along with an additional amount
added to the Participant’s separate Account on account of the Participant’s
Elective Deferrals occurring during the period prior to the Valuation Date (but
subsequent to any prior Valuation Date), had been invested in accordance with
the investment specifications of the Participant.  For purposes of the determination of the gain
or loss adjustment for the applicable Valuation Date, such adjustment shall be
calculated by taking into account any brokerage fees or other transactional
costs that would have been incurred in actually carrying out the investment
specifications of the Participant, whether or not such costs were actually
incurred by the Employer.  For purposes
of these calculations, the balance in a Participant’s separate Account as of
the prior Valuation Date shall be treated as having been invested for the full
period through the applicable Valuation Date, while the Participant’s Elective
Deferrals shall be treated as having been invested starting at the date such
amounts would otherwise have been payable to the Participant in the absence of
the Participant’s election under the Plan.

C.            Notwithstanding anything to the
contrary contained herein, including those provisions giving a Participant the
right of designating investments from among Permissible Investments for the
purposes of determining the amount of the benefit paid under the Plan, the
Employer reserves the right to invest its assets, including any assets that may
have been set aside for the purpose of funding the benefits to be provided
under the Plan, at its own discretion, and such assets shall remain the
property of the Employer, subject to the claims of its general creditors.  No Participant shall have any right to any
portion of such assets other than as an unsecured general creditor of the
Employer.

4.3  Fees and Expenses.  All fees associated with this Plan will be
paid by the Employer.

4.4  Vesting of Accounts.  All Participants are fully vested in amounts
credited to their Accounts.

4.5  Account Statements.  Each Participant shall receive a statement of
his or her Account as soon as practicable after June 30 and
December 31 of each Plan Year.

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ARTICLE V
— ENTITLEMENT TO BENEFITS

5.1           Commencement
of Distributions.

A.            First Election.  Distribution of a Participant’s Account shall
begin as soon as practicable after the first day of the seventh month following
the Participant’s separation from service with the Employer.  Alternatively, the Participant may elect, at
the time of his enrollment in the Plan, or during any Election Period, solely
with respect to the Elective Deferrals as to which the election relates
(including the gain and loss adjustments applicable to such deferrals under
Section 4.2) to receive payment (i) commencing on a different
specified date occurring prior to the Participant’s separation from service
with the Employer, (ii) commencing as soon as practicable following a
Change in Control if that occurs before the Participant’s Account has been
completely distributed, or (iii) commencing on the earlier of the first day of
the seventh month following the Participant’s separation from service with the
Employer or a different specified date occurring prior to the Participant’s
separation from service with the Employer. 
An election in effect under this Section 5.1 shall continue to apply to
future Elective Deferrals (and the gain and loss adjustments attributable thereto)
when and until otherwise changed in accordance with this Section 5.1.

B.            Second Election.  Notwithstanding any provision of this Plan to
the contrary and subject to the limitations of this Subsection B, a Participant
may make a one-time election to extend the specified date upon which a
distribution of his Account shall commence. 
This election is only available to a Participant who, in accordance with
Subsection A of this Section 5.1, elected to receive payment of his Account
commencing on either:

(i)
a different specified date occurring prior to the Participant’s separation from
service with the Employer, or

(ii)
the earlier of the first day of the seventh month following the Participant’s
separation from service with the Employer or a different specified date
occurring prior to the Participant’s separation from service with the Employer.

(iv)          (a) The date elected must be least
five years following the earliest date elected for the commencement of
distribution of the Participant’s Account pursuant to Subsection A of this
Section 5.1, (b) the election must be made at least twelve months prior to
the earliest date elected for the commencement of distribution of the
Participant’s Account in accordance with Subsection A of Section 5.1, and (c)
with respect to a payment scheduled to be made on a specified date occurring
prior to the Participant’s separation from service with the Employer, the
election may not take effect for at least twelve months.  Such election shall apply to all Elective
Deferrals (including the gain and loss adjustments applicable to such deferrals
under Section 4.2) that were scheduled to commence to be distributed on
the earliest date elected under Subsection A of this Section 5.1.

C.            In the event a Participant elects to
receive payments in substantially equal, annual installments, and payments are
to be made following the Participant’s separation from service with the
Employer, payment of the first installment shall be made as soon as practicable
following the first day of the seventh month following the Participant’s
separation from service with the Employer, and subsequent installments shall be
paid as soon as practicable following the first day of the month following the
one year anniversary of the Participant’s separation from service with the
Employer.

