10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2007
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number: 000-51802

Morgans Hotel Group Co.

(Exact name of registrant as specified in its charter)

Delaware	16-1736884
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
475 Tenth Avenue New York, New York (Address of principal executive offices)	10018 (Zip Code)

(212) 277-4100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value	The NASDAQ Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer þ Non-accelerated filer o
(Do not check if a smaller reporting company) Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

The aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was approximately $532,421,000, based on a closing sale price of $24.38 as reported on the NASDAQ Global Market (formerly the NASDAQ National Market) on June 30, 2007.

As of March 14, 2008, the registrant had issued and outstanding 32,070,603 shares of common stock, par value $0.01 per share.

INDEX

		Page
PART I
ITEM 1	BUSINESS		4
ITEM 1A	RISK FACTORS		14
ITEM 1B	UNRESOLVED STAFF COMMENTS		33
ITEM 2	PROPERTIES		34
ITEM 3	LEGAL PROCEEDINGS		48
ITEM 4	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		50
PART II
ITEM 5	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES		50
ITEM 6	SELECTED FINANCIAL INFORMATION		53
ITEM 7	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		56
ITEM 7A	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		78
ITEM 8	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA		79
ITEM 9	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE		79
ITEM 9A	CONTROLS AND PROCEDURES		79
ITEM 9B	OTHER INFORMATION		81
PART III
ITEM 10	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE		81
ITEM 11	EXECUTIVE COMPENSATION		81
ITEM 12	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS		81
ITEM 13	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE		81
ITEM 14	PRINCIPAL ACCOUNTANT FEES AND SERVICES		81
PART IV
ITEM 15	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES		82

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FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements relate to, among other things, the operating performance of our investments and financing needs. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,” “estimate,” “overestimate,” “underestimate,” “believe,” “could,” “project,” “predict,” “continue” or other similar words or expressions. References to “we,” “our” and the “Company” refer to Morgans Hotel Group Co. together in each case with our consolidated subsidiaries and any predecessor entities unless the context suggests otherwise.

The forward-looking statements contained in this Annual Report on Form 10-K reflect our current views about future events and are subject to risks, uncertainties, assumptions and changes in circumstances that may cause our actual results to differ materially from those expressed in any forward-looking statement. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Important risks and factors that could cause our actual results to differ materially from those expressed in any forward-looking statements include, but are not limited to changes in economic, business, competitive market and regulatory conditions such as:

•  downturns in economic and market conditions, particularly levels of spending in the business, travel and leisure industries;

•  hostilities, including future terrorist attacks, or fear of hostilities that affect travel;

•  risks related to natural disasters, such as earthquakes and hurricanes;

•  risks associated with the acquisition, development and integration of properties;

•  the seasonal nature of the hospitality business;

•  changes in the tastes of our customers;

•  increases in real property tax rates;

•  increases in interest rates and operating costs;

•  the impact of any material litigation;

•  the loss of key members of our senior management;

•  general volatility of the capital markets and our ability to access the capital markets;

•  changes in the competitive environment in our industry and the markets where we invest; and

•  other risks discussed in this Annual Report on Form 10-K in the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Result of Operations”.

We are under no duty to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results.

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PART I

ITEM 1   BUSINESS

Overview

Morgans Hotel Group Co. is a fully integrated hospitality company that operates, owns, acquires, develops and redevelops boutique hotels primarily in gateway cities and select resort markets in the United States and Europe. Over our 24-year history, we have gained experience operating in a variety of market conditions. At December 31, 2007, we owned or partially owned, and managed a portfolio of eleven luxury hotel properties in New York, Miami, Los Angeles, Scottsdale, San Francisco, London and Las Vegas, comprising approximately 3,400 rooms. In addition, we currently have eight announced developments or expansions, representing an estimated 3,350 additional guest rooms.

Unlike traditional brand-managed or franchised hotels, boutique hotels provide their guests with what we believe is a distinctive lodging experience. Each of our hotels has a personality specifically tailored to reflect the local market environment and features a modern, sophisticated design that includes critically acclaimed public spaces, popular “destination” bars and restaurants and highly personalized service. Significant media attention has been devoted to our hotels which we believe is as a result of their distinctive nature, renowned design, dynamic and exciting atmosphere, celebrity guests and high-profile events. We believe that the Morgans Hotel Group brand, and each of our individual property brands are synonymous with style, innovation and service. We believe that this combination of lodging and social experiences, and association with our brands, increases our occupancy levels and pricing power.

At December 31, 2007, we owned or partially owned, and managed a portfolio of eleven luxury hotel properties in New York, Miami, Los Angeles, Scottsdale, San Francisco, London and Las Vegas, comprising approximately 3,400 rooms. These properties consisted of:

•  seven hotels that we own and manage, or the Owned Hotels — the Morgans, Royalton and Hudson in New York, the Delano Miami in Miami, the Mondrian Los Angeles in Los Angeles, the Clift in San Francisco and the Mondrian Scottsdale in Scottsdale, comprising approximately 2,100 rooms;

•  a 50% interest in two hotels in London, St Martins Lane and Sanderson, comprising approximately 350 rooms, which we manage;

•  a 7% interest in the 300-room Shore Club in Miami which we also manage; and

•  a 33.3% interest in the Hard Rock Hotel and Casino in Las Vegas, or Hard Rock, which we also manage.

In addition to our current portfolio, we expect to operate, own, acquire, redevelop and develop new hotel properties that are consistent with our portfolio in major metropolitan cities and select resort markets in the United States, Europe and elsewhere. We currently have development or expansion projects in Las Vegas, South Beach Miami, Chicago and SoHo, New York, and in January 2008, we announced a project to develop a Mondrian in Palm Springs. We are also in the process of redeveloping an apartment building on Biscayne Bay in Miami, which we have rebranded under our Mondrian brand, as a hotel condominium project under the name Mondrian South Beach Hotel Residences, or Mondrian South Beach. We will manage Mondrian South Beach upon completion.

We conduct our operations through Morgans Group LLC, a Delaware limited liability company and our operating company, which we refer to as Morgans Group. Morgans Group holds substantially all of our assets. We are the managing member of Morgans Group and held approximately 97.0% of its membership units at December 31, 2007. We manage all aspects of Morgans Group, including the operation, development, sale and purchase of, and investments in, hotels.

We were incorporated in Delaware in October 2005 and completed our initial public offering of common stock, or IPO, on February 17, 2006. Our corporate offices are located at 475 Tenth Avenue, New York, New York 10018. Our telephone number is (212) 277-4100. We maintain a website that contains information about us at www.morganshotelgroup.com.

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Corporate Strategy

We intend to grow through our proven ability to replicate our model on an individualized but consistent basis across a growing portfolio and by leveraging our portfolio of brands for expansion in both new and existing markets. We have enhanced our management team through new hires with a renewed focus on acquisitions and growth. We believe that our current management team and existing operating infrastructure provide us with the ability to successfully integrate assets into our portfolio as we grow and expand.

Internal Growth.  We believe our portfolio is poised for internal growth driven by selected renovation and expansion projects and operational and technology infrastructure initiatives.

Targeted Renovations and Expansions.  We have targeted and are pursuing a number of specific renovation and expansion projects throughout our portfolio that we believe will increase our appeal to potential guests and generate increased revenue at our properties. These projects also include utilization of unused space, room refurbishments and upgrades, and the reconfiguration of public areas with the addition of amenities and revenue drivers, such as restaurants, bars, health clubs, banquet and meeting spaces and retail shops in certain properties. For example, during 2007, we completed a renovation of guest rooms, common areas and the restaurant and bars at Mondrian Scottsdale and Royalton and a rooms and spa renovation at Delano Miami. We expanded through the addition of two nightlife venues at both St Martins Lane and Delano Miami. During 2007, we also began the room renovation, including technology upgrades, of Mondrian Los Angeles and the complete renovation and repositioning of Mondrian South Beach, both of which are expected to be completed in 2008. We also are planning room and lobby renovations of Morgans, which is expected to be completed in 2008, and are undertaking expansion projects at Hudson and Hard Rock. We continuously evaluate alternative uses of our properties throughout our portfolio, including residential conversion and other opportunities.

Operational and Infrastructure Initiatives.  We strive to implement state-of-the-art operational systems and apply best practices to maximize synergies at the portfolio level. Within the past few years, we have launched a number of operational and technology initiatives that are designed to result in revenue growth, significant improvements in our operating costs and efficiencies, an improved guest experience and an enhanced ability to market to our customers’ specific lodging needs. Recent initiatives include centralization of our telephone reservations office, centralization of our computer reservations systems, utilization of a proprietary revenue management system, globalization of our sales system, and deployment of a company-wide customer relationship management system.

External Growth.  We believe we are poised for external growth that will be driven by growth in major metropolitan markets and select resort locations as we extend our hotel, restaurant and bar brands. We intend to be flexible with respect to transaction structures and real estate requirements as we grow our business.

Target Markets.  We intend to base our decisions to enter new markets on a number of criteria, with a focus on markets that attract affluent travelers who value a distinctive and sophisticated atmosphere and outstanding service. Specifically, we target key gateway destinations for both domestic and foreign travelers that attract both business and leisure travelers as well as select resort markets. We believe that Las Vegas, where we have a planned development project and have completed a hotel purchase, is an example of such a market. Consistent with our prior expansion activities, we will continue to seek growth primarily in markets with multiple demand drivers and high barriers to entry, including:

•  Major North American metropolitan markets with vibrant urban locations, including existing markets such as New York, Miami and Los Angeles and new markets such as Chicago, Boston, Atlanta, and Washington, DC;

•  Select resort locations such as Hawaii, the Caribbean/Bahamas and Mexico;

•  Key European destinations that we believe offer a similar customer base as our established United States and United Kingdom markets, such as Paris and Milan; and

•  Select locations in the Middle East and Asia.

Brand Extensions.  We believe that our existing brand portfolio has considerable development potential. Many of our brands, including hotel brands such as Delano, Mondrian, Hudson, Sanderson and Royalton, and

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restaurant and bar brands such as Asia de Cuba and Skybar, may be extended to other hotels, restaurants and bars in our existing and new markets. For example, during 2006 we purchased the James Hotel Scottsdale and in January 2007 rebranded the hotel as Mondrian Scottsdale and launched Asia de Cuba and Skybar at the hotel. Similarly, we believe our brand portfolio improves our ability to secure joint ventures and management agreements with third parties. For example, Boyd Gaming Corporation, or Boyd, chose our Delano and Mondrian brands and our management team for a portion of its Echelon development in Las Vegas. We also have development projects in SoHo, New York, Chicago and Palm Springs to expand our Mondrian brand. We believe that we also may have new growth opportunities through the extension of our brands into condominium development and other residential projects, including condominiums or apartments with hotel services and condominiums that may be contributed to a hotel rental pool when not occupied by the owner. Furthermore, we believe that we have additional brand extension opportunities outside the hospitality and real estate industries, such as selective retail product placement opportunities.

Flexible Business Model.  We intend to be flexible with respect to transaction structures and real estate requirements as we grow our business. We will pursue attractive acquisition, joint venture and other opportunities as they arise. As we pursue these opportunities, we will place significant emphasis on securing a meaningful percentage of any equity growth or a significant total dollar return on investment. The acquisition market and the specifics of any particular deal will influence each transaction’s structure. We believe our flexibility should allow us greater access to strategically important hotels and other opportunities. Joint ventures with management agreements should provide us with enhanced return on investment through management and other fee income and access to strategically important hotels and other opportunities. For example, we have demonstrated our ability to partner effectively through, among others, our restaurant joint venture with Jeffrey Chodorow and the joint venture structures through which we own our interests in St Martins Lane, Sanderson and Hard Rock.

We also believe we have a proven track record of expansion into new regions, new types of markets, international operations and operations in larger formats. We believe that this demonstrated expansion expertise gives us a broad range of possible options with respect to future development. Moreover, we believe our flexibility with respect to the physical configuration of buildings gives us more options to grow in any given market as compared to many of our competitors who require very particular specifications so that their hotels will all look the same. In addition, the destination nature of our hotels has enabled us in the past to acquire assets in locations that are less established and, therefore, more attractively priced, due to our ability to create a destination hotel rather than be located directly adjacent to existing popular destinations.

2007 Transactions and Developments

Mondrian Scottsdale Renovation.  We acquired the James Hotel Scottsdale in May 2006 for approximately $47.8 million. Subsequent to the acquisition, we re-branded the hotel as Mondrian Scottsdale and undertook a significant renovation of the guest rooms, common areas, restaurants and bars. The renovation of the Mondrian Scottsdale was completed in January 2007.

Hard Rock Hotel & Casino.  We completed the acquisition of the Hard Rock and related assets for approximately $770.0 million in February 2007, together with an affiliate of DLJ Merchant Banking Partners, or DLJMB. We funded one-third of the equity, or approximately $57.5 million, and DLJMB funded two-thirds of the equity, or approximately $115.1 million, through a joint venture. The remainder of the purchase price was financed through borrowings under a secured credit agreement entered into by the joint venture, which agreement was amended as of November 6, 2007. See Note 5 to the Consolidated Financial Statements. The amended credit agreement provides for a secure term loan facility consisting of $760.0 million for the acquisition, including $35.0 million for renovation costs, $48.2 million for financing costs and $56.3 million for cash reserves and working capital, and a loan of up to $620.0 million for the expansion, with the total amount available under the financing not to exceed $1.4 billion as of December 31, 2007.

In March 2007, we announced a large-scale expansion project at the Hard Rock. The expansion is expected to include the addition of approximately 875 guest rooms, including an all-suite tower with upgraded amenities, approximately 60,000 square feet of meeting and convention space, and approximately 30,000 square feet of casino space. The project also includes an expansion of the hotel’s pool, several new food and beverage outlets, a new and

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larger “The Joint” live entertainment venue, a new spa and exercise facility and additional retail space. Renovations to the existing property also began during 2007 and include upgrades to existing suites, restaurants and bars, retail shops, and common areas, and a new ultra lounge and poker room. These renovations are scheduled to be completed in 2008. We expect the expansion to be complete by late 2009.

We manage Hard Rock pursuant to a 20-year contract with two 10-year renewals. Beginning in 2009 or 12 months following the completion of the expansion, whichever is later, we are subject to certain performance tests.

Morgans Hotel Group Europe Limited.  On February 16, 2007, Royalton Europe Holdings LLC, one of our indirect subsidiaries, and Walton MG London Investors V, L.L.C., or Walton, an affiliate of Walton Street Capital, LLC, a real estate investment company, entered into a joint venture agreement for the ownership and operation of Morgans Hotel Group Europe Limited, or Morgans Europe. Morgans Europe owns, through a subsidiary company, the Sanderson and St Martins Lane hotels in London, England. We manage both of these hotels under separate hotel management agreements.

The joint venture agreement was executed by the parties upon the sale by Burford Hotels Limited, or Burford, of its equity interest in Morgans Europe to Walton. Walton purchased Burford’s interest in the joint venture for the equivalent of approximately $52.0 million, implying a gross value for the assets of over $300.0 million. For facilitating the transaction, we received approximately $6.1 million in cash at closing.

We continue to indirectly own a 50% equity interest in Morgans Europe and continue to have equal representation on the Morgans Europe board of directors. Beginning any time after February 9, 2010, either party has the right to buy all the shares of the other party in Morgans Europe or, if its offer is rejected, require the other party to buy all of its shares at the same offered price per share in cash.

Mondrian SoHo.  We contributed $5.0 million for a 20% equity interest in a joint venture with Cape Advisors Inc. in June 2007 to develop a Mondrian hotel in the SoHo neighborhood of New York City. Mondrian SoHo is currently expected to have 270 rooms, a restaurant, bar, meeting space, exercise facility and a penthouse suite with outdoor space. We expect to open Mondrian SoHo in 2009.

Mondrian Chicago.  We formed a joint venture with M Development in June 2007 to lease and develop a Mondrian hotel in Chicago. We have a 49% equity interest in the joint venture and expect to contribute approximately $15.0 million to the project. Mondrian Chicago is currently expected to have 216 rooms and feature a restaurant and bar, meeting space and an exercise facility. We expect to open Mondrian Chicago in 2010.

July 2007 Equity Offering.  On July 25, 2007, we completed an equity offering of 12,210,840 shares of common stock, of which 2,777,495 new shares of common stock were sold by the Company and 9,433,345 previously issued shares of common stock were sold by certain selling stockholders. Net proceeds to us as a result of the offering were approximately $58.9 million.

Departure of Chief Executive Officer.  On September 19, 2007, pursuant to a mutual agreement with the Company, W. Edward Scheetz resigned as president and chief executive officer and director of the Company in order to permit him to address personal issues. Fred J. Kleisner, one of the Company’s directors, was named as the Company’s interim president and chief executive officer. Upon assuming responsibility as interim president and chief executive officer, Mr. Kleisner resigned from the audit committee of our board and the board designated Robert Friedman, one of our directors, as a member of the audit committee and Thomas L. Harrison, currently a member of the audit committee, as the chairman of the audit committee. Mr. Kleisner also resigned from the corporate governance and nominating committees of the board of directors.

Mr. Scheetz entered into a separation agreement and release with the Company. Pursuant to the agreement, Mr. Scheetz retained his vested and unvested stock options, restricted stock units and long-term incentive plan awards. To the extent that these awards are not yet vested, they will remain subject to the existing vesting provisions, but all unvested awards will be fully vested by September 19, 2009 (certain awards which are subject to performance conditions will remain subject to those conditions). Mr. Scheetz did not receive any additional payment in connection with the separation.

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Appointment of Chief Executive Officer.  On December 10, 2007, the board of directors appointed Fred J. Kleisner as president and chief executive officer. In connection with his service as president and chief executive officer of the Company, Mr. Kleisner and the Company entered into an employment agreement effective as of December 10, 2007.

Stockholder Protection Rights Agreement.  On October 9, 2007, our board of directors adopted a Stockholder Protection Rights Agreement, or Rights Agreement. The Rights Agreement was not adopted in response to any specific effort to obtain control of our company. By its terms, the Rights Agreement will expire on October 9, 2008, unless extended. In connection with the adoption of the Rights Agreement, our board of directors declared a dividend of one right per outstanding share of our common stock. The rights were distributed to the record holders as of October 19, 2007.

October 2007 Convertible Debt Offering.  On October 17, 2007, we completed an offering of $172.5 million aggregate principal amount of 2.375% Senior Subordinated Convertible Notes, or the Notes, in a private offering, which included an additional issuance of $22.5 million in aggregate principal amount of Notes as a result of the initial purchasers’ exercise in full of their over allotment option. The Notes are the senior subordinated unsecured obligations of the Company and are guaranteed on a senior subordinated basis by our operating company, Morgans Group. The Notes are convertible into shares of our common stock under certain circumstances and upon the occurrence of specified events.

In connection with the private offering, the Company entered into certain convertible note hedge and warrant transactions. These transactions are intended to reduce the potential dilution to the holders of our common stock upon conversion of the Notes and will generally have the effect of increasing the conversion price of the Notes to approximately $40.00 per share, representing a 82.23% premium based on the last reported sale price of our common stock of $21.95 per share on October 11, 2007. The net proceeds to us from the sale of the Notes was approximately $166.8 million (of which approximately $24.1 million was used to fund the note call options and warrant transactions discussed in Note 7 of the Consolidated Financial Statements).

Common Stock Repurchase Plan.  On December 10, 2007, our board of directors authorized the repurchase of up to $25.0 million of our common stock, or approximately 4% percent of our outstanding shares based on the then current market price. This repurchase authorization was in addition to the $50.0 million that was authorized by our board of directors on December 7, 2006 and expired on December 6, 2007.

As of December 31, 2007, we had repurchased 332,207 shares for approximately $5.9 million under this new plan, and repurchased an additional 1,156,828 shares for approximately $19.2 million in January 2008, thereby completing our purchases under the new plan.

Recent Developments

Mondrian Palm Springs.  On January 14, 2008, we announced a new joint venture with Re:Loft Partners Palm Springs, LLC to develop Palm Springs Hotel & Residences, or the Resort, in downtown Palm Springs, California. The Resort plans call for a Mondrian hotel with approximately 200 rooms, as well as residences available for sale. The Resort is targeted to open in 2011. Upon completion, we expect to operate the hotel under a 10-year management contract with two five-year extension options and have an ownership percentage.

Approval of Gaming License in Nevada.  In January 2008, we received approval from the Nevada Gaming Commission to operate the casino at Hard Rock. We began operating the casino on March 1, 2008.

Management and Operations of Our Portfolio

Overview of Management

We manage and operate each of our hotels which are staffed by our employees and the employees of our joint venture operating companies with personnel dedicated to each of the properties, including a general manager, controller, director of sales and marketing, director of human resources and other employees. The personnel in each hotel report to the general manager of the hotel. Each general manager reports to our executive vice president of operations. The corporate office provides support directly to certain functions at the hotel such as sales, revenue

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management and human resources. This organizational structure allows for each property to operate in a responsive and dynamic fashion while ensuring integrity of our guest experience and core values. As the Company has expanded in its existing markets, we have begun to regionalize certain operational, finance and sales functions. Our management team is headquartered in New York City and coordinates management and operations of the Company. The management team reviews business contracts, oversees the financial budgeting and forecasting for our hotels, performs internal accounting and audit functions, administers insurance plans and identifies new systems and procedures to employ within our hotels to improve efficiency and profitability. In addition, the management team is responsible for coordinating the sales and marketing activities at each of our hotels, designing sales training programs, tracking future business prospects and identifying, employing and monitoring marketing programs. The management team is also responsible for the design of our hotels and overall product and service quality levels.

Our Engaging Dynamic Guest Experience, or EDGE, service program has been implemented across our portfolio, with the exception of Hard Rock which was acquired in February 2007, as discussed above. This program is designed to enhance employee initiative and responsiveness which we believe results in high customer satisfaction. Our EDGE initiative further allows the sharing of best practices and expertise across our employee base, creating a culture that we believe is more service-oriented than many of our competitors. At Hard Rock, comparable service initiatives were already in place and will continue to be assessed to ensure they meet the Company’s brand standards.

Restaurant Joint Ventures

As a central element of our operating strategy, we focus significant resources on identifying exciting and creative restaurant concepts. Consistent with this objective and to further enhance the dining experience offered by our hotels, we have established joint venture relationships with well-known restaurateur Jeffrey Chodorow to develop, own and operate restaurants and bars at hotels operated by the Company. Currently, the joint ventures operate the restaurants (including in-room dining, banquet catering and other food and beverage operations) at Morgans, Hudson, Delano Miami, Mondrian Los Angeles, Clift, St Martins Lane and Sanderson as well as the bars in Delano Miami, St Martins Lane and Sanderson. Additionally, in January 2007, we opened Asia de Cuba at the newly renovated Mondrian Scottsdale. This restaurant is owned by us but is operated by Jeffrey Chodorow pursuant to license and management agreements.

Marketing, Sales and Public Relations

Strong direct sales has been an integral part of our success. We employ a sales force of greater than 100 people with multiple sales managers stationed in each of our markets. The sales force is responsible for sourcing new corporate accounts in the United States and Europe. We have also opened sales offices in other markets. These offices are deployed by industry focus and geography. In 2007, we derived approximately 30.6% of our business from corporate transient and group accounts. Our core corporate business comes from the entertainment, fashion, retail, finance, advertising, automotive, technology, insurance and consumer goods industries. Approximately 55% of our guests are traveling on business.

Unlike many hotel companies, our sales managers are trained to sell the experience, not simply the rate. Our objective is to create differentiation by selling an “experience” and “brand.”

While marketing initiatives are customized in order to account for local preferences and market conditions, consistent major campaign and branding concepts are utilized throughout all our marketing activities. These concepts are developed by our central sales and marketing teams, but a significant amount of discretion is left to the local sales managers who are often more able to promptly respond to local changes and market trends and to customize marketing concepts to meet each hotel’s specific needs.

We place significant emphasis on our public relations promotional strategy, which we believe is a highly cost-effective marketing tool for our Company. Through highly publicized events, prospective guests are more likely to be made aware of our hotels through word-of-mouth or magazine and newspaper articles and high-profile events rather than direct advertising. This publicity is supplemented with focused marketing activities to our existing customers. Our in-house professionals coordinate the efforts of third-party public relations firms to promote our properties through travel magazines and various local, national and international newspaper travel sections. We

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regularly host events that attract celebrity guests and journalists generating articles in newspapers and magazines around the world. Our marketing efforts also include hosting other special events which have included the ESPY awards and opening events for Art Basel Miami.

Integration and Centralization Efforts

We have centralized certain aspects of our operations in an effort to provide further revenue growth and reduce operating costs. Beginning in 2002, we embarked on a number of technological and process initiatives including the launch of a new website, www.morganshotelgroup.com, which during 2007 generated approximately 13.3% of our total bookings and approximately 16.5% of our total rooms revenue. In an effort to reduce expenses and to drive revenue growth, we employ what we believe to be the state-of-the-art systems available to the hospitality industry. These include our:

•  Property Management System — Our property management system provides management solutions to improve operations and profitability for a global hotel organization. Our property management system is designed for comprehensive guest management by, among other things, allowing the user to track and retrieve information pertaining to guests, groups and company accounts. Additional features of this system allow the user to extract information on a customized basis from its customer database. We believe that this increases the possibility of maximizing revenue by allowing us to efficiently respond and cater to guest demands and trends and decreases expenses by centralizing the information database in an easy to use format.

•  Central Reservations System — Our central reservations system and related distribution and reservations services provide hotel reservations-related services and technology.

•  Central Reservations Office — Our central reservations office provides contact management solutions. It is managed by a third-party out of its facility in New Brunswick, Canada.

•  Sales and Catering — Our sales and catering system is a strategic tool specifically designed to maximize the effectiveness of the sales process, increase revenues and efficiency, and reduce costs.

•  Revenue Management — Our revenue management system is a proprietary system which provides hospitality focused pricing and revenue optimization solutions.

•  Accounting and Reporting — Our accounting and reporting is performed under The Uniform System of Accounts for the Lodging Industry and utilizes a widely used international accounting system that allows for customizing and analyzing data while ensuring consistent controls.

•  Customer Relationship Management — Our customer relationship management system is designed specifically for the hospitality industry and provides personalized guest recognition, high service quality, improved guest satisfaction and loyalty, which we believe results in increased revenues. This centralized database tracks guest sales history and guest preferences to provide our staff in our hotels and sales agents with a method of efficiently responding to and targeting guest needs.

Competition

We believe competition in the hospitality industry reflects a highly fragmented group of owners and operators offering a wide range of quality and service levels. Our hotels compete with other hotels in their respective locations that operate in the same segments of the hospitality market. These segments consist of traditional hotels in the luxury sector and boutique hotels in the same local area. Competitive factors include quality of service, convenience of location, quality of the property, pricing and range and quality of food services and amenities offered. We compete by providing a differentiated combination of location, design, amenities and service. We are constantly striving to enhance the experience and service we are providing for our guests and have a continuing focus on improving our customer experience.

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Insurance

We bid out our insurance programs to obtain the most competitive coverage and pricing. We believe our programs provide coverage of the insurable risks facing our business and are consistent with or exceed industry standards.

Our Owned Hotels and London hotels are currently insured under all-risk property, property terrorism, commercial general liability, umbrella/excess liability, workers’ compensation and employers’ liability, pollution legal liability, blanket crime, and fiduciary liability policies for which we are the named insured. Our property insurance includes coverage for catastrophic perils of flood, earthquake and windstorm at limits consistent with probable maximum loss estimates. Separate workers’ compensation and employers’ liability programs are in place for joint venture or third party managed restaurants and bars as well as Owned Hotels and operated hotels.

These policies cover, in addition to our Owned Hotels and London hotels, the restaurants and bars that operate in our hotels. The Shore Club is covered under our employee related insurance policies only with all other lines of coverage being provided by the property owner. Hard Rock has stand alone insurance policies for all lines of coverage including but not limited to property, general liability, excess liability and workers compensation.

Separate insurance programs are in place for builders risk, commercial general liability, and umbrella/excess liability, all of which protect us and our partners from risks associated with the development and construction of new properties.

Directors & officers liability insurance has been in place since our initial public offering in February 2006 at limits and retentions consistent with public companies in our industry groups. Coverage includes protection for securities claims. Employment practices liability insurance programs are in place for both Owned Hotels and operated properties as well as joint venture restaurants and bars.

We believe that the premiums we pay for our insurance policies are reasonable and consistent with those paid by comparable businesses of our size and risk profile. Our insurance policies require annual renewal. Given current trends, our insurance expense may increase in the foreseeable future.

Employees

As of December 31, 2007, we employed approximately 4,400 individuals, approximately 13.2% of whom were represented by labor unions. In addition, our restaurant joint ventures employed approximately 1,100 individuals, approximately 21.2% of whom were represented by labor unions.

Relations with Labor Unions.

New York.  The terms of employment of our employees that are represented by the New York Hotel and Motel Trades Council, AFL-CIO, or Trades Council at our New York City hotels are governed by a collective bargaining agreement. The term of the agreement is from July 1, 2006 through June 30, 2012 and generally incorporates by reference the industry-wide agreement between the Hotel Association of New York City, Inc., a multi-employer association composed of New York City hotel operators, and the Trades Council, or the IWA. The agreement governs wages, hours and terms and conditions of employment of employees at these hotels. It provides that there will be no strikes or lockouts during its term, and that all disputes arising under the agreement or concerning the relations of the parties shall be resolved through arbitration before a contract arbitrator — the Office of the Impartial Chairman of the Hotel Industry. The employees of certain of our bars and restaurants in certain New York City hotels are represented by the Trades Council and covered by a collective bargaining agreement which generally incorporates by reference the IWA. By operation of the collective bargaining agreement, the bars and restaurants are considered a joint employer with the hotels. Accordingly, if there is any breach of our labor agreement by the concessionaire, the hotels would be liable for such breach.

San Francisco.  The majority of our Clift employees that are represented by labor unions are represented by UNITE/HERE Local 2. We adopted the industry-wide agreement between the union and the San Francisco Hotels Multi-Employer Group, a multi-employer association composed of San Francisco hotel operators, which does not expire until August 14, 2009. The employees at the Asia de Cuba Restaurant in the Clift hotel are members of

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UNITE/HERE Local 2 and this restaurant joint venture is considered a joint employer with Clift. Accordingly, if there is any breach of our labor agreement by the concessionaire, Clift would be liable for such breach. Labor agreements with the unions representing the remaining Clift employees that are represented by labor unions are set to expire in 2008 and 2009.

Government Regulation

Our businesses are subject to numerous laws, including those relating to the preparation and sale of food and beverages, such as health and liquor license laws. Our businesses are also subject to laws governing employees in our hotels in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and firing employees and work permits. Also, our ability to expand our existing properties may be dependent upon our obtaining necessary building permits or zoning variances from local authorities.

Under the Americans with Disabilities Act, or ADA, all public accommodations are required to meet federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Although significant amounts have been invested to ensure that our hotels comply with ADA requirements, a determination that our hotels are not in compliance with the ADA could result in a judicial order requiring compliance, imposition of fines or an award of damages to private litigants. We believe that we are currently in compliance in all material respects with all statutory and administrative government regulations with respect to our business.

Our hotel properties expose us to possible environmental liabilities, including liabilities related to activities that predated our acquisition or operation of a property. Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be required to investigate and clean up certain hazardous substances released at the property and may be held liable to a governmental entity or to third parties for property damages and for investigation and cleanup costs incurred by such parties in connection with the contamination. Environmental liability can be incurred by a current owner or operator of a property for environmental problems or violations that occurred on a property prior to acquisition or operation. These laws often impose liability whether or not the owner knew of, or was responsible for, the presence of hazardous or toxic substances. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. The presence of contamination or the failure to remediate contamination may adversely affect the owner’s ability to sell or lease real estate or to borrow using the real estate as collateral. The owner or operator of a site may be liable under common law to third parties for damages and injuries resulting from environmental contamination emanating from the site.

All of our properties have been subject to environmental site assessments, or ESAs, prepared by independent third-party professionals. These ESAs were intended to evaluate the environmental conditions of these properties and included a site visit, a review of certain records and public information concerning the properties, the preparation of a written report and, in some cases, invasive sampling. We obtained the ESAs before we acquired our hotels to help us identify whether we might be responsible for cleanup costs or other environmental liabilities. The ESAs on our properties did not reveal any environmental conditions that are likely to have a material adverse effect on our business, assets, and results of operations or liquidity. However, ESAs do not always identify all potential problems or environmental liabilities. Consequently, we may have material environmental liabilities of which we are unaware. Moreover, it is possible that future laws, ordinances or regulations could impose material environmental liabilities, or that the current environmental condition of our properties could be adversely affected by third parties or by the condition of land or operations in the vicinity of our properties. We believe that we are currently in compliance with all applicable environmental regulations in all material aspects.

As a result of our February 2007 acquisition of the Hard Rock, we and its casino operations are subject to gaming industry regulations. The gaming industry is highly regulated, and we and the casino must maintain all necessary gaming licenses and the casino must pay all applicable gaming taxes to continue operations. We and the casino are subject to extensive regulation under the laws, rules and regulations of the jurisdiction in which the casino operates. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws could result in, among other things, disciplinary action.

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Trademarks

Our trademark registrations include, without limitation, Morgans Hotel Group^tm, Morgans^®, Agua Baby^®, Agua Bath House^®, Agua Home^®, Blue Door^®, Blue Door at Delano and Design^®, Clift Hotel^®, Delano^®, Mondrian^®, Skybar^®, Skybar and Design^®, Royalton^®, The Royalton^®, The Royalton Hotel^®, Sanderson Hotel^®, St Martins^® and St Martins Lane Hotel^®. The majority of these trademarks are registered in the United States. Several of these trademarks are also registered in the European Community. Our trademarks are very important to the success of our business and we actively enforce, maintain and protect these marks.

All intellectual property rights related to the Hard Rock are held by our joint venture with DLJMB. The joint venture acquired the rights to the use of the “Hard Rock Hotel” and “Hard Rock Casino” trademarks in connection with our operations in Las Vegas and in connection with hotel casinos and casinos in the State of Illinois and all states and possessions of the United States which are located west of the Mississippi River, including the entire state of Louisiana, but excluding Texas, except for the Greater Houston Area, the nations of Australia, Brazil, Israel, and Venezuela, and the Greater Vancouver Area, British Columbia, Canada.

Corporate Structure

Our IPO resulted in the sale of 15,000,000 shares of our common stock at a price per share of $20.00, generating gross proceeds to us of approximately $300.0 million. The aggregate proceeds to the Company, net of underwriters’ discounts and commission and estimated offering expenses, was $272.5 million. See Note 1 to the Consolidated Financial Statements.

As of December 31, 2007, following our IPO and related formation and structuring transactions:

•  we are the managing member of and own approximately 97.0% of the membership interests in Morgans Group (the remaining membership interests in Morgans Group are owned by Morgans Hotel Group, LLC, or the Predecessor, and are exchangeable for our common stock);

•  Morgans Group owns the hotel properties owned by the Predecessor prior to the consummation of the formation and structuring transactions;

•  the hotel properties continue to be managed by Morgans Hotel Group Management LLC, or MHG Management Company, which is a wholly owned subsidiary of Morgans Group; and

•  Morgans Group is the direct or indirect joint venture partner in the restaurant joint ventures.

Materials Available On Our Website

We file annual, quarterly and periodic reports, proxy statements and other information with the Securities and Exchange Commission, or SEC. You may obtain and copy any document we file with or furnish to the SEC at the SEC’s public reference room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC at its principal office at 100 F Street, N.E., Washington, D.C. 20549. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file or furnish such information electronically with the SEC. Our SEC filings are accessible through the Internet at that website.

Copies of SEC filings including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, as well as reports on Forms 3, 4, and 5 regarding officers, directors or 10% beneficial owners of our Company, are available for download, free of charge, as soon as reasonably practicable after these reports are filed or furnished with the SEC, at our website at www.morganshotelgroup.com. Our website also contains copies of the following documents that can be downloaded free of charge:

•  Corporate Governance Guidelines;

•  Code of Business Conduct and Ethics;

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•  Charter of the Audit Committee;

•  Charter of the Compensation Committee; and

•  Charter of the Corporate Governance and Nominating Committee.

In the event of any changes to these charters, codes or guidelines, changed copies will also be made available on our website. If we waive or amend any provision of our code of ethics, we will promptly disclose such waiver or amendment as required by SEC or Nasdaq rules.

The content of our website is not a part of this report. You may request a copy of any of the above documents, at no cost to you, by writing or telephoning us at: Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York 10018, Attention: Investor Relations, telephone (212) 277-4100. We will not send exhibits to these reports, unless the exhibits are specifically requested and you pay a modest fee for duplication and delivery.

ITEM 1A   RISK FACTORS

Set forth below are risks that we believe are material to investors who purchase or own our securities. You should consider carefully the following risks, together with the other information contained in and incorporated by reference in this Annual Report on Form 10-K, and the descriptions included in our consolidated financial statements and accompanying notes.

Risks Related to Our Business

Boutique hotels are a highly competitive segment of the hospitality industry, which is generally subject to greater volatility than other segments of the industry. As a result, if we are unable to compete effectively or an economic slowdown occurs, our business and operations will be adversely affected by declines in our average daily room rates or occupancy.

We generally compete in the boutique hotel segment of the hospitality industry. We believe that this segment is highly competitive, closely linked to general economic conditions and more susceptible to changes in economic conditions than other segments of the hospitality industry. We believe that the boutique hotel segment’s sensitivity to economic conditions is likely to persist for the foreseeable future. Competition within the boutique hotel segment is also likely to increase in the future. Economic downturns will, among other things, lead to a decrease in our revenues, and intense competition may lead to a loss of market share by our hotels, and as a result, our business and operations may be adversely affected.

Competitive factors in the hospitality industry include name recognition, quality of service, convenience of location, quality of the property, pricing and range and quality of food services and amenities offered. Market perception that we no longer provide innovative property concepts and designs would adversely affect our ability to compete effectively. If we are unable to compete effectively, we would lose market share, which could adversely affect our business and operations.

All of our properties are located in areas with numerous competitors, many of whom have substantially greater resources than us. In addition, new hotels may be constructed in the areas in which our properties are located, possibly without corresponding increases in demand for hotel rooms. New or existing competitors could offer significantly lower rates or more convenient locations, services or amenities or significantly expand, improve or introduce new service offerings in markets in which our hotels compete, thereby posing a greater competitive threat than at present. The resulting decrease in our revenues could adversely affect our business and operations.

The performance of the hospitality industry, and the boutique hotel segment in particular, has traditionally been closely linked with the general economy. Furthermore, the boutique hotel segment is more susceptible to changes in economic conditions than other segments of the hospitality industry. In an economic downturn, boutique hotels such as ours may be more susceptible to a decrease in revenues, as compared to hotels in other segments that have lower room rates. This characteristic may result from the fact that our hotels generally target business and high-end leisure travelers. In periods of economic difficulties, business and high-end leisure travelers may seek to reduce travel costs by limiting travel or otherwise generally reducing the costs of their trips. In periods of weak demand, profitability is negatively affected by the relatively high fixed costs of operating hotels such as ours, when

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compared to other segments of the hospitality industry. If an economic slowdown occurs, this could result in declines in average daily room rates or occupancy, or both, and thereby have a material adverse effect on our business and operations.

Our success depends on the value of our name, image and brands, and if demand for our hotels and their features decreases or the value of our name, image or brands diminishes, our business and operations would be adversely affected.

Our success depends, to a large extent, on our ability to shape and stimulate consumer tastes and demands by producing and maintaining innovative, attractive, and exciting properties and services, as well as our ability to remain competitive in the areas of design and quality. There can be no assurance that we will be successful in this regard or that we will be able to anticipate and react to changing consumer tastes and demands in a timely manner.

Furthermore, a high media profile is an integral part of our ability to shape and stimulate demand for our hotels with our target customers. A key aspect of our marketing strategy is to focus on attracting media coverage. If we fail to attract that media coverage, we may need to substantially increase our advertising and marketing costs, which would adversely affect our results of operations. In addition, other types of marketing tools, such as traditional advertising and marketing, may not be successful in attracting our target customers.

Our business would be adversely affected if our public image or reputation were to be diminished. Our brand names and trademarks are integral to our marketing efforts. If the value of our name, image or brands were diminished, our business and operations would be adversely affected.

Any failure to protect our trademarks could have a negative impact on the value of our brand names and adversely affect our business.

We believe that our trademarks are critical to our success. We rely on trademark laws to protect our proprietary rights. The success of our business depends in part upon our continued ability to use our trademarks to increase brand awareness and further develop our brand in both domestic and international markets. Monitoring the unauthorized use of our intellectual property is difficult. Litigation has been and may continue to be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could result in substantial costs and diversion of resources, may result in counterclaims or other claims against us and could significantly harm our results of operations. In addition, the laws of some foreign countries do not protect our proprietary rights to the same extent as do the laws of the United States.

From time to time, we apply to have certain trademarks registered. There is no guarantee that such trademark registrations will be granted. We cannot assure you that all of the steps we have taken to protect our trademarks in the United States and foreign countries will be adequate to prevent imitation of our trademarks by others. The unauthorized reproduction of our trademarks could diminish the value of our brands and their market acceptance, competitive advantages or goodwill, which could adversely affect our business.

Use of the “Hard Rock” brand name by entities other than us could damage the brand and our operations at the Hard Rock Hotel & Casino in Las Vegas and adversely affect our business and results of operations.

We believe that our Hard Rock Hotel & Casino property in Las Vegas benefits from the global name recognition and reputation generated by the Hard Rock Cafes that are operated or franchised in the United States and abroad by the Seminole Tribe of Florida. The Seminole Tribe of Florida is, however, under no obligation to continue to own, operate or franchise Hard Rock Cafes, and there can be no assurance that it will not sell, change the focus of, or manage, such restaurants in a manner that would adversely affect our Hard Rock Hotel & Casino property in Las Vegas.

In addition, although we have obtained the exclusive right to use and develop the “Hard Rock Hotel” and “Hard Rock Casino” trademarks in connection with our operations in Las Vegas, and in connection with hotel casinos and casinos in the State of Illinois and all states and possessions of the United States which are located west of the Mississippi River, including the entire state of Louisiana, but excluding Texas, except for the Greater Houston Area,

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the nations of Australia, Brazil, Israel and Venezuela, and the Greater Vancouver Area and British Columbia, Canada, the Seminole Tribe of Florida is the sole owner of the rights to the “Hard Rock Cafe,” “Hard Rock Hotel” and “Hard Rock Casino” trademarks. As a result, the Seminole Tribe of Florida, or its licensee, can exploit the “Hard Rock” name and logo, other than in connection with hotel casinos and casinos in our exclusive territory, including marketing “Hard Rock” merchandise anywhere in the world. For example, the Seminole Tribe of Florida has licensed the use of the “Hard Rock” name in connection with its Seminole Hard Rock Hotels in Hollywood and Tampa, Florida. There can be no assurance that our business and results of operations will not be adversely affected by the management or the enforcement of the “Hard Rock” brand name by parties outside of our control.

We may have disputes with, or be sued by, third parties for infringement or misappropriation of their proprietary rights, which could have a negative impact on our business.

Other parties may assert trademark, copyright or other intellectual property rights that have a negative impact on our business. We cannot assure you that others will not seek to block our use of certain marks or seek monetary damages or other remedies for the prior use of our brand names or other intellectual property or the sale of our products or services as a violation of their trademark, copyright or other proprietary rights. Defending any claims, even claims without merit, could divert our management’s attention, be time-consuming, result in costly settlements, litigation or restrictions on our business and damage our reputation.

In addition, there may be prior registrations or use of trademarks in the United States or foreign countries for similar or competing marks or other proprietary rights of which we are not aware. In all such countries it may be possible for any third-party owner of a national trademark registration or other proprietary right to enjoin or limit our expansion into those countries or to seek damages for our use of such intellectual property in such countries. In the event a claim against us were successful and we could not obtain a license to the relevant intellectual property or redesign or rename our products or operations to avoid infringement, our business, financial condition or results of operations could be harmed. Securing registrations does not fully insulate us against intellectual property claims, as another party may have rights superior to our registration or our registration may be vulnerable to attack on various grounds.

Our hotels are geographically concentrated in a limited number of cities and, accordingly, we could be disproportionately harmed by an economic downturn in these cities or a disaster, such as a terrorist attack.

The concentration of our hotels in a limited number of cities exposes us to greater risk to local economic, business and other conditions than more geographically diversified hotel companies. Morgans, Royalton and Hudson, located in Manhattan, represented approximately 32.1% of our guest rooms and approximately $143.7 million, or 44.4%, of our combined revenues for the year ended December 31, 2007. Like other hotel markets, the Manhattan hotel market has experienced economic slowdowns in the past, including in the late 1980s, early 1990s and the most recent slowdown, which began in October 2000 and was exacerbated by the terrorist attacks of September 11, 2001. A decline in the Manhattan hotel market, in particular, due to a downturn in regional or local economic or business conditions or another terrorist attack or similar disaster would adversely affect occupancy rates and financial performance of our New York hotels and our overall results of operations. In addition, our operations in Las Vegas, including the Hard Rock Hotel & Casino and our planned development of the Delano Las Vegas and Mondrian Las Vegas, will increase our geographic concentration in Las Vegas, making us susceptible to economic slowdowns and other factors in this market which could adversely affect our business and results of operations.

In addition, certain of our hotels are located in markets that are more susceptible to natural disasters than others, which could adversely affect those hotels, the local economies, or both. Specifically, the Miami area, where Delano Miami, Shore Club and Mondrian South Beach are located, is susceptible to hurricanes and California, where Mondrian Los Angeles and Clift are located, is susceptible to earthquakes. A variety of factors affecting the local markets in which our hotels operate, including such natural disasters, could have a material adverse affect on our business and operations.

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Our operations in Las Vegas, including the Hard Rock Hotel & Casino and our planned development of the Delano Las Vegas and Mondrian Las Vegas properties, are subject to intense local competition that could impact our operations and adversely affect our business and results of operations.

Our operations in Las Vegas, including the Hard Rock Hotel & Casino and our planned development of the Delano Las Vegas and Mondrian Las Vegas properties, compete with other high-quality Las Vegas resorts, including those located on the Las Vegas Strip. We believe such competition is based on certain property-specific factors, including overall atmosphere, range of amenities, price, location, entertainment attractions, theme and size. Many of the competing properties have themes and attractions which draw a significant number of visitors and directly compete with our operations in Las Vegas. Some of these properties are operated by companies that may have greater name recognition and financial and marketing resources than we do and market to the same target demographic group as us. Furthermore, additional hotel casinos containing a significant number of rooms are expected to open in Las Vegas over the next several years, which could significantly increase competition. In addition, there can be no assurance that the Las Vegas market will continue to grow at the current pace or that hotel casino resorts will continue to be popular, and a decline or leveling off of the growth or popularity of such properties would adversely affect our results of operations.

The Hard Rock Hotel & Casino in Las Vegas is subject to extensive state and local regulation, and licensing and gaming authorities in Nevada have significant control over our gaming operations at the Hard Rock Hotel & Casino in Las Vegas.

Our ability to operate the casino at the Hard Rock Hotel & Casino in Las Vegas is contingent upon our maintenance of all regulatory licenses, permits, approvals, registrations, findings of suitability, orders and authorizations. The laws, regulations and ordinances requiring these licenses, permits and other approvals generally relate to the responsibility, financial stability and character of the owners and managers of gaming operations, as well as persons financially interested or involved in gaming operations. The scope of the approvals required to open and operate a facility is extensive. Failure to obtain or maintain any of the required gaming approvals and licenses could impair our future financial position and results of operations.

The Nevada Gaming Commission may, in its discretion, require the holder of any securities we issue to file applications, be investigated and be found suitable to own our securities if it has reason to believe that such ownership would be inconsistent with the declared policies of the State of Nevada.

Nevada regulatory authorities have broad powers to request detailed financial and other information, to limit, condition, suspend or revoke a registration, gaming license or related approval and to approve changes in our operations. Such authorities may levy substantial fines or forfeiture of assets for violations of gaming laws or regulations. The suspension or revocation of any license that may be granted to us or the levy of substantial fines or forfeiture of assets could significantly harm our business, financial condition and results of operations. Furthermore, compliance costs associated with gaming laws, regulations and licenses are significant. Any change in the laws, regulations or licenses applicable to our business or a violation of any current or future laws or regulations applicable to our business or gaming license could require us to make substantial expenditures or could otherwise negatively affect our gaming operations.

The threat of terrorism has adversely affected the hospitality industry generally and these adverse effects may continue or worsen.

The threat of terrorism has caused, and may in the future cause, a significant decrease in hotel occupancy and average daily rate, or ADR, due to disruptions in business and leisure travel patterns and concerns about travel safety. Hotels in major metropolitan areas, such as New York and London that represented approximately 42.6% of our guest rooms for the year ended December 31, 2007, may be adversely affected due to concerns about travel safety and a significant overall decrease in the amount of air travel, particularly transient business travel, which includes the corporate and premium business segments that generally pay the highest average room rates. The possibility of future attacks may hamper business and leisure travel patterns and, accordingly, the performance of our business and our operations.

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We are exposed to the risks of a global market which could hinder our ability to maintain and expand our international operations.

We have properties in the United States and the United Kingdom and may expand to other international markets. The success and profitability of any future international operations are subject to numerous risks and uncertainties, many of which are outside of our control, such as:

•  political or economic instability;

•  changes in governmental regulation;

•  trade restrictions;

•  foreign currency controls;

•  difficulties and costs of staffing and managing operations in certain foreign countries;

•  work stoppages or other changes in labor conditions;

•  taxes;

•  payments terms; and

•  seasonal reductions in business activity in some parts of the world.

Furthermore, changes in policies and/or laws of the United States or foreign governments resulting in, among other things, higher taxation, currency conversion limitations or the expropriation of private enterprises could reduce the anticipated benefits of our international operations. Any actions by countries in which we conduct business to reverse policies that encourage foreign trade could adversely affect our business relationships and gross profit. In addition, we may be restricted in moving or repatriating funds attributable to our international properties without the approval of foreign governmental authorities or courts. For example, because of our historical net losses in our United Kingdom operations, any funds repatriated from the United Kingdom are considered a return of capital and require court approval. These limitations could have a material adverse effect on our business and results of operations.

Establishing operations in any foreign country or region presents risks such as those described above, as well as risks specific to the particular country or region. We may not be able to maintain and expand our international operations successfully, and as a result, our business operations could be adversely affected.

We have incurred substantial losses and have a significant net deficit which may reduce our ability to raise capital.

We reported pre-tax net losses of $41.8 million, $30.8 million, $29.4 million, $3.0 million, and $24.3 million for the years ended December 31, 2003, 2004, 2005, 2006 and 2007, respectively. Our net losses primarily reflect losses in equity of unconsolidated joint ventures due to our high interest expense and depreciation and amortization charges, which we expect will continue to be significant. Further, stock compensation, a non-cash expense, which we began recognizing in 2006 when we went public, contributes to the net losses recorded during 2006 and 2007. Our net losses may limit our ability to raise needed financing, or to do so on favorable terms.

The hotel business is capital intensive; financing the rising cost of capital improvements and increasing operating expenses could reduce our cash flow and adversely affect our financial performance.

Our hotel properties have an ongoing need for renovations and other capital improvements to remain competitive, including replacement, from time to time, of furniture, fixtures and equipment. To compete effectively, we will need to make capital expenditures to maintain our innovative property concepts and designs. In addition, we will need to make capital expenditures to comply with applicable laws and regulations. For the year ended December 31, 2007, we spent approximately $62.8 million for capital improvements and renovations to our hotels and we expect to undertake more capital improvement projects in the future. We may not be able to fund capital improvements solely from cash provided from our operating activities. If not, we will need to rely upon the availability of debt or equity capital.

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In addition, renovations and other capital improvements to our hotels may be expensive and may require us to close all or a portion of the hotels to customers during such renovations, affecting occupancy and average daily rate. These capital improvements may give rise to the following additional risks, among others:

•  construction cost overruns and delays;

•  uncertainties as to market demand or a loss of market demand after capital improvements have begun;

•  disruption in service and room availability causing reduced demand, occupancy and rates; and

•  possible environmental problems.

As a result, capital improvement projects may increase our expenses and reduce our cash flows and our revenues. If capital expenditures exceed our expectations, this excess would have an adverse effect on our available cash.

We have high fixed costs, including property taxes and insurance costs, which we may be unable to adjust in a timely manner in response to a reduction in revenues. In addition, our property taxes have increased in recent years and we expect those increases to continue.

The costs associated with owning and operating hotels are significant, some of which may not be altered in a timely manner in response to changes in demand for services, and failure to adjust our expenses may adversely affect our business and operations. For example, pursuant to the terms of our agreements with the labor unions for our New York City and San Francisco hotels, we may not unilaterally reduce the wages of the employees subject to these agreements, and are restricted in the manner in which we may layoff and/or alter the schedule of employees.

Property taxes and insurance costs are a significant part of our operating expenses. In recent years, our real property taxes have increased and we expect those increases to continue. Our real property taxes may increase as property tax rates change and as the values of properties are assessed and reassessed by taxing authorities. In addition, our real property tax rates will increase as property tax abatements expire. For example, the property tax abatement applicable to Hudson phases out over a five-year period beginning in 2008. Our real estate taxes do not depend on our revenues, and generally we could not reduce them other than by disposing of our real estate assets.

Insurance premiums for the hospitality industry have increased significantly in recent years, and continued escalation may result in our inability to obtain adequate insurance at acceptable premium rates. A continuation of this trend would appreciably increase the operating expenses of our hotels. If we do not obtain adequate insurance, to the extent that any of the events not covered by an insurance policy materialize, our financial condition may be materially adversely affected.

In the future, our properties may be subject to increases in real estate and other tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance and administrative expenses, which could reduce our cash flow and adversely affect our financial performance. If our revenues decline and we are unable to reduce our expenses in a timely manner, our results of operations could be adversely affected.

Our strategy to acquire and develop or redevelop hotels creates timing, financing, operational and other risks that may adversely affect our business and operations.

We intend to acquire and develop, or redevelop through expansion, hotel properties as suitable opportunities arise. For example, we are currently developing two properties in Las Vegas — Delano Las Vegas and Mondrian Las Vegas, two properties in South Beach — Mondrian South Beach and Gale, one property in Chicago — Mondrian Chicago, one property in New York — Mondrian SoHo, one property in Palm Springs — Mondrian Palm Springs, and redeveloping and expanding another property in Las Vegas — Hard Rock. The acquisition, development and redevelopment of hotel properties involve a number of risks. There can be no assurance that any development or redevelopment project will be completed on time or within budget. Our inability to complete a project on time or within budget may adversely affect our operating results and financial performance.

Acquisitions, development or redevelopment projects of hotel properties require significant capital expenditures. In addition, development or redevelopment of properties usually generate little or no cash flow until the

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project’s completion. We will not be able to fund acquisitions and development or redevelopment projects solely from cash provided from our operating activities. Consequently, we will rely upon the availability of debt or equity capital to fund hotel acquisitions and development or redevelopment. Our ability to grow through acquisitions, development or redevelopment of hotels will be limited if we cannot obtain satisfactory debt or equity financing, which will depend on, among other things, market conditions. Neither our charter nor our bylaws limits the amount of debt that we can incur. However, no assurances can be made that we will be able to obtain additional equity or debt financing or that we will be able to obtain such financing on favorable terms.

We may not be able to successfully compete for additional hotel properties.

We may not be successful in identifying or completing acquisitions that are consistent with our strategy. We compete with institutional pension funds, private equity investors, real estate investment trusts, owner-operators of hotels and others who are engaged in real estate investment activities for the acquisition of hotels, which may or may not have similar investment objectives as we do. In addition, competition for suitable investment properties may increase in the future. Some competitors may have substantially greater financial resources than we do and, as such, will be able to accept more risk than we can prudently manage. These competitors may limit the number of suitable investment opportunities for us by driving up the price we must pay for real property or other assets we seek to acquire. In addition, our potential acquisition targets may find our competitors to be more attractive suitors because they may have greater resources, be willing to pay more, have a more compatible operating philosophy, or better relationships with hotel franchisors, sellers or lenders.

Even if we are able to successfully identify and acquire other hotel properties, acquisitions may not yield the returns we expect and, if financed using our equity capital, may be dilutive. We also may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete. We may underestimate the costs necessary to bring an acquired property up to the standards established for its intended market position or the costs to integrate an acquired hotel property with our existing operations. Significant costs of acquisitions could materially impact our operating results, including costs of uncompleted acquisitions as they would generally be expensed in the time period during which they are incurred.

Integration of new hotels may be difficult and may adversely affect our business and operations.

The success of any acquisition or development project will depend, in part, on our ability to realize the anticipated benefits from integrating acquired hotels with our existing operations. For instance, we may develop or acquire new hotels in geographic areas in which our management may have little or no operating experience and in which potential customers may not be familiar with our existing hotels, name, image or brands. Our recently completed acquisition of the Hard Rock Hotel & Casino in Las Vegas, our development of the Delano Las Vegas, Mondrian Las Vegas, Mondrian Chicago, and Mondrian Palm Springs and our acquisition and recent rebranding of the Mondrian Scottsdale are in new cities where we previously did not own hotel properties.

These hotels may attract fewer customers than our existing hotels, while at the same time, we may incur substantial additional costs with these new hotel properties. As a result, the results of operations at new hotel properties may be inferior to those of our existing hotels. Until recently, none of our individual hotel brands were used for more than one hotel. Extension of our brands may jeopardize what we believe are the distinct reputations of our existing properties. Unanticipated expenses and insufficient demand at a new hotel property, therefore, could adversely affect our business. Our success in realizing anticipated benefits and the timing of this realization depend upon the successful integration of the operations of the acquired hotel. This integration is a complex, costly and time-consuming process. The difficulties of combining acquired properties with our existing operations include, among others:

•  coordinating sales, distribution and marketing functions;

•  integrating information systems;

•  preserving the important licensing, distribution, marketing, customer, labor, and other relationships of an acquired hotel;

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•  costs relating to the opening, operation and promotion of new hotel properties that are substantially greater than those incurred in other geographic areas; and

•  converting hotels to our brand.

We may not accomplish the integration of acquired hotels smoothly or successfully. The diversion of the attention of our management from our existing operations to integration efforts and any difficulties encountered in combining operations could prevent us from realizing the anticipated benefits from the acquisition and could adversely affect our business and operations.

The use of joint ventures or other entities, over which we may not have full control, for hotel acquisitions could prevent us from achieving our objectives.

We have in the past and may in the future acquire, develop or redevelop hotel properties through joint ventures with third parties, acquiring non-controlling interests in or sharing responsibility for managing the affairs of a property, joint venture or other entity. For example, we currently are party to a joint venture to develop our Delano Las Vegas and Mondrian Las Vegas properties and Mondrian hotels in New York, Chicago and Palm Springs. We also own our St Martins Lane and Sanderson hotels in London through a 50/50 joint venture and the Hard Rock through a one third interest in a joint venture.

To the extent we own properties through joint ventures or other entities, we may not be in a position to exercise sole decision-making authority regarding the property, joint venture or other entity. Investments in joint ventures or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners might become bankrupt or fail to fund their share of required capital contributions. Likewise, partners may have economic or other business interests or goals which are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of creating impasses on decisions if neither we nor our partner have full control over the joint venture or other entity. Disputes between us and our partners may result in litigation or arbitration that would increase our expenses and prevent management from focusing their time and effort on our business. Consequently, actions by, or disputes with, our partners might result in subjecting properties owned by the joint venture to additional risk. In addition, we may, certain circumstances, be liable for the actions of our partners.

We have recently invested, and may continue to invest in the future, in select properties which have residential components and this strategy may not yield the returns we expect, may result in disruptions to our business or strain management resources.

As part of our growth strategy, we may seek to leverage awareness of our hotel brands by acquiring, developing and/or managing non-hotel properties, such as condominium developments and other residential projects, including condominiums or apartments. We may invest in these opportunities solely or with joint venture partners. For example, in August 2006, together with a 50/50 joint venture partner, we acquired an apartment building in the South Beach area of Miami, Florida, which we are renovating and converting into a hotel and condominium project and re-branding under our Mondrian brand name as Mondrian South Beach. This strategy, however, may expose us to additional risks, including the following:

•  we may be unable to obtain, or face delays in obtaining, necessary zoning, land-use, building, occupancy, and other required governmental permits and authorizations, which could result in increased development or re-development costs and/or lower than expected sales;

•  local residential real estate market conditions, such as oversupply or reduction in demand, may result in reduced or fluctuating sales;

•  cost overruns, including development or re-development costs that exceed our original estimates, could make completion of the project uneconomical;

•  land, insurance and development or re-development costs continue to increase and may continue to increase in the future and we may be unable to attract rents, or sales prices that compensate for these increases in costs;

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•  development or re-development of condominium properties usually generate little or no cash flow until the project’s completion and the sale of a significant number of condominium units and may experience operating deficits after the date of completion and until such condominium units are sold;

•  failure to achieve expected occupancy and/or rent levels at residential apartment properties within the projected time frame, if at all; and

•  we may abandon development or re-development opportunities that we have already begun to explore, and we may fail to recover expenses already incurred in connection with exploring any such opportunities.

If any of these problems occur, overall project costs may significantly exceed the costs that were estimated when the project was originally undertaken, which will result in reduced returns, or even losses, from our investment.

We have substantial debt, and we may incur additional indebtedness, which may negatively affect our business and financial results.

As of December 31, 2007, we had $729.2 million of outstanding indebtedness, including capital lease obligations. Our substantial debt may negatively affect our business and operations in several ways, including:

•  requiring us to use a substantial portion of our funds from operations to make required payments on principal and interest, which will reduce funds available for operations and capital expenditures, future business opportunities and other purposes;

•  making us more vulnerable to economic and industry downturns and reducing our flexibility in responding to changing business and economic conditions;

•  limiting our ability to borrow more money for operations, capital or to finance acquisitions in the future; and

•  requiring us to dispose of properties in order to make required payments of interest and principal.

Our revolving credit facility and trust preferred securities contain financial and operating covenants, including interest coverage and leverage ratios and other limitations on our ability to sell all or substantially all of our assets and engage in mergers, consolidations and certain acquisitions. Failure to meet these covenants could result from, among other things, changes in our results of operations, the incurrence of debt or changes in general economic conditions. These covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our stockholders. Failure to comply with any of these covenants could result in a default under one or more of our other debt instruments. This could cause one or more of our lenders to accelerate the timing of payments on their respective indebtedness, which could harm our business and operations.

Some of our existing indebtedness contain limitations on our ability to incur additional debt on specific properties, as well as financial covenants relating to the performance of those properties. If these covenants restrict us from engaging in activities that we believe would benefit those properties, our growth may be limited. If we fail to comply with these covenants, we will need to obtain consents or waivers from compliance with these covenants, which may take time or cause us to incur additional expenses, or we may be required to prepay the debt containing the restrictive covenants.

A majority of our debt is secured by first deeds of trust on our properties. If we were to default on our secured debt, the loss of property securing the debt would harm our ability to satisfy other obligations. Using our properties as collateral increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure and ultimately our loss of the property that secures any loans for which we are in default. For tax purposes, a foreclosure on any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure but would not receive any cash proceeds. In addition, because of various cross-default provisions in our debt, our default under some of our mortgage debt obligations may result in a default on our other indebtedness. If this occurs, our business and operations would be materially adversely affected.

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We also will likely incur additional debt in connection with any future acquisitions. We may, in some instances, borrow under our revolving credit facility or borrow other funds to acquire properties. In addition, we may incur further mortgage debt by obtaining loans secured by the properties we acquire or our existing portfolio.

Our working capital and liquidity reserves may not be adequate to cover all of our cash needs and we may have to obtain additional debt financing. Sufficient financing may not be available or, if available, may not be available on terms acceptable to us. Additional borrowings for working capital purposes will increase our interest expense, and therefore may harm our business and operations.

Our organizational documents do not limit the amount of indebtedness that we may incur. If we increase our leverage, the resulting increase in debt service could adversely affect our ability to make payments on our indebtedness and harm our business and operations.

We anticipate that we will refinance our indebtedness from time to time to repay our debt, and our inability to refinance on favorable terms, or at all, could harm our business and operations.

Since we anticipate that our internally generated cash will be inadequate to repay our indebtedness prior to maturity, we expect that we will be required to repay debt from time to time through refinancings of our indebtedness and/or offerings of equity or debt. The amount of our existing indebtedness may harm our ability to repay our debt through refinancings. If we are unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to sell one or more of our properties on disadvantageous terms, which might result in losses to us. We have placed mortgages on our hotel properties to secure our indebtedness. To the extent we cannot meet our debt service obligations, we risk losing some or all of those properties to foreclosures. If prevailing interest rates or other factors at the time of any refinancing result in higher interest rates on any refinancing, our interest expense would increase, which would harm our business and operations.

Our revolving credit facility contains financial covenants that limit our operations and could lead to adverse consequences if we fail to comply.

