Document:

Exhibit 4.1

BITFONE CORPORATION

2001 STOCK INCENTIVE PLAN

This 2001 STOCK INCENTIVE
PLAN (the “Plan”) is hereby established by Bitfone Corporation, a Delaware
corporation (the “Company”), and adopted by its Board of Directors as of March
13, 2001 (the “Effective Date”).

ARTICLE
1.

PURPOSES
OF THE PLAN

1.1          Purposes.  The purposes of the Plan are (a) to enhance
the Company’s ability to attract and retain the services of qualified
employees, officers and directors (including non-employee officers and
directors), and consultants and other service providers upon whose judgment,
initiative and efforts the successful conduct and development of the Company’s
business largely depends, and (b) to provide additional incentives to such
persons or entities to devote their utmost effort and skill to the advancement
and betterment of the Company, by providing them an opportunity to participate
in the ownership of the Company and thereby have an interest in the success and
increased value of the Company.

ARTICLE
2.

DEFINITIONS

For purposes of this
Plan, the following terms shall have the meanings indicated:

2.1          Administrator.  “Administrator” means the Board or, if the
Board delegates responsibility for any matter to the Committee, the term
Administrator shall mean the Committee.

2.2          Affiliated
Company.  “Affiliated
Company” means any “parent corporation” or “subsidiary corporation” of the
Company, whether now existing or hereafter created or acquired, as those terms
are defined in Sections 424(e) and 424(f) of the Code, respectively.

2.3          Board.  “Board” means the Board of Directors of the
Company.

2.4          Cause.  “Cause” means, with respect to a Participant’s
Continuous Service, the termination by the Company of such Continuous Service
for any of the following reasons:

(a)           The continued refusal or omission by the
Participant to perform any material duties required of him by the Company if
such duties are consistent with duties customary for the position held with the
Company;

(b)           Any material act or omission by the
Participant involving malfeasance or gross negligence, including but not
limited to fraud, misappropriation of Company property or proprietary
information or unlawful harassment or material deviation from any policies or
directives of the Company;

(c)           Conduct on the part of Participant
which constitutes the breach of any statutory or common law duty of loyalty to
the Company; or

(d)           Any illegal act by Participant which
materially and adversely affects the business of the Company or any felony
committed by Participant, as evidenced by conviction thereof, provided that the
Company may suspend Participant with pay while any allegation of such illegal
or felonious act is investigated.

2.5          Change in Control.  “Change in Control” shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of
the beneficial ownership of securities of the Company possessing more than
fifty percent (50%) of the total combined voting power of all outstanding
securities of the Company, other than in connection with a public or private
equity financing for capital raising purposes; (ii) a merger or
consolidation in which the Company is not the surviving entity, except for a
transaction the principal purpose of which is to change the state in which the
Company is incorporated; (iii) a reverse merger in which the Company is the
surviving entity but in which securities possessing more than fifty percent
(50%) of the total combined voting power of the Company’s outstanding
securities are transferred to or acquired by a person or persons different from
the persons holding those securities immediately prior to such merger;
(iv) the sale, transfer or other disposition of all or substantially all
of the assets of the Company; or (v) a complete liquidation or dissolution
of the Company.

2.6          Code.  “Code” means the Internal Revenue Code of
1986, as amended from time to time.

2.7          Committee.  “Committee” means a committee of two (2) or
more members of the Board appointed to administer the Plan, as set forth in
Section 7.1 hereof.

2.8          Common Stock.  “Common Stock” means the Common Stock,
$0.0001 par value of the Company, subject to adjustment pursuant to
Section 4.2 hereof.

2.9          Continuous Service.  “Continuous Service” means (i) employment by
either the Company or any parent or subsidiary corporation of the Company, or
by a corporation or a parent or subsidiary of a corporation issuing or assuming
a stock option in a transaction to which Section 424(a) of the Code applies,
which is uninterrupted except for vacations, illness (except for permanent
disability, as defined in Section 22(e)(3) of the Code), or leaves of absence
which are approved in writing by the Company or any of such other employer
corporations, if applicable, (ii) service as a member of the Board of Directors
of the Company until Participant resigns, is removed from office, or
Participant’s term of office expires and he or she is not reelected, or (iii)
so long as Participant is engaged as a consultant or service provider to the
Company or other corporation referred to in clause (i) above.

2.10        Disability.  “Disability” means permanent and total
disability as defined in Section 22(e)(3) of the Code.  The Administrator’s determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.

2.11        Effective Date.  “Effective Date” means the date on which the
Plan is adopted by the Board, as set forth on the first page hereof.

2.12        Exercise Price.  “Exercise Price” means the purchase price per
share of Common Stock payable upon exercise of an Option.

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2.13        Fair Market Value.  “Fair Market Value” on any given date means
the value of one share of Common Stock, determined as follows:

(a)           If the
Common Stock is then listed or admitted to trading on a NASDAQ market system or
a stock exchange which reports closing sale prices, the Fair Market Value shall
be the closing sale price on the date of valuation on such NASDAQ market system
or principal stock exchange on which the Common Stock is then listed or
admitted to trading, or, if no closing sale price is quoted on such day, then
the Fair Market Value shall be the closing sale price of the Common Stock on
such NASDAQ market system or such exchange on the next preceding day for which
a closing sale price is reported.

(b)           If the
Common Stock is not then listed or admitted to trading on a NASDAQ market
system or a stock exchange which reports closing sale prices, the Fair Market
Value shall be the average of the closing bid and asked prices of the Common
Stock in the over-the-counter market on the date of valuation.

(c)           If neither
(a) nor (b) is applicable as of the date of valuation, then the Fair Market
Value shall be determined by the Administrator in good faith using any reasonable
method of evaluation, which determination shall be conclusive and binding on
all interested parties.

2.14        Good Reason.  “Good Reason” means with respect to a
Participant’s voluntary termination of Continuous Service if such termination
is the result of any of the following:

(a)           A reduction
in the amount of his base compensation pay in effect at the time of a Change in
Control;

(b)           The taking
of any action by the Company that would substantially diminish the aggregate
value of the benefits provided the Participant under the Participant’s medical,
health, accident, disability insurance, life insurance, thrift and retirement
plans in which he was participating on the date of a Change in Control, other
than any such reduction which is (i) required by law, (ii) implemented in
connection with a general concessionary arrangement affecting all employees or
affecting the group of employees (of which the Participant is a member) or
(iii) generally applicable to all beneficiaries of such plans; or

(c)           A material
reduction in duties and responsibilities.

2.15        Incentive Option.  “Incentive Option” means any Option
designated and qualified as an “incentive stock option” as defined in Section
422 of the Code.

2.16        Incentive Option Agreement.  “Incentive Option Agreement” means an Option
Agreement with respect to an Incentive Option.

2.17        NASD Dealer.  “NASD Dealer” means a broker-dealer that is a
member of the National Association of Securities Dealers, Inc.

2.18        Nonqualified Option.  “Nonqualified Option” means any Option that
is not an Incentive Option.  To the
extent that any Option designated as an Incentive Option fails in whole or in
part to qualify as an Incentive Option, including, without limitation, for
failure to meet the limitations applicable to a 10% Stockholder or because it
exceeds the annual limit provided for in Section 5.6 below, it shall to
that extent constitute a Nonqualified Option.

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2.19        Nonqualified Option Agreement.  “Nonqualified Option Agreement” means an
Option Agreement with respect to a Nonqualified Option.

2.20        Offeree.  “Offeree” means a Participant to whom a Right
to Purchase has been offered or who has acquired Restricted Stock under the
Plan.

2.21        Option.  “Option” means any option to purchase Common
Stock granted pursuant to the Plan.

2.22        Option Agreement.  “Option Agreement” means the written
agreement entered into between the Company and the Optionee with respect to an
Option granted under the Plan.

2.23        Optionee.  “Optionee” means a Participant who holds an
Option.

2.24        Participant.  “Participant” means an individual or entity
who holds an Option, a Right to Purchase or Restricted Stock under the Plan.

2.25        Purchase Price.  “Purchase Price” means the purchase price per
share of Restricted Stock payable upon acceptance of a Right to Purchase.

2.26        Restricted Stock.  “Restricted Stock” means shares of Common
Stock issued pursuant to Article 6 hereof, subject to any restrictions and
conditions as are established pursuant to such Article 6.

2.27        Right to Purchase.  “Right to Purchase” means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.

2.28        Service Provider.  “Service Provider” means a consultant or
other person or entity who provides services to the Company or an Affiliated
Company and who the Administrator authorizes to become a Participant in the
Plan.

2.29        Stock Purchase Agreement.  “Stock Purchase Agreement” means the written
agreement entered into between the Company and the Offeree with respect to a
Right to Purchase offered under the Plan.

2.30        10% Stockholder.  “10% Stockholder” means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.

ARTICLE 3.

ELIGIBILITY

3.1          Incentive Options.  Officers and other key employees of the
Company or of an Affiliated Company (including members of the Board if they are
employees of the Company or of an Affiliated Company) are eligible to receive
Incentive Options under the Plan.

3.2          Nonqualified Options and Rights to
Purchase. 
Officers and other key employees of the Company or of an Affiliated
Company, members of the Board (whether or not employed by

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the Company or an Affiliated Company), and
Service Providers are eligible to receive Nonqualified Options or Rights to
Purchase under the Plan.

3.3          Limitation on Shares.  In no event shall any Participant be granted
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 500,000 shares.

ARTICLE 4.

PLAN SHARES

4.1          Shares Subject to the Plan.  A total of 18,113,368 shares of Common Stock
may be issued under the Plan, subject to adjustment as to the number and kind
of shares pursuant to Section 4.2 hereof. 
For purposes of this limitation, in the event that (a) all or any
portion of any Option or Right to Purchase granted or offered under the Plan
can no longer under any circumstances be exercised, or (b) any shares of Common
Stock are reacquired by the Company pursuant to an Incentive Option Agreement,
Nonqualified Option Agreement or Stock Purchase Agreement, the shares of Common
Stock allocable to the unexercised portion of such Option or such Right to
Purchase, or the shares so reacquired, shall again be available for grant or
issuance under the Plan.  Notwithstanding
the foregoing, at no time shall any Option or Rights to Purchase be granted under
this Plan if the number of shares of Common Stock issuable upon exercise of all
outstanding Options and Rights to Purchase when combined with (i) the total
number of shares of Company stock issuable pursuant to the conversion or
exercise of outstanding Company securities convertible into Company stock, and
(ii) the total number of shares provided for under any Company stock bonus or
similar plan, is greater than thirty percent (30%) of the total outstanding
shares of Company stock (with shares of Company convertible preferred stock and
convertible senior common stock counted on an as if converted basis) unless a
percentage more than thirty percent (30%) is approved by at least two-thirds
(2/3) of the outstanding shares of the Company entitled to vote.

4.2          Changes in Capital Structure.  In the event that the outstanding shares of
Common Stock are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company by
reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other similar change in the capital
structure of the Company, then appropriate adjustments shall be made by the
Administrator to the aggregate number and kind of shares subject to this Plan,
and the number and kind of shares and the price per share subject to
outstanding Option Agreements, Rights to Purchase and Stock Purchase Agreements
in order to preserve, as nearly as practical, but not to increase, the benefits
to Participants.

ARTICLE 5.

OPTIONS

5.1          Option Agreement.  Each Option granted pursuant to this Plan
shall be evidenced by an Option Agreement which shall specify the number of
shares subject thereto, the Exercise Price per share, and whether the Option is
an Incentive Option or Nonqualified Option. 
As soon as is practical following the grant of an Option, an Option
Agreement shall be duly executed and delivered by or on behalf of the Company
to the Optionee to whom such Option was granted.  Each Option Agreement shall be in such form
and contain such additional terms and conditions, not inconsistent with the
provisions of this Plan, as the Administrator shall, from time to time, deem
desirable, including,

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without limitation, the imposition of any
rights of first refusal and resale obligations upon any shares of Common Stock
acquired pursuant to an Option Agreement. 
Each Option Agreement may be different from each other Option Agreement.