5.2  Death. 
A Participant’s Account shall be paid in a single lump sum to the
Participant’s Beneficiary as soon as practicable after the Participant’s
Death.  For purposes of this Section 5.2,
the Valuation Date used to determine the amount to be distributed to the
Participant’s Beneficiary shall be the date of distribution.

5.3  Hardship Distributions.

A.            If a Participant incurs a financial
hardship, as hereinafter defined, the Participant may apply to the Employer for
a cash lump sum distribution of all or any part of his or her Account.  The Employer shall fully consider the
circumstances of each such case, and the best interests of the Participant and
his or her family, and shall have the right, in its sole discretion, to allow
such distribution, or to direct a distribution of part of the amount requested,
or to refuse to allow any distribution. 
Upon a finding of financial hardship, the Employer shall make the
appropriate distribution to the Participant from amounts credited to the Participant’s
Account.  In no event shall the aggregate
amount of the distribution exceed the lesser of the full value of the
Participant’s Account or the amount determined by the Employer to be necessary
to alleviate the Participant’s financial hardship (including at the Employer’s
discretion, any taxes due because of the hardship distribution), and which is
not reasonably available from other resources of the Participant.

B.            “Financial hardship” means
(i) a severe financial hardship to the Participant resulting from a sudden
and unexpected illness or accident of the Participant or of a dependent (as
defined in Code Section 152(a)) of the Participant, (ii) loss of the
Participant’s property due to casualty, or (iii) other similar
extraordinary and unforeseeable circumstances arising as a result of events
beyond the control of the Participant.

C.            Notwithstanding the provisions of
Article III, a Participant may cancel his election of Elective Deferrals under
the Plan for the remainder of the Plan Year following the receipt of a
distribution pursuant to this Section 5.3.

5.4  Disability Distribution.  If the Participant becomes “disabled,” the
Participant’s account shall be distributed in annual installments over a ten
year period beginning as soon as practicable following the determination of the
Participant’s disability.  For purposes
of the Plan, “disabled” shall mean either:

A.            The Participant’s inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to result in
death or can be expected to last for a continuous period of not less than
twelve months; or

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B.            The Participant has, by reason of
any medically determinable physical or mental impairment that can be expected
to result in death or can be expected to last for a continuous period of not
less than twelve months, been receiving income replacement benefits for a
period of not less than three months under an accident and health plan or
disability plan sponsored by the Employer.

5.5  Method of Payment.

A.            Plan distributions made under the
Plan shall be paid in a cash lump sum or in substantially equal, annual
installments over not more than ten years, except as is otherwise specified in
this Plan.  A Participant’s Account shall
continue to be adjusted for gain or loss in accordance with Section 4.2 until
it is completely distributed.

B.            A Participant shall elect the method
under which his Account will be paid when the Participant enrolls in the Plan
or during any Election Period solely with respect to the Elective Deferrals as
to which the election relates (including the gain and loss adjustments
applicable to such deferrals under Section 4.2) provided, however, that an
election in effect under this Section 5.5 shall continue to apply to future
Elective Deferrals (and the gain and loss adjustments attributable thereto)
when and until otherwise changed in accordance with this Section 5.5.

C.            Notwithstanding any provision of
this Plan to the contrary, if a Participant meets the requirements of
Subsection B of Section 5.1 and exercises his right to extend the specified
date upon which a distribution of his Account shall commence, such Participant
may make a one-time election to change the method under which his Account will
be paid.  This election shall only be
made in conjunction with a valid election under Subsection B of Section 5.1 and
shall apply to the payment of all Elective Deferrals (including the gain and
loss adjustments applicable to such deferrals under Section 4.2) that were
scheduled to commence to be distributed on the earliest date elected under
Subsection A of Section 5.1.  For
purposes of this Subsection 5.5.C, an earlier election of payment in
substantially equal, annual installments over not more than ten years shall be
treated as a choice of a single form of payment.

5.6  Distributions Prior to the Designated
Beginning Date

A.            Domestic Relations Order.  Notwithstanding the provisions of Section
10.5, the Committee may recognize and make payments from a Participant’s
Account as necessary to comply with the terms of a Domestic Relations Order,
within the meaning of Section 414(p)(1)(B) of the Code.

B.            Payment of Taxes.  The Committee may authorize payments from a
Participant’s Account as necessary to pay employment taxes imposed under
Sections 3101, 3121 and 3401 of the Code with respect to a Participant’s
Account, but only to the extent of taxes due.

C.            Payment for Income Inclusion.  The Committee may authorize payments from a
Participant’s Account equal to the amount of any Elective Deferrals (including
the gain and loss adjustments applicable to such deferrals under Section 4.2)
required pursuant to Section 409A of the Code to be included in the
Participant’s gross income prior to the date the amounts would otherwise have
been distributed under this Plan.