Our revolving credit facility contains financial and operating covenants, including interest coverage and leverage ratios and other limitations on our ability to sell all or substantially all of our assets, pay dividends on our common stock and engage in mergers, consolidations and certain acquisitions. Failure to meet these financial covenants could result from, among other things, changes in our results of operations, the incurrence of debt or changes in general economic conditions. These covenants may restrict our ability to engage in transactions that we believe would otherwise be in the best interests of our stockholders. Failure to comply with any of the covenants could result in a default under one or more of our other debt instruments. This could cause one or more of our lenders to accelerate the timing of payments on their respective indebtedness, which could harm our business and operations.

Our hedging strategies may not be successful in mitigating our risks associated with interest rates.

We use various derivative financial instruments to provide a level of protection against interest rate risks, but no hedging strategy can protect us completely. When interest rates change, we may be required to record a gain or loss on those derivatives that we currently hold. Our hedging activities may include entering into interest rate swaps, caps and floors and options to purchase these items. We currently use interest rate caps to manage our interest rate risks related to our variable rate indebtedness; however, our actual hedging decisions will be determined in light of the facts and circumstances existing at the time and may differ from our currently anticipated hedging strategy. There can be no assurance that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses, and such losses could harm our results of operations, financial condition and business prospects.

Our operations are sensitive to currency exchange risks, and we cannot predict the impact of future exchange-rate fluctuations on our business and operating results.

Our operations are sensitive to currency exchange risks. Changes in exchange rates between foreign currencies and the U.S. dollar may adversely affect our operating results. For example, all else being equal, a weaker U.S. dollar

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will promote international tourism in our domestic markets. As foreign currencies appreciate against the U.S. dollar, it becomes less expensive, in terms of those appreciating foreign currencies, to pay for our U.S. hotel services. Conversely, all else being equal, an appreciating U.S. dollar could affect demand for our U.S. hotel services. We cannot predict the impact of future exchange-rate fluctuations on our business and operations.

If we fail to maintain effective internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, it may have an adverse effect on our business and stock price.

We are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX, and the applicable SEC rules and regulations that require our management to conduct an annual assessment and to report on the effectiveness of our internal controls over financial reporting. In addition, our independent registered public accounting firm must issue an attestation report addressing the operating effectiveness of our internal controls over financial reporting. While our internal controls over financial reporting currently meet all of the standards required by SOX, failure to maintain an effective internal control environment could have a material adverse effect on our business, financial condition and results of operations and the price of our common stock. We cannot be certain as to our ability to continue to comply with the requirements of SOX. If we are not able to continue to comply with the requirements of SOX in a timely manner or with adequate compliance, we may be subject to sanctions or investigation by regulatory authorities, including the SEC or Financial Industry Regulatory Authority. In addition, should we identify a material weakness, there can be no assurance that we would be able to remediate such material weakness in a timely manner in future periods. Moreover, if we are unable to assert that our internal control over financial reporting is effective in any future period (or if our auditors are unable to express an opinion on the effectiveness of our internal controls), we could lose investor confidence in the accuracy and completeness of our financial reports, and incur significant expenses to restructure our internal controls over financial reporting, which may have an a material adverse effect on our business and operations.

We depend on our senior management for the future success of our business and the loss of one or more of our key personnel could have an adverse effect on our ability to manage our business and implement our growth strategies, or could be negatively perceived in the capital markets.

Our future success and our ability to manage future growth depend, in large part, upon the efforts and continued service of our senior management team which has substantial experience in the hospitality industry and which exercises substantial influence over our operational, financing, acquisition and disposition activity. It could be difficult for us to find replacements for our senior management, as competition for such personnel is intense. The loss of services of one or more members of our senior management team could have an adverse effect on our ability to manage our business and implement our growth strategies. Further, such a loss could be negatively perceived in the capital markets, which could reduce the market value of our securities.

We depend on Jeffrey Chodorow for the management of many of our restaurants and bars.

The restaurants in Morgans, Hudson, Delano Miami, Mondrian Los Angeles, Clift, Sanderson and St Martins Lane as well as the bars in Delano Miami, Sanderson and St Martins Lane are owned and managed through several joint venture operations with restaurateur Jeffrey Chodorow pursuant to a master agreement between our subsidiaries and Chodorow Ventures LLC. Our restaurant in Mondrian Scottsdale is owned by us and operated under license and management agreements with an entity related to Chodorow Ventures LLC. If any of the risks outlined below materialize, our results of operations may be adversely affected. The joint ventures involve risks not otherwise present in our business, including:

•  the risk that Mr. Chodorow or Chodorow Ventures LLC has economic or other interests or goals that are inconsistent with our interests and goals and that he may not take, or may veto, actions which may be in our best interests;

•  the risk that a joint venture entity or Chodorow Ventures LLC may default on its obligations under the agreement or the leases with our hotels, or not renew those leases when they expire, and therefore we may not continue to receive its services;

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•  the risk that disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business;

•  the risk that we may in certain circumstances be liable for the actions of our third party partners or co-venturers; and

•  the risk that Chodorow Ventures LLC may become bankrupt and will be unable to continue to provide services to us.

Because land underlying Sanderson is subject to a 150-year ground lease, Clift is leased pursuant to a 99-year lease and a portion of Hudson is the lease of a condominium interest, we are subject to the risk that these leases could be terminated and could cause us to lose the ability to operate these hotels.

Our rights to use the land underlying Sanderson in London are based upon our interest under a 150-year ground lease. Our rights to operate Clift in San Francisco are based upon our interest under a 99-year lease. In addition, a portion of Hudson in New York is a condominium interest that is leased to us. Pursuant to the terms of the leases for these hotels, we are required to pay all rent due and comply with all other lessee obligations under the leases. Any transfer, including a pledge, of our interest in a lease may require the consent of the applicable lessor and its lenders. As a result, we may not be able to sell, assign, transfer or convey our lessee’s interest in any hotel subject to a lease in the future absent consent of such third parties even if such transactions may be in the best interest of our stockholders.

The lessor may require us, at the expiration or termination of the lease to surrender or remove any improvements, alterations or additions to the land or hotel at our own expense. The leases also generally require us to restore the premises following a casualty or taking and to apply in a specified manner any proceeds received in connection therewith. We may have to restore the premises if a material casualty, such as a fire or an act of God, occurs, the cost of which may exceed any available insurance proceeds. The termination of any of these leases could cause us to lose the ability to continue operating these hotels, which would materially affect our business and results of operations.

We are party to numerous contracts and operating agreements, certain of which limit our activities through restrictive covenants or consent rights. Violation of those covenants or failure to receive consents could lead to termination of those contracts or operating agreements.

We are party to numerous contracts and operating agreements, many of which are integral to our business operations. Certain of those contracts and operating agreements, including our joint venture agreements, generally require that we obtain the consent of the other party or parties before taking certain actions and/or contain restrictive covenants that could affect the manner in which we conduct our business. Our failure to comply with restrictive covenants or failure to obtain consents, including actions by the Predecessor prior to our initial public offering, could provide the beneficiaries of those covenants or consents with the right to terminate the relevant contract or operating agreement or seek damages against us. If those claims relate to agreements that are integral to our operations, any termination could have a material adverse effect on our results of operations or financial condition.

We are currently involved in litigation regarding our management of Shore Club. This litigation may harm our business or reputation and defense of this litigation may divert management resources from the operations of our business.

In 2002, we invested in Shore Club, and MHG Management Company took over management of the property. The management agreement pursuant to which we manage Shore Club expires in 2022.

On January 17, 2006, Philips South Beach LLC filed a lawsuit in New York state court against several defendants including MHG Management Company and other persons and entities. The lawsuit alleged, among other things, (i) that MHG Management Company engaged in fraudulent or willful misconduct with respect to Shore Club entitling Philips South Beach LLC to terminate the Shore Club management agreement without the payment of a termination fee to it, (ii) breach of fiduciary duty by defendants, (iii) tortious interference with

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business relations by redirecting guests and events from Shore Club to Delano Miami, (iv) misuse of free and complimentary rooms at Shore Club, and (v) misappropriation of confidential business information. The allegations include that defendants took actions to benefit Delano Miami at the expense of Shore Club, billed Shore Club for expenses that had already been billed by MHG Management Company as part of chain expenses, misused barter agreements to obtain benefits for employees, and failed to collect certain rent and taxes from retail tenants. The lawsuit also asserts that defendants falsified or omitted information in monthly management reports related to the alleged actions. Ian Schrager, founder of the Predecessor, and David T. Hamamoto, chairman of our board of directors, are also named as defendants in the lawsuit. Philips South Beach LLC further amended its complaint to assert two claims of fraudulent inducement against MHG Management Company and Mr. Schrager.

The remedies sought by Philips South Beach LLC included (i) termination of the management agreement without the payment of a termination fee to MHG Management Company, (ii) a full accounting of all of the affairs of Shore Club from the inception of the management agreement, (iii) at least $5.0 million in compensatory damages, (iv) at least $10.0 million in punitive damages, (v) rescission of the management agreement, (vi) the return of all fees received by MHG Management Company pursuant to the management agreement, and (vii) attorneys’ fees, interest, costs and disbursements.

We are continuing to challenge this litigation vigorously. There can be no assurances, however, that the outcome of the litigation, or the costs and diversion of management resources associated with the defense of the litigation, will not harm our reputation in the hospitality industry or otherwise adversely affect our business and results of operations.

Risks Related to the Hospitality Industry

In addition to the risks enumerated above, a number of factors, many of which are common to the hospitality industry and beyond our control, could affect our business, including the following:

•  increased threat of terrorism, terrorist events, airline strikes, natural disasters or other factors that may affect travel patterns and reduce the number of business and commercial travelers and tourists and other factors that may not be offset by increased room rates;

•  increased competition from other hotels in our markets;

•  new hotel supply in our markets, which could harm our occupancy levels and revenue at our hotels;

•  dependence on business and commercial travel, leisure travel and tourism;

•  increases in operating costs due to inflation, labor costs (including the impact of unionization), workers’ compensation and health-care related costs, utility costs, insurance and unanticipated costs such as acts of nature and their consequences and other factors that may not be offset by increased room rates;

•  changes in interest rates and in the availability, cost and terms of debt financing;

•  changes in laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;

•  adverse effects of international market conditions, which may diminish the desire for high-end leisure travel or the need for business travel, as well as national, regional and local economic and market conditions where our hotels operate and where our customers live; and

•  adverse effects of a downturn in the hospitality industry.

These factors could harm our financial condition and results of operations.

Seasonal variations in revenue at our hotels can be expected to cause quarterly fluctuations in our revenues.

The hospitality industry is seasonal in nature. This seasonality can be expected to cause quarterly fluctuations in our revenues. Our revenue is generally highest in the second and fourth quarters. Our quarterly earnings may also be adversely affected by factors outside our control, including weather conditions and poor economic conditions.

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As a result, we may have to enter into short-term borrowings in certain quarters in order to offset these fluctuations in revenues.

The industries in which we operate are heavily regulated and a failure to comply with regulatory requirements may result in an adverse effect on our business.

Any failure to comply with regulatory requirements may result in an adverse effect on our business. Our various properties are subject to numerous laws, including those relating to the preparation and sale of food and beverages, including alcohol. We are also subject to laws governing our relationship with our employees in such areas as minimum wage and maximum working hours, overtime, working conditions, hiring and firing employees and work permits. Also, our ability to remodel, refurbish or add to our existing properties may be dependent upon our obtaining necessary building permits from local authorities. The failure to obtain any of these permits could adversely affect our ability to increase revenues and net income through capital improvements of our properties. In addition, we are subject to the numerous rules and regulations relating to state and federal taxation. Compliance with these rules and regulations requires significant management attention. Any failure to comply with all such rules and regulations could subject us to fines or audits by the applicable taxation authority.

In addition, as a result of our recent acquisition of the Hard Rock Hotel & Casino, the casino operations at that property are subject to gaming industry regulations. The gaming industry is highly regulated, and the casino must maintain its licenses and pay gaming taxes to continue operations. The casino is subject to extensive regulation under the laws, rules and regulations of the jurisdiction in which it operates. These laws, rules and regulations generally concern the responsibility, financial stability and character of the owners, managers, and persons with financial interests in the gaming operations. Violations of laws could result in, among other things, disciplinary action.

The illiquidity of real estate investments and the lack of alternative uses of hotel properties could significantly limit our ability to respond to adverse changes in the performance of our properties and harm our financial condition.

Because real estate investments are relatively illiquid, our ability to promptly sell one or more of our properties in response to changing economic, financial and investment conditions is limited. We cannot predict whether we will be able to sell any property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property.

Although we evaluate alternative uses throughout our portfolio, including residential conversion and other opportunities, hotel properties may not readily be converted to alternative uses. The conversion of a hotel to alternative uses would also generally require substantial capital expenditures and may not provide a more profitable return than the use of the hotel property prior to that conversion.

We may be required to expend funds to correct defects or to make improvements before a property can be sold. We may not have funds available to correct those defects or to make those improvements and as a result our ability to sell the property would be limited. In acquiring a hotel, we may agree to lock-out provisions that materially restrict us from selling that hotel for a period of time or impose other restrictions on us. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could significantly harm our financial condition and results of operations.

Uninsured and underinsured losses could adversely affect our financial condition and results of operations.

We are responsible for insuring our hotel properties as well as obtaining the appropriate insurance coverage to reasonably protect our interests in the ordinary course of business. Additionally, each of our leases and loans typically specifies that comprehensive insurance be maintained on each of our hotel properties, including liability, fire and extended coverage. There are certain types of losses, generally of a catastrophic nature, such as earthquakes and floods or terrorist acts, which may be uninsurable or not economically insurable, or may be subject to insurance coverage limitations, such as large deductibles or co-payments. We will use our discretion in determining amounts,

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coverage limits, deductibility provisions of insurance and the appropriateness of self-insuring, with a view to maintaining appropriate insurance coverage on our investments at a reasonable cost and on suitable terms. Uninsured and underinsured losses could harm our financial condition and results of operations. We could incur liabilities resulting from loss or injury to our hotels or to persons at our hotels. Claims, whether or not they have merit, could harm the reputation of a hotel or cause us to incur expenses to the extent of insurance deductibles or losses in excess of policy limitations, which could harm our results of operations.

In the event of a catastrophic loss, our insurance coverage may not be sufficient to cover the full current market value or replacement cost of our lost investment. Should an uninsured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In that event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. In the event of a significant loss, our deductible may be high and we may be required to pay for all such repairs and, as a consequence, it could materially adversely affect our financial condition. Inflation, changes in building codes and ordinances, environmental considerations and other factors might also keep us from using insurance proceeds to replace or renovate a hotel after it has been damaged or destroyed. Under those circumstances, the insurance proceeds we receive might be inadequate to restore our economic position on the damaged or destroyed property.

Since September 11, 2001, it has generally become more difficult and expensive to obtain property and casualty insurance, including coverage for terrorism. When our current insurance policies expire, we may encounter difficulty in obtaining or renewing property or casualty insurance on our properties at the same levels of coverage and under similar terms. Such insurance may be more limited and for some catastrophic risks (e.g., earthquake, hurricane, flood and terrorism) may not be generally available at current levels. Even if we are able to renew our policies or to obtain new policies at levels and with limitations consistent with our current policies, we cannot be sure that we will be able to obtain such insurance at premium rates that are commercially reasonable. If we were unable to obtain adequate insurance on our properties for certain risks, it could cause us to be in default under specific covenants on certain of our indebtedness or other contractual commitments that require us to maintain adequate insurance on our properties to protect against the risk of loss. If this were to occur, or if we were unable to obtain adequate insurance and our properties experienced damage which would otherwise have been covered by insurance, it could materially adversely affect our financial condition and the operations of our properties.

In addition, insurance coverage for our hotel properties and for casualty losses does not customarily cover damages that are characterized as punitive or similar damages. As a result, any claims or legal proceedings, or settlement of any such claims or legal proceedings that result in damages that are characterized as punitive or similar damages may not be covered by our insurance. If these types of damages are substantial, our financial resources may be adversely affected.

Environmental and other governmental laws and regulations could increase our compliance costs and liabilities and adversely affect our financial condition and results of operations.

Our hotel properties are subject to various Federal, state and local laws relating to the environment, fire and safety and access and use by disabled persons. Under these laws, courts and government agencies have the authority to require us, if we are the owner of a contaminated property, to clean up the property, even if we did not know of or were not responsible for the contamination. These laws also apply to persons who owned a property at the time it became contaminated. In addition to the costs of clean-up, environmental contamination can affect the value of a property and, therefore, an owner’s ability to borrow funds using the property as collateral or to sell the property. Under such environmental laws, courts and government agencies also have the authority to require that a person who sent waste to a waste disposal facility, such as a landfill or an incinerator, to pay for the clean-up of that facility if it becomes contaminated and threatens human health or the environment.

Furthermore, various court decisions have established that third parties may recover damages for injury caused by property contamination. For instance, a person exposed to asbestos while staying in or working at a hotel may seek to recover damages for injuries suffered. Additionally, some of these environmental laws restrict the use of a property or place conditions on various activities. For example, some laws require a business using chemicals (such

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as swimming pool chemicals at a hotel) to manage them carefully and to notify local officials that the chemicals are being used.

We could be responsible for the types of costs discussed above. The costs to clean up a contaminated property, to defend against a claim, or to comply with environmental laws could be material and could reduce the funds available for distribution to our stockholders. Future laws or regulations may impose material environmental liabilities on us, or the current environmental condition of our hotel properties may be affected by the condition of the properties in the vicinity of our hotels (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.

Our hotel properties are also subject to the Americans with Disabilities Act of 1990, or the ADA. Under the ADA, all public accommodations must meet various Federal requirements related to access and use by disabled persons. Compliance with the ADA’s requirements could require removal of access barriers and non-compliance could result in the United States government imposing fines or in private litigants’ winning damages. If we are required to make substantial modifications to our hotels, whether to comply with the ADA or other changes in governmental rules and regulations, our financial condition and results of operations could be harmed. In addition, we are required to operate our hotel properties and laundry facilities in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and become applicable to our properties.

Our hotels may be faced with labor disputes or, upon expiration of a collective bargaining agreement, a strike, which would adversely affect the operation of our hotels.

We rely heavily on our employees providing high-quality personal service at our hotels and any labor dispute or stoppage caused by poor relations with a labor union or the hotels’ employees could adversely affect our ability to provide those services, which could reduce occupancy and room revenue, tarnish our reputation and hurt our results of operations. Most of our employees who work at Morgans, Royalton, Hudson and Clift are members of local labor unions. Our relationship with our employees or the union could deteriorate due to disputes relating to, among other things, wage or benefit levels or management responses to various economic and industry conditions. The collective bargaining agreement governing the terms of employment for employees working in our New York City hotels will not expire until June 30, 2012. The collective bargaining agreement governing the terms of employment for the majority of the employees working in our Clift hotel will not expire until August 14, 2009.

Risks Related to Our Organization and Corporate Structure

We are a holding company with no operations.

We are a holding company and conduct all of our operations through our subsidiaries. We do not have, apart from our ownership of Morgans Group and a non-equity voting interest in Hard Rock Hotel Holdings, LLC, any independent operations. As a result and although we have no current plan to do so, we will rely on dividends and other payments or distributions from Morgans Group and our other subsidiaries to pay dividends on our common stock. We also rely on dividends and other payments or distributions from Morgans Group and our other subsidiaries to meet our debt service and other obligations, including our obligations in respect of the Notes. The ability of Morgans Group and our other subsidiaries to pay dividends or make other payments or distributions to us will depend on Morgans Group’s operating results.

In addition, because we are a holding company, claims of our stockholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our subsidiaries will be able to satisfy the claims of our stockholders only after all of our and our subsidiaries’ liabilities and obligations have been paid in full.

Substantially all of our businesses are held through our direct subsidiary, Morgans Group. Other than with respect to 1,000,000 membership units held by the Predecessor and membership units issued as part of our employee compensation plans, we own all of the outstanding membership units of Morgans Group. We may, in connection with acquisitions or otherwise, issue additional membership units of Morgans Group in the future. Such

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issuances would reduce our ownership of Morgans Group. Because our stockholders do not directly own Morgans Group units, they do not have any voting rights with respect to any such issuances or other corporate level activities of Morgans Group.

Provisions in our charter documents, Delaware law and our rights plan could discourage potential acquisition proposals, could delay, deter or prevent a change in control and could limit the price certain investors might be willing to pay for our stock.

Certain provisions of our certificate of incorporation and bylaws may inhibit changes in control of our company not approved by our board of directors or changes in the composition of our board of directors, which could result in the entrenchment of current management. These provisions include:

•  a prohibition on stockholder action through written consents;

•  a requirement that special meetings of stockholders be called by the board of directors;

•  advance notice requirements for stockholder proposals and director nominations;

•  limitations on the ability of stockholders to amend, alter or repeal the bylaws; and

•  the authority of the board of directors to issue, without stockholder approval, preferred stock with such terms as the board of directors may determine and additional shares of our common stock.

We are also afforded the protections of Section 203 of the Delaware General Corporation Law, which prevents us from engaging in a business combination with a person who becomes a 15% or greater stockholder for a period of three years from the date such person acquires such status unless certain board or stockholder approvals are obtained. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock.

In addition, our board of directors has also recently adopted a stockholder rights plan which may deter certain takeover tactics. See “2007 Transactions — Stockholder Protection Rights Agreement.”

We may experience conflicts of interest with certain of our directors and officers and significant stockholders as a result of their tax positions.

Mr. Hamamoto, our chairman of the board, and Mr. Marc Gordon, our chief investment officer and executive vice president of capital markets, may suffer adverse tax consequences upon our sale of certain properties and may therefore have different objectives regarding the appropriate pricing and timing of a particular property’s sale. At the completion of our IPO, the Predecessor guaranteed approximately $225.0 million of the indebtedness of subsidiaries of Morgans Group and Messrs. Hamamoto and Gordon agreed to reimburse the Predecessor for up to $98.3 million and $7.0 million of its guarantee obligation, respectively. These guarantees and reimbursement undertakings were provided so that Messrs. Hamamoto and Gordon did not realize taxable capital gains in connection with the formation and structuring transactions in the amount that each has agreed to reimburse. The guarantees and reimbursement undertakings are for a fixed term and are renewable at the option of the provider. Messrs. Hamamoto and Gordon may influence us to not sell or refinance certain properties, even if such sale or refinancing might be financially advantageous to our stockholders, in order for them to avoid realizing built-in gains that would be incurred once they ceased to agree to reimburse the Predecessor for its guarantee of portions of our debt. Alternatively, to avoid realizing such built-in gains they may have to agree to additional reimbursements or guarantees involving additional financial risk.

In addition, Messrs. Hamamoto and Gordon may be subject to tax on a disproportionately large amount of the built-in gain that would be realized upon the sale of certain properties. Messrs. Hamamoto and Gordon may therefore influence us to not sell certain properties, even if such sale might be financially advantageous to our stockholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest, as they may wish to avoid realization of their share of the built-in gains in those properties.

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Our basis in the hotels contributed to us is generally substantially less than their fair market value which will decrease the amount of our depreciation deductions and increase the amount of recognized gain upon sale.

Some of the hotels which were part of our formation and structuring transactions were contributed to us in tax-free transactions. Accordingly, our basis in the assets contributed was not adjusted in connection with our IPO and is generally substantially less than the fair market value of the contributed hotels as of the date of our IPO. We also intend to generally use the “traditional” method for making allocations under Section 704(c) of the Internal Revenue Code of 1986, as amended, as opposed to the “curative” or “remedial” method for making such allocations. Consequently, (i) our depreciation deductions with respect to our hotels will likely be substantially less than the depreciation deductions that would have been available to us had our tax basis been equal to the fair market value of the hotels as of the date of our IPO and (ii) we may recognize gain upon the sale of an asset that is attributable to appreciation in the value of the asset that accrued prior to the date of our IPO.

Non-U.S. holders owning more than 5% of our common stock may be subject to United States federal income tax on gain recognized on the disposition of our common stock.

Because of our significant United States real estate holdings, we believe that we are a “United States real property holding corporation” as defined under Section 897 of the Internal Revenue Code. As a result, any “non-U.S. holder” (as defined under “Material U.S. Federal Income Tax Considerations for Non-U.S. Holders”) will be subject to United States federal income tax on gain recognized on a disposition of our common stock if such non-U.S. holder has held, directly or indirectly, 5% of our common stock at any time during the five-year period ending on the date of the disposition and such non-U.S. holder is not eligible for any treaty exemption.

Changes in market conditions, or sales of our common stock, could adversely affect the market price of our common stock.

The market price of our common stock depends on various financial and market conditions, which may change from time to time and which are outside of our control.

Sales of a substantial number of additional shares of our common stock, or the perception that such sales could occur, also could adversely affect prevailing market prices for our common stock. In addition to the possibility that we may sell shares of our common stock in a public offering at any time, we also may issue shares of common stock in connection with grants of restricted stock or long term incentive plan units or upon exercise of stock options that we grant to our directors, officers and employees. All of these shares will be available for sale in the public markets from time to time. As of December 31, 2007, there were:

•  1,873,811 shares of our common stock issuable upon exercise of outstanding options, of which options to purchase 605,026 shares were exercisable, at a weighted average exercise price of $19.78 per share;

•  572,460 restricted stock units and 1,210,875 long-term incentive plan units outstanding exercisable for a total of 1,783,335 shares of our common stock;

•  1,757,589 shares of our common stock available for future grants under our equity incentive plans; and

•  7,858,755 shares of common stock issuable upon conversion of the 2.375% Senior Subordinated Convertible Notes due 2014 at a conversion rate corresponding to the maximum conversion rate of 45.5580 shares per $1,000 principal amount of the Notes.

Most of the outstanding shares of our common stock are eligible for resale in the public market and certain holders of our shares have the right to require us to file a registration statement for purposes of registering their shares for resale. A significant portion of these shares is held by a small number of stockholders. If our stockholders sell substantial amounts of our common stock, the market price of our common stock could decline, which may make it more difficult for us to sell equity of equity related securities in the future at a time and price that we deem appropriate. We are unable to predict the effect that sales of our common stock may have on the prevailing market price of our common stock.

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Transactions relating to our convertible note hedge and warrant transactions may affect the trading price of our common stock.

In connection with the issuance of the Notes, we have entered into convertible note hedge and warrant transactions with affiliates of certain of the initial purchasers, which we refer to as the counterparties. Pursuant to the convertible note hedge, we have purchased from the counterparties a call option on our common stock, and pursuant to the warrant transaction, we have sold to the counterparties a warrant for the purchase of shares of our common stock. The warrant has an exercise price that is 82.2% higher than the closing price of our common stock on the date of the pricing of the Notes. Together, the convertible note hedge and warrant transactions are expected to provide us with some protection against increases in our stock price over the conversion price per share and, accordingly, reduce our exposure to potential dilution upon the conversion of the Notes. We used an aggregate of approximately $21.0 million of the net proceeds of the offering of the Notes to fund the net cost of these hedging transactions. In connection with these transactions, the counterparties to these transactions:

•  entered into various over-the-counter derivative transactions or purchased or sold our common stock in secondary market transactions at or about the time of the pricing of the Notes; and

•  may enter into, or may unwind, various over-the-counter derivatives or purchase or sell our common stock in secondary market transactions following the pricing of the Notes, including during any conversion reference period with respect to a conversion of Notes.

These activities may have the effect of increasing, or preventing a decline in, the market price of our common stock. In addition, any hedging transactions by the counterparties following the pricing of the Notes, including during any conversion reference period, may have an adverse impact on the trading price of our common stock. The counterparties are likely to modify their hedge positions from time to time prior to conversion or maturity of the Notes by purchasing and selling shares of our common stock or other instruments, including over-the-counter derivative instruments, that they may wish to use in connection with such hedging. In particular, such hedging modifications may occur during a conversion reference period. In addition, we intend to exercise our purchased call option whenever Notes are converted, although we are not required to do so. In order to unwind any hedge positions with respect to our exercise of the purchased call option, the counterparties would expect to sell shares of common stock in secondary market transactions or unwind various over-the-counter derivative transactions with respect to the common stock during the conversion reference period for the converted Notes.

The effect, if any, of any of these transactions and activities on the market price of our common stock will depend in part on market conditions and cannot be ascertained at this time, but any of these activities could adversely affect the trading price of our common stock.

Our stock price has been and continues to be volatile.

The value of our securities may fluctuate as a result of various factors, such as:

•  announcements relating to significant corporate transactions;

•  fluctuations in our quarterly and annual financial results;

•  operating and stock price performance of companies that investors deem comparable to us;

•  changes in government regulation or proposals relating thereto;

•  general industry and economic conditions;

•  sales or the expectation of sales of a substantial number of shares of our common stock in the public market; and

•  general stock market fluctuations unrelated to our operating performance.

In addition, the stock markets have, in recent years, experienced significant price fluctuations. These fluctuations often have been unrelated to the operating performance of the specific companies whose stock is traded. Market fluctuations, as well as economic conditions, have adversely affected, and may continue to adversely affect, the market price of our common stock.

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Failure to comply with covenants in our financing agreements could result in cross-defaults under some of such financing agreements, which cross-defaults could jeopardize our ability to satisfy our obligations under the convertible notes.

Various risks, uncertainties and events beyond our control could affect our ability to comply with the covenants, financial tests and ratios required by the instruments governing our financing arrangements, including under our revolving credit agreement. Failure to comply with any of the covenants in these or any future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions, including the indenture governing the Notes. A default would permit lenders to cease to make further extensions of credit, accelerate the maturity of the debt under these agreements and foreclose upon any collateral securing that debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the notes. In addition, limitations imposed by our financing agreements on our ability to incur additional debt and to take other actions could significantly impair our ability to obtain other financing.

ITEM 1B   UNRESOLVED STAFF COMMENTS

None.

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ITEM 2   PROPERTIES

Our Hotel Properties

Set forth below is a summary of certain information related to our hotel properties as of December 31, 2007:

										Twelve Months
		Year		Interest			Number			Ended December 31, 2007									Restaurants
Hotel	City	Opened		Owned			of Rooms			ADR(1)			Occupancy(2)			RevPAR(3)			and Bars(4)
Morgans	New York		1984		100	%		113		$	342			86.4	%	$	296		Asia de Cuba Morgans Bar
Royalton	New York		1988		100	%		168			384			84.7	%		326		Brasserie 44 Lobby Lounge Bar 44
Hudson	New York		2000		(5	)		805	(5)		284			91.8	%		261		Hudson Cafeteria Hudson Bar Private Park Library Bar Sky Terrace
Delano Miami	Miami		1995		100	%		194			557			73.0	%		407		Blue Door Blue Sea Rose Bar Pool Bar The Florida Room
Mondrian Los Angeles	Los Angeles		1996		100	%		237			327			76.5	%		250		Asia de Cuba Skybar Seabar
Clift	San Francisco		2001		(6	)		363			259			74.3	%		192		Asia de Cuba Redwood Room Living Room
Mondrian Scottsdale	Scottsdale		2006		100	%		194			203			56.0	%		114		Asia de Cuba Skybar Red Bar
St Martins Lane	London		1999		50	%		204			467	(7)		77.1	%		360	(7)	Asia de Cuba Light Bar Rum Bar
Sanderson	London		2000		50	%		150			539	(7)		77.8	%		419	(7)	Suka Long Bar Purple Bar Bungalow 8
Shore Club	Miami		2001		7	%		309			436			65.1	%		284		Nobu Ago Skybar Redroom Rumbar Sandbar
Hard Rock Hotel & Casino	Las Vegas		2007		33	%		646			207			94.6	%		196		Nobu Ago AJs Steakhouse Pink Taco Center Bar Beach Bar
Total/Weighted Average								3,383		$	324			81.8	%	$	260

(1)	Average daily rate, or ADR.
(2)	Average daily occupancy.
(3)	Revenue per available room, or RevPAR, is the product of ADR and average daily occupancy. RevPAR does not include food and beverage revenues or other hotel operations revenues such as telephone, parking and other guest services.

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(4)	We operate the restaurants in Morgans, Hudson, Delano Miami, Mondrian Los Angeles, Clift, Sanderson and St Martins Lane as well as the bars in Delano Miami, Sanderson and St Martins Lane through a joint venture arrangement with Chodorow Ventures LLC in which we own a 50% ownership interest We own the restaurant at Mondrian Scottsdale and an affiliate of Chodorow Ventures LLC operates the restaurant through license and management agreements. The restaurant at Mondrian Scottsdale opened in January 2007 after renovation.
(5)	We own 100% of Hudson, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building. Hudson has a total of 920 rooms, including 115 single room occupancies (SROs), of which 31 are vacant. SROs are single room dwelling units. Each SRO is for occupancy by a single eligible individual. The unit need not, but may, contain food preparation or sanitary facilities, or both. SROs remain from the prior ownership of the building and we are by statute required to maintain these long-term tenants, unless we get their consent, as long as they pay us their rent.
(6)	Clift is operated under a long-term lease, which is accounted for as a financing.
(7)	The currency translation is based on an exchange rate of 1 British pound = 2.00 U.S. dollars, which is an average monthly exchange rate provided by www.oanda.com for the last twelve months ending December 31, 2007.

At December 31, 2007, we owned or partially owned and managed a portfolio of eleven luxury hotel properties primarily in gateway cities and select resort markets in the United States and Europe. We believe each of our hotels are positioned in its respective market as a gathering place or destination hotel offering outstanding personalized service with renowned restaurants and bars.

Individual Property Information

We believe each of our hotel properties reflects the strength of our operating platform and our ability to create branded destination hotels. The tables below reflect the results of operations of our individual properties before any third-party ownership interests in the hotels or restaurants.

Morgans

Overview

Opened in 1984, Morgans was the first Morgans Group hotel. It was named after the nearby Morgan Library located on Madison Avenue on the site of the former home of J. Pierpont Morgan. Morgans has 113 rooms, including 29 suites, and is situated in midtown Manhattan’s fashionable East Side, offering guests a residential neighborhood within midtown Manhattan and walking distance of the midtown business district, Fifth Avenue shopping and Times Square. Conceived by French designer Andrée Putman, Morgans is a quietly sophisticated hotel offering an intimate, friendly, home-away-from-home atmosphere. Morgans features Asia de Cuba restaurant, Morgans Bar, Living Room, and the Penthouse, a duplex that is also used for special functions.

Property highlights include:

Location	•	237 Madison Avenue, New York, New York
Guest Rooms	•	113, including 29 suites
Food and Beverage	•	Asia de Cuba Restaurant with seating for 230
	•	Morgans Bar with capacity for 75
Meetings Space	•	Multi-service meeting facility consisting of one suite with capacity for 85
Other Amenities	•	Living Room — a guest lounge that includes a television, computer, magazines and books in one of the suites
	•	24-hour concierge service

We are currently planning to undertake a renovation project at Morgans, including upgrades to the hotel’s furniture, fixtures and equipment, and certain technology upgrades, which is expected to begin during 2008.

We own a fee simple interest in Morgans.

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Selected Financial and Operating Information

The following table shows selected financial and operating information for Morgans:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		86.4	%		85.0	%		83.4	%		82.0	%		70.5	%
ADR	$	342		$	312		$	295		$	254		$	230
RevPAR	$	296		$	265		$	246		$	208		$	162
Selected Financial Information (in thousands):
Room Revenue	$	12,190		$	10,931		$	10,161		$	8,605		$	6,693
Total Revenue		24,124			22,219			21,805			20,107			18,281
Depreciation		1,201			1,354			1,485			1,909			2,025
Operating Income		5,671			4,851			4,398			3,122			2,074

Royalton

Overview

Opened in 1988, Royalton is located in the heart of midtown Manhattan, steps away from Times Square, Fifth Avenue shopping and the Broadway Theater District. Royalton was renovated during 2007 and now has 168 rooms and suites, 37 of which feature working fireplaces. Recently redesigned by noted New York-based design firm Roman & Williams, the hotel is widely regarded for its distinctive lobby which spans a full city block creating a series of iconic spaces that together form a fully integrated experience. Royalton features a new restaurant and bar, Brasserie 44 and Bar 44, both updated by acclaimed restaurateur John McDonald, and three unique penthouses with terraces offering views of midtown Manhattan.

Property highlights include:

Location	•	44 West 44th Street, New York, New York
Guest Rooms	•	168, including 27 suites
Food and Beverage	•	Brasserie 44 Restaurant with seating for 100
	•	Bar 44 with capacity for 100
	•	Lobby Lounge with capacity for 100
Meetings Space	•	Multi-service meeting facilities consisting of three suites with total capacity for 150
Other Amenities	•	37 working fireplaces and 5 foot round tubs in 41 guest rooms
	•	24-hour concierge service

We own a fee simple interest in Royalton.

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Selected Financial and Operating Information

The following table shows selected financial and operating information for Royalton:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		84.7	%		87.4	%		86.2	%		82.3	%		70.6	%
ADR	$	384		$	339		$	316		$	280		$	266
RevPAR	$	326		$	297		$	272		$	230		$	188
Selected Financial Information (in thousands):
Room Revenue(1)	$	13,840		$	18,307		$	16,793		$	14,149		$	11,543
Total Revenue(1)		18,290			24,211			22,239			19,641			17,178
Depreciation(1)		2,328			1,813			2,097			1,968			2,346
Operating Income(1)		1,383			5,726			4,595			2,636			1,593

(1) Royalton was closed for renovation for four months during 2007.

Hudson

Overview

Opened in 2000, Hudson is our largest New York City hotel, with 805 guest rooms and suites, including two ultra-luxurious accommodations — a 3,355 square foot penthouse with a landscaped terrace and an apartment with a 2,500 square foot tented terrace. Hudson occupies the former clubhouse of the American Women’s Association, which was originally constructed in 1929 by J.P. Morgan’s daughter. The hotel, which is only a few blocks away from Columbus Circle, Time Warner Center and Central Park, was designed by Philippe Starck to offer guests affordable luxury and style. Hudson’s notable design includes a 40-foot high ivy-covered lobby and a lobby ceiling fresco by renowned artist Francesco Clemente. The hotel’s food and beverage offerings include Private Park, a restaurant and bar in the indoor/outdoor lobby garden, Hudson Cafeteria restaurant, Hudson Bar and the Library Bar and Sky Terrace, a private landscaped terrace on the 15th floor.

Property highlights include:

Location	•	356 West 58th Street, New York, New York
Guest Rooms	•	805, including 43 suites
Food and Beverage	•	Hudson Cafeteria restaurant with seating for 200
	•	Hudson Bar with capacity for 334
	•	Library Bar with capacity for 170
Meeting Space	•	Multi-service meeting facilities, consisting of three executive boardrooms, two suites and other facilities, with total capacity for 1,260
Other Amenities	•	24-hour concierge service and business center
	•	Indoor/outdoor private park
	•	Library with antique billiard tables and books
	•	Sky Terrace, a private landscaped terrace and solarium
	•	Fitness center

We are currently exploring alternatives for an expansion project at Hudson, including the possibility of building out approximately 27,000 square feet of the basement to be used as event and meeting space.

We own 100% of Hudson, which is part of a property that is structured as a condominium, in which Hudson constitutes 96% of the square footage of the entire building. Hudson has a total of 920 rooms, including 115 single

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room occupancies (SROs), of which 31 are vacant. SROs are single room dwelling units. Each SRO is for occupancy by a single eligible individual. The unit need not, but may, contain food preparation or sanitary facilities, or both. SROs remain from the prior ownership of the building and we are by statute required to maintain these long-term tenants, unless we get their consent, as long as they pay us their rent. The hotel is subject to mortgage indebtedness.

Since 2000, we have leased our interests in Hudson to Hudson Leaseco LLC, an entity in which we owned a 0.1% membership interest, under a 35-year lease. The remaining 99.9% membership interest was owned by Chevron TCI, Inc. The lease to Hudson Leaseco allowed for the pass-through of tax credits to Chevron TCI, which used the tax credits on a current basis. In September 2006, the Company purchased 99.99% (as calculated in accordance with the purchase agreement and the operating agreement between the parties) of Chevron TCI’s interest and intends to acquire the remaining .01% in 2008. Because we receive the majority of the cash flow under the lease, Hudson Leaseco is consolidated for accounting purposes.

Selected Financial and Operating Information

The following table shows selected financial and operating information for Hudson:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		91.8	%		87.6	%		85.3	%		80.0	%		73.0	%
ADR	$	284		$	265		$	247		$	211		$	187
RevPAR	$	261		$	232		$	211		$	168		$	136
Selected Financial Information (in thousands):
Room Revenue	$	76,610		$	68,106		$	61,673		$	49,431		$	39,833
Total Revenue		101,271			88,083			80,893			65,312			58,895
Depreciation		6,275			5,092			9,415			10,185			9,950
Operating Income		36,800			33,807			24,756			14,644			10,219

Delano Miami

Overview

Opened in 1995, Delano Miami has 194 guest rooms, suites and lofts and is located in the heart of Miami Beach’s fashionable South Beach Art Deco district. A rooms renovation began in 2006, including technology upgrades and upgrading of suites and bungalows, and was completed in October 2007. Formerly a 1947 landmark hotel, Delano Miami is noted for its simple white Art Deco décor. The hotel features an “indoor/outdoor” lobby, the Water Salon and Orchard (which is Delano Miami’s landscaped orchard and 100-foot long pool) and beach facilities. The hotel’s accommodations also include eight poolside bungalows and a penthouse and apartment located on its top two floors. Delano Miami’s restaurant and bar offerings include Blue Door and Blue Sea restaurants, a poolside bistro, the Rose Bar and a new lounge, The Florida Room, designed by Kravitz Design, which opened in December 2007. The hotel also features Agua Spa, a full-service spa facility, renovated and expanded in late 2007.

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Property highlights include:

Location	•   1685 Collins Avenue, Miami Beach, Florida
Guest Rooms	•   194, including nine suites, four lofts and eight poolside bungalows and nine cabanas
Food and Beverage	•   Blue Door Restaurant with seating for 225
	•   Blue Sea Restaurant with seating for 16
	•   Rose Bar and lobby lounge with capacity for 334
	•   The Florida Room lounge with capacity for 210
Meeting Space	•   Multi-service meeting facilities, consisting of one executive boardroom and other facilities, with total capacity for 38
Other Amenities	•   Swimming pool and water salon
	•   Agua Spa and solarium
	•   Billiards area
	•   Interactive multi-media room
	•   24-hour concierge service

We own a fee simple interest in Delano Miami.

Selected Financial and Operating Information

The following table shows selected financial and operating information for Delano Miami:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		73.0	%		67.1	%		72.1	%		66.2	%		72.0	%
ADR	$	557		$	505		$	474		$	473		$	413
RevPAR	$	407		$	338		$	342		$	313		$	298
Selected Financial Information (in thousands):
Room Revenue	$	28,923		$	23,961		$	24,276		$	22,362		$	21,182
Total Revenue		56,603			50,433			49,685			46,121			43,841
Depreciation		3,858			2,203			3,272			3,288			3,116
Operating Income		17,852			16,100			15,877			14,683			14,095

Mondrian Los Angeles

Overview

Acquired in 1996 and reopened after an extensive renovation by Philippe Starck, Mondrian Los Angeles has 237 guest rooms, studios and suites, each of which has a fully-equipped kitchen. The hotel, which was built as an apartment complex in 1959 and converted to a hotel in 1984, is located on Sunset Boulevard in close proximity to Beverly Hills, Hollywood and the downtown Los Angeles business district. Mondrian Los Angeles’ accommodations also feature a two bedroom, 2,025 square foot penthouse and an apartment, each of which has an expansive terrace affording city-wide views. The hotel features Asia de Cuba and Seabar restaurants, Skybar, and Outdoor Living Room and Agua Spa.

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Property highlights include:

Location	•	8440 West Sunset Boulevard, Los Angeles, California
Guest Rooms	•	237, including 183 suites, with fully equipped kitchens in every room
Food and Beverage	•	Asia de Cuba Restaurant with seating for 225
	•	Seabar Restaurant with seating for 50
	•	Skybar with capacity for 491
Meeting Space	•	Multi-service meeting facilities, consisting of two executive boardrooms and one suite, with total capacity for 165
Other Amenities	•	Indoor/outdoor lobby
	•	Agua Spa
	•	Heated swimming pool and water salon
	•	Outdoor living room
	•	24-hour concierge service
	•	Full service business center
	•	24-hour fitness center

We are currently renovating Mondrian Los Angeles, including minor lobby renovations, room renovations, including the replacement of bathrooms, and technology upgrades. This renovation is expected to be completed in the third quarter of 2008.

We own a fee simple interest in Mondrian Los Angeles. The hotel is subject to mortgage indebtedness as more fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Selected Financial and Operating Information

The following table shows selected financial and operating information for Mondrian Los Angeles:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		76.5	%		79.1	%		79.5	%		75.3	%		70.3	%
ADR	$	327		$	315		$	301		$	278		$	258
RevPAR	$	250		$	249		$	239		$	209		$	182
Selected Financial Information (in thousands):
Room Revenue	$	21,623		$	21,579		$	20,674		$	18,153		$	15,721
Total Revenue		44,443			43,978			43,494			37,112			36,070
Depreciation		2,182			1,727			2,238			2,116			2,802
Operating Income		14,429			15,873			14,925			12,502			9,006

Clift

Overview

Acquired in 1999 and reopened after an extensive renovation in 2001, Clift has 363 guestrooms and suites designed by Philippe Starck. Built in 1915, Clift is located in the heart of San Francisco’s Union Square district, within walking distance of San Francisco’s central retail, dining, cultural and business activities. The hotel features Asia de Cuba Restaurant; the Redwood Room Bar, a paneled San Francisco landmark; and the Living Room, which is available for private events.

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Property highlights include:

Location	•	495 Geary Street, San Francisco, California
Guest Rooms	•	363, including 29 suites
Food and Beverage	•	Asia de Cuba restaurant with seating for 129
	•	Redwood Room bar with capacity for 139
	•	Living Room with capacity for 60
Meeting Space	•	Multi-service meeting facilities, consisting of two executive boardrooms, one suite and other facilities, with total capacity for 545
Other Amenities	•	24-hour concierge service
	•	24-hour business center
	•	24-hour fitness center
	•	24-hour room service

Since its emergence from bankruptcy in 2004, we have operated Clift under a 99-year lease, which due to our continued involvement, is treated as a sale-leaseback financing. Under the lease, our wholly-owned subsidiary, Clift Holdings LLC, is required to fund operating shortfalls, including the lease payments, and to fund all capital expenditures. The annual lease payments, which are payable in monthly installments, are as follows:

•  $2.8 million for the first two years following the commencement of the lease;

•  $6.0 million for the third through tenth year following the commencement of the lease; and

•  an amount that is reset every five years for the remainder of the lease term based on the percentage change in the consumer price index, subject, however, to certain maximum and minimum limitations on the amount of increase.

During the fourth quarter of 2006, we began paying the $6.0 million annual lease payment.

Under the lease, the failure of Clift Holding LLC to pay rent or perform our other obligations under the lease may constitute an event of default. If such an event of default goes uncured, the lessor will have specified rights and remedies, such as termination of the lease.

Selected Financial and Operating Information

The following table shows selected financial and operating information for Clift:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		74.3	%		70.6	%		68.7	%		66.5	%		63.8	%
ADR	$	259		$	239		$	221		$	211		$	205
RevPAR	$	192		$	169		$	152		$	141		$	130
Selected Financial Information (in thousands):
Room Revenue	$	25,497		$	22,370		$	20,098		$	18,666		$	17,285
Total Revenue		43,337			38,686			35,565			34,139			32,971
Depreciation		2,372			5,487			7,245			7,200			7,548
Operating Loss		4,383			(12	)		(2,616	)		(2,669	)		(3,828	)

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Mondrian Scottsdale

Overview

Acquired in 2006, Mondrian Scottsdale has 194 guestrooms, including 15 suites and two apartments. Mondrian Scottsdale is located in the heart of Old Town Scottsdale overlooking the Scottsdale Mall gardens. Ground floor rooms have patio terraces and the upper floors have private balconies. Two swimming pools, a 24-hour gym, state-of-the-art technology and business facilities, and Morgans Hotel Group’s signature spa, Agua, highlight the impressive list of amenities. During 2006, the hotel underwent a complete renovation of all guest rooms, common areas, bars and restaurant space. The newly renovated hotel was designed by international designer Benjamin Noriega-Ortiz, who drew his inspiration from the Garden of Eden. Completed in January 2007, the newly renovated hotel features an Asia de Cuba Restaurant, Skybar and the Red Bar.

Property highlights include:

Location	•	7353 East Indian School Road, Scottsdale, Arizona
Guest Rooms	•	194, including 15 suites and 2 apartments
Food and Beverage	•	Asia de Cuba restaurant with seating for 146
	•	Skybar with capacity for 68
	•	Red Bar with capacity for 71
Meeting Space	•	Multi-service meeting facilities, consisting of seven function rooms and a private reception area, with total capacity for 500
Other Amenities	•	Agua Spa
	•	2 swimming pools
	•	24-hour business center
	•	24-hour fitness center

We own a fee simple interest in Mondrian Scottsdale. The hotel is subject to mortgage indebtedness as more fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

Selected Financial and Operating Information

The following table shows selected financial and operating information for Mondrian Scottsdale for the year ended December 31, 2007 and for the period of our ownership during 2006. The Mondrian Scottsdale was under renovation for the majority of 2006.

	Year Ended			May 5, 2006 -
	December 31,			December 31,
	2007			2006
Selected Operating Information:
Occupancy		56.0	%		44.0	%
ADR	$	203		$	162
RevPAR	$	114		$	71
Selected Financial Information (in thousands):
Room Revenue	$	8,069		$	3,317
Total Revenue		16,736			5,503
Depreciation		2,945			967
Operating Loss		(3,468	)		(3,210	)

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St Martins Lane

Overview

Opened in 1999, St Martins Lane has 204 guestrooms and suites, including 16 rooms with private patio gardens, and a loft-style luxury penthouse and apartment with expansive views of London. The renovated 1960s building that previously housed the Mickey Mouse Club and the Lumiere Cinema is located in the hub of Covent Garden and the West End theatre district, within walking distance of Trafalgar Square, Leicester Square and the London business district. Designed by Philippe Starck, the hotel’s meeting and special event space includes the Back Room, Studios, and an executive boardroom. St Martins Lane features Asia de Cuba Restaurant; The Rum Bar, which is a modern twist on the classic English pub; and the Light Bar, an exclusive destination which has attracted significant celebrity patronage and received frequent media coverage. During 2007, we undertook an expansion project at St Martins Lane to add a new members-only bar, Bungalow 8, which opened in September 2007. Additionally, in the first quarter of 2007, a new, state-of-the-art gym, Gymbox, opened in the hotel and is operated by a third party under a lease agreement.

Property highlights include:

Location	•	45 St Martins Lane, London, United Kingdom
Guest Rooms	•	204, including 4 suites
Food and Beverage	•	Asia de Cuba restaurant with seating for 180
	•	Rum Bar with capacity for 30
	•	Light Bar with capacity for 150
	•	Bungalow 8 club with capacity for 200
Meeting Space	•	Multi-service meeting facilities, consisting of one executive boardroom, two suites and other facilities, with total capacity for 430
Other Amenities	•	24-hour concierge service
	•	Full service business center
	•	24-hour fitness center
	•	24-hour room service

We operate St Martins Lane through Morgans Hotels Group Europe Limited, a 50/50 joint venture previously with Burford Hotels Limited. In February 2007, Walton, an affiliate of Walton Street Capital LLC, purchased Burford Hotels Limited’s 50% ownership interest in Morgans Hotel Group Europe Limited. The terms of the joint venture agreement and the Company’s management agreement are relatively unchanged.

Selected Financial and Operating Information

The following table shows selected financial and operating information for St Martins Lane:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		77.1	%		78.2	%		73.6	%		75.4	%		66.6	%
ADR(1)	$	467		$	399		$	364		$	352		$	343
RevPAR(1)	$	360		$	312		$	267		$	265		$	228
Selected Financial Information (in thousands):(1)
Room Revenue	$	26,803		$	23,213		$	19,556		$	19,723		$	16,949
Total Revenue		53,054			46,272			40,499			40,446			36,174
Depreciation		4,384			4,136			5,384			4,917			4,419
Operating Income		14,135			10,792			5,718			6,734			5,500

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(1) The currency translation is based on an exchange rate of 1 British pound 2.00 U.S. dollars, which is an average monthly exchange rate provided by www.oanda.com for the last 12 months ending December 31, 2007.

Sanderson

Overview

Opened in 2000, Sanderson has 150 guestrooms and suites, seven with private courtyards and 18 suites. The hotel is located in London’s Soho district, within walking distance of Trafalgar Square, Leicester Square and the West End business district. Sanderson’s structure is considered a model of 1950s British architecture and the hotel has been designated as a landmark building. Designed by Philippe Starck, the guestrooms do not have interior walls (the dressing room and bathroom are encased in a glass box that is wrapped in layers of sheer curtains). Dining and bar offerings include Suka (formerly Spoon) restaurant, Long Bar and the Purple Bar. Other amenities include the Courtyard Garden, the Billiard Room, and Agua Spa. Like the Light Bar at St Martins Lane, the Long Bar is a popular destination that has consistently attracted a high-profile celebrity clientele and has generated significant media coverage.

Property highlights include:

Location	•	50 Berners Street, London, United Kingdom
Guest Rooms	•	150, including 18 suites
Food and Beverage	•	Suka Restaurant with seating for 120
	•	Long Bar with capacity for 290
	•	Purple Bar with capacity for 45
Meeting Space	•	Multi-service facilities, consisting of an penthouse boardroom and suites with total capacity for 100
Other Amenities	•	Courtyard Garden
	•	Indoor/Outdoor Lobby
	•	Billiard Room
	•	Agua Spa
	•	24-hour concierge service
	•	24-hour business center
	•	24-hour fitness center
	•	24-hour room service

In March 2007, we introduced a new restaurant concept featuring Malaysian cuisine and changed the name of the food and beverage outlet, from Spoon to Suka.

We operate Sanderson through Morgans Europe, a 50/50 joint venture previously with Burford. In February 2007, Walton purchased Burford’s 50% ownership interest in Morgans Europe. The terms of the joint venture agreement and the Company’s management agreement are substantially unchanged.

Through Morgans Europe, we operate Sanderson under a 150-year lease. The terms of the lease provide for an annual rent, which is subject to reset on specified review dates based on changes in the index of retail prices. Under the lease, our failure to perform or observe our covenants and obligations, including our failure to pay rent for a specified period, will constitute a default.

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Selected Financial and Operating Information

The following table shows selected financial and operating information for Sanderson:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		77.8	%		77.5	%		69.6	%		73.0	%		65.5	%
ADR(1)	$	539		$	475		$	443		$	413		$	406
RevPAR(1)	$	419		$	368		$	308		$	301		$	266
Selected Financial Information (in thousands):(1)
Room Revenue	$	22,936		$	20,137		$	16,580		$	16,521		$	14,543
Total Revenue		43,132			39,037			33,733			34,470			31,840
Depreciation		3,386			4,639			5,648			5,429			4,602
Operating Income		8,231			5,578			1,030			2,773			2,989

(1) The currency translation is based on an exchange rate of 1 British pound to 2.00 U.S. dollars, which is an average monthly exchange rate provided by www.oanda.com for the last 12 months ending December 31, 2007.

Shore Club

Overview

Opened in 2001, Shore Club has 309 rooms including 70 suites, seven duplex bungalows with private outdoor showers and dining areas, executive suites, an expansive penthouse suite encompassing 6,000 square feet and spanning three floors with a private elevator and private terrace, pool and panoramic views of Miami. Located on one of Miami’s main streets, Collins Avenue, Shore Club was designed by David Chipperfield. Some notable design elements of Shore Club include an Art Deco Lobby with a polished terrazzo floor and lit metal wall mural as well as custom silver and glass lanterns. Shore Club offers on-site access to restaurants and bars such as Nobu, Ago and Skybar (which is made up of the Red Room, Red Room Garden, Rum Bar and Sand Bar), shopping venues such as Scoop and Me & Ro and Pipino Salon, a hair care and accessories salon.

Property highlights include:

Location	•	1901 Collins Avenue, Miami Beach, Florida
Guest Rooms	•	309, including 22 suites, 7 bungalows, 1 oceanfront beach house
Food and Beverage	•	Nobu Restaurant with seating for 120
	•	Nobu Lounge with capacity for 140
	•	Ago Restaurant with seating for 275
	•	Skybar
	•	Red Room with seating for 144
	•	Red Room Garden with capacity for 250
	•	Rum Bar with capacity for 415
	•	Sand Bar with capacity for 75
Meeting Space	•	Multi-service meeting facilities, consisting of two executive boardrooms, three suites and other facilities, with total capacity for 473
Other Amenities	•	Two elevated infinity edge pools (one Olympic size and one lap pool with hot tub)
	•	Two deep blue wading pools
	•	Agua Spa
	•	Salon, jewelry shop and clothing shop
	•	24-hour concierge service

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We operate Shore Club under a management contract and owned a minority ownership interest of approximately 7% at December 31, 2007.

Selected Financial and Operating Information

The following table shows selected financial and operating information for Shore Club:

	Year Ended December 31,
	2007			2006			2005			2004			2003
Selected Operating Information:
Occupancy		65.1	%		65.7	%		63.6	%		61.6	%		55.8	%
ADR	$	436		$	373		$	349		$	327		$	296
RevPAR	$	284		$	245		$	222		$	201		$	165
Selected Financial Information (in thousands):
Room Revenue	$	32,006		$	27,467		$	24,922		$	23,668		$	19,398
Total Revenue		48,759			42,423			39,726			37,539			32,122
Depreciation		4,877			9,662			8,824			9,326			9,168
Operating Income		8,386			1,102			2,004			520			(4,630	)

Hard Rock Hotel & Casino Las Vegas

Overview

On February 2, 2007, the Company along with its joint venture partner, DLJMB, acquired the Hard Rock. The hotel’s eleven-story tower houses 647 spacious hotel rooms, including 584 guest rooms and 63 suites and one 4,500 square foot “mega suite.” Consistent with the hotel’s distinctive decor, the hotel rooms are stylishly furnished with modern furniture, stainless steel bathroom sinks, pedestal beds with leather headboards and black-and-white photos of famous rock musicians.

Additionally, the innovative, distinctive style of the approximately 30,000 square-foot circular casino is a major attraction for both Las Vegas visitors and local residents. The casino is designed with an innovative circular layout around the elevated Center Bar, which allows the casino’s patrons to see and be seen from nearly every area of the casino as well as play Blackjack at 3 gaming tables in the bar. Rock music is played continuously to provide the casino with an energetic and entertaining, club-like atmosphere. From February 2, 2007 through February 29, 2008, the casino, and all gaming related activities of Hard Rock, was operated by Golden Gaming under a definitive lease agreement. As of March 1, 2008, after receiving our gaming license in the state of Nevada, we began operating the casino and gaming operations.

Hard Rock also hosts a 3,600 square foot retail store, jewelry store and a lingerie store; the Body English nightclub — featuring popular and innovative DJs from all around the country to provide the proper entertainment to attract our target clientele; a 6,000 square-foot banquet facility; a premier live music concert hall called The Joint which has become a premier venue in Las Vegas for live popular music; a beach club which features a 300-foot long sand-bottomed tropical themed pool with a water slide, a water fall, a running stream and underwater rock music; and the Rock Spa, which features a state-of-the-art health club and spa facilities. The hotel offers its patrons a selection of high-quality food and beverages at multiple price points. The food and beverage operations include five restaurants (Nobu, Ago, AJ’s Steakhouse, Pink Taco and Mr. Lucky’s), three cocktail lounges in the casino (the Las Vegas Lounge, Sports Deluxe and Center Bar), three bars in The Joint, a bar at the Beach Club and catering service for corporate events, conventions, banquets and parties. In January 2008, Ago, an elegant Northern Italian trattoria, opened, replacing the former restaurant, Simon Kitchen and Bar, which closed in December 2007.

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Property highlights include:

Location	•	4455 Paradise Road, Las Vegas
Guest Rooms	•	646, including 63 suites and 1 mega suite
Food and Beverage	•	Nobu with seating for 120
	•	AJ’s Steakhouse with seating for 100
	•	Pink Taco with seating for 150
	•	Mr. Lucky’s with seating for 200
	•	Ago (opened January 2008) with seating for 180
	•	Center Bar, 2,000 square feet
	•	Las Vegas Lounge, 1,800 square feet
	•	Sports Deluxe, 1,100 square feet
Meeting Space	•	Multi-service banquet and conference facilities, with total capacity for 390
Other Amenities	•	Circular casino, approximately 30,000 square feet
	•	Body English nightclub, which capacity for 1,100
	•	The Joint live music concert hall, with capacity for 2,050
	•	Rock Spa salon, fitness center and spa
	•	24-hour concierge service
	•	24-hour room service

We operate the Hard Rock under a management agreement and as of December 31, 2007, owned a one third equity interest in the joint venture.

In March 2007, we announced a large-scale expansion project at the Hard Rock. The expansion is expected to include the addition of approximately 875 guest rooms, including an all-suite tower with upgraded amenities, approximately 60,000 square feet of meeting and convention space, and approximately 30,000 square feet of casino space. The project also includes an expansion of the hotel’s pool, several new food and beverage outlets, a new and larger “The Joint” live entertainment venue, a new spa and exercise facility and additional retail space. Renovations to the existing property began during 2007 and include upgrades to existing suites, restaurants and bars, retail shops, and common areas, and a new ultra lounge and poker room. These renovations are scheduled to be completed in 2008. We expect the expansion to be complete by late 2009.

Selected Financial and Operating Information

The following table shows selected financial and operating information for Hard Rock:

	For the Period from
	February 2, 2007 to
	December 31, 2007
Selected Operating Information:
Occupancy		94.6	%
ADR	$	207
RevPAR	$	196
Selected Financial Information (in thousands):
Room Revenue	$	42,220
Total Revenue		173,655
Depreciation		17,413
Operating Income		19,626

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ITEM 3   LEGAL PROCEEDINGS

Litigation

Shore Club Litigation — New York State Action

We are currently involved in litigation regarding the management of Shore Club. In 2002, we, through a wholly-owned subsidiary, Shore Club Holdings, LLC, invested in Shore Club, and our management company, MHG Management Company, took over management of the property. The management agreement expires in 2022. For the year ended December 31, 2002 (reflecting six months of data based on information provided to us and not generated by us and six months of operations after MHG Management Company took over management of Shore Club in July 2002), Shore Club had an operating loss and its owner, Philips South Beach LLC, was in dispute with its investors and lenders. After MHG Management Company took over management of the property, the financial performance improved and Shore Club had operating income in 2004. We believe this improvement was the direct result of our repositioning and operation of the hotel. This improved performance has continued. In addition, during the fourth quarter of 2005, the debt on the hotel was refinanced.

On January 17, 2006, Philips South Beach LLC filed a lawsuit in New York state court against several defendants including MHG Management Company and other persons and entities. The lawsuit alleges, among other things, (i) that MHG Management Company engaged in fraudulent or willful misconduct with respect to Shore Club entitling Philips South Beach LLC to terminate the Shore Club management agreement without the payment of a termination fee to it, (ii) breach of fiduciary duty by defendants, (iii) tortious interference with business relations by redirecting guests and events from Shore Club to Delano Miami, (iv) misuse of free and complimentary rooms at Shore Club, and (v) misappropriation of confidential business information. The allegations include that defendants took actions to benefit Delano Miami at the expense of Shore Club, billed Shore Club for expenses that had already been billed by MHG Management Company as part of chain expenses, misused barter agreements to obtain benefits for employees, and failed to collect certain rent and taxes from retail tenants. The lawsuit also asserts that defendants falsified or omitted information in monthly management reports related to the alleged actions. Ian Schrager, founder of the Predecessor, and David T. Hamamoto, Chairman of the board of directors of the Company, are also named as defendants in the lawsuit.

The remedies sought by Philips South Beach LLC included (i) termination of the management agreement without the payment of a termination fee to MHG Management Company, (ii) a full accounting of all of the affairs of Shore Club from the inception of the management agreement, (iii) at least $5.0 million in compensatory damages, (iv) at least $10.0 million in punitive damages, and (v) attorneys’ fees, interest, costs and disbursements.

We believe that MHG Management Company has abided by the terms of the management agreement. We believe that Philips South Beach LLC has filed the lawsuit as part of a strategy to pressure us to renegotiate our management agreement with respect to Shore Club.

On August 1, 2006, the judge granted our motion to dismiss Philips South Beach LLC’s causes of action for breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, breach of good faith and fair dealing, and unjust enrichment. The judge also struck all claims for punitive damages. Philips South Beach LLC appealed for the reinstatement of the three fiduciary duty claims and we cross-appealed for the dismissal of the four claims not dismissed by the trial court. Philips South Beach LLC filed an amended complaint adding a punitive damages demand for two of the remaining claims, for unfair competition and tortious interference. Our motion to dismiss that demand was denied, and we have appealed.