5.2          Exercise Price.  The Exercise Price per share of Common Stock
covered by each Option shall be determined by the Administrator, subject to the
following:  (a) the Exercise Price of an
Incentive Option shall not be less than one hundred percent (100%) of Fair
Market Value on the date the Incentive Option is granted, (b) the Exercise
Price of a Nonqualified Option shall not be less than eighty-five percent (85%)
of Fair Market Value on the date the Nonqualified Option is granted, and (c) if
the person to whom an Incentive Option is granted is a 10% Stockholder on the
date of grant, the Exercise Price shall not be less than one hundred ten
percent (110%) of Fair Market Value on the date the Option is granted.

5.3          Payment of Exercise Price.  Payment of the Exercise Price shall be made
upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by:  (a) cash; (b) check; (c) the
surrender of shares of Common Stock owned by the Optionee that have been held
by the Optionee for at least six (6) months, which surrendered shares shall be
valued at Fair Market Value as of the date of such exercise; (d) the
Optionee’s promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee
for services rendered; (g) provided that a public market for the Common
Stock exists, a “same day sale” commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby
the NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market
for the Common Stock exists, a “margin” commitment from the Optionee and an
NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and
to pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination
of the foregoing methods of payment or any other consideration or method of
payment as shall be permitted by applicable corporate law.

5.4          Term and Termination of Options.  The term and provisions for termination of
each Option shall be as fixed by the Administrator, but no Option may be
exercisable more than ten (10) years after the date it is granted.  An Incentive Option granted to a person who
is a 10% Stockholder on the date of grant shall not be exercisable more than
five (5) years after the date it is granted.

5.5          Vesting and Exercise of Options.  Each Option shall vest and become exercisable
in one or more installments at such time or times and subject to such
conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator;
provided, however, that the right to exercise any Option must vest at a rate of
at least twenty percent (20%) of the shares represented thereby per year over
five (5) years from the date the Option is granted.

5.6          Annual Limit on Incentive Options.  To the extent required for “incentive stock
option” treatment under Section 422 of the Code, the aggregate Fair Market
Value (determined as of the time of grant) of the Common Stock shall not, with
respect to which Incentive Options granted

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under this Plan and any other plan of the
Company or any Affiliated Company become exercisable for the first time by an
Optionee during any calendar year, exceed $100,000.

5.7          Nontransferability of Options.  No Option shall be assignable or transferable
except by will or the laws of descent and distribution, and during the life of
the Optionee shall be exercisable only by such Optionee; provided, however,
that, in the discretion of the Administrator, any Option may be assigned or
transferred in any manner which an “incentive stock option” is permitted to be
assigned or transferred under the Code.

5.8          Rights as Stockholder.  An Optionee or permitted transferee of an
Option shall have no rights or privileges as a stockholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.

5.9          Company’s Repurchase Right.  In the event of termination of a Participant’s
Continuous Service for any reason whatsoever (including death or disability),
the Option Agreement may provide, in the discretion of the Administrator, that
the Company, or its assignee, shall have the right, exercisable at the
discretion of the Administrator, to repurchase shares of Common Stock acquired
pursuant to the exercise of an Option at any time prior to the consummation of
the Company’s initial public offering of securities in an offering registered
under the Securities Act of 1933, as amended, and at the price equal to the
Fair Market Value per share of Common Stock as of the date of termination of
Optionee’s employment.  The repurchase
right provided in this Section 5.9 shall terminate and be of no further force
or effect following the consummation of an underwritten public offering of the
Company’s Common Stock.

In any event, the right
to repurchase must be exercised within sixty (60) days of the termination of
Participant’s Continuous Service (or in the case of Common Stock issued upon
exercise of Options after the date of termination, within sixty (60) days after
the date of the exercise) and may be paid by the Company, or its assignee, by
cash, check, or cancellation of indebtedness within thirty (30) days of the
expiration of the right to exercise.

5.10        Restrictions on Underlying Shares of
Common Stock. 
Shares of Common Stock issued pursuant to the exercise of an Option may
not be sold, assigned, transferred, pledged or otherwise encumbered or disposed
of except as specifically provided in the Option Agreement.

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ARTICLE 6.

RIGHTS TO PURCHASE

6.1          Nature of Right to Purchase.  A Right to Purchase granted to an Offeree
entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant (“Restricted
Stock”).  Such conditions may include,
but are not limited to, continued employment or the achievement of specified
performance goals or objectives.  The
Purchase Price per share of Common Stock covered by each Right to Purchase
shall be determined by the Administrator, subject to the following:  (a) the Purchase Price of a Share shall not
be less than eighty-five percent (85%) of Fair Market Value on the date the
Right to Purchase is granted or at the time the purchase is consummated, or (b)
if the person to whom a Right to Purchase is granted is a 10% Stockholder on
the date of grant, the Purchase Price shall not be less than one hundred
percent (100%) of Fair Market Value on the date the Right to Purchase is granted
or at the time the purchase is consummated.

6.2          Acceptance of Right to Purchase.  An Offeree shall have no rights with respect
to the Restricted Stock subject to a Right to Purchase unless the Offeree shall
have accepted the Right to Purchase within ten (10) days (or such longer or
shorter period as the Administrator may specify) following the grant of the
Right to Purchase by making payment of the full Purchase Price to the Company
in the manner set forth in Section 6.3 hereof and by executing and delivering
to the Company a Stock Purchase Agreement. 
Each Stock Purchase Agreement shall be in such form, and shall set forth
the Purchase Price and such other terms, conditions and restrictions of the
Restricted Stock, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable.  Each Stock Purchase Agreement may be
different from each other Stock Purchase Agreement.

6.3          Payment of Purchase Price.  Subject to any legal restrictions, payment of
the Purchase Price upon acceptance of a Right to Purchase Restricted Stock may
be made, in the discretion of the Administrator, by:  (a) cash; (b) check; (c) the
surrender of shares of Common Stock owned by the Offeree that have been held by
the Offeree for at least six (6) months, which surrendered shares shall be
valued at Fair Market Value as of the date of such exercise; (d) the
Offeree’s promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of
payment or any other consideration or method of payment as shall be permitted
by applicable corporate law.

6.4          Rights as a Stockholder.  Upon complying with the provisions of Section
6.2 hereof, an Offeree shall have the rights of a stockholder with respect to
the Restricted Stock purchased pursuant to the Right to Purchase, including
voting and dividend rights, subject to the terms, restrictions and conditions
as are set forth in the Stock Purchase Agreement.  Unless the Administrator shall determine
otherwise, certificates evidencing shares of Restricted Stock shall remain in
the possession of the Company until any rights to repurchase and rights of
first refusal with respect to such shares have terminated in accordance with
the terms of the Stock Purchase Agreement.

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6.5          Restrictions.  Shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement.  In the event of termination of a Participant’s
employment, service as a director of the Company or Service Provider status for
any reason whatsoever (including death or disability), the Stock Purchase
Agreement may provide, in the discretion of the Administrator, that the Company
shall have the right, exercisable at the discretion of the Administrator, to
repurchase (i) at the original Purchase Price, any shares of Restricted
Stock which have not vested as of the date of termination (provided that the
right to repurchase at the original Purchase Price shall lapse at the rate of
at least twenty percent (20%) per year over five (5) years from the date of the
Stock Purchase Agreement), and (ii) at Fair Market Value, any shares of
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.

In any event, the right
to repurchase must be exercised within sixty (60) days of the termination of
Participant’s Continuous Service and may be paid by the Company or its
assignee, by cash, check, or cancellation of indebtedness within thirty (30)
days of the expiration of the right to exercise.

6.6          Vesting of Restricted Stock.  The Stock Purchase Agreement shall specify
the date or dates, the performance goals or objectives which must be achieved,
and any other conditions on which the Restricted Stock may vest.

6.7          Dividends.  If payment for shares of Restricted Stock is
made by promissory note, any cash dividends paid with respect to the Restricted
Stock may be applied, in the discretion of the Administrator, to repayment of
such note.

6.8          Nonassignability of Rights.  No Right to Purchase shall be assignable or
transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.

ARTICLE 7.

ADMINISTRATION OF THE PLAN

7.1          Administrator.  Authority to control and manage the operation
and administration of the Plan shall be vested in the Board, which may delegate
such responsibilities in whole or in part to a committee consisting of two (2)
or more members of the Board (the “Committee”). 
Members of the Committee may be appointed from time to time by, and
shall serve at the pleasure of, the Board. 
As used herein, the term “Administrator” means the Board or, with
respect to any matter as to which responsibility has been delegated to the
Committee, the term Administrator shall mean the Committee.

7.2          Powers of the Administrator.  In addition to any other powers or authority
conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority:  (a) to determine the persons to whom,
and the time or times at which, Incentive Options or Nonqualified Options shall
be granted and Rights to Purchase shall be offered, the number of shares to be
represented by each Option and Right to Purchase and the consideration to be
received by the Company upon the exercise thereof; (b) to interpret the
Plan; (c) to create, amend or rescind rules and regulations relating to
the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be
entitled to exercise a Participant’s

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rights under any Option or Right to Purchase
under the Plan; (f) to correct any defect or supply any omission or
reconcile any inconsistency in the Plan or in any Option Agreement or Stock
Purchase Agreement; (g) to accelerate the vesting of any Option or release
or waive any repurchase rights of the Company with respect to Restricted
Stock; (h) to extend the exercise date of any Option or acceptance
date of any Right to Purchase; (i) to provide for rights of first refusal
and/or repurchase rights; (j) to amend outstanding Option Agreements and
Stock Purchase Agreements to provide for, among other things, any change or
modification which the Administrator could have provided for upon the grant of
an Option or Right to Purchase or in furtherance of the powers provided for
herein; and (k) to make all other determinations necessary or advisable
for the administration of the Plan, but only to the extent not contrary to the
express provisions of the Plan.  Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.

7.3          Limitation on Liability.  No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith.  To the extent permitted by law, the Company
shall indemnify each member of the Board or Committee, and any employee of the
Company with duties under the Plan, who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed proceeding, whether
civil, criminal, administrative or investigative, by reason of such person’s
conduct in the performance of duties under the Plan.

ARTICLE 8.

CHANGE IN CONTROL

8.1          Change in Control.  In order to preserve a Participant’s rights
in the event of a Change in Control of the Company, (i) the time period
relating to the exercise or realization of all outstanding Options, Rights to
Purchase and Restricted Stock shall automatically accelerate immediately prior
to the consummation of such Change in Control, if the Administrator does not
take the action described in subitem (C) of this Section 8.1, and if such
action is taken, automatic acceleration shall then occur as if the Participant
had held the Options, Rights to Purchase or Restricted Stock for a period of
twelve (12) months longer than actually held by the Participant if, within six
(6) months of the consummation of a Change in Control, a Participant’s
Continuous Service is terminated without Cause or pursuant to the Participant’s
voluntary termination for Good Reason, and (ii) with respect to Options and
Rights to Purchase, the Administrator in its discretion may, at any time an
Option or Right to Purchase is granted, or at any time thereafter, take one or
more of the following actions: 
(A) provide for the purchase or exchange of each Option or Right to
Purchase for an amount of cash or other property having a value equal to the
difference, or spread, between (x) the value of the cash or other property that
the Participant would have received pursuant to such Change in Control
transaction in exchange for the shares issuable upon exercise of the Option or
Right to Purchase had the Option or Right to Purchase been exercised
immediately prior to such Change in Control transaction and (y) the Exercise
Price of such Option or the Purchase Price under such Right to Purchase,
(B) adjust the terms of the Options and Rights to Purchase in a manner
determined by the Administrator to reflect the Change in Control,
(C) cause the Options and Rights to Purchase to be assumed, or new rights
substituted therefor, by another entity, through the continuance of the Plan
and the assumption of outstanding Options and Rights to Purchase, or the
substitution for such Options and Rights to Purchase of new options and new
rights to purchase of comparable value covering shares of a successor
corporation, with appropriate adjustments as to the

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number and kind of shares and Exercise
Prices, in which event the Plan and such Options and Rights to Purchase, or the
new options and rights to purchase substituted therefor, shall continue in the
manner and under the terms so provided, or (D) make such other provision
as the Administrator may consider equitable. 
If the Administrator does not take any of the forgoing actions, all
Options and Rights to Purchase shall terminate upon the consummation of the
Change in Control and the Administrator shall cause written notice of the
proposed transaction to be given to all Participants not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction.