ARTICLE
VI — BENEFICIARIES; PARTICIPANT DATA

6.1  Designation of Beneficiaries.

A.            Each Participant may designate the
person or persons (who may be named contingently) and/or trusts for the benefit
of such persons to receive such benefits as may be payable under the Plan upon
the Participant’s death.  Each
Beneficiary designation will revoke all prior designations by the same
Participant, shall be in a form prescribed by the Employer, and will be
effective only when filed in writing with the Employer during the Participant’s
lifetime.

B.            If a Participant dies without a
valid Beneficiary designation, the Employer shall distribute the Participant’s
Account to the Participant’s estate.  In
determining the existence or identity of anyone entitled to a benefit payment,
the Employer may rely conclusively upon information supplied by the
Participant’s personal representative, executor or administrator.  If the Employer does not receive adequate
information, or if any question arises as to the existence or identity of
anyone entitled to receive a benefit payment, or if a dispute arises with
respect to any such payment, then, notwithstanding the foregoing, the Employer,
in its sole discretion, may distribute such payment to the Participant’s estate
without liability for any tax or other consequences which might flow therefrom,
or may take such other action as the Employer deems to be appropriate.

6.2  Information to be Furnished By Participants
and Beneficiaries; Inability to Locate Participants or Beneficiaries.  Any communication addressed to a Participant
or to a Beneficiary at his or her last post office address as shown on the
Employer’s records, shall be binding on the Participant or Beneficiary for all
purposes of the Plan.  The Employer shall
not be obliged to search for any Participant or Beneficiary beyond sending a
registered letter to such last known address. 
If a Participant or Beneficiary fails to claim an amount to which he or
she is entitled under the Plan within three years of the notice from the
Employer sent to the Participant’s or Beneficiary’s last known address, then,
except as otherwise required by law, the Employer may, in its discretion,
direct distribution to any one or more or all of the Participant’s next of kin,
in such proportions as the Employer determines. 
If neither the Participant nor any next of kin can be located, the
Employer shall have the right to direct that the amount payable shall be deemed
to be a forfeiture and paid to the Employer, except that the dollar amount of
the forfeiture, unadjusted for gains or losses in the interim, shall be paid by
the Employer if a claim for the benefit subsequently is made by the Participant
or the Beneficiary to whom it was payable. 
If a benefit payable to an unallocated Participant or Beneficiary is
subject to escheat pursuant to applicable state law, any payment made in
accordance with such law shall fully satisfy and discharge the Employer’s
obligations under this Plan.

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ARTICLE
VII — ADMINISTRATION

7.1  Administrative Authority.  The Committee shall administer the Plan.  The Committee shall have the power to take
all actions and to make all decisions and interpretations which may be
necessary or appropriate in order to administer and operate the Plan.  All Committee decisions, interpretations,
actions and determinations with respect to the Plan shall be final and binding
on all parties.  Without limiting the
generality of the foregoing, the Committee shall have the following specific
powers, duties and responsibilities:

(a)          To resolve and determine all disputes
or questions arising under the Plan, including the power to determine the
rights of Eligible Employees, Participants and Beneficiaries, and their
respective benefits, and to remedy any ambiguities, inconsistencies, or
omissions in the Plan;

(b)         To adopt such rules of procedure and
regulations as in its opinion may be necessary for the proper and efficient
administration of the Plan and as are consistent with the Plan;

(c)          To implement the Plan in accordance
with its terms and the rules and regulations adopted as above;

(d)         To make determinations concerning the
eligibility of any Eligible Employee as a Participant and make determinations
concerning the crediting and distribution of Plan Accounts; and

(e)          To appoint any persons or firms, or
otherwise act to secure specialized advice or assistance, as it deems necessary
or desirable in connection with the administration and operation of the Plan,
and the Employer shall be entitled to rely conclusively upon, and shall be
fully protected in any action or omission taken by it in good faith reliance
upon, the advice or opinion of such firms or persons.

7.2. Delegation of Administrative Functions.  The Committee may delegate from time to time
by written instrument all of any part of its duties, powers or responsibilities
under the Plan, both ministerial and discretionary, as it deems appropriate, to
any person or committee, and in the same manner to revoke any such delegation
of duties, powers or responsibilities. 
Any action of such person or committee in the exercise of such delegated
duties, powers or responsibilities shall have the same force and effect as if
such action had been taken by the Committee. 
The Committee shall not be liable for any act or omission of any person
to whom the Committee’s duties, powers and responsibilities have been
delegated, nor shall any person or committee to whom or to which any duties,
powers or responsibilities have been delegated have any liabilities with
respect to any duties, powers or responsibilities not delegated to him, her or
it, except to the extent required by law.