Philips South Beach LLC has further amended its complaint to assert two claims of fraudulent inducement against MHG Management Company and Mr. Schrager, seeking rescission of the management agreement, return of all fees paid under the management agreement, and unspecified punitive damages. We have moved to dismiss these new claims and answered the balance of the second amended complaint, denying all substantive allegations and asserting various affirmative defenses. Discovery is ongoing.

In October 2007, MHG Management Company counterclaimed against Philips South Beach LLC and asserted third party claims against affiliates of Philips South Beach LLC. These claims include breach of the management agreement, tortious interference with contractual relations and tortious interference with economic advantage.

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Shore Club Holdings, LLC has filed a complaint against affiliates of Philips South Beach LLC asserting derivative claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, and a direct claim for an accounting of Philips South Beach LLC.

We are continuing to pursue this litigation vigorously. There can be no assurances, however, that the outcome of this litigation, or the costs and diversion of management resources associated with the defense of the litigation will not harm our reputation in the hospitality industry or otherwise adversely affect our business and results of operations.

Shore Club Litigation — Florida State Action

On April 17, 2006, MHG Management Company and a related subsidiary filed a lawsuit in Florida state court against Philip Pilevsky and individuals and entities associated with Mr. Pilevsky, charging them with tortious interference with the 20-year exclusive management agreement that MHG Management Company holds for Shore Club, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and tortious interference with actual and prospective business and economic relations, in part as an attempt to break or renegotiate the terms of the management agreement.

On July 13, 2006, the judge issued an order denying defendants’ motion to stay and for a protective order based on the pendency of the Shore Club litigation in New York. On appeal of that order, the Florida court of appeals quashed the order denying the stay and directed the lower court to stay the Florida action pending the disposition of the Shore Club litigation in New York. In light of the counterclaims, third party claims, and new complaint filed in New York by MHG Management Company and Shore Club Holdings, LLC, this action is being withdrawn.

Century Operating Associates Litigation

On March 23, 2006, Century Operating Associates filed a lawsuit in New York state court naming several defendants, including us, the Predecessor, and Messrs. Scheetz, Schrager and Hamamoto. The lawsuit alleges breach of contract, breach of fiduciary duty and a fraudulent conveyance in connection with the structuring transactions that were part of the Company’s IPO, and the offering itself. In particular, the lawsuit alleges that the transactions constituted a fraudulent conveyance of the assets of Morgans Hotel Group LLC, in which Century Operating Associates allegedly has a non-voting membership interest, to the Company. The plaintiff claims that the defendants knowingly and intentionally structured and participated in the transactions in a manner designed to leave the Predecessor without any ability to satisfy its obligations to Century Operating Associates.

The remedies sought by Century Operating Associates include (i) Century Operating Associates’ distributive share of the IPO proceeds, (ii) at least $3.5 million in compensatory damages, (iii) at least $17.5 million in punitive damages, and (iv) attorneys’ fees and expenses.

On July 6, 2006, the judge granted our motion to dismiss us from the case. Century Operating Associates filed an amended complaint, re-asserting claims against us, including a new claim for aiding and abetting breach of fiduciary duty, and adding claims against a new defendant, Morgans Group. In April 2007, the judge granted our motion to dismiss all claims against us and Morgans Group, and certain claims against certain other defendants. In May 2007, Century Operating Associates amended its compliant again, re-asserting the same claims against us and Morgans Group. On June 8, 2007, the Company and defendants moved to dismiss all claims except the breach of the operating agreement of Morgans Group. Discovery is ongoing.

We are continuing to pursue this litigation vigorously. There can be no assurances, however, that the outcome of this litigation, or the costs and diversion of management resources associated with the defense of the litigation will not harm our reputation in the hospitality industry or otherwise adversely affect our business and results of operations.

Other Litigation

We are is involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

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ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter of 2007.

PART II

ITEM 5   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock has been listed on the Nasdaq Global Market under the symbol “MHGC” since the completion of our IPO in February 2006. The following table sets forth the high and low sales prices for our common stock, as reported on the Nasdaq Global Market, for each of the periods listed. No dividends were declared or paid during the periods listed.

Period	High		Low
February 17, 2006 — March 31, 2006	$	20.25	$	16.84
Second Quarter 2006	$	19.25	$	12.20
Third Quarter 2006	$	16.36	$	11.77
Fourth Quarter 2006	$	17.52	$	12.37
First Quarter 2007	$	21.74	$	15.20
Second Quarter 2007	$	25.86	$	19.97
Third Quarter 2007	$	25.93	$	17.30
Fourth Quarter 2007	$	23.29	$	16.82

On March 14, 2008, the closing sale price for our common stock, as reported as on the Nasdaq Global Market was $13.96. As of March 14, 2008, there were 56 record holders of our common stock although there is a much larger number of beneficial owners.

Dividend Policy

We have never declared or paid any cash dividends on our common stock and we do not currently intend to pay any cash dividends on our common stock. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our common stock will be, subject to applicable law, at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual restrictions. Our revolving credit agreement prohibits us from paying cash dividends on our common stock.

50

2007 Stock Repurchases

The following table provides information about the Company’s purchases of its common stock during the quarter ended December 31, 2007.

							Approximate Dollar
					Total Number of		Value of
					Common Shares		Common Shares that
	Total Number of		Average Price		Purchased as Part of		May Yet Be Purchased
	Common Shares		Paid per		Publicly Announced		Under the Plans or
Period	Purchased		Common Share		Plans or Programs		Programs
							(In thousands)
October 1, 2007 — October 31, 2007(1)		—		—		—	$	22,723
November 1, 2007 — November 31, 2007(1)		747,983	$	18.34		2,311,904	$	9,013
December 1, 2007 — December 31, 2007(2)		808,680	$	18.14		3,120,584	$	19,344
Total		1,556,663	$	18.23		3,120,584	$	19,344

(1)

These stock repurchases were made pursuant to our 2006 stock repurchase program. Our 2006 stock repurchase program was authorized by our board of directors and announced by the Company on December 7, 2006. Under the 2006 stock repurchase program, we were permitted to repurchase up to $50.0 million of our common stock through the open market or in privately negotiated transactions from time to time. The 2006 stock repurchase program expired on December 6, 2007.

(2)

Of these repurchases, 476,473 shares were repurchased under our 2006 stock repurchase program and 332,207 shares were repurchased under our 2007 stock repurchase program. Our 2007 stock repurchase program was authorized by our board of directors and announced by the Company on December 10, 2007. Under the 2007 stock repurchase program, we were authorized to repurchase up to $25.0 million of our common stock through the open market or in privately negotiated transactions from time to time on or before December 10, 2008. Repurchases authorized under the 2007 stock repurchase program are in addition to the $50.0 million that was authorized under the expired 2006 stock repurchase program. Additional repurchases under the 2007 stock repurchase program in January 2008 completed our purchases under this program.

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Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate Securities and Exchange Commission filings, in whole or in part, the following performance graph will not be incorporated by reference into any such filings.

Performance Graph

The following graph below shows the cumulative total stockholder return of our common stock for the year ended December 31, 2007 compared to the S&P 500 Stock Index and the S&P 500 Hotels. The graph assumes that the value of the investment in our common stock and each index was $100 at February 17, 2006. The Company has declared no dividends during this period. The stockholder return on the graph below is not indicative of future performance.

Comparison of Cumulative Total Return of the Company, S&P 500 Stock Index
and S&P 500 Hotels Index for the Year Ended December 31, 2007

	2/17//2006		12/31/2006		12/31/2007
Morgans Hotel Group Co.	$	100.00	$	84.65	$	96.40
S&P 500 Stock Index		100.00		110.18		114.07
S&P 500 Hotels Index		100.00		112.27		96.72

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ITEM 6   SELECTED FINANCIAL INFORMATION

The following selected historical financial and operating data should be read together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.

The following table contains selected consolidated historical financial data derived from our Predecessor audited combined financial statements for the period from January 1, 2006 to February 16, 2006 and the years ended December 31, 2005, 2004, and 2003. Information included for the period from February 17, 2006 to December 31, 2006 and the year ended December 31, 2007 is derived from the Company’s audited Consolidated Financial Statements. The historical results do not necessarily indicate results expected for any future period.

	Year Ended December 31,
	2007			2006			2005			2004			2003
	(In thousands, except operating data)
Statement of Operations Data:
Total hotel revenues	$	304,804		$	273,114		$	253,683		$	228,508		$	207,236
Total revenues		322,985			281,883			263,162			237,339			213,692
Total hotel operating costs		206,595			180,922			165,996			156,902			146,571
Corporate expenses		44,744			27,306			17,982			15,375			13,994
Depreciation and amortization		21,719			19,112			26,215			27,348			28,503
Total operating costs and expenses		273,058			227,340			210,193			199,625			189,068
Operating income		49,927			54,543			52,969			37,714			24,624
Interest expense, net		41,338			51,564			72,257			67,173			57,293
Net (loss)		(14,796	)		(13,925	)		(30,216	)		(31,595	)		(42,471	)
Selected Operating Data:(1)
Occupancy %		81.8	%		77.0	%		76.9	%		73.7	%		68.0	%
Average daily rate (ADR)	$	323.67		$	319.04		$	301.60		$	277.42		$	252.00
Revenue per Available Room (RevPAR)	$	259.80		$	245.76		$	231.80		$	204.53		$	171.26
Number of rooms available at year end		3,383			2,736			2,541			2,539			2,539
Other Financial Data:
EBITDA(2)	$	85,302		$	78,621		$	85,655		$	76,591		$	55,172
Adjusted EBITDA(3)		110,141			85,084			79,452			67,994			54,586
Capital expenditures, excluding acquisitions		23,838			26,010			5,603			5,236			4,250
Basic and diluted loss per share(4)		(0.45	)		(0.30	)
Cash Flow Data:
Net cash provided by (used in):
Operating activities	$	40,852		$	29,232		$	19,870		$	(22,820	)	$	7,050
Investing activities		(101,494	)		(143,658	)		(20,251	)		(12,630	)		(9,065	)
Financing activities		155,805			120,140			9,301			44,637			3,659

(1) Includes information for all managed hotels during the period, both consolidated and unconsolidated.

	As of December 31,
	2007		2006		2005			2004		2003
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	$	122,712	$	27,549	$	21,833		$	12,915	$	3,728
Restricted cash		28,604		24,368		32,754			19,269		14,979
Property and equipment, net		535,609		494,537		426,927			446,811		468,676
Total assets		943,578		758,006		606,275			612,683		616,722
Mortgage notes payable		420,000		417,327		577,968			473,000		541,043
Financing and capital lease obligations		309,199		135,870		81,664			77,951		6,849
Long term debt and capital lease obligations		729,199		553,197		659,632			550,951		547,892
Total stockholders’ equity (deficit)		129,986		122,446		(110,573	)		4,165		(17,422	)

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(2)

We believe that earnings before interest, income taxes, depreciation and amortization (EBITDA) is a useful financial metric to assess our operating performance before the impact of investing and financing transactions and income taxes. It also facilitates comparison between us and our competitors. Given the significant investments that we have made in the past in property, plant and equipment, depreciation and amortization expense comprises a meaningful portion of our cost structure. We believe that EBITDA will provide investors with useful tool for assessing the comparability between periods because it eliminates depreciation and amortization expense attributable to capital expenditures.

The use of EBITDA and Adjusted EBITDA, as defined below, has certain limitations. Our presentation of EBITDA and Adjusted EBITDA may be different from the presentation used by other companies and therefore comparability may be limited. Depreciation expense for various long-term assets, interest expense, income taxes and other items have been and will be incurred and are not reflected in the presentation of EBITDA or Adjusted EBITDA. Each of these items should also be considered in the overall evaluation of our results. Additionally, EBITDA and Adjusted EBITDA do not consider capital expenditures and other investing activities and should not be considered as a measure of our liquidity. We compensate for these limitations by providing the relevant disclosure of our depreciation, interest and income tax expense, capital expenditures and other items both in our reconciliations to the GAAP financial measures and in our consolidated financial statements, all of which should be considered when evaluating our performance. The term EBITDA is not defined under accounting principles generally accepted in the United States, or U.S. GAAP, and EBITDA is not a measure of net income, operating income, operating performance or liquidity presented in accordance with U.S. GAAP. In addition, EBITDA is impacted by reorganization of businesses and other restructuring-related charges. When assessing our operating performance, you should not consider this data in isolation, or as a substitute for, our net income, operating income or any other operating performance measure that is calculated in accordance with U.S. GAAP. In addition, our EBITDA may not be comparable to EBITDA or similarly titled measures utilized by other companies since such other companies may not calculate EBITDA in the same manner as we do. A reconciliation of net income (loss), the most directly comparable U.S. GAAP measure, to EBITDA and Adjusted EBITDA for each of the respective periods indicated is as follows:

	Year Ended December 31,
	2007			2006			2005			2004			2003
	(In thousands)
Net (loss)	$	(14,796	)	$	(13,925	)	$	(30,216	)	$	(31,595	)	$	(42,471	)
Interest expense, net		41,338			51,564			72,257			67,173			57,293
Income tax (benefit) expense		(9,060	)		11,204			822			827			652
Depreciation and amortization expense		21,719			19,112			26,215			27,348			28,503
Proportionate share of interest expense from unconsolidated joint ventures		36,908			6,030			10,669			7,694			7,080
Proportionate share of depreciation expense from unconsolidated joint ventures		10,150			5,427			6,390			5,754			4,707
Proportionate share of depreciation expense of minority interests in consolidated joint ventures		(497	)		(491	)		(482	)		(610	)		(592	)
Minority Interest		(460	)		(300	)		—			—			—
EBITDA	$	85,302		$	78,621		$	85,655		$	76,591		$	55,172
Other non-operating expense (income)		4,759			3,462			(1,574	)		(5,482	)		2,077
Other non-operating expense (income) from unconsolidated joint ventures		7,310			537			—			—			—
Less: EBITDA from leased hotels		(6,755	)		(5,475	)		(4,629	)		(3,115	)		(2,663	)
Add: Stock-based compensation		19,525			7,939			—			—			—
Adjusted EBITDA	$	110,141		$	85,084		$	79,452		$	67,994		$	54,586

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(3)	We disclose Adjusted EBITDA because we believe it provides a meaningful comparison to our EBITDA as it excludes other non-operating (income) expenses that do not relate to the on-going performance of our assets and excludes the operating performance of assets in which we do not have a fee simple ownership interest.
	We exclude from Adjusted EBITDA the following:
	• other non-operating (income) expenses such as gains and losses on transactions, executive terminations, losses on asset dispositions, costs of abandoned development projects and financings and litigation and settlement costs and other items that relate to the financing and investing activities of our assets and do not relate to the on-going operating performance of our assets, both consolidated and unconsolidated;
	• the EBITDA related to leased hotels to more accurately reflect the operating performance of assets in which we have a fee simple ownership interest; and
	• the stock-based compensation expense recognized, as this is not necessarily an indication of the operating performance of our assets.
(4)	Basic and diluted loss per share for 2006 represents the Company’s earnings per share from February 17, 2006 to December 31, 2006.

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ITEM 7   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Historical Financial and Operating Data” and our consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K.

Overview

We are a fully integrated hospitality company that operates, owns, acquires, develops and redevelops boutique hotels primarily in gateway cities and select resort markets in the United States and Europe. Over our 24-year history, we have gained experience operating in a variety of market conditions.

The historical financial data presented herein is the historical financial data for:

•  our Owned Hotels;

•  our joint venture hotels, consisting of the London hotels (Sanderson and St Martins Lane), Shore Club and Hard Rock, or the Joint Venture Hotels;

•  our investments in hotels under development, such as Mondrian Las Vegas, Delano Las Vegas, Mondrian Chicago and Mondrian SoHo;

•  our investment in certain joint ventures food and beverage operations at our Owned Hotels and Joint Venture Hotels, discussed further below;

•  our management company subsidiary, MHG Management Company; and

•  the rights and obligations contributed to Morgans Group in the formation and structuring transactions described in Note 1 to the Consolidated Financial Statements, included elsewhere in this report.

We consolidate the results of operations for all of our Owned Hotels. Certain food and beverage operations at five of our Owned Hotels are operated under 50/50 joint ventures with restaurateur Jeffrey Chodorow. The Asia de Cuba restaurant at Mondrian Scottsdale is operated under license and management agreements with China Grill Management, a company controlled by Jeffrey Chodorow. We believe that we are the primary beneficiary of these entities because we are responsible for the majority of the entities’ expected losses or residual returns. Therefore, these entities are consolidated in our financial statements with our partner’s share of the results of operations recorded as minority interest in the accompanying consolidated financial statements. This minority interest is based upon 50% of the income of the applicable entity after giving effect to rent and other administrative charges payable to the hotel.

We own partial interests in the Joint Venture Hotels and certain food and beverage operations at two of the Joint Venture Hotels, Sanderson and St Martins Lane. We account for these investments using the equity method as we believe we do not exercise control over significant asset decisions such as buying, selling or financing nor are we the primary beneficiary of the entities. Under the equity method, we increase our investment in unconsolidated joint ventures for our proportionate share of net income and contributions and decrease our investment balance for our proportionate share of net losses and distributions.

On February 2, 2007, we began managing the hotel operations at the Hard Rock. We also have signed agreements to manage the Mondrian South Beach, Mondrian Las Vegas, Delano Las Vegas, Mondrian Chicago and Mondrian SoHo once development is complete. As of December 31, 2007, we operated the following Joint Venture Hotels under management agreements which expire as follows:

•  Sanderson — April 2010 (with two 10-year extensions at our option);

•  St Martins Lane — September 2009 (with two 10-year extensions at our option);

•  Shore Club — July 2022; and

•  Hard Rock — February 2027 (with two 10-year extensions).

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These agreements are subject to early termination in specified circumstances.

We generated net losses for the years ended December 31, 2007, 2006 and 2005. Revenues increased by $41.1 million in 2007 compared to 2006 and by $18.7 million in 2006 compared to 2005. The loss for the years ended December 31, 2007 and 2006 is primarily due to non-cash charges related to income taxes and stock compensation and the recognition of our share of losses of unconsolidated subsidiaries in 2007 as compared to income in 2006. Stock compensation was introduced in February 2006 when the Company completed its IPO. The stock compensation expense increased $11.6 million in 2007 compared to 2006 and $7.9 million in 2006 compared to 2005. Further, the Company purchased the Hard Rock through a joint venture in 2007. The Company’s proportionate share of Hard Rock’s loss for the year ended 2007 was $22.1 million. We did not own any interest in Hard Rock in 2006. The loss for the year ended December 31, 2005 was primarily due to our interest expense exceeding our operating income, including prepayment fees related to a June 2005 refinancing of the debt on five hotels and increased interest due to additional mortgage debt on those five hotels. With the refinancing of our debt on our five jointly financed United States hotel properties in June 2005 and then again in October 2006, and after giving effect to the formation and structuring transactions related to our IPO (see Note 1 to the Consolidated Financial Statements), we experienced a reduction of $20.7 million in our interest expense for the year ended December 31, 2006 as compared to December 31, 2005 and a further reduction in interest expense of $8.3 million for the year ended December 31, 2007 as compared to 2006.

Factors Affecting Our Results of Operations

Revenues.  Changes in our revenues are most easily explained by three performance indicators that are commonly used in the hospitality industry:

•  occupancy;

•  ADR; and

•  RevPAR, which is the product of ADR and average daily occupancy; but does not include food and beverage revenue, other hotel operating revenue such as telephone, parking and other guest services, or management fee revenue.

Substantially all of our revenue is derived from the operation of our hotels. Specifically, our revenue consists of:

•  Rooms revenue.  Occupancy and ADR are the major drivers of rooms revenue.

•  Food and beverage revenue.  Most of our food and beverage revenue is earned by our 50/50 restaurant joint ventures and is driven by occupancy of our hotels and the popularity of our bars and restaurants with our local customers.

•  Other hotel revenue.  Other hotel revenue, which consists of ancillary revenue such as telephone, parking, spa, entertainment and other guest services, is principally driven by hotel occupancy.

•  Management fee — related parties revenue.  We earn fees under our management agreements ranging from 5.5% to 7% of defined revenues. These fees may include management fees as well as reimbursement for allocated chain services.

Fluctuations in revenues, which tend to correlate with changes in gross domestic product, are driven largely by general economic and local market conditions but can also be impacted by major events, such as terrorist attacks or natural disasters, which in turn affect levels of business and leisure travel.

The seasonal nature of the hospitality business can also impact revenues. We experience some seasonality in our business. For example, our Miami hotels are generally strongest in the first quarter, whereas our New York hotels are generally strongest in the fourth quarter.

In addition to economic conditions, supply is another important factor that can affect revenues. Room rates and occupancy tend to fall when supply increases, unless the supply growth is offset by an equal or greater increase in demand. One reason why we focus on boutique hotels in key gateway cities is because these markets have significant barriers to entry for new competitive supply, including scarcity of available land for new development and extensive regulatory requirements resulting in a longer development lead time and additional expense for new

57

competitors. A recent trend among hotel owners is the conversion of hotel rooms to condominium apartments which further reduces the available supply of hotel rooms resulting in increased demand for the remaining hotels.

Finally, competition within the hospitality industry can affect revenues. Competitive factors in the hospitality industry include name recognition, quality of service, convenience of location, quality of the property, pricing, and range and quality of food services and amenities offered. In addition, all of our hotels, restaurants and bars are located in areas where there are numerous competitors, many of whom have substantially greater resources than us. New or existing competitors could offer significantly lower rates or more convenient locations, services or amenities or significantly expand, improve or introduce new service offerings in markets in which our hotels compete, thereby posing a greater competitive threat than at present. If we are unable to compete effectively, we would lose market share, which could adversely affect our revenues.

Operating Costs and Expenses.  Our operating costs and expenses consist of the costs to provide hotel services, including:

•  Rooms expense.  Rooms expense includes the payroll and benefits for the front office, housekeeping, concierge and reservations departments and related expenses, such as laundry, rooms supplies, travel agent commissions and reservation expense. Like rooms revenue, occupancy is a major driver of rooms expense, which has a significant correlation with rooms revenue.

•  Food and beverage expense.  Similar to food and beverage revenue, occupancy of our hotels and the popularity of our restaurants and bars are the major drivers of food and beverage expense, which has a significant correlation with food and beverage revenue.

•  Other departmental expense.  Occupancy is the major driver of other departmental expense, which includes telephone and other expenses related to the generation of other hotel revenue.

•  Hotel selling, general and administrative expense.  Hotel selling, general and administrative expense consist of administrative and general expenses, such as payroll and related costs, travel expenses and office rent, advertising and promotion expenses, comprising the payroll of the hotel sales teams, the global sales team and advertising, marketing and promotion expenses for our hotel properties, utility expense and repairs and maintenance expenses, comprising the ongoing costs to repair and maintain our hotel properties.

•  Property taxes, insurance and other.  Property taxes, insurance and other consist primarily of insurance costs and property taxes.

•  Corporate expenses.  Corporate expenses consist of the cost of our corporate office, net of any cost recoveries, which consists primarily of payroll and related costs, stock-based compensation expenses, office rent and legal and professional fees and costs associated with being a public company.

•  Depreciation and amortization expense.  Hotel properties are depreciated using the straight-line method over estimated useful lives of 39.5 years for buildings and five years for furniture, fixtures and equipment.

Other Items

•  Interest expense, net.  Interest expense, net includes interest on our debt and amortization of financing costs and is presented net of interest income and interest capitalized.

•  Equity in (income) loss of unconsolidated joint ventures.  Equity in (income) loss of unconsolidated joint ventures constitutes our share of the net profits and losses of our United Kingdom hotel joint venture, our United Kingdom food and beverage joint venture (both of which are 50% owned by us); Shore Club (in which we have a 7% ownership interest); since August 8, 2006, Mondrian South Beach (in which we have a 50% ownership interest and which is currently under development); and since February 2, 2007, Hard Rock (in which we had a 33.3% ownership interest as of December 31, 2007).

•  Minority interest. Minority interest expense constitutes the third-party food and beverage joint venture partner’s interest in the profits of the restaurant ventures at certain of our hotels.

•  Other non-operating (income) expenses include gains and losses on sale of assets and asset restructurings, costs of abandoned development projects and financings, gain on early extinguishment of debt and other items that do not relate to the ongoing operating performance of our assets.

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•  Income tax expense.  The United States entities included in our Predecessor’s combined financial statements are either partnerships or limited liability companies, which are treated similarly to partnerships for tax reporting purposes. Accordingly, Federal and state income taxes have not been provided for in the accompanying combined financial statements for the year ended December 31, 2005 as the partners or members are responsible for reporting their allocable share of our Predecessor’s income, gains, deductions, losses and credits on their individual income tax returns. One of our foreign subsidiaries is subject to United Kingdom corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented. Certain of our Predecessor’s subsidiaries were subject to the New York City Unincorporated Business Tax. Income tax expense in our Predecessor’s financial statements comprises the income taxes paid in the United Kingdom on the management fees earned by our wholly-owned United Kingdom subsidiary. Subsequent to the IPO, the Company is subject to Federal and state income taxes. Income taxes for the period from February 17, 2006 to December 31, 2006 and year ended December 31, 2007 were computed using our calculated effective tax rate. We also recorded net deferred taxes related to cumulative differences in the basis recorded for certain assets and liabilities in the amount of $10.6 million at the time of our conversion from a partnership to a C corporation.

Most categories of variable operating expenses, such as operating supplies and certain labor such as housekeeping, fluctuate with changes in occupancy. Increases in RevPAR attributable to increases in occupancy are accompanied by increases in most categories of variable operating costs and expenses. Increases in RevPAR attributable to improvements in ADR typically only result in increases in limited categories of operating costs and expenses, primarily credit card and travel agent commissions. Thus, improvements in ADR have a more significant impact on improving our operating margins than occupancy.

Notwithstanding our efforts to reduce variable costs, there are limits to how much we can accomplish because we have significant costs that are relatively fixed costs, such as depreciation and amortization, labor costs and employee benefits, insurance, real estate taxes and other expenses associated with owning hotels that do not necessarily decrease when circumstances such as market factors cause a reduction in our hotel revenues.

Recent Trends and Developments

Recent Trends.  We believe that the economic drivers that impact underlying lodging fundamentals, such as growth in GDP, business investment and employment, are likely to weaken in 2008. The expected decline in these drivers will likely result in a significantly lower revenue growth rate for our hotels than was experienced in 2006 and 2007. While demand growth could moderate as a result of slowing economic drivers, projections for new supply in the markets in which we own hotels suggest that supply growth will also continue to fall short of long-term historical averages. Although the pace of new lodging supply in various phases of development has increased over the past several quarters, the majority of new projects scheduled for completion in the near-term are largely concentrated in the economy and mid-scale segments and are located outside of major urban markets. Therefore, we do not expect most of the new hotel supply to directly compete with our core portfolio. We also believe the timing of some of these projects may be affected by increased building costs and the reduced availability of financing. These factors may further dampen the pace of new supply development beyond 2008.

As we believe the trends in the lodging industry provide less opportunity for improvements in our business in 2008, there can be no assurances that any increases in hotel revenues or earnings at our properties will continue for any number of reasons, including, but not limited to, slower than anticipated growth in the economy and changes in travel patterns.

Recent Developments.  In addition to the recent trends described above, we expect that a number of recent events will cause our future results of operations to differ from our historical performance. For a discussion of these recent events, see “Business — Recent Developments.”

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Operating Results

Comparison of Year Ended December 31, 2007 To Year Ended December 31, 2006

The following table presents our operating results for the year ended December 31, 2007 and the year ended December 31, 2006, including the amount and percentage change in these results between the two periods. The operations presented for the period from January 1, 2006 through February 16, 2006 are those of our Predecessor. We completed our IPO on February 17, 2006, therefore the period from February 17, 2006 through December 31, 2006, represents our results of operations. The combined periods in 2006 are comparable to our results for the year ended December 31, 2007 with the exception of the addition of the Mondrian South Beach development project in August 2006, the purchase of Hard Rock in February 2007, the addition of Mondrian Scottsdale in May 2006, which was under renovation during the year ended December 31, 2006, and the renovation of Royalton, which was closed for four months during 2007. Mondrian South Beach was operating as an apartment building at the time of its purchase in August 2006 and is in the development phases of converting into a hotel and condominium. Our investment in Mondrian South Beach and Hard Rock is accounted for using the equity method and our share of losses is recorded in the consolidated results of operations for the years ended December 31, 2006 and 2007. The combined operating results are as follows:

	2007			2006			Change ($)			Change (%)
	(Dollars in thousands)
Revenues:
Rooms	$	186,752		$	168,572		$	18,180			10.8	%
Food and beverage		104,271			89,105			15,166			17.0	%
Other hotel		13,781			15,437			(1,656	)		(10.7	)%
Total hotel revenues		304,804			273,114			31,690			11.6	%
Management fee — related parties		18,181			8,769			9,412			107.3	%
Total revenues		322,985			281,883			41,102			14.6	%
Operating Costs and Expenses:
Rooms		49,411			43,086			6,325			14.7	%
Food and beverage		69,998			58,576			11,422			19.5	%
Other departmental		7,923			7,878			45			(1	)
Hotel selling, general and administrative		60,246			55,387			4,859			8.8	%
Property taxes, insurance and other		19,017			15,995			3,022			18.9	%
Total hotel operating expenses		206,595			180,922			25,673			14.2	%
Corporate expenses		44,744			27,306			17,438			63.9	%
Depreciation and amortization		21,719			19,112			2,607			13.6	%
Total operating costs and expenses		273,058			227,340			45,718			20.1	%
Operating income		49,927			54,543			(4,616	)		(8.5	)%
Interest expense, net		41,338			51,564			(10,226	)		(19.8	)%
Equity in loss (income) of unconsolidated joint ventures		24,580			(1,459	)		26,039			(1	)
Minority interest		3,566			3,997			(431	)		(10.8	)%
Other non-operating expense		4,759			3,462			1,297			37.5	%
Loss before income tax expense		(24,316	)		(3,021	)		(21,295	)		(1	)
Income tax (benefit) expense		(9,060	)		11,204			(20,264	)		(1	)
Loss before minority interest		(15,256	)		(14,225	)		(1,031	)		7.2	%
Minority interest		(460	)		(300	)		(160	)		53.3	%
Net loss		(14,796	)		(13,925	)		(871	)		6.3	%
Other comprehensive income:
Unrealized loss on interest rate swap, net of tax		(6,674	)		(1,303	)		(5,371	)		(1	)
Foreign currency translation loss		6			200			(194	)		(97.0	)%
Comprehensive loss	$	(21,464	)	$	(15,028	)	$	(6,436	)		42.8	%

(1) Not meaningful.

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Total Hotel Revenues.  Total hotel revenues increased 11.6% to $304.8 million in 2007 compared to $273.1 million in 2006. RevPAR from our comparable Owned Hotels (which includes Hudson, Morgans, Delano and Clift), excluding Royalton and Mondrian Los Angeles, which were under renovation during 2007 and Mondrian Scottsdale, which was under renovation in 2006, increased 14.2% to $266 in 2007 compared to $233 in 2006. The components of RevPAR from our comparable Owned Hotels in 2007 and 2006 are summarized as follows:

	2007			2006			Change ($)		Change (%)
Occupancy		84.6	%		80.5	%		—		5.1	%
ADR	$	314		$	289		$	25		8.6	%
RevPAR	$	266		$	233		$	33		14.2	%

Rooms revenue increased 10.8% to $186.8 million in 2007 compared to $168.6 million in 2006 driven by comparable Owned Hotels RevPAR growth partially offset by revenue declines at hotels under renovation. The comparable Owned Hotel RevPAR increase of 14.2% was primarily driven by Delano Miami which produced RevPAR growth of 20.2% and Clift which produced RevPAR growth of 14.0%. The growth at Delano Miami was primarily driven by the growth in rate experienced as a result of the rooms renovation that began in late 2006 and was completed in 2007. The growth at Clift is primarily attributable to an increased number of tourists and convention groups returning to San Francisco.

Food and beverage revenue increased 17.0% to $104.3 million in 2007 compared to $89.1 million in 2006. The increase in food and beverage revenue is primarily due to Mondrian Scottsdale and Hudson. During 2006, the restaurant and bars at Mondrian Scottsdale were operating on a limited service basis while the entire hotel was under renovation. The restaurant and bars at Mondrian Scottsdale opened in late January 2007 resulting in an increase of $5.7 million,for the year ended December 31, 2007 as compared to 2006. The food and beverage revenues at Hudson increased $5.4 million for the year ended December 31, 2007 as compared to 2006. The growth in the food and beverage revenues at the Hudson was primarily attributable to catering that was previously outsourced being performed in-house beginning in February 2007. Beginning in February 2007, Hudson began recording food and beverage revenues and expense for the catering department. Further, contributing to the overall increase in food and beverage revenues, the Company’s restaurants and bars are destinations in their own right, with a local customer base in addition to hotel guests; accordingly their revenue performance is driven by local market factors in the restaurant and bar business.

Other hotel revenue decreased by $1.7 million to $13.8 million in 2007 compared to $15.4 million in 2006. The decline is primarily due to the decline in telephone revenues of 15.7% in 2007 compared to 2006. The decline in telephone revenues is an industry-wide issue primarily caused by the increased use of cell phones.

Management Fee — Related Parties.  Management fee — related parties increased by 107.3% to $18.2 million in 2007 compared to $8.8 million in 2006 due primarily to management fees earned relating to Hard Rock.

Operating Costs and Expenses

Rooms expense increased 14.7% to $49.4 million in 2007 compared to $43.1 million in 2006. The increase is primarily due to the increase in rooms expenses at Mondrian Scottsdale of $1.8 million which was primarily due to increased wages. Mondrian Scottsdale was acquired in May 2006 and was not fully staffed during the period from acquisition to December 31, 2006, as it was undergoing substantial renovation. When the hotel renovation was completed in January 2007, the hotel began operating with a full staff. Additionally, an increase in rooms expenses, which was not consistent with an increase of rooms revenue, was experienced at Mondrian Los Angeles and Delano Miami, primarily due to increased housekeeping wages and related costs.

Food and beverage expense increased 19.5% to $70.0 million in 2007 compared to $58.6 million in 2006. The increase in food and beverage expense is primarily due to Mondrian Scottsdale and Hudson. During 2006, the restaurant and bars at Mondrian Scottsdale were operating on a limited service basis while the hotel was under renovation. The restaurant and bars at Mondrian Scottsdale opened in late January 2007 resulting in an increase in food and beverage expenses of $3.8 million for the year ended December 31, 2007 as compared to 2006. The food and beverage expense at Hudson increased $4.7 million for the year ended December 31, 2007 as compared to 2006 as catering, previously outsourced, was performed in-house beginning in February 2007.

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Other departmental expense increased an immaterial amount in 2007 compared to 2006, primarily due to the inclusion of Mondrian Scottsdale and increased costs associated with long distance telephone calls, offset by a change in the Delano Miami valet parking contract. The inclusion of Mondrian Scottsdale accounts for $0.6 million of the increase and is due to the hotel being fully operational after completion of the renovation in January 2007. Additionally, telephone expenses have increased across our portfolio by 5.0% or $0.1 million in 2007 compared to 2006 due to increased costs associated with long distance telephone calls. Offsetting these increases is a decrease of $0.8 million in parking costs resulting from the outsourcing of parking valet services at Delano Miami in June 2006.

Hotel selling, general and administrative expense increased 8.8% to $60.2 million in 2007 compared to $55.4 million in 2006. The inclusion of Mondrian Scottsdale accounts for $2.6 million of this $4.9 million increase from 2006 to 2007 with the remaining increase attributable to general inflation rates.

Property taxes, insurance and other expense increased 18.9% to $19.0 million in 2007 compared to $16.0 million in 2006. This increase was primarily due to the renovation of Royalton where the Company incurred nonrecurring pre-opening expenses as a result of the completion of the renovation and re-launch of the hotel, restaurant and bar in October 2007. Additionally, both hotels in California, Mondrian Los Angeles and Clift, experienced increases in earthquake insurance costs in 2007 as compared to 2006.

Corporate expenses increased by 63.9% to $44.7 million in 2007 compared to $27.3 million in 2006. This increase is due primarily to the increase in stock compensation expense of $11.6 million due to additional expense recognized in connection with the resignation of our former president and chief executive officer in September 2007 and additional annual stock-based compensation granted to non-employee directors, officers and employees during 2007. Further, this increase is due to increased payroll and payroll related costs incurred as a result of the hiring of additional employees due to the expansion of the Company’s hotel portfolio and development efforts, as well as increased legal fees and Sarbanes-Oxley compliance costs.

Depreciation and amortization increased 13.6% to $21.7 million in 2007 compared to $19.1 million in 2006. This increase is a result of the renovations at Delano Miami, which took place in late 2006 and during 2007, and at Royalton, which took place during 2007.

Interest Expense, net.  Interest expense, net decreased 19.8% to $41.3 million in 2007 compared to $51.6 million in 2006. The $10.2 million decrease in interest expense, net is primarily attributable to:

•  decreased interest expense of $4.7 million resulting from the February 2006 payoff and October 2006 refinancing of the mortgage and mezzanine debt, including prepayment fees, secured by five of our wholly-owned hotels;

•  decreased amortization of deferred financing costs, including the write-off of costs associated with the above mentioned repaid loans of $10.5 million; offset by

•  an increase of $2.4 million in interest expense due to changes in the value of an interest rate cap, which does not qualify for hedge accounting under SFAS No. 133;

•  an increase in interest expense of $0.9 million related to the issuance of convertible notes in October 2007; and

•  an increase in interest expense of $2.6 million related to the issuance of notes to a subsidiary issuing trust preferred securities in August 2006.

The weighted average interest rates in 2007 and 2006 were 5.8% and 6.1%, respectively.

Equity in loss (income) of unconsolidated joint ventures was a loss of $24.6 million for the year ended 2007 compared to income of $1.5 million for the year ended 2006. The loss recorded in 2007 was primarily driven by the Company’s share of losses from Hard Rock, which resulted primarily due to interest expense.

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The components of RevPAR from the comparable Joint Venture Hotels (excluding Hard Rock, as we invested in this hotel in February 2007) for 2007 and 2006 are summarized as follows:

	2007			2006			Change ($)		Change (%)
Occupancy		71.7	%		72.2	%		—		(0.5	)%
ADR	$	472		$	407		$	65		15.9	%
RevPAR	$	338		$	294		$	44		15.0	%

The components of RevPAR from the Hard Rock for the period from February 2, 2007 through December 31, 2007 are summarized as follows:

Occupancy		94.6	%
ADR	$	207
RevPAR	$	196

Other non-operating expense increased 37.5% to $4.8 million in 2007 as compared to $3.5 million in 2006. The expense recognized during 2007 primarily relates to expenses incurred in connection with the resignation of our former president and chief executive officer in September 2007 as well as legal expenses related to the Shore Club litigation. Further, as a result of the renovation at Royalton, a loss on the disposal of assets was recorded during 2007. This was partially offset by a $6.1 million fee earned in facilitating the transfer of our former joint venture partner’s interest of the London hotels to Walton in February 2007. In 2006, the other non-operating expenses are primarily due to expenses incurred in connection with the Shore Club litigation discussed in Note 8 of the Consolidated Financial Statements and the write-off of certain assets in connection with hotel renovations.

Income tax (benefit) expense resulted in a benefit of $9.1 million in 2007 compared to an expense of $11.2 million in 2006. The 2007 income tax benefit was due primarily to the recording of deferred tax assets from the unconsolidated subsidiaries losses and stock compensation expense. The expense recognized in 2006 was due primarily to the recording of a deferred tax liability as a result of difference in basis of assets and liabilities as part of the Formation and Structuring Transaction. We are subject to corporate Federal and state income taxes effective February 17, 2006.

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Operating Results

Comparison of Year Ended December 31, 2006 To Year Ended December 31, 2005

The following table presents our operating results for the year ended December 31, 2006 and the year ended December 31, 2005, including the amount and percentage change in these results between the two periods. The operations presented for the year ended December 31, 2005 and January 1, 2006 through February 16, 2006 are those of our Predecessor. The period from February 17, 2006 through December 31, 2006 represents the results of operations of the Company. The combined periods in 2006 are comparable to the Company’s December 31, 2005 results with the exception of the purchase of a building adjacent to the Delano Miami, the purchase of Mondrian Scottsdale, the investment in an apartment building in South Beach Miami which has been renamed the Mondrian South Beach, and the renovation of Delano Miami, which began in July 2006. The building adjacent to the Delano Miami did not have any operations or material expenses. Mondrian Scottsdale was an operating hotel for the period from May 5, 2006 through December 31, 2006 and any material impacts to the operating results of the Company are reflected below. Mondrian South Beach was operating as an apartment building at the time of its purchase in August 2006, and is in the development phases of converting into a hotel and condominium. Our investment in Mondrian South Beach is accounted for under using the equity method and the Company’s share of losses is recorded in the consolidated results of operations for the year ended December 31, 2006.

	2006			2005			Change ($)			Change (%)
	(Dollars in thousands)
Revenues:
Rooms	$	168,572		$	153,675		$	14,897			9.7	%
Food and beverage		89,105			85,573			3,532			4.1	%
Other hotel		15,437			14,435			1,002			6.9	%
Total hotel revenues		273,114			253,683			19,431			7.7	%
Management fee — related parties		8,769			9,479			(710	)		(7.5	)%
Total revenues	$	281,883		$	263,162		$	18,721			7.1	%
Operating Costs and Expenses:
Rooms		43,086			39,666			3,420			8.6	%
Food and beverage		58,576			54,294			4,282			7.9	%
Other departmental		7,878			7,359			519			7.1	%
Hotel selling, general and administrative		55,387			51,346			4,041			7.9	%
Property taxes, insurance and other		15,995			13,331			2,664			20.0	%
Total hotel operating expenses		180,922			165,996			14,926			9.0	%
Corporate expenses		27,306			17,982			9,324			51.9	%
Depreciation and amortization		19,112			26,215			(7,103	)		(27.1	)%
Total operating costs and expenses		227,340			210,193			17,147			8.2	%
Operating income		54,543			52,969			1,574			3.0	%
Interest expense, net		51,564			72,257			(20,693	)		(28.6	)%
Equity in (income) loss of unconsolidated joint ventures		(1,459	)		7,593			(9,052	)		(119.2	)%
Minority interest		3,997			4,087			(90	)		(1	)
Other non-operating expense (income)		3,463			(1,574	)		5,037			(320.0	)%
Income (loss) before income tax expense		(3,021	)		(29,394	)		26,373			(89.7	)%
Income tax expense		11,204			822			10,382			(1	)
Loss before minority interest		(14,225	)		(30,216	)		15,991			52.9	%
Minority interest		(300	)		—			(300	)		(1	)
Net loss		(13,925	)		(30,216	)		16,291			53.9	%
Other comprehensive income:
Unrealized loss on interest rate swap, net of tax		(1,303	)		—			(1,303	)		(1	)
Foreign currency translation loss		200			(705	)		905			128.4	%
Comprehensive loss	$	(15,028	)	$	(30,921	)	$	15,893			51.4	%

(1) Not meaningful.

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Total Hotel Revenues.  Total hotel revenues increased 7.7% to $273.1 million in 2006 compared to $253.7 million in 2005. RevPAR from our comparable Owned Hotels (which includes Hudson, Morgans, Royalton, Mondrian Los Angeles and Clift), excluding Delano Miami which was under renovation for five months, increased 9.1% to $230 in 2006 compared to $211 in 2005. The components of RevPAR from our comparable Owned Hotels in 2006 and 2005 are summarized as follows:

	2006			2005			Change ($)		Change (%)
Occupancy		83.0	%		81.0	%		—		2.1	%
ADR	$	278		$	260		$	18		6.8	%
RevPAR	$	230		$	211		$	19		9.1	%

Rooms revenue increased 9.7% to $168.6 million in 2006 compared to $153.7 million in 2005. The inclusion of Mondrian Scottsdale in the 2006 operating results accounted for $3.3 million of the $14.9 million increase. The remainder of the increase was driven by the Clift in San Francisco which produced RevPAR growth of 11.3%, and the New York hotels whose RevPAR increased by 9.6% during 2006. The growth in the San Francisco market is attributable to an increased number of tourists and convention groups in San Francisco as travel has begun to return to the city after a weakened economy resulting from the fall of the dot.com businesses. The growth in the New York market is attributable to strong demand and low supply growth.

Food and beverage revenue increased 4.1% to $89.1 million in 2006 compared to $85.6 million in 2005. Since our restaurants and bars are destinations in their own right, with a local customer base in addition to hotel guests, their revenue performance is driven by local market factors in the restaurant and bar business in addition to hotel occupancy. The inclusion of Mondrian Scottsdale in the year ended December 31, 2006 accounts for $2.0 million of the $3.5 million increase. The strongest food and beverage revenue growth was achieved at Royalton and Clift, which achieved growth of 11.0% and 9.3%, respectively. Royalton benefited from improved menu items and a strong marketing plan implemented during 2006 while Clift exceeded prior year revenues primarily due to an increase in lunch business at Asia de Cuba.

Other hotel revenue increased 6.9% to $15.4 million in 2006 as compared to $14.4 million in 2005. The inclusion of Mondrian Scottsdale in the year ended December 31, 2006 resulted in a $0.2 million increase. An increase of $0.4 million was attributed primarily to a change in the operations of the Mondrian Los Angeles gift shop. In September 2005, Mondrian Los Angeles began operating the gift shop rather than leasing the space out to a third party. Therefore, revenues and expenses are recorded in 2006 as compared to lease income for the majority of 2005. Offsetting the increases attributed to the inclusion of Mondrian Scottsdale and the change in management of the Mondrian Los Angeles gift shop, were decreases due to the continued decline of telephone revenues. The decline in telephone revenues is an industry-wide phenomenon primarily caused by the increased use of cell phones.

Management Fee — Related Parties.  During 2006 and 2005, management fee — related parties comprised continuing fee income from our contracts to manage our Joint Venture Hotels, which excludes Hard Rock as Hard Rock was purchased in 2007. Additionally, from November 2003 until its termination in June 2005, management fee revenue also included fees earned on the management contract with the Gramercy Park Hotel. Management fee — related parties decreased 7.5% to $8.8 million in 2006 compared to $9.5 million in 2005 due primarily to the inclusion of the fees earned managing Gramercy Park Hotel during 2005.

Operating Costs and Expenses

Rooms expense increased 8.6% to $43.1 million in 2006 compared to $39.7 million in 2005. The inclusion of Mondrian Scottsdale in the 2006 results of operations accounts for $1.4 million of the $3.4 million increase. Furthermore, this increase was primarily attributed to increased rooms expenses at Mondrian Los Angeles and Royalton. The increases at Mondrian Los Angeles and Royalton were primarily due to additions to front office support and rooms and housekeeping services in 2006. Additionally, Delano Miami experienced a decline of 3.0% in rooms expenses as a result of the on-going rooms renovation which concluded in December 2006.

Food and beverage expense increased 7.9% to $58.6 million in 2006 compared to $54.3 million in 2005. The inclusion of Mondrian Scottsdale in the 2006 results of operations accounts for $1.9 million of the $4.3 million increase. In addition, the increase in food and beverage expenses is primarily due to the phase-in of union pay and

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benefit rates at Hudson and Clift. At Hudson, food and beverage expenses increased by 10.9% from 2005 to 2006, while revenues only increased by 1.9% from 2005 to 2006. Clift experienced a 7.9% increase in expenses from 2005 to 2006.

Other departmental expense increased 7.1% to $7.9 million in 2006 compared to $7.4 million in 2005, primarily due to a change in the operations of the Mondrian Los Angeles gift shop and the inclusion of Mondrian Scottsdale, offset by a change in the Delano Miami valet parking contract. The inclusion of Mondrian Scottsdale accounts for $0.2 million of the 2006 operating expense increase. Furthermore, in September 2005, Mondrian Los Angeles began operating the gift shop rather than leasing the space out to a third party. Therefore, revenues and expenses are recorded in 2006 as compared to lease income in 2005 which contributed to a 46.6% increase over the expense recorded in 2005. Offsetting these increases, in June 2006, Delano Miami began outsourcing the valet parking to a third party thereby reducing revenues and expenses related to valet parking in 2006.

Hotel selling, general and administrative expense increased 7.9% to $55.4 million in 2006 compared to $51.3 million in 2005. The inclusion of Mondrian Scottsdale accounts for $3.3 million of this $4.0 million increase from 2005 to 2006. The remaining increase is primarily due to a 5.0% increase in repairs and maintenance expense from 2005 to 2006.

Property taxes, insurance and other expense increased 20.0% to $16.0 million in 2006 compared to $13.3 million in 2005. The inclusion of Mondrian Scottsdale accounts for $1.0 million of the $2.7 million increase. The remaining increase is primarily due to increases in insurance premiums, which have been prevalent throughout the industry, and increases in real estate taxes for Hudson, Clift and Delano Miami, which were the result of valuation reassessments in 2006 on all three properties.

Stock-based compensation of $7.9 million was recognized in 2006 compared to $0 in 2005. In connection with the completion of our IPO in February 2006, our board of directors adopted a stock incentive plan and issued stock-based incentive awards, including incentive stock options, restricted shares of our common stock, and other equity-based awards, including LTIP Units. We have expensed granted stock-based compensation ratably over the vesting period in accordance with Statement of Financial Accounting Standards No. 123R, discussed further in Note 10 to the Consolidated Financial Statements.

Other corporate expenses increased by 7.7% to $19.4 million in 2006 compared to $18.0 in 2005. This increase is due primarily to increased costs of being a public company such as directors’ and officers’ insurance, board of directors fees and investor relations costs.

Depreciation and amortization decreased 27.1% to $19.1 million in 2006 compared to $26.2 million in 2005. Some of our assets, including furniture, fixtures and equipment, are depreciated over five years, and a portion of these assets became fully depreciated during 2006 and 2005.

Interest Expense, net.  Interest expense, net decreased 28.6% to $51.6 million in 2006 compared to $72.3 million in 2005. The $20.7 million decrease in interest expense, net is primarily attributable to the decrease in interest expense, including prepayment fees, of $21.1 million resulting from the February 2006 payoff of mortgage and mezzanine debt secured by five of our wholly-owned hotels.

The components of “Interest expense, net” in 2006 are summarized as follows:

•  mortgage debt interest expense of $24.3 million;

•  mezzanine debt interest expense of $4.1 million;

•  other debt interest expense of $9.2 million;

•  credit facility interest expense of $1.1 million;

•  debt issued to a trust issuing preferred securities interest expense of $1.8 million;

•  amortization of financing costs and the write off of costs associated with refinanced debt of $12.7 million; offset by

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•  unrealized change in market value of hedges which don’t qualify for hedge accounting treatment of $0.2 million; and

•  interest income of $1.5 million.

The weighted average interest rates in 2006 and 2005 were 6.1% and 10.0%, respectively.

Equity in (income) loss of unconsolidated joint ventures was $1.5 million of income for the year ended 2006 compared to $7.6 million of loss in 2005. The income we recorded in 2006 related to our joint venture which owns the two hotels in London increased by $10.9 million over the loss recorded in 2005. The increase in net income from the London joint venture is due to RevPAR at our London hotels which increased by 19.4% in U.S. dollars and 18.0% in local currency, due primarily to the strength of the London hotel market, the refinancing of debt in November 2005 resulting in a lower interest rate, and recognition of a non-cash gain of approximately $2.4 million from the change in value of a derivative instrument associated with the refinanced debt.

The components of RevPAR from the Joint Venture Hotels (excluding Hard Rock) for 2006 and 2005 are summarized as follows:

	2006			2005			Change ($)		Change (%)
Occupancy		72.2	%		68.0	%		—		(0.4	)%
ADR	$	407		$	374		$	33		8.8	%
RevPAR	$	294		$	255		$	39		15.0	%

Other non-operating expense (income) was $3.5 million in expense for the year ended 2006 compared to $1.6 million in income for year ended 2005. In 2006, the other non-operating expenses are primarily due to expense incurred in connection with the Shore Club litigation discussed in Note 8 of the consolidated/ combined financial statements and the write-off of certain assets in connection with hotel renovations. The other non-operating income in 2005 relates primarily to a gain of $1.7 million on the sale of tax credits.

Income tax expense was $11.2 million in 2006 compared to $0.8 million in 2005 due primarily to the recording of a deferred tax liability as a result of difference in basis of assets and liabilities as part of the Formation and Structuring Transaction. We are subject to corporate Federal and state income taxes effective February 17, 2006.

Liquidity and Capital Resources

As of December 31, 2007, we had approximately $122.7 million in available cash and cash equivalents. The Company has both short-term and long-term liquidity requirements as described in more detail below.

Recent Financings

On July 25, 2007, we completed an offering of 12,210,840 shares of common stock, of which 2,777,495 shares of common stock were sold by us and 9,433,345 shares of common stock were sold by certain selling stockholders. Net proceeds to us as a result of the offering were approximately $58.9 million.

Additionally, on October 17, 2007 we issued $172.5 million aggregate principal amount of Notes in a private offering. The net proceeds from the offering of the Notes was $166.8 million, after deducting the initial purchasers’ discount and estimated offering expenses payable by the Company. We used approximately $25.0 million of the net proceeds from this offering to repay in full the outstanding balance on our revolving credit facility and $24.1 million of the net proceeds to fund the Note Call Options and Warrant transactions, as defined in Note 7 of the Consolidated Financial Statements. We intend to use the remaining net proceeds from the offering for general corporate purposes and have invested such remaining net proceeds in short-term interest-bearing investment grade securities.

Liquidity Requirements

Short-Term Liquidity Requirements.  We generally consider our short-term liquidity requirements to consist of those items that are expected to be incurred within the next 12 months and believe those requirements consist primarily of funds necessary to pay operating expenses and other expenditures directly associated with our properties, including the funding of our reserve accounts. Our reserve accounts consist of restricted cash that is

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swept by our lenders beginning on the ninth day of each month to fund monthly debt service payments, property, sales and occupancy taxes and insurance premiums of our hotels. After funding these reserve accounts, we fund operating expenses and our furniture, fixtures and equipment reserve (generally, approximately 4% of total revenues at each hotel). We expect to meet our short-term liquidity needs through existing cash balances and cash provided by our operations and, if necessary, from borrowings under our line of credit.

Long-Term Liquidity Requirements.  We generally consider our long-term liquidity requirements to consist of those items that are expected to be incurred beyond the next 12 months and believe these requirements consist primarily of funds necessary to pay scheduled debt maturities, renovations and other non-recurring capital expenditures that need to be made periodically to our properties and the costs associated with acquisitions and development of properties under contract and new acquisitions and development projects that we may pursue. Our long-term liquidity requirements are also affected by a potential liability to a designer for which we have accrued $12.5 million. See Note 6 to the Consolidated Financial Statements. Historically, we have satisfied our long-term liquidity requirements through various sources of capital, including our existing working capital, cash provided by operations, equity and debt offerings, borrowings under our line of credit, and long-term mortgages on our properties.

We believe that these sources of capital will continue to be available to us in the future to fund our long-term liquidity requirements. However, our ability to incur additional debt is dependent upon a number of factors, including our degree of leverage, the value of our unencumbered assets, borrowing restrictions imposed by existing lenders and general market conditions. In addition, our ability to raise funds through the issuance of equity securities is dependent upon, among other things, general market conditions and market perceptions about us. We will continue to analyze which source of capital is most advantageous to us at any particular point in time, but the equity markets may not be consistently available on terms that are attractive or at all.

We expect we will require additional borrowings, including borrowings under our line of credit, to satisfy our long-term liquidity requirements. Other sources may be sales of common or preferred stock and/or cash generated through property dispositions and joint venture transactions.

Anticipated Capital Expenditures and Liquidity Requirements

Stock Repurchase.  We repurchased our stock through the open market or in privately negotiated transactions from time to time. The timing and actual number of share repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. Under the board of directors approved stock repurchase plan, we repurchased 1,156,828 shares for approximately $19.2 million in January 2008.

Property Renovations.  We are renovating Mondrian Los Angeles and plan to renovate Morgans and to expand Hudson at an estimated cost of approximately $40.0 to $45.0 million in 2008 and approximately $15.0 million in 2009. We anticipate spending a significant portion of the 2008 amount on Mondrian Los Angeles. The majority of our capital expenditures are expected to be funded from operating cash flow and our restricted cash and reserve accounts.

Echelon Las Vegas.  In January 2006, we entered into a limited liability company agreement with a subsidiary of Boyd, through which we plan to develop, as 50/50 owners, Delano Las Vegas and Mondrian Las Vegas, both of which are expected to open in 2010. After certain milestones in the joint venture development process have been met, we are expected to complete our contribution of approximately $91.5 million in cash and Boyd will contribute approximately 6.1 acres of land to the joint venture. It is expected that these contributions will be made during 2008. The expected cost of the project, including the land, is estimated to be approximately $1.0 billion; however, we can provide no assurances that the estimated cost will approximate the actual cost. As of December 31, 2007, we had made approximately $42.0 million in capital contributions toward our total funding requirements. This investment includes a $30.0 million deposit made to Boyd upon consummation of the Hard Rock transaction which may be returned in the event that both parties agree not to proceed with the project. We anticipate contributing approximately another $49.5 million during 2008, which amounts will be applied toward our capital contributions.

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Construction of Delano Las Vegas and Mondrian Las Vegas is expected to begin in the second quarter of 2008. Given the current state of the credit markets, we anticipate that additional equity and/or credit support will be necessary to obtain construction financing for the remaining cost of the project. This additional equity and/or credit support may be contributed by us or Boyd, or from both parties, and/or from one or more additional equity sponsors. If the joint venture is unable to obtain adequate project financing in a timely manner or at all, we may be forced to sell assets in order to raise capital for the project, limit the scope of the project, defer the project or cancel the project altogether.

Hard Rock.  Under the terms of the joint venture agreement for Hard Rock, DLJMB agreed to fund 100% of the equity capital required to expand the property, up to a total of an additional $150.0 million subsequent to the acquisition. We have the option, but are not required, and do not currently intend, to fund our pro rata share of the expansion project. As of December 31, 2007, we had funded approximately $8.5 million subsequent to the acquisition and subsequently in January 2008, an additional $2.6 million, through the issuance of a letter of credit to maintain our pro rata share of the equity in the project.

Pursuant to the terms of the Hard Rock joint venture credit agreement and certain waivers thereto, in the event that the proceeds from any prior sales of the adjacent 15 acre parcel of excess land are less than $40.0 million, the joint venture was required to make an amortization payment or post a letter of credit to the lenders in an amount equal to $110.0 million on February 14, 2008. On February 14, 2008, DLJMB, posted a letter of credit in favor of the lenders in the amount of $110.0 million to postpone the amortization payment to August 2, 2008. In the event that the proceeds from any sales of the 15-acre parcel of excess land adjacent to the Hard Rock prior to August 2, 2008 are less than $40.0 million, the joint venture will be required to make an amortization payment to the lenders of $110.0 million on such date, which can be satisfied by drawing on the letter of credit posted by DLJMB. If the proceeds received from any such prior sales of the excess land are greater than $40.0 million, then the joint venture will be required to make an amortization payment equal to $110.0 million less the amount of any proceeds received from such sales. The joint venture has entered into a letter of intent with respect to a proposed sale of a portion of the excess land and is working with the prospective purchaser to complete due diligence on the land and to prepare definitive documentation.

Other Estimated Uses of Capital.  Other estimated capital commitments include approximately $25.0 million to fund The Gale, the hotel to be developed across the street from Delano Miami over the next two years. Additionally, the Company may have to fund approximately $20.0 million related to our equity investments in Mondrian Chicago and Mondrian Palm Springs during 2008 and 2009. In addition, we may provide additional equity of $2.0 million or more at Mondrian South Beach should the closing of condominium sales not occur as planned due to the recent changes in the mortgage market. As of February 2008, we have already funded $2.0 million of additional equity at Mondrian South Beach and the joint venture is currently negotiating additional lending.

Comparison of Cash Flows for the Year Ended December 31, 2007 to December 31, 2006

Operating Activities.  Net cash provided by operating activities was $40.9 million for the year ended December 31, 2007 compared to $29.2 million for the year ended December 31, 2006. The increase in cash is primarily due to the decrease in interest expense and an improvement of the hotel operations over 2006 as a result of occupancy and RevPAR increases year over year.

Investing Activities.  Net cash used in investing activities amounted to $101.5 million for the year ended December 31, 2007 as compared to $143.7 million for the year ended December 31, 2006. The decrease in cash used in investing activities primarily relates to the $62.6 million deposit the Company made in 2006 related to its investment in Hard Rock for which there was no comparable investment in 2007. We did invest in additional joint ventures during 2007, such as Echelon Las Vegas, Mondrian SoHo and Mondrian Chicago, but the deposits on these ventures aggregated $44.1 million in 2007.

Financing Activities.  Net cash provided by financing activities amounted to $155.8 million for the year ended December 31, 2007 as compared to $120.1 million for the year ended December 31, 2006. The cash provided by financing increased in 2007 due to the completion of an equity and debt offering in July 2007 and October 2007,

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respectively, offset by our common stock repurchases. The cash provided by financing in 2006 primarily related to the proceeds from our IPO in February 2006.

Debt

Revolving Credit Agreement.  On October 6, 2006, we and certain of our subsidiaries entered into a revolving credit facility in the initial amount of $225.0 million, which includes a $50.0 million letter of credit sub-facility and a $25.0 million swingline sub-facility (the collectively, the “Revolving Credit Agreement”), with Wachovia Capital Markets, LLC and Citigroup Global Markets Inc.

The amount available from time to time under the Revolving Credit Agreement is also conditioned upon the amount of an available borrowing base calculated by reference to collateral described below. Currently, the available borrowing base is approximately $64.0 million, but that amount may be increased up to $225.0 million at the borrower’s option by increasing the amount of the borrowing capacity on Delano Miami granted by the Delano Miami mortgage lender (discussed below) and upon payment of the related additional recording tax. Had the borrower exercised this option, the available borrowing base as of December 31, 2007 (assuming an increase in the Delano Miami mortgage and payment of the related additional recording tax) would have been approximately $177.7 million. That availability may also be increased through procedures specified in the Revolving Credit Agreement for adding property to the borrowing base and for revaluation of the property that constitutes the borrowing base.

The commitments under the Revolving Credit Agreement terminate on October 5, 2011, at which time all outstanding amounts under the Revolving Credit Agreement will be due and payable. The borrower may, at its option, with the prior consent of the lender and subject to customary conditions, request an increase in the aggregate commitment under the Revolving Credit Agreement to up to $350.0 million.

The interest rate per annum applicable to loans under the Revolving Credit Agreement is at a fluctuating rate of interest measured by reference to, at our election, either LIBOR or a base rate, plus a borrowing margin. LIBOR loans have a borrowing margin of 1.35% to 1.90% determined based on the borrower’s total leverage ratio (with an initial borrowing margin of 1.35%) and base rate loans have a borrowing margin of 0.35% to 0.90% determined based on the borrower’s total leverage ratio (with an initial borrowing margin of 0.35%). The Revolving Credit Agreement also provides for the payment of a quarterly unused facility fee equal to the average daily unused amount for each quarter multiplied by 0.25%.

The Revolving Credit Agreement requires the borrower to maintain for each four-quarter period a total leverage ratio (total indebtedness, which does not include indebtedness related to the Trust Notes (defined below) or the Notes, to consolidated EBITDA) of no more than (i) 8.0 to 1.0 at any time prior to January 1, 2008, (ii) 7.0 to 1.0 at any time during 2008, and (iii) 6.0 to 1.0 at any time after December 31, 2008, and a fixed charge coverage ratio (consolidated EBITDA to fixed charges) of no less than 1.75 to 1.00 at all times. The Revolving Credit Agreement contains negative covenants, subject in each case to certain exceptions, restricting incurrence of indebtedness, incurrence of liens, fundamental changes, acquisitions and investments, asset sales, transactions with affiliates and restricted payments, including, among others, a covenant prohibiting us from paying cash dividends on our common stock.

The Revolving Credit Agreement provides for customary events of default, including failure to pay principal or interest when due, failure to comply with covenants, any representation proving to be incorrect, defaults relating to other indebtedness of at least $10.0 million in the aggregate, certain insolvency and receivership events affecting us, judgments in excess of $5.0 million in the aggregate being rendered against us, the acquisition by any person of 40% or more of any outstanding class of capital stock having ordinary voting power in the election of our directors, and the incurrence of certain ERISA liabilities in excess of $5.0 million in the aggregate.

As of December 31, 2007, we were in compliance with the covenants of the Revolving Credit Agreement.

Obligations under the Revolving Credit Agreement are secured by, among other collateral, a mortgage on Delano Miami and the pledge of equity interests in the borrower and certain subsidiaries of the borrower, including the owners of Delano Miami, Morgans and Royalton, as well as a security interest in other significant personal property (including trademarks and other intellectual property, reserves and deposits) relating to those hotels.

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The Revolving Credit Agreement is available on a revolving basis for general corporate purposes, including acquisitions.