ARTICLE 9.

AMENDMENT AND TERMINATION OF THE PLAN

9.1          Amendments.  The Board may from time to time alter, amend,
suspend or terminate the Plan in such respects as the Board may deem
advisable.  No such alteration,
amendment, suspension or termination shall be made which shall substantially
affect or impair the rights of any Participant under an outstanding Option
Agreement or Stock Purchase Agreement without such Participant’s consent.  The Board may alter or amend the Plan to
comply with requirements under the Code relating to Incentive Options or other
types of options which give Optionees more favorable tax treatment than that
applicable to Options granted under this Plan as of the date of its
adoption.  Upon any such alteration or
amendment, any outstanding Option granted hereunder may, if the Administrator
so determines and if permitted by applicable law, be subject to the more
favorable tax treatment afforded to an Optionee pursuant to such terms and
conditions.

9.2          Plan Termination.  Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the Effective Date and
no Options or Rights to Purchase may be granted under the Plan thereafter, but
Option Agreements, Stock Purchase Agreements and Rights to Purchase then
outstanding shall continue in effect in accordance with their respective terms.

ARTICLE 10.

TAX WITHHOLDING

10.1        Withholding.  The Company shall have the power to withhold,
or require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock issued under the
Plan.  To the extent permissible under
applicable tax, securities and other laws, the Administrator may, in its sole
discretion and upon such terms and conditions as it may deem appropriate,
permit a Participant to satisfy his or her obligation to pay any such tax, in
whole or in part, up to an amount determined on the basis of the highest
marginal tax rate applicable to such Participant, by (a) directing the
Company to apply shares of Common Stock to which the Participant is entitled as
a result of the exercise of an Option or as a result of the purchase of or
lapse of restrictions on Restricted Stock or (b) delivering to the Company
shares of Common Stock owned by the Participant.  The shares of Common Stock so applied or
delivered in satisfaction of the Participant’s tax withholding obligation shall
be valued at their Fair Market Value as of the date of measurement of the
amount of income subject to withholding.

 11
 

ARTICLE 11.

 

CANCELLATION
& RESCISSION

11.1        Non-Competition.  Unless an Option Agreement specifies
otherwise, the Administrator may cancel, rescind, suspend, withhold or
otherwise limit or restrict any unexpired, unpaid, or deferred Options at any
time if the Participant is not in compliance with all applicable provisions of
the Option Agreement and the Plan, or if the Participant engages in any “Adverse
Activity.”  For purposes of this Section
11, “Adverse Activity” shall include: (i) the rendering of services for any
organization or engaging directly or indirectly in any business which is or
becomes competitive with the Company, or which organization or business, or the
rendering of services to such organization or business, is or becomes otherwise
prejudicial to or in conflict with the interests of the Company; (ii) the
disclosure to anyone outside the Company, or the use in other than the Company’s
business, without prior written authorization from the Company, of any
confidential information or material relating to the business of the Company,
acquired by the Participant either during or after employment with the Company;
(iii) the failure or refusal to disclose promptly and to assign to the Company
all right, title and interest in any invention or idea, patentable or not, made
or conceived by the Participant during employment by the Company, relating in
any manner to the actual or anticipated business, research or development work
of the Company; (iv) activity that results in termination of the Participant’s
employment for Cause; (v) a violation of any rules, policies, procedures or
guidelines of the Company; or (vi) any attempt directly or indirectly to induce
any employee of the Company to be employed or perform services elsewhere or any
attempt directly or indirectly to solicit the trade or business of any current
or prospective customer, supplier or partner of the Company.

11.2        Agreement Upon Exercise.  Upon exercise, payment or delivery pursuant
to an Option Agreement, the Participant shall certify in a manner acceptable to
the Company that he or she is in compliance with the terms and conditions of
the Plan.  In the event a Participant
fails to comply with the provisions of paragraphs (i)-(vi) of Section 11.1
prior to, or during the six (6) months after, any exercise, payment or delivery
pursuant to an Option Agreement, such exercise, payment or delivery may be
rescinded within two (2) years thereafter. 
In the event of any such rescission, the Participant shall pay to the
Company the amount of any gain realized or payment received as a result of the
exercise, payment or delivery, in such manner and on such terms and conditions
as may be required, and the Company shall be entitled to set-off against the
amount of any such gain any amount owed to the Participant by the Company.

ARTICLE 12.

MISCELLANEOUS

12.1        Benefits Not Alienable.  Other than as provided above, benefits under
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.  Any unauthorized attempt at assignment,
transfer, pledge or other disposition shall be without effect.

12.2        No Enlargement of Employee Rights.  This Plan is strictly a voluntary undertaking
on the part of the Company and shall not be deemed to constitute a contract
between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant.  Nothing contained in the Plan shall be deemed
to give the right to any Participant to be retained as an employee of the
Company or any Affiliated Company or to limit the right of the Company or any
Affiliated Company to discharge any Participant at any time.

 12
 

12.3        Application of Funds.  The proceeds
received by the Company from the sale of Common Stock pursuant to Option
Agreements and Stock Purchase Agreements, except as otherwise provided herein,
will be used for general corporate purposes.

12.4        Annual and Other Periodic Reports.  The Company shall
furnish each Participant copies of a balance sheet and income statement at
least annually, unless such Participant is a key employee whose duties in
connection with the Company (or any parent or subsidiary) assure such employee
access to equivalent information.

 13Exhibit 10.1

 

 

 

 

16 February 2007

 

 

 

 

 

 

ROYALTON EUROPE HOLDINGS LLC

 

 

 

WALTON MG LONDON INVESTORS V, L.L.C.

 

 

 

 

 

 

JOINT VENTURE AGREEMENT RELATING

TO MORGANS HOTEL GROUP EUROPE

LIMITED

 

 

 

 

 

 

 

 

CONTENTS

	
  CLAUSE

  	
   

  	
  PAGE

  	 

	
  1.

  	
   

  	
  DEFINITIONS

  	
   

  	
  1

  
	
  2.

  	
   

  	
  UNDERTAKINGS

  	
   

  	
  8

  
	
  3.

  	
   

  	
  BUSINESS OF THE COMPANY

  	
   

  	
  9

  
	
  4.

  	
   

  	
  PREMISES

  	
   

  	
  9

  
	
  5.

  	
   

  	
  BOARD OF DIRECTORS

  	
   

  	
  9

  
	
  6.

  	
   

  	
  SHAREHOLDER MEETINGS

  	
   

  	
  10

  
	
  7.

  	
   

  	
  MAJOR DECISIONS IN RELATION TO THE COMPANY

  	
   

  	
  10

  
	
  8.

  	
   

  	
  ADDITIONAL FUNDINGS AND FINANCINGS

  	
   

  	
  12

  
	
  9.

  	
   

  	
  ACCOUNTS AND FINANCIAL INFORMATION

  	
   

  	
  12

  
	
  10.

  	
   

  	
  TRANSFER OF SHARES

  	
   

  	
  12

  
	
  11.

  	
   

  	
  CONFLICT WITH ARTICLES

  	
   

  	
  14

  
	
  12.

  	
   

  	
  TERMINATION

  	
   

  	
  15

  
	
  13.

  	
   

  	
  OFFER TO BUY SHARES

  	
   

  	
  17

  
	
  14.

  	
   

  	
  TRANSFER TERMS

  	
   

  	
  20

  
	
  15.

  	
   

  	
  INTELLECTUAL PROPERTY RIGHTS

  	
   

  	
  21

  
	
  16.

  	
   

  	
  ANNOUNCEMENTS

  	
   

  	
  22

  
	
  17.

  	
   

  	
  CONFIDENTIALITY

  	
   

  	
  23

  
	
  18.

  	
   

  	
  GENERAL

  	
   

  	
  23

  
	
  19.

  	
   

  	
  SEVERABILITY

  	
   

  	
  24

  
	
  20.

  	
   

  	
  WAIVER AND REMEDIES

  	
   

  	
  24

  
	
  21.

  	
   

  	
  COSTS

  	
   

  	
  24

  
	
  22.

  	
   

  	
  ENTIRE AGREEMENT AND VARIATION

  	
   

  	
  25

  
	
  23.

  	
   

  	
  NOTICES

  	
   

  	
  25

  
	
  24.

  	
   

  	
  GOVERNING LAW AND JURISDICTION

  	
   

  	
  26

  
	
  EXHIBIT A PROPERTY MANAGEMENT AGREEMENT

  	
   

  	
  29

  
	
  EXHIBIT B MASTER MANAGEMENT AGREEMENT

  	
   

  	
  30

  
	
  EXHIBIT C DEED OF ADHERENCE

  	
   

  	
  31

  
								

 

 

JOINT VENTURE AGREEMENT DATED 16 February 2007

PARTIES

(1)                                  ROYALTON EUROPE HOLDINGS LLC, 11th Floor, 475 Tenth Ave, New York, NY 10018,
United States of America (together with its assignees Royalton); and

(2)                                  WALTON MG LONDON INVESTORS V, L.L.C. of 900
North Michigan Avenue, Suite 1900, Chicago, Illinois 60611, United States of
America (together with its assignees Walton),

(together the Parties).

RECITALS

(A)          Walton has acquired
2,499,999 B Shares and 1 Preferred Ordinary Share.  Royalton will continue to hold 2,499,999 A
Shares.

(B)           Royalton and Walton
are entering into this Agreement in order to set out the terms governing their
relationship as shareholders in the Company.

1.             DEFINITIONS

1.1           The
Schedules form part of this agreement (Agreement) and shall have the same force and
effect as if set out in the body of this Agreement.  Any reference to this Agreement shall include
the Schedules.