7.3  Litigation.  In any action or judicial proceeding
affecting the Plan, it shall be necessary to join as a party only the
Employer.  Except as may be otherwise
required by law, no Participant or Beneficiary shall be entitled to any notice
or service of process, and any final judgment entered in such action shall be
binding on all persons interested in, or claiming under, the Plan.

7.4  Claims Procedure.

A.            Any person claiming a benefit under
the Plan (a “Claimant”) shall present the claim, in writing, to the Employer
and the Employer shall respond in writing. 
If the claim is denied, the written notice of denial shall state, in a
manner calculated to be understood by the Claimant:

(a)           The specific reason or reasons for
denial, with specific references to the Plan provisions on which the denial is
based;

(b)           A description of any additional
material or information necessary for the Claimant to perfect his or her claim
and an explanation of why such material or information is necessary; and

(c)           An explanation of the Plan’s claims
review procedure.

B.            The written notice denying or
granting the Claimant’s claim shall be provided to the Claimant within 90 days
after the Employer’s receipt of the claim, unless special circumstances require
an extension of time for processing the claim. 
If such an extension is required, written notice of the extension shall
be furnished by the Employer to the Claimant within the initial 90 day period
and in no event shall such an extension exceed a period of 90 days from the end
of the initial 90 day period.  Any
extension notice shall indicate the special circumstances requiring the
extension and the date on which the Employer expects to render a decision on
the claim.  Any claim not granted or
denied within the period noted above shall be deemed to have been denied.

C.            Any Claimant whose claim is denied,
or deemed to be denied under the preceding sentence (or such Claimant’s
authorized representative), may, within 60 days after the Claimant’s receipt of
notice of the denial, or after the date of the deemed denial, request a review
of the denial by notice given, in writing, to the Employer.  Upon such a request for review, the claim
shall be reviewed by the Employer (or its designated representative) which may,
but shall not be required to, grant the Claimant a hearing.  In connection with the review, the Claimant
may have representation, may examine pertinent documents, and may submit issues
and comments in writing.

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D.            The decision on review normally
shall be made within 60 days of the Employer’s receipt of the request for
review.  If an extension of time is
required due to special circumstances, the Claimant shall be notified, in writing,
by the Employer, and the time limit for the decision on review shall be
extended to 120 days.  The decision on
review shall be in writing and shall state, in a manner calculated to be
understood by the Claimant, the specific reasons for the decision and shall
include references to the relevant Plan provision on which the decision is
based.  The written decision on review
shall be given to the Claimant within 60 days (or, if applicable, the 120 day
time limit discussed above.  If the
decision on review is not communicated to the Claimant within the 60 day (or,
if applicable, the 120 day) period discussed above, the claim shall be deemed
to have been denied upon review.  All
decisions on review shall be final and binding with respect to all concerned
parties.

ARTICLE
VIII — AMENDMENT

8.1  Right to Amend.  The Employer reserves the right to amend the
Plan by action of its chief executive officer, and all Participants,
Beneficiaries and other interested parties shall be bound by any such
amendments; provided, however, that no amendment shall reduce the amount of a
Participant’s Account or the Participant’s rights therein as of the date of the
amendment.

8.2  Amendment Required by Law.  Notwithstanding the provisions of Section
8.1, the Plan may be amended at any time, retroactively if required, if the
Employer finds it necessary to do so in order to ensure that the Plan is
characterized as a plan of deferred compensation maintained for a select group
of management or highly compensated employees, as described in ERISA Sections
201(2), 301(a)(3) and 401(a)(1), and to conform the Plan to the provisions and
requirements of any applicable law (including ERISA and the Code) including,
but not limited to, Section 409A of the Code. 
No such amendment shall be considered prejudicial to any interest of a
Participant or a Beneficiary hereunder.

ARTICLE
IX — TERMINATION

9.1  Employer’s Right to Terminate or Suspend
Plan.  The Employer reserves the
right, by action of its Board of Directors, to terminate the Plan and/or its
obligations to make further additions to the Account maintained under the Plan
on account of Elective Deferrals or to make further adjustments to such
Accounts on account of gain or loss under Section 4.2.  If the Employer terminates the Plan, all
Accounts shall be distributed to Participants as soon as practicable after the
Plan terminates provided that payments conform to Treasury Regulations
promulgated under Section 409A of the Code. 
The Employer may choose to terminate its obligations to credit Accounts
prospectively with respect to Elective Deferrals, while continuing to maintain
the Plan.  In such event, the Employer
shall continue to give effect to all other applicable provisions of the Plan,
including those concerning adjustments to such Accounts on account of gain or
loss under Section 4.2.