Mortgage Agreement.  Also on October 6, 2006, our subsidiaries entered into new mortgage financings with Wachovia Bank, National Association, as lender, consisting of two separate mortgage loans and a mezzanine loan. These loans, a $217.0 million first mortgage note secured by Hudson, a $32.5 million mezzanine loan secured by a pledge of the equity interests in our subsidiary owning Hudson, and a $120.5 million first mortgage note secured by Mondrian Los Angeles, which we refer to collectively as the Mortgages, all mature on July 15, 2010.

The Mortgages bear interest at a blended rate of 30-day LIBOR plus 125 basis points. We have the option of extending the maturity date of the Mortgages to October 15, 2011. We maintain swaps that will effectively fix the LIBOR rate on the debt under the Mortgages at approximately 5.0% through the maturity date.

The prepayment clause in the Mortgages permits us to prepay the Mortgages in whole or in part on any business day, along with a spread maintenance premium (equal to the amount of the prepayment multiplied by the applicable LIBOR margin multiplied by the ratio of the number of months between the prepayment date and October 31, 2007 divided by 12).

The Mortgages require our subsidiary borrowers to fund reserve accounts to cover monthly debt service payments. Those subsidiary borrowers are also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of those hotels. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. Our subsidiary borrowers are not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations and certain other liabilities.

The Mortgages prohibit the incurrence of additional debt on Hudson and Mondrian Los Angeles. Furthermore, the subsidiary borrowers are not permitted to incur additional mortgage debt or partnership interest debt. In addition, the Mortgages do not permit (i) transfers of more than 49% of the interests in the subsidiary borrowers, Morgans Group or the Company or (ii) a change in control of the subsidiary borrowers or in respect of Morgans Group or the Company itself without, in each case, complying with various conditions or obtaining the prior written consent of the lender.

The Mortgages provide for events of default customary in mortgage financings, including, among others, failure to pay principal or interest when due, failure to comply with certain covenants, certain insolvency and receivership events affecting the subsidiary borrowers, Morgans Group or the Company, and breach of the encumbrance and transfer provisions. In the event of a default under the Mortgages, the lender’s recourse is limited to the mortgaged property, unless the event of default results from insolvency, a voluntary bankruptcy filing or a breach of the encumbrance and transfer provisions, in which event the lender may also pursue remedies against Morgans Group.

As of December 31, 2007, we were in compliance with the covenants of the Mortgages.

Notes to a Subsidiary Trust Issuing Preferred Securities.  In August 2006, we formed a newly established trust, MHG Capital Trust I, or the Trust, to issue $50.0 million of trust preferred securities in a private placement. The sole assets of the Trust consist of the Trust Notes due October 30, 2036 issued by Morgans Group and guaranteed by us. The proceeds of the issuance of the Trust Notes were used to repay our then-existing credit agreement and to fund the equity contribution on Mondrian South Beach with the remainder available for general corporate purposes. The Trust Notes have a 30-year term, ending October 30, 2036, and bear interest at a fixed rate of 8.68% for the first 10 years, ending October 2016, and thereafter will bear interest at a floating rate based on the three-month LIBOR plus 3.25%. These securities are redeemable by the Trust at par beginning on October 30, 2011.

The Trust Note agreement requires that we maintain a fixed charge coverage ratio of 1.4 to 1.0 and prohibited us from issuing subordinate debt through February 4, 2007. As of December 31, 2007, we were in compliance with the covenants of the Trust Note agreement.

Clift.  We lease Clift under a 99-year non-recourse lease agreement expiring in 2103. The lease is accounted for as a financing with a balance of $80.1 million at December 31, 2007. The lease payments are $2.8 million per

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year through October 2006 and $6.0 million per year through October 2014 with inflationary increases at five-year intervals thereafter beginning in October 2014.

Hudson.  We lease two condominium units at Hudson which are reflected as capital leases with balances of $6.1 million at December 31, 2007. Currently annual lease payments total approximately $800,000 and are subject to increases in line with inflation. The leases expire in 2096 and 2098.

Promissory Note.  The purchase of the property across from the Delano Miami was partially financed with the issuance of a $10.0 million three-year interest only promissory note by us to the seller, which matures on January 24, 2009. At December 31, 2007, the note bore interest at 8.5%, and increased to 10.0% effective January 2008 through maturity.

Mondrian Scottsdale Debt.  In May 2006, we obtained mortgage financing on Mondrian Scottsdale. The $40.0 million loan, which accrues interest at LIBOR plus 2.30%, matures in May 2008 and has three one-year extensions. We have purchased an interest rate cap which limits the interest rate exposure to 6.0% and expires on June 1, 2008.

Convertible Debt.  As discussed above in “Part I — Recent Trends and Developments — Recent Developments”, on October 17, 2007 we issued $172.5 million aggregate principal amount of Notes in a private offering.

Contractual Obligations

The following table summarizes our future payment obligations (excluding interest except as indicated) and commitments as of December 31, 2007:

	Payments Due by Period
			Less Than 1						More Than
Contractual Obligations	Total		Year		1 to 3 Years		3 to 5 Years		5 Years
	(In thousands)
Mortgage Notes Payable	$	410,000	$	40,000	$	370,000	$	—	$	—
Promissory note		10,000		—		10,000		—		—
Liability to subsidiary trust		50,100		—		—		—		50,100
Convertible notes		172,500		—		—		—		172,500
Interest on mortgage and notes payable		182,520		29,162		44,641		8,697		100,020
Capitalized Lease Obligations including amounts representing interest		125,155		772		1,593		489		122,301
Operating Lease Obligations		23,923		494		532		532		22,365
Clift pre-petition liabilities		1,827		1,254		573		—		—
Echelon Las Vegas		49,500		49,500		—		—		—
Total	$	1,025,525	$	121,182	$	427,339	$	9,718	$	467,285

We have a 50/50 joint venture with Chodorow Ventures LLC, or Chodorow, for the purpose of owning and operating restaurants, bars and other food and beverage operations at certain of our hotels. Currently, the joint venture operates the restaurants in Morgans, Hudson, Delano Miami, Mondrian Los Angeles, Clift, Sanderson and St Martins Lane as well as the bars in Delano Miami, Sanderson and St Martins Lane. Pursuant to various agreements, the joint venture leases space from the hotel and pays a management fee to Chodorow or its affiliates. The management fee is equal to 3% of the gross revenues generated by the operation. The agreements expire between 2007 and 2010 and generally have two five year renewal periods at the restaurant venture’s option. Further, we are required to fund negative cash flows in certain of these restaurants which cannot be currently measured and therefore are not included in the table above.

We have license and management agreements with affiliates of Chodorow for the purpose of operating the Asia de Cuba restaurant at Mondrian Scottsdale, which opened in January 2007. The restaurant is managed by China Grill Management in return for a management fee equal to 3% of gross receipts, as defined, and a license fee of 50% of adjusted distributable cash flow, as defined. The agreements expire in 2017 and have an option to extend at the discretion of China Grill Management. The restaurant is owned by the Company.

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Seasonality

The hospitality business is seasonal in nature and we experience some seasonality in our business as indicated in the table below. Our Miami hotels are strongest in the first quarter, whereas our New York hotels are strongest in the fourth quarter. Quarterly revenues also may be adversely affected by events beyond our control, such as extreme weather conditions, terrorist attacks or alerts, natural disasters, airline strikes, economic factors and other considerations affecting travel. Room revenues by quarter for our Owned Hotels during 2007 and 2006 were as follows:

	First		Second		Third		Fourth
	Quarter		Quarter		Quarter		Quarter
	(In millions)
Rooms Revenue
2007	$	45.3	$	47.3	$	40.0	$	54.2
2006	$	36.8	$	43.1	$	40.1	$	48.6

To the extent that cash flows from operations are insufficient during any quarter, due to temporary or seasonal fluctuations in revenues, we may have to enter into additional short-term borrowings or draw on our line of credit to meet cash requirements.

Capital Expenditures and Reserve Funds

We are obligated to maintain reserve funds for capital expenditures at our hotels as determined pursuant to our debt and lease agreements. These capital expenditures relate primarily to the periodic replacement or refurbishment of furniture, fixtures and equipment. Our debt and lease agreements require us to reserve funds at amounts equal to 4% of the hotel’s revenues and require the funds to be set aside in restricted cash. In addition, the restaurant joint ventures require the ventures to set aside restricted cash of between 2% to 4% of gross revenues of the restaurant. As of December 31, 2007, $10.5 million was available in restricted cash reserves for future capital expenditures. In addition, as of December 31, 2007, we had a reserve for major capital improvements of $5.0 million under the Mortgages.

The lenders under the Revolving Credit Agreement and Mortgages require the Company’s subsidiary borrowers to fund reserve accounts to cover monthly debt service payments. Those subsidiary borrowers are also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of those hotels. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. The Company’s subsidiary borrowers are not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness, capital lease obligations, and certain other liabilities.

We are renovating Mondrian Los Angeles and plan to renovate Morgans and to expand Hudson at an estimated cost of approximately $40.0 to $45.0 million in 2008 and approximately $15.0 million in 2009. We anticipate spending a significant portion of the 2008 amount on Mondrian Los Angeles. The majority of our capital expenditures are expected to be funded from operating cash flow and our restricted cash and reserve accounts. Our capital expenditures could increase if we decide to acquire, renovate or develop hotels or additional space at existing hotels.

Derivative Financial Instruments

We use derivative financial instruments to manage our exposure to the interest rate risks related to our variable rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. We determine the fair value of our derivative financial instruments using models which incorporate standard market conventions and techniques such as discounted cash flow and option pricing models to determine fair value. We believe these methods of estimating fair value result in general approximation of value, and such value may or may not be realized.

On June 29, 2005, we entered into an interest rate cap agreement with a notional amount of $580.0 million, the then full amount of debt secured by five hotels (Hudson, Mondrian Los Angles, Delano Miami, Morgans and

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Royalton), with a LIBOR cap of 4.25% which expired on July 9, 2007. We recognized the change in the fair value of this agreement in interest expense.

On February 22, 2006, we entered in to an interest rate forward starting swap that effectively fixes the interest rate on $285.0 million of debt from June 2007 through June 2010. This derivative qualifies for hedge accounting treatment per SFAS No. 133 and accordingly, the change in fair value of this instrument is recognized in other comprehensive income.

In connection with the Mortgages (defined and discussed above), the Company entered into an $85.0 million interest rate swap that effectively fixes the LIBOR rate on the $85.0 million of debt at approximately 5.0% with an effective date of July 9, 2007 and a maturity date of July 15, 2010. This derivative qualifies for hedge accounting treatment per SFAS No. 133 and accordingly, the change in fair value of this instrument is recognized in other comprehensive income.

In May 2006, we entered into an interest rate cap agreement with a notional amount of $40.0 million, the expected full amount of debt secured by Mondrian Scottsdale, with a LIBOR cap of 6.00% through June 1, 2008. This derivative qualifies for hedge accounting treatment per SFAS No. 133 and accordingly, the change in fair value of this instrument is recognized in other comprehensive income.

In connection with the sale of the Notes (discussed above) the Company entered into call options which are exercisable solely in connection with any conversion of the Notes and provide for the Company to receive shares of the Company’s common stock from counterparties equal to the number of shares issuable to the holders of the Notes upon conversion of all shares of common stock, or other property, deliverable by the Company upon conversion of the Notes, in excess of an amount of shares or other property with a value, at then current prices, equal to the principal amount of the converted Notes. Simultaneously, the Company also entered into warrant transactions, whereby the Company sold warrants to purchase in the aggregate 6,415,327 shares of common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. The warrants may be exercised over a 90-day trading period commencing January 15, 2015. The call options and the warrants are separate contracts and are not part of the terms of the Notes and will not affect the holders’ rights under the Notes. The call options are intended to offset potential dilution upon conversion of the Notes in the event that the market value per share of the common stock at the time of exercise is greater than the exercise price of the call options, which is equal to the initial conversion price of the Notes and is subject to certain customary adjustments.

Off-Balance Sheet Arrangements

Morgans Europe.  We own interests in two hotels through a 50/50 joint venture known as Morgans Europe. Morgans Europe owns two hotels located in London, England, St Martins Lane, a 204-room hotel, and Sanderson, a 150-room hotel. Under a management agreement with Morgans Europe, we earn management fees and a reimbursement for allocable chain service and technical service expenses.

Morgans Europe’s net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. At December 31, 2007, our investment in Morgans Europe was $13.7 million. We account for this investment under the equity method of accounting. Our equity in income or loss of the joint venture amounted to an income of $1.7 million and $3.4 million for the years ended December 31, 2007 and 2006, respectively, and a loss of $6.5 million for the year ended December 31, 2005.

South Beach Venture.  The Company owns a 50% interest in a building on Biscayne Bay in South Beach Miami through the South Beach Venture. The South Beach Venture is in the process of renovating and converting the building into a condominium and hotel to be operated under our Mondrian brand. We will operate Mondrian South Beach under a long-term incentive management contract.

We account for this investment under the equity method of accounting. At December 31, 2007, our investment in the South Beach Venture was $13.4 million. Our equity in income or loss of the South Beach Venture amounted to a loss of $2.7 million and $2.6 million for the years ended December 31, 2007 and 2006, respectively.

Hard Rock.  On February 2, 2007, we completed the purchase of the Hard Rock in Las Vegas with the Company funding one-third of the equity, or approximately $57.5 million, and DLJMB funding two-thirds of the

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equity, or approximately $115.0 million, through a joint venture. The remainder of the $770.0 million purchase price was financed with mortgage financing under a credit agreement entered into by the joint venture, which agreement was amended as of November 6, 2007. See Note 4 to the Consolidated Financial Statements. At December 31, 2007, our investment in the Hard Rock venture was $36.8 million. Our equity in loss of this venture for the year ended December 31, 2007 was $22.1 million.

Concurrent to the closing of the joint venture transactions, we entered into a property management agreement with DLJMB under which we operate the hotel, retail, food and beverage, entertainment and all other businesses related to the Hard Rock, excluding the casino. The term of the contract is 20 years with two 10-year renewals and is subject to certain performance tests beginning in 2009, or 12 months following the completion of the expansion, whichever is later.

Echelon Las Vegas.  In January 2006, we entered into a limited liability company agreement with a subsidiary of Boyd through which it will develop, as 50/50 owners, Delano Las Vegas and Mondrian Las Vegas, both of which are expected to open in 2010. Once development is complete, we will manage Delano Las Vegas and Mondrian Las Vegas pursuant to a 20-year management agreement with automatic and perpetual 10-year renewals as long as we have a beneficial ownership interest in the joint venture.

We account for this investment under the equity method of accounting. At December 31, 2007, our investment in the Echelon Las Vegas venture was $40.8 million. Our equity in loss of the Echelon Las Vegas venture was $1.2 million for the year ended December 31, 2007.

Mondrian SoHo.  In June 2007, we contributed $5.0 million for a 20% equity interest in a joint venture with Cape Advisors Inc. to acquire and develop a Mondrian hotel in the SoHo neighborhood of New York City. Upon completion, we are expected to operate the hotel under a 10-year management contract with two 10-year extension options. As of December 31, 2007, our investment in the Mondrian SoHo venture was $5.1 million.

Mondrian Chicago.  In June 2007, we formed a joint venture with M Development to lease and develop a Mondrian hotel in Chicago. We will have a 49% equity interest in the joint venture and expect to contribute approximately $15.0 million to the project, of which approximately $0.5 million was contributed in June 2007. Upon completion, we are expected to operate the hotel under a 20-year management contract with two 5-year extension options. As of December 31, 2007, our investment in the Mondrian Chicago venture was $0.8 million.

For further information regarding our off balance sheet arrangements, see Note 5 to the Consolidated Financial Statements.

Recent Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, which establishes that the financial statement effects of a tax position taken or expected to be taken in a tax return are to be recognized in the financial statements when it is more likely than not, based on the technical merits, that the position would be sustained upon examination. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

We adopted FIN 48 on January 1, 2007. On that date, the adoption did not impact our consolidated financial position or results of operations. We do not have any unrecognized tax benefits as of the date of adoption of FIN 48, or as of December 31, 2007. In addition, we do not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next 12 months. We classify any tax penalties as other operating expenses, and any interest as interest expense, on our Consolidated Financial Statements. As of December 31, 2007, the 2006 tax year remains open and subject to audit for both federal and state purposes, as this was the initial tax year for the Company since becoming a C-corporation in February 2006.

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under U.S. GAAP, and expands disclosures about fair value measurements. This statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payment transactions under SFAS No. 123. SFAS 157 is effective for financial

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statements issued for fiscal years beginning after November 15, 2007. As SFAS No. 157 does not require any new fair value measurements or remeasurements of previously computed fair values, we do not believe adoption of SFAS No. 157 will have a material effect on our Consolidated Financial Statements.

On February 15, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement permits companies and not-for-profit organizations to make a one-time election to carry eligible types of financial assets and liabilities at fair value, even if fair value measurement is not required under GAAP. SFAS No. 159 must be applied prospectively, and the effect of the first re-measurement to fair value, if any, should be reported as a cumulative effect adjustment to the opening balance of retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We do not believe that the adoption of SFAS No. 159 will have a material impact on our Consolidated Financial Statements.

On August 31, 2007, the FASB issued a proposed FASB Staff Position (the “Proposed FSP”) that affects the accounting for the Company’s convertible notes payable. The Proposed FSP requires the initial debt proceeds from the sale of a company’s convertible notes to be allocated between a liability component and an equity component. The resulting debt discount must be amortized over the period the debt is expected to remain outstanding as additional interest expense. The Proposed FSP, if adopted, would be effective. We are currently evaluating the impact that this Proposed FSP would have on our Consolidated Financial Statements if adopted.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, which, among other things, provides guidance and establishes amended accounting and reporting standards for a parent company’s noncontrolling or minority interest in a subsidiary and the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. We are currently evaluating the impact of adopting the Statement.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces SFAS No. 141. SFAS No. 141R, among other things, establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired (including intangibles), the liabilities assumed and any noncontrolling interest in the acquired entity. Additionally, SFAS No. 141R requires that all transaction costs will be expensed as incurred. We are currently evaluating the impact of adopting the Statement, which is effective for fiscal years beginning on or after December 15, 2008. Adoption is prospective and early adoption is not permitted.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We evaluate our estimates on an ongoing basis. We base our estimates on historical experience, information that is currently available to us and on various other assumptions that we believe are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements.

•  Impairment of long-lived assets.  We periodically review each property for possible impairment. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. In this analysis of fair value, we use discounted cash flow analysis to estimate the fair value of our properties taking into account each property’s expected cash flow from operations, holding period and net proceeds from the dispositions of the property. The factors we address in determining estimated net proceeds from disposition include anticipated operating cash flow in the year of disposition, terminal capitalization rate and selling price per room. Our judgment is required in determining

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the discount rate applied to estimated cash flows, the growth rate of the properties, the need for capital expenditures, as well as specific market and economic conditions. Additionally, the classification of these assets as held-for-sale requires the recording of these assets at our estimate of their fair value less estimated selling costs which can affect the amount of impairment recorded.

•  Depreciation and amortization expense.  Depreciation expense is based on the estimated useful life of our assets. The respective lives of the assets are based on a number of assumptions made by us, including the cost and timing of capital expenditures to maintain and refurbish our hotels, as well as specific market and economic conditions. Hotel properties and other completed real estate investments are depreciated using the straight-line method over estimated useful lives of 39.5 years for buildings and five years for furniture, fixtures and equipment. While our management believes its estimates are reasonable, a change in the estimated lives could affect depreciation expense and net income or the gain or loss on the sale of any of our hotels or other assets. We have not changed the estimated useful lives of any of our assets during the periods discussed.

•  Derivative instruments and hedging activities.  Derivative instruments and hedging activities require us to make judgments on the nature of our derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported as a component of interest expense in the consolidated/ combined statements of operations or as a component of equity on the consolidated balance sheets. While we believe our judgments are reasonable, a change in a derivative’s fair value or effectiveness as a hedge could affect expenses, net income and equity.

•  Consolidation Policy.  We evaluate our variable interests in accordance with Financial Interpretation 46R to determine if they are variable interests in variable interest entities. Certain food and beverage operations at five of our Owned Hotels are operated under 50/50 joint ventures. We believe that we are the primary beneficiary of the entities because we absorb the majority of the restaurant ventures’ expected losses and residual returns. Therefore, the restaurant ventures are consolidated in our financial statements with our partner’s share of the results of operations recorded as minority interest in the accompanying financial statements. We own partial interests in the Joint Venture Hotels and certain food and beverage operations at two of the Joint Venture Hotels. We account for these investments using the equity method as we believe we do not exercise control over significant asset decisions such as buying, selling or financing nor are we the primary beneficiary of the entities. Under the equity method, we increase our investment in unconsolidated joint ventures for our proportionate share of net income and contributions and decrease our investment balance for our proportionate share of net loss and distributions.

•  Stock-based Compensation.  We have adopted the fair value method of accounting prescribed in SFAS No. 123 “Accounting for Stock Based Compensation” (“SFAS 123”) (as amended by SFAS No. 148 and SFAS 123(R)) for equity-based compensation awards. SFAS 123(R) requires an estimate of the fair value of the equity award at the time of grant rather than the intrinsic value method. All fixed equity-based awards to employees and directors, which have no vesting conditions other than time of service, the fair value of the equity award at the grant date will be amortized to compensation expense over the award’s vesting period on a straight-line basis. For performance-based compensation plans, we recognize compensation expense at such time when the performance hurdle is anticipated to be achieved over the performance period based upon the fair value at the date of grant. We use the Black-Scholes option pricing model to determine the fair value of all options granted. Management’s assumptions are derived based upon the risk profile of our stock and our peer group. We review our assumptions quarterly and revise them as management deems necessary.

•  Deferred income taxes and valuation allowance.  We account for deferred taxes by recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance will be provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. Such valuation allowance will be estimated by management based on our projected future taxable income.

77

The estimate of future taxable income is highly subjective. We have incurred nominal losses on the corporate tax return since inception and anticipate that we will not continue to incur losses for the foreseeable future. However, these assumptions may be inaccurate, and unanticipated events and circumstances may occur in the future. To the extent actual results differ from these estimates, our future results of operations may be affected. At December 31, 2007 and 2006, there is no valuation allowance set up to against any deferred tax assets.

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and Qualitative Disclosures About Market Risk

Our future income, cash flows and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Some of our outstanding debt has a variable interest rate. As described in “Management’s Discussion and Analysis of Financial Results of Operations — Derivative Financial Instruments” above, we use some derivative financial instruments, primarily interest rate caps, to manage our exposure to interest rate risks related to our floating rate debt. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based on their credit rating and other factors. As of December 31, 2007, our total outstanding debt, including capitalized lease obligations, was approximately $729.2 million, of which approximately $410.0 million, or 56.2%, was variable rate debt.

We entered into hedging arrangements on $285.0 million of debt which became effective on July 9, 2007 and cap LIBOR at approximately 5.0%. At December 31, 2007, the LIBOR rate was 4.6%. The maximum annual amount the interest expense would increase on this variable rate debt is $1.3 million due to our interest rate cap agreement. If market rates of interest on this variable rate debt decrease by 1.0%, or 100 basis points, the decrease in interest expense would increase pre-tax earnings and cash flows by approximately $4.1 million annually.

We also entered into hedging arrangements on $40.0 of debt secured by Mondrian Scottsdale, with a LIBOR cap of 6.0% through June 1, 2008. If market rates of interest on this variable rate debt increases by 1.0%, or 100 basis points, the increase in interest expense would reduce future pre-tax earnings and cash flows by approximately $0.2 million annually. The maximum annual amount the interest expense would increase on this variable rate debt is $0.6 million due to our interest rate cap agreement. If market rates of interest on this variable rate debt decrease by 1.0%, or 100 basis points, the decrease in interest expense would increase pre-tax earnings and cash flows by approximately $1.0 million annually.

If market rates of interest increase by 1.0%, or approximately 100 basis points, the fair value of our fixed rate debt would decrease by approximately $26.9 million. If market rates of interest decrease by 1.0%, or approximately 100 basis points, the fair value of our fixed rate debt would increase by $32.5 million.

Interest risk amounts were determined by considering the impact of hypothetical interest rates on our financial instruments and future cash flows. These analyses do not consider the effect of a reduced level of overall economic activity. If overall economic activity is significantly reduced, we may take actions to further mitigate our exposure. However, because we cannot determine the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

Currency Exchange Risk

As we have international operations with our two London hotels, currency exchange risk between the U.S. dollar and the British pound arises as a normal part of our business. We reduce this risk by transacting this business in British pounds. We have not repatriated earnings from our London hotels because of our historical net losses in our United Kingdom operations and our joint venture agreement. As a result, any funds repatriated from the United Kingdom are considered a return of capital and require court approval. We may consider repatriating certain funds in 2008. A change in prevailing rates would have, however, an impact on the value of our equity in Morgans Europe. The U.S. dollar/British pound currency exchange is currently the only currency exchange rate to which we are directly exposed. Generally, we do not enter into forward or option contracts to manage our exposure applicable to net operating cash flows. We do not foresee any significant changes in either our exposure to fluctuations in foreign exchange rates or how such exposure is managed in the future.

78

ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements of Morgans Hotel Group Co. and the notes related to the foregoing financial statements, together with the independent registered public accounting firm’s reports thereon, are set forth on pages F-1 through F-39 of this report. Additionally, the consolidated financial statements of the Company’s significant subsidiaries are filed as Exhibits 99.1, 99.2, 99.3 and 99.4 to this Annual Report on Form 10-K.

ITEM 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A   CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedure

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including the chief executive officer and the chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15 of the rules promulgated under the Securities and Exchange Act of 1934, as amended. Based on this evaluation, our chief executive officer and the chief financial officer concluded that the design and operation of these disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15) that occurred during the quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) of the Securities Exchange Act of 1934, as amended. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In connection with the preparation of the Company’s annual financial statements, management has undertaken an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. The assessment was based upon the framework described in “Integrated Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management’s assessment included an evaluation of the design of internal control over financial reporting and testing of the operational effectiveness of internal control over financial reporting. We have reviewed the results of the assessment with the audit committee of our board of directors.

Based on our assessment under the criteria set forth in COSO, management has concluded that, as of December 31, 2007, the Company maintained effective internal control over financial reporting.

BDO Seidman, LLP, an independent registered public accounting firm, that audited our Financial Statements included in this Annual Report has issued an attestation report on our internal control over financial reporting as of December 31, 2007, which appears in Item 9A, below.

79

Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

Morgans Hotel Group Co.

475 Tenth Avenue

New York, NY 10018

We have audited Morgans Hotel Group Co.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Morgans Hotel Group Co.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Morgans Hotel Group Co. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Morgans Hotel Group Co. as of December 31, 2007 and 2006, and the related consolidated/ combined statements of operations and comprehensive loss, changes in stockholders’ equity/net assets (deficit), and cash flows of Morgans Hotel Group Co. for the year ended December 31, 2007 and the period from February 17, 2006 through December 31, 2006 and for the period from January 1 through February 16, 2006 and for the year ended December 31, 2005 for Morgans Hotel Group Co. Predecessor and our report dated March 17, 2008 expressed an unqualified opinion thereon.

/s/  BDO Seidman, LLP

March 17, 2008

New York, New York

80

ITEM 9B   OTHER INFORMATION

None.

PART III

ITEM 10   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item regarding directors, executive officers, corporate governance and our code of ethics is hereby incorporated by reference to the material appearing in the Proxy Statement for the Annual Stockholders Meeting to be held in 2008 (the “Proxy Statement”) under the captions “Board of Directors and Corporate Governance,” and “Executive Officer Biographies.” The information required by this item regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption “Voting Securities of Certain Beneficial Owners and Management — Section 16(a) Beneficial Ownership Reporting Compliance.” The information required by this Item 10 with respect to the availability of our code of ethics is provided in Item 1 of this Annual Report on Form 10-K. See “Item 1 — Materials Available on Our Website.”

ITEM 11   EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions “Compensation Discussion and Analysis,” “Compensation of Directors and Executive Officers,” “Compensation Committee Report” and “Compensation Committee Interlocks and Insider Participation.”

ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information regarding security ownership of certain beneficial owners and management required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption “Voting Securities of Certain Beneficial Owners and Management and “Equity Compensation Plan Information.”

ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the captions “Certain Relationships and Related Transactions” and “Board of Directors and Corporate Governance — Director Independence.”

ITEM 14   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this item is hereby incorporated by reference to the material appearing in the Proxy Statement under the caption “Audit Related Matters.”

81

PART IV

ITEM 15   EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) and (c) Financial Statements and Schedules.

Reference is made to the “Index to the Financial Statements” on page F-1 of this report and to Exhibits 99.1, 99.2, 99.3, and 99.4 filed herewith.

All other financial statement schedules are not required under the related instructions, or they have been omitted either because they are not significant, the required information has been disclosed in the consolidated financial statements and the notes related thereto.

(b) Exhibits

Exhibit
Number			Description
	2	.1	Agreement and Plan of Merger, dated May 11, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter Morton (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	2	.2	First Amendment to Agreement and Plan of Merger, dated as of January 31, 2007, by and between Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc., (solely with respect to Section 1.6 and Section 1.8 thereof) 510 Development Corporation and (solely with respect to Section 1.7 thereof) Peter A. Morton (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on February 6, 2007)
	3	.1	Amended and Restated Certificate of Incorporation of Morgans Hotel Group Co. (incorporated by reference to Exhibit 3.1 to Amendment No. 5 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 6, 2006)
	3	.2	Amended and Restated By-laws of Morgans Hotel Group Co. (incorporated by reference to Exhibit 3.2 to Amendment No. 5 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 6, 2006)
	4	.1	Specimen Certificate of Common Stock of Morgans Hotel Group Co. (incorporated by reference to Exhibit 4.1 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on January 17, 2006)
	4	.2	Junior Subordinated Indenture, dated as of August 4, 2006, between Morgans Hotel Group Co., Morgans Group LLC and JPMorgan Chase Bank, National Association (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 11, 2006)
	4	.3	Amended and Restated Trust Agreement of MHG Capital Trust I, dated as of August 4, 2006, among Morgans Group LLC, JPMorgan Chase Bank, National Association, Chase Bank USA, National Association, and the Administrative Trustees Named Therein (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 11, 2006)
	4	.4	Stockholder Protection Rights Agreement, dated as of October 9, 2007, between Morgans Hotel Group Co. and Mellon Investor Services LLC, as Rights Agent (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 10, 2007)
	4	.5	Indenture related to the Senior Subordinated Convertible Notes due 2014, dated as of October 17, 2007, by and among Morgans Hotel Group Co., Morgans Group LLC and The Bank of New York, as trustee (including form of 2.375% Senior Subordinated Convertible Note due 2014) (incorporated by reference to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	4	.6	Registration Rights Agreement, dated as of October 17, 2007, between Morgans Hotel Group Co. and Merrill Lynch, Pierce, Fenner & Smith Incorporated (incorporated by reference to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	10	.1	Amended and Restated Limited Liability Company Agreement of Morgans Group LLC (incorporated by reference to Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005)

82

Exhibit
Number			Description
	10	.2	Registration Rights Agreement, dated as of February 17, 2006, by and between Morgans Hotel Group Co. and NorthStar Partnership, L.P. (incorporated by reference to Exhibit 99.9 to the Company’s Statement on Schedule 13D filed on February 27, 2006)
	10	.3	Joint Venture Agreement, dated as of September 7, 1999, by and between Ian Schrager Hotels LLC and Chodorow Ventures LLC (incorporated by reference to Exhibit 10.7 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on December 7, 2005)
	10	.4	Operating Agreement of Hudson Leaseco LLC, dated as of August 28, 2000, by and between Hudson Managing Member LLC and Chevron TCI, Inc. (incorporated by reference to Exhibit 10.9 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on December 7, 2005)
	10	.5	Lease, dated as of August 28, 2000, by and between Henry Hudson Holdings LLC and Hudson Leaseco LLC (incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on December 7, 2005)
	10	.6	Ground Lease, dated October 14, 2004, by and between Geary Hotel Holding, LLC and Clift Holdings, LLC (incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on December 7, 2005)
	10	.7	Lease, dated January 3, 1997, by and among Mrs. P. A. Allsopp, Messrs. M. E. R. Allsopp, W. P. Harriman and A. W. K. Merriam, and Burford (Covent Garden) Limited (incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on December 7, 2005)
	10	.8	Facility Agreement, dated as of November 24, 2005, by and among Ian Schrager London Limited (to be renamed Morgans Hotel Group London Limited), Citigroup Global Markets Limited, the Financial Institutions Listed in Schedule 1 thereto and Citibank International plc (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on December 7, 2005)
	10	.9	Indemnification Agreement, dated as of February 17, 2006, by and among Morgans Hotel Group Co., Morgans Hotel Group LLC, NorthStar Partnership, L.P. and RSA Associates, L.P. (incorporated by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005)
	10	.10	Agreement of Purchase and Sale, dated as of December 22, 2005, by and between James Hotel Scottsdale, LLC and Morgans Hotel Group LLC (incorporated by reference to Exhibit 10.21 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on January 3, 2006)
	10	.11	Joint Venture Agreement, dated as of January 3, 2006, between Morgans/LV Investment LLC and Echelon Resorts Corporation (incorporated by reference to Exhibit 10.23 to Amendment No. 3 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on January 17, 2006)
	10	.12	Employment Agreement dated as of February 14, 2006, by and between W. Edward Scheetz and Morgans Hotel Group Co. (incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005)†
	10	.13	Separation Agreement and Release, dated as of September 19, 2007, between W. Edward Scheetz and Morgans Hotel Group, Inc. (incorporated by reference to Exhibit 99.1 of the Company’s Current Report on Form 8-K filed on September 20, 2007)†
	10	.14	Employment Agreement, effective as of December 10, 2007, by and between Morgans Hotel Group Co. and Fred J. Kleisner (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on December 14, 2007)†
	10	.15	Employment Agreement, dated as of February 14, 2006, by and between Marc Gordon and Morgans Hotel Group Co. (incorporated by reference to Exhibit 10.25 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005)†
	10	.16	Employment Agreement, effective as of October 1, 2007, by and between Morgans Hotel Group Co. and Richard Szymanski (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on November 30, 2007)†

83

Exhibit
Number			Description
	10	.17	Morgans Hotel Group Co. 2007 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on May 22, 2007)†
	10	.18	Morgans Hotel Group Co. Annual Bonus Plan (incorporated by reference to Exhibit 10.28 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005)†
	10	.19	Form of Morgans Hotel Group Co. Director RSU Award Agreement (incorporated by reference to Exhibit 10.29 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 9, 2006)†
	10	.20	Form of Morgans Hotel Group Co. Stock Option Award Agreement (incorporated by reference to Exhibit 10.30 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 9, 2006)†
	10	.21	Form of Morgans Hotel Group Co. LTIP Unit Vesting Agreement (incorporated by reference to Exhibit 10.31 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 (File No. 333-129277) filed on February 9, 2006)†
	10	.22	Form of Restricted Stock Unit Award Agreement under the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan (incorporated by reference to Exhibit 10.51 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2006)†
	10	.23	Purchase and Sale Agreement and Joint Escrow Instructions dated May 11, 2006, by and between Morgans Group LLC and PM Realty, LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	10	.24	Purchase and Sale Agreement and Joint Escrow Instructions dated May 11, 2006, by and between Morgans Group LLC and Red, White and Blue Pictures, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	10	.25	Purchase and Sale Agreement, dated May 11, 2006, by and between Morgans Group LLC and HR Condominium Investors (Vegas), L.L.C. (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	10	.26	First Mezzanine Loan Agreement, dated as of November 6, 2007, by and among HRHH Gaming Senior Mezz, LLC, as Gaming Mezz Borrower, HRHH JV Senior Mezz, LLC, as JV Borrower, and Column Financial, Inc., as Lender*
	10	.27	Second Mezzanine Loan Agreement, dated as of November 6, 2007, by and HRHH Gaming Junior Mezz, LLC, as Gaming Mezz Borrower, HRHH JV Junior Mezz, LLC, as JV Borrower, and Column Financial, Inc., as Lender*
	10	.28	Third Mezzanine Loan Agreement, dated as of November 6, 2007, by and among HRHH Gaming Junior Mezz Two, LLC, as Gaming Mezz Borrower, and HRHH JV Junior Mezz Two, LLC, as JV Borrower, and Column Financial, Inc., as Lender*
	10	.29	Modification and Ratification of Guaranties, dated as of November 6, 2007, by and among Morgans Group LLC, DLJ MB IV HRH, LLC, as Guarantors, and Column Financial, Inc., as Lender*
	10	.30	First Mezzanine Guaranty Agreement, dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.31	First Mezzanine Closing Guaranty of Completion, dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.32	First Mezzanine Guaranty (Non-Qualified Mandatory Prepayment), dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.33	Second Mezzanine Guaranty Agreement, dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*

84

Exhibit
Number			Description
	10	.34	Second Mezzanine Closing Guaranty of Completion, dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.35	Second Mezzanine Guaranty (Non-Qualified Mandatory Prepayment), dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.36	Third Mezzanine Guaranty Agreement, dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.37	Third Mezzanine Closing Guaranty of Completion, dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.38	Third Mezzanine Guaranty (Non-Qualified Mandatory Prepayment), dated as of November 6, 2007, by Morgans Group LLC and DLJ MB IV HRH, LLC, as Guarantors, jointly and severally, for the benefit of Column Financial, Inc., as Lender*
	10	.39	First Amendment to Morgans Las Vegas, LLC Limited Liability Company Agreement, dated May 15, 2006, by and between Morgans/LV Investment LLC and Echelon Resorts Corporation (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	10	.40	Letter Agreement Re: Morgans Las Vegas, LLC, dated May 15, 2006, by and between Morgans/LV Investment LLC and Echelon Resorts Corporation (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	10	.41	Commitment Letter from Column Financial, Inc., dated May 11, 2006 (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on May 17, 2006)
	10	.42	Loan Agreement, dated as of May 19, 2006, between MHG Scottsdale Holdings LLC and Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 25, 2006)
	10	.43	Mezzanine Loan Agreement, dated as of May 19, 2006, between Mondrian Scottsdale Mezz Holding Company LLC and Greenwich Capital Financial Products, Inc. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 25, 2006)
	10	.44	Operating Agreement of 1100 West Holdings, LLC dated August 8, 2006 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
	10	.45	Loan Agreement, dated as of August 8, 2006, between 1100 West Properties, LLC, the Lenders party thereto, and Eurohypo AG, New York Branch (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
	10	.46	Purchase and Sale Agreement, dated as of August 8, 2006, between 1100 West Properties, LLC and 1100 West Realty, LLC (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006)
	10	.47	Agreement of Consolidation and Modification of Mortgage, Security Agreement, Assignment of Rents and Fixture Filing, dated October 6, 2006, between Henry Hudson Holdings LLC, as Borrower, and Wachovia Bank, National Association, as Lender (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 13, 2006)
	10	.48	Loan and Security Agreement, dated as of October 6, 2006, between Henry Hudson Senior Mezz LLC and Wachovia Bank, National Association (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 13, 2006)
	10	.49	Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing, dated October 6, 2006, between Mondrian Holdings LLC, as Borrower, and First American Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 13, 2006)

85

Exhibit
Number			Description
	10	.50	Credit Agreement, dated as of October 6, 2006, by and among Morgans Group LLC, as Borrower, Beach Hotel Associates LLC, as Florida Borrower, Morgans Hotel Group Co., Wachovia Capital Markets, LLC, and Citigroup Global Markets Inc., as Joint Lead Arrangers and Joint Book Runners, Wachovia Bank, National Association, as Administrative Agent, Citigroup Global Markets Inc., as Syndication Agent, and the Financial Institutions Initially Signatory Thereto and their Assignees Pursuant to Section 13.5 Thereto, as Lenders (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 13, 2006)
	10	.51	Amended and Restated Contribution Agreement, dated December 2, 2006, by and between Morgans Hotel Group Co. and DLJ MB IV HRH, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 6, 2006)
	10	.52	Joint Venture Agreement, dated as of February 16, 2007, by and between Royalton Europe Holdings LLC and Walton MG London Investors V, L.L.C. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 23, 2007)
	10	.53	Confirmation of OTC Convertible Note Hedge, dated October 11, 2007, between Morgans Hotel Group Co. and Merrill Lynch Financial Markets, Inc. (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	10	.54	Confirmation of OTC Convertible Note Hedge, dated October 11, 2007, between Morgans Hotel Group Co. and Citibank, N.A. (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	10	.55	Amended and Restated Confirmation of OTC Warrant Transaction, dated October 11, 2007, between Morgans Hotel Group Co. and Merrill Lynch Financial Markets, Inc. (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	10	.56	Amended and Restated Confirmation of OTC Warrant Transaction, dated October 11, 2007, between Morgans Hotel Group Co. and Citibank, N.A. (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed on October 17, 2007)
	14	.1	Code of Ethics (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2005)
	21	.1	Subsidiaries of the Registrant*
	23	.1	Consent of BDO Seidman, LLP*
	23	.2	Consent of BDO Stoy Hayward LLP*
	24	.1	Power of attorney (included on the signature page hereof)
	31	.1	Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	31	.2	Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
	32	.1	Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	32	.2	Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
	99	.1	Consolidated financial statements of Morgans Hotel Group Europe Limited*
	99	.2	Consolidated financial statements of SC London Limited*
	99	.3	Consolidated financial statements of 1100 West Properties LLC, the entity which owns Mondrian South Beach Hotel Residences*
	99	.4	Consolidated financial statement of Hard Rock Hotel Holdings, LLC*

*	Filed herewith.
†	Denotes a management contract or compensatory plan, contract or arrangement.

86

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets As of December 31, 2007 and 2006	F-3
Consolidated/Combined Statements of Operations and Comprehensive Loss For years ended December 31, 2007, 2006 and 2005	F-4
Consolidated/Combined Statements of Stockholders’ Equity/Net Assets (Deficit) For years ended December 31, 2007, 2006 and 2005	F-5
Consolidated/Combined Statements of Cash Flows For the years ended December 31, 2007, 2006 and 2005	F-6
Notes to Consolidated/Combined Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors

Morgans Hotel Group Co.:

We have audited the accompanying consolidated balance sheets of Morgans Hotel Group Co. (the “Company”) as of December 31, 2007 and 2006, and the related consolidated / combined statements of operations and comprehensive loss, changes in stockholders equity/net assets (deficit), and cash flows of the Company for the year ended December 31, 2007 and the period from February 17, 2006 through December 31, 2006 for the Company and for the period from January 1 through February 16, 2006 and for the year ended December 31, 2005 of Morgans Hotel Group Co. (the “Predecessor”). These financial statements are the responsibility of management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Morgans Hotel Group Co. as of December 31, 2007 and 2006, and the results of their operations and their cash flows for the year ended December 31, 2007 and the period from February 17, 2006 through December 31, 2006 and of the Predecessor for the period from January 1 through February 16, 2006 and for the year ended December 31, 2005 in accordance with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Morgans Hotel Group Co.’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 17, 2008 expressed an unqualified opinion thereon.

/s/  BDO Seidman, LLP

New York, New York

March 17, 2008

F-2

Morgans Hotel Group Co.

Consolidated Balance Sheets

	As of December 31,
	2007			2006
	(In thousands)
ASSETS
Property and equipment, net	$	535,609		$	494,537
Goodwill		73,698			73,698
Investments in and advances to unconsolidated joint ventures		110,500			30,400
Cash and cash equivalents		122,712			27,549
Restricted cash		28,604			24,368
Accounts receivable, net		10,333			9,413
Related party receivables		3,877			2,840
Prepaid expenses and other assets		11,369			8,175
Escrows and deferred fees — Hard Rock investment		—			62,550
Deferred tax asset		27,636			—
Other, net		19,240			24,476
Total assets	$	943,578		$	758,006
LIABILITIES AND STOCKHOLDERS’ EQUITY
Long term debt and capital lease obligations	$	729,199		$	553,197
Accounts payable and accrued liabilities		36,581			30,074
Deferred tax liability		—			10,166
Other liabilities		27,979			21,806
Total liabilities		793,759			615,243
Minority interest		19,833			20,317
Commitments and contingencies
Common stock, $.01 par value; 200,000,000 shares authorized; 36,277,495 and 33,500,000 shares issued at December 31, 2007 and December 31, 2006, respectively		363			335
Additional paid-in capital		216,494			138,840
Treasury stock, at cost, 3,057,581 and 336,026 shares of common stock at December 31, 2007 and 2006, respectively		(54,361	)		(5,683	)
Comprehensive income		(7,771	)		(1,103	)
Accumulated deficit		(24,739	)		(9,943	)
Stockholders’ equity		129,986			122,446
Total liabilities and stockholders’ equity	$	943,578		$	758,006

F-3

Morgans Hotel Group Co. and Predecessor

Consolidated/Combined Statements of Operations and Comprehensive Loss

				Morgans Hotel			The
				Group Co.			Predecessor
	Morgans Hotel			Period from			Period from			The
	Group Co.			February 17,			January 1,			Predecessor
	Year Ending			2006 to			2006			Year Ending
	December 31,			December 31,			to February 16,			December 31,
	2007			2006			2006			2005
	(In thousands, except share data)
Revenues:
Rooms	$	186,752		$	150,830		$	17,742		$	153,675
Food and beverage		104,271			77,970			11,135			85,573
Other hotel		13,781			13,792			1,645			14,435
Total hotel revenues		304,804			242,592			30,522			253,683
Management fee-related parties		18,181			7,747			1,022			9,479
Total revenues		322,985			250,339			31,544			263,162
Operating Costs and Expenses:
Rooms		49,411			37,988			5,098			39,666
Food and beverage		69,998			51,082			7,494			54,294
Other departmental		7,923			7,259			619			7,359
Hotel selling, general and administrative		60,246			48,546			6,841			51,346
Property taxes, insurance and other		19,017			13,971			2,024			13,331
Total hotel operating expenses		206,595			158,846			22,076			165,996
Corporate expenses		44,744			24,695			2,611			17,982
Depreciation and amortization		21,719			16,082			3,030			26,215
Total operating costs and expenses		273,058			199,623			27,717			210,193
Operating income		49,927			50,716			3,827			52,969
Interest expense, net		41,338			45,027			6,537			72,257
Equity in (income) loss of unconsolidated joint ventures		24,580			(2,073	)		614			7,593
Minority interest		3,566			3,429			568			4,087
Other non-operating expenses (income)		4,759			3,462			—			(1,574	)
Income (loss) before income tax expense		(24,316	)		871			(3,892	)		(29,394	)
Income tax (benefit) expense		(9,060	)		11,114			90			822
Loss before minority interest		(15,256	)		(10,243	)		(3,982	)		(30,216	)
Minority interest		(460	)		(300	)		—			—
Net loss		(14,796	)		(9,943	)		(3,982	)		(30,216	)
Other comprehensive income:
Unrealized loss on interest rate swap, net of tax		(6,674	)		(1,303	)		—			—
Foreign currency translation (loss) gain		6			200			—			(705	)
Comprehensive loss	$	(21,464	)	$	(11,046	)	$	(3,982	)	$	(30,921	)
Loss per share:
Basic and diluted	$	(0.45	)	$	(0.30	)
Weighted average number of common shares outstanding:
Basic and diluted		33,239			33,492

F-4

Morgans Hotel Group Co. and Predecessor

Consolidated/Combined Statements of Stockholders’ Equity/Net Assets (Deficit)

						Additional						Other
				Common		Paid-in			Treasury			Comprehensive			Accumulated			Net Assets			Total
	Shares			Stock		Capital			Stock			Income (Loss)			Deficit			(Deficit)			Equity
	(In thousands)
The Predecessor
Balance, January 1, 2005																		$	4,165		$	4,165
Contributions																			17,760			17,760
Distributions																			(101,577	)		(101,577	)
Net Loss																			(30,921	)		(30,921	)
December 31, 2005																			(110,573	)		(110,573	)
Contributions																			3,738			3,738
Distributions																			(968	)		(968	)
Net Loss																			(3,982	)		(3,982	)
Balance, February 16, 2006																			(111,785	)		(111,785	)
The Company
Contribution of net assets (deficit) to the Company		18,500		$	185	$	(111,970	)	$	—		$	—		$	—			111,785			—
Adjustment to record minority interest		—			—		(20,000	)		—			—			—			—			(20,000	)
Net proceeds from initial public offering		15,000			150		272,371			—			—			—			—			272,521
Distributions to Former Parent		—			—		(9,500	)		—			—			—			—			(9,500	)
Net loss		—			—		—			—			—			(9,943	)		—			(9,943	)
Foreign currency translation		—			—		—			—			200			—			—			200
Derivative hedging instruments		—			—		—			—			(1,303	)		—			—			(1,303	)
Repurchase of common shares		(336	)		—		—			(5,683	)											(5,683	)
Stock-based compensation awards		—			—		7,939			—			—			—			—			7,939
December 31, 2006		33,164			335		138,840			(5,683	)		(1,103	)		(9,943	)		—			122,446
Net proceeds from stock offering		2,778			28		58,865			—			—			—			—			58,893
Net loss		—			—		—			—			—			(14,796	)		—			(14,796	)
Foreign currency translation		—			—		—			—			6			—			—			6
Derivative hedging instruments, net of tax		—			—		—			—			(6,674	)		—			—			(6,674	)
Cost of call options and warrants, net of tax		—			—		(111	)		—			—			—			—			(111	)
Repurchase of common shares		(2,784	)		—		—			(49,972	)		—			—			—			(49,972	)
Stock-based compensation awards		—			—		19,525			—			—			—			—			19,525
Issuance of stock-based awards		62			—		(625	)		1,294			—			—			—			669
December 31, 2007		33,220		$	363	$	216,494		$	(54,361	)	$	(7,771	)	$	(24,739	)	$	—		$	129,986

F-5

Morgans Hotel Group Co. and Predecessor

Consolidated/Combined Statements of Cash Flows

				Morgans Hotel
				Group Co.			The Predecessor
	Morgans Hotel			Period from			Period from
	Group Co.			February 17,			January 1,			The Predecessor
	Year Ending			2006 to			2006 to			Year Ending
	December 31,			December 31,			February 16,			December 31,
	2007			2006			2006			2005
	(In thousands)
Cash flows from operating activities:
Net loss	$	(14,796	)	$	(9,943	)	$	(3,982	)	$	(30,216	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		21,102			15,492			2,911			25,489
Amortization of deferred financing costs		2,182			11,521			1,214			16,018
Stock-based compensation		19,525			7,939			—			—
Amortization of other costs		617			588			119			726
Equity in (income) losses from unconsolidated joint ventures		24,580			(2,073	)		614			7,593
Write off of development costs and fixed assets		628			1,567			—			—
Gain on tax credits		—			—			—			(1,731	)
Deferred income taxes		(12,772	)		10,166			—
Change in value of interest rate caps, net		3,018			1,511			(1,655	)		(2,331	)
Minority interest		(4,543	)		(106	)		(733	)		189
Changes in assets and liabilities:
Accounts receivable, net		(920	)		(1,716	)		(168	)		1,354
Related party receivables		(1,037	)		305			(108	)		1,644
Restricted cash		(3,886	)		(1,910	)		(2,080	)		2,258
Prepaid expenses and other assets		(3,195	)		(1,115	)		1,127			(916	)
Accounts payable and accrued liabilities		9,776			5,381			(2,082	)		(3,079	)
Other liabilities		573			(3,960	)		408			2,872
Net cash provided by (used in) operating activities		40,852			33,647			(4,415	)		19,870
Cash flows from investing activities:
Additions to property and equipment		(62,800	)		(67,086	)		(5,091	)		(5,603	)
Deposit in connection with Hard Rock purchase		—			(62,550	)		—
Deposits into capital improvement escrows, net		(350	)		12,422			(45	)		(15,743	)
Deposits on properties to be acquired		—			—			—			(5,000	)
Distributions from unconsolidated joint ventures		15,828			33			—			18,497
Investment in unconsolidated joint ventures		(54,172	)		(21,339	)		(2	)		(12,402	)
Net cash used in investing activities		(101,494	)		(138,520	)		(5,138	)		(20,251	)
Cash flows from financing activities:
Proceeds from long term debt		241,528			592,427			—			580,000
Payments on long term debt and capital lease obligations		(65,526	)		(709,457	)		(214	)		(471,319	)
Payments on Clift Preferred Equity		—			(11,393	)		—
Proceeds from stock-based awards		669			—			—			—
Contributions		—			—			3,738			17,760
Distributions		—			(9,500	)		(968	)		(101,577	)
Proceeds from issuance of common stock, net of costs		58,894			272,518			—
Repurchase of common stock		(49,972	)		(5,684	)
Financing costs		(5,638	)		(11,327	)		—			(15,563	)
Payments on convertible note hedge		(24,150	)		—			—			—
Net cash provided by financing activities		155,805			117,584			2,556			9,301
Net increase in cash and cash equivalents		95,163			12,711			(6,997	)		8,920
Cash and cash equivalents, beginning of period		27,549			14,838			21,835			12,915
Cash and cash equivalents, end of period	$	122,712		$	27,549		$	14,838		$	21,835
Supplemental disclosure of cash flow information:
Cash paid for interest	$	37,411		$	37,574		$	6,521		$	53,091
Cash paid for taxes	$	1,506		$	2,789		$	213		$	905
Non cash investing and financing:
Debt issued for purchase of a property	$	—		$	—		$	10,000		$	—

F-6

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements

1.   Organization and Formation transaction

Morgans Hotel Group Co. (the “Company”) was incorporated on October 19, 2005 as a Delaware corporation to complete an initial public offering (“IPO”) that was part of the formation and structuring transactions described below. The Company operates, owns, acquires and redevelops hotel properties.

The Morgans Hotel Group Co. predecessor (the “Predecessor”) comprised the subsidiaries and ownership interests that were contributed as part of the formation and structuring transactions from Morgans Hotel Group LLC, now known as Residual Hotel Interest LLC (“Former Parent”), to Morgans Group LLC, our operating company. The Former Parent was owned approximately 85% by NorthStar Hospitality, LLC, a subsidiary of NorthStar Capital Investment Corp., and approximately 15% by RSA Associates, L.P.

In connection with the IPO, the Former Parent contributed the subsidiaries and ownership interests in nine operating hotels in the United States and the United Kingdom to Morgans Group LLC in exchange for membership units. Simultaneously, Morgans Group LLC issued additional membership units to the Predecessor in exchange for cash raised by the Company from the IPO. The Former Parent also contributed all the membership interests in its hotel management business to Morgans Group LLC in return for 1,000,000 membership units in Morgans Group LLC exchangeable for shares of the Company’s common stock. The Company is the managing member of Morgans Group LLC, and has full management control.

On February 17, 2006, the Company completed its IPO. The Company issued 15,000,000 shares of common stock at $20 per share resulting in net proceeds of approximately $272.5 million, after underwriters’ discounts and offering expenses. On February 17, 2006, the Company paid down $294.6 million of long term debt which included principal and interest, and paid in full the preferred equity in Clift due a related party of $11.4 million, which included outstanding interest and distributed $9.5 million to certain stockholders.

These financial statements have been presented on a consolidated basis and reflect the Company’s and the Predecessor’s assets, liabilities and results from operations. The assets and liabilities are presented at the historical cost of the Former Parent. The equity method of accounting is utilized to account for investments in joint ventures over which the Company has significant influence, but not control.

The Company has one reportable operating segment; it operates, owns, acquires and redevelops boutique hotels.

Operating Hotels

The Company’s operating hotels as of December 31, 2007 are as follows:

		Number of
Hotel Name	Location	Rooms		Ownership
Delano Miami	Miami Beach, FL		194		(1	)
Hudson	New York, NY		805		(5	)
Mondrian Los Angeles	Los Angeles, CA		237		(1	)
Morgans	New York, NY		113		(1	)
Royalton	New York, NY		168		(1	)
Sanderson	London, England		150		(2	)
St Martins Lane	London, England		204		(2	)
Shore Club	Miami Beach, FL		309		(3	)
Clift	San Francisco, CA		363		(4	)
Mondrian Scottsdale	Scottsdale, AZ		194		(1	)
Hard Rock Hotel & Casino	Las Vegas, NV		646		(6	)

F-7

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

(1)	Wholly-owned hotel.
(2)	Owned through a 50/50 unconsolidated joint venture.
(3)	Operated under a management contract, with an unconsolidated minority ownership interest of approximately 7%.
(4)	The hotel is operated under a long-term lease, which is accounted for as a financing.
(5)	The hotel is structured as a condominium, in which the Company owns approximately 96% of the square footage of the entire building.
(6)	Operated under a management contract and owned through an unconsolidated joint venture, in which the Company owns approximately 33.3%.

Restaurant Joint Venture

The food and beverage operations of certain of the hotels are operated under a 50/50 joint venture with a third party restaurant operator.

2.   Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The Company consolidates all wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in combination.

Financial Accounting Standards Board (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, as amended (“FIN 46R”), requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Pursuant to FIN 46R, the Company consolidates five ventures that provide food and beverage services at the Company’s hotels as the Company absorbs a majority of the ventures’ expected losses and residual returns. FIN 46R has been applied retroactively. These services include operating restaurants including room service at five hotels, banquet and catering services at four hotels and a bar at one hotel. No assets of the Company are collateral for the venturers’ obligations and creditors of the venturers’ have no recourse to the Company.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include investments with maturities of three months or less from the date of purchase.

Restricted Cash

Certain loan agreements require the hotels to deposit 4% of Gross Revenues, as defined, in restricted cash escrow accounts for the future replacement of furniture, fixtures and equipment. As replacements occur, the Company’s subsidiaries are eligible for reimbursement from these escrow accounts.

F-8

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

As further required by certain loan agreements, restricted cash also consists of cash held in escrow accounts for taxes, insurance and debt service payments.

The restaurants owned by the joint venture require the ventures to deposit between 2% and 4% of Gross Revenues, as defined, in an escrow account for the future replacement of furniture, fixtures and equipment.

Accounts Receivable

Accounts receivable are carried at their estimated recoverable amount, net of allowances. Management provides for the allowances based on a percentage of aged receivables and assesses accounts receivable on a periodic basis to determine if any additional amounts will potentially be uncollectible. After all attempts to collect accounts receivable are exhausted, the uncollectible balances are written off against the allowance. The allowance for doubtful accounts is immaterial for all periods presented.

Property and Equipment

Building and building improvements are depreciated on a straight-line method over their estimated useful life of 39.5 years. Furniture, fixtures and equipment are depreciated on a straight-line method using five years. Building and equipment under capital leases and leasehold improvements are amortized on a straight-line method over the shorter of the lease term or estimated useful life of the asset.

Costs of significant improvements, including real estate taxes, insurance, and interest during the construction periods are capitalized. Capitalized interest for the year ended December 31, 2007 and the period from February 17, 2006 to December 31, 2006 were $2.8 million and $0.7 million, respectively.

Goodwill

Goodwill represents the excess purchase price over the fair value of net assets attributable to business acquisitions. In accordance with the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 142, Goodwill and Other Intangible Assets (“SFAS No. 142”), the Company tests for impairment at least annually. The Company will test for impairment more frequently if events or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. In accordance with SFAS No. 142, the Company identifies potential impairments by comparing the fair value of the reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, including goodwill, the asset is not impaired. Any excess of carrying value over the implied fair value of goodwill would be recognized as an impairment loss in continuing operations.

The Company utilizes the discounted cash flow method to perform its fair value impairment test and determined that no impairment existed.

Impairment of Long-Lived Assets

In accordance with SFAS Statement No. 144, Accounting for the Impairment of Disposal of Long Lived Assets, long-lived assets currently in use are reviewed periodically for possible impairment and will be written down to fair value if considered impaired. Long-lived assets to be disposed of are written down to the lower of cost or fair value less the estimated cost to sell. The Company reviews its portfolio of long-lived assets for impairment at least annually. When events or changes of circumstances indicate that an asset’s carrying value may not be recoverable, we test for impairment by reference to the asset’s estimated future cash flows. In this analysis of fair value, we use discounted cash flow analysis to estimate the fair value of our properties taking into account each property’s expected cash flow from operations, holding period and net proceeds from the dispositions of the property. The factors we address in determining estimated net proceeds from disposition include anticipated operating cash flow in the year of disposition, terminal capitalization rate and selling price per room. There were no impairment write-downs during the years ended December 31, 2007, 2006 or 2005.

F-9

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

Investments in and Advances to Unconsolidated Joint Ventures

The Company accounts for its investments in unconsolidated joint ventures using the equity method as it does not exercise control over significant asset decisions such as buying, selling or financing nor is it the primary beneficiary under FIN 46R, as discussed above. Under the equity method, the Company increases its investment for its proportionate share of net income and contributions to the joint venture and decreases its investment balance by recording its proportionate share of net loss and distributions.

The Company periodically reviews its investment in unconsolidated joint ventures for other temporary declines in market value. Any decline that is not expected to be recovered in the next 12 months is considered other than temporary and an impairment charge is recorded as a reduction in the carrying value of the investment. No impairment charges were recognized in the years ended December 31, 2007, 2006 or 2005.

Other Assets

Other assets consist primarily of deferred financing costs and the costs the Company incurred to invest in Shore Club, which has been accounted for as costs to obtain the management contract on that hotel. The costs associated with the management contract are being amortized, using the straight line method, which approximates the interest yield method, over the 20 year life of the contract. Deferred financing costs are being amortized, using the straight line method, over the terms of the related debt agreements.

Foreign Currency Translation

The Company has entered into certain transactions with its foreign joint ventures. The translation of transactions with its foreign joint ventures has resulted in foreign currency transaction gains and losses, which have been reflected in the results of operations based on exchange rates in effect at the translation date or the date of the transactions, as applicable. Such transactions did not have a material effect on the Company’s earnings. The Company’s investments in its foreign joint ventures have been translated at the applicable year-end exchange rate with the translation adjustment presented as a component of other comprehensive loss. The Company recognized a gain of less than $0.1 million for the year ended December 31, 2007 and a gain of $0.2 million for the year ended December 31, 2006 and a loss of $0.7 million for the year ended December 31, 2005 for this translation adjustment.

Revenue Recognition

The Company’s revenues are derived from lodging, food and beverage and related services provided to hotel customers such as telephone, minibar and rental income from tenants, as well as hotel management services. Revenue is recognized when the amounts are earned and can reasonably be estimated. These revenues are recorded net of taxes collected from customers and remitted to government authorities and are recognized as the related services are delivered. Rental revenue is recorded on a straight-line basis over the term of the related lease agreement.

Additionally, the Company recognizes base and incentive management fees and chain service fees related to the management of the operating hotels in unconsolidated joint ventures. These fees are recognized as revenue when earned in accordance with the applicable management agreement. The Company recognizes base management and chain service fees as a percentage of revenue and incentive management fees as a percentage of net operating income or Net Capital or Refinancing Proceeds, as defined. The chain service fees represent cost reimbursements from managed hotels, which are incurred, and reimbursable costs to the Manager.

Concentration of Credit Risk

The Company places its temporary cash investments in high credit financial institutions. However, a portion of temporary cash investments may exceed FDIC insured levels from time to time.

F-10

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

Advertising and Promotion Costs

Advertising and promotion costs are expensed as incurred and are included in hotel selling, general and administrative expenses on the accompanying consolidated/combined statements of operations and comprehensive loss. These costs amounted to approximately $13.4 million, $11.3 million and $10.7 million for the years ended December 31, 2007, 2006, and 2005, respectively.

Repairs and Maintenance Costs

Repairs and maintenance costs are expensed as incurred and are included in hotel selling, general and administrative expenses on the accompanying consolidated/combined statements of operations and comprehensive loss.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the tax and financial reporting basis of assets and liabilities and for loss and credit carry forwards. Valuation allowances are provided when it is more likely than not that the recovery of deferred tax assets will not be realized.

The United States entities included in the accompanying combined financial statements for the period January 1, 2006 to February 16, 2006 are either partnerships or limited liability companies, which are treated similarly to partnerships for tax reporting purposes. Accordingly, Federal and state income taxes have not been provided for those accompanying combined financial statements as the partners or members are responsible for reporting their allocable share of the Predecessor’s income, gains, deductions, losses and credits on their individual income tax returns.

The Company’s foreign subsidiaries are subject to United Kingdom corporate income taxes. Income tax expense is reported at the applicable rate for the periods presented.

Subsequent to the IPO, the Company is subject to Federal and state income taxes as a C corporation. Income taxes for the period of February 17, 2006 to December 31, 2006 and for the year ended December 31, 2007, were computed using the Company’s effective tax rate. The Company recorded $10.2 million in net deferred taxes, related to cumulative differences in the basis recorded for certain assets and liabilities, primarily goodwill and property and equipment at February 17, 2006.

Fair Value of Financial Instruments

The Company’s financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued liabilities, and long-term debt. Substantially all of the Company’s long-term debt accrues interest at a floating rate, which re-prices frequently. Management believes the carrying amount of the aforementioned financial instruments is a reasonable estimate of fair value as of December 31, 2007 and 2006 due to the short-term maturity of these items or variable interest rate. The fair value of the Company’s fixed rate debt amounted to approximately $208.0 million using market interest rates ranging from 4.6% to 6.3%.