1.2           In
this Agreement the following words and expressions shall have the following
meanings:

Acceptable Finance
means the Facility Agreement or any finance with an institutional bank or
lending institution which finance shall be:

(a)                                  on
customary commercial terms;

(b)                                 secured
by no more than a pledge over all of the shares in the capital of the Company
or the subsidiary or a fixed charge over the Company’s and/or, as applicable,
the Company’s subsidiary’s interest in the Hotel Properties and a floating
charge over it’s other assets, but otherwise without recourse to the
Shareholders (other than customary “bad-boy” recourse carve-outs); and

(c)                                  on
terms such that Loan to Value is not greater than seventy-five to eighty
percent. (75%-80%), with an objective to achieve 80% (or as close thereto as is
reasonably possible).  “Value” shall be
determined by the lender’s appraisal;

A Directors
means A Directors of the Company appointed under the Articles;

Affiliate Agreement
has the meaning given in clause 7.1(q);

Affiliated
Shareholder has the meaning given in clause 7.1(q);

 

Agreed Form
the form hereafter agreed between and signed by or on behalf of Royalton and
Walton;

Appraisal
means, with respect to each Hotel Property, the independent valuation
(appraisal) prepared and delivered, by a reputable valuer (appraiser) of hotel
properties of similar type, location and value of the Hotel Properties (or any
of them, as applicable), to, the Company at its request;

Appraised Value
means the value of any Hotel Property as indicated on the most recent Appraisal
thereof, or, if no such Appraisal exists, the value agreed upon by the
Shareholders;

Assignment Amount has
the meaning given in clause 15.5;

Articles
means the articles of association of the Company;

A Shares
means the A Ordinary Shares in the capital of the Company owned by Royalton;

Auditors
means the firm appointed by the Company;

B Director:
means the B Directors of the Company appointed under the Articles;

B Shares
means the B Ordinary Shares in the capital of the Company owned by Walton;

Board
means the Board of Directors of the Company for the time being;

Business
means the business of the Company as described in clause 3 and such other
business as the Parties may agree pursuant to clause 7.1 from time to time in
writing should be carried on by the Company;

Business Day
means a day other than a Saturday or Sunday or public holiday in England and
Wales on which banks are open in London for general commercial business;

Buy/Sell Notice
shall have the meaning given in clause 13.1;

Capital
Expenditures means, determined in accordance with the
Determination Guidelines, for any period, the sum of all expenditures (whether
paid in cash or accrued as a liability) by the Company which are capitalized on
the consolidated balance sheet of the Company in conformity with GAAP, but
excluding (i) all expenditures made with respect to the acquisition by the
Company of any direct or indirect interest in real property; (ii) all
expenditures made in the initial construction, rehabilitation or renovation of
any Hotel Property; and (iii) capital expenditures made from the proceeds of
insurance or compulsory purchase awards (or payments in lieu thereof) or
indemnity payments received during such period by the Company from third
parties;

Closing
means completion of the sale and purchase of Sale Shares in accordance with
clause 13.6;

 

Companies Acts
means the Companies Act 1985, the Companies Consolidation (Consequential
Provisions) Act 1985 and the Companies Act 1989;

Company means
Morgans Hotel Group Europe Limited, a limited company with registered number
03203996 of 88 Wood Street, London EC2V 7AJ;

Contingent
Obligation means as to any person, without duplication,
(i) any contingent obligation of such person required to be shown on such
person’s balance sheet in accordance with generally accepted accounting
principles, and (ii) any obligation required to be disclosed in the footnotes
to such person’s financial statements, guaranteeing partially or in whole any
non-recourse Debt, lease, dividend or other obligation, exclusive of
contractual indemnities (including, without limitation, any indemnity or price-adjustment
provision relating to the purchase or sale of securities or other assets) and
guarantees of non-monetary obligations (other than guarantees of completion)
which have not yet been called on or quantified, of such person or of any other
person.  The amount of any Contingent
Obligation described in clause (ii) shall be deemed to be (a) with respect to a
guarantee of interest or interest and principal, or operating income guarantee,
the sum of all payments required to be made thereunder (which in the case of an
operating income guarantee shall be deemed to be equal to the debt service for
the note secured thereby), calculated at the applicable interest rate, through
(i) in the case of an interest or interest and principal guarantee, the stated
date of maturity of the obligation (and commencing on the date interest could
first be payable thereunder); or (ii) in the case of an operating income
guarantee, the date through which such guarantee will remain in effect, and (b)
with respect to all guarantees not covered by the preceding clause (a), an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such guarantee is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
person required to perform thereunder) as recorded on the balance sheet and on
the footnotes to the most recent financial statements of the Company.  Notwithstanding anything contained herein to
the contrary, guarantees of completion shall not be deemed to be Contingent
Obligations unless and until a claim for payment or performance has been made
thereunder, at which time any such guarantee of completion shall be deemed to
be a Contingent Obligation in an amount equal to any such claim;

control
means, for the purposes of the definition of “Group Company” and similar uses
of the term “control” made herein, the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
person or entity, whether through ownership of voting securities, by contract
or otherwise;

Debt
of any person means, without duplication, (i) as shown on such person’s
consolidated balance sheet (a) all indebtedness of such person for borrowed
money or for the deferred purchase price of property; and, (b) all indebtedness
of such person evidenced by a note, bond, debenture or similar instrument
(whether or not disbursed in full in the case of a construction loan); (ii) the
face amount of all letters of credit issued for the account of such person and,
without duplication, all un-reimbursed amounts drawn thereunder; (iii) all
Contingent Obligations of such person; and (iv) all payment obligations of such
person under any interest rate protection agreement (including, without
limitation, any interest rate swaps, caps, floors, collars and similar

 

agreements)
and currency swaps and similar agreements which were not entered into
specifically in connection with Debt set forth in clauses (i), (ii) or (iii)
hereof.  For the purposes hereof, Debt
(other than Contingent Obligations) of the Company shall be deemed to include
only the Company’s pro rata share (such share being based upon the Company’s
percentage ownership interest as shown on the Company’s annual audited
financial statements) of the Debt of any person in which the Company, directly
or indirectly, owns an interest, provided that such Debt is non-recourse, both
directly and indirectly, to the Company;

Deed of Adherence means
a deed of adherence to this agreement in the form of Exhibit C;

Debt Service
means, determined in accordance with the Determination Guidelines, measured as
of the last day of each calendar quarter, an amount equal to the aggregate
amount of interest and principal actually due and payable by the Company or any
subsidiary of the Company, as applicable, on its Debt for the previous four
consecutive quarters including the quarter then ended;

Determination
Guidelines means the intention of the Parties to this
Agreement that all calculations and distributions to be made under this
Agreement be determined and distributed as if all Hotel Properties were owned
directly by the Company and not through one or more intermediaries;

Director
means any director for the time being of the Company including, where applicable,
any alternate director;

Event of Default
shall have the meaning given in clause 12;

Facility Agreement
means the agreement between, inter alia, Morgans Hotel Group London Limited and
Citigroup Global Markets Limited dated 24 November 2005 as amended;

GAAP
means generally accepted accounting principles in effect from time to time in
the United Kingdom;

Group Company
means in relation to any Shareholder, a company controlled by that Shareholder,
a subsidiary (company, limited liability company, limited partnership or other
entity) of a company controlled by that Shareholder or a subsidiary owned by
the owners of that Shareholder, provided that Shareholder owns beneficially at
least fifty-one percent. (51 %) of the controlled company or such controlling
company owns beneficially at least fifty-one percent. (51 %) of that
Shareholder, as the case may be. 
Anything herein to the contrary notwithstanding, a “Group Company” as to
Walton shall include any company or other entity controlled by or under common control
with Walton Street Capital L.L.C.;

Hotel
means any lodging facility acquired wholly or in part, directly or indirectly,
by the Company in Europe, including all management and operations systems
thereof which, to the extent it is operated by the Operator, shall be operated
to the standard required in the Master Management Agreement and the Property
Management Agreements;

 

Hotel Properties
Value means the aggregate of the Appraised Value of each
of the Hotel Properties;

Hotel Property
means, in respect of any Hotel, the land, buildings, appurtenances, easements,
rights of way, fixtures, equipment, furnishings and any and all other real and
personal property rights and capital items in connection therewith;

ICTA 1988
means the Income and Corporation Taxes Act 1988;

JV IPR means
all intellectual property rights set out in Exhibit 2 to the Warranty Deed
between Royalton, Walton, Morgans Group LLC and Walton Street Real Estate Fund
V, L.P. dated 9 February 2007;

JV IPR Assignment
means the assignment by the Company and its subsidiary of the JV IPR together
with

(a)
the goodwill in any the JV IPR; and

(b)
the right to sue (and to retain damages recovered) in respect of any
infringement or unauthorised use of any of the JV IPR which may have occurred
before the date of this Deed,

to
such person, at such time as Royalton may in its discretion decide;

Loan to Value
means, as of any date of determination, the percentage of the aggregate amount
of the Debt of the Company outstanding as of such date to the Hotel Properties
Value as of such date;

London Stock
Exchange means the London Stock Exchange plc;

Major Decision
shall have the meaning set out in clause 7;

Master Management
Agreement means the master management agreement, of even
date herewith, between the Company and Morgans Hotel Group Management LLC,
attached hereto as Exhibit B and as amended from time to time as agreed between
the parties thereto in accordance with the provisions of clause 7.1(q);

Notified Price
shall have the meaning given in clause 13.2;

Notifier shall
have the meaning given in clause 13.1;

Notifier’s Shares
shall have the meaning given in clause 13.1;

Offer Period
shall have the meaning given in clause 13.3;

Operating Expenses
means, determined in accordance with the Determination Guidelines, when used
with respect to any Hotel Property, for any period, without duplication, all
expenses paid or to be paid by the Company, or as applicable, a subsidiary of
the Company, during such period in connection with the operation, management,
maintenance, ownership, repair and use of the Hotel Property, determined on an
accrual basis, and, except to the extent otherwise provided in this

 

definition,
in accordance with GAAP.  Operating
Expenses specifically shall include without duplication (i) all expenses
incurred in the immediately preceding twelve (12) month period; (ii) all
payments required to be made pursuant to any operating agreements; (iii)
management fees, whether or not actually paid, equal to fees actually paid to
the Hotel Property manager; and (iv) the real property taxes and assessments
with respect to the Hotel Property. 
Notwithstanding the foregoing, Operating Expenses shall not include (1)
depreciation or amortization, (2) income taxes or other impositions in the
nature of income taxes, (3) any expenses (including legal, accounting and other
professional fees, expenses and disbursements) incurred in connection with any
financing or the sale, exchange, transfer, financing or refinancing of all or
any portion of the Hotel Property or in connection with the recovery of
insurance or condemnation proceeds, (4) any expenses which the Auditors
consider should be capitalized, (5) Debt Service, and (6) any item of expense
which would otherwise be considered within Operating Expenses pursuant to the
provisions above but is paid directly by any retail tenant or reimbursed by the
tenant to the Company;

Operating Income
means, determined in accordance with the Determination Guidelines, when used
with respect to any Hotel Property, for any period without duplication, all
income of the Company or, as applicable, a subsidiary of the Company, during
such period from the operation of the Hotel Property as follows:

(a)                                  all
income, computed on an accrual basis in accordance with GAAP, derived from the
ownership and operation of the Hotel Property during such period from whatever
source, including all guest room revenues, all food, beverage, and merchandise
sales receipts, all interest income, if any, rent, utility charges, forfeited
security deposits, service fees or charges, license fees, parking fees and
business interruption insurance proceeds, (but excluding Value Added Tax,
refunds and uncollectible accounts, sales of furniture, fixtures and equipment,
proceeds of casualty insurance and compulsory purchase awards, interest on
credit accounts and payments made on interest rate protection agreements
entered into in connection with any financing);

(b)                                 all
other amounts which in accordance with GAAP are included in the Company’s (or
its applicable subsidiary’s) annual financial statements as operating income
attributable to the Hotel Property, excepting therefrom amounts collected for
onetime, nonrecurring reimbursements;

(c)                                  Operating
Income shall not include (a) any compulsory purchase or insurance proceeds; (b)
any proceeds resulting from the sale or other disposition of all or any portion
of the Hotel Property; (c) any rent attributable to any retail lease at the
Hotel Property prior to the date on which the actual payment of rent is
required to commence thereunder; (d) any item of income otherwise includable in
Operating Income but paid directly by any tenant to a person other than the
Company (or its applicable subsidiary), provided such item of income is an item
of expense (such as payments for utilities paid directly to a utility company)
and is otherwise excluded from the definition of Operating Expense; or (e)
security deposits received from any retail tenants until forfeited;

 

Operator
means the “Operator” as defined in the Master Management Agreement;

Preferred Ordinary
Share means the issued preferred non-voting ordinary
share in the capital of the Company of £1;

Project Documents
means the Master Management Agreement and the Property Management Agreements;

Property Management
Agreements means the property specific management
agreements in relation to each Hotel Property, of even date herewith, attached
hereto as Exhibit  A and as amended
from time to time as agreed between the parties thereto in accordance with the
provisions of clause 7.1(q);

Recipient
shall have the meaning given in clause 13.1;

Recipient’s Shares
shall have the meaning given in clause 13.1;

Relevant Person shall
have the meaning given in clause 12;

Sale Shares
shall have the meaning given in clause 13.7;

Sale Notice
shall have the meaning given in clause 13.4;

Shareholders
means Royalton and Walton, or, in respect of each of them, any person to whom
shares in the Company may have been transferred by them in accordance with the
provisions of this Agreement, and any other person to whom shares in the
Company are issued in accordance with the provisions of this Agreement;

Shares
means the A Shares, the B Shares, the Preferred Ordinary Share and any new
shares in the capital of the Company created from time to time;

subsidiary and
subsidiaries shall have the meanings set out in section
736 of the Companies Act 1985;

Termination Notice
shall have the meaning given in clause 12.2(c)(B);

Transfer
shall have the meaning given in clause 10.1;

Transfer Terms
shall have the meaning given in clause 13.3;

Value Added Tax
means value added tax at the rate in force when the relevant supply is made,
and includes any similar tax from time to time replacing it or supplementing it
or of a similar fiscal nature; and

Working Hours means
9.30 a.m. to 5.30 p.m. Greenwich Mean Time on a Business Day.