ARTICLE X
— MISCELLANEOUS

10.1                Limitations on Liability of
Employer.  Neither the establishment
of the Plan nor any modification thereof, nor the creation of any Account under
the Plan, nor the payment of any benefits under the Plan shall be construed as
giving to any Participant or other person any legal or equitable right against
the Employer, or any officer or employee thereof, except as provided by law or
by any Plan provision.  In no event shall
the Employer, or its employees or officers, be liable for the failure of any
Participant, Beneficiary or other person to be entitled to any particular tax
consequences with respect to the Plan or any credit or contribution thereto or
distribution therefrom.

10.2                Construction.  If any provision of the Plan is held to be
illegal or void, such illegality or invalidity shall not affect the remaining
provisions of the Plan, but such provision shall be fully severable, and the
Plan shall be construed and enforced as if said illegal or invalid provision
had never been part of the Plan.  Where
the context permits, the singular shall include the plural, and the plural
shall include the singular.  Headings of
Articles and Sections are inserted only for convenience of reference and are not
to be considered in the construction of the Plan.  The laws of the State of Maryland shall
control the Plan and all questions of law arising thereunder, except where
those laws are preempted by the laws of the United States.

10.3                No Right to Employment.  Participation under the Plan will not give any
Participant the right to be retained in the service of the Employer.

10.4                Unfunded Plan.  The Plan is intended to be, and at all times
shall be interpreted and administered so as to qualify as, an unfunded plan of
deferred compensation.  The rights of
Participants and Beneficiaries to payments under the Plan shall be those of
general, unsecured, creditors of the Employer and shall not be secured by any
trust, escrow or other arrangement; provided, however, that the Employer may,
in its discretion, establish one or more trusts for purposes of funding its
obligations under this Plan as long as, in the opinion of counsel to the
Employer, the establishment of such trust or trusts will not cause the Plan to
be considered “funded” for purposes of ERISA or the Code or otherwise
jeopardize the tax treatment of benefits hereunder.  No provisions of this Plan shall be
interpreted so as to give any individual any right in any assets of the
Employer which is greater than the rights of any general unsecured creditor of
the Employer.

10.5                Spendthrift Provision.

A.            No amount payable to a Participant
or a Beneficiary under the Plan will, except as otherwise specifically provided
by law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable process,
and any attempt to do so will be void; nor will any benefit hereunder be in any
manner liable for or subject to the debts, contracts, liabilities, engagements
or torts of the person entitled thereto. 
Further, (i) the withholding of taxes from Plan benefit payments,
(ii) the recovery under the Plan of overpayments of benefits previously
made to a Participant or Beneficiary, (iii) if applicable, the transfer of
benefit rights from the Plan to another plan, or (iv) the direct deposit
of Plan benefit payments to an account in a banking institution (if not
actually part of an arrangement constituting an assignment or alienation) shall
not be construed as an assignment or alienation.

 6
 

 

B.            If any Participant’s or
Beneficiary’s benefits hereunder are garnished or attached by order of any
court, the Employer may bring an action for a declaratory judgment in a court
of competent jurisdiction to determine the proper recipient of the benefits to
be paid under the Plan.  During the
pendency of said action, any benefits that become payable shall be held as credits
to the Participant’s or Beneficiary’s Account or, if the Employer prefers, paid
into the court as they become payable, to be distributed by the court to the
recipient as it deems proper at the close of said action.

10.6                Withholding.  A Participant or a Beneficiary under the Plan
shall make appropriate arrangements with the Employer for satisfaction of any
Federal, state or local income tax withholding requirements and Social Security
or other tax requirements applicable to the accrual or payment of benefits
under the Plan.  If no other arrangements
are made, the Employer may provide, at its discretion, for any withholding and
tax payments as may be required prior to making any payment of benefits under
the Plan.

IN WITNESS
WHEREOF, the Williams Scotsman International, Inc. has caused the Plan to be
executed and its seal affixed hereto, effective as of the ______________ day of
___________________, _____________.

	
  

  	
   

  	
  WILLIAMS SCOTSMAN INTERNATIONAL, INC

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  (Seal)

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Print Name:

  	
   

  	
  Print Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Date:

  	
   

  	
   

  

 

 

 

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