Derivative Instruments and Hedging Activities

SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (“SFAS 133”), establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS 133, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the

F-11

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction.

The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. During 2007, such derivatives were used to hedge the variable cash flows associated with existing variable-rate debt.

The Company has interest rate caps that are not designated as hedges. These derivatives are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks, but the Company has elected not to designate these instruments in hedging relationships based on the provisions in SFAS 133. The changes in fair value of derivatives not designated in hedging relationships have been recognized in earnings.

A summary of the Company’s derivative and hedging instruments that have been recognized in earnings as of December 31, 2007 and 2006 is as follows (in thousands):

							Estimated			Estimated
							Fair Market			Fair Market
							Value at			Value at
	Type of	Maturity		Strike			December 31,			December 31,
Notional Amount	Instrument	Date		Rate			2007			2006
$473,750	Interest cap		July 9, 2007		4.25	%	$	—		$	2,467
51,250	Interest cap		July 9, 2007		4.25	%		—			265
30,000	Interest cap		July 9, 2007		4.25	%		—			156
25,000	Interest cap		July 9, 2007		4.25	%		—			130
285,000	Sold interest cap		July 9, 2010		4.25	%		(1,793	)		(6,796	)
285,000	Interest cap		July 9, 2010		4.25	%		1,831			6,792
85,000	Interest cap		July 15, 2010		7.00	%		15			54
85,000	Sold interest cap		July 15, 2010		7.00	%		(15	)		(54	)
Fair value of derivative instruments not designated as hedges							$	38		$	3,014

F-12

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

A summary of the Company’s derivative instruments that have been designated as hedges under SFAS 133 as of December 31, 2007 and 2006 is as follows (in thousands):

							Estimated			Estimated
							Fair Market			Fair Market
							Value at			Value at
	Type of	Maturity		Strike			December 31,			December 31,
Notional Amount	Instrument	Date		Rate			2007			2006
$285,000	Interest swap		July 9, 2010		5.04	%	$	(9,409	)	$	(1,239	)
85,000	Interest swap		July 15, 2010		4.91	%		(2,537	)		(65	)
22,000	Interest cap		June 1, 2008		6.00	%		—			3
18,000	Interest cap		June 1, 2008		6.00	%		—			2
Fair value of derivative instruments designated as effective hedges							$	(11,946	)	$	(1,299	)
Total fair value of derivative instruments							$	(11,908	)	$	1,715
Total fair value included in other assets							$	1,846		$	9,871
Total fair value included in other liabilities							$	(13,754	)	$	(8,156	)

At December 31, 2007 and 2006, derivatives with a fair value of $1.8 million and $9.9 million, respectively, were included in other assets and derivatives with a fair value of $13.8 million and $8.2 million, respectively, were included in other liabilities. The change in net unrealized losses of $6.7 million in 2007 and $1.3 million in 2006 for derivatives designated as cash flow hedges is separately disclosed in the consolidated/combined Statements of Stockholders’ Equity/Net Assets (Deficit). The realized and unrealized gains and losses of derivatives not designated as hedges was $3.0 million and $3.5 million, in 2007 and 2006, respectively, and is included in interest expense, net.

Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. An immaterial amount of net unrealized losses was reclassified from accumulated other comprehensive income to interest expense during 2007 and 2006. The Company reflects the change in fair value of all hedging instruments in cash flows from operating activities. The Company estimates that during 2008 an additional $4.6 million will be reclassified as a reduction in interest expense

New Accounting Pronouncements

In June 2006, the FASB issued Interpretation No. 48 (“FIN 48”) Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109, which establishes that the financial statement effects of a tax position taken or expected to be taken in a tax return are to be recognized in the financial statements when it is more likely than not, based on the technical merits, that the position would be sustained upon examination. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company adopted FIN 48 on January 1, 2007. On that date, the adoption did not impact the Company’s consolidated financial position or results of operations. The Company does not have any unrecognized tax benefits as of the date of adoption of FIN 48, or as of December 31, 2007. In addition, the Company does not anticipate significant adjustments to the total amount of unrecognized tax benefits within the next 12 months. The Company classifies any tax penalties as other operating expenses, and any interest as interest expense, on the accompanying consolidated financial statements. As of December 31, 2007, the 2006 tax year remains open and subject to audit for

F-13

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

both federal and state purposes, as this was the initial tax year for the Company since becoming a C-corporation in February 2006.

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements. SFAS No. 157 defines fair value, establishes a framework for measuring fair value under U.S. generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies to accounting pronouncements that require or permit fair value measurements, except for share-based payment transactions under SFAS No. 123. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. As SFAS No. 157 does not require any new fair value measurements or remeasurements of previously computed fair values, the Company does not believe adoption of SFAS No. 157 will have a material effect on its consolidated financial statements.

On February 15, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities. This statement permits companies and not-for-profit organizations to make a one-time election to carry eligible types of financial assets and liabilities at fair value, even if fair value measurement is not required under GAAP. SFAS No. 159 must be applied prospectively, and the effect of the first re-measurement to fair value, if any, should be reported as a cumulative effect adjustment to the opening balance of retained earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The Company does not believe that the adoption of SFAS No. 159 will have a material impact on the Company’s consolidated financial statements.

On August 31, 2007, the FASB issued a proposed FASB Staff Position (the “Proposed FSP”) that affects the accounting for the Company’s convertible notes payable. The Proposed FSP requires the initial debt proceeds from the sale of the Company’s convertible notes to be allocated between a liability component and an equity component. The resulting debt discount must be amortized over the period the debt is expected to remain outstanding as additional interest expense. The Proposed FSP, if adopted, would be effective for fiscal years beginning after December 15, 2007 and would require retroactive application. The Company is currently evaluating the impact that this Proposed FSP would have on its consolidated financial statements if adopted.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, which, among other things, provides guidance and establishes amended accounting and reporting standards for a parent company’s noncontrolling or minority interest in a subsidiary and the deconsolidation of a subsidiary. SFAS No. 160 is effective for fiscal years beginning on or after December 15, 2008. The Company is currently evaluating the impact of adopting the Statement.

In December 2007, the FASB issued SFAS No. 141R, Business Combinations, which replaces SFAS No. 141. SFAS No. 141R, among other things, establishes principles and requirements for how an acquirer entity recognizes and measures in its financial statements the identifiable assets acquired (including intangibles), the liabilities assumed and any noncontrolling interest in the acquired entity. Additionally, SFAS No. 141R requires that all transaction costs will be expensed as incurred. The Company is currently evaluating the impact of adopting the Statement, which is effective for fiscal years beginning on or after December 15, 2008. Adoption is prospective and early adoption is not permitted.

Reclassifications

Certain prior year financial statement amounts have been reclassified to conform to the current year presentation.

3.   Income (Loss) Per Share

Basic earnings per share is calculated based on the weighted average number of common stock outstanding during the period. Diluted earnings per share include the effect of potential shares outstanding, including dilutive securities. Potential dilutive securities may include shares granted under the stock incentive plan and membership units in Morgans Group LLC, which may be exchanged for shares of the Company’s common stock under certain

F-14

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

circumstances. The 1,000,000 outstanding Morgans Group LLC membership units (which may be converted to common stock) have been excluded from the diluted net income (loss) per common share calculation, as there would be no effect on reported diluted net income (loss) per common share. All unvested restricted stock units, LTIP Units (as defined in Note 10), stock options and contingent convertible notes (as defined in Note 7) are excluded from loss per share as they are anti-dilutive.

The table below details the components of the basic and diluted loss per share calculations (in thousands, except for per share data):

									Period from February 17,
	Year Ended December 31, 2007								2006 to December 31, 2006
				Weighted								Weighted
				Average		EPS						Average		EPS
	Loss			Shares		Amount			Loss			Shares		Amount
Basic loss per share	$	(14,796	)		33,239	$	(0.45	)	$	(9,943	)		33,492	$	(0.30	)
Effect of dilutive stock compensation		—			—		—			—			—		—
Diluted loss per share	$	(14,796	)		33,239	$	(0.45	)	$	(9,943	)		33,492	$	(0.30	)

On December 10, 2007, our board of directors authorized the repurchase of up to $25.0 million of the Company’s common stock, or approximately 4% percent of its outstanding shares based on the then current market price. This repurchase is in addition to the $50.0 million that was authorized by our board of directors on December 7, 2006 and expired on December 6, 2007. The Company repurchases its stock through the open market or in privately negotiated transactions from time to time. The timing and actual number of share repurchased will depend on a variety of factors including price, corporate and regulatory requirements, market conditions, and other corporate liquidity requirements and priorities. The stock repurchase program may be suspended or terminated at any time without prior notice, and will expire on December 10, 2008. As of December 31, 2007, the Company had repurchased 2,788,377 shares for approximately $49.7 million under the 2006 plan. As of December 31, 2007, the Company repurchased 332,207 shares for approximately $5.9 million under this new plan, and repurchased and additional 1,156,828 shares for approximately $19.2 million in January 2008 thereby completing its purchases under the new plan. The Company records its stock repurchases at cost.

4.   Property and Equipment

Property and equipment consist of the following (in thousands):

	As of			As of
	December 31,			December 31,
	2007			2006
Land	$	93,912		$	84,266
Building		459,449			452,433
Furniture, fixtures and equipment		104,079			78,077
Construction in progress		21,861			5,849
Property subject to capital lease		6,938			6,938
Subtotal		686,239			627,563
Less accumulated depreciation		(150,630	)		(133,026	)
Property and equipment, net	$	535,609		$	494,537

Depreciation on property and equipment was $21.1 million, $18.4 million and $25.5 million for the years ended December 31, 2007, 2006 and 2005, respectively. Included in this expense was $0.3 million for each of the three years ended December 31, 2007 related to depreciation on property subject to capital leases.

F-15

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

5.   Investments in and Advances to Unconsolidated Joint Ventures

The Company’s investments in and advances to unconsolidated joint ventures and its equity in earnings (losses) of unconsolidated joint ventures are summarized as follows (in thousands):

Investments

	As of			As of
	December 31,			December 31,
Entity	2007			2006
Morgans Hotel Group Europe Ltd.	$	13,679		$	11,971
Restaurant Venture — SC London		(479	)		(128	)
Mondrian South Beach		13,373			13,024
Hard Rock Hotel & Casino		36,767			2,478
Shore Club		—			—
Echelon Las Vegas		40,826			2,883
Mondrian Soho		5,051			—
Mondrian Chicago		834			—
Other		449			172
Total	$	110,500		$	30,400

Equity in income (losses) from unconsolidated joint ventures

				For the Period			For the Period
				from February 17,			from January 1
	Year Ended			2006 to			2006 to			Year Ended
	December 31,			December 31,			February 16,			December 31,
	2007			2006			2006			2005
Morgans Hotel Group Europe Ltd.	$	1,702		$	3,922		$	(488	)	$	(6,481	)
Restaurant Venture — SC London		(258	)		941			(96	)		1
Mondrian South Beach		(2,734	)		(2,630	)		—			—
Hard Rock Hotel & Casino		(22,106	)		—			—			—
Shore Club		—			(160	)		(30	)		(1,113	)
Echelon Las Vegas		(1,193	)		—			—			—
Other		9			—			—			—
Total	$	(24,580	)	$	2,073		$	(614	)	$	(7,593	)

Morgans Hotel Group Europe Limited

As of December 31, 2007, the Company owned interests in two hotels in London, England, St Martins Lane, a 204-room hotel, and Sanderson, a 150-room hotel, through a 50/50 joint venture known as Morgans Hotel Group Europe Limited (“Morgans Europe”) with Walton MG London Investors V, L.L.C.

On July 27, 2006, our former joint venture partner in ownership of our London hotels, Burford Hotels Limited (“Burford”), sent the Company a notice purporting to exercise rights under the buy/sell provision of the joint venture agreement (the “Notice”). As a result of the Notice, the Company began marketing Burford’s share of the joint venture and on February 16, 2007, a subsidiary of the Company and Walton MG London Investors V, L.L.C. (“Walton”), entered into a joint venture agreement for the ownership and operation of hotels in Europe by Morgans

F-16

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

Europe. Walton purchased Burford’s interest in the joint venture for the equivalent of approximately $52.0 million implying a gross value for the assets of over $300.0 million. For facilitating the transaction, the Company received approximately $6.1 million in cash at closing based, and could receive additional consideration based on the value of an interest rate hedge on the existing joint venture debt in the event of a debt refinancing.

Under the new joint venture agreement with Walton, the Company continues to own indirectly a 50% equity interest in Morgans Europe and continues to have an equal representation on the Morgans Europe board of directors. In the event the parties cannot agree on certain specified decisions, such as approving hotel budgets or acquiring a new hotel property, or beginning any time after February 9, 2010, either party has the right to buy all the shares of the other party in the joint venture or, if its offer is rejected, require the other party to buy all of its shares at the same offered price per share in cash. The Company also maintained the management of the London hotels under the same terms.

Under a management agreement with Morgans Europe, the Company earns management fees and a reimbursement for allocable chain service and technical service expenses. The management fees are equal to 4.0% of total hotel revenues, including food and beverage, the reimbursement of allocable chain expenses are currently recovered at approximately 2.5% of hotel revenues excluding food and beverage and the technical services fees are a recovery of project specific costs. The Company is also entitled to an incentive management fee and a capital incentive fee. The Company did not earn any incentive fees during the years ended December 31, 2007, 2006 or 2005.

Net income or loss and cash distributions or contributions are allocated to the partners in accordance with ownership interests. The Company accounts for this investment under the equity method of accounting.

Summarized consolidated balance sheet information of Morgans Europe is as follows (in thousands). The currency translation is based on an exchange rate of 1 British pound to 2.00 and 1.96 U.S. dollars as of December 31, 2007 and 2006, respectively, as provided by www.oanda.com:

	As of		As of
	December 31,		December 31,
	2007		2006
Property and equipment, net	$	193,910	$	193,293
Other assets		35,266		29,910
Total assets	$	229,176	$	223,203
Other liabilities		7,777		6,507
Debt		209,130		208,164
Total equity		12,269		8,532
Total liabilities and equity	$	229,176	$	223,203
Company’s share of equity		6,134		4,266
Capitalized costs and designer fee		7,545		7,705
Company’s investment balance	$	13,679	$	11,971

Included in capitalized costs and designer fee is approximately $4.3 million, $4.5 million and $4.7 million of capitalized interest as of December 31, 2007, 2006 and 2005, respectively. The capitalized interest costs are being amortized on a straight-line basis over 39.5 years into equity in earnings in the accompanying consolidated statements of operations and comprehensive loss.

Summarized consolidated income statement information of Morgans Europe is as follows (in thousands). The currency translation is based on an exchange rate of 1 British pound to 2.00, 1.84 and 1.82 which is an average

F-17

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

monthly exchange rate provided by www.oanda.com for the years ended December 31, 2007, 2006 and 2005, respectively.

	Year Ended December 31,
	2007			2006			2005
Hotel operating revenues	$	65,402		$	56,928		$	47,713
Hotel operating expenses		38,362			33,606			30,955
Depreciation and amortization		7,342			8,170			9,602
Operating income		19,698			15,152			7,156
Interest expense		16,011			7,938			20,157
Net Income (loss) for period		3,687			7,214			(13,001	)
Other comprehensive gain (loss)		11			400			(1,410	)
Comprehensive loss	$	3,698		$	7,614		$	(14,411	)
Company’s share of net income (loss)	$	1,843		$	3,607		$	(6,501	)
Company’s share of other comprehensive gain (loss)		6			200			(705	)
Company’s share of comprehensive gain (loss)	$	1,849		$	3,807		$	(7,206	)
Other depreciation		(141	)		(173	)		(646	)
Elimination of intercompany transactions		—			—			666
Amount recorded in combined statement of operations	$	1,702		$	3,434		$	(6,481	)

Restaurant Venture — SC London

The Company has a 50% interest in the restaurants located in St Martins Lane and Sanderson hotels located in London.

Summarized consolidated balance sheet information of SC London is as follows (in thousands). The currency translation is based on an exchange rate of 1 British pound to 2.00 and 1.96 U.S. dollars for the years ended December 31, 2007 and 2006, respectively, as provided by www.oanda.com:

	As of			As of
	December 31,			December 31,
	2007			2006
Property and equipment, net	$	1,900		$	647
Other assets		6,710			8,206
Total assets	$	8,610		$	8,853
Other liabilities		4,078			1,911
Total equity		4,532			6,942
Total liabilities and equity	$	8,610		$	8,853
Company’s share of equity		(479	)		(128	)
Company’s investment balance	$	(479	)	$	(128	)

Summarized consolidated income statement information of SC London is as follows (in thousands). The currency translation is based on an exchange rate of 1 British pound to 2.00, 1.84 and 1.82 which is an average

F-18

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

monthly exchange rate provided by www.oanda.com for the twelve months ended December 31, 2007, 2006 and 2005, respectively.

	Year Ended December 31,
	2007			2006		2005
Operating revenues	$	30,750		$	29,649	$	26,419
Operating expenses		31,053			27,565		25,162
Depreciation		435			394		504
Net income		(516	)		1,690		753
Company’s share of net income		(258	)		845		376
Contingency for Inland revenue settlement		—			—		(375	)
Amount recorded in equity in income (loss)	$	(258	)	$	845	$	1

Mondrian South Beach

On August 8, 2006, the Company entered into a 50/50 joint venture (the “South Beach Venture”) with an affiliate of Hudson Capital. The South Beach Venture is renovating and converting an apartment building on Biscayne Bay in South Beach Miami into a condominium hotel operated under the Company’s Mondrian brand. The Company expects to operate Mondrian South Beach under a long-term incentive management contract. The hotel, which is scheduled to open in early 2008, expects to have approximately 330 units comprised of studios, one and two-bedroom units, and four penthouse suites.

The South Beach Venture acquired the existing building and land for a gross purchase price of $110.0 million. The South Beach Venture expects to spend approximately $85.0 million on renovations. An initial equity investment of $15.0 million from each of the Company and Hudson Capital was funded at closing. Additionally, the South Beach Venture has received financing of approximately $124.0 million at a rate of LIBOR plus 300 basis points, or 7.6% at December 31, 2007. The South Beach Venture has paid down a portion of this debt with proceeds from condominium sales. The balance of this loan at December 31, 2007 was $101.0 million. This loan matures in August 2009.

In January 2008, the Company and Hudson Capital each funded an additional $2.0 million of equity. The South Beach Venture is currently in negotiations for additional debt.

The South Beach Venture is in the process of selling units as condominiums, subject to market conditions. The South Beach Venture anticipates that unit buyers will have the opportunity to place their units into the hotel’s rental program. In addition to hotel management fees, the Company could also realize fees from the sale of condominium units.

Beginning February 1, 2007, the South Beach Venture is being accounted for as a development project in accordance with SFAS No. 67.

F-19

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

Summarized balance sheet information of Mondrian South Beach is as follows (in thousands):

	As of			As of
	December 31,			December 31,
	2007			2006
Real estate, net	$	153,679		$	112,374
Other assets		21,006			39,148
Total assets	$	174,685		$	151,522
Other liabilities		46,507			1,782
Debt		100,986			124,000
Total equity		27,192			25,740
Total liabilities and equity	$	174,685		$	151,522
Company’s share of equity		13,596			12,870
Capitalized costs/reimbursements		(223	)		154
Company’s investment balance	$	13,373		$	13,024

Summarized income statement information of Mondrian South Beach is as follows (in thousands):

				Period from
				August 8,
	Year Ended			2006 to
	December 31,			December 31,
	2007			2006
Operating revenues	$	350		$	1,113
Operating expenses		5,291			2,093
Depreciation		189			952
Operating loss		(5,130	)		(1,932	)
Interest (income) expense		338			3,328
Net loss		(5,468	)		(5,260	)
Company’s share of net loss		(2,734	)		(2,630	)
Amount recorded in equity in income (loss)	$	(2,734	)	$	(2,630	)

Hard Rock Hotel & Casino

On May 11, 2006, the Company and its wholly-owned subsidiary, MHG HR Acquisition Corp. (“Acquisition Corp”), entered into an Agreement and Plan of Merger with Hard Rock Hotel, Inc. (“HRH”) pursuant to which the Acquisition Corp agreed to acquire HRH in an all cash merger (the “Merger”). Additionally, an affiliate of the Company entered into several asset purchase agreements with HRH or affiliates of HRH to acquire a development land parcel adjacent to the Hard Rock Hotel & Casino in Las Vegas (“Hard Rock”) and certain intellectual property rights related to the Hard Rock (such asset purchases, together with the Merger, the “Transactions”). The aggregate consideration for the Transactions was $770.0 million.

On November 7, 2006, the Company entered into a definitive agreement with an affiliate of DLJ Merchant Banking Partners (“DLJMB”), as amended in December 2006, under which DLJMB and the Company formed a joint venture in connection with the acquisition and development of the Hard Rock.

The closing of the Transactions and completion of the Merger occurred on February 2, 2007. The Company funded one-third of the equity, or approximately $57.5 million, and DLJMB funded two-thirds of the equity, or

F-20

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

approximately $115.0 million, through a joint venture. The remainder of the $770.0 million purchase price was financed with mortgage financing under a credit agreement entered into by the joint venture. The credit agreement provides for a secured term loan facility, with a term of two years or more, consisting of a $760.0 million loan for the acquisition including $35.0 million of renovation costs, $48.2 million of financing costs and $56.3 million of cash reserves and working capital, and a loan of up to $600.0 million for future expansion of the Hard Rock. On November 6, 2007, the joint venture entered into an amended and restated credit agreement in which the lender exercised its right to split the loan made pursuant to the original credit agreement into a mortgage loan, which is comprised of a construction loan component and an acquisition loan component, and three mezzanine loans. The proceeds of the mezzanine loans were used to prepay the acquisition loan portion of the mortgage loan made pursuant to the original credit agreement. Under the terms of the joint venture agreements, DLJMB agreed to fund 100% of the capital required to expand the Hard Rock property, up to a total of an additional $150.0 million. The Company has the option, but is not required and does not currently intend, to fund a portion of the expansion project, up to a total of an additional $50.0 million. As of December 31, 2007, we have funded approximately $8.5 million.

Concurrent to the closing of the Transactions and the Merger, the Company and DLJMB entered into a property management agreement under which the Company will operate the hotel, retail, food and beverage, entertainment and all other businesses related to the Hard Rock, excluding the casino. Under the terms of the agreement, the Company will receive a management fee equal to 4%, and a chain service expense reimbursement up to 1.5%, of all non-gaming revenue including casino rents and all other rental income. The Company can also earn an incentive management fee of 10% of EBITDA, as defined, above certain levels. The term of the contract is 20 years with two 10-year renewals. Beginning in 2009 or 12 months following completion of the expansion, whichever is later, the Company is subject to certain performance tests.

At the February 2, 2007 closing of the Merger and Transactions, the joint venture also entered into a definitive lease agreement with Golden Gaming Inc. (“Golden Gaming”) to operate the casino at the Hard Rock. Under the lease, the base rent is $20.7 million per year payable monthly, plus reimbursements for certain expenses. Golden Gaming is entitled to a management fee of $3.3 million, also payable monthly. The lease with Golden Gaming was terminated effective February 29, 2008 and on March 1, 2008, the Company began operating the casino at Hard Rock.

Summarized balance sheet information of Hard Rock is as follows (in thousands):

	As of
	December 31,
	2007
Property and equipment, net	$	515,924
Asset held for sale		95,160
Goodwill		139,549
Other assets		192,681
Total assets	$	943,314
Other liabilities		35,886
Debt		793,452
Total equity		113,976
Total liabilities and equity	$	943,314
Company’s share of equity		37,992
Capitalized costs/unreimbursed costs		(1,255	)
Company’s investment balance	$	36,767

F-21

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

Summarized income statement information of Hard Rock is as follows (in thousands):

	Period from
	February 2, 2007
	to December 31, 2007
Operating revenues	$	173,655
Operating expenses		140,699
Depreciation and amortization		17,413
Operating income		15,543
Interest expense		84,136
Income tax benefit		(2,277	)
Net loss		(66,316	)
Comprehensive loss		(835	)
Company’s share of net loss		(22,106	)
Amount recorded in equity in income (loss)	$	(22,106	)

Echelon Las Vegas

In January 2006, the Company entered into a limited liability company agreement with a subsidiary of Boyd, through which it plans to develop, as a 50/50 owner, Delano Las Vegas and Mondrian Las Vegas, both of which are expected to open in 2010. After certain milestones in the joint venture development process have been met, the Company is expected to complete its contribution of approximately $91.5 million in cash and Boyd will contribute approximately 6.1 acres of land to the joint venture. The expected cost of the project, including the land, is estimated to be approximately $1.0 billion; however, the Company can provide no assurances that the estimated cost will approximate the actual cost Construction of Delano Las Vegas and Mondrian Las Vegas is expected to begin in the second quarter of 2008. Given the current state of the credit markets, the joint venture anticipates that additional equity and/or credit support will be necessary to obtain construction financing for the remaining cost of the project. This additional equity and/or credit support may be contributed by the Company or Boyd, or from both parties, and/or from one or more additional equity sponsors. If the joint venture is unable to obtain adequate project financing in a timely manner or at all, the Company may be forced to sell assets in order to raise capital for the project, limit the scope of the project, defer the project or cancel the project altogether.

As of December 31, 2007, the Company’s investment in Echelon Las Vegas was $40.8 million and the Company’s portion of equity in loss for the year ended December 31, 2007 was $1.2 million, primarily related to overhead costs and pre-development plans that were not capitalizable. The investment includes a $30.0 million deposit made to Boyd upon consummation of the Hard Rock transaction which may be returned in the event that both parties agree not to proceed with the project.

Mondrian SoHo

In June 2007, the Company contributed approximately $5.0 million for a 20% equity interest in a joint venture with Cape Advisors Inc. to acquire and develop a Mondrian hotel in the SoHo neighborhood of New York City. The Mondrian SoHo is currently expected to have 270 rooms, a restaurant, bar, ballroom, meeting rooms, exercise facility and a penthouse suite with outdoor space that can be used as a guest room or for private events. Upon completion, the Company is expected to operate the hotel under a 10-year management contract with two 10-year extension options.

F-22

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

Mondrian Chicago

In June 2007, the Company formed a joint venture with M Development to lease and develop a Mondrian hotel in Chicago. The Company has a 49% equity interest in the joint venture and expects to contribute approximately $15.0 million to the project, of which approximately $0.5 million was contributed in June 2007. The Mondrian Chicago is currently expected to have 216 rooms and feature a restaurant and bar, meeting rooms, an exercise facility, as well as outdoor food and beverage operations. Upon completion, the Company is expected to operate the hotel under a 20-year management contract with two five-year extension options.

6.   Other Liabilities

Other liabilities consist of the following (in thousands):

	As of		As of
	December 31,		December 31,
	2007		2006
Interest swap liability (Note 2)	$	13,754	$	8,156
Designer fee payable		12,478		11,222
Clift pre-petition liabilities		1,746		2,427
Other		1		1
	$	27,979	$	21,806

Interest Swap Liability

As discussed further in Note 2, the fair value of the interest rate swap derivative liability was approximately $13.8 million and $8.2 million at December 31, 2007 and 2006, respectively.

Designer Fee Payable

The Former Parent had an agreement with a hotel designer. The designer has various claims related to the agreement. The Company may have liability as the successor to the Former Parent, and therefore the liability is included in these Company consolidated financial statements. According to the agreement, the designer is due for each designed hotel, a base fee plus 1% of Gross Revenues, as defined, for a 10-year period from the opening of each hotel. The estimated costs of the design services were capitalized as a component of the applicable hotel and are being amortized over the five-year estimated life of the related design elements. Interest is accreted each year on the liability and charged to interest expense using a rate of 9%. Changes to the estimated liability are recorded as an adjustment to the capitalized design fee and amortized prospectively. Adjustments to the estimated liability after the five-year life of the design asset will be charged directly to operations.

In addition, the agreement also called for the designer to design a minimum number of projects for which the designer would be paid a minimum fee. Included in accounts payable and accrued liabilities as of December 31, 2007 and 2006 on the accompanying consolidated balance sheets is approximately $2.6 million of fees related to the difference between its minimum number of projects and the actual number designed.

Clift Pre-petition Liabilities

As of December 31, 2007 and 2006, the pre-petition liabilities, including accrued interest, related to the bankruptcy of Clift were approximately $1.8 million and $2.4 million, respectively. Under the court approved Reorganization Plan, these liabilities are payable over a period of up to 48 months from the date of the approved plan, which was October 14, 2004. Interest accrues on these liabilities under the plan at rates ranging from 6% to 10%. All payments have been made and are planned to be made according to the court approved payment schedule.

F-23

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

7.   Long-Term Debt and Capital Lease Obligations

Long-term debt consists of the following (in thousands):

	As of		As of		Interest rate at
	December 31,		December 31,		December 31,
Description	2007		2006		2006
Notes secured by Hudson and Mondrian(a)		370,000		370,000		LIBOR + 1.25	%
Clift debt(b)		80,092		78,737		9.6	%
Promissory note(c)		10,000		10,000		8.5	%
Note secured by Mondrian Scottsdale(d)		40,000		37,327		LIBOR + 2.30	%
Liability to subsidiary trust(e)		50,100		50,100		8.68	%
Revolving credit(f)		—		—			(f)
Convertible Notes(g)		172,500		—		2.375	%
Capital lease obligations(h)		6,507		7,033			(h)
Total long term debt	$	729,199	$	553,197

(a)   Mortgage Agreement — Notes secured by Hudson and Mondrian Los Angeles

On October 6, 2006, subsidiaries of the Company entered into mortgage financings, consisting of two separate mortgage loans and a mezzanine loan. These loans, a $217.0 million first mortgage note secured by Hudson, a $32.5 million mezzanine loan secured by a pledge of the equity interests in the Company’s subsidiary owning Hudson, and a $120.5 million first mortgage note secured by Mondrian Los Angeles (collectively, the “Mortgages”), all mature on July 15, 2010.

The Mortgages bear interest at a blended rate of 30-day LIBOR plus 125 basis points. The Company has the option of extending the maturity date of the Mortgages to October 15, 2011. The Company maintained an interest rate cap for the amount of the Mortgages at 4.25% through July 9, 2007 and entered into forward starting swaps beginning on July 9, 2007 that effectively fixes the LIBOR rate on the debt under the Mortgages at approximately 5.0% through the maturity date.

The prepayment clause in the Mortgages permits the Company to prepay the Mortgages in whole or in part on any business day, along with a spread maintenance premium (equal to the amount of the prepayment multiplied by the applicable LIBOR margin multiplied by the ratio of the number of months between the prepayment date and October 31, 2007 divided by 12).

The Mortgages require the Company’s subsidiary borrowers to fund reserve accounts to cover monthly debt service payments. Those subsidiary borrowers are also required to fund reserves for property, sales and occupancy taxes, insurance premiums, capital expenditures and the operation and maintenance of those hotels. Reserves are deposited into restricted cash accounts and are released as certain conditions are met. The Company’s subsidiary borrowers are not permitted to have any liabilities other than certain ordinary trade payables, purchase money indebtedness and capital lease obligations.

The Mortgages prohibit the incurrence of additional debt on Hudson and Mondrian Los Angeles. Furthermore, the subsidiary borrowers (entities owning Hudson and Mondrian Los Angeles) are not permitted to incur additional mortgage debt or partnership interest debt. In addition, the Mortgages do not permit (1) transfers of more than 49% of the interests in the subsidiary borrowers, Morgans Group LLC or the Company or (2) a change in control of the subsidiary borrowers or in respect of Morgans Group LLC or the Company itself without, in each case, complying with various conditions or obtaining the prior written consent of the lender.

The Mortgages provide for events of default customary in mortgage financings, including, among others, failure to pay principal or interest when due, failure to comply with certain covenants, certain insolvency and

F-24

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

receivership events affecting the subsidiary borrowers, Morgans Group LLC or the Company, and breach of the encumbrance and transfer provisions. In the event of a default under the Mortgages, the lender’s recourse is limited to the mortgaged property, unless the event of default results from an insolvency, a voluntary bankruptcy filing or a breach of the encumbrance and transfer provisions, in which event the lender may also pursue remedies against Morgans Group LLC.

(b)   Clift Debt

In October 2004, Clift emerged from bankruptcy pursuant to a plan of reorganization whereby Clift Holdings LLC sold the hotel to an unrelated party for $71.0 million and then leased it back for a 99-year lease term. Under this lease, the Company is required to fund operating shortfalls including the lease payments and to fund all capital expenditures. This transaction did not qualify as a sale due to the Company’s continued involvement and therefore is treated as a financing. The proceeds from this transaction were used in part to repay the existing mortgage loan on Clift.

The lease payment terms are as follows:

Years 1 and 2	$2.8 million per annum (completed in October 2006)
Years 3 to 10	$6.0 million per annum
Thereafter	Increased at 5-year intervals by a formula tied to increases in the Consumer Price Index. At year 10, the increase has a maximum of 40% and a minimum of 20%. At each payment date thereafter, the maximum increase is 20% and the minimum is 10%.

(c)   Promissory Note

The purchase of the building across the street from Delano Miami was partially financed with the issuance of a $10.0 million three-year interest only promissory note by the Company to the seller, which matures on January 24, 2009. The note currently bears interest at 8.5% through January 24, 2008 and at 10.0% thereafter.

(d)   Mondrian Scottsdale Debt

In May 2006, the Company obtained mortgage financing on Mondrian Scottsdale. The $40.0 million loan, which accrues interest at LIBOR plus 2.30%, matures in May 2008 and has three one-year extensions. The Company intends to exercise its extension option in 2008. The Company has purchased an interest rate cap which limits the interest rate exposure to 8.3% and expires on June 1, 2008.

(e)   Liability to Subsidiary Trust Issuing Preferred Securities

On August 4, 2006, a newly established trust formed by the Company, MHG Capital Trust I (the “Trust”), issued $50.0 million in trust preferred securities in a private placement. The Company owns all of the $0.1 million of outstanding common stock of the Trust. The Trust used the proceeds of these transactions to purchase $50.1 million of junior subordinated notes issued by the Company’s operating company and guaranteed by the Company (the “Trust Notes”) which mature on October 30, 2036. These Trust Notes represent all of the Trust’s assets. The terms of the junior subordinated notes are substantially the same as preferred securities issued by the Trust The Trust Notes and the trust preferred securities have a fixed interest rate of 8.68% per annum during the first 10 years, after which the interest rate will float and reset quarterly at the three-month LIBOR rate plus 3.25% per annum. The securities are redeemable by the Trust, at the Company’s option, after five years at par. To the extent the Company redeems the Trust Notes, the Trust is required to redeem a corresponding amount of trust preferred securities.

The Trust Note agreement requires that the Company maintain a fixed charge coverage ratio, as defined, of not less than 1.4 to 1.0.

F-25

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

FIN 46R requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The Company has identified that the Trust is a variable interest entity under FIN 46R. Based on management’s analysis, the Company is not the primary beneficiary since it does not absorb a majority of the expected losses, nor is it entitled to a majority of the expected residual returns. Accordingly, the Trust is not consolidated into the Company’s financial statements. The Company accounts for the investment in the common stock of the Trust under the equity method of accounting.

Net proceeds from the issuance of Trust Notes was used by the Company to pay down the Company’s existing credit line and to fund the equity contribution on Mondrian South Beach with the remainder available for general corporate purposes.

(f)   Revolving Credit Facility

On October 6, 2006, the Company and certain of its subsidiaries entered into a revolving credit facility in the initial amount of $225.0 million, which includes a $50.0 million letter of credit sub-facility and a $25.0 million swingline sub-facility (collectively, the “Revolving Credit Agreement”). The Revolving Credit Agreement replaced the Company’s $125.0 million three-year revolving credit facility which was entered into concurrently with the IPO.

The amount available from time to time under the Revolving Credit Agreement is also contingent upon the amount of an available borrowing base calculated by reference to collateral described below. The available borrowing base is currently approximately $64.0 million, but that amount may be increased up to $225.0 million at the Borrower’s (defined below) option by increasing the amount of the mortgage on Delano Miami granted by the Delano Miami mortgage lender (discussed below) and upon payment of the related additional recording tax. Had the Borrower exercised this option, the available borrowing base as of the December 31, 2007 (assuming an increase in the Delano Miami mortgage and payment of the related additional recording tax) would have been approximately $177.7 million. That availability may also be increased through procedures specified in the Revolving Credit Agreement for adding property to the borrowing base and for revaluation of the property that constitutes the borrowing base.

The commitments under the Revolving Credit Agreement terminate on October 5, 2011, at which time all outstanding amounts under the Revolving Credit Agreement will be due and payable. A subsidiary of the Company, Morgans Group LLC (the “Borrower”), may, at its option, with the prior consent of the lender and subject to customary conditions, request an increase in the aggregate commitment under the Revolving Credit Agreement to up to $350.0 million.

The interest rate per annum applicable to loans under the Revolving Credit Agreement is a fluctuating rate of interest measured by reference to, at the Company’s election, either LIBOR or a base rate, plus a borrowing margin. LIBOR loans have a borrowing margin of 1.35% to 1.90% determined based on the Borrower’s total leverage ratio (with an initial borrowing margin of 1.35%) and base rate loans have a borrowing margin of 0.35% to 0.90% determined based on the Borrower’s total leverage ratio (with an initial borrowing margin of 0.35%). The Revolving Credit Agreement also provides for the payment of a quarterly unused facility fee equal to the average daily unused amount for each quarter multiplied by 0.25%.

The Revolving Credit Agreement requires the Borrower to maintain for each four-quarter period a total leverage ratio (total indebtedness, which does not include indebtedness related to the convertible notes issued by the Company in October 2007, to consolidated EBITDA) of no more than (1) 8.0 to 1.0 at any time prior to January 1, 2008, (2) 7.0 to 1.0 at any time during 2008, and (3) 6.0 to 1.0 at any time after December 31, 2008, and a fixed charge coverage ratio (consolidated EBITDA to fixed charges) of no less than 1.75 to 1.00 at all times. The Revolving Credit Agreement contains negative covenants, subject in each case to certain exceptions, restricting

F-26

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

incurrence of indebtedness, incurrence of liens, fundamental changes, acquisitions and investments, asset sales, transactions with affiliates and restricted payments, including, among others, a covenant prohibiting the Company from paying cash dividends on its common stock.

The Revolving Credit Agreement provides for customary events of default, including failure to pay principal or interest when due, failure to comply with covenants, any representation proving to be incorrect, defaults relating to other indebtedness of at least $10.0 million in the aggregate, certain insolvency and receivership events affecting the Company or its subsidiaries, judgments in excess of $5.0 million in the aggregate being rendered against the Company or its subsidiaries, the acquisition by any person of 40% or more of any outstanding class of capital stock having ordinary voting power in the election of directors of the Company, and the incurrence of certain ERISA liabilities in excess of $5.0 million in the aggregate.

Obligations under the Revolving Credit Agreement are secured by, among other collateral, a mortgage on Delano Miami and the pledge of equity interests in the Borrower and certain subsidiaries of the Borrower, including the owners of Delano Miami, Morgans and Royalton, as well as a security interest in other significant personal property (including trademarks and other intellectual property, reserves and deposits) relating to those hotels.

The Revolving Credit Agreement is available on a revolving basis for general corporate purposes, including acquisitions. As of December 31, 2007, there was no monies outstanding under the Revolving Credit Agreement.

(g)   October 2007 Convertible Notes Offering

On October 17, 2007, the Company issued $172.5 million aggregate principal amount of its 2.375% Senior Subordinated Convertible Notes (the “Notes”) in a private offering. Net proceeds from the offering were approximately $166.8 million.

The Notes are senior subordinated unsecured obligations of the Company and are guaranteed on a senior subordinated basis by the Company’s operating company, Morgans Group LLC. The Notes will be convertible into shares of the Company’s common stock under certain circumstances and upon the occurrence of specified events.

Interest on the Notes is payable semi-annually in arrears on April 15 and October 15 of each year, beginning on April 15, 2008, and the Notes will mature on October 15, 2014, unless previously repurchased by the Company or converted in accordance with their terms prior to such date. The initial conversion rate for each $1,000 principal amount of Notes is 37.1903 shares of the Company’s common stock, representing an initial conversion price of approximately $26.89 per share of common stock. The initial conversion rate is subject to adjustment under certain circumstances.

In connection with the issuance of the Notes, the Company entered into convertible note hedge transactions with respect to the Company’s common stock (the “Call Options”) with Merrill Lynch Financial Markets, Inc. and Citibank, N.A. (collectively, the “Hedge Providers”). The Call Options are exercisable solely in connection with any conversion of the Notes and provide for the Company to receive shares of the Company’s common stock from the Hedge Providers equal to the number of shares issuable to the holders of the Notes upon conversion. The Company paid approximately $58.2 million for the Call Options.

In connection with the sale of the Notes, the Company also entered into separate warrant transactions with Merrill Lynch Financial Markets, Inc. and Citibank, N.A., whereby the Company issued warrants (the “Warrants”) to purchase 6,415,327 shares of common stock, subject to customary anti-dilution adjustments, at an exercise price of approximately $40.00 per share of common stock. The Company received approximately $34.1 million from the issuance of the Warrants.

The Company recorded the purchase of the Call Options, net of the related tax benefit of approximately $20.3 million, as a reduction of paid-in-capital and the proceeds from the Warrants as an addition to paid-in-capital in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled In, a Company’s Own Stock, and other relevant literature.

F-27

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

In February 2008, the Company filed a registration statement with the Securities and Exchange Commission to cover the resale of shares of the Company’s common stock that may be issued from time to time upon the conversion of the Notes.

(h)   Capital Lease Obligations

The Company has leased two condominium units at Hudson, which are reflected as capital leases. One of the leases requires the Company to make annual payments of $450,000 (subject to increases due to increases in the Consumer Price Index) from acquisition through November 2096. Effective January 1, 2003, and as of December 31, 2004, the annual lease payments under this lease increased to $506,244. This lease also allows the Company to purchase the unit at fair market value after November 2015.

The second lease requires the Company to make annual payments of $250,000 (subject to increases due to increases in the Consumer Price Index) through December 2098. Effective January 2004, payments under this lease increased to $285,337. The Company has allocated both of the leases’ payments between the land and building based on their estimated fair values. The portion of the payments allocated to building has been capitalized at the present value of the future minimum lease payments. The portion of the payments allocable to land is treated as operating lease payments. The imputed interest rate on both of these leases is 8%. The capital lease obligations related to the units amounted to approximately $6.1 million as of December 31, 2007 and 2006. Substantially all of the principal payments on the capital lease obligations are due at the end of the lease agreements.

The Company has also entered into capital lease obligations related to equipment at certain of the hotels.

Principal Maturities

The following is a schedule, by year, of principal payments on notes payable (including capital lease obligations) as of December 31, 2007 (in thousands):

			Amount
			Representing		Principal Payments
	Capital Lease		Interest on		on Capital Lease
	Obligations and		Capital Lease		Obligations and
	Debt Payable		Obligations		Debt Payable
2008	$	40,773	$	510	$	40,263
2009		10,615		494		10,121
2010		370,488		488		370,000
2011		489		488		1
2012		489		488		1
Thereafter		344,900		36,087		308,813
	$	767,754	$	38,555	$	729,199

The average interest rate on all of the Company’s debt for the years ended December 31, 2007, 2006 and 2005 was 5.8%, 6.1% and 10%, respectively.

F-28

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

8.   Commitments and Contingencies

As Lessee

Future minimum lease payments for noncancelable leases in effect as of December 31, 2007 are as follows (in thousands):

	Land
	(See Note 6)		Other
2008	$	266	$	228
2009		266		—
2010		266		—
2011		266		—
2012		266		—
Thereafter		22,365		—
Total	$	23,695	$	228

Future minimum lease payments do not include amounts for renewal periods or amounts that may need to be paid to landlords for real estate taxes, electricity and operating costs.

Management Fee on Restaurants

The Company owns a 50% interest in a restaurant joint venture with Chodorow Ventures LLC (“CV LLC”) formed for the purpose of establishing, owning, operating and/or managing restaurants, bars and other food and beverage operations in certain hotels affiliated with the Company. This agreement is implemented through operating agreements and leases at each hotel which expire between 2007 and 2010. These leases generally give the Restaurant Venture two additional five-year renewal periods. CV LLC or an affiliated entity manages the operations of the Restaurant Venture and earns a 3% management fee.

Multi-employer Retirement Plan

Approximately 15% of the Company’s employees are subject to collective bargaining agreements. The Company is a participant, through these collective bargaining agreements, in multi-employer defined contribution retirement plans in New York and multi-employer defined benefit retirement plans in California covering union employees. Plan contributions are based on a percentage of employee wages, according to the provisions of the various labor contracts. The Company’s contributions to the multi-employer retirement plans amounted to approximately $1.8 million, $1.7 million, and $1.4 million, for the years ended December 31, 2007, 2006 and 2005, respectively, for these plans. Under the Employee Retirement Income Security Act of 1974 as amended by the Multiemployer Pension Plan Amendments Act of 1980, an employer is liable upon withdrawal from or termination of a multiemployer plan for its proportionate share of the plan’s unfunded vested benefits liability. Based on information provided by the administrators of the majority of these multiemployer plans, the Company does not believe there is any significant amount of unfunded vested liability under these plans.

Litigation

Shore Club Litigation — New York State Action

The Company is currently involved in litigation regarding the management of Shore Club. In 2002, the Company, through a wholly-owned subsidiary, Shore Club Holdings, LLC, invested in Shore Club, and the management company, Morgans Hotel Group Management LLC (“MHG Management Company”), took over management of the property. The management agreement expires in 2022. For the year ended December 31, 2002 (reflecting six months of data based on information provided to us and not generated by us and six months of

F-29

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

operations after MHG Management Company took over management of Shore Club in July 2002), Shore Club had an operating loss and its owner, Philips South Beach LLC, was in dispute with its investors and lenders. After MHG Management Company took over management of the property, the financial performance improved and Shore Club had operating income in 2004. The Company believes this improvement was the direct result of our repositioning and operation of the hotel. This improved performance has continued. In addition, during the fourth quarter of 2005, the debt on the hotel was refinanced.

On January 17, 2006, Philips South Beach LLC filed a lawsuit in New York state court against several defendants including MHG Management Company and other persons and entities. The lawsuit alleges, among other things, (i) that MHG Management Company engaged in fraudulent or willful misconduct with respect to Shore Club entitling Philips South Beach LLC to terminate the Shore Club management agreement without the payment of a termination fee to it, (ii) breach of fiduciary duty by defendants, (iii) tortious interference with business relations by redirecting guests and events from Shore Club to Delano Miami, (iv) misuse of free and complimentary rooms at Shore Club, and (v) misappropriation of confidential business information. The allegations include that defendants took actions to benefit Delano Miami at the expense of Shore Club, billed Shore Club for expenses that had already been billed by MHG Management Company as part of chain expenses, misused barter agreements to obtain benefits for employees, and failed to collect certain rent and taxes from retail tenants. The lawsuit also asserts that defendants falsified or omitted information in monthly management reports related to the alleged actions. Ian Schrager, founder of the Predecessor, and David T. Hamamoto, chairman of the board of directors of the Company, are also named as defendants in the lawsuit.

The remedies sought by Philips South Beach LLC included (i) termination of the management agreement without the payment of a termination fee to MHG Management Company, (ii) a full accounting of all of the affairs of Shore Club from the inception of the management agreement, (iii) at least $5.0 million in compensatory damages, (iv) at least $10.0 million in punitive damages, and (v) attorneys’ fees, interest, costs and disbursements.

The Company believes that MHG Management Company has abided by the terms of the management agreement. The Company believes that Philips South Beach LLC has filed the lawsuit as part of a strategy to pressure us to renegotiate our management agreement with respect to Shore Club.

On August 1, 2006, the judge granted the Company’s motion to dismiss Philips South Beach LLC’s causes of action for breach of fiduciary duty, aiding and abetting a breach of fiduciary duty, breach of good faith and fair dealing, and unjust enrichment. The judge also struck all claims for punitive damages. Philips South Beach LLC appealed for the reinstatement of the three fiduciary duty claims and we cross-appealed for the dismissal of the four claims not dismissed by the trial court. Philips South Beach LLC filed an amended complaint adding a punitive damages demand for two of the remaining claims, for unfair competition and tortious interference. The Company’s motion to dismiss that demand was denied, and we have appealed.

Philips South Beach LLC has further amended its complaint to assert two claims of fraudulent inducement against MHG Management Company and Mr. Schrager, seeking rescission of the management agreement, return of all fees paid under the management agreement, and unspecified punitive damages. The Company has moved to dismiss these new claims and answered the balance of the second amended complaint, denying all substantive allegations and asserting various affirmative defenses. Discovery is ongoing.

In October 2007, MHG Management Company counterclaimed against Philips South Beach LLC and asserted third party claims against affiliates of Philips South Beach LLC. These claims include breach of the management agreement, tortious interference with contractual relations and tortious interference with economic advantage. Shore Club Holdings, LLC has filed a complaint against affiliates of Philips South Beach LLC asserting derivative claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty, and a direct claim for an accounting of Philips South Beach LLC.

The Company is continuing to pursue this litigation vigorously. There can be no assurances, however, that the outcome of this litigation, or the costs and diversion of management resources associated with the

F-30

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

defense of the litigation will not harm our reputation in the hospitality industry or otherwise adversely affect the Company’s business and results of operations.

Shore Club Litigation — Florida State Action

On April 17, 2006, MHG Management Company and a related subsidiary filed a lawsuit in Florida state court against Philip Pilevsky and individuals and entities associated with Mr. Pilevsky, charging them with tortious interference with the 20-year exclusive management agreement that MHG Management Company holds for Shore Club, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and tortious interference with actual and prospective business and economic relations, in part as an attempt to break or renegotiate the terms of the management agreement.

On July 13, 2006, the judge issued an order denying defendants’ motion to stay and for a protective order based on the pendency of the Shore Club litigation in New York. On appeal of that order, the Florida court of appeals quashed the order denying the stay and directed the lower court to stay the Florida action pending the disposition of the Shore Club litigation in New York. In light of the counterclaims, third party claims, and new complaint filed in New York by MHG Management Company and Shore Club Holdings, LLC, this action is being withdrawn.

Century Operating Associates Litigation

On March 23, 2006, Century Operating Associates filed a lawsuit in New York state court naming several defendants, including us, the Predecessor, and Messrs. Scheetz, Schrager and Hamamoto. The lawsuit alleges breach of contract, breach of fiduciary duty and a fraudulent conveyance in connection with the structuring transactions that were part of our IPO, and the offering itself. In particular, the lawsuit alleges that the transactions constituted a fraudulent conveyance of the assets of Morgans Hotel Group LLC, in which Century Operating Associates allegedly has a non-voting membership interest, to us. The plaintiff claims that the defendants knowingly and intentionally structured and participated in the transactions in a manner designed to leave the Predecessor without any ability to satisfy its obligations to Century Operating Associates.

The remedies sought by Century Operating Associates include (i) Century Operating Associates’ distributive share of the IPO proceeds, (ii) at least $3.5 million in compensatory damages, (iii) at least $17.5 million in punitive damages, and (iv) attorneys’ fees and expenses.

On July 6, 2006, the judge granted the Company’s motion to dismiss us from the case. Century Operating Associates filed an amended complaint, re-asserting claims against us, including a new claim for aiding and abetting breach of fiduciary duty, and adding claims against a new defendant, Morgans Group LLC. In April 2007, the judge granted the Company’s motion to dismiss all claims against us and Morgans Group LLC, and certain claims against certain other defendants. In May 2007, Century Operating Associates amended its compliant again, re-asserting the same claims against the Company and Morgans Group LLC. On June 8, 2007, the Company and defendants moved to dismiss all claims except the breach of the operating agreement of Morgans Hotel Group LLC. Discovery is ongoing.

The Company is continuing to pursue this litigation vigorously. There can be no assurances, however, that the outcome of this litigation, or the costs and diversion of management resources associated with the defense of the litigation will not harm our reputation in the hospitality industry or otherwise adversely affect the Company’s business and results of operations.

Other Litigation

The Company is involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on the Company’s financial positions, results of operations or liquidity.

F-31

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

Environmental

As a holder of real estate, the Company is subject to various environmental laws of federal and local governments. Compliance by the Company with existing laws has not had an adverse effect on the Company and management does not believe that it will have a material adverse impact in the future. However, the Company cannot predict the impact of new or changed laws or regulations on its current investment or on investments that may be made in the future.

9.   Income Taxes

The provision for income taxes on income from continuing operations is comprised of the following for the year ended December 31, 2007 and the period from February 17, 2006 to December 31, 2006 (in thousands):

	Year Ended			Period from
	December 31,			February 17, 2006
	2007			to December 31, 2006
Current tax provision (benefit):
Federal	$	1,680		$	—
State and city		997			129
Foreign		1,035			819
		3,712			948
Deferred tax provision (benefit):
Federal		(9,720	)		7,723
State		(3,156	)		2,899
Foreign		104			(456	)
		(12,772	)		10,166
Total tax provision	$	(9,060	)	$	11,114

Net deferred tax asset consists of the following (in thousands):

	As of December 31,			As of December 31,
	2007			2006
Goodwill	$	(18,115	)	$	(13,240	)
Basis differential in property and equipment		(10,676	)		(8,272	)
Total deferred tax liability		(28,791	)		(21,512	)
Stock compensation		11,472			3,222
Accrued liabilities		399			1,090
Derivative Instruments		4,917			1,118
Investment in unconsolidated subsidiaries		10,677			285
Foreign taxes payable		560			456
Capital lease obligation		915			880
Designer fee payable		4,109			3,700
Other		591			595
Convertible bond		22,787			0
Total deferred tax asset		56,427			11,346
Net deferred tax asset/(liability)	$	27,636		$	(10,166	)

F-32

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

The Company has not established a reserve on its deferred tax assets based on anticipated future taxable income and/or tax strategies which may include the sale of a property or an interest therein.

A reconciliation of the statutory United States Federal tax rate to the Company’s effective income tax rate is as follows:

				Period from
				February 17,
	Year Ended			2006
	December 31,			to December 31,
	2007			2006
Federal statutory income tax rate		34	%		34	%
State and city taxes, net of federal tax benefit		9	%		7	%
Foreign tax benefits		(5	)%		(19	)%
Other — non deductible items		—			60	%
Effective tax rate		38	%		82	%

The Company accounts for certain tax positions in accordance with FIN 48. The Company does not believe it will have any material changes in its unrecognized tax positions over 12 months. The Company does not have any accrued interest or penalties associated with any unrecognized tax positions.

10.   Omnibus Stock Incentive Plan

On February 9, 2006, the board of directors of the Company adopted the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan (the “2006 Stock Incentive Plan”). The 2006 Stock Incentive Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of the Company, including restricted stock and other equity-based awards, including membership units in Morgans Group LLC which are structured as profits interests (“LTIP Units”), or any combination of the foregoing. The eligible participants in the 2006 Stock Incentive Plan included directors, officers and employees of the Company. An aggregate of 3,500,000 shares of common stock of the Company were reserved and authorized for issuance under the 2006 Stock Incentive Plan, subject to equitable adjustment upon the occurrence of certain corporate events. On April 23, 2007, the board of directors of the Company adopted, and at the annual meeting of stockholders on May 22, 2007, the stockholders approved, the Company’s 2007 Omnibus Incentive Plan (the “2007 Incentive Plan”), which amends and restates the 2006 Stock Incentive Plan and increases the number of shares reserved for issuance under the plan by up to 3,250,000 shares to a total of 6,750,000 shares. Awards other than options and stock appreciation rights shall reduce the shares available for grant by 1.7 shares for each share subject to such an award. Thus, the maximum number of additional shares under the 2007 Incentive Plan available for grant is 3,250,000, assuming all awards are options and stock appreciation rights, or 1,911,764, if all awards are other than options and stock appreciation rights.

Total stock compensation expense, which is included in corporate expenses on the accompanying financial statements, was $19.5 million and $7.9 million for the years ended December 31, 2007 and 2006, respectively.

Restricted Common Stock Units

Pursuant to the 2006 Stock Incentive Plan, throughout 2006, the Company granted restricted common stock units (“RSUs”) to non-employee directors and employees. Such non-employee director RSU grants vest one-third of the amount granted on the first anniversary of the grant date and as to the remainder in 24 equal installments at the end of each month following the first anniversary of the grant date so long as the recipient continues to be an eligible recipient. Such employee RSU grants vest one-quarter of the amount granted on each of the first anniversaries of the grant date so long as the recipient continues to be an eligible recipient. Such non-employee director and employee RSUs will become fully vested on the third and fourth anniversary, respectively, of the grant date. An aggregate of

F-33

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

195,133 shares of restricted common stock were granted during 2006 and the weighted average grant date fair value of the grants was $16.13.

During April and May 2007, the Company issued an aggregate of 216,385 RSUs to the Company’s employees and non-employee directors pursuant to the 2007 Incentive Plan. The RSUs granted to employees vest fully on the third anniversary of the grant date so long as the recipient continues to be an eligible recipient. The RSUs granted to non-employee directors vest one-third of the amount granted on each of the first three anniversaries of the grant date so long as the recipient continues to be an eligible participant. The fair value of each such RSU granted in April 2007 was $20.16 at the grant date and the fair value of each such RSU granted in May 2007 was $23.04 at the grant date.

Also, in April, the Company issued the then named executive officers an aggregate of 121,000 performance-based RSUs pursuant to the 2007 Incentive Plan. These performance RSUs are at risk for forfeiture over the vesting period of three years and require continued employment. In addition, the RSUs are at risk based on the achievement of a 7% total stockholder return over each calendar year of a three-year performance period from 2007 through 2009 (subject to certain catch-up features). As of 12/31/2007, the achievement of the 7% shareholder return over the 2007 calendar year had been achieved. The fair value of such performance-based RSUs granted in April 2007 was $22.38 at the grant date.

Further, on November 27, 2007, the Company granted executives of the Company a one-time performance-based grant of 79,000 RSUs. Vesting of such RSUs occurs on the first anniversary of the grant, November 27, 2008, unless the Company achieves Adjusted EBITDA for the 2007 fiscal year of a stated target amount established by the compensation committee of the Company’s board of directors, in which case the first vesting date will be accelerated to February 27, 2008. The second vesting of such performance-based RSUs will occur on the second anniversary of the grant, November 27, 2009, unless the Company achieves Adjusted EBITDA in the 2008 fiscal year, as calculated by the Company, equal to an Adjusted EBITDA target for the 2008 fiscal year established by the compensation committee of the Company’s board of directors in 2008, in which case the second vesting date will be accelerated to February 27, 2009. The last vesting of such performance-based RSUs will vest on the third anniversary of the grant, November 27, 2010. All such performance-based RSUs will be fully vested by November 27, 2010. The fair value of such performance-based RSUs granted on November 27, 2007 was $17.67 at the grant date.

Pursuant to the separation agreement with Mr. Scheetz, the Company’s former chief executive officer, Mr. Scheetz retained his vested and unvested restricted stock units. To the extent that these awards are not yet vested, they will remain subject to the existing vesting provisions, but all unvested awards will be fully vested by September 19, 2009 (certain awards which are subject to performance conditions will remain subject to those conditions).

In addition to the above grants of RSUs, the Company granted newly hired or promoted employees RSUs. A summary of the status of the Company’s nonvested restricted common stock granted to non-employee directors, named executive officers and employees as of December 31, 2007 and changes during the year ended December 31, 2007, is presented below:

	Restricted			Weighted Average
Nonvested Shares	Shares			Fair Value
Nonvested at January 1, 2007		184,033		$	16.13
Granted		463,085			20.72
Vested		(48,253	)		17.45
Forfeited		(41,675	)		20.38
Nonvested at December 31, 2007		557,190		$	19.64

For the year ended December 31, 2007, the Company expensed $3.8 million related to the granted RSUs, including $1.3 million related to the RSUs granted to Mr. Scheetz, which the Company recognized in full in

F-34

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

accordance with SFAS 123R, as Mr. Scheetz is no longer an employee. For the year ended December 31, 2006, the Company expensed $0.3 million related to granted RSUs. As of December 31, 2007, the Company had 572,460 RSUs outstanding.

At December 31, 2007, the Company has yet to expense $7.8 million related to nonvested RSUs which is expected to be recognized over the remaining vesting period of the outstanding awards, as discussed above.

LTIP Units

Pursuant to the 2006 Stock Incentive Plan, throughout 2006, the Company granted an aggregate of 862,500 LTIP Units were granted to the Company’s named executive officers and chairman of the board of directors. On May 1, 2006, an additional 4,500 LTIP Units were granted to a newly hired executive of the Company. LTIP Units vest as to one third of the amount granted on the first anniversary of the grant date and as to the remainder in 24 equal installments at the end of each month following the first anniversary of the grant date so long as the recipient continues to be an eligible recipient. These LTIP Units will become fully vested on the third anniversary of the grant date. The fair value of each LTIP Unit granted throughout 2006 was $20.00 at the date of grant.

On April 25, 2007, the compensation committee of the board of directors of the Company granted an aggregate of 176,750 LTIP Units to the Company’s named executive officers. The LTIP Units are at risk for forfeiture over the vesting period of three years and require continued employment. The fair value of the LTIP Units granted on April 25, 2007 was $22.45 at the date of grant.

Further, on November 27, 2007, the Company granted executives of the Company a one time performance-based grant of 75,000 aggregated LTIP Units. Vesting of such LTIP Units occurs on the first anniversary of the grant, November 27, 2008, unless the Company achieves Adjusted EBITDA for the 2007 fiscal year of a stated target amount established by the compensation committee of the Company’s board of directors, in which case the first vesting date will be accelerated to February 27, 2008. The second vesting of such performance-based LTIP Units will occur on the second anniversary of the grant, November 27, 2009, unless the Company achieves Adjusted EBITDA in the 2008 fiscal year, as calculated by the Company, equal to an Adjusted EBITDA target for the 2008 fiscal year established by the compensation committee of the Company’s board of directors in 2008, in which case the second vesting date will be accelerated to February 27, 2009. The last vesting of such performance-based LTIP Units will vest on the third anniversary of the grant, November 27, 2010. All such performance-based LTIP Units will be fully vested by November 27, 2010. The fair value of the LTIP Units granted on November 27, 2007 was $17.67 at the date of grant.

On December 10, 2007, the Company granted the chief executive officer, Mr. Kleisner, 55,000 LTIP Units, which are at risk for forfeiture over the vesting period of three years and require continued employment. The fair value of the LTIP Units granted to Mr. Kleisner in December 2007 was $17.91 at the date of grant.

Pursuant to the separation agreement with Mr. Scheetz, the Company’s former chief executive officer, Mr. Scheetz retained his vested and unvested LTIP units. To the extent that these awards are not yet vested, they will remain subject to the existing vesting provisions, but all unvested awards will be fully vested by September 19, 2009 (certain awards which are subject to performance conditions will remain subject to those conditions).

In addition to the above grants of LTIP Units, the Company granted newly hired or promoted employees LTIP Units. A summary of the status of the Company’s nonvested LTIP Units granted to named executive officers and

F-35

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

other executives of the Company as of December 31, 2007 and changes during the year ended December 31, 2007, is presented below:

				Weighted Average
Nonvested Shares	LTIP Units			Fair Value
Nonvested at January 1, 2007		867,000		$	20.00
Granted		346,750			20.66
Vested		(528,704	)		20.00
Forfeited		(2,875	)		20.00
Nonvested at December 31, 2007		682,171		$	20.34

For the year ended December 31, 2007, the Company expensed $10.9 million related to the granted LTIP Units, including $4.7 million related to the LTIP Units granted to Mr. Scheetz, which the Company recognized in full in accordance with SFAS 123R, as Mr. Scheetz is no longer an employee. For the year ended December 31, 2006, the Company expensed $5.1 million related to granted LTIPs. As of December 31, 2007, the Company had 1,210,875 LTIPs outstanding.

At December 31, 2007, the Company has yet to expense $8.4 million related to nonvested LTIP Units which is expected to be recognized over the remaining vesting period of the outstanding awards, as discussed above.

Stock Options

Pursuant to the 2006 Incentive Plan, throughout 2006, the Company granted our chairman, named executive officers and employees options to purchase common stock of the Company with an exercise price ranging from $13.05 to $20.00 per share, based on the closing market price of the stock on the grant date. Such stock options typically vest as to one-third of the amount granted on the first anniversary of the grant date and as to the remainder in 24 equal installments at the end of each month following the first anniversary of the grant date so long as the recipient continues to be an eligible recipient. These options will become fully vested on the third anniversary of the grant date and expire 10 years after the grant date. The fair value for each option granted was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under SFAS No. 123R with the following assumptions: risk-free interest rate of 4.6%, expected option lives of 5.85 years, 35% volatility, no dividend rate and 10% forfeiture rate. For the year ended December 31, 2006, the weighted average fair value of such options was $7.98.