1.3           In
this Agreement (unless the context requires otherwise):

(a)                                  words
and expressions which are defined in the Companies Acts shall have the same
meanings as are ascribed to them in the Companies Acts;

 

(b)                                 any
question as to whether a person is connected with any other person shall be
determined in accordance with the provisions of Section 839 ICTA 1988;

(c)                                  any
reference to any statute or statutory provision shall be construed as including
a reference to any modification, re-enactment or extension of such statute or
statutory provision for the time being in force, to any subordinate legislation
made under the same and to any former statute or statutory provision which it
consolidated or re-enacted;

(d)                                 any
reference to a Recital or clause is to a Recital or clause (as the case may be)
of or to this Agreement; and

(e)                                  directly or indirectly
shall (without limiting the expression) mean either alone or jointly with any
other person, firm or body corporate and whether on his own account or in
partnership with another or others or as the holder of any interest in or as
officer, employee or agent of or consultant to any other person, firm or body
corporate.

1.4           The
headings contained in this Agreement are for the purposes of convenience only
and do not form part of and shall not affect the construction of this Agreement
or any part of it.

2.             UNDERTAKINGS

2.1           Without
prejudice to any other provision in this Agreement, Royalton and Walton hereby
severally undertake and covenant that as to any Acceptable Finance, or, upon
the agreement of the Shareholders to obtain third-party financing which is not
Acceptable Finance, as to such other third-party financing, Royalton and Walton
will each use its best efforts to satisfy, or cause to be satisfied, all the
conditions to such financing which are within its control, and in good faith,
exercise diligent and reasonable efforts to satisfy, or cause to be satisfied,
all conditions to such financing which are not within its control.

2.2           Royalton
and Walton each hereby undertake to the other Party that it shall (so far as it
is lawfully able) exercise all of its rights (whether arising by virtue of its
being a Shareholder in the Company or howsoever otherwise arising) so as to
procure that where a Shareholder or a person controlled by or connected with
any such Shareholder (for the purposes of this clause a relevant person) is a
party to a contract with the Company and such relevant person is in breach of
such contract the Company shall be entitled to enforce the Company’s rights
under such contract and to that end Royalton and Walton shall each procure that
any Directors of the Company appointed by such relevant person which is the
defaulting party to such contract shall have no part (whether through the
exercise of voting rights at meetings of the Board  or otherwise) in the conduct of any
proceedings taken by the Company for the purposes of such enforcement.

2.3           Each
Shareholder who is a party to a Project Document shall observe and perform its
obligations thereunder pursuant to the terms contained therein.  Each Shareholder whose affiliate is a party
to a Project Document shall procure that the

 

relevant affiliate observes and performs its
obligations in the relevant Project Document pursuant to the terms contained
therein.

2.4           The
Company shall, as soon as practicable following the acquisition by Walton of
the  B Shares, obtain new financing for
the Company, with a Loan to Value ratio of eighty percent. (80%) or as close
thereto as is reasonably possible, meeting the requirements for an Acceptable
Finance, and approved by Walton and Royalton (which approval shall not be
unreasonably withheld, both as to customary and any non -customary terms).

2.5           Royalton
and Walton (i) acknowledge that it is their intent to cause the Company to make
payments of “Cash Available” to the Shareholders (to the extent such payments
do not violate the provisions of loan agreements under which the Company or its
subsidiaries are borrowers), whether by way of distribution, reduction of
capital, purchase of own shares or otherwise on a regular basis and in a tax
efficient manner; and (ii) shall use reasonable endeavours with respect thereto
and shall do all things (including the entry into, execution and performance of
any necessary agreements, documents, deeds or other actions) in order to cause
the Company to make payments of Cash Available to the Shareholders (to the
extent such payments do not violate the provisions of loan agreements under
which the Company or its Subsidiaries are borrowers).  For
this purpose, “Cash Available” shall be defined as (i) annual cash flow after
required Debt Service, a 4% FF&E reserve and required working capital; and
(ii) proceeds of sales and financings and other capital events, to the extent
such proceeds are not used to pay obligations of the Company or to make
improvements in the properties owned by the Company.

3.             BUSINESS OF THE COMPANY

The business of the Company shall be, directly or indirectly through
subsidiaries, to develop, refurbish and operate Hotels in accordance with the
terms of this Agreement in such a manner as shall be for the mutual benefit of
the Shareholders and so as to produce the best returns reasonably obtainable
from such activities.

4.             PREMISES

The principal place of business of the Company shall be located as
mutually agreed upon by the Shareholders from time to time.

5.             BOARD OF DIRECTORS

5.1           The
maximum number of Directors holding office at any time shall be four (4) unless
otherwise expressly agreed in writing by each of the Shareholders.

5.2           The
quorum necessary for the transaction of business at a Board meeting shall
include at least one (1) A Director and one (1) B Director.

5.3           The
chairman of the Board shall be appointed alternately by the holders of a
majority of the A Shares and the holders of a majority of the B Shares in
accordance with the provisions of Article 17 of the Articles.

 

 

5.4           Board
meetings shall be held at regular intervals determined upon mutual agreement by
the Shareholders.

5.5           Subject
only to the provisions of clause 7, matters of business arising at any meeting
of the Board shall be decided by a majority of votes and, in accordance with
the Articles, in the case of an equality of votes the chairman shall not have a
second or casting vote.  Notwithstanding
any disproportionate ownership in the Company, (i) with respect to decisions to
be made by the Directors, the A Directors collectively shall have one vote and
the B Directors collectively shall have one vote.

5.6           The
Board shall have the right to constitute an executive committee for the
purposes of making any Major Decision (as herein below defined) provided that
such executive committee has equal representation of each of Royalton and
Walton (i.e., one member representing Royalton and one member representing
Walton).

6.             SHAREHOLDER MEETINGS

With
respect to decisions to be made by the Shareholders, the owners of the A Shares
collectively shall have one vote and the owners of the B Shares collectively
shall have one vote.  Except with respect
to a Major Decision, upon an equality of votes, Royalton shall have a second or
casting vote.

7.             MAJOR DECISIONS IN RELATION TO THE
COMPANY

7.1           Each
of the Parties hereby undertakes to the other Parties that it shall (so far as
it is lawfully able) exercise all of its rights (whether arising by virtue of
its being a shareholder in the Company or howsoever otherwise arising) so as to
procure that the following matters shall only be undertaken with the approval
of, subject to clause 5.6, the Board (each of the following, a Major Decision):

(a)                                  the
alteration of the memorandum of association of the Company or the Articles;

(b)                                 a
change in the capital structure of the Company, including the creation,
issuance or allotment by the Company of any shares or any right or instrument
convertible into shares in the capital of the Company, the creation of options
for new shares, the effectuation of an offering of equity in or debt of the
Company and any requirement to fund additional capital or debt to the Company
by Royalton or Walton;

(c)                                  the
grant of, or agreement to grant, any option or right to subscribe for Shares;

(d)                                 the
alteration of rights attaching to shares or to any class of Shares;

(e)                                  the
purchase or redemption of its own Shares by the Company provided, however, the
provisions of this clause 7.1(e) shall not be deemed to alter or limit the
provisions of clause 2.5;

(f)                                    any
appointment of or change of Auditors or investment bankers of the Company;

 

(g)                                 the
entering into of any corporate reconstruction, sale of assets or stock, merger,
acquisition or amalgamation by the Company;

(h)                                 the
obtaining or modification of any borrowings or other financings or refinancings
by the Company other than Acceptable Finance;

(i)                                     the
creation of any mortgage, charge, lien or other encumbrance over the assets of
the Company or any subsidiary of the Company, as applicable, other than liens
and other encumbrances arising (y) by operation of law in the ordinary course
of business of the Company or any subsidiary of the Company, as applicable, or
(z) pursuant to the requirements of a lender in connection with Acceptable
Finance;

(j)                                     the
giving of any guarantee or indemnity by the Company or any subsidiary of the
Company, as applicable, in respect of the obligations of third parties or
otherwise outside the ordinary course of business of the Company or any
subsidiary of the Company, as applicable;

(k)                                  the
sale or disposal of all or substantially all of the Company’s assets by the
Company or all or substantially all of the assets of any subsidiary of the
Company by such subsidiary or any one or more of the Hotel Properties;

(l)                                     the
making by the Company or any subsidiary of the Company of an acquisition of, or
an investment in, another company or business;

(m)                               the
making of any material change in the nature of the Business of the Company or
any subsidiary of the Company;

(n)                                 the
entering into of any transaction or arrangement (i) which is not in the normal
and ordinary course of business of the Company or any subsidiary of the Company
or (ii) which is with a Shareholder (or a person controlled by or connected
with any such Shareholder) other than the execution of the Project Documents;

(o)                                 the
entering into of any joint venture or partnership by the Company or any
subsidiary of the Company;

(p)                                 the
entering into of any voluntary winding up, dissolution, receivership,
administration procedure or analogous proceeding of the Company or any
subsidiary of the Company;

(q)                                 the
making of any alteration to or the non enforcement of the terms of any
agreement (including, but not limited to, Master Management Agreement, the
Property Management Agreements and restaurant leases) between (i) the Company
or any subsidiary of the Company and (ii) any Shareholder (or any person
controlled by or connected with any such Shareholder) or any entity in which
any Shareholder (or any person controlled by or connected with such Shareholder)
holds a greater than 49% ownership interest. The agreements referred to in the
prior sentence are herein called “Affiliate
Agreements” and the Shareholder whose relationship (or the
relationship of the person

 

controlled by or
connected with such Shareholder) results in such agreement being an Affiliate
Agreement is herein called the “Affiliated
Shareholder” (and the determination of Company’s and the Company’s
subsidiaries’ actions to enforce the rights and remedies of the Company and its
subsidiaries as to Affiliate Agreements shall be made by the Shareholder who is
not the Affiliated Shareholder);

(r)                                    the
purchase, sale, lease or disposal of any freehold or leasehold property;

(s)                                  the
approval of annual Hotel budgets and any material changes thereto;

(t)                                    the
approval of development budgets for any Hotel Property and any material changes
thereto;

(u)                                 the
entering into of any transaction for a new Hotel Property;

(v)                                 the
making of any material capital improvement or repair to a Hotel after the
initial construction or renovation of such Hotel by the Company;

(w)                               the
decision to make any distributions to the Shareholders other than as provided
in clause 2.5;

(x)                                   the
creation of any subsidiary company of the Company; and

(y)                                 all
material tax elections, tax filings and tax returns and all material matters
with respect to audits or disputes with governmental authorities as to taxes
and tax audits (with the exception of any such matters which relate to a period
prior to the date of this Agreement).

8.             ADDITIONAL FUNDINGS AND FINANCINGS

8.1           Save
as specifically provided in this Agreement, neither Royalton nor Walton shall
be under any obligation to contribute (either directly or through the provision
of guarantees or security to third parties) to the provision of any additional
funding which may be required by the Company.

8.2           It
is the intention of the Shareholders that the Business of the Company shall be
financed so far as possible by Acceptable Finance and the Shareholders’ equity
contributions.

9.             ACCOUNTS AND FINANCIAL INFORMATION

9.1           The
Parties will take such steps as are necessary to ensure that the Company and
its subsidiaries:

(a)                                  keep
proper accounting books and records relating to the Business and make such
books and records available for inspection on request by each of Royalton and
Walton;

 

(b)                                 furnish
each of Royalton and Walton with monthly management accounts (in a format to be
agreed by Royalton and Walton) within fifteen (15) days of the end of each
month;

(c)                                  furnish
each of Royalton and Walton with half-yearly unaudited financial statements
(consisting of a balance sheet and profit and loss account) and audited
accounts for each financial year of the Company and any subsidiaries (such
statements and accounts to be provided within sixty (60) days of the end of the
period to which they relate); and

(d)                                 furnish
to each of Royalton and Walton such further information as either of them may
from time to time reasonably require in relation to the Business or the
financial position of the Company and any subsidiaries or otherwise relating to
their respective affairs.

9.2           The
Shareholders shall require that the Operator delivers the budget required to be
delivered under each of the Property Management Agreements and shall procure
that not later than thirty (30) days before the beginning of each financial
year, the Board will prepare and deliver to them a proposed annual budget and
cash flow forecast for the next financial year and such other information
relating to the financial position and affairs of the Company and any
subsidiaries as each Shareholder may from time to time reasonably require.

9.3           Within
the thirty (30) day period referred to in clause 9.19.1(d), Walton and
Royalton, (subject to clause 7 and any amendments which they deem appropriate
to the proposed budget), shall approve the annual budget for the Company’s
financial year and communicate the annual budget to the Board.

9.4           Walton
and Royalton shall procure that the Board will review the annual budget during
the course of each financial year of the Company.  The Board may propose changes to Walton and
Royalton to which they shall respond within fifteen (15) days of receipt of
each proposal.  It is the understanding
of the Shareholders that the approval of the budget will be a Major Decision
made in accordance with clause 7.1.

10.          TRANSFER OF SHARES

10.1         Each
of Royalton and Walton agrees with the other not to sell, transfer, mortgage,
charge or dispose of or, subject to clause 10.2 below, agree to sell, transfer,
mortgage, charge or dispose of (a Transfer) in whole or in part any interest
(and whether separately, together, in part or in whole) in any Share save
pursuant to the provisions of this clause 10 and 13.

10.2         In
the event that a Buy/Sell Notice is served in accordance with clause 13.1, the
Notifier or the Recipient may enter into an agreement to Transfer any Shares
acquired pursuant to such Buy/Sell Notice.

10.3         Royalton
and Walton shall each be entitled to transfer Shares to a Group Company of
Royalton and Walton respectively provided that such transferee enters into a
Deed of Adherence in the Agreed Form agreeing to be bound by the terms of

 

this Agreement (including this clause) in all respects
as if it had been a Party in the capacity of the transferor of such Shares and
agreeing furthermore to transfer such Shares back to Royalton or Walton (as the
case may be) on ceasing to be a Group Company of Royalton or Walton (as the
case may be).

10.4         Any
Shareholder transferring its Shares shall simultaneously transfer its loan
stock to the transferee.

10.5         The
Parties shall execute all such consents as are required pursuant to the
Articles to permit a transfer pursuant to the provisions of this clause 10 and
clause 13.

10.6         In
the event that the Company becomes a public company whose shares are listed on
any recognized exchange in England or the United States of America, the
restrictions on Transfers herein contained shall be amended to be based upon
the commercially reasonable requirements of the public markets for a newly
public company so listed.

10.7         Notwithstanding
anything contained herein to the contrary, a Transfer which is the result of
the death of a Shareholder shall not be a breach of clause 10.1, provided that
(i) the transferees of Shares pursuant to such Transfer are limited to members
of the immediate family of the deceased Shareholder, trusts established for the
benefit of such family members, Group Companies and statutory intestate
successors, and (ii) such transferees enter into Deed of Adherence in the
Agreed Form agreeing to be bound by the terms of this Agreement (including this
clause) in all respects as if they had been Parties in the capacity of the
transferor of such shares.

10.8         Walton
shall have the right to assign all of its rights and obligations to any Walton
Group Company.  Upon such an assignment,
Royalton shall deliver and execute a deed of novation in such form as Walton
may reasonably require in respect of which the prospective obligations of
Walton under this Agreement shall be novated to such other entity.

10.9         Royalton
shall have the right to assign all of its rights and obligations to any
Royalton Group Company.  Upon such an
assignment, Walton shall deliver and execute a deed of novation in such form as
Royalton may reasonably require in respect of which the prospective obligations
of Royalton under this Agreement shall be novated to such other entity.

10.10       Anything
herein to the contrary notwithstanding, each Shareholder may mortgage or charge
such Shareholder’s Shares, as security for a loan to such Shareholder or any
affiliate of such Shareholder, subject to the lender thereunder and any third
party to whom such Shares are transferred, entering into a Deed of Adherence.

11.          CONFLICT WITH ARTICLES

In the event of any conflict between the terms of this Agreement and
any provision of the Articles, this Agreement shall prevail.

 

12.          TERMINATION

12.1         This
Agreement shall remain in full force and effect unless and until terminated in
accordance with the provisions of this clause 12.

12.2         This
Agreement shall terminate forthwith upon:

(a)                                  one
Shareholder acquiring all of the Shares held by all of the other Shareholders;
or

(b)                                 the
making of an order or the passing of an effective resolution for the winding up
of the Company; or

(c)                                  the
execution of a written agreement among all of the then Shareholders terminating
this Agreement.

A.            Definition

An Event of
Default shall mean in relation to any Shareholder (the Relevant Person) any
of the following:

1.                                       the
Relevant Person commits a material breach of its obligations under this
Agreement and, if the breach is capable of remedy, fails to remedy the breach
within sixty (60) days of being specifically required in writing to do so by
the other party; provided, that if such breach is not capable of being remedied
within such sixty (60) day period, the same shall not constitute an Event of
Default so long as the Relevant Person commences to cure such breach within
such sixty (60) day period and thereafter diligently prosecutes such cure to
completion;

2.                                       the
Company terminates a Project Document to which the Relevant Person or its
affiliate is a party before the expiry of the contractual term as a remedy for
the default of such Relevant Person or its affiliate thereunder;

3.                                       the
Relevant Person:

If the Relevant Person is not an individual:

(a)                                  passes
a winding-up resolution (other than in connection with a members voluntary
winding-up for the purposes of an amalgamation or reconstruction which has the
prior written approval of the investor);

(b)                                 calls
a meeting of its creditors for the purpose of considering a resolution that it
be wound-up voluntarily;

(c)                                  resolves
to present its own winding-up petition;

(d)                                 is
wound-up (whether in England or elsewhere);

 

(e)                                  calls,
or a nominee on its behalf calls, a meeting of any of its creditors;

(f)                                    makes
an application to the Court under Section 425 of the Companies Act 1985;

(g)                                 submits
to any of its creditors a proposal pursuant to Part I of the Insolvency Act
1986;

(h)                                 enters
into any arrangement, scheme, compromise, moratorium or composition with any of
its creditors (whether pursuant to Part I of the insolvency Act 1986 or
otherwise);

(i)                                     is
struck off the Register or otherwise ceases to exist; or

(j)                                     suffers
all or a substantial part of its property to be taken in execution; or

If the Relevant Person is an individual:

(a)                                  is
adjudged bankrupt or sequestrated either in the United Kingdom or elsewhere;

(b)                                 is
a party to a deed of arrangement with his creditors;

(c)                                  enters
into any form of voluntary arrangement with his creditors or otherwise makes a
general composition with his creditors; or

(d)                                 has
an administration order passed against him; or

4.                                       the
directors or shareholders of the Relevant Person resolve to present a petition
for an administration order in respect of it or an administration order is
made; and

5.                                       an
administrative receiver, a receiver or a receiver and manager is appointed in
respect of all or a substantial part of any of the property of the Relevant
Person.

B.            Termination on Default

Upon the occurrence and during the continuance of an Event of Default,
each Shareholder which is not the Relevant Person with respect to such Event of
Default may terminate this Agreement by notice (Termination Notice) in writing to the
other Shareholders provided that such Shareholder simultaneously therewith
delivers a Buy/Sell Notice pursuant to clause 13.1 hereof.  Thereafter, upon the completion of the
Transfer of Sale Shares in accordance with clause 13, this Agreement shall
terminate and be of no further force and effect.  Each Shareholder comprising either Party
shall be required to act collectively under this clause and a Termination
Notice delivered by any Shareholder comprising either Party shall only be
effective if such

 

Termination Notice, and the Notice delivered together therewith, is (i)
signed by all of the Shareholders comprising such Party; or (ii) signed by such
Party and on its face expressly states that in delivering such notice such
Party is acting for itself and the other members of such Party.  Each of the Shareholders comprising each
Party hereby agrees that (y) any notice delivered by them in accordance with
the foregoing clause (ii) also shall be deemed to have been delivered and
executed by each Shareholder comprising such Party, and (z) such Party shall
have the right to deliver notices under this clause on their behalf.

C.            Continuance of Company’s Operations

Following service of a Termination Notice until such time as the
completion of the Transfer of the Sale Shares in accordance with the terms
hereof (including any period during which any matter relating to this clause or
clause 13 is the subject of proceedings), each Shareholder shall do all
things in its power to continue to operate the Company in the ordinary course
of its business as it existed at the time at which the Termination Notice was
served.

12.3         The
termination of this Agreement (howsoever arising):

(a)                                  shall
be without prejudice to the rights of any Party accrued hereunder as at the
date of termination or to any claim which any Party may have for damages
against or otherwise arising from any antecedent breach thereof by any other
Party;

(b)                                 shall
not operate to affect such of the provisions hereof as in accordance with their
terms are expressed to operate or have effect thereafter.

13.          OFFER TO BUY SHARES

13.1         (a)
At any time after February 9 2010, each of Royalton and Walton shall have the
right (regardless of whether there is then a dispute as to a Major Decision);
or (b) in the event  a Termination
Notice is served pursuant to clause 12.2(B) hereof, the Shareholder
serving such Termination Notice shall have the obligation concurrently
therewith, to serve a written notice (the
Buy/Sell Notice)
on the other (the Recipient)
offering to buy all (but not some only) of the issued shares of the class held
by (or by a Group Company of) the Recipient (the Recipient’s
Shares) or to sell to the Recipient all (but not some only) of
the issued shares of the class held by (or by a Group Company of) the Party who
has given a Buy/Sell Notice (the Notifier) (the Notifier’s Shares) in accordance with the
following provisions of this clause 13. 
For the purposes hereof, any offer to purchase from Walton shall
encompass all (but not some only) of the B Shares and the one Preferred
Ordinary Share.  For the purposes hereof,
any offer to purchase from Royalton shall encompass all (but not some only) of
the A Shares.

13.2         The
Buy/Sell Notice shall specify the per share price at which the Notifier is
prepared to buy the Recipient’s Shares (the Notified Price) but shall not include
any other conditions whatsoever.