During April and May 2007, the Company issued an aggregate of 200,500 options to purchase common stock of the Company to employees. The exercise price of each such option is equal to the closing market price of our common stock on its respective date of grant. These options vest as to one-third of the amount granted on each of the first three anniversaries of the grant date so long as the recipient continues to be an eligible recipient. These options will become fully vested on the third anniversary of the grant date and expire 10 years after the grant date. The fair value for each such option granted was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under SFAS No. 123R with the following assumptions: risk-free interest rate of approximately 4.7% for the April 2007 grants and 4.6% for the May 2007 grants, expected option lives of 5.85 years, 35% volatility, no dividend rate and 10% forfeiture rate. The fair value of each such option was $8.37 for the April 2007 grants and $9.65 for the May 2007 grants at the date of grant.

Further, on November 27, 2007, the Company granted executives and employees of the Company a one-time performance-based grant of 338,000 aggregated options to purchase common stock of the Company. Vesting of such options occurs on the first anniversary of the grant, November 27, 2008, unless the Company achieves Adjusted EBITDA for the 2007 fiscal year of a stated target amount established by the compensation committee of the Company’s board of directors, in which case the first vesting date will be accelerated to February 27, 2008. The second vesting of such performance-based options will occur on the second anniversary of the grant, November 27,

F-36

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

2009, unless the Company achieves Adjusted EBITDA in the 2008 fiscal year, as calculated by the Company, equal to an Adjusted EBITDA target for the 2008 fiscal year established by the compensation committee of the Company’s board of directors in 2008, in which case the second vesting date will be accelerated to February 27, 2009. The last vesting of such performance-based Options will vest on the third anniversary of the grant, November 27, 2010. All such performance-based options will be fully vested by November 27, 2010 and expire 10 years after the grant date. The fair value for each such performance-based option was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under SFAS No. 123R with the following assumptions: risk-free interest rate of approximately 3.5%, expected option lives of 5.85 years, 35% volatility, no dividend rate and 8% forfeiture rate. The fair value of each such performance-based option was $7.03.

On December 10, 2007, the Company granted the chief executive officer, Mr. Kleisner, an aggregate of 215,000 options to purchase common stock of the Company. The exercise price of 95,000 such options is equal to the closing market price of our common stock on the date of grant. The exercise price of 120,000 such options is equal to 140% of the closing market price of our common stock on the date of grant. These options vest as to one-third of the amount granted on each of the first three anniversaries of the grant date so long as Mr. Kleisner is an eligible recipient. These options will become fully vested on the third anniversary of the grant date and expire 10 years after the grant date. The fair value for each such option granted was estimated at the date of grant using the Black-Scholes option-pricing model, an allowable valuation method under SFAS No. 123R with the following assumptions: risk-free interest rate of approximately 3.7%, expected option lives of 5.85 years, 35% volatility, no dividend rate and 10% forfeiture rate. The fair value of each such option was $7.19 for the 95,000 options granted equal to the closing market price on December, 10, 2007 and $5.15 for the 120,000 options granted equal to 140% of the closing market price on December 10, 2007.

Pursuant to the separation agreement with Mr. Scheetz, the Company’s former chief executive officer, Mr. Scheetz retained his vested and unvested options. To the extent that these awards are not yet vested, they will remain subject to the existing vesting provisions, but all unvested awards will be fully vested by September 19, 2009 (certain awards which are subject to performance conditions will remain subject to those conditions).

In addition to the above grants of options to purchase common stock of the Company, the Company granted newly hired or promoted employees similar options. A summary of the Company’s outstanding and exercisable stock options granted to non-employee directors, named executive officers and employees as of December 31, 2007 and changes during the year ended December 31, 2007, is presented below:

						Weighted Average
				Weighted Average		Remaining		Aggregate Intrinsic
Options	Shares			Exercise Price		Contractual Term		Value
								(Dollars in thousands)
Outstanding at January 1, 2006		—		$	—
Granted at February 14, 2006 IPO date		1,006,100			20.00
Additional granted in 2006		184,800			13.18
Exercised		—			—
Forfeited or Expired		(37,700	)		20.00
Outstanding at December 31, 2006		1,153,200		$	19.22
Granted		839,500			19.98
Exercised		(41,088	)		14.36
Forfeited or Expired		(77,801	)		20.31
Outstanding at December 31, 2007		1,873,811		$	19.61		8.69	$	1,294
Exercisable at December 31, 2007		605,026		$	19.78		7.96	$	119

F-37

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

For the year ended December 31, 2007, the Company expensed $4.8 million related to the granted stock options, including $1.3 million related to the options granted to Mr. Scheetz, which the Company recognized in full in accordance with SFAS 123R, as Mr. Scheetz is no longer an employee. For the year ended December 31, 2006, the Company expensed $2.5 million related to granted stock options

At December 31, 2007, the Company has yet to expense $8.4 million related to outstanding stock options which is expected to be recognized over the remaining vesting period of the outstanding awards, as discussed above.

11.   Related Party Transactions

The Company earned management fees, chain services fees and fees for certain technical services and has receivables from hotels it owns through investments in unconsolidated joint ventures as well as hotels owned by the Former Parent. These fees totaled approximately $18.2 million for the year ended December 31, 2007, $8.7 million (of which approximately $1.0 million was during the Predecessor period from January 1, 2006 to February 16, 2006) for the year ended December 31, 2006 and $9.5 million during the year ended December 31, 2005.

As of December 31, 2007 and 2006, the Company had receivables from these affiliates of approximately $3.9 million and $2.8 million, respectively, which are included in receivables from related parties on the accompanying consolidated balance sheets.

12.   Other Non-Operating Expenses (Income)

Other non-operating (income) expenses consist of the following (in thousands):

				Morgans Hotel
				Group Co.		Predecessor
				February 17,		January 1,
				2006 to		2006 to
	Year Ended			December 31,		February 16,		Year Ended
	December 31, 2007			2006		2006		December 31, 2005
Gain on sale of London joint venture interest (Note 5)	$	(6,058	)	$	—	$	—	$	—
Executive termination costs		3,437			—		—		—
Gain on sale of tax credits		—			—		—		(1,731	)
Loss on asset disposal		1,210			1,495		—		—
Development costs		2,018			122		—		—
Litigation and settlement costs		3,925			1,456		—		—
Other		227			389		—		157
	$	4,759		$	3,462	$	—	$	(1,574	)

F-38

Morgans Hotel Group Co. and Predecessor

Notes to Consolidated/Combined Financial Statements — (Continued)

13.   Quarterly Financial Information (Unaudited)

The tables below reflect the Company’s selected quarterly information for the Company and the Predecessor for the years ended December 31, 2007 and 2006 (in thousands, except per share data):

	Three Months Ended
	December 31,			September 30,			June 30,		March 31,
	2007			2007			2007		2007
Total revenues	$	89,795		$	72,098		$	82,670	$	78,422
Loss (income) before income tax expense and minority interests		(11,040	)		(17,750	)		1,557		677
Net income (loss)		(6,052	)		(10,021	)		841		436
Net income (loss) per share — basic/diluted(2)	$	(0.18	)	$	(0.29	)	$	0.03	$	0.01
Weighted-average shares outstanding — basic		34,526			34,068			32,361		32,436
Weighted-average shares outstanding — diluted		34,526			34,068			32,689		32,749

	Three Months Ended
	December 31,			September 30,			June 30,		March 31,
	2006			2006			2006		2006(1)
Total revenues	$	80,185		$	64,730		$	72,023	$	64,945
Loss (income) before income tax expense and minority interests		(1,925	)		(1,522	)		5,916		(5,490	)
Net income (loss)		(1,068	)		(704	)		3,732		(15,885	)
Net income (loss) per share — basic/diluted(2)	$	(0.03	)	$	(0.02	)	$	0.11	$	(0.36	)
Weighted-average shares outstanding — basic & diluted		33,474			33,500			33,500		33,500

(1)	In order to present quarterly information for the quarter ended March 31, 2006, the Company has combined our Predecessor’s results for the period from January 1, 2006 to February 16, 2006 with the results of its operations of the Company for the period from February 17, 2006 to March 31, 2006.
(2)	Net income per share and the weighted average shares outstanding is for the period of February 17, 1006 (date of IPO) to March 31, 2006.

F-39

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 17, 2008.

Morgans Hotel Group Co.

By:  /s/  Fred J. Kleisner

Name:     Fred J. Kleisner

Title:  President and Chief Executive Officer

Date: March 17, 2008

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Fred J. Kleisner, Marc Gordon and Richard Szymanski and each of them severally, his true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his name, place and stead, in any and all capacities, to do any and all things and execute and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the United States Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/  Fred J. Kleisner Fred J. Kleisner	President, Chief Executive Office and Director (Principal Executive Officer)	March 17, 2008
/s/  Richard Szymanski Richard Szymanski	Chief Financial Officer and Secretary (Principal Financial and Accounting Officer)	March 17, 2008
/s/  David T. Hamamoto David T. Hamamoto	Chairman of the Board of Directors	March 17, 2008
/s/  Edwin L. Knetzger, III Edwin L. Knetzger, III	Director	March 17, 2008
/s/  Thomas L. Harrison Thomas L. Harrison	Director	March 17, 2008
/s/  Robert Friedman Robert Friedman	Director	March 17, 2008
/s/  Jeffrey M. Gault Jeffrey M. Gault	Director	March 17, 2008
/s/  Michael D. Malone Michael D. Malone	Director	March 17, 2008

EX-10.26

Exhibit 10.26

EXECUTION COPY

FIRST MEZZANINE LOAN AGREEMENT

Dated as of November 6, 2007

among

HRHH GAMING SENIOR MEZZ, LLC,
as Gaming Mezz Borrower,

HRHH JV SENIOR MEZZ, LLC,
as JV Borrower,

and

COLUMN FINANCIAL, INC.,
as Lender

TABLE OF CONTENTS

	Page
ARTICLE I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION	2
Section 1.1 Definitions	2
Section 1.2 Principles of Construction	50
ARTICLE II. GENERAL TERMS	51
Section 2.1 Loan Commitment; Disbursement to Borrowers.	51
Section 2.2 Interest Rate	51
Section 2.3 Loan Payment	58
Section 2.4 Prepayments	59
Section 2.5 Release of Property	70
Section 2.6 Cash Management	75
Section 2.7 Extensions of the Initial Maturity Date	77
ARTICLE III. CONDITIONS PRECEDENT.	88
Section 3.1 Conditions Precedent to Closing	88
Section 3.2 Submission of Construction Loan Advance Documents to Lender	88
Section 3.3 Delivery of Construction Completion Guaranty	88
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.	90
Section 4.1 Representations of Borrowers	90
Section 4.2 Survival of Representations	106
Section 4.3 Definition of Borrowers’ Knowledge	106
ARTICLE V. COVENANTS OF BORROWERS	107
Section 5.1 Affirmative Covenants	107
Section 5.2 Negative Covenants	125
ARTICLE VI. INSURANCE; CASUALTY; CONDEMNATION; RESTORATION	136
Section 6.1 Insurance	136
Section 6.2 Casualty	137
Section 6.3 Condemnation	138
Section 6.4 Restoration	139
Section 6.5 Rights of Lender	139
ARTICLE VII. RESERVE FUNDS	140
Section 7.1 Required Repair Fund	140
Section 7.2 Tax and Insurance Escrow Fund	140
Section 7.3 Replacement Reserve Fund	140
Section 7.4 Interest Reserve Fund	141
Section 7.5 Initial Renovation Reserve Fund	141

	Page
Section 7.6 General Reserve Fund	141
Section 7.7 Construction Loan Reserve Fund	142
Section 7.8 Reserve Funds, Generally	142
Section 7.9 Transfer of Mortgage Reserve Funds	144
ARTICLE VIII. DEFAULTS	144
Section 8.1 Event of Default	144
Section 8.2 Remedies	149
Section 8.3 Right to Cure Defaults	151
ARTICLE IX. SPECIAL PROVISIONS	151
Section 9.1 Sale of Note and Securitization	151
Section 9.2 Re-Dating	154
Section 9.3 Securitization Indemnification	154
Section 9.4 Exculpation	157
Section 9.5 Matters Concerning Managers and Liquor Manager	162
Section 9.6 Matters Concerning Gaming Operator	163
Section 9.7 Servicer	163
ARTICLE X. MISCELLANEOUS	163
Section 10.1 Survival	163
Section 10.2 Lender’s Discretion	164
Section 10.3 Governing Law	164
Section 10.4 Modification, Waiver in Writing	166
Section 10.5 Delay Not a Waiver	166
Section 10.6 Notices	166
Section 10.7 Trial by Jury	168
Section 10.8 Headings	168
Section 10.9 Severability	168
Section 10.10 Preferences	168
Section 10.11 Waiver of Notice	169
Section 10.12 Remedies of Borrowers	169
Section 10.13 Expenses; Indemnity	169
Section 10.14 Schedules and Exhibits Incorporated	170
Section 10.15 Offsets, Counterclaims and Defenses	170
Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries	171
Section 10.17 Publicity	172
Section 10.18 Waiver of Marshalling of Assets	172
Section 10.19 Waiver of Counterclaim	172
Section 10.20 Conflict; Construction of Documents; Reliance	172
Section 10.21 Brokers and Financial Advisors	173
Section 10.22 Prior Agreements	173
Section 10.23 Joint and Several Liability	173
Section 10.24 Certain Additional Rights of Lender (VCOC)	173
Section 10.25 Note Register	173

	Page
ARTICLE XI. MORTGAGE LOAN AND MEZZANINE LOANS	174
Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries	174
Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels	175
Section 11.3 Mortgage Loan Defaults	176
Section 11.4 Discussions with Mortgage Lender	178
Section 11.5 Independent Approval Rights	178
Section 11.6 Intercreditor Agreement	178
ARTICLE XII. GAMING PROVISIONS	179
Section 12.1 Operation of Casino Component	179
Section 12.2 Gaming Liquidity Requirements	181
ARTICLE XIII. RIGHT OF FIRST OFFER	182
Section 13.1 Right of First Offer	182
Section 13.2 Right of First Offer Procedure	182
Section 13.3 Application to Credit Suisse	183

SCHEDULES
Schedule I-A	—	Legal Description of Hotel/Casino Property
Schedule I-B	—	Legal Description of Café Property
Schedule I-C	—	Legal Description of Adjacent Property
Schedule II	—	Description of Project
Schedule III	—	Description of Pledged Interests
Schedule IV	—	Allocated Loan Amounts
Schedule V	—	Net Worth Requirements
Schedule VI	—	Organizational Structure
Schedule VII	—	IP
Schedule VIII	—	Litigation
Schedule IX	—	Operating Permits
Schedule X	—	Rent Roll
Schedule XI	—	List of Mortgage Loan Documents
EXHIBITS
Exhibit A	—	Form of First Mezzanine Construction Completion Guaranty

FIRST MEZZANINE LOAN AGREEMENT

     THIS FIRST MEZZANINE LOAN AGREEMENT, dated as of November 6, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”), among COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”), HRHH GAMING SENIOR MEZZ, LLC, a Delaware limited liability company, having its principal place of business c/o Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Gaming Mezz Borrower”) and HRHH JV SENIOR MEZZ, LLC, a Delaware limited liability company, having its principal place of business c/o Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“JV Borrower”; and each of Gaming Borrower and JV Borrower, individually, a “Borrower”, and collectively, “Borrowers”), jointly and severally.

W I T N E S S E T H:

     WHEREAS, pursuant to that certain Loan Agreement, dated as of February 2, 2007 (the “Original Mortgage Loan Agreement”), among Mortgage Lender and Mortgage Borrowers (as such terms are hereinafter defined), Mortgage Lender made a loan to Mortgage Borrowers in the original principal amount of up to $1,360,000,000.00 (the “Original Mortgage Loan”), subject to and in accordance with the terms and conditions of the Original Mortgage Loan Agreement;

     WHEREAS, Mortgage Lender and Mortgage Borrowers have agreed that, as of the date hereof, (i) Mortgage Borrowers shall prepay $350,000,000.00 of the Original Mortgage Loan from the proceeds of three (3) mezzanine loans made to the direct and/or indirect owners of equity interests in Mortgage Borrowers, and (ii) Mortgage Lender shall increase the maximum amount of the Original Mortgage Loan by $20,000,000.00, resulting in the aggregate principal amount of $1,030,000,000.00, in accordance with the terms and conditions of the Mortgage Loan Agreement (as such term is hereinafter defined), and the original promissory note evidencing the Original Mortgage Loan shall be replaced by the Mortgage Notes (as such term is hereinafter defined); and

     WHEREAS, in connection with the partial prepayment of the Original Mortgage Loan: (i) Lender is willing to make the Loan to Borrowers, subject to and in accordance with the terms and conditions of this Agreement and the other Loan Documents; (ii) Second Mezzanine Lender is willing to make the Second Mezzanine Loan to Second Mezzanine Borrowers, subject to and in accordance with the terms and conditions of the Second Mezzanine Loan Agreement and the other Second Mezzanine Loan Documents (as such terms are hereinafter defined); and (iii) Third Mezzanine Lender is willing to make the Third Mezzanine Loan to Third Mezzanine Borrowers, subject to and in accordance with the terms and conditions of the Third Mezzanine Loan Agreement and the other Third Mezzanine Loan Documents (as such terms are hereinafter defined).

     NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and legal sufficiency of

which are hereby acknowledged, the parties hereto hereby covenant, agree, represent and warrant as follows:

ARTICLE I.
DEFINITIONS; PRINCIPLES OF CONSTRUCTION

     Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

     “Acceptable Counterparty” shall mean any counterparty to the Interest Rate Cap Agreement that has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a long-term unsecured debt rating of at least “AA-” by S&P and “Aa3” from Moody’s, which rating shall not include a “t” or otherwise reflect a termination risk.

     “Additional Insolvency Opinion” shall have the meaning set forth in Section 4.1.30(d) hereof.

     “Additional Non-Qualified Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(c) hereof.

     “Additional Non-Qualified Prepayment Date” shall mean July 1, 2008.

     “Adjacent Borrower” shall mean HRHH Development, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Adjacent Parcel Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Adjacent Parcel Sale” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Adjacent Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Adjacent Property IP License” shall have the meaning set forth in Section 5.1.26(b) hereof.

     “Administrative Agent” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Advance Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Affiliate” shall mean, as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.

2

     “Affiliate Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Affiliate IP License” shall have the meaning set forth in Section 5.1.26(d) hereof.

     “Affiliate IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Affiliate Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Affiliated IP Party” shall mean (i) any subsidiary of any Loan Party hereafter formed with Lender’s consent, (ii) HRHI, and (iii) any subsidiary of HRHI.

     “Affiliated Manager” shall mean any Manager in which any Loan Party or any Guarantor has, directly or indirectly, any legal, beneficial or economic interest.

     “Aggregate Outstanding Principal Balance” shall mean, as of any date of determination, the sum of the Outstanding Principal Balance, the Mortgage Loan Outstanding Principal Balance, the Second Mezzanine Loan Outstanding Principal Balance and the Third Mezzanine Loan Outstanding Principal Balance.

     “Alteration Threshold Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Alternate Financing Percentages” shall mean the Loan Percentage, the Mortgage Reduced Acquisition Loan Percentage, the Second Mezzanine Loan Percentage and the Third Mezzanine Loan Percentage.

     “Alternative Minimum Interest Reserve Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Alternative Minimum Mandatory Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Annual Budget” shall mean the operating budget, including all planned Capital Expenditures, for all of the Properties, collectively, prepared by Mortgage Borrowers or the applicable Manager(s) for the applicable Fiscal Year or other period.

     “Applicable Interest Rate” shall mean the rate or rates at which the Outstanding Principal Balance bears interest from time to time in accordance with the provisions of Section 2.2.3 hereof.

     “Approved Annual Budget” shall have the meaning set forth in Section 5.1.11(c) hereof.

     “Approved Bank” shall mean a bank or other financial institution which has a minimum long term unsecured debt rating of at least “AA” by S&P and Fitch and “Aa2” by Moody’s.

3

     “Assignment Agreement” shall have the meaning set forth in Section 10.25 hereof.

     “Assignment of Leases” shall mean that certain first priority Assignment of Leases and Rents, dated as of February 2, 2007, from Hotel/Casino Borrower, Café Borrower, Adjacent Borrower and Gaming Borrower, as assignors, to Mortgage Lender, as assignee, assigning to Mortgage Lender all of each such Mortgage Borrower’s right, title and interest in and to the Leases and Rents of its Property as security for the Mortgage Loan, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Assignment of Liquor Management Agreement” shall mean that certain First Mezzanine Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of the date hereof, by Borrowers, as assignors, and Hotel/Casino Borrower, to Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Assignment of Management Agreement (All Properties)” shall mean that certain First Mezzanine Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of the date hereof, by Borrowers, as assignors, Café Borrower, Hotel/Casino Borrower and Adjacent Borrower, to Lender, and consented and agreed to by the Affiliated Manager of such Properties, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Award” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation of all or any part of any Property.

     “Bankruptcy Action” shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person; (d) such Person consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of any Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due.

     “Bankruptcy Code” shall mean 11 U.S.C. § 101 et seq., as the same may be amended from time to time.

     “Bonafide Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Bonafide IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.

4

     “Bonafide Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Borrower” and “Borrowers” shall have the meanings set forth in the introductory paragraph hereto, together with its or their successors and permitted assigns.

     “Breakage Costs” shall have the meaning set forth in Section 2.2.3(h) hereof.

     “Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business.

     “Café Borrower” shall mean HRHH Cafe, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Café Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Capital Expenditures” shall mean, for any period, the amount expended for items capitalized under GAAP and the Uniform System of Accounts (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements, but excluding capitalized interest).

     “Cash Management Account” shall have the meaning set forth in Section 2.6.3(a) hereof.

     “Cash Management Agreement” shall mean that certain Cash Management Agreement (First Mezzanine Loan), dated as of the date hereof, by and among Borrowers, Mortgage Borrowers and Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Casino Account” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, individually or collectively, one or more accounts established and maintained from time to time by Gaming Borrower and reasonably approved by Mortgage Lender; provided, however, that any such Casino Account shall be established and maintained pursuant to, and in accordance with, all applicable Gaming Laws and shall be subject to a security interest in favor of Mortgage Lender pursuant to the Mortgage Loan Documents.

     “Casino Component” shall mean that portion of the Hotel/Casino Property devoted to the operation of a casino gaming operation and, as of February 2, 2007, leased to HRHI pursuant to the HRHI Lease and subleased to Gaming Operator pursuant to the Gaming Sublease, including, without limitation, those areas devoted to the conduct of games of chance, facilities associated directly with gaming operations, including, without limitation, casino support areas such as surveillance and security areas, cash cages, counting and accounting areas and gaming back-of-the-house areas, in each case, to the extent the operation thereof requires a Gaming License under applicable Gaming Laws, as more particularly described and set forth in the HRHI Lease and the Gaming Sublease as the “Premises”.

5

     “Casino Component Lease” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Casualty” shall have the meaning set forth in Section 6.2 hereof.

     “Certificate of Occupancy” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Closing Completion Guaranty” shall mean that certain First Mezzanine Closing Guaranty of Completion, dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Closing Date” shall mean the date of this Agreement.

     “Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

     “Collateral” shall mean (i) the Pledged Collateral and (ii) all other collateral for the Loan granted in the Loan Documents.

     “Collateral Assignment of Interest Rate Cap Agreement” shall mean that certain Collateral Assignment of Interest Rate Cap Agreement (First Mezzanine Loan), dated as of the date hereof, executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Comparable Hotel/Casinos” shall mean hotel and casino resorts in Las Vegas, Nevada which are of a similar nature, quality and scope as the hotel and casino resort being operated on the Hotel/Casino Property as of February 2, 2007, including, without limitation, Mandalay Bay Resort and Casino, MGM Grand Hotel and Casino, The Palms Casino Resort and Caesars Palace, in each of the foregoing instances, as existing and being operated on the date hereof.

     “Component” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Component Percentages” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Condemnation” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Property or any part thereof.

     “Constituent Member” shall mean any direct member or partner in any Loan Party, any Mezzanine Borrower or any Guarantor and any Person that, directly or indirectly through one or

6

more other partnerships, limited liability companies, corporations or other entities is a stockholder, member or partner in any Loan Party, any Mezzanine Borrower or any Guarantor.

     “Construction Completion Guaranty” shall mean a First Mezzanine Construction Guaranty of Completion from Guarantors in favor of Lender in the form attached hereto as Exhibit A, as such agreement may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Construction Loan” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Construction Loan Advance” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Construction Loan Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.7 hereof.

     “Construction Qualification Date” shall mean May 1, 2008, subject to Excusable Delay not to exceed fifteen (15) days.

     “Construction Schedule” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise. “Controlled” and “Controlling” shall have correlative meanings.

     “Counterparty” shall mean, with respect to the Interest Rate Cap Agreement, Natixis Financial Products Inc., and with respect to any Replacement Interest Rate Cap Agreement, any substitute Acceptable Counterparty.

     “Credit Suisse” shall mean Credit Suisse Securities (USA) LLC and its successors in interest.

     “Deemed Relinquishment” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Debt” shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including, if applicable, any Spread Maintenance Premium and any Prepayment Fee) due to Lender in respect of the Loan under the Note, this Agreement, the Pledge Agreement and the other Loan Documents.

     “Debt Service” shall mean, with respect to any particular period of time, scheduled interest payments due under this Agreement and the Note.

7

     “Debt Service Coverage Ratio” shall mean, as of any date of determination, a ratio in which:

     (a) the numerator is the Pro-Forma Net Cash Flow as of such date of determination; and

     (b) the denominator is the aggregate amount of interest that is reasonably estimated by Lender to be due and payable on the Outstanding Principal Balance, the Mortgage Loan Outstanding Principal Balance, the Second Mezzanine Loan Outstanding Principal Balance and the Third Mezzanine Loan Outstanding Principal Balance as of such date of determination for the following full twelve (12) calendar month period.

     “Debt Yield” shall mean:

     (a) for all calculations of Debt Yield except in connection with the Second Qualified Extension Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net Cash Flow for the trailing twelve (12) calendar month period ending with the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, as reasonably determined by Mortgage Lender based on the financial statements delivered to Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan Agreement and to Lender pursuant to Section 5.1.11 hereof, and (ii) the denominator is the Aggregate Outstanding Principal Balance as of such date of determination, subject, however, to the provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section 2.7.3 hereof; and

     (b) for the calculation of Debt Yield in connection with the Second Qualified Extension Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net Cash Flow for a period equal to the lesser of (A) the trailing twelve (12) calendar month period ending with the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, or (B) the period commencing on the first (1st) day of the First Full Operating Month through and including the last day of the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, with such Net Cash Flow, in the case of the foregoing clause (B), then being reasonably annualized by Mortgage Lender, and in each of the foregoing cases under clause (A) or (B) above, as reasonably determined by Mortgage Lender based on the financial statements delivered to Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan Agreement and to Lender pursuant to Section 5.1.11 hereof, and (ii) the denominator is the Aggregate Outstanding Principal Balance as of such date of determination, subject, however, to the provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section 2.7.3 hereof.

     “Debt Yield Letter of Credit” shall have the meaning set forth in Section 2.7.3(b) hereof.

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     “Default” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default.

     “Default Rate” shall mean a rate per annum equal to the lesser of (a) the Maximum Legal Rate and (b) four percent (4%) above the Applicable Interest Rate.

     “Determination Date” shall mean, with respect to any Interest Period, the date that is two (2) London Business Days prior to the fifteenth (15th) day of the calendar month in which such Interest Period commences; provided, that with respect to the initial Interest Period, the Determination Date was two (2) London Business Days prior to the Closing Date.

     “Disclosure Document” shall mean a prospectus, prospectus supplement, private placement memorandum, offering memorandum, offering circular or other offering documents, in each case in preliminary or final form, used to offer Securities in connection with a Securitization.

     “DLJ Entities” shall have the meaning set forth in Section 10.16(c) hereof.

     “DLJ Guarantor” shall mean DLJ MB IV HRH, LLC, a Delaware limited liability company, together with its successors and permitted assigns.

     “DLJMB Commitment Letter” shall mean that certain Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of the date hereof, by the DLJMB Parties in favor of Lender, Mortgage Lender, Second Mezzanine Lender and Third Mezzanine Lender.

     “DLJMB Parties” shall have the meaning set forth in Section 9.4 hereof.

     “Draw Request” shall mean, with respect to each Construction Loan Advance, an Advance Request together with all other documents required by the Mortgage Loan Agreement to be furnished to Mortgage Lender as a condition to such Construction Loan Advance.

     “Eligible Account” shall mean a separate and identifiable “deposit account”, as such term is defined in any applicable Uniform Commercial Code, from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. §9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.

     “Eligible Institution” shall mean a depository institution or trust company, the short term unsecured debt obligations or commercial paper of which are rated at least “A-1+” by S&P,

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“P-1” by Moody’s and “F-1+” by Fitch in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least “AA” by Fitch and S&P and “Aa2” by Moody’s).

     “Embargoed Person” shall have the meaning set forth in Section 4.1.35 hereof.

     “Environmental Indemnity” shall mean that certain First Mezzanine Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     “Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.

     “Excess Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Excess Cash Termination Conditions” shall mean that (i) as of any Financial Determination Date, the Properties have achieved and maintained a Debt Service Coverage Ratio of not less than 1.10 to 1.00 for the immediately preceding two (2) consecutive calendar quarters, and (ii) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing.

     “Excess Fully Funded IP Release Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Excess IP Release Price Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Excess Non-Fully Funded IP Release Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Exchange Act” shall have the meaning set forth in Section 9.3(a) hereof.

     “Exchange Act Filing” shall have the meaning set forth in Section 5.1.11(e) hereof.

     “Excluded Taxes” shall mean, with respect to Lender or any other recipient of any payment to be made by or on account of any obligation of Borrowers hereunder, (a) income or franchise taxes imposed on (or measured by reference to) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, or any other jurisdiction in which it is subject to tax solely as a result of any present or former connection between Lender or other recipient, as applicable, and the jurisdiction imposing such tax other than a present or former connection solely as a result of the activities and transactions specifically contemplated by this Agreement, (b) any branch profits taxes

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imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) of this definition, and (c) in the case of a Non-U.S. Lender, any withholding tax that is imposed on amounts payable to such Non-U.S. Lender at the time such Non-U.S. Lender designates a new lending office, unless the designation of such new lending office was at the request of Borrowers, or is attributable to such Non-U.S. Lender’s failure to comply with Section 2.2.3(e)(iii) hereof, except to the extent that such Non-U.S. Lender was entitled, at the time of designation of a new lending office, to receive additional amounts from Borrowers with respect to such withholding tax pursuant to Section 2.2.3(e) hereof.

     “Excusable Delay” shall mean a delay due to acts of god, governmental restrictions, stays, judgments, orders, decrees, enemy actions, civil commotion, fire, casualty, strikes, work stoppages, shortages of labor or materials or other causes beyond the reasonable control of any Loan Party and not arising out of (a) the negligence, willful misconduct or illegal act of any Loan Party or any Affiliate of any Loan Party, or (b) any cause or circumstance resulting from the insolvency, bankruptcy or lack of funds of any Loan Party, any Guarantor or any Affiliate of any Loan Party or any Guarantor.

     “Existing FF&E Leases” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Extended Maturity Date” shall mean, as applicable, either (a) the Qualified Extended Maturity Date as set forth in Section 2.7.2 hereof, or (b) the Non-Qualified Extended Maturity Date as set forth in Section 2.7.1 hereof.

     “Extension Debt Service Coverage Ratio” shall mean, with respect to any Extension Term, a ratio for the applicable twelve (12) month period in which:

     (a) the numerator is the Projected Underwritten Net Cash Flow for such Extension Term; and

     (b) the denominator is the sum of:

     (i) the aggregate amount of interest that would be payable on the sum of the Mortgage Outstanding Principal Balance as of the first day of such Extension Term plus the amount of any anticipated Construction Loan Advances in accordance with the Construction Schedule (excluding any Construction Loan Advances anticipated to be made out of the Construction Loan Reserve Account pursuant to the Mortgage Loan Agreement), if any, for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the applicable Mortgage Spread; plus

     (ii) the aggregate amount of interest that would be payable on the Outstanding Principal Balance as of the first day of such Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the Spread; plus

     (iii) the aggregate amount of interest that would be payable on the Second Mezzanine Loan Outstanding Principal Balance as of the first day of such

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Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the Second Mezzanine Spread; plus

     (iv) the aggregate amount of interest that would be payable on the Third Mezzanine Loan Outstanding Principal Balance as of the first day of such Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the Third Mezzanine Spread.

     “Extension Interest Shortfall” shall mean, with respect to each Extension Term, the difference between: (a) the Required Net Cash Flow with respect to such Extension Term, less (b) the amount on deposit in the Interest Reserve Fund as of the day immediately preceding the first (1^st) day of such Extension Term.

     “Extension Option” shall mean any Qualified Extension Option or Non-Qualified Extension Option, as applicable.

     “Extension Term” shall mean any Qualified Extension Term or Non-Qualified Extension Term, as applicable.

     “Extra Non-Accrued Interest” shall have the meaning set forth in Section 2.4.6 hereof.

     “Extraordinary Expense” shall have the meaning set forth in Section 5.1.11(d) hereof.

     “FF&E” shall mean all furniture, furnishings, fixtures and equipment required for the operation of any of the Properties, including, without limitation, (i) lobby furniture, carpeting, draperies, paintings, bedspreads, television sets, office furniture and equipment such as safes, cash registers, and accounting, duplicating and communication equipment, telephone systems, back and front of the house computerized systems, guest room furniture, specialized hotel equipment such as equipment required for the operation of kitchens, laundries, the front desk, dry cleaning facilities, bar and cocktail lounges, restaurants, recreational facilities as they may exist from time to time, and decorative lighting, material handling equipment and cleaning and engineering equipment and all other fixtures, equipment, apparatus and personal property needed for such purposes, (ii) Gaming Equipment which any Mortgage Borrower is lawfully permitted to own or lease, and (iii) rock and roll memorabilia unique to the Hotel/Casino Property and similar in character to the other rock and roll memorabilia displayed at the Hotel/Casino Property.

     “FF&E Expenditures” shall mean amounts expended for the purchase, replacement and/or installation of FF&E at the Properties.

     “FF&E Expenditures Work” shall mean any labor performed or materials installed in connection with any FF&E Expenditures.

     “Financial Determination Date” shall have the meaning set forth in Section 2.6.4 hereof.

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     “Financing Percentages” shall mean the Loan Percentage, the Mortgage Loan Percentage, the Second Mezzanine Loan Percentage and the Third Mezzanine Loan Percentage.

     “First Anniversary” shall mean the first anniversary of the Closing Date.

     “First Full Operating Month” shall mean the calendar month following the month in which Substantial Completion occurs.

     “First Non-Qualified Extended Maturity Date” shall mean February 9, 2010.

     “First Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1(a) hereof.

     “First Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1(a) hereof.

     “First Qualified Extended Maturity Date” shall mean February 9, 2011.

     “First Qualified Extension Option” shall have the meaning set forth in Section 2.7.2(a) hereof.

     “First Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(a) hereof.

     “Fiscal Year” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan.

     “Fitch” shall mean Fitch, Inc.

     “Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “GAAP” shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

     “Gaming Assets” shall have the meaning set forth in the Gaming Sublease.

     “Gaming Assets Note” shall mean that certain Gaming Asset Note, dated as February 2, 2007, made by the Gaming Operator to HRHI, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Authority” shall mean any of the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board and any other Governmental Authority and/or regulatory authority or body or any agency which has, or may at any time after the Closing Date have, jurisdiction over the gaming activities or the sale or distribution of liquor at any of the Properties, or any successor to any such authority.

     “Gaming Borrower” shall mean HRHH Gaming, LLC, a Nevada limited liability company, together with its successors and assigns.

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     “Gaming Employees” shall have the meaning set forth in the Gaming Sublease.

     “Gaming Equipment” shall mean any and all gaming devices (as defined in NRS 463.0155), gaming device parts, inventory and other related gaming equipment and supplies used in connection with the operation of a casino, including, without limitation, slot machines, gaming tables, cards, dice, chips, tokens (including slot machine tokens not currently in circulation, and “reserve” chips, if any, not currently in circulation), player tracking systems, cashless wagering systems (as defined in NRS 463.014) and associated equipment (as defined in NRS 463.0136), which are located at any Property, are owned or leased by any Borrower and are used or useable exclusively in the present or future operation of slot machines and live games at any Property, together with all improvements and/or additions thereto, mobile gaming systems (as defined in Regulation 14.010(11) under NRS Chapter 463), all contracts necessary to own or operate any of the Gaming Equipment and/or to conduct gaming operations for the Casino Component, all assignable manufacturers and other warranties applicable to the Gaming Equipment, all computer hardware and software used to operate the Gaming Equipment and/or to conduct gaming operations for the Casino Component.

     “Gaming Laws” shall mean the provisions of the Nevada Gaming Control Act, codified as NRS Chapter 463, as amended from time to time, all regulations of the Gaming Authorities promulgated thereunder, as amended from time to time, the provisions of the Clark County Code, as amended from time to time, and all other laws, statutes, rules, rulings, orders, ordinances, regulations and other Legal Requirements of any Gaming Authority.

     “Gaming Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Gaming License” shall mean any license, qualification, franchise, accreditation, approval, registration, permit, finding of suitability or other authorization relating to gaming, the gaming business or the operation of a casino under the Gaming Laws or required by any Gaming Authority or otherwise necessary under any Gaming Laws for the operation of gaming, the gaming business or a resort casino at the Hotel/Casino Property.

     “Gaming Liquidity Requirement” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, the minimum bankroll requirements for cash and cash equivalents required to be maintained by Gaming Borrower pursuant to the Gaming Laws in an amount no greater than is mandated by Nevada Gaming Commission Regulation 6.150.

     “Gaming Member” shall mean HRHH Gaming Member, LLC, a Delaware limited liability company.

     “Gaming Operating Condition” shall mean that the gaming operations at the Hotel/Casino Property are being operated by a Qualified Gaming Operator pursuant to either (i) the Gaming Sublease and the Gaming Recognition Agreement or (ii) one or more other written agreements previously approved by Lender.

     “Gaming Operating Reserve” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, such cash

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funds and reserves that are held and maintained by Gaming Borrower, in its capacity as the duly licensed operator of the Casino Component under applicable Gaming Laws, either on-site at the Hotel/Casino Property or in the Casino Account, including, without limitation, casino chips, tokens, checks and markers; provided that all such Gaming Operating Reserves (i) are established and maintained solely for use in the day-to-day operation and management of the Casino Component in the ordinary course of business, and (ii) are funded and maintained in accordance with the requirements of all applicable Gaming Laws and are in the amounts that are reasonable and customary for casino operations at Comparable Hotel/Casinos (it being agreed that 110% of statutory or regulatory minimums shall be deemed a reasonable and customary minimum amount for these purposes).

     “Gaming Operator” shall mean (i) subject to clause (ii) below, for so long as the Gaming Sublease is in effect and all required Gaming Licenses are maintained in accordance with applicable Gaming Laws, Golden HRC, LLC, a Nevada limited liability company, the subtenant under the Gaming Sublease, (ii) if Navegante HR, LLC, a Nevada limited liability company, replaces Golden HRC, LLC as the subtenant under the Gaming Sublease pursuant to the Navegante Agreement, for so long as the Gaming Sublease is in effect and all required Gaming Licenses are maintained in accordance with applicable Gaming Laws, Navegante HR, LLC, as replacement subtenant under the Gaming Sublease, and (iii) during any time when the Gaming Sublease is not in effect, a Qualified Gaming Operator who is supervising, managing and operating all gaming activities at the Hotel/Casino Property.

     “Gaming Recognition Agreement” shall mean that certain Recognition Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower, HRHI and Golden HRC, LLC in connection with the Gaming Sublease, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Shortfall Notes” shall mean the “Shortfall Notes” as defined in the Gaming Sublease.

     “Gaming Sublease” shall mean that certain Casino Sublease, dated as of November 6, 2006, by and among MHG HR Acquisition Corp., as sublandlord, Morgans Hotel Group Co., and Golden HRC, LLC, as subtenant (it being acknowledged and agreed that, upon consummation of the transactions under the Merger Agreement, HRHI succeeded to the interests of MHG HR Acquisition Corp. thereunder), covering the Casino Component of the Hotel/Casino Property as more particularly described therein, as such Casino Sublease was modified by that certain First Amendment to Casino Sublease, dated as of January 9, 2007 and by the Gaming Recognition Agreement, and as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Surplus Fund Reserve” shall mean the “Surplus Fund Reserve” as defined in the Gaming Sublease.

     “Gaming Working Capital Note” shall mean the “Working Capital Note” as defined in the Gaming Sublease.

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     “General Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.6 hereof.

     “General Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.6 hereof.

     “Governmental Approvals” shall mean all approvals, consents, waivers, orders, acknowledgments, authorizations, permits and licenses required under applicable Legal Requirements to be obtained from any Governmental Authority for the construction of any and all of the Project and/or the use, occupancy and operation following completion of construction, as the context requires.

     “Governmental Authority” shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence, including, without limitation, any Gaming Authority.

     “Gross Income from Operations” shall mean, for any period, all Rents and all other income and proceeds (whether in cash or on credit, and computed in accordance with GAAP and, to the extent applicable with respect to the Hotel/Casino Property, the Uniform System of Accounts), received by any Mortgage Borrower or by any Manager (on behalf of any Mortgage Borrower) or by Sub-Manager (on behalf of any Mortgage Borrower or any Manager) for the use, occupancy or enjoyment of any of the Properties, or any part thereof, or received by any Mortgage Borrower or any Manager or Sub-Manager for the sale of any goods, services or other items sold on or provided from any of the Properties in the ordinary course of such Property’s operation, including, without limitation: (a) all income and proceeds received under Leases, including, without limitation, the HRHI Lease; (b) all income and proceeds received from rental of rooms and commercial, meeting, conference and/or banquet space within any of the Properties including net parking revenue; (c) all income and proceeds received from food and beverage operations and from catering services conducted from any of the Properties even though rendered outside of any of the Properties; (d) without duplication of the foregoing clause (a) or the following clause (e), all income, proceeds and other amounts received by any Mortgage Borrower under the Gaming Sublease; (e) without duplication of the foregoing clauses (a) or (d), all income, proceeds and revenue generated from gaming activities at any Property; (f) any payments received by or on behalf of any Mortgage Borrower under the Gaming Assets Note, the Gaming Shortfall Notes or the Working Capital Note or from the Surplus Fund Reserve; (g) all income and proceeds from business interruption, rental interruption and use and occupancy insurance with respect to the operation of any of the Properties (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof); (h) all Awards for temporary use (after deducting therefrom all costs incurred in the adjustment or collection thereof and in Restoration of any of the Properties); (i) all income and proceeds from judgments, settlements and other resolutions of disputes with respect to matters which would be includable in this definition of “Gross Income from Operations” if received in the ordinary course of any of the Properties’ operation (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof); (j) interest on credit accounts, rent concessions or credits,

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and other required pass-throughs and interest on Reserve Funds; and (k) deposits received for rental of rooms; and “Gross Income from Operations” shall also include all licensing fees and other income and receipts generated by the IP; but “Gross Income from Operations” shall exclude (1) gross receipts received by lessees, licensees or concessionaires of any of the Properties (but not any percentage rents or similar payments derived therefrom); (2) income and proceeds from the sale or other disposition of goods, FF&E, capital assets and other items not in the ordinary course of the operation of the applicable Property; (3) federal, state and municipal excise, sales and use taxes collected directly from customers, patrons or guests of any of the Properties as a part of or based on the sales price of any goods, services or other items, such as gross receipts, room, admission, cabaret or equivalent taxes; (4) Awards (except to the extent provided in clause (h) above); (5) refunds, rebates, discounts and other similar credits of amounts not included in Operating Expenses at any time and uncollectible accounts; (6) gratuities collected by the employees at any of the Properties; (7) the proceeds of any financing, refinancing or sale of any of the Properties (or all of the membership interests in any Mortgage Borrower) or the FF&E; (8) other non-recurring income or proceeds resulting other than from the use or occupancy of any of the Properties, or any part thereof, or other than from the sale of goods, services or other items sold on or provided from any of the Properties in the ordinary course of business; (9) any credits or refunds made to customers, guests or patrons in the form of allowances or adjustments to previously recorded revenues; (10) deposits received for rental of banquet space or business or conference meeting rooms; (11) security deposits received under any Leases, unless and until the same shall be applied in accordance with the terms of the applicable Lease(s); (12) all proceeds from insurance to the extent not included in income pursuant to clause (g) above; and (13) any disbursements to any Mortgage Borrower from any of the Mortgage Reserve Funds or to any Borrower from any of the Reserve Funds, as applicable, and any interest earned thereon.

     “Guaranties” shall mean, collectively, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty (if and when executed and delivered in accordance with the terms of this Agreement), and the HRHI Guaranty.

     “Guarantor” shall mean each of the Morgans Guarantor and the DLJ Guarantor.

     “Guarantor Transfer” shall have the meaning set forth in Section 5.2.10(d)(D) hereof.

     “Hotel/Casino Borrower” shall mean HRHH Hotel/Casino, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Hotel/Casino Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “HRHI” shall mean Hard Rock Hotel, Inc., a Nevada corporation, together with its successors and permitted assigns.

     “HRHI Gaming Agreement” shall mean that certain HRHI Gaming Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower and HRHI in connection with the Gaming Sublease and the gaming operations at the Hotel/Casino Property, as

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amended by the Mortgage Loan Document Modification Agreement and the HRHI Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Guaranty” shall mean that certain First Mezzanine HRHI Guaranty Agreement, dated as of the date hereof, from HRHI to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Lease” shall mean that certain Lease, dated as of February 2, 2007, between Hotel/Casino Borrower, as landlord, and HRHI, as tenant, covering the Casino Component of the Hotel/Casino Property as more particularly described therein, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Modification Agreement” shall mean that certain Modification of HRHI Loan Documents and Ratification of HRHI Guaranty, dated as of the date hereof, by and among HRHI and Mortgage Lender.

     “HRHI Security Agreement” shall mean that certain First Mezzanine HRHI Security Agreement, dated as of the date hereof, from HRHI in favor of Lender, securing the HRHI Guaranty and covering certain assets of HRHI described therein, including, without limitation, all of HRHI’s right, title and interest in and to the Gaming Assets Note, the Gaming Shortfall Notes, the Gaming Surplus Fund Reserve and the Gaming Working Capital Note, as such HRHI Security Agreement may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HR Holdings” shall mean Hard Rock Hotel Holdings, LLC, a Delaware limited liability company.

     “Improvements” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Property.

     “Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such date of (a) all indebtedness or liability of such Person (including, without limitation, amounts for borrowed money and indebtedness in the form of mezzanine debt and preferred equity); (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations for which such Person or its assets are liable); (d) obligations under letters of credit (for which such Person is liable if such amounts were advanced thereunder or for which such Person is liable to reimburse); (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss for which funds are required to be paid; and (g) obligations secured by any Liens, for which such Person or its assets are liable.

     “Indemnified Liabilities” shall have the meaning set forth in Section 10.13(b) hereof.

     “Indemnified Person” shall have the meaning set forth in Section 9.3(b) hereof.

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     “Indemnified Taxes” shall mean taxes other than Excluded Taxes.

     “Independent Director” or “Independent Manager” shall mean a Person who is not at the time of initial appointment, or at any time while serving as a director or manager, as applicable, and has not been at any time during the preceding five (5) years: (a) a stockholder, director (with the exception of serving as the Independent Director or Independent Manager of a Borrower), officer, employee, partner, member (other than a “special member” or “springing member”), manager, attorney or counsel of any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of any of them; (b) a customer, supplier or other person who derives any of its purchases or revenues from its activities with any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of any of them; (c) a Person Controlling or under common Control with any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person. A natural Person who satisfies the foregoing definition other than clause (b) shall not be disqualified from serving as an Independent Director or Independent Manager of a Borrower if such natural Person is an independent director or independent manager provided by a nationally recognized company that provides professional independent directors or independent managers and that also provides other corporate services in the ordinary course of its business. A natural Person who otherwise satisfies the foregoing definition except for being the independent director or independent manager of a “special purpose entity” affiliated with any Borrower that does not own a direct or indirect equity interest in any Borrower shall not be disqualified from serving as an Independent Director or Independent Manager of a Borrower if such individual is at the time of initial appointment, or at any time while serving as a Independent Director of a Borrower, an Independent Director or Independent Manager of a “special purpose entity” affiliated with a Borrower (other than any Person that owns a direct or indirect equity interest in any Borrower) if such natural Person is an independent director or independent manager provided by a nationally-recognized company that provides professional independent directors or independent managers.

     “Initial Construction Loan Advance” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Initial Maturity Date” shall mean, as applicable, either (a) the Qualified Initial Maturity Date, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date, or (b) the Non-Qualified Initial Maturity Date, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date.

     “Initial Renovation Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.5 hereof.

     “Initial Renovation Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.5 hereof.

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     “Insolvency Opinion” shall mean that certain non-consolidation opinion letter dated the date hereof delivered by Latham & Watkins LLP in connection with the Loan.

     “Insurance Premiums” shall have the meaning set forth in Section 6.1(a) hereof.

     “Insurance Proceeds” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Intellectual Property Security Agreement” shall mean that certain First Mezzanine Intellectual Property Security Agreement, dated as of the date hereof, by HRHI in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated as of the date hereof, by and among Lender, Mortgage Lender, Second Mezzanine Lender and Third Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with the terms thereof.

     “Interest Period” shall mean, with respect to any Payment Date, the period commencing on the ninth (9th) day of the preceding calendar month and terminating on and including the eighth (8th) day of the calendar month in which such Payment Date occurs; provided, however, that no Interest Period shall end later than the Maturity Date (other than for purposes of calculating interest at the Default Rate), and the initial Interest Period shall begin on and include the Closing Date and shall end on and include November 8, 2007.

     “Interest Rate Cap Agreement” shall mean, as applicable, an interest rate cap agreement (together with the confirmation and schedules relating thereto) in form and substance reasonably satisfactory to Lender by and among Borrowers and an Acceptable Counterparty or a Replacement Interest Rate Cap Agreement.

     “Interest Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.4 hereof.

     “Interest Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.4 hereof.

     “Interest Shortfall” shall mean, as of any applicable Payment Date, the amount by which the Monthly Interest Payment due on such Payment Date exceeds the sum of the funds available in the Mortgage Cash Management Account on such Payment Date after satisfying the items in clauses (i) through (viii) inclusive of Section 2.6.2(b) of the Mortgage Loan Agreement.

     “Internal Approvals” shall have the meaning set forth in Section 13.2(b) hereof.

     “IP” shall have the meaning set forth in Section 4.1.37(a) hereof.

     “IP Agreements” shall have the meaning set forth in Section 4.1.37(a) hereof.

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     “IP Borrower” shall mean HRHH IP, LLC, a Delaware limited liability company, together with its successors and assigns.

     “IP License” shall have the meaning set forth in Section 5.1.26(a) hereof.

     “IP Material Adverse Effect” shall have the meaning set forth in Section 4.1.37(d) hereof.

     “IP Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “IP Sale” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Lease” shall mean any lease, sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Property, including, without limitation, the HRHI Lease, and (a) every modification, amendment or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement, and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. The foregoing definition expressly excludes ordinary course hotel room rentals.

     “Legal Requirements” shall mean, with respect to each Property and the Collateral, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting such Property or the Collateral or any part of either of the foregoing, or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, including, without limitation, the Gaming Laws and the Americans with Disabilities Act of 1990, as amended, and all permits, licenses and authorizations and regulations relating thereto, including, without limitation, all Governmental Approvals, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to any Loan Party, at any time in force affecting such Property or the Collateral or any part of either of the foregoing, including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Property or any part thereof, or (b) in any way limit the use and enjoyment thereof.

     “Lender” shall have the meaning set forth in the introductory paragraph hereto.

     “Lender’s Rejection Notice” shall have the meaning set forth in Section 13.2(c) hereof.

     “Letter of Credit” shall mean an irrevocable, unconditional (other than ministerial conditions), transferable, clean sight draft letter of credit, as the same may be replaced, split, substituted, modified, amended, supplemented, assigned or otherwise restated from time to time, (either an evergreen letter of credit or a letter of credit which does not expire until at least two (2) Business Days after the Maturity Date or such earlier date as such Letter of Credit is no longer

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required pursuant to the terms of this Agreement) in favor of Lender and entitling Lender to draw thereon based solely on a statement purportedly executed by an officer of Lender stating that it has the right to draw thereon, and issued by a (i) domestic Approved Bank or the U.S. agency or branch of a foreign Approved Bank, or if there are no domestic Approved Banks or U.S. agencies or branches of a foreign Approved Bank then issuing letters of credit, then such letter of credit may be issued by a domestic bank, the long term unsecured debt rating of which is the highest such rating then given by the Rating Agency or Rating Agencies, as applicable, to a domestic commercial bank, or (ii) Credit Suisse, Cayman Islands Branch so long as it has and maintains a minimum long term unsecured debt rating of at least “A+” by S&P and Fitch and “A1” by Moody’s.

     “Liabilities” shall have the meaning set forth in Section 9.3(b) hereof.

     “LIBOR” shall mean, with respect to each Interest Period, the rate (expressed as a percentage per annum and rounded upward, if necessary, to the next nearest 1/100,000th of 1% (0.00001%)) for deposits in U.S. dollars, for a one-month period, that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m., London time, on the related Determination Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on such Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period that appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, Lender shall request the principal London office of any four major reference banks in the London interbank market selected by Lender in its reasonable discretion to provide such bank’s offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. dollars for a one-month period as of 11:00 a.m., London time, on such Determination Date for amounts of not less than U.S. $1,000,000. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Lender shall request any three major banks in New York City selected by Lender in its reasonable discretion to provide such bank’s rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European banks for a one-month period as of approximately 11:00 a.m., New York City time on the applicable Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determined conclusively by Lender or its agent, absent manifest error.

     “LIBOR Loan” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon LIBOR.

     “Licensed IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Lien” shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, put, call, option, warrant, proxy, voting agreement or any other encumbrance, charge or transfer of, on or affecting any Loan Party, any of the Properties, the Collateral or any portion of either of the foregoing or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the

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same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances. For the avoidance of doubt, “Lien” shall not be deemed to include any Permitted IP Encumbrances.

     “Liquidation Event” shall have the meaning set forth in Section 2.4.3(a) hereof.

     “Liquor Management Agreement” shall mean, with respect to the Hotel/Casino Property and, if applicable, the Adjacent Property, that certain Liquor Management and Employee Services Agreement, dated as of February 2, 2007, between Hotel/Casino Borrower and HRHI, in its capacity as the Liquor Manager, as the same may be amended, modified or supplemented from time to time, pursuant to which the Liquor Manager shall manage all alcoholic beverage services at the Hotel/Casino Property and, if applicable, the Adjacent Property, or, if the context requires, a Replacement Liquor Management Agreement.

     “Liquor Manager” shall mean, with respect to the Hotel/Casino Property, HRHI, or, if the context requires, another Qualified Liquor Manager.

     “Loan” shall mean the loan made by Lender to Borrowers pursuant to this Agreement in a maximum principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), which shall be evidenced by the Note.

     “Loan Budget” shall mean the budget for total estimated Project Costs prepared by Mortgage Borrowers and approved by Mortgage Lender in its reasonable discretion, which shall detail all items of direct and indirect costs estimated to be incurred in connection with the construction of the Project, and all amendments and modifications thereto approved by Mortgage Lender in accordance with the Mortgage Loan Agreement.

     “Loan Documents” shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the Assignment of Management Agreement (All Properties), the Assignment of Liquor Management Agreement, the Intellectual Property Security Agreement, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty (if and when executed and delivered in accordance with the terms of this Agreement), the HRHI Guaranty, the HRHI Security Agreement, the Cash Management Agreement, the Collateral Assignment of Interest Rate Cap Agreement and all other documents executed and/or delivered in connection with the Loan, as any of the foregoing hereafter may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Loan Party” shall mean any of Borrowers and/or any of Mortgage Borrowers and “Loan Parties” shall refer collectively to all of them.

     “Loan Percentage” shall mean, as of any date and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Outstanding Principal Balance on such date and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date.

     “Lockbox Account” shall have the meaning set forth in Section 2.6.1(a) hereof.

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     “Lockbox Bank” shall mean Wells Fargo Bank, National Association, or any successor or permitted assigns thereof.

     “London Business Day” shall mean any day other than a Saturday, Sunday or any other day on which commercial banks in London, England are not open for business.

     “Major Lease” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Management Agreement” shall mean, with respect to each Property, the property management agreement entered into by and between the applicable Mortgage Borrower or Mortgage Borrowers and the applicable Manager, as the same has been and may be amended, modified or supplemented from time to time, pursuant to which such Manager is to provide property management and other services with respect to the Property owned by such Mortgage Borrower, or, if the context requires, a Replacement Management Agreement; provided, however, that the foregoing definition shall expressly exclude the Sub-Management Agreement.

     “Manager” shall mean Morgans Hotel Group Management LLC or, if the context requires, a Qualified Manager who is managing any of the Properties, it being understood that the foregoing definition shall expressly exclude the Sub-Manager.

     “Material Economic Terms” shall have the meaning set forth in Section 13.1 hereof.

     “Maturity Date” shall mean the Initial Maturity Date or, if applicable, the Extended Maturity Date, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise.

     “Maximum Legal Rate” shall mean the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.

     “Merger Agreement” shall mean that certain Agreement and Plan of Merger, dated as of May 11, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter A. Morton, as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of January 30, 2007.

     “Mezzanine Borrower” or “Mezzanine Borrowers” shall mean, individually or collectively, as the context may require, Second Mezzanine Borrowers and Third Mezzanine Borrowers.

     “Mezzanine Default” shall mean any Second Mezzanine Default and/or Third Mezzanine Default, as applicable.

     “Mezzanine Event of Default” shall mean any Second Mezzanine Event of Default and/or Third Mezzanine Event of Default, as applicable.

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     “Mezzanine Lender” or “Mezzanine Lenders” shall mean, individually or collectively, as the context may require, Second Mezzanine Lender and Third Mezzanine Lender, and each of Second Mezzanine Lender and/or Third Mezzanine Lender.

     “Mezzanine Loan” or “Mezzanine Loans” shall mean, individually or collectively, as the context may require, the Second Mezzanine Loan and the Third Mezzanine Loan, and each of the Second Mezzanine Loan and/or the Third Mezzanine Loan, individually, a “Mezzanine Loan”.

     “Mezzanine Loan Documents” shall mean all documents evidencing and/or securing the Mezzanine Loans and all documents executed and/or delivered in connection therewith, as any of the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Minimum Mandatory Amount” shall mean, as of any date of determination, (a) if one or more Release Parcel Sales have not resulted in Release Parcel Release Prices paid to Mortgage Lender in an aggregate amount of at least $40,000,000.00 prior to such date of determination, then the Minimum Mandatory Amount shall mean $110,000,000.00, or (b) if one or more Release Parcel Sales have resulted in Release Parcel Release Prices paid to Mortgage Lender in an aggregate amount in excess of $40,000,000.00 prior to such date of determination, then the Minimum Mandatory Amount shall mean an amount equal to the difference between (i) $110,000,000.00 and (ii) the aggregate amount of Release Parcel Release Prices paid to Mortgage Lender prior to such date of determination, but in no event shall such calculation result in a negative number.

     “Minimum Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(a)(i) hereof.

     “Moody’s” shall mean Moody’s Investors Service, Inc.

     “Monthly Interest Payment” shall have the meaning set forth in Section 2.3.1 hereof.

     “Monthly Gaming Requirement Certificate” shall have the meaning set forth in Section 12.2 hereof.

     “Morgans Guarantor” shall mean Morgans Group LLC, a Delaware limited liability company, together with its successors and permitted assigns.

     “Morgans Parent” shall mean Morgans Hotel Group Co., a Delaware corporation, together with its successors and permitted assigns.

     “Mortgage” shall mean that certain first priority Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007, from Mortgage Borrowers to Mortgage Lender, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

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     “Mortgage Applicable Interest Rate” shall mean the “Applicable Interest Rate” as defined in the Mortgage Loan Agreement.

     “Mortgage Borrower” shall mean any of Hotel/Casino Borrower, Café Borrower, Adjacent Borrower, IP Borrower and Gaming Borrower, and “Mortgage Borrowers” shall refer collectively to all of them.

     “Mortgage Cash Management Account” shall have the meaning set forth in Section 2.6.2(a) hereof.

     “Mortgage Cash Management Agreement” shall mean the “Cash Management Agreement” as defined in the Mortgage Loan Agreement.

     “Mortgage Debt” shall mean the “Debt” as defined in the Mortgage Loan Agreement.

     “Mortgage Default” shall mean a “Default” under and as defined in the Mortgage Loan Agreement.

     “Mortgage Distributions” shall have the meaning set forth in Section 5.2.14(a) hereof.

     “Mortgage Event of Default” shall mean an “Event of Default” under and as defined in the Mortgage Loan Agreement.

     “Mortgage Lender” shall mean Column Financial, Inc., in its capacity as holder of the Mortgage Loan, together with its successors and assigns.

     “Mortgage Lender Successor Owner” shall have the meaning set forth in Section 5.1.23 hereof.

     “Mortgage Loan” shall mean the loan in a maximum principal amount of up to One Billion Thirty Million and No/100 Dollars ($1,030,000,000), made by Mortgage Lender to Mortgage Borrowers pursuant to the Mortgage Loan Agreement, comprised of (i) the Reduced Acquisition Loan and (ii) the Construction Loan (as such terms are defined in the Mortgage Loan Agreement).

     “Mortgage Loan Agreement” shall mean that certain Loan Agreement dated as of February 2, 2007, as amended and restated by the Amended and Restated Loan Agreement dated as of the date hereof, each among Mortgage Lender and Mortgage Borrowers, as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Mortgage Loan Documents” shall mean, collectively, the Mortgage Loan Agreement, the Mortgage Note, the Mortgage, and any an all other documents defined as “Loan Documents” in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Mortgage Loan Document Modification Agreement” shall mean that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security

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Agreement and Financing Statement (Fixture Filing), dated as of the date hereof, by and among Mortgage Borrowers and Mortgage Lender.

     “Mortgage Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the Mortgage Loan Agreement.

     “Mortgage Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Mortgage Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

     “Mortgage Note” and “Mortgage Notes” shall mean, individually or collectively, as applicable, (i) that certain Replacement Reduced Acquisition Loan Promissory Note, dated the date hereof, in the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by Mortgage Borrowers in favor of Mortgage Lender, as the same may be further replaced, amended, restated, supplemented or otherwise modified from time to time, and (ii) that certain Replacement Construction Loan Promissory Note, dated the date hereof, in the principal amount of Six Hundred Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage Borrowers in favor of Mortgage Lender, as the same may be further replaced, amended, restated, supplemented or otherwise modified from time to time.

     “Mortgage Reduced Acquisition Loan Percentage” shall mean the “Reduced Acquisition Loan Percentage” as defined in the Mortgage Loan Agreement.

     “Mortgage Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the Interest Reserve Fund, the General Reserve Fund, any funds on deposit in the Construction Loan Reserve Account, any Shortfall Funds and any other escrow fund established pursuant to the Mortgage Loan Documents.

     “Mortgage Spread” shall mean the “Reduced Acquisition Loan Spread” and/or the “Construction Loan Spread” each as defined in the Mortgage Loan Agreement.

     “Morton” shall mean Peter A. Morton.

     “Morton Assigned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Morton Indemnification” shall mean that certain Indemnification Agreement, dated as of May 11, 2006, between Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, and Morton, as the same has been and may be amended, modified or supplemented from time to time.

     “Named Knowledge Parties” shall have the meaning set forth in Section 4.3 hereof.

     “Navegante Agreement” shall mean that certain Agreement, dated as of October 31, 2007, by and among Navegante HR, LLC, Morgans Parent, HRHI, Mortgage Lender and

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Navegante Gaming, LLC, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Net Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Net Liquidation Proceeds After Debt Service” shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of any Borrower or any Mortgage Borrower in connection with such Liquidation Event after payment of all amounts then due to Mortgage Lender, and then, Lender, including, without limitation, proceeds resulting from any Casualty to or Condemnation of any Property and proceeds of any sale, refinancing or other disposition or liquidation, less (without duplication of amounts already paid to or retained by Mortgage Lender or Lender) (a) in the event of a Liquidation Event consisting of a Casualty or Condemnation, Lender’s and/or Mortgage Lender’s reasonable costs incurred in connection with the recovery thereof; (b) in the event of a Liquidation Event consisting of a Casualty or Condemnation, the costs incurred by any Mortgage Borrower in connection with a Restoration of all or any portion of any Property made in accordance with the Mortgage Loan Documents; (c) in the event of a Liquidation Event consisting of a Casualty or Condemnation or a Transfer, amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender; (d) in the event of a Liquidation Event consisting of a Casualty or Condemnation, those proceeds paid to any Mortgage Borrower pursuant to Section 6.4(c)(vii) of the Mortgage Loan Agreement; (e) in the case of a foreclosure sale, disposition or transfer of any Property in connection with realization thereon following a Mortgage Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (f) in the case of a foreclosure sale, disposition or transfer of the Collateral in connection with realization thereon following an Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (g) in the case of a foreclosure sale, such costs and expenses incurred by Mortgage Lender under the Mortgage Loan Documents as Mortgage Lender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents and/or incurred by Lender under the Loan Documents as Lender shall be entitled to receive reimbursement for under the terms of the Loan Documents; (h) in the case of a refinancing of the Mortgage Loan or the Loan, such costs and expenses (including attorneys’ fees) of such refinancing; and (i) the amount of any prepayments required pursuant to the Mortgage Loan Documents and/or the Loan Documents in connection with any such Liquidation Event.