 

13.3         The
Buy/Sell Notice shall be deemed to:

(a)                                  constitute
an offer by the Notifier, open for acceptance by the Recipient for sixty (60)
clear calendar days from the date of service of the Buy/Sell Notice (the Offer Period), to buy
all but not some only of the Recipient’s Shares on the Transfer Terms at the
Notified Price; and

(b)                                 constitute
an alternative offer by the Notifier to sell to the Recipient all (but not some
only) of the Notifier’s Shares after the end of the Offer Period on the
Transfer Terms at the Notified Price if the Recipient does not elect to sell
the Recipient’s Shares to the Notifier before the expiry of the Offer Period
and shall be irrevocable without the written consent of the Recipient.

13.4         The
Recipient may at any time before the expiry of the Offer Period serve notice in
writing upon the Notifier of its desire to sell all (but not some only) of the
Recipient’s Shares on the terms set out in this clause (a Sale Notice) which
may not be expressed to be subject to any condition whatsoever.  On service of a Sale Notice on the Notifier,
the Notifier shall be bound to purchase at the Notified Price and the Recipient
shall be bound to sell, on payment of the Notified Price, all the Recipient’s
Shares, which the Recipient shall transfer on the Transfer Terms.

13.5         The
Offer Period shall automatically terminate on the earlier of: (i) 60 clear
calendar days from the date of service of the Buy/Sell Notice; or (ii) 5 clear
Business Days after the receipt of a Sale Notice.

13.6         If
the Recipient does not serve a Sale Notice during the Offer Period the
Recipient shall be deemed to have declined the offer referred to in clause
13.3(a) and to have accepted the alternative offer referred to in clause
13.3(b) and the Notifier shall be bound to sell upon receipt of the Notified
Price and the Recipient shall be bound to purchase at the Notified Price the
Notifier’s Shares, which the Notifier shall transfer on the Transfer Terms.

13.7         In
the following sub-clauses, the Sale Shares means the shares to be sold, the Seller means the
seller of the Sale Shares and the Buyer means the person who, in accordance
with the foregoing provisions of this clause, has become bound to purchase the
Sale Shares.

13.8         Purchase
deposits and the Closing (as hereinafter defined) shall be made in accordance)
with the following provisions of this clause 13.8:

(a)                                  at
any time before 3.00 pm, London time, 5 clear Business Days following the
termination of the Offer Period in accordance with clause 13.5 above, the Buyer
shall, pay by wire transfer or banker’s draft for value to the Seller’s
nominated solicitor as  stakeholder a
deposit in an amount equal to ten percent. (10%)  of the total price of the Sale Shares.  In such event, within forty-five (45) clear
calendar days of termination of the Offer Period the Seller shall effect the
Closing.  Failure to effect the Closing
(other than by reason of default of the Seller) shall result in, without
limitation, loss by the Buyer of such deposit;

 

(b)                                 if
the Buyer fails to deliver such deposit, (i) the Seller shall be entitled to
withdraw its offer to sell its Shares to the Buyer without prejudice to its
right to sue for delivery of the deposit from the Buyer; or (ii) at the Seller’s
option, to be exercised in writing by the Seller within seven (7) clear
Business Days after the Buyer’s failure to make the required deposit, (x) the
party which theretofore had been the “Buyer” shall thereupon be deemed to be
the Seller, (y) the party which theretofore had been the “Seller” shall be
deemed to be the Buyer, (z) the Sale Shares will be deemed to comprise the
Shares of the deemed Seller and any affiliate thereof, and the Notified Price
shall be reduced by five percent. (5%). 
Upon such an election by the original Seller, the deemed Seller shall
effect the Closing and the Shareholders shall procure that the Board will enter
the Buyer’s name in the register of members of the Company as the holder of the
Sale Shares; and

(c)                                  with
respect to an Event of Default, in the event that the party serving the
Termination Notice (the Non-Defaulting
Shareholder) is the Seller, failure of the Non-Defaulting
Shareholder, as Seller, to effect the Closing, or, in the event that the
Non-Defaulting Shareholder is the Buyer, failure of the Non-Defaulting
Shareholder, as Buyer, to deliver the required deposit, within the applicable
prescribed period shall be deemed to be a waiver by the Non-Defaulting
Shareholder of its right to deliver a Termination Notice hereunder in respect
of the Event(s) of Default giving rise to the service of the Termination
Notice.

13.9         The
Closing shall take place at such reasonable time and place (and otherwise in
accordance with all applicable time periods herein specified) as the Buyer may
specify by not less than two (2) clear Business Days written notice to the
Seller whereupon (the following events described in this clause 13.9 are herein
collectively referred to as the Closing):

(a)                                  the
Seller shall deliver to the Buyer a duly executed transfer or transfers in
favour of the Buyer or such other person as it may direct together with the
relative share certificates in respect of the Sale Shares;

(b)                                 The
Seller and the Buyer shall execute a sale and purchase agreement incorporating
the Transfer Terms set out in clause 14 below;

(c)                                  against
such delivery, the Buyer shall pay the Notified Price, less any Deposit paid,
to the Seller by wire transfer or banker’s draft for value on the date of
completion;

(d)                                 the
Seller shall do all such other things and execute all such other documents as
the Buyer, or such other person as it may direct, may require to give effect to
the sale and purchase of the Sale Shares;

(e)                                  the
Seller shall procure the resignation of all Directors appointed by it and such
resignation shall take effect without any liability on the Company for
compensation for loss of office or otherwise.

 

13.10       If
the Seller shall fail or refuse to transfer any Sale Shares in accordance with
its obligations hereunder the Company shall authorize some person to execute
and deliver on its behalf the necessary transfer and the Company shall receive
the purchase money in trust for the Seller and cause the Buyer to be registered
as the holder of the Sale Shares.  The
receipt of the Company for the purchase money shall be a good discharge to the
Buyer (and it shall not be bound to see to the application thereof).

13.11       If
each of Royalton and Walton shall receive an effective and properly delivered
Buy/Sell Notice, the first such Buy/Sell Notice to be properly delivered shall
prevail.

13.12       Each
Shareholder waives its rights of pre-emption on the transfer of the Sale Shares
contained in this clause 13 and the Articles to the extent necessary to effect
the provisions of this clause 13.

13.13       For
purposes of any Transfer under this clause 13, each Shareholder comprising
Walton shall be required to act collectively under this clause and any Notice
delivered hereunder by any such Shareholder shall only be effective if Signed
by all of such Shareholders.

14.          TRANSFER TERMS

14.1         This
clause sets out the terms on which any Shares are to be transferred under
clause 12 (Termination) or clause
13 (Offer to Buy Shares).

14.2         In
this clause:

(a)                                  Buyer shall mean the
buyer of the Shares;

(b)                                 Relevant Notice means
the relevant Termination Notice, Buy/Sell Notice, Sale Notice or other
equivalent notice (as the case may be) given pursuant to the clauses of this
Agreement referred to in clause 13.1;

(c)                                  Seller means the
seller of the Shares; and

(d)                                 Transferring Shares means
the Sale Shares or the Shares to be transferred.

14.3         Any
transfer of the Transferring Shares shall be on the following terms (together
with, for the avoidance of doubt, the benefit of the provisions of clause
13.11, but subject in any event to the Master Management Agreement):

(a)                                  subject
to any security granted in relation to Acceptable Finance, the Transferring Shares
will be sold with full title guarantee, free from all liens, charges and
encumbrances and third party rights, together with all rights of any nature
attaching to them including all rights to any dividends or other distributions
declared, paid or made after the date of the Relevant Notice;

(b)                                 the
Seller shall repay all loans, loan capital, borrowings and indebtedness in the
nature of borrowings outstanding to the Company from the Seller (or from

 any person
controlled by or connected with the Seller) together with any accrued interest;

(c)                                  the
Company shall repay all loans, loan capital, borrowings and indebtedness in the
nature of borrowings outstanding to the Seller (or from any person controlled
by or connected with the Seller) together with any accrued interest; and

(d)                                 the
Buyer shall use all reasonable endeavours (but, save as provided below, without
involving any financial obligations on its part) to procure the release of any
guarantees or indemnities given by the Seller (or by any person controlled by
or connected with the Seller) to or in respect of the Company provided that
costs in relation thereto shall be borne by the Buyer save where such guarantee
or indemnity given by the Seller (or by any person controlled by or connected
with the Seller) is in form or substance substantially different from that
given by the Buyer in which event the Seller shall bear such costs.

(e)                                  the
Seller shall deliver to the Buyer duly executed transfer(s) in favour of the
Buyer or as it may direct, together with any share certificate(s) for the
Transferring Shares and a certified copy of any authority under which such
transfer(s) is/are executed and, against delivery of the transfer(s), the Buyer
shall pay the consideration for the Transferring Shares to the Seller in
cleared funds for value on the completion date;

(f)                                    the
parties shall ensure (insofar as they are able) that the relevant transfer or
transfers (subject to their being duly stamped, stamp duty to be paid by the
Buyer) are registered in the name of the Buyer or as it may direct;

(g)                                 the
parties shall do all such other things and execute all other documents
(including any deed) as the other party may reasonably request to give effect
to the sale and purchase of the Transferring Shares;

(h)                                 if
requested by the Buyer, the Seller shall ensure that all the Directors
appointed by it resign and the resignation(s) take effect without any liability
on the Company for compensation for loss of office or otherwise (except to the
extent that the liability arises in relation to a service contract with a
Director who was acting in an executive capacity),

and
on the reasonable request of the Buyer, a guarantor  of substance shall be provided in respect of the Seller’s
obligations.

15.          INTELLECTUAL PROPERTY RIGHTS

15.1         Walton
hereby acknowledges and agrees that the JV IPR shall be assigned, in a tax
efficient manner, on reasonably acceptable terms to both Royalton and Walton,
acting reasonably, to such person, at such time following Closing as Royalton
may in its discretion decide, under the JV IPR Assignment.

15.2         Walton
undertakes to use reasonable endeavours to take no action, (and will use
reasonable endeavours to procure that no Walton Group Company takes any 

action) which may prevent the Company or any of its
subsidiaries from executing, delivering and performing the JV IPR Assignment  and such further
acts, deeds, documents and things as may be required by law or be necessary to
implement and give effect to the JV IPR Assignment.

15.3         Walton
undertakes to use reasonable endeavours to procure that the Company and its
subsidiaries waive in favour of and assign to Royalton (and shall procure the
waiver by Walton Group and assignment to Royalton of) all right, title, claim
or interest they may have now or in the future, in the JV IPR (including the
goodwill in any of the JV IPR) owned or used by the Company or the subsidiaries
and shall (and shall procure that the Walton Group Companies shall) at Royalton’s
request and cost, promptly execute any and all documents required by Royalton
to confirm this.

15.4         Each
of the parties hereby acknowledges and agrees that should the Company, or any
of its subsidiaries, assign any intellectual property rights owned by the
Company, or any of its subsidiaries, to Royalton in accordance with this clause
15, Royalton will receive the full benefit of any such intellectual property
rights assigned.

15.5         In
the event that any consideration is payable to the Company or any of its
subsidiaries in relation to a JV IPR Assignment, (the Assignment Amount),
Walton agrees that it will either (a) pay an amount equal to 50 percent. of the
Assignment Amount on behalf of Royalton to the Company or any of its
subsidiaries; or (b) in the event that Royalton pays the Assignment Amount,
Walton shall pay an amount equal to 50 percent. of the Assignment Amount to
Royalton, in either case less an amount equal to 50% of any tax on the disposal
proceeds actually suffered by the Company or by any of its subsidiaries.

15.6         Royalton
undertakes to Walton to procure that all JV IPR assigned by the Company or any
of its subsidiaries pursuant to this clause 15 shall be made available to the
Operator (as defined in the Property Management Agreements) to enable the
Operator to comply with its obligations under the Property Management
Agreements.

16.          ANNOUNCEMENTS

16.1         Except
as provided in clause 16.2 below, no public announcement (other than if and to
the extent required by law or by any governmental or regulatory body) shall be
made by or on behalf of Royalton or Walton or by or on behalf of either of
their respective affiliates concerning the existence or subject matter of this
Agreement, or the transactions contemplated by this Agreement, without the
prior written consent of Royalton and Walton, which consent shall be in the sole
and absolute discretion of Royalton and Walton.

16.2         For
the avoidance of doubt, the Walton acknowledges and agrees that the directors
and/or officers of Morgans Hotel Group Co (MHG Co) may, in consequence of MHG Co being a
company whose shares are listed on the Nasdaq Stock Market, in the course of
their employment disclose the existence of or subject matter of this Agreement
to persons such as analysts and rating agencies and such disclosure shall not
amount to a breach of clause 16.1.

 

17.          CONFIDENTIALITY

17.1         Each
of the Parties agrees not to make public or reveal to any third party any
commercial, organizational or other information of a confidential nature
concerning the other Party obtained as a result of such Party’s participation
in this Agreement save insofar as the information in question:

(a)                                  is
proven to have been known to such Party prior to the discussion relating to the
transactions contemplated hereby between Walton and its affiliates (and their
agents) and Royalton and its affiliates (and their agents);

(b)                                 is
proven to have become known to such Party during the term of this Agreement
through the lawful act of a third party;

(c)                                  comes
into the public domain otherwise than as a result of breach of this clause or
of law;

(d)                                 is
required to be given, made or published by law or under the rules and
regulations of the London Stock Exchange or any other recognized investment
exchange (as defined in Section 207 of the Financial Services Act 1986);

(e)                                  is
made public or revealed with the prior written approval of the other Party to
the contents thereof and the manner of its presentation and publication (such
approval not to be unreasonably withheld or delayed); or

(f)                                    is
made to a lender in connection with Acceptable Finance in accordance with the
commercially reasonable requirements of such lender.

17.2         The
Parties shall use their respective best endeavours to agree upon the form and
manner of presentation and publication of information regarding the Company
which shall be given to relevant customers and prospective customers.

18.          GENERAL

18.1         This
Agreement shall be binding on and endure for the benefit of the successors of
the Parties and (subject to compliance with clause 10) the successors in title
to the Shares held by Royalton and Walton.

18.2         Subject
to the provisions of clause 18.1, this Agreement is personal to the Parties and
no Party shall assign or purport to assign or deal with, in any way, any of its
rights or obligations hereunder.

18.3         Where
any matter or thing herein contained is expressed to be an obligation on the
part of the Company (whether to do or refrain from doing any such matter or
thing) the Shareholders shall exercise their respective voting rights or other
powers of and in the Company to procure that the Company shall observe the same
so far as such matters are within their power.

18.4         The
Parties shall use their best endeavours to procure (without imposing any
additional financial obligations on the other Party) that any necessary third
party shall 

do and execute and perform all such further deeds,
documents, assurances, acts and things as any of them may reasonably require by
notice in writing to give effect to the terms of this Agreement.

18.5         Where
this Agreement provides that any matter is subject to the consent, approval or
agreement of any Party then (save as expressly provided otherwise) it shall be
in the absolute discretion of the Party concerned as to whether (and if so, on
what terms and conditions) the consent, approval or agreement is given.

18.6         This
Agreement shall not constitute a partnership between the Parties or any of
them.

18.7         The
Parties agree that the Company will be authorised to create subsidiaries in
accordance with the provisions of clause 7.1(x), and that the Shareholders will
procure that any such subsidiaries shall comply with the provisions of this
Agreement as if it related to the subsidiary and to the extent otherwise
necessary Walton and Royalton shall procure that the subsidiary’s corporate
governance documents are adopted in a form so as to require any such subsidiary
to conduct its business in a manner which will result in such compliance.

19.          SEVERABILITY

In the event that any provision of this Agreement or any part thereof
shall for any reason be held by any judicial determination to be invalid or
unenforceable, the valid and enforceable portions hereof shall continue to be
in full force and effect and the Parties shall negotiate in good faith a
substitute provision for the provision of this Agreement held to be invalid or
unenforceable as aforesaid to reflect the purpose or intent (as closely as may
be possible) of such provision.

20.          WAIVER AND REMEDIES

A failure by any Party to exercise or enforce any rights conferred upon
it by this Agreement shall not be deemed to be a waiver of any rights or
operate so as to bar the exercise or enforcement thereof at any subsequent time
or times and all express rights granted to any Party hereunder shall be in
addition to any rights that such Party may have under the general law in
respect of a breach hereof.

21.          COSTS

Each Party shall bear its own costs and expenses in relation to the
preparation, negotiation and implementation of this Agreement and the
agreements and arrangements of which it forms part.  To the extent any approved annual Hotel budget
provides for expenditures being made by either Royalton or Walton, the Company
shall reimburse Royalton or Walton, as the case may be, for such
expenditures.  Such reimbursement shall
be made by the Company after Royalton or Walton presents reasonable evidence of
the costs so incurred and shall be made out of Company cash flow.

 

22.          ENTIRE AGREEMENT AND VARIATION

22.1         This
Agreement (together with any agreement of even date entered into pursuant
hereto or in connection herewith) constitutes the entire agreement between the
Parties in respect of the subject matter hereof and may only be varied by a
written agreement signed on behalf of each of the Parties.

22.2         The
Parties hereby expressly confirm that they have not relied upon any
representation or warranty given by any other Party which is not set out in
this Agreement and to the extent that they have they hereby expressly waive all
rights in respect to any such representation or warranty.

23.          NOTICES

23.1         Any
notice in connection with this Agreement shall be in writing in English and
delivered by hand, fax, registered post or courier using an internationally
recognised courier company.  A notice
shall be effective upon receipt and shall be deemed to have been received (i)
at the time of delivery, if delivered by hand, registered post or courier or
(ii) at the time of transmission if delivered by fax provided that in either
case, where delivery occurs outside Working Hours, notice shall be deemed to
have been received at the start of Working Hours on the next following Business
Day.  Notwithstanding the foregoing, a
notice given by fax will not be deemed effective unless, no later than the
first Business Day following the transmission of such fax, a copy of such faxed
notice is deposited with an internationally recognised courier company for
delivery to the addressee thereof and such copy is delivered to the addressee
(but if such copy of the faxed notice is so deposited and delivered by such
courier, the notice will be effective at the time of transmission of the fax
(or the next Business Day) as provided above). Each Party may designate, by not
less than five (5) Business Days’ notice given to the others in accordance with
the terms of this clause 21.1, additional or substituted parties (or changed
addresses) to whom Notices should be sent hereunder.

23.2         The
addresses and fax numbers of the parties for the purpose of clause 23.1 are:

Royalton

	
  For the attention of:

  	
   

  	
  Marc Gordon

  
	
   

  	
   

  	
   

  
	
  Address:                

  	
   

  	
  Royalton Europe Holdings LLC

  c/o Morgans Group LLC

  475 Tenth Avenue

  New York 

  New York 10018

  
	
   

  	
   

  	
   

  
	
  Fax:

  	
   

  	
  212 277 4290

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  Freshfields Bruckhaus Deringer

  65 Fleet Street

  London EC4Y 1HS

  

 

 

	
  

  	
   

  	
   

  
	
  Walton

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  For the attention of:

  	
   

  	
  Robert Bloom, Jeffrey Quicksilver, and Luke Massar

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  c/o Walton Street Capital, L.L.C.

  900 N. Michigan Avenue, Suite 1900

  Chicago, Illinois 60611

  Fax: 
  312-915-2881

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  For the attention of:

  	
   

  	
  Real Estate Notices (PGN & LMM  4.714)

  
	
   

  	
   

  	
   

  
	
  Address:

  	
   

  	
  Pircher, Nichols & Meeks

  1925 Century Park East, Suite 1700

  Los Angeles, California 90067

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Fax: 
  310-201-8922

  

 

23.3         Any
notice in connection with this Agreement which is not delivered in accordance
with the provisions of this clause shall be ineffective.

24.          GOVERNING LAW AND JURISDICTION

24.1         This
Agreement shall be governed by, and interpreted in accordance with, English
law.

24.2         Except
as expressly provided otherwise in this Agreement, the courts of England are to
have exclusive jurisdiction to settle any disputes which may arise in
connection with this Agreement.  For such
purposes each party irrevocably submits to the jurisdiction of the English
courts, waives any objections to the jurisdiction of those courts and
irrevocably agrees that a judgment or order of the English courts in connection
with this Agreement is conclusive and binding on it and may be enforced against
it in the courts of any other jurisdiction.

24.3         Walton
shall at all times maintain an agent for service of process and any other
documents in proceedings in England or any other proceedings in connection with
this Agreement.  Such agent shall be Law
Debenture Corporate Services Limited of Fifth Floor, 100 Wood Street, London
EC2V 7EX and any claim form, judgment or other notice of legal process shall be
sufficiently served on Walton if delivered to such agent at its address for the
time being.  Walton irrevocably
undertakes not to revoke the authority of this agent and if, for any reason,
Royalton requests Walton to do so it shall promptly appoint another such agent
with an address in England and advise the Royalton.  If, following such a request, Royalton fails
to appoint another agent, Walton shall be entitled to appoint one on behalf of
Walton at Walton’s expense.

 

24.4         Royalton
shall at all times maintain an agent for service of process and any other
documents in proceedings in England or any other proceedings in connection with
this Agreement.  Such agent shall be
Morgans Hotel Group London Limited  of
88 Wood Street London EC2V 7AJ and any claim form, judgment or other notice of
legal process shall be sufficiently served on the Royalton if delivered to such
agent at its address for the time being. 
Royalton irrevocably undertakes not to revoke the authority of this
agent and if, for any reason, Walton requests Royalton to do so it shall
promptly appoint another such agent with an address in England and advise
Walton.  If, following such a request,
Royalton fails to appoint another agent, Walton shall be entitled to appoint
one on behalf of Royalton at Royalton’s expense.

EXECUTED
and delivered on the date set out at the head of this
Agreement.

 

The parties have shown
their acceptance of the terms of this Deed by executing it as a Deed below.

 

ROYALTON EUROPE HOLDINGS
LLC, a Delaware limited liability company

By: Morgans Group LLC, a Delaware limited liability company

Its sole member

By: Morgans Hotel Group Co.

Its managing
member

	
  By:

  	
   

  	
  /s/ Marc Gordon

  	
   

  
	
  Name:

  	
   

  	
  Marc Gordon

  
	
  Title:

  	
   

  	
  Chief Investment Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  WALTON MG LONDON HOTELS INVESTORS V, L.C.C.,

  a Delaware limited liability company

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  Walton Acquisition REOC Holdings V, L.L.C.,

  a Delaware limited liability company

  Its Member

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  Walton Street Real Estate Fund V, L.P.,

  a Delaware limited partnership

  Its Managing Member

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  Walton Street Managers V, L.P.,

  a Delaware limited partnership

  Its General Partner

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  WSC Managers V, Inc.,

  a Delaware corporation

  Its General Partner

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
  /s/ Robert S. Bloom

  	
   

  
	
  Name:

  	
   

  	
  Robert S. Bloom

  
	
  Title:

  	
   

  	
  Vice President

  

 

 

EXHIBIT A

PROPERTY
MANAGEMENT AGREEMENT

 

 

EXHIBIT B

MASTER
MANAGEMENT AGREEMENT

 

 

EXHIBIT C

DEED
OF ADHERENCE

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