     “Net Operating Income” shall mean, for any period, the amount obtained by subtracting Operating Expenses for the Properties for such period from Gross Income from Operations for such period.

     “Net Proceeds” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Net Worth Requirements” shall mean those requirements set forth on Schedule V attached hereto and made a part hereof.

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     “Non-Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Non-Qualified Extended Maturity Date” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Initial Maturity Date” shall mean February 9, 2009.

     “Non-Qualified Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(b) hereof.

     “Non-Qualified Prepayment Guaranty” shall mean that certain First Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Non-Qualified Prepayment Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Non-Recourse Guaranty” shall mean that certain First Mezzanine Guaranty Agreement, dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Non-U.S. Lender” shall mean any Lender that is organized under the laws of a jurisdiction other than laws of the United States of America, any State thereof or the District of Columbia.

     “Note” shall mean that certain First Mezzanine Promissory Note, dated the date hereof, in the principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), made by Borrowers in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Notice” shall have the meaning set forth in Section 10.6 hereof.

     “NRS” shall mean the Nevada Revised Statutes, as amended from time to time.

     “O&M Agreement” shall mean an Operations and Maintenance Agreement, dated as of February 2, 2007, by and among a Mortgage Borrower and Mortgage Lender given in connection with the Mortgage Loan, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time. On February 2, 2007, O&M Agreements were entered into by each of Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.

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     “Obligations” shall mean, collectively, Borrowers’ obligations for the payment of the Debt and the performance of the Other Obligations.

     “Officer’s Certificate” shall mean a certificate delivered to Lender by a Borrower or a Guarantor, as applicable, which is signed by an authorized officer or manager of such Borrower or Guarantor or a Constituent Member thereof, as applicable, which shall in all events be subject to Section 9.4 hereof.

     “Operating Expenses” shall mean, for any period, the total of all expenditures, computed in accordance with GAAP, of whatever kind during such period relating to the operation, maintenance and/or management of any of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs, maintenance, environmental and engineering (but excluding utilities) (which ordinary repairs, maintenance, environmental and engineering (but excluding utilities) for the purposes of this definition shall be no less than an assumed expense of $400,000.00 per month, and following the First Full Operating Month, such assumed expense shall increase to $600,000.00 per month, insurance, license fees, property taxes and assessments, advertising expenses, base and incentive management fees, payroll and related taxes, computer processing charges, tenant improvements and leasing commissions, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation and amortization with respect to the Properties, Debt Service, debt service under the Mortgage Loan, debt service under each of the Mezzanine Loans, Capital Expenditures, items that would otherwise constitute Project Costs, Extraordinary Expenses, the cost of any items incurred at any Manager’s expense pursuant to any Management Agreement or at the Sub-Manager’s expense pursuant to the Sub-Management Agreement, non-recurring expenses and contributions to any of the Mortgage Reserve Funds or the Reserve Funds, as applicable. Operating Expenses shall also include the cost (computed in accordance with GAAP) of any complimentary food, beverages, hotel room and/or other amenities provided to any customers or guests of the Hotel/Casino Property, including, without limitation, under the Gaming Sublease, under the Liquor Management Agreement and/or under any Management Agreement.

     “Operating Permits” shall have the meaning set forth in Section 4.1.22 hereof.

     “Optional IP Release Payment” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Original Mortgage Loan” shall have the meaning set forth in the recitals hereof.

     “Original Mortgage Loan Agreement” shall have the meaning set forth in the recitals hereof.

     “Other Charges” shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Property, now or hereafter levied or assessed or imposed against such Property or any part thereof.

     “Other Obligations” shall mean (a) the performance of all obligations of each Borrower contained herein; (b) the performance of each obligation of each Borrower contained in any other

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Loan Document; and (c) the performance of each obligation of each Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of this Agreement, the Note or any other Loan Documents.

     “Other Taxes” means any and all stamp or documentary taxes or any other excise or property taxes, or similar governmental charges or levies imposed, enacted or to become effective after the date hereof, arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. Other Taxes shall not include Excluded Taxes.

     “Outstanding Principal Balance” shall mean, as of any date, the outstanding principal balance of the Loan.

     “Owned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Partial Adjacent Parcel” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Partial Release Parcel” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Payment Date” shall mean the ninth (9th) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day. The first Payment Date shall be November 9, 2007.

     “Permitted Adjacent/Café Uses” shall have the meaning set forth in Section 4.1.11 hereof.

     “Permitted Encumbrances” shall mean, with respect to a Property, collectively (a) the Liens and security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policy relating to such Property, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet delinquent, (d) such other title and survey exceptions, documents, agreements or instruments as Mortgage Lender has approved or may approve in writing in Mortgage Lender’s reasonable discretion, (e) easements, restrictions, covenants and/or reservations which are necessary for the operation of such Property that do not and would not have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, any Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (f) zoning restrictions and/or laws affecting such Property that do not and would not have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, any Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (g) the Liens securing any Existing FF&E Leases and/or any Permitted Future FF&E Leases, and (h) any other Liens which are being duly contested in accordance with the provisions of Section 5.1.1 or 5.1.2 hereof or Section 3.6(b) of the Mortgage, but only for so long as such contest shall be permitted pursuant to said Section 5.1.1 or 5.1.2 hereof or Section 3.6(b) of the Mortgage, as applicable.

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     “Permitted Future FF&E Leases” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Permitted Investment Fund” shall have the meaning set forth in the definition of “Qualified Guarantor Transferee” set forth below.

     “Permitted Investments” shall have the meaning set forth in the Cash Management Agreement.

     “Permitted IP Encumbrances” shall mean, with respect to the IP, collectively (a) the Liens and security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents, (b) such other Liens or security interests as Lender may approve in writing in Lender’s sole discretion, (c) the Liens on the IP set forth on Schedule VII hereto, which were extinguished on or prior to the Closing Date, and (d) any IP Agreements permitted under this Agreement.

     “Person” shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

     “Personal Property” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Property.

     “Physical Conditions Report” shall mean, with respect to each Property, a report prepared by a company reasonably satisfactory to Mortgage Lender regarding the physical condition of such Property, reasonably satisfactory in form and substance to Mortgage Lender.

     “Pink Taco IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Pink Taco License” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Plans and Specifications” shall mean the plans and specifications for the Project prepared by the Architect and reasonably approved by Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement, as the same may be amended and supplemented from time to time in accordance with the terms of the Mortgage Loan Agreement.

     “Pledge Agreement” shall mean that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, executed and delivered by Borrowers to Lender as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Pledged Collateral” shall mean the “Collateral” as defined in the Pledge Agreement.

     “Pledged Interests” shall mean all membership and manager interests in each of Mortgage Borrowers, as described on Schedule III attached hereto.

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     “Policies” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Pre-Construction Budget” shall mean a budget, prepared by Mortgage Borrowers and approved by Mortgage Lender in its reasonable discretion, which shall identify the costs and expenses for which the proceeds of any Pre-Construction Advance may be used, and all amendments and modifications thereto reasonably approved by Mortgage Lender.

     “Prepayment Fee” shall mean an amount equal to the following:

     (i) two percent (2.0%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement after the Closing Date through, but excluding, May 9, 2007;

     (ii) one and one-half percent (1.5%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement on or after May 9, 2007 through, but excluding, December 9, 2007; and

     (iii) one percent (1.0%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement on or after December 9, 2007 through, but excluding, the Prepayment Fee Release Date.

     “Prepayment Fee-Generating Prepayment” shall have the meaning set forth in Section 2.4.7 hereof.

     “Prepayment Fee Release Date” shall mean May 9, 2008.

     “Prescribed Laws” shall mean, collectively, (a) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power Act, 50 U.S.C. §1701 et. seq., and (d) all other Legal Requirements relating to money laundering or terrorism.

     “Prime Rate” shall mean the annual rate of interest publicly announced by Citibank, N.A. in New York, New York, as its base rate, as such rate shall change from time to time. If Citibank, N.A. ceases to announce a base rate, Prime Rate shall mean the rate of interest published in The Wall Street Journal from time to time as the “Prime Rate”. If more than one “Prime Rate” is published in The Wall Street Journal for a day, the average of such “Prime Rates” shall be used, and such average shall be rounded up to the nearest one-hundredth (100th) of one percent (1%). If The Wall Street Journal ceases to publish the “Prime Rate”, Lender shall

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select an equivalent publication that publishes such “Prime Rate”, and if such “Prime Rates” are no longer generally published or are limited, regulated or administered by a governmental or quasigovernmental body, then Lender shall select a comparable interest rate index.

     “Prime Rate Loan” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon the Prime Rate.

     “Prime Rate Spread” shall mean the difference (expressed as the number of basis points) between (a) LIBOR plus the Spread on the date LIBOR was last applicable to the Loan and (b) the Prime Rate on the date that LIBOR was last applicable to the Loan; provided, however, in no event shall such difference be a negative number.

     “Pro-Forma Net Cash Flow” shall mean, as of any date of determination, (i) Gross Income from Operations collected for the trailing three (3) month period ending with the last calendar month for which financial reports are then required to have been delivered under Section 5.1.11 hereof, multiplied by four (4), less (ii) actual Operating Expenses for the trailing twelve (12) month period ending with such last calendar month for which financial reports are then required to have been delivered under Section 5.1.11 hereof, as adjusted by Lender to reflect any actual increases to Operating Expenses then known to Lender (i.e., real estate taxes and insurance premiums) as reflected in the Approved Annual Budget in effect.

     “Project” shall mean those renovations and improvements (exclusive of the Initial Renovations) expected to be constructed and performed on the Hotel/Casino Property and the Adjacent Property in accordance with the terms of the Mortgage Loan Agreement and the other Mortgage Loan Documents, including, without limitation, a parking facility, an expansion of the hotel and casino on the Hotel/Casino Property and the construction of an approximately 440 room hotel facility, as generally described on Schedule II attached hereto and as more particularly described in the Plans and Specifications.

     “Project Costs” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Projected Underwritten Net Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Property” and “Properties” shall mean, individually and collectively, each and every one of the Hotel/Casino Property, the Café Property and the Adjacent Property that, as of any particular date, is subject to the terms of the Mortgage Loan Agreement, the Mortgage and the other Mortgage Loan Documents.

     “Provided Information” shall mean any and all financial and other information prepared and provided by any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor or under the supervision or control of any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor (but excluding third party independent reports) with respect to one or more of the Properties, the IP, the Collateral, any Loan Party, any Mezzanine Borrower, any Manager, Sub-Manager, HRHI and/or any Guarantor.

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     “Publicly Traded Company” shall mean any Person with a class of securities traded on a national or international securities exchange and/or registered under Section 12(b) or 12(g) of the Securities Exchange Act or 1934.

     “PWR/RWB Escrow Agreement” shall mean that certain Escrow Agreement, dated as of May 11, 2006, between PM Realty, LLC, Red, White and Blue Pictures, Inc., Morton, 510 Development Corporation, Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, Morgans Group LLC and Chicago Title Agency of Nevada, Inc., as the same has been and may be amended, modified or supplemented from time to time.

     “Qualification Conditions” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Qualified Extended Maturity Date” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Extension Option” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Extension Term” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Gaming Operator” shall mean (a) Golden HRC, LLC, (b) Gaming Borrower, if and when Gaming Borrower shall become the Gaming Operator for the Hotel/Casino Property in accordance with the provisions of Article XII hereof, (c) Navegante HR, LLC, if and when Navegante HR, LLC shall become the Gaming Operator for the Hotel/Casino Property in accordance with the provisions of the Navegante Agreement, or (d) a reputable and experienced gaming operator (which may be an Affiliate of any Mortgage Borrower) possessing experience in supervising, operating and managing gaming activities at properties similar in size, scope, use and value as the Hotel/Casino Property; provided, that with respect to any Person under any of the foregoing clauses (a), (b), (c) or (d), such Person shall have, at all times during its engagement as Gaming Operator, all required approvals and licenses from all applicable Governmental Authorities, including, without limitation, all Gaming Authorities, and provided, further, that with respect to the foregoing clause (d): (i) such Person shall be reasonably acceptable to Mortgage Lender and such Person shall agree to operate the gaming operations at the Hotel/Casino Property pursuant to one or more written agreements previously approved by Mortgage Lender in its reasonable discretion (including, by way of example but without limitation, a new lease and/or sublease and related recognition agreement), (ii) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that the supervision, operation and management of the gaming activities at the Hotel/Casino Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (iii) if such Person is an Affiliate of any Loan Party, (A) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (B) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained

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and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Guarantor Transferee” shall mean any one or more of the following:

     (i) an investment trust, bank, saving and loan association, insurance company, trust company, commercial credit corporation, pension plan, pension fund or pension advisory firm, mutual fund, government entity or plan;

     (ii) an investment company, money management firm or “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act, as amended, or an entity that is an “accredited investor” within the meaning of Regulation D under the Securities Act, as amended;

     (iii) an institution substantially similar to any of the entities described in the foregoing clause (i) or (ii);

     (iv) any entity Controlling or Controlled by or under common Control with any of the entities described in the foregoing clause (i) or (ii);

     (v) any Person (a) with a long-term unsecured debt rating from the Rating Agencies of at least Investment Grade or (b) who, together with its Affiliates, (A) (x) owns in its entirety, or (y) owns a general partnership interest, managing membership interest or other equivalent ownership and management interest in, an entity that owns, or (z) operates, at least ten (10) full service hotels exclusive of the Properties totaling in the aggregate no less than 3,500 rooms; or

     (vi) any other Person (including opportunity funds) that has been approved as a Qualified Guarantor Transferee by the Rating Agencies.

     “Qualified Initial Maturity Date” shall mean February 9, 2010.

     “Qualified Liquor Manager” shall mean either (a) HRHI, (b) Gaming Borrower, (c) Hotel Casino Borrower, (d) Golden HRC, LLC, or (e) a reputable and experienced liquor management organization (which may be an Affiliate of any Mortgage Borrower) possessing experience in managing all or substantially all alcoholic beverage services at properties similar in size, scope, use and value as the Hotel/Casino Property, provided, that (i) any Person referred to in the foregoing clause (a) through (e) shall have, at all times during its engagement as the Liquor Manager, all Governmental Approvals necessary to provide all alcoholic beverage services at the Hotel/Casino Property, and (ii) with respect to clause (e) above, (A) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that management of all alcoholic beverage services at the Hotel/Casino Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (B) if such Person is an Affiliate of any Loan Party, (1) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (2) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency

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Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Manager” shall mean either (a) any Manager with respect to the Property it is managing on the date hereof, or (b) in the reasonable judgment of Lender, a reputable and experienced property management organization (which may be an Affiliate of any Mortgage Borrower or Guarantor) possessing experience in managing properties similar in size, scope, use and value as the applicable Property, provided, that with respect to clause (b) above, (i) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that management of the applicable Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (ii) if such Person is an Affiliate of any Loan Party, (A) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (B) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Real Estate Guarantor” shall mean (i) Morgans Group LLC or (ii) a Qualified Guarantor Transferee that (i) is regularly engaged in the business of making or owning commercial real estate loans (including mezzanine loans with respect to commercial real estate), (ii) operating hospitality properties, or (iii) employing executive level employees with at least ten (10) years of experience with regard to the same as part of a business segment or business sector of a Qualified Guarantor Transferee.

     “Rank” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rank IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rank License” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rating Agencies” shall mean, prior to the final Securitization of the Loan, each of S&P, Moody’s and Fitch, or any other nationally recognized statistical rating agency which has been designated by Lender and, after the final Securitization of the Loan, shall mean any of the foregoing that have rated any of the Securities.

     “Re-Dating” shall have the meaning set forth in Section 9.2 hereof.

     “Reduced Acquisition Loan” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Refinancing Loan” shall mean a loan or loans (i) the proceeds of which is/are used in whole or in part to refinance the Loan, and/or (ii) is/are secured by a lien on any of the Properties and/or the IP and/or the direct or indirect ownership interests in one or more Borrowers.

     “Register” shall have the meaning set forth in Section 10.25 hereof.

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     “Registered” with respect to any IP, means any IP issued by, registered with, renewed by or the subject of a pending application before, any Governmental Authority or Internet domain name registrar.

     “Regulation AB” shall mean Regulation AB under the Securities Act and the Exchange Act, as such Regulation may be amended from time to time.

     “Related Loan” shall mean a loan to an Affiliate of any Borrower or secured by a Related Property, that is included in a Securitization with the Loan.

     “Related Property” shall mean a parcel of real property, together with improvements thereon and personal property related thereto, that is “related” within the meaning of the definition of Significant Obligor, to any Property.

     “Release Parcel” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Release Parcel Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Release Parcel Sale” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Relinquishment Notice” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Remaining Adjacent Property” shall mean that portion of the Adjacent Property that does not constitute the Release Parcel.

     “Rents” shall mean, with respect to each Property, all rents (including, without limitation, percentage rents), rent equivalents, moneys payable as damages (including payments by reason of the rejection of a Lease in a Bankruptcy Action) or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues (including liquor revenues), deposits (including, without limitation, security deposits, utility deposits and deposits for rental of rooms, but excluding deposits for rental of banquet space or business or conference meeting rooms), accounts, cash, issues, profits, charges for services rendered, all other amounts payable as rent under any Lease or other agreement relating to any Property (including without limitation the Liquor Management Agreement or Replacement Liquor Management Agreement), and other payments and consideration of whatever form or nature received by or paid to or for the account of or benefit of any Mortgage Borrower, any Manager, Sub-Manager or any of their respective agents or employees from any and all sources arising from or attributable to any Property and/or the Improvements thereon, and proceeds, if any, from business interruption or other loss of income insurance, including, without limitation, all hotel receipts, revenues and net credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreational facilities, revenues from telephone services, internet services, laundry services and television, all receivables, customer obligations, installment payment obligations and other

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obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of any Property or rendering of services by any Mortgage Borrower or any operator or manager of the hotel or the commercial space located in any of the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), net license, lease, sublease and net concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges and vending machine sales.

     “Replacement Interest Rate Cap Agreement” shall mean an interest rate cap agreement from an Acceptable Counterparty with terms substantially identical to the Interest Rate Cap Agreement except that the same shall be effective in connection with replacement of the Interest Rate Cap Agreement following a downgrade of the long-term unsecured debt rating of the Counterparty; provided, that with respect to any Replacement Interest Rate Cap Agreement to be delivered by Borrowers to Lender in connection with Borrowers’ exercise of any Extension Option, the strike price shall be the Strike Price applicable to such Extension Option being exercised; and, provided, further, that to the extent any such interest rate cap agreement does not meet the foregoing requirements, a “Replacement Interest Rate Cap Agreement” shall be such interest rate cap agreement reasonably approved in writing by Lender.

     “Replacement Liquor Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualified Liquor Manager substantially in the same form and substance as the Liquor Management Agreement being replaced, or (ii) a liquor management agreement with a Qualified Liquor Manager, which liquor management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), after the occurrence of a Securitization, Lender, at its option, may require that Loan Parties obtain confirmation from the applicable Rating Agencies that such liquor management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; and (b) an assignment of liquor management agreement and subordination of liquor management fees in a form reasonably acceptable to Lender, executed and delivered to Lender by Borrowers and such Qualified Liquor Manager at Borrowers’ expense.

     “Replacement Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualified Manager substantially in the same form and substance as the Management Agreement being replaced, or (ii) a management agreement with a Qualified Manager, which management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), after the occurrence of a Securitization, Lender, at its option, may require that Loan Parties obtain confirmation from the applicable Rating Agencies that such management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; and (b) an assignment of management agreement and subordination of management fees substantially in the form then used by Lender (or such other form and substance reasonably acceptable to Lender), executed and delivered to Lender by Borrowers and such Qualified Manager at Borrowers’ expense.

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     “Replacement Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.3 hereof.

     “Replacement Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.3 hereof.

     “Required Equity Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Required Net Cash Flow” shall mean, with respect to each Extension Term, the amount of Net Cash Flow that will need to be generated during such Extension Term in order to achieve an Extension Debt Service Coverage Ratio of 1.05 to 1.00.

     “Required Repair Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.1 hereof.

     “Required Repair Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.1 hereof.

     “Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the Interest Reserve Fund, the General Reserve Fund, any funds on deposit in the Construction Loan Reserve Account, any Shortfall Funds and any other escrow fund established pursuant to the Loan Documents.

     “Restoration” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Restoration Threshold” shall mean Ten Million Dollars ($10,000,000.00).

     “Restoration Value Threshold” shall mean that (i) in the case of a Condemnation, the Net Proceeds are less than 15% of the then current fair market value of the applicable Property, and (ii) in the case of a Casualty, the Net Proceeds are less than 30% of the then current fair market value of the applicable Property.

     “Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine Borrower, HRHI, HR Holdings and each Guarantor.

     “Right of First Offer” shall have the meaning set forth in Section 13.1 hereof.

     “Right of First Offer Notice” shall have the meaning set forth in Section 13.1 hereof.

     “Right of First Offer Information and Materials” shall have the meaning set forth in Section 13.2(b) hereof.

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     “ROFO Term Sheet” shall have the meaning set forth in Section 13.2(d) hereof.

     “S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.

     “Sale or Pledge” shall mean a voluntary or involuntary sale, conveyance, assignment, transfer, encumbrance or pledge of, or a grant of option with respect to, a legal or beneficial interest.

     “Sale Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Second Mezzanine Borrower” and “Second Mezzanine Borrowers” shall mean, individually or collectively, as applicable, HRHH Gaming Junior Mezz, LLC, a Delaware limited liability company, and HRHH JV Junior Mezz, LLC, a Delaware limited liability company, each in its capacity as a borrower under the Second Mezzanine Loan, together with its or their successors or permitted assigns.

     “Second Mezzanine Debt” shall mean the “Debt” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Default” shall mean a “Default” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Event of Default” shall mean an “Event of Default” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the Second Mezzanine Loan, together with its successors and assigns.

     “Second Mezzanine Loan” shall mean the loan in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), made by Second Mezzanine Lender to Second Mezzanine Borrowers pursuant to the Second Mezzanine Loan Agreement.

     “Second Mezzanine Loan Agreement” shall mean that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Lender and Second Mezzanine Borrowers, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Second Mezzanine Loan Documents” shall mean the Second Mezzanine Loan Agreement and all other documents evidencing and/or securing the Second Mezzanine Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Second Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the Second Mezzanine Loan Agreement.

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     “Second Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Second Mezzanine Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

     “Second Mezzanine Obligations” shall mean the “Obligations” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Spread” shall mean the “Spread” as defined in the Second Mezzanine Loan Agreement.

     “Second Non-Qualified Extended Maturity Date” shall mean February 9, 2011.

     “Second Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1(b) hereof.

     “Second Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1(b) hereof.

     “Second Qualified Extended Maturity Date” shall mean February 9, 2012.

     “Second Qualified Extension Option” shall have the meaning set forth in Section 2.7.2(b) hereof.

     “Second Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(b) hereof.

     “Securities” shall have the meaning set forth in Section 9.1(a) hereof.

     “Securities Act” shall have the meaning set forth in Section 9.3(a) hereof.

     “Securitization” shall have the meaning set forth in Section 9.1(a) hereof.

     “Servicer” shall have the meaning set forth in Section 9.7 hereof.

     “Servicing Agreement” shall have the meaning set forth in Section 9.7 hereof.

     “Severed Loan Documents” shall have the meaning set forth in Section 8.2(c) hereof.

     “Significant Obligor” shall have the meaning set forth in Item 1101(k) of Regulation AB under the Securities Act.

     “Special Purpose Entity” shall mean a limited partnership or limited liability company that since the date of its formation and at all times on and after the date thereof, has complied with and shall at all times comply with the following requirements:

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     (a) was, is and will be organized solely for the purpose of (i) (A) acquiring, owning, holding, selling, transferring, managing and operating the Collateral, (B) entering into this Agreement with Lender, (C) refinancing the Collateral in connection with repayment of the Loan, and/or (D) transacting lawful business that is incident, necessary and appropriate to accomplish any of the foregoing; or (ii) acting as a general partner of the limited partnership that owns the Collateral or managing member of the limited liability company that owns the Collateral;

     (b) has not been and is not engaged in, and will not engage in, any business unrelated to (i) the acquisition, ownership, management, sale, transfer or operation of the Collateral, (ii) acting as general partner of the limited partnership that owns the Collateral, or (iii) acting as managing member of the limited liability company that owns the Collateral;

     (c) has not had, does not have, and will not have, any assets other than those related to the Collateral, or, if such entity is a general partner in a limited partnership, its general partnership interest in the limited partnership that owns the Collateral, or, if such entity is a managing member of a limited liability company, its membership interest in the limited liability company that owns the Collateral;

     (d) has not engaged, sought or consented to, and to the fullest extent permitted by law, will not engage in, seek or consent to, any: (i) dissolution, winding up, liquidation, consolidation, merger or sale of all or substantially all of its assets outside of its ordinary course of business and other than as expressly permitted in this Agreement; (ii) other than as expressly permitted in this Agreement, transfer of partnership or membership interests (if such entity is a general partner in a limited partnership or a managing member in a limited liability company); or (iii) amendment of its limited partnership agreement, articles of organization, certificate of formation or operating agreement (as applicable) with respect to the matters set forth in this definition unless Lender issues its prior written consent, which consent shall not be unreasonably withheld, and, after the occurrence of a Securitization, the confirmation in writing from the applicable Rating Agencies that such amendment will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization;

     (e) if such entity is a limited partnership, has had, now has, and will have, as its only general partners, Special Purpose Entities that are limited liability companies;

     (f) if such entity is a limited liability company with more than one member, has had, now has and will have at least one member that is a Special Purpose Entity that is a corporation that has at least two (2) Independent Directors or a limited liability company that has at least two (2) Independent Managers and that, in either instance, owns at least one-tenth of one percent (.10%) of the equity of the limited liability company;

     (g) if such entity is a limited liability company with only one member, has been, now is, and will be, a limited liability company organized in the State of Delaware that (i) has as its only member a non-managing member; (ii) has at least two (2) Independent Managers and has not caused or allowed and will not cause or allow the taking of any “Material Action” (as defined in such entity’s operating agreement) without the unanimous affirmative vote of one hundred

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percent (100%) of the member and such entity’s two (2) Independent Managers; (iii) at least one (1) springing member (or two (2) springing members if such springing members are natural persons who will replace a member of such entity seriatim not simultaneously) that will become a member of such entity upon the occurrence of an event causing the member to cease to be a member of such limited liability company; and (iv) whose membership interests constitute and will constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of New York and Delaware).

     (h) if such entity is (i) a limited liability company, has had, now has and will have an operating agreement, or (ii) a limited partnership, has had, now has and will have a limited partnership agreement, that, in each case, provides that such entity will not: (A) to the fullest extent permitted by law, take any actions described in clause (d)(i) above; (B) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition, in each instance, without the prior written consent of Lender, which consent shall not be unreasonably withheld, and, after the occurrence of a Securitization, confirmation in writing from the applicable Rating Agencies that engaging in such other business activity or such amendment, as applicable, will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization; or (C) without the affirmative vote of two (2) Independent Managers and of all the partners or members of such entity, as applicable (or the vote of two (2) Independent Managers of its general partner or managing member, if applicable), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest;

     (i) has been, is and will remain solvent and has paid and will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same have or shall become due, and has maintained, is maintaining and will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; provided, however, this provision shall not require the equity owner(s) of such entity to make any additional capital contributions;

     (j) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity;

     (k) other than as provided in the Cash Management Agreement with respect to one or more other Borrowers, has maintained and will maintain its accounts, books and records separate from any other Person (except other Borrowers) and has filed and will file its own tax returns, except to the extent that it has been or is (i) required to file consolidated tax returns by law; or (ii) treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law;

     (l) has maintained and will maintain its own (except with other Borrowers) records, books, resolutions (if any) and agreements;

     (m) other than as provided in the Cash Management Agreement with respect to one or more other Borrowers, (i) has not commingled and will not commingle its funds or assets with

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those of any other Person; and (ii) has not participated and will not participate in any cash management system with any other Person;

     (n) has held and will hold its assets in its own name;

     (o) has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of any Borrower or any Mortgage Borrower, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in clause (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of such Borrower;

     (p) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required by GAAP (or such other accounting basis acceptable to Lender); provided, however, that a Borrower’s assets may be included in a consolidated financial statement of its Affiliate, provided that such assets shall also be listed on such Special Purpose Entity’s own separate balance sheet;

     (q) has paid and will pay its own liabilities and expenses, including the salaries of its own employees (if any), out of its own funds and assets, and has maintained and will maintain, or will enter into a contract with an Affiliate to maintain, which contract shall be reasonably satisfactory to Lender in form and substance and shall be subject to the requirements of clause (dd) below, a sufficient number of employees (if any) in light of its contemplated business operations; provided, however, this provision shall not require the equity owner(s) of such entity to make any additional capital contributions;

     (r) has observed and will observe all Delaware partnership or limited liability company formalities, as applicable;

     (s) has not incurred and will not incur any Indebtedness other than (i) the Debt, and (ii) unsecured trade payables and operational debt not evidenced by a note and in an aggregate amount not exceeding $50,000; provided that any Indebtedness incurred pursuant to subclause (ii) shall be (A) paid within sixty (60) days of the date incurred (other than attorneys’ and other professional fees) and (B) incurred in the ordinary course of business;

     (t) has not assumed or guaranteed or become obligated for, and will not assume or guarantee or become obligated for, the debts of any other Person and has not held out and will not hold out its credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; except, if such entity is a general partner of a limited partnership, in such entity’s capacity as general partner of such limited partnership or a member of a limited liability company, in such entity’s capacity as a member of such limited liability company;

     (u) has not acquired and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate except with respect to the ownership of the limited liability company interests or partnership interests (as applicable) of the Special Purpose Entities as shown on the organizational chart attached to this Agreement as Schedule VI;

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     (v) has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an Affiliate; provided, however, to the extent invoices for such services are not allocated and separately billed to each entity, there is a system in place that provides that the amount thereof that is to be allocated among the relevant parties will be reasonably related to the services provided to each such party;

     (w) has maintained and used, now maintains and uses and will maintain and use separate invoices and checks bearing its name. The invoices and checks utilized by the Special Purpose Entity or utilized to collect its funds or pay its expenses have borne and shall bear its own name and have not borne and shall not bear the name of any other entity unless such entity is clearly designated as being the Special Purpose Entity’s agent;

     (x) except as provided in the Second Mezzanine Loan Documents, has not pledged and will not pledge its assets to secure the obligations of any other Person;

     (y) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of any Borrower or any Mortgage Borrower and not as a division or part of any other Person, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in clause (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of such Borrower;

     (z) except as provided in the Cash Management Agreement, has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

     (aa) has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other Person or entity (other than cash and investment grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity);

     (bb) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person;

     (cc) except for capital contributions and capital distributions expressly permitted under the terms and conditions of its organizational documents and properly reflected in its books and records, has not entered into or been a party to and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except in the ordinary course of its business and on terms which are commercially reasonable and are no less favorable to it than would be obtained in a comparable arm’s length transaction with an unrelated third party;

     (dd) except with respect to the Independent Managers, has not had and will not have any obligation to indemnify, and has not indemnified and will not indemnify, its partners, officers, directors or members, as the case may be, unless such an obligation was and is fully

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subordinated to the Debt and will not constitute a claim against it in the event that cash flow in excess of the amount required to pay the Debt is insufficient to pay such obligation;

     (ee) does not and will not have any of its obligations guaranteed by any Affiliate except for (i) Guarantors pursuant to the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty and the Construction Completion Guaranty, and (ii) HRHI pursuant to the HRHI Guaranty; provided, that if such entity is a limited partnership, such entity’s general partner will be generally liable for its obligations; and

     (ff) has complied and will comply with all of the terms and provisions contained in its organizational documents.

     “Spread” shall mean, subject to application of the Default Rate, 5.2000000000%; provided, however, that (a) subject to the following clause (b), if Substantial Completion has not occurred on or before the date which is twenty-four (24) months from the date of the Initial Construction Loan Advance, the Spread shall increase to 5.8117647059% from and including such date which is twenty-four (24) months from the date of the Initial Construction Loan Advance through but excluding the first Payment Date following Substantial Completion, following which the Spread shall again be 5.2000000000%, and (b) if the Second Non-Qualified Extension Term is exercised in accordance with the terms of Section 2.7.1 hereof, the Spread in effect from time to time pursuant to the foregoing clause (a) shall increase by 0.3058823529% throughout the Second Non-Qualified Extension Term and thereafter until the Obligations are paid in full.

     “Spread Maintenance Premium” shall mean, with respect to any prepayment of the Outstanding Principal Balance prior to the Spread Maintenance Release Date, other than any prepayment from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price, an amount equal to the product of (a) the principal amount of such prepayment, multiplied by (b) the Spread, and multiplied by (c) a fraction, the numerator of which shall equal the actual number of days from the date of such payment through the Spread Maintenance Release Date and the denominator of which is 360; provided, however, if any such prepayment shall occur on a day other than a Payment Date, the numerator of such fraction shall equal the actual number of days from the next succeeding ninth (9th) day of a calendar month through the Spread Maintenance Release Date.

     “Spread Maintenance Release Date” shall mean , as applicable, either (i) May 9, 2008, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, or (ii) August 9, 2008, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date.

     “State” shall mean the State of Nevada.

     “Strike Price” shall mean, as applicable, with respect to:

     (i) the period commencing on the Closing Date through and including the Initial Maturity Date, five and one-half percent (5.5%) per annum; and

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     (ii) for each Extension Term, a rate to be selected by Borrowers no later than ten (10) days prior to the first day of such Extension Term, which shall in no event exceed one percent (1%) in excess of LIBOR as of the most recent Determination Date.

     “Sub-Management Agreement” shall mean that certain Paradise Bay Club Apartments Management Agreement, dated as of September 17, 2004, between PM Realty LLC (predecessor-in-interest to Adjacent Borrower) and Sub-Manger, with respect to the Adjacent Property, as the same has been and may be amended, modified or supplemented from time to time.

     “Sub-Manager” shall mean, with respect to the Adjacent Property, ConAm Management Corporation.

     “Subsequent Required Equity Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Subsidiary Transferee” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Substantial Completion” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Survey” shall mean a current survey of each of the Properties, certified to the Title Company and Mortgage Lender and their successors and assigns, in form and content reasonably satisfactory to Mortgage Lender.

     “Tax and Insurance Escrow Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.2 hereof.

     “Taxes” shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Property or part thereof, together with all interest and penalties thereon.

     “Third Mezzanine Borrower” and “Third Mezzanine Borrowers” shall mean, individually or collectively, as applicable, HRHH Gaming Junior Mezz Two, LLC, a Delaware limited liability company, and HRHH JV Junior Mezz Two, LLC, a Delaware limited liability company, each in its capacity as a borrower under the Third Mezzanine Loan, together with its or their successors or permitted assigns.

     “Third Mezzanine Debt” shall mean the “Debt” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Default” shall mean a “Default” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Event of Default” shall mean an “Event of Default” as defined in the Third Mezzanine Loan Agreement.

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     “Third Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the Third Mezzanine Loan, together with its successors and assigns.

     “Third Mezzanine Loan” shall mean the loan in the original principal amount of up to Sixty Five Million and No/100 Dollars ($65,000,000), made by Third Mezzanine Lender to Third Mezzanine Borrowers pursuant to the Third Mezzanine Loan Agreement.

     “Third Mezzanine Loan Agreement” shall mean that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Lender and Third Mezzanine Borrowers, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Third Mezzanine Loan Documents” shall mean the Third Mezzanine Loan Agreement and all other documents evidencing and/or securing the Third Mezzanine Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Third Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Third Mezzanine Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

     “Third Mezzanine Obligations” shall mean the “Obligations” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Spread” shall mean the “Spread” as defined in the Third Mezzanine Loan Agreement.

     “Third Party IP License” shall have the meaning set forth in Section 5.1.26(c) hereof.

     “Third Party Lenders” shall mean third party institutional lenders which are in the business of providing loans similar to the Refinancing Loans

     “Title Company” shall mean First American Title Insurance Company, or any successor title company reasonably acceptable to Mortgage Lender and licensed to issue title insurance in the State of Nevada.

     “Title Insurance Policy” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.

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     “Transfer Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine Borrower, each Constituent Member of each Loan Party, HRHI, HR Holdings and each Guarantor.

     “Trust” shall have the meaning set forth in Section 10.25(a) hereof.

     “UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the State of Nevada, the State of New York or the State of Delaware, as applicable.

     “UCC Financing Statements” shall mean the UCC Financing Statement executed in connection with the Pledge Agreement and the other Loan Documents and filed in the applicable filing offices.

     “UCC Insurance Policy” shall have the meaning set forth in Section 3.1.2(b) hereof.

     “Uniform System of Accounts” shall mean the most recent edition of the Uniform System of Accounts for Hotels, as adopted by the American Hotel and Motel Association.

     “U.S. Obligations” shall mean non-redeemable securities evidencing an obligation to timely pay principal and/or interest in a full and timely manner that are direct obligations of the United States of America for the payment of which its full faith and credit is pledged.

     Section 1.2 Principles of Construction. (a)  All references to sections, subsections, clauses, exhibits and schedules are to sections, subsections, clauses, exhibits and schedules in or to this Agreement unless otherwise specified. All uses of the word “including” shall mean “including, without limitation” unless the context shall indicate otherwise. Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All uses in this Agreement of the phrase “any Borrower” shall be deemed to mean “any one or more of the Borrowers including all of the Borrowers”. All uses in this Agreement of the phrase “any Property” or “any of the Properties” shall be deemed to mean “any one or more of the Properties including all of the Properties”. All uses in this Agreement of the phrase “the IP” shall be deemed to mean “all or any part of the IP”. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.

               (b) With respect to terms defined by cross-reference to the Mortgage Loan Documents, the Second Mezzanine Loan Documents and/or the Third Mezzanine Loan Documents, as applicable, such defined terms shall have the definitions set forth in the Mortgage Loan Documents, the Second Mezzanine Loan Documents and/or the Third Mezzanine Loan Documents as of the date hereof, and no modifications to the Mortgage Loan Documents, the Second Mezzanine Loan Documents and/or the Third Mezzanine Loan Documents, as the case may be, shall have the effect of changing such definitions for the purpose of this Agreement unless Lender expressly agrees that such definitions as used in this Agreement have been revised or Lender consents to the modification documents. With respect to any provisions incorporated by reference herein from the Mortgage Loan Agreement, such provisions shall be deemed a part of this Agreement notwithstanding the fact that the Mortgage Loan shall no longer be effective for any reason. The words “Borrowers shall

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cause Mortgage Borrowers to” or “Borrowers shall cause Mortgage Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the direct or indirect sole members of Mortgage Borrowers, shall cause Mortgage Borrowers to so act or not to so act, as applicable.

ARTICLE II.
GENERAL TERMS

     Section 2.1 Loan Commitment; Disbursement to Borrowers.

          2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrowers hereby jointly and severally agree to accept the Loan on the Closing Date.

          2.1.2 Loan. (a) The Loan is evidenced by the Note and this Agreement, is secured by the Pledge Agreement and the other Loan Documents and shall be repaid with interest, costs and charges as more particularly set forth in the Note, this Agreement, the Pledge Agreement and the other Loan Documents. Principal amounts of the Loan which are repaid for any reason may not be reborrowed. Lender shall not fund any portion of the Loan from any account holding “plan assets” of one or more plans within the meaning of 29 C.F.R. 2510.3-101 unless such Loan will not constitute a non-exempt prohibited transaction under ERISA.

               (b) Borrowers shall use the proceeds of the Loan to make a contribution to Mortgage Borrowers for use by Mortgage Borrowers to partially prepay the principal balance of the Original Mortgage Loan.

     Section 2.2 Interest Rate.

          2.2.1 Interest Generally. Interest on the Outstanding Principal Balance shall accrue from the Closing Date to but excluding the Maturity Date at the Applicable Interest Rate. Borrowers shall pay to Lender on each Payment Date the interest accrued on the Loan for the preceding Interest Period.

          2.2.2 Interest Calculation. Interest on the Outstanding Principal Balance shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate based on a three hundred sixty (360) day year by (c) the Outstanding Principal Balance. If, at any time, Lender or Borrowers determine that Lender has miscalculated the Applicable Interest Rate (whether because of a miscalculation of LIBOR or otherwise), such party shall notify the other of the necessary correction. Upon the agreement of the parties as to the correction, if the corrected Applicable Interest Rate represents an increase in the applicable monthly payment, Borrowers shall, within ten (10) days after receipt of notice from Lender, pay to Lender the corrected amount. Upon the agreement of the parties as to the correction, if the corrected Applicable Interest Rate represents an overpayment by Borrowers to Lender and no Event of Default then exists, Lender shall promptly refund the overpayment to Borrowers or, at Borrowers’ option, credit such amounts against Borrowers’ payment next due hereunder.

          2.2.3 Determination of Interest Rate. (a) The Applicable Interest Rate with respect to the Loan shall be: (i) LIBOR plus the Spread with respect to the applicable Interest

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Period for a LIBOR Loan or (ii) the Prime Rate plus the Prime Rate Spread for a Prime Rate Loan if the Loan is converted to a Prime Rate Loan pursuant to the provisions of Section 2.2.3(c) or (f) hereof.

               (b) Subject to the terms and conditions of this Section 2.2.3, the Loan shall be a LIBOR Loan and Borrowers shall pay interest on the Outstanding Principal Balance at LIBOR plus the Spread for the applicable Interest Period. Any change in the Applicable Interest Rate hereunder due to a change in LIBOR shall become effective as of the opening of business on the first day of the applicable Interest Period.

               (c) In the event that Lender shall have determined in good faith (which determination shall be conclusive and binding upon Borrowers’ absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrowers at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding LIBOR Loan shall be converted, on the first day of the next occurring Interest Period, to a Prime Rate Loan.

               (d) If, pursuant to the terms of this Agreement, any portion of the Loan has been converted to a Prime Rate Loan and Lender shall determine in good faith (which determination shall be conclusive and binding upon Borrowers absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice by telephone of such determination, confirmed in writing, to Borrowers at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding Prime Rate Loan shall be converted to a LIBOR Loan on the first day of the next occurring Interest Period.

               (e) (i)  Except as otherwise expressly provided in this Section 2.2.3(e), with respect to a LIBOR Loan, all payments made by Borrowers hereunder shall be made free and clear of, and without reduction for or on account of, any Indemnified Taxes or Other Taxes; provided that if Borrowers shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (A) the sum payable shall be increased as necessary so that after making all such required deductions (including deductions applicable to additional sums payable under this Section 2.2.3) Lender receives an amount equal to the sum it would have received had no such deductions been made, (B) Borrowers shall make such deductions, and (C) Borrowers shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. If Lender gives Borrowers written notice that any such amounts are payable by Borrowers, Borrowers shall pay all such amounts to the relevant Governmental Authority in accordance with applicable Legal Requirements by the later of (1) five (5) Business Days after receipt of demand from Lender and (2) their due date, and, as promptly as possible thereafter, Borrowers shall send to Lender an original official receipt, if available, or certified copy thereof showing payment of such Indemnified Taxes or Other Taxes.

               (ii) Without duplication of any additional amounts paid pursuant to this Section 2.2.3(e), each Borrower shall indemnify Lender, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including

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Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.2.3) paid by Lender, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority, provided that, if Borrowers determine that any such Indemnified Taxes or Other Taxes were not correctly or legally imposed or asserted, Lender shall, upon payment by Borrowers of the full amount of any Indemnified Taxes or Other Taxes, allow Borrowers to contest (and shall cooperate in such contest), the imposition of such tax upon the reasonable request of Borrowers and at Borrowers’ expense; provided, however, that Lender shall not be required to participate in any contest that would, in its reasonable judgment, expose it to a material commercial disadvantage or require it to disclose any information it considers confidential or proprietary. A certificate as to the amount of such payment or liability delivered to Borrowers by Lender (together with any supporting detail reasonably requested by Borrowers), shall be conclusive, provided that such amounts are determined on a reasonable basis.

               (iii) Any Non-U.S. Lender that is entitled to an exemption from or reduction of withholding tax under U.S. law, the law of the jurisdiction in which Borrowers are located (if other than the U.S.), or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to Borrowers, at the time or times prescribed by applicable law, or as reasonably requested by Borrowers, such properly completed and executed documentation prescribed by applicable law or reasonably requested by Borrowers as will permit such payments to be made without withholding or at a reduced rate of withholding. Each Non-U.S. Lender shall deliver to Borrowers (or, in the case of a participant, to the Lender from which the related participation shall have been purchased), on or before the date that such Non-U.S. Lender becomes a party to this Agreement, two (2) properly completed and duly executed copies of U.S. Internal Revenue Service Form W-8BEN, Form W-8IMY, Form W-8EXP or Form W-8ECI, as applicable (or successor forms thereto), claiming a complete exemption from, or reduction of, U.S. federal withholding tax on all payments by Borrowers under this Agreement. Each Non-U.S. Lender shall promptly provide such forms upon becoming aware of the obsolescence, expiration or invalidity of any form previously delivered by such Non-U.S. Lender (unless it is legally unable to do so as a result of a change in law) and shall promptly notify Borrowers at any time it determines that any previously delivered forms are no longer valid.

               (iv) Lender or any successor and/or assign of Lender that is incorporated under the laws of the United States of America or a state thereof agrees that, on or before it becomes a party to this Agreement and from time to time thereafter before the expiration or obsolescence of the previously delivered form, it will deliver to Borrowers a United States Internal Revenue Service Form W-9 or successor applicable form, as the case may be, to establish exemption from United States backup withholding tax. If required by applicable law, Borrowers are hereby authorized to deduct from any payments due to Lender pursuant to Section 2.2.3 hereof the amount of any withholding taxes resulting from Lender’s failure to comply with this Section 2.2.3(e)(iv).

               (v) If Lender determines, in its reasonable discretion, that it has received a refund of or will receive a credit for Indemnified Taxes or Other Taxes with respect to which Borrowers have paid additional amounts pursuant to this Section 2.2.3(e), it shall pay over to Borrowers an amount equal to the additional amounts paid by Borrowers under this Section

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2.2.3(e) (with respect to the Indemnified Taxes or Other Taxes giving rise to such refund or credit), net of all out-of-pocket expenses of Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that Borrowers, upon the request of Lender, agrees to repay the amount paid over to Borrowers (plus any interest to the extent accrued from the date such refund is paid over to Borrowers) to Lender in the event Lender is required to repay such refund to such Governmental Authority or is unable to claim the credit. This Section 2.2.3(e)(v) shall not be construed to require Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to Borrowers or any other Person.

               (f) Except as otherwise expressly provided in Section 2.2.3(e) hereof, if any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender to make or maintain a LIBOR Loan as contemplated hereunder (i) the obligation of Lender hereunder to make a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted automatically to a Prime Rate Loan on the next succeeding Payment Date or within such earlier period as required by law. Borrowers hereby agree promptly to pay Lender, upon demand, any additional amounts necessary to compensate Lender for any actual out-of-pocket costs incurred by Lender in making any conversion in accordance with this Agreement, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the LIBOR Loan hereunder; provided that such additional amount is generally charged by Lender to other borrowers with loans similar to the Loan.

               (g) Except as otherwise expressly provided in Section 2.2.3(e) hereof, in the event that any change in any requirement of law or in the interpretation or application thereof, or compliance by Lender with any request or directive having the force of law hereafter issued from any central bank or other Governmental Authority:

          (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of LIBOR hereunder;

          (ii) shall hereafter have the effect of reducing the rate of return on Lender’s capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender’s policies with respect to capital adequacy) by any material amount; or

          (iii) shall hereafter impose on Lender any other condition and the result of any of the foregoing is to increase the actual out-of-pocket cost to Lender of maintaining loans or extensions of credit or to reduce any amount receivable hereunder;

then, in any such case, Borrowers shall promptly pay Lender, upon demand, any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable;

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provided that such additional amount is generally charged by Lender to other borrowers with loans similar to the Loan. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(g), Lender shall provide Borrowers with not less than ninety (90) days notice specifying in reasonable detail the event by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount.

               (h) Each Borrower agrees to pay to Lender and to hold Lender harmless from any actual out-of-pocket expense which Lender sustains or incurs as a consequence of (i) any default by Borrowers in payment of the principal of or interest on a LIBOR Loan, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder, (ii) any prepayment (whether voluntary or mandatory) of the LIBOR Loan on a day that (A) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (B) is the Payment Date immediately following the last day of an Interest Period with respect thereto if Borrowers did not give the prior notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the LIBOR Loan hereunder, and (iii) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from LIBOR plus the Spread to the Prime Rate plus the Prime Rate Spread with respect to any portion of the Outstanding Principal Balance then bearing interest at LIBOR plus the Spread on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, such actual out-of-pocket expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder (the amounts referred to in clauses (i), (ii) and (iii) are herein referred to collectively as the “Breakage Costs”); provided, however, that Borrowers shall not indemnify Lender from any loss or expense arising from Lender’s willful misconduct, fraud, illegal acts or gross negligence. No Breakage Costs shall be due or payable if, in connection with any prepayment of the Loan by Borrowers, Borrowers pay interest through the next Payment Date as provided in Section 2.4.1 hereof.

               (i) Subject to Section 2.2.3(e) above, Lender shall not be entitled to claim compensation pursuant to this Section 2.2.3 for any Indemnified Taxes or Other Taxes, increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of return, which was incurred or which accrued more than ninety (90) days before the date Lender notified Borrowers in writing of the change in law or other circumstance on which such claim of compensation is based and delivered to Borrowers a written statement setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.2.3, which statement, made in good faith, shall be conclusive and binding upon all parties hereto absent manifest error.

          2.2.4 Additional Costs. Lender will use reasonable efforts (consistent with legal and regulatory restrictions) to maintain the availability of the LIBOR Loan and to avoid or reduce any increased or additional costs payable by Borrowers under Section 2.2.3 hereof, including, if requested by Borrowers, a transfer or assignment of the Loan to a branch, office or Affiliate of Lender in another jurisdiction, or a redesignation of its lending office with respect to

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the Loan, in order to maintain the availability of the LIBOR Loan or to avoid or reduce such increased or additional costs, provided that the transfer or assignment or redesignation (a) would not result in any additional costs, expenses or risk to Lender that are not separately agreed to by Borrowers to be reimbursed by Borrowers and (b) would not be disadvantageous in any other material respect to Lender as determined by Lender in its reasonable discretion.

          2.2.5 Default Rate. In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the Outstanding Principal Balance and, to the extent permitted by law, all accrued and unpaid interest in respect of the Loan and any other amounts due pursuant to the Loan Documents, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.

          2.2.6 Usury Savings. This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall any Borrower be obligated or required to pay interest on the Outstanding Principal Balance at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, any Borrower is at any time required or obligated to pay interest on the Outstanding Principal Balance at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.

          2.2.7 Interest Rate Cap Agreement. (a) Prior to or contemporaneously with the Closing Date, Borrowers shall enter into one or more Interest Rate Cap Agreements with a blended LIBOR strike price equal to the Strike Price. Each Interest Rate Cap Agreement (i) shall be in a form and substance reasonably acceptable to Lender, (ii) shall be with an Acceptable Counterparty, (iii) shall direct such Acceptable Counterparty to deposit directly into the Cash Management Account any amounts due Borrowers under such Interest Rate Cap Agreement so long as any portion of the Debt exists, provided that the Debt shall be deemed to exist even if one or more of the Properties, the IP or the Collateral is transferred by judicial or non-judicial foreclosure or deed-in-lieu thereof, (iv) shall be for a period equal to the current term of the Loan, and (v) when aggregated with all other Interest Rate Cap Agreements, shall have an initial notional amount equal to the outstanding principal balance of the Loan as of the Closing Date. Borrowers shall collaterally assign to Lender, pursuant to the Collateral Assignment of Interest Rate Cap Agreement, all of its right, title and interest to receive any and all payments under all Interest Rate Cap Agreements, and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreements (which shall, by their respective terms, authorize the assignment to Lender and require that payments be deposited directly into the Cash Management Account).

               (b) Borrowers shall comply with all of their obligations under the terms and provisions of each Interest Rate Cap Agreement. All amounts paid by the

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Counterparty under each Interest Rate Cap Agreement to Borrowers or Lender shall be deposited immediately into the Cash Management Account. Borrowers shall take all actions reasonably requested by Lender to enforce Lender’s rights under each Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder.

               (c) In the event of any downgrade of the rating of the Acceptable Counterparty below “AA-” by S&P or “Aa3” by Moody’s, Borrowers shall replace the applicable Interest Rate Cap Agreement(s) with one or more Replacement Interest Rate Cap Agreements not later than ten (10) Business Days following receipt of notice from Lender of such downgrade.

               (d) In the event that Borrowers fail to purchase and deliver to Lender any Interest Rate Cap Agreement or fail to maintain each Interest Rate Cap Agreement in accordance with the terms and provisions of this Agreement, after ten (10) Business Days notice to Borrowers and Borrowers’ failure to cure, Lender may purchase the required Interest Rate Cap Agreement(s) and the actual out-of-pocket cost incurred by Lender in purchasing such Interest Rate Cap Agreement(s) shall be paid by Borrowers to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such actual out-of-pocket cost is reimbursed by Borrowers to Lender.

               (e) In connection with each Interest Rate Cap Agreement, Borrowers shall obtain and deliver to Lender an opinion from counsel (which counsel may be in-house counsel for the Counterparty) for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that:

          (i) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, such Interest Rate Cap Agreement;

          (ii) the execution and delivery of such Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property;

          (iii) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of such Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and

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          (iv) such Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

               (f) At such time as the Loan is repaid in full, all of Lender’s right, title and interest in all Interest Rate Cap Agreements shall terminate and Lender shall, at Borrowers’ reasonable expense, promptly execute and deliver such documents as may be reasonably required and prepared by the Counterparty and/or Borrowers to evidence release of each Interest Rate Cap Agreement.

     Section 2.3 Loan Payment.

          2.3.1 Payments Generally. Borrowers shall pay to Lender on each Payment Date the interest accrued on the Loan for the preceding Interest Period (the “Monthly Interest Payment”), except that Borrowers shall pay to Lender an amount equal to the interest accrued on the Outstanding Principal Balance for the initial Interest Period on the Closing Date. For purposes of making payments hereunder, but not for purposes of calculating Interest Periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day. With respect to payments of principal due on the Maturity Date, interest shall be payable at the Applicable Interest Rate or the Default Rate, as the case may be, through and including the day immediately preceding such Maturity Date. All amounts due pursuant to this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever, except as otherwise expressly provided in Section 2.2.3(e) hereof.

     Lender shall have the right from time to time, in its sole discretion, upon not less than ten (10) days prior written notice to Borrowers, to change the monthly Payment Date to a different calendar day and to correspondingly adjust the Interest Period and Lender and Borrowers shall promptly execute an amendment to this Agreement to evidence any such changes.

          2.3.2 Payment on Maturity Date. Borrowers shall pay to Lender on the Maturity Date the Outstanding Principal Balance, all accrued and unpaid interest, and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents.

          2.3.3 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents (other than the payment of principal due on the Maturity Date) is not paid by Borrowers by the date on which it is due, Borrowers shall pay to Lender upon demand an amount equal to the lesser of (a) four percent (4%) of such unpaid sum or (b) the maximum amount permitted by applicable law, in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for

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the loss of the use of such delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by applicable law.

          2.3.4 Method and Place of Payment. Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 2:00 P.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office at 11 Madison Avenue, New York, New York 10010, Attention: Edmund Taylor, or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.

     Section 2.4 Prepayments.

          2.4.1 Voluntary Prepayments. From and after the date hereof, so long as no Event of Default has occurred and is continuing, Borrowers may, at their option and upon at least ten (10) days prior written notice to Lender (or such shorter period as may be permitted by Lender), prepay the Debt in whole or in part, but in no event shall any partial prepayment be less than $5,000,000.00; provided that any prepayment is accompanied by (a) if such prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Loan to be paid through, but not including, the next succeeding ninth (9th) day of a calendar month, or, if such prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date; (b) if such prepayment occurs prior to the Spread Maintenance Release Date, the Spread Maintenance Premium due with respect to the amount prepaid, if any; and (c) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to, the Breakage Costs, if any, the applicable Prepayment Fee, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such prepayment. No Spread Maintenance Premium or, subject to the proviso at the end of this sentence, any other prepayment premium or fee shall be due in connection with any prepayment of the Loan (i) made after the Spread Maintenance Release Date, or (ii) made from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price; provided, however, that the applicable Prepayment Fee shall be due in connection with any prepayment of the Loan made from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price if any such prepayment shall occur prior to the Prepayment Fee Release Date. If a notice of prepayment is given by Borrowers to Lender pursuant to this Section 2.4.1, the amount designated for prepayment and all other sums required under this Section 2.4 shall be due and payable on the proposed prepayment date; provided, however, Borrowers shall have the right to postpone or revoke such prepayment upon written notice to Lender not less than two (2) Business Days prior to the date such prepayment is due so long as Borrowers pay Lender and/or Servicer all actual out-of-pocket third party costs and expenses incurred by Lender and/or Servicer in connection with such postponement or revocation.

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          2.4.2 Mandatory Prepayments.

               (a) Minimum Mandatory Prepayment and Alternative Minimum Mandatory Letter of Credit.

               (i) Section 2.4.2(b) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to either (A) pay to Mortgage Lender a mandatory prepayment of the Aggregate Outstanding Principal Balance in the Minimum Mandatory Amount (the “Minimum Mandatory Prepayment”), or (B) deliver to Mortgage Lender the Alternative Minimum Mandatory Letter of Credit and the Alternative Minimum Interest Reserve Amount, in each case, in the event that the entire Release Parcel has not been sold pursuant to one or more Release Parcel Sales consummated in accordance with the provisions of Section 2.5.1 of the Mortgage Loan Agreement, including, without limitation, the payment of the Release Parcel Release Price(s) resulting from any such Release Parcel Sale(s), on or prior to the First Anniversary, subject to extension upon satisfaction of certain conditions as set forth in Section 2.4.2(b) of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Minimum Mandatory Prepayment or delivery of the Alternative Minimum Mandatory Letter of Credit and the Alternative Minimum Interest Reserve Amount by Mortgage Borrowers in accordance with the terms of Section 2.4.2(b) and Section 2.4.2(e) of the Mortgage Loan Agreement provided that:

               (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices relating to such Minimum Mandatory Prepayment or Alternative Minimum Mandatory Letter of Credit delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

               (B) all certifications made by Mortgage Borrowers in connection with such Minimum Mandatory Prepayment or Alternative Minimum Mandatory Letter of Credit also run for the benefit of Lender; and

               (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Minimum Mandatory Prepayment (or deliver an Alternative Minimum Mandatory Letter of Credit in lieu thereof) determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Minimum Mandatory Prepayment (or a partial payment on account thereof) occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Minimum Mandatory Prepayment (or a partial payment on account thereof) occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the

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applicable Payment Date, (2) the applicable Prepayment Fee, and (3) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Minimum Mandatory Prepayment (or such partial payment on account thereof), but Lender acknowledges and agrees that no Spread Maintenance Premium shall be due at any time in connection with the Minimum Mandatory Prepayment (or any partial payment on account thereof).

               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its option, to draw on any Alternative Minimum Mandatory Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

               (iv) Upon repayment in full of the Mortgage Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(b) and Section 2.4.2(e) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

               (b) Non-Qualified Mandatory Prepayment.

               (i) Section 2.4.2(c) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to either (A) pay to Mortgage Lender on or prior to the Construction Qualification Date a mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $50,000,000.00 (the “Non-Qualified Mandatory Prepayment”), or (B) deliver to Mortgage Lender the Non-Qualified Prepayment Letter of Credit, in each case, in the event that Mortgage Borrowers shall deliver a Relinquishment Notice or in the event that a Deemed Relinquishment shall occur, and whether or not the entire Release Parcel shall have been sold pursuant to one or more Release Parcel Sales in accordance with the provisions of Section 2.5.1 of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Non-Qualified Mandatory Prepayment or delivery of the Non-Qualified Prepayment Letter of Credit by Mortgage Borrowers in accordance with the terms of Section 2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement provided that:

               (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices (including any Relinquishment Notice) relating to such Non-Qualified Mandatory Prepayment or Non-Qualified Prepayment Letter of Credit delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

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               (B) all certifications made by Mortgage Borrowers in connection with such Non-Qualified Mandatory Prepayment or Non-Qualified Prepayment Letter of Credit also run for the benefit of Lender; and

               (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Non-Qualified Mandatory Prepayment (or deliver a Non-Qualified Prepayment Letter of Credit in lieu thereof) determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Non-Qualified Mandatory Prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Non-Qualified Mandatory Prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, and (2) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Non-Qualified Mandatory Prepayment, but Lender acknowledges and agrees that (x) no Spread Maintenance Premium shall be due at any time in connection with the Non-Qualified Mandatory Prepayment, and (y) no Prepayment Fee shall be due at any time in connection with the Non-Qualified Mandatory Prepayment.

               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its option, to draw on any Non-Qualified Prepayment Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

               (iv) Upon repayment in full of the Mortgage Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

               (c) Additional Non-Qualified Mandatory Prepayment.

               (i) Section 2.4.2(d) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to pay to Mortgage Lender on the Additional Non-Qualified Prepayment Date an additional mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $75,000,000.00 (the “Additional Non-Qualified Mandatory

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Prepayment”), in accordance with the provisions of Section 2.4.2(d) of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Additional Non-Qualified Mandatory Prepayment by Mortgage Borrowers in accordance with the terms of Section 2.4.2(d) of the Mortgage Loan Agreement provided that:

               (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices relating to such Additional Non-Qualified Mandatory Prepayment delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

               (B) all certifications made by Mortgage Borrowers in connection with such Additional Non-Qualified Mandatory Prepayment also run for the benefit of Lender; and

               (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Additional Non-Qualified Mandatory Prepayment determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Additional Non-Qualified Mandatory Prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Additional Non-Qualified Mandatory Prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, and (2) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Additional Non-Qualified Mandatory Prepayment, but Lender acknowledges and agrees that (x) no Spread Maintenance Premium shall be due at any time in connection with the Additional Non-Qualified Mandatory Prepayment, and (y) no Prepayment Fee shall be due at any time in connection with the Additional Non-Qualified Mandatory Prepayment.

               (iii) Upon repayment in full of the Mortgage Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(d) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

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          2.4.3 Prepayment Upon Occurrence of Liquidation Events.

               (a) In the event of (i) any Casualty to all or any portion of the Property, (ii) any Condemnation of all or any portion of any Property, (iii) a Transfer of any Property in connection with realization thereon by Mortgage Lender following a Mortgage Event of Default, including, without limitation, a foreclosure sale, or (iv) any refinancing of any Property or the Mortgage Loan (each, a “Liquidation Event”), Borrowers shall cause the related Net Liquidation Proceeds After Debt Service to be deposited with Lender or directly into the Cash Management Account. On each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt Service, if such date is a Payment Date, such Net Liquidation Proceeds After Debt Service shall be applied to the Outstanding Principal Balance in an amount equal to one hundred percent (100%) of such Net Liquidation Proceeds After Debt Service and all other sums then due to prepay the Loan. In the event Lender receives a distribution of Net Liquidation Proceeds After Debt Service on a date other than a Payment Date, such amounts shall be held by Lender as collateral security for the Loan in an interest bearing account, with such interest accruing to the benefit of Borrowers, and shall be applied by Lender on the next Payment Date. Any such prepayment shall be applied to all accrued and unpaid interest amounts and other amounts then due to Lender under this Agreement or any of the other Loan Documents and then to the Outstanding Principal Balance.

               (b) Borrowers shall immediately notify Lender of any Liquidation Event once any Borrower has knowledge of such event. Borrowers shall be deemed to have knowledge of (i) a sale (other than a foreclosure sale) of any Property on the date on which a contract of sale for such sale is entered into, and a foreclosure sale, on the date notice of such foreclosure sale is given, and (ii) a refinancing of the Property, on the date on which a binding commitment for such refinancing is entered into and a closing date for the funding of such refinancing has been scheduled. The provisions of this Section 2.4.3 shall not be construed to contravene in any manner either (i) the restrictions and other provisions regarding refinancing of the Mortgage Loan or Transfer of any Property set forth in this Agreement, any other Loan Document or any Mortgage Loan Document, whether or not notice is given pursuant to this Section 2.4.3 or (ii) Borrowers’ right to prepay set forth in this Agreement and the other Loan Documents or the Mortgage Loan Documents.

               (c) Upon payment in full of the Debt and all other Obligations, Lender shall disburse any Net Liquidation Proceeds After Debt Service to:

          (i) in the event the Second Mezzanine Loan is outstanding, to Second Mezzanine Lender;

          (ii) in the event the Second Mezzanine Loan has been paid in full, to Third Mezzanine Lender; and

          (iii) in the event each of the Second Mezzanine Loan and the Third Mezzanine Loan has been paid in full, to Borrowers.

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          2.4.4 Application of Payments of Principal. Notwithstanding anything to the contrary contained in this Agreement, the following principal payments shall be allocated among the Loan, the Mortgage Loan and the Mezzanine Loans as follows:

               (a) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment, including, without limitation, any prepayment pursuant to Section 2.7.3(a) or 2.7.3(b)(i) hereof or Section 3.2(h), 3.2(h)(A) or 3.3(d) of the Mortgage Loan Agreement (but expressly excluding (1) any prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(j) thereof and Section 2.4.4(j) below; (2) any prepayment pursuant to Section 3.1(e) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below; (3) any prepayment pursuant to Section 3.17.5(a) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below; and (4) any prepayment pursuant to Section 3.22(a)(iii)(A) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below), shall be applied, pro rata in accordance with the Financing Percentages, to (i) the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages, (ii) the Debt, (iii) the Second Mezzanine Debt and (iv) the Third Mezzanine Debt, until the Mortgage Debt, the Debt, the Second Mezzanine Debt and the Third Mezzanine Debt are paid in full, which Financing Percentages and Component Percentages shall be calculated as of the date of such prepayment; provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment first, to payment of the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (i) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (ii) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) any balance to Mortgage Borrowers;

               (b) so long as no Mortgage Event of Default shall have occurred and be continuing, any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment and/or Additional Non-Qualified Mandatory Prepayment shall be applied, pro rata in accordance with the Financing Percentages, to (i) the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages, (ii) the Debt, (iii) the Second Mezzanine Debt and (iv) the Third Mezzanine Debt, until the Mortgage Debt, the Debt, the Second Mezzanine Debt and the Third Mezzanine Debt are paid in full, which Financing Percentages and Component Percentages shall be calculated as of the date of such prepayment; provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment and/or Additional Non-Qualified Mandatory

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Prepayment first, to payment of the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (i) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (ii) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) any balance to Mortgage Borrowers;

               (c) all Net Proceeds not required to be made available for Restoration, and as to which Mortgage Lender has not otherwise elected in its sole discretion to make available for Restoration, shall be applied first, to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then, as a distribution permitted under applicable law, (i) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (ii) disbursed to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) disbursed to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) the balance disbursed to Mortgage Borrowers;

               (d) any Mortgage Reserve Funds or other cash collateral held by or on behalf of Mortgage Lender, whether in the Mortgage Cash Management Account or any of the Mortgage Reserve Funds, or otherwise, including, without limitation, any Net Proceeds and/or any Excess Cash Flow then being held by Mortgage Lender, shall, upon the occurrence and during the continuance of a Mortgage Event of Default, be applied by Mortgage Lender as follows or may continue to be held by Mortgage Lender as additional collateral for the Mortgage Loan, all in Mortgage Lender’s sole discretion: first, to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then, as a distribution permitted under applicable law, (i) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (ii) disbursed to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) disbursed to Third Mezzanine Lender for application in

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accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) the balance disbursed to Mortgage Borrowers;

               (e) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, the proceeds of any Release Parcel Release Price shall be allocated, pro rata in accordance with the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (ii) the Loan, (iii) the Second Mezzanine Loan and (iv) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such Release Parcel Release Price;

               (f) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, the proceeds of any Adjacent Parcel Release Price shall be allocated, pro rata in accordance with the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (ii) the Loan, (iii) the Second Mezzanine Loan and (iv) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such Adjacent Parcel Release Price;

               (g) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, (i) the proceeds of any IP Release Price which is less than or equal to $80,000,000 and arises from an IP Sale (a “Non-Fully Prepaid IP Sale”) occurring at any time when Mortgage Borrowers have not paid in full the Minimum Mandatory Prepayment, the Non-Qualified Mandatory Prepayment and the Additional Non-Qualified Mandatory Prepayment, shall be allocated, pro rata in accordance with the Financing Percentages, among (I) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (II) the Loan, (III) the Second Mezzanine Loan and (IV) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price; (ii) the proceeds of any IP Release Price which is less than or equal to $60,000,000 and arises from an IP Sale (a “Fully Prepaid IP Sale”) occurring at any time after Mortgage Borrowers have paid in full the Minimum Mandatory Prepayment, the Non-Qualified Mandatory Prepayment and the Additional Non-Qualified Mandatory Prepayment, shall be allocated, pro rata in accordance with the Financing Percentages, among (I) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (II) the Loan, (III) the Second Mezzanine Loan and (IV) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price; and (iii) the proceeds of any IP Release Price in excess of $80,000,000 which arise from a Non-Fully Prepaid IP Sale (the “Excess Non-Fully Funded IP Release Proceeds”) or the proceeds of any IP Release Price in excess of $60,000,000 which arise from a Fully Prepaid IP Sale (“Excess Fully Funded IP Release Proceeds”; and whichever of the Excess Fully Funded IP Release Proceeds or the Excess Non-Fully Funded IP Release Proceeds is applicable, the “Excess IP Release Price Proceeds”), shall, at Mortgage Borrowers’ option, either (A) be deposited in the General Reserve Account and thereafter constitute a part of the General Reserve Fund for all purposes under the Mortgage Loan Agreement, to be held and disbursed by Mortgage Lender as set forth in Section 7.6 thereof, or (B) applied as follows, in such amounts as Mortgage Borrowers shall elect: (1) up to fifty percent

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(50%) of such Excess IP Release Price Proceeds shall be applied to satisfy any Required Equity Amount or Subsequent Required Equity Amount then due and payable, and/or (2) the balance of such Excess IP Release Price Proceeds after application in accordance with the foregoing clause (1), but in no event less than fifty percent (50%) thereof, to repayment, pro rata in accordance with the Financing Percentages, of (w) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (x) the Loan, (y) the Second Mezzanine Loan and (z) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price (any repayment of the Mortgage Loan, the Loan, the Second Mezzanine Loan and the Third Mezzanine Loan pursuant to this Section 2.4.3(g)(iii)(B)(2) paid out of Excess Non-Fully Funded IP Release Proceeds being referred to as the “Optional IP Release Payment”);

               (h) all Rents received by Mortgage Lender upon the occurrence and during the continuance of a Mortgage Event of Default pursuant to Section 3.1 of the Assignment of Leases shall be applied by Mortgage Lender as follows or may continue to be held by Mortgage Lender as additional collateral for the Mortgage Loan, all in Mortgage Lender’s sole discretion: first, (i) to the expenses of managing and securing any of the Properties, as contemplated by clause (a) of said Section 3.1 of the Assignment of Leases, and/or (ii) to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then (A) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (B) disbursed to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (C) disbursed to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (D) the balance disbursed to Mortgage Borrowers;

               (i) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan Agreement shall be applied as follows: (A) first, to the Construction Loan until the Construction Loan is repaid in full, and then (B) second, out of any remaining balance of such voluntary prepayment, $10,000,000 thereof shall be applied to the Third Mezzanine Debt provided that the Third Mezzanine Construction Funds (as such term is defined in the Mortgage Loan Agreement) were previously delivered to Mortgage Lender for deposit into the Construction Loan Reserve Account pursuant to Section 3.4.2 of the Third Mezzanine Loan Agreement, and then (C) third, any remaining balance of such voluntary prepayment shall be applied, pro rata in accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition Loan, (ii) the Debt, (iii) the Second Mezzanine Debt and (iv) the Third Mezzanine Debt, until the Reduced Acquisition Loan, the Debt, the Second Mezzanine Debt and the Third Mezzanine Debt are paid in full, which Alternate Financing Percentages shall be calculated as of the date of such prepayment and taking into account the prepayments made pursuant to the foregoing clauses (A) and (B); provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary

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prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan Agreement first, to payment of the Construction Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Construction Loan is paid in full, and then second, to payment of the Reduced Acquisition Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Reduced Acquisition Loan is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (1) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (2) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (3) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (4) any balance to Mortgage Borrowers; and

               (j) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement shall be applied as follows: (A) first, to the Construction Loan until the Construction Loan is repaid in full, and then (B) second, any remaining balance of such voluntary prepayment shall be applied, pro rata in accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition Loan, (ii) the Debt, (iii) the Second Mezzanine Debt and (iv) the Third Mezzanine Debt, until the Reduced Acquisition Loan, the Debt, the Second Mezzanine Debt and the Third Mezzanine Debt are paid in full, which Alternate Financing Percentages shall be calculated as of the date of such prepayment and taking into account the prepayment made pursuant to the foregoing clause (A); provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement first, to payment of the Construction Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Construction Loan is paid in full, and then second, to payment of the Reduced Acquisition Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Reduced Acquisition Loan is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (1) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (2) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (3) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (4) any balance to Mortgage Borrowers.

          2.4.5 Prepayments After Default. If during the continuance of an Event of Default payment of all or any part of the Debt is tendered by Borrowers or otherwise recovered by Lender (including through application of any Reserve Funds or any Net Liquidation Proceeds After Debt Service), (a) such tender or recovery shall be deemed made on the next occurring Payment Date together with the monthly Debt Service amount calculated at the Default Rate

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from and after the date of such Event of Default, (b) if such tender or recovery occurs on or prior to the Spread Maintenance Release Date, Borrowers shall pay, in addition to the Debt, the Spread Maintenance Premium due on the amount of the Loan being prepaid or satisfied, and (c) Borrower shall also pay an amount equal to one percent (1%) of the amount of the Loan being prepaid or satisfied.

          2.4.6 Prepayments Made on Dates Other Than Payment Dates. With respect to any provision herein or in any other Loan Document providing that if a payment or prepayment of the Loan is made on a date other than a Payment Date such payment or prepayment shall be accompanied by all interest which would have accrued on the amount of the Loan so paid or prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month, Borrowers shall be entitled to a credit toward the following month’s Monthly Interest Payment or any other amounts due under the Loan in an amount equal to the amount of interest actually earned by Lender on the portion of such interest payment in excess of the amount of interest actually accrued on the date of such payment or prepayment (the “Extra Non-Accrued Interest”). In order to effectuate the foregoing, upon any prepayment resulting in any Extra Non-Accrued Interest pursuant to the terms hereof, Lender shall deposit such Extra Non-Accrued Interest in an interest-bearing account for the benefit of Lender until the next Payment Date in order to determine the credit against the next Monthly Interest Payment due to Borrowers under this Section 2.4.6, following which Payment Date (a) Lender may withdraw such Extra Non-Accrued Interest, together with all interest accrued thereon, from such account and apply the amount of the interest accrued on such Extra Non-Accrued Interest to amounts due and payable to Lender on such Payment Date, (b) such Extra Non-Accrued Interest, together with all interest accrued thereon, shall constitute the sole and exclusive property of Lender, and (c) Lender shall have no further obligations to Borrowers with respect to such Extra Non-Accrued Interest and/or the interest accrued thereon. Lender shall not be responsible for obtaining any particular interest rate with respect to any Extra Non-Accrued Interest.

          2.4.7 Application of Prepayment Fee. Any Prepayment Fee received by Mortgage Lender in connection with the Minimum Mandatory Prepayment (or any partial payment on account thereof), any Release Parcel Release Price, any Adjacent Parcel Release Price or the IP Release Price (any of the foregoing, a “Prepayment Fee-Generating Prepayment”) shall be allocated among the Mortgage Loan (and the Components thereof), the Loan, the Second Mezzanine Loan and the Third Mezzanine Loan based on the following formula: Mortgage Lender, Lender, Second Mezzanine Lender and/or Third Mezzanine Lender, as applicable, shall be entitled to an amount equal to the product resulting from multiplying (a) the amount of the applicable Prepayment Fee, by (b) a fraction, the numerator of which is the amount of the applicable Prepayment Fee-Generating Prepayment allocated to the Mortgage Loan (or the applicable Component thereof), the Loan, the Second Mezzanine Loan or the Third Mezzanine Loan, as applicable, pursuant to the applicable provision of Section 2.4.3 of the Mortgage Loan Agreement and Section 2.4.4 hereof, and the denominator of which is the total amount of the applicable Prepayment Fee-Generating Prepayment.

     Section 2.5 Release of Property. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of the Lien of the Pledge Agreement or any other Loan Document.

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          2.5.1 Releases of Release Parcel.

               (a) Section 2.5.1 of the Mortgage Loan Agreement contains provisions permitting Adjacent Borrower to (i) sell one or more portions of the Release Parcel (each, including the entire Release Parcel, a “Partial Release Parcel”) either to a bonafide third party purchaser (a “Bonafide Release Parcel Purchaser”) or to an Affiliate of Mortgage Borrower or any other Restricted Party (an “Affiliate Release Parcel Purchaser”; and together with a Bonafide Release Parcel Purchaser, individually, a “Release Parcel Purchaser”), or (2) refinance one or more Partial Release Parcels (each of the foregoing, including a sale or refinancing of the entire Release Parcel, a “Release Parcel Sale”), and obtain a release of such Partial Release Parcel from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.1 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any Release Parcel Sale conducted in accordance with the terms of Section 2.5.1 of the Mortgage Loan Agreement provided that:

          (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such Release Parcel Sale (including the Sale Request) delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (ii) all certifications made by Adjacent Borrower in connection with such Release Parcel Sale also run for the benefit of Lender;

          (iii) contemporaneously with such Release Parcel Sale, Borrowers shall cause Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the Release Parcel Release Price for the applicable Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(e) of the Mortgage Loan Agreement and Section 2.4.4(e) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the Release Parcel Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

          (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to a Release Parcel Sale, whether or not the Release Parcel Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.1(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any Release Parcel Sale as provided in Section 2.5.1(d) of the Mortgage Loan Agreement; and

          (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any

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Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by Adjacent Borrower of a Sale Request or at the time of the closing of such Release Parcel Sale.

               (c) Upon repayment in full of the Mortgage Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.2 Releases of Remaining Adjacent Parcel.

               (a) Section 2.5.2 of the Mortgage Loan Agreement contains provisions permitting Adjacent Borrower to (1) sell one or more portions of the Remaining Adjacent Parcel (each, including the entire Remaining Adjacent Parcel, a “Partial Adjacent Parcel”) either to a bonafide third party purchaser (a “Bonafide Adjacent Parcel Purchaser”) or to an Affiliate of Borrower or any other Restricted Party (an “Affiliate Adjacent Parcel Purchaser”; and together with a Bonafide Adjacent Parcel Purchaser, individually, an “Adjacent Parcel Purchaser”), or (2) refinance one or more Partial Adjacent Parcels (each of the foregoing, including a sale or refinancing of the entire Remaining Adjacent Parcel, an “Adjacent Parcel Sale”), and obtain a release of such Partial Adjacent Parcel from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.2 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any Adjacent Parcel Sale conducted in accordance with the terms of Section 2.5.2 of the Mortgage Loan Agreement provided that:

          (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such Adjacent Parcel Sale delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (ii) all certifications made by Adjacent Borrower in connection with such Adjacent Parcel Sale also run for the benefit of Lender;

          (iii) contemporaneously with such Adjacent Parcel Sale, Borrowers shall cause Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the Adjacent Parcel Release Price for the applicable Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(f) of the Mortgage Loan Agreement and Section 2.4.4(f) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the Adjacent Parcel Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

          (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to an Adjacent Parcel Sale, whether or

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not the Adjacent Parcel Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.2(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any Adjacent Parcel Sale as provided in Section 2.5.2(d) of the Mortgage Loan Agreement; and

          (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by Adjacent Borrower of a sale request or at the time of the closing of such Adjacent Parcel Sale.

               (c) Upon repayment in full of the Mortgage Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.2 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.3 Release of IP.

               (a) Section 2.5.3 of the Mortgage Loan Agreement contains provisions permitting IP Borrower to sell the IP (in whole but not in part) (an “IP Sale”), to either a bonafide third party purchaser (a “Bonafide IP Purchaser”) or to an Affiliate of Borrower or any other Restricted Party (an “Affiliate IP Purchaser”; and together with a Bonafide IP Purchaser, individually, an “IP Purchaser”), and obtain a release of the IP from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.3 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any IP Sale conducted in accordance with the terms of Section 2.5.3 of the Mortgage Loan Agreement provided that:

          (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such IP Sale delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (ii) all certifications made by IP Borrower in connection with such IP Sale also run for the benefit of Lender;

          (iii) contemporaneously with such IP Sale, Borrowers shall cause IP Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the IP Release Price determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(g) of the Mortgage Loan Agreement and Section 2.4.4(g) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the IP Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

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          (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to an IP Sale, whether or not the IP Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.3(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any IP Sale as provided in Section 2.5.3(d) of the Mortgage Loan Agreement; and

          (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by IP Borrower of a sale request or at the time of the closing of such IP Sale.

          (c) Upon repayment in full of the Mortgage Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.3 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.4 Sale of Properties or IP during Event of Default. Notwithstanding the provisions of the foregoing Sections 2.5.1, 2.5.2 and 2.5.3 or any other provision to the contrary in this Agreement or the other Loan Documents, it is expressly acknowledged and agreed by Borrowers that, upon the occurrence and during the continuance of an Event of Default: (i) no Borrower shall have any right to cause any Mortgage Borrower to sell any Property or any portion thereof or any IP without, in each instance, Lender’s prior written consent, which consent may be given or withheld in Lender’s sole discretion, (ii) any such sale of one or more of the Properties or any portion thereof and/or any IP shall be on such terms and conditions as to which Lender and Borrowers shall agree, Lender, however, having the right to impose such terms and conditions as it shall elect in its sole discretion, (iii) the provisions of this Section 2.5 (other than this Section 2.5.4) shall not be applicable to any such sale of one or more of the Properties or any portion thereof and/or any IP consented to by Lender as aforesaid, Borrowers expressly acknowledging and agreeing that neither Lender nor any Mezzanine Lender shall be entitled to any Release Parcel Release Price, Adjacent Parcel Release Price or IP Release Price or any portion of any of the foregoing or any proceeds of any of the foregoing unless and until the Mortgage Debt has been paid in full, and (iv) in the event that, following any such sale of one or more of the Properties or any portion thereof and/or any IP, the Mortgage Debt shall have been paid in full, Borrowers shall cause Mortgage Borrowers and/or Mortgage Lender, as applicable, to distribute to Lender any remaining proceeds thereof to be applied as provided in this Agreement, and thereafter, in the event that the Debt shall have been paid in full, Lender shall distribute (i) to Second Mezzanine Lender any remaining proceeds thereof to be applied as provided in the Second Mezzanine Loan Agreement, and thereafter, (ii) in the event that the Second Mezzanine Debt shall have been paid in full, Second Mezzanine Lender shall distribute any remaining proceeds to Third Mezzanine Lender to be applied as provided in the Third Mezzanine Loan Agreement, and thereafter, (iii) in the event that the Third Mezzanine Debt shall have been paid in full, Third Mezzanine Lender shall distribute any remaining proceeds to Mortgage Borrowers.

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          2.5.5 Release on Payment in Full. Upon the written request and payment by Borrowers of the customary recording fees and the actual out-of-pocket third-party costs and expenses of Lender and upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, Lender shall release the Lien of the Pledge Agreement and the other Loan Documents.

          Section 2.6 Cash Management.

          2.6.1 Lockbox Account.

               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and maintain a segregated Eligible Account (the “Lockbox Account”) with Lockbox Bank in trust for the benefit of Mortgage Lender, which Lockbox Account shall be under the sole dominion and control of Mortgage Lender pursuant to and in accordance with the Mortgage Loan Documents and shall comply with all of the terms and conditions set forth in Section 2.6.1 of the Mortgage Loan Agreement.

               (b) Borrowers shall cause each Mortgage Borrower and its Manager and/or Sub-Manager, as applicable, to deposit all amounts received by such Mortgage Borrower or Manager and/or Sub-Manager constituting Rents into the Lockbox Account in accordance with the terms of Section 2.6.1(b) of the Mortgage Loan Agreement.

               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Lockbox Account pursuant to the terms of Section 2.6.1 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrowers to establish and maintain an account that would operate in the same manner as the Lockbox Account in Section 2.6.1 of the Mortgage Loan Agreement and the provisions of Section 2.6.1 of the Mortgage Loan Agreement shall be incorporated herein by reference.

          2.6.2 Mortgage Cash Management Account.

               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and maintain a segregated Eligible Account (the “Mortgage Cash Management Account”), which Mortgage Cash Management Account shall be under the sole dominion and control of Mortgage Lender and shall comply with all of the terms and conditions set forth in Section 2.6.2 of the Mortgage Loan Agreement.

               (b) Borrowers shall direct or cause Mortgage Borrowers to direct that all cash contributions from the Lockbox Account and the Mortgage Cash Management Account to be paid to or for the benefit of Lender in accordance with the Mortgage Loan Agreement and the Mortgage Cash Management Agreement shall be deposited into the Cash Management Account maintained in accordance with this Agreement and the Cash Management Agreement. Lender agrees that it shall deliver to Mortgage Lender, not less than five (5) days prior to each Payment Date, a written notice setting forth (i) the amount of the Monthly Interest Payment that will be due on the next Payment Date, and (ii) an itemized list of any other amounts that will be due on such next Payment Date pursuant to the terms of this Agreement and/or the other Loan Documents.

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               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Mortgage Cash Management Account pursuant to the terms of Section 2.6.2 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrowers to establish and maintain an account that would operate in the same manner as the Mortgage Cash Management Account in Section 2.6.2 of the Mortgage Loan Agreement and the provisions of Section 2.6.2 of the Mortgage Loan Agreement shall be incorporated herein by reference; provided, however, that references to “Lender,” “Cash Management Account,” and other applicable terms shall be deemed to refer to the Lender, Cash Management Account and other applicable terms hereunder.

          2.6.3 Cash Management Account.

               (a) There shall be established and maintained a segregated Eligible Account (the “Cash Management Account”) to be held by Servicer in trust for the benefit of Lender, which Cash Management Account shall be under the sole dominion and control of Lender. The Cash Management Account shall be entitled “Column Financial, Inc., its successors and/or assigns – Hard Rock First Mezzanine Cash Management Account” or such other title as shall be reasonably acceptable to Lender and the bank holding the Cash Management Account. Each Borrower hereby grants to Lender a first priority security interest in the Cash Management Account and all deposits at any time contained therein and the proceeds thereof, and will take all actions requested by Lender that are necessary to maintain in favor of Lender a perfected first priority security interest in the Cash Management Account, including, without limitation, executing and filing UCC-1 Financing Statements and continuations thereof. Lender and Servicer shall have the sole right to make withdrawals from the Cash Management Account for application pursuant to the terms of this Agreement and the other Loan Documents and all reasonable costs and expenses for establishing and maintaining the Cash Management Account shall be paid by Borrowers.

               (b) All funds on deposit in the Cash Management Account following the occurrence of an Event of Default may be applied by Lender in such order and priority as Lender shall determine.

               (c) Provided no Event of Default shall have occurred and be continuing, all funds on deposit in the Cash Management Account shall be applied by Lender in accordance with the terms of this Agreement (including, without limitation, Section 2.4.3 and Section 2.4.4 hereof) and the Cash Management Agreement.

          2.6.4 Financial Determination Dates. Borrowers shall provide, or shall cause Mortgage Borrowers to provide, evidence to Lender of (i) the Debt Service Coverage Ratio for the Properties, and (ii) for purposes of determining whether the General Reserve Excess Cash Conditions have been satisfied, the results of operations at the Properties for the preceding calendar month, within thirty (30) days after the end of each calendar month (the “Financial Determination Date”). All calculations of Debt Service Coverage Ratio and results of operations shall be subject to verification by Mortgage Lender.

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          Section 2.7 Extensions of the Initial Maturity Date.

          2.7.1 Non-Qualified Extensions. As provided in this Section 2.7.1, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, Borrowers shall have the option (each, a “Non-Qualified Extension Option”) to extend the term of the Loan beyond the Non-Qualified Initial Maturity Date for two (2) successive terms (each, a “Non-Qualified Extension Term”) of one (1) year each (the Non-Qualified Initial Maturity Date following the exercise of each Non-Qualified Extension Option being the “Non-Qualified Extended Maturity Date”).

     (a) First Non-Qualified Extension Option. Borrowers shall have the right to extend the Non-Qualified Initial Maturity Date to the First Non-Qualified Extended Maturity Date (the “First Non-Qualified Extension Option”; and the period commencing on the first (1st) day following the Non-Qualified Initial Maturity Date and ending on the First Non-Qualified Extended Maturity Date being referred to herein as the “First Non-Qualified Extension Term”), provided that all of the following conditions are satisfied:

          (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the First Non-Qualified Extension Option is exercised or on the date that the First Non-Qualified Extension Term commences;

          (ii) Borrowers shall notify Lender of their irrevocable election to exercise the First Non-Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the Non-Qualified Initial Maturity Date;

          (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the First Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the First Non-Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the First Non-Qualified Extended Maturity Date;

          (iv) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

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          (v) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the First Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

          (vi) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the First Non-Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

          (vii) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the First Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the First Non-Qualified Extension Option;

          (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified

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Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

          (ix) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

          (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

          (xi) the Debt Yield immediately preceding the commencement of the First Non-Qualified Extension Term shall be equal to or greater than 10.25%; and

          (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

               (b) Second Non-Qualified Extension Option. Borrowers shall have the right to extend the First Non-Qualified Extended Maturity Date to the Second Non-Qualified Extended Maturity Date (the “Second Non-Qualified Extension Option”; and the period commencing on the first (1st) day following the First Non-Qualified Extended Maturity Date and ending on the Second Non-Qualified Extended Maturity Date being referred to herein as the “Second Non-Qualified Extension Term”), provided that all of the following conditions are satisfied:

          (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the Second Non-Qualified Extension Option is exercised or on the date that the Second Non-Qualified Extension Term commences;

          (ii) Borrowers shall notify Lender of their irrevocable election to exercise the Second Non-Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the First Non-Qualified Extended Maturity Date;

          (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the Second Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, one or more Replacement Interest Rate Cap

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Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the Second Non-Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the Second Non-Qualified Extended Maturity Date;

          (iv) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

          (v) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the Second Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

          (vi) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the Second Non-Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

          (vii) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the Second Non-Qualified Extension Term, if any, which amount thereafter shall constitute a

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part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the Second Non-Qualified Extension Option;

          (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

          (ix) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

          (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

          (xi) the Debt Yield immediately preceding the commencement of the Second Non-Qualified Extension Term shall be equal to or greater than 11.25%; and

          (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

          2.7.2 Qualified Extensions. As provided in this Section 2.7.2, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date, Borrowers shall have the option (each, a “Qualified Extension Option”) to extend the term of the Loan beyond the Qualified Initial Maturity Date for two (2) successive terms (each, a “Qualified Extension Term”) of one (1) year each (the Qualified Initial Maturity Date following the exercise of each Qualified Extension Option being the “Qualified Extended Maturity Date”).

               (a) First Qualified Extension Option. Borrowers shall have the right to extend the Qualified Initial Maturity Date to the First Qualified Extended Maturity Date (the “First Qualified Extension Option”; and the period commencing on the first (1st) day following the Qualified Initial Maturity Date and ending on the First Qualified Extended Maturity Date being referred to herein as the “First Qualified Extension Term”), provided that all of the following conditions are satisfied:

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Maturity Date being referred to herein as the “First Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the First Qualified Extension Option is exercised or on the date that the First Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the First Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the Qualified Initial Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the First Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the First Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the First Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the First Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the First Qualified

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Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the First Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the First Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) there shall exist no Shortfall as of the Business Day immediately preceding the first day of the First Qualified Extension Term; and

     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event

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     shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

               (b) Second Qualified Extension Option. Borrowers shall have the right to extend the First Qualified Extended Maturity Date to the Second Qualified Extended Maturity Date (the “Second Qualified Extension Option”; and the period commencing on the first (1st) day following the First Qualified Extended Maturity Date and ending on the Second Qualified Extended Maturity Date being referred to herein as the “Second Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the Second Qualified Extension Option is exercised or on the date that the Second Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the Second Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the First Qualified Extended Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the Second Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the Second Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the Second Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the Second Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage

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Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the Second Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the Second Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan has been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the Second Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

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     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) there shall exist no Shortfall as of the Business Day immediately preceding the first day of the Second Qualified Extension Term;

     (xii) the Debt Yield immediately preceding the commencement of the Second Qualified Extension Term shall be equal to or greater than 13%;

     (xiii) Borrowers shall have paid to Lender an extension fee equal to one-quarter of one percent (0.25%) of the Outstanding Principal Balance not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term; and

     (xiv) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

          2.7.3 Achieving Required Debt Yields.

               (a) Lender hereby acknowledges and agrees that nothing herein contained shall prohibit Borrowers, in accordance with the provisions of Section 2.4.1 hereof, and provided that no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing, from satisfying any Debt Yield requirement set forth in Section 2.7.1 or 2.7.2 hereof by partially prepaying the Mortgage Loan, the Loan or the Mezzanine Loans prior to the commencement of the First Non-Qualified Extension Term, the Second Non-Qualified Extension Term or the Second Qualified Extension Term, as applicable, which prepayment shall be applied in accordance with Section 2.4.4(a) hereof.

               (b) Without limiting the generality of the foregoing Section 2.7.3(a), Mortgage Borrowers shall also have the right to satisfy any Debt Yield requirement set forth in Section 2.7.1 or 2.7.2 hereof by delivering to Mortgage Lender (for the benefit of Mortgage Lender, Lender and Mezzanine Lenders) a Letter of Credit in an amount equal to the principal repayment of the Aggregate Outstanding Principal Balance that would be required in order to achieve the applicable required Debt Yield (each, a “Debt Yield Letter of Credit”). If Mortgage Borrowers elect to deliver any Debt Yield Letter of Credit, the following shall apply to each such Debt Yield Letter of Credit:

     (i) Borrowers shall cause Mortgage Borrowers to pay to Mortgage Lender all of Mortgage Lender’s reasonable out-of-pocket costs and expenses in connection therewith, including, without limitation, any costs or expenses incurred in drawing down on such Debt Yield Letter of Credit. Mortgage Borrowers shall not be entitled to draw from any such Debt Yield Letter of Credit. Upon five (5) days notice to Lender and Mortgage Lender and provided that no

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Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing, Mortgage Borrowers may replace such Debt Yield Letter of Credit with a partial prepayment of the Mortgage Loan, the Loan and the Mezzanine Loans in an aggregate amount equal to such Debt Yield Letter of Credit, which prepayment shall be applied in accordance with Section 2.4.3(a) of the Mortgage Loan Agreement and Section 2.4.4(a) hereof, following which prepayment, Mortgage Lender shall promptly return such Debt Yield Letter of Credit to Mortgage Borrowers.

     (ii) Each Debt Yield Letter of Credit delivered under this Agreement shall be additional security for the payment of the Mortgage Debt. Upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall have the right, at its option, to draw on any Debt Yield Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(a) of the Mortgage Loan Agreement and Section 2.4.4(a) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

     (iii) In addition to any other right Mortgage Lender may have to draw upon a Debt Yield Letter of Credit pursuant to the terms and conditions of the Mortgage Loan Agreement, Mortgage Lender shall have the additional rights to draw in full on any Debt Yield Letter of Credit: (A) with respect to any evergreen Debt Yield Letter of Credit, if Mortgage Lender has received a notice from the issuing bank that such Debt Yield Letter of Credit will not be renewed and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to expire; (B) with respect to any Debt Yield Letter of Credit with a stated expiration date, if Mortgage Lender has not received a notice from the issuing bank that it has renewed such Debt Yield Letter of Credit at least ten (10) Business Days prior to the date on which such Debt Yield Letter of Credit is scheduled to expire and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to expire; (C) upon receipt of notice from the issuing bank that such Debt Yield Letter of Credit will be terminated and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to be terminated; or (D) if Mortgage Lender has received notice that the bank issuing any Debt Yield Letter of Credit shall cease to be an Eligible Institution and within ten (10) Business Days after Mortgage Lender notifies Mortgage Borrowers in writing of such circumstance, Mortgage Borrowers shall fail to deliver to Mortgage Lender a substitute Debt Yield Letter of Credit issued by an Eligible Institution. Notwithstanding anything to the contrary contained in the above, Mortgage Lender is not obligated to draw upon any Debt Yield Letter of Credit upon the happening of an event specified in clause (A), (B), (C) or (D) above and shall not be liable for any losses sustained by Mortgage Borrowers due to the insolvency of the bank issuing any such Debt Yield Letter of Credit if Mortgage Lender has not drawn upon such Debt Yield Letter of Credit.

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ARTICLE III.
CONDITIONS PRECEDENT.

     Section 3.1 Conditions Precedent to Closing. Lender’s obligation to make the Loan shall be subject to the satisfaction or Lender’s waiver in writing of the following conditions precedent no later than the Closing Date:

          3.1.1 Loan Agreement and Note. Lender shall have received a counterpart original of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrowers.

          3.1.2 Delivery of Loan Documents; UCC Insurance; Reports.

               (a) Loan Documents. Lender shall have received from Borrowers fully executed and acknowledged counterparts of the Pledge Agreement and authority to file UCC Financing Statements and such other documents required pursuant to the Pledge Agreement, in the reasonable judgment of Lender, so as to effectively create valid and enforceable first priority Liens upon the Pledged Collateral in favor of Lender, subject to no Liens or encumbrances. Lender shall have also received from Borrowers and Guarantors fully executed counterparts of the other Loan Documents.

               (b) UCC Insurance. Lender shall have received a UCC insurance policy (the “UCC Insurance Policy”) issued by the Title Company and dated as of the Closing Date, which UCC Insurance Policy shall (i) provide coverage in an amount equal to the original principal amount of the Loan, (ii) insure Lender that the Pledge Agreement and the documents executed and delivered in connection therewith create a valid first priority lien on the Pledged Collateral, free and clear of all exceptions from coverage and subject only to the standard exceptions and exclusions from coverage, as modified by the terms of any endorsements, as shall be reasonably required by Lender, including, without limitation, coverage with respect to the validity of the lien on the Pledged Collateral and ability to exercise rights and remedies with respect thereto, (iii) contain such endorsements and affirmative coverages as Lender may reasonably request, and (iv) name Lender and its successors and assigns as the insured. The UCC Insurance Policy shall be assignable with an assignment of the Loan. Lender also shall have received evidence that all premiums in respect of the UCC Insurance Policy have been paid.

               (c) Mezzanine Lender Endorsement. Borrowers shall have caused Mortgage Borrowers to obtain as part of their owners’ title insurance policy, a so-called “Endorsement 16 (Mezzanine Financing)” for the benefit of Lender in form and substance, and providing coverage in amounts, that are satisfactory to Lender, and that shall name Lender and its successors and assigns as the beneficiary of such endorsement. Mortgage Borrowers’ owners’ title insurance policy shall provide that such “Endorsement 16 (Mezzanine Financing)” shall be assignable with an assignment of the Loan. Lender also shall have received evidence that all premiums in respect of Mortgage Borrowers’ owners’ title insurance policy have been paid;

               (d) Insurance. Lender shall have received (i) valid certificates of insurance for the Policies required hereunder, satisfactory to Lender in its sole discretion, (ii)

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evidence of the payment of all Insurance Premiums payable for the existing policy period and (iii) evidence that Lender has been included as an “additional insured” under such Policies;

               (e) Environmental Reports. Lender shall have received copies of the Phase I environmental reports (and, if recommended by the Phase I environmental report, Phase II environmental reports) in respect of the Properties, as delivered to Mortgage Lender, satisfactory in form and substance to Lender; and

               (f) Encumbrances. Borrowers shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first priority Lien as of the Closing Date on the Pledged Collateral, subject only to such Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof.

          3.1.3 Amendments to Mortgage Loan Documents. The Amended and Restated Mortgage Loan Agreement shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies of said documents.

          3.1.4 Mezzanine Loan Documents. The Mezzanine Loan Documents shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received copies of said Mezzanine Loan Documents.

          3.1.5 Pre-Construction Budget; Loan Budget and Annual Budget. Borrowers shall have delivered to Lender (i) the Pre-Construction Budget; (ii) the Loan Budget, to the extent required under the Mortgage Loan Agreement; and (iii) the Annual Budget for the current Fiscal Year.

          3.1.6 Required Equity Amount. Borrowers shall have furnished to Lender evidence in form and content reasonably satisfactory to Lender that Borrowers have contributed the Required Equity Amount.

          3.1.7 Delivery of Organizational Documents.

               (a) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers of all organizational documentation related to Borrowers and/or their formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Lender.

               (b) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers or the respective entity, as applicable, of all organizational documentation related to Mortgage Borrowers, Guarantors, and other direct or indirect members and/or partners of Borrowers, and/or the formation, structure, existence, good standing and/or qualifications to do business of any of the foregoing, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, authorizing resolutions and incumbency certificates as may be requested by Lender.

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          3.1.8 Legal Opinions. Lender shall have received opinions from Borrowers’ counsel with respect to non-consolidation and the due execution, authority, enforceability of the Loan Documents, perfection of the security interests in the Collateral and such other matters as Lender may require, all such opinions in form, scope and substance satisfactory to Lender and Lender’s counsel in their sole discretion.

          3.1.9 Performance; No Monetary Default or Event of Default. Borrowers shall have performed and complied with all terms and conditions herein required to be performed or complied with by them at or prior to the Closing Date, and on the Closing Date, there shall exist no monetary Default or any Event of Default.

          3.1.10 Representations and Warranties. All representations and warranties made by Borrowers and/or Guarantors in the Loan Documents or otherwise made by or on behalf of Borrowers and/or Guarantors in connection therewith shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date (except to the extent of changes in circumstances or conditions which are not otherwise prohibited by this Agreement).

          3.1.11 Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory to Lender and Lender’s counsel in form and substance, and Lender shall have received all information and such counterpart originals or certified copies of such documents and such other certificates, opinions or documents as Lender and Lender’s counsel may require.

     Section 3.2 Submission of Construction Loan Advance Documents to Lender. Borrowers shall submit, or shall cause Mortgage Borrowers to submit, to Lender, contemporaneously with any submission thereof by Mortgage Borrowers to Mortgage Lender, a copy of each Draw Request related to each Construction Loan Advance and all documents required to be delivered by Mortgage Borrowers to Mortgage Lender in connection therewith pursuant to Article III of the Mortgage Loan Agreement; provided, however, that any breach of this provision shall not constitute an Event of Default hereunder.

     Section 3.3 Delivery of Construction Completion Guaranty. Borrowers shall deliver to Lender, contemporaneously with the submission thereof by Mortgage Borrowers to Mortgage Lender pursuant to Section 3.2(f) of the Mortgage Loan Agreement, two (2) fully-executed originals of the Construction Completion Guaranty in favor of Lender.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES.

     Section 4.1 Representations of Borrowers. Each Borrower represents and warrants as to itself that as of the Closing Date:

          4.1.1 Organization.

               (a) Such Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own its assets and to transact the businesses in which it is now engaged. Such Borrower is duly qualified to do business and is in

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good standing in each jurisdiction where it is required to be so qualified in connection with its assets, businesses and operations. Such Borrower possesses all material rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its properties and to transact the businesses in which it is now engaged, and the sole business of such Borrower is the ownership and management of the relevant Mortgage Borrower. The ownership interests of such Borrower are as set forth on the organizational chart attached hereto as Schedule VI.

               (b) Such Borrower has the power and authority and the requisite ownership interests to control the actions of the relevant Mortgage Borrower and upon the realization of the Pledged Collateral under the Pledge Agreement, Lender or any other party succeeding to such Borrower’s interest in the Pledged Collateral described in the Pledge Agreement would have such control. Without limiting the foregoing, such Borrower has sufficient control over the relevant Mortgage Borrower to cause such Mortgage Borrower to (i) take any action on Mortgage Borrower’s part required by the Mortgage Loan Documents and (ii) refrain from taking any action prohibited by the Mortgage Loan Documents.

          4.1.2 Proceedings. Such Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents have been duly executed and delivered by or on behalf of such Borrower and constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

          4.1.3 No Conflicts. The execution, delivery and performance of this Agreement and the other Loan Documents by such Borrower will not materially conflict with or result in a material breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of such Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement or other agreement or instrument to which such Borrower is a party or by which any of such Borrower’s property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over such Borrower or any of such Borrower’s properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any such Governmental Authority necessary to permit the execution, delivery and performance by such Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect.

          4.1.4 Litigation. Except as set forth on Schedule VIII attached hereto:

               (a) There is no action, suit, claim, proceeding or investigation pending against any Loan Party, HRHI or any Guarantor or, to such Borrower’s actual knowledge, pending against any Property, the IP or the Collateral or, to such Borrower’s actual knowledge, threatened in writing against any Loan Party, HRHI or any Guarantor, or any Property, the IP or the Collateral in any court or by or before any other Governmental Authority that would have a material adverse effect on (i) the business operations, economic performance, assets, financial

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condition, equity, contingent liabilities, material agreements or results of operations of such Loan Party, HRHI, any Guarantor, any Property, the IP or the Collateral, (ii) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, (iii) the ability of any Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Mortgage Loan Documents or the Loan Documents, as applicable, or (iv) the value of, or cash flow from, any Property, the IP or the Collateral.

               (b) There is no proceeding, investigation or disciplinary action (including, without limitation, before any Gaming authority, under any Gaming Law or under any Gaming License or other Operating Permit) pending or, to Borrower’s actual knowledge, threatened in writing, either (i) in connection with, or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge, any of the Loan Documents or the Mortgage Loan Documents or any of the transactions contemplated therein, or (ii) to Borrower’s actual knowledge, that, either singly or in the aggregate, could reasonably be expected to have an adverse effect on any Gaming License currently in effect with respect to the Casino Component, including, without limitation, any such proceeding, investigation or disciplinary action pending or, threatened against Gaming Operator, any Loan Party or any of their respective directors, members, managers, officers, key personnel or Persons holding a five percent (5%) or greater direct or indirect equity or economic interest in such Borrower or any Mortgage Borrower. Additionally, there is no proceeding (including, without limitation, before any Gaming Authority, under any Gaming Law or under any Gaming License or other Operating Permit) pending or, to Borrowers’ actual knowledge, threatened in writing that could reasonably be expected to have a material adverse effect on any application for a Gaming License or other Operating Permit by Gaming Borrower or any Affiliate thereof or any officer, director, employee or agent of any Loan Party or any Affiliate of any Loan Party.

          4.1.5 Agreements. Such Borrower is not a party to any agreement or instrument or subject to any restriction which would be reasonably likely to materially and adversely affect any Loan Party, any Property, the IP or the Collateral, or such Borrower’s business, properties or assets, operations or condition, financial or otherwise. To the best of such Borrower’s actual knowledge, no Loan Party is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, license or instrument to which it is a party or by which such Loan Party or any of the Properties, the IP or the Collateral are bound. Such Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Borrower is a party or by which such Borrower or its properties or assets is otherwise bound, other than (a) obligations incurred in the ordinary course of business relating to such Borrower’s ownership and operation of the Collateral permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 hereof, (b) obligations incurred in the ordinary course of the business relating to Mortgage Borrowers’ ownership and operation of the Properties as permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof, and (c) obligations under the Loan Documents.

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          4.1.6 Title.

               (a) Such Borrower is the record and beneficial owner of, and has good and valid title to, its Pledged Interests, free and clear of all Liens, except those Liens granted to Lender under the Loan Documents. The Pledge Agreement, together with the UCC Financing Statements relating to the Pledged Collateral when properly filed in the appropriate records, will create a valid, perfected first priority security interest in and to the portion of the Pledged Collateral covered thereby, all in accordance with the terms thereof for which a Lien can be perfected by filing a UCC Financing Statement. For so long as the Lien of the Pledge Agreement is outstanding, such Borrower shall forever warrant, defend and preserve such title and the validity and priority of the Lien of the Pledge Agreement and shall forever warrant and defend such title, validity and priority to Lender against the claims of all persons whomsoever.

               (b) Each Mortgage Borrower has good, marketable and insurable fee simple title to the real property comprising part of its Property and good title to the balance of such Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Mortgage Loan Documents and the Liens created by the Mortgage Loan Documents.

               (c) To the best of each Borrower’s actual knowledge, the Permitted Encumbrances in the aggregate do not materially and adversely affect the operation or use of the Properties (as currently used) or such Borrower’s ability to repay the Loan or Mortgage Borrowers ability to repay the Mortgage Loan.

               (d) To such Borrower’s actual knowledge after due inquiry, there are no claims for payment for work, labor or materials affecting any of the Properties that are or may become a Lien prior to, or of equal priority with, the Liens created by the Mortgage Loan Documents, except any Lien then being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage.

          4.1.7 Solvency. Borrowers have (a) not entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) received reasonably equivalent value in exchange for their obligations under such Loan Documents. Taking into account the Loan, the aggregate fair saleable value of Borrowers’ assets collectively exceeds and will exceed Borrowers’ total aggregate liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. Taking into account the Loan, the aggregate fair saleable value of Borrowers’ assets collectively is and will be greater than Borrowers’ probable aggregate liabilities, including the maximum amount of their contingent liabilities on its debts as such debts become absolute and matured. Taking into account the Loan, each Borrower’s assets do not and will not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrowers do not intend to, and do not believe that they will, incur Indebtedness and liabilities (including contingent liabilities and other commitments) beyond their respective abilities to pay such Indebtedness and liabilities as they mature (taking into account the timing and amounts of cash to be received by each Borrower and the amounts to be payable on or in respect of obligations of each Borrower). No petition in bankruptcy has been filed against any Loan Party, HRHI or any Guarantor, and none of the Loan Parties, HRHI nor any

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Guarantor has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. None of the Loan Parties, HRHI nor any Guarantor are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or properties, and no Borrower has any actual knowledge of any Person contemplating the filing of any such petition against any Loan Party, HRHI or any Guarantor.

          4.1.8 Full and Accurate Disclosure. To such Borrower’s actual knowledge, no statement of fact made by any Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact or circumstance presently known to such Borrower which has not been disclosed to Lender and which will have a material adverse effect on (a) the use and operation of any of the Properties, the IP, or the Collateral, (b) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, or (c) the ability of such Borrower, any Mortgage Borrower, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Loan Documents and the Mortgage Loan Documents, as applicable.

          4.1.9 No Plan Assets. As of the date hereof and throughout the term of the Loan (a) no Borrower is nor will any Borrower be an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA, (b) none of the assets of any Borrower constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101, (c) no Borrower is nor will any Borrower be a “governmental plan” within the meaning of Section 3(32) of ERISA, and (d) none of the assets of any Borrower constitute “plan assets” of a governmental plan within the meaning of 29 C.F.R. Section 2510.3-101 for purposes of any state law provisions regulating investments of, or fiduciary obligations with respect to, governmental plans.

          4.1.10 Compliance. Except as set forth in the applicable Zoning Report, each Loan Party and, to the best of such Borrower’s actual knowledge after due inquiry, the Land and Improvements (including the use thereof) comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes and Prescribed Laws. No Loan Party is in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by any Loan Party or, to any Borrower’s actual knowledge, any other Person in occupancy of or involved with the operation or use of any of the Properties or the Collateral any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Property, the Collateral or any part of either of the foregoing or any monies paid in performance of any Mortgage Borrower’s obligations under any of the Mortgage Loan Documents or paid in performance of any Borrower’s obligations under any of the Loan Documents.

          4.1.11 Financial Information. To such Borrower’s actual knowledge, all historical financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender in connection with the Loan (i) are true, complete and correct in all material respects, (ii) accurately represent in all material respects the financial condition of the Properties (and each Property) and the Collateral, as applicable, as

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of the date of such reports, and (iii) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with the Uniform System of Accounts and reconciled with GAAP throughout the periods covered, except as disclosed therein. Except for Permitted Encumbrances and except as referred to or reflected in said financial statements previously delivered to Lender in connection with the Loan, no Loan Party has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to any Borrower and are reasonably likely to have a materially adverse effect on the Collateral or any Property or (a) the operation of the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and/or (b) the operation of the Café Property and the Adjacent Property for a use or uses that is/are consistent with the operation of the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, which use may include, without limitation, expansion of the Hotel/Casino Property, restaurants, retail and residential complexes (the “Permitted Adjacent/Café Uses”). Since the date of such financial statements, there has been no material adverse change in the financial condition, operation or business of any Loan Party or, to each Borrower’s actual knowledge after due inquiry, to the Collateral and, to the extent not prohibited by the Merger Agreement, any Property from that set forth in said financial statements.

          4.1.12 Condemnation. No Condemnation or other proceeding has been commenced or, to each Borrower’s actual knowledge, is threatened in writing received by such Borrower or contemplated with respect to all or any portion of any Property or for the relocation of any roadway providing direct access to any Property.

          4.1.13 Federal Reserve Regulations. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by any Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents.

          4.1.14 Utilities and Public Access. To such Borrower’s actual knowledge after due inquiry, each Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Property for its intended uses. All public utilities necessary to the continued current use and enjoyment of each Property are located either in the public right-of-way abutting such Property (which are connected so as to serve such Property without passing over other property) or in recorded easements serving such Property and such easements are set forth in and insured by the Title Insurance Policy covering such Property. To such Borrower’s actual knowledge after due inquiry, all roads necessary for the use of each Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities or are located in recorded easements serving such Property and such easements are set forth in and insured by the Title Insurance Policy.

          4.1.15 Not a Foreign Person. No Borrower is a “foreign person” within the meaning of §1445(f)(3) of the Code.

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          4.1.16 Separate Lots. Each Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Property.

          4.1.17 Assessments. Except as disclosed in the Title Insurance Policy, to each Borrower’s actual knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Property, nor are there any contemplated improvements to any Property that may result in such special or other assessments.

          4.1.18 Enforceability. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by any Borrower, HRHI or any Guarantor, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable (subject to principles of equity and bankruptcy, insolvency and other laws generally affecting creditors’ rights and the enforcement of debtors’ obligations), and none of any Borrower, HRHI nor any Guarantor has asserted any right of rescission, set-off, counterclaim or defense with respect thereto.

          4.1.19 No Prior Assignment. Other than under the Mortgage Loan Documents, there are no prior assignments by Mortgage Borrowers of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding. There are no prior assignments of the Collateral which are presently outstanding except in accordance with the Loan Documents.

          4.1.20 Insurance. Mortgage Borrowers have obtained and Borrowers have delivered to Lender certified copies of all Policies (or “Accord” certificates evidencing coverage thereof) reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any such Policies, and no Person, including any Loan Party, has done, by act or omission, anything which would impair the coverage of any such Policies.

          4.1.21 Use of the Properties. (a) The Hotel/Casino Property is used exclusively as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and otherwise as a top-end hotel and other appurtenant and related uses, and (b) the Café Property and the Adjacent Property are used for Permitted Adjacent/Café Uses and other appurtenant and related uses.

          4.1.22 Certificate of Occupancy; Operating Permits. To the best of each Borrower’s actual knowledge after due inquiry, all certifications, permits, licenses and approvals, including, without limitation, certificates of completion and occupancy permits, all environmental, health and safety licenses, gaming licenses and permits and any applicable liquor license necessary to permit the legal use, occupancy and operation of (a) the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and (b) the Café Property and the Adjacent Property as currently operated on the date hereof, or, subsequent to the date hereof, for Permitted Adjacent/Café Uses (collectively, the “Operating Permits”), have been obtained and are in full force and effect. Each Borrower shall cause Mortgage Borrowers to keep and maintain, or cause to be kept and maintained, all Operating

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Permits necessary for the operation of (i) the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, and (ii) the Café Property and the Adjacent Property for one or more Permitted Adjacent/Café Purposes. To the best of each Borrower’s actual knowledge after due inquiry, the use being made of each Property is in conformity with the Certificate(s) of Occupancy issued for such Property. Attached hereto as Schedule IX is, to the best of each Borrower’s actual knowledge after due inquiry, a true and complete list of all current Operating Permits and those which are subject to renewal.

          4.1.23 Flood Zone. None of the Improvements on any Property are located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards or, if so located, the flood insurance required pursuant to Section 6.1(a)(i) of the Mortgage Loan Agreement is in full force and effect with respect to each such Property.

          4.1.24 Physical Condition. Except as provided in the Physical Conditions Reports, to each Borrower’s actual knowledge after due inquiry, (a) each Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; (b) there exists no material structural or other material defects or damages in any Property, whether latent or otherwise; and (c) no Loan Party has received notice from any insurance company or bonding company of any defects or inadequacies in any Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.

          4.1.25 Boundaries. Except as disclosed on the Surveys, to each Borrower’s actual knowledge, all of the Improvements which were included in determining the appraised value of each Property lie wholly within the boundaries and building restriction lines of such Property, and no improvements on adjoining properties encroach upon such Property, and no easements or other encumbrances upon any Property encroach upon any of the Improvements, so as to materially and adversely affect the value or marketability of such Property except those which are insured against by the applicable Title Insurance Policy for such Property.

          4.1.26 Leases. To each Borrower’s actual knowledge after due inquiry and except as set forth on Schedule X attached hereto or as otherwise disclosed in the estoppel certificates delivered to Lender in connection with the closing of the Loan, (a) the Properties are not subject to any Leases other than the HRHI Lease and the other Leases described in said Schedule X, (b) each Mortgage Borrower is the owner and lessor of the landlord’s interest in each such Lease affecting its Property, (c) no Person has any possessory interest in any Property or any right to occupy the same except under and pursuant to the provisions of such Leases, (d) all commercial Leases are in full force and effect and there are no material defaults thereunder by either party and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute material defaults thereunder, (e) the copies of the commercial Leases delivered to Lender are true and complete, and there are no oral agreements with respect thereto, (f) no Rent (including security deposits) has been paid more than one (1) month in advance of its due date, (g) all work to be performed by the landlord under each Lease has been performed as

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required in such Lease and has been accepted by the applicable tenant, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by any Mortgage Borrower to any tenant has already been received by such tenant, (h) there has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is still in effect, (i) no commercial tenant listed on Schedule X has assigned its Lease or sublet all or any portion of the premises demised thereby, no such commercial tenant holds its leased premises under assignment or sublease, nor does anyone except such commercial tenant and its employees occupy such leased premises, (j) no tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the Property of which the leased premises are a part, and (k) no tenant under any Lease has any right or option for additional space in the Improvements.

          4.1.27 Affiliates. Such Borrower does not own any equity interests in any other Person other than the related Pledged Interests.

          4.1.28 Principal Place of Business; State of Organization. Each Borrower’s principal place of business as of the date hereof is the address set forth in the introductory paragraph of this Agreement. Each Borrower is organized under the laws of the State of Delaware.

          4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Properties and/or the IP to Mortgage Borrowers and/or the transfer of the Collateral to Borrowers have been paid as of the Closing Date. Borrowers and each of their Affiliates have filed or caused to be filed all reports relating to gaming taxes or fees to any Gaming Authority required to be filed by them on or prior to the date hereof. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Mortgage Loan Documents, including, without limitation, the Mortgage, or of any of the Loan Documents, including, without limitation, the Pledge Agreement and the related UCC Financing Statements, have been paid as of the Closing Date. The Pledge Agreement and the other Loan Documents are enforceable against Borrowers in accordance with their respective terms by Lender (or any subsequent holder thereof), subject to principles of equity and bankruptcy, insolvency and other laws generally applicable to creditors’ rights and the enforcement of debtors’ obligations.

          4.1.30 Special Purpose Entity/Separateness. (a) Until the Debt has been paid in full and the obligations under the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents have been paid in full, each Borrower hereby represents, warrants and covenants that (i) such Borrower is, shall be and shall continue to be a Special Purpose Entity and (ii) each Mortgage Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof).

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               (b) The representations, warranties and covenants set forth in Section 4.1.30(a) hereof shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document.

               (c) All of the assumptions made in the Insolvency Opinion, including, but not limited to, any exhibits attached thereto, are true and correct in all respects. Each Borrower has complied and will comply with all of the assumptions made with respect to such Borrower in the Insolvency Opinion.

               (d) Each Borrower hereby covenants and agrees that (i) any assumptions made in any subsequent non-consolidation opinion required to be delivered in connection with the Loan Documents (an “Additional Insolvency Opinion”), including, but not limited to, any exhibits attached thereto, shall be true and correct in all respects, (ii) each Borrower will comply with all of the assumptions made with respect to each Borrower in any Additional Insolvency Opinion, and (iii) each Person other than any Borrower with respect to which an assumption shall be made in any Additional Insolvency Opinion will comply with all of the assumptions made with respect to it in any Additional Insolvency Opinion.

               (e) Mortgage Borrowers have complied, and each Borrower will cause Mortgage Borrowers to comply, with all of the assumptions made with respect to Mortgage Borrowers in the Insolvency Opinion and each Borrower will cause Mortgage Borrowers to comply with all of the assumptions made with respect to Mortgage Borrowers in any Additional Insolvency Opinion.

          4.1.31 Management Agreements; Liquor Management Agreement.

               (a) Each of the Management Agreements is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. Following the date hereof, there shall be no material default thereunder.

               (b) The Sub-Management Agreement is in full force and effect and there is no material default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a material default thereunder.

               (c) The Liquor Management Agreement is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder.

          4.1.32 Illegal Activity. No portion of any Property, the IP or the Collateral has been or will be purchased by any Loan Party or any other Restricted Party with proceeds of any illegal activity.

          4.1.33 No Change in Facts or Circumstances; Disclosure. To each Borrower’s actual knowledge, all material information submitted by any Borrower or Mortgage Borrower to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by any Borrower in this Agreement or in any other Loan Document, and, to the

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knowledge of each Borrower, all statements of fact made by Mortgage Borrowers in the Mortgage Loan Agreement or in any other Mortgage Loan Document, are accurate, complete and correct in all material respects. To each Borrower’s actual knowledge, there has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely impairs, or is reasonably likely to do so after the date hereof, the use or operation of the Properties, the IP or the Collateral or the business operations or the financial condition of any Loan Party. Each Borrower has disclosed to Lender all material facts actually known to such Borrower and has not failed to disclose any material fact actually known to such Borrower that could cause any Provided Information or representation or warranty made herein to be materially misleading.

          4.1.34 Investment Company Act. No Borrower is (a) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended; or (b) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

          4.1.35 Embargoed Person. At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of any Loan Party, HRHI or any Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by, any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated under any such United States laws (each, an “Embargoed Person”), with the result that the Loan made by Lender is or would be in violation of law; (b) no Embargoed Person shall have any interest of any nature whatsoever in any Loan Party, HRHI or any Guarantor, as applicable, with the result that the Loan is or would be in violation of law; and (c) none of the funds of any Loan Party, HRHI or any Guarantor, as applicable, shall be derived from any unlawful activity with the result that the Loan is or would be in violation of law; provided, however, that Borrowers’ representation in this clause (c) shall not extend to gaming revenues generated at the Hotel/Casino Property from the general public unless any Loan Party or any other Restricted Party has actual knowledge that such revenues are derived from any unlawful activity.

          4.1.36 Cash Management Account. (a) This Agreement, together with the other Loan Documents, creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of New York) in the Cash Management Account in favor of Lender, which security interest is prior to all other Liens and is enforceable as such against creditors of and purchasers from any Borrower. Other than in connection with the Loan Documents, no Borrower has sold or otherwise conveyed the Cash Management Account;

               (b) The Cash Management Account constitutes a “deposit account” within the meaning of the Uniform Commercial Code of the State of New York; and

               (c) The Cash Management Account is not in the name of any Person other than Borrowers, as pledgors, or Lender, as pledgee.

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          4.1.37 Intellectual Property.

               (a) The Intellectual Property Security Agreement creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of New York) in all of HRHI’s rights, title and interest in and to all of the following (collectively, the “IP”):

     (i) all trademarks, service marks, domain names, trademark registrations, service mark registrations, domain name registrations, applications for trademark registrations, applications for service mark registrations, applications for domain name registrations, trade names, brand names, product names and common law marks, and the renewals thereof owned or used by any Loan Party or any Affiliated IP Party in connection with the operation and/or use of one or more of the Properties, including for each such trademark, service mark or domain name the registration number or application number and country;

     (ii) all copyrights, and the renewals thereof, owned or used by any Loan Party or any Affiliated IP Party in connection with the operation and/or use of one or more of the Properties, including for each such copyright the registration number or application number and country;

     (iii) all trade secrets, discoveries, formulae, proprietary processes, improvements and inventions for which no patent applications are pending and all other industrial property rights presently owned, in whole or in part, or used, by any Loan Party or any Affiliated IP Party in connection with the ownership, operation and/or use of one or more of the Properties; and

     (iv) all trademark licenses, service mark licenses, copyright licenses, royalty agreements, assignments, grants and contracts with employees or others relating in whole or in part to any of the foregoing IP to which any Loan Party and/or any Affiliated IP Party is a party, which is related to the ownership, operation and/or use of one or more of the Properties (collectively, the “IP Agreements”).

               (b) Schedule VII attached hereto is a true, correct and complete list of all the Registered IP used by any Loan Party in connection with the ownership, operation and/or use of one or more of the Properties. Part I of said Schedule VII is a true, correct and complete list of all Registered IP owned by IP Borrower or any Affiliated IP Party, including Registered IP and that has been assigned to IP Borrower by Morton pursuant to that certain Trademark Assignment dated as of February 2, 2007 from Morton in favor of IP Borrower (the “Morton Assigned IP”; and all of the foregoing, collectively, the “Owned IP”). Part II of said Schedule VII is a true, correct and complete list of all Registered IP that is licensed from Rank Licensing, Inc. (“Rank”) to Morton pursuant to that certain Trademark License and Cooperation Agreement, dated June 7, 1996, between Rank and Morton and which has been assigned from Morton to IP Borrower pursuant to that certain Assignment and Assumption Agreement dated as of February 2, 2007 (the “Rank License”) from Morton in favor of IP Borrower (all such IP listed on Part II of said Schedule VII, the “Rank IP”). Part III of said Schedule VII is a true,

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correct and complete list of all Registered IP that is licensed from Morton to IP Borrower pursuant to that certain License Agreement, dated as of February 2, 2007 (the “Pink Taco License”) from Morton in favor of IP Borrower (all such IP listed on Part IV of said Schedule VII, the “Pink Taco IP”; and the Pink Taco IP, together with the Rank IP, the “Licensed IP”).

               (c) Intentionally Omitted.

               (d) Except as set forth on Part IV of Schedule VII, Mortgage Borrowers or an Affiliated IP Party owns or possesses licenses or other rights in or under all patents, trademarks, service marks, trade names, domain names, copyrights and any other IP, which is necessary for the use, ownership, management, promotion and operation of its Property and associated merchandising as currently so used, except where the failure to so own or possess such IP, licenses or other rights could not reasonably be expected to have a material adverse effect on such use, ownership or operations (a “IP Material Adverse Effect”).

               (e) Part V of said Schedule VII hereto sets forth:

     (i) any written communications from any Loan Party or any Affiliate thereof to one or more third parties, or from one or more third parties to any Loan Party or any Affiliate thereof, alleging infringement by any third party or any Loan Party or any Affiliate thereof, of any of the IP or alleging related acts of unfair competition or activities or actions of any anti-competitive nature, together with all responses to such communications and a description of the status of each such alleged infringement, in each case, which the failure to resolve such alleged infringement or competition could reasonably be expected to have a IP Material Adverse Effect; and

     (ii) a complete list of any goods and/or services sold by any Person other than any Loan Party and of whom any Loan Party has actual knowledge, which in the opinion of any Loan Party infringes upon any IP listed in said Schedule VII hereof.

     (f) Except as disclosed in said Schedule VII:

     (i) IP Borrower or an Affiliated IP Party owns the Owned IP, and IP Borrower has a valid and enforceable license to use the Licensed IP, in each case free and clear of any Liens other than the Permitted IP Encumbrances;

     (ii) no Loan Party or an Affiliated IP Party has granted nor is obligated to grant any other Person any rights (including, without limitation licenses) with respect to any of the IP other than the Permitted IP Encumbrances;

     (iii) to Borrowers’ actual knowledge, the trademarks, service marks, domain names and copyrights included in the Owned IP and in the Licensed IP are valid;

     (iv) to Borrowers’ actual knowledge, the trademark registrations, service mark registrations, domain name registrations and copyright registrations

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included in the Owned IP and Licensed IP have been duly issued and have not been canceled, abandoned or otherwise terminated;

     (v) to Borrowers’ actual knowledge, the trademark applications, service mark applications, domain name applications and copyright applications included in the Owned IP have been duly filed; and

     (vi) to Borrowers’ actual knowledge, all material IP Agreements are valid and binding in accordance with their terms (except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by general principles of equity) and are in full force and effect.

               (g) To Borrowers’ actual knowledge, no Loan Party or Affiliated IP Party is obligated to disclose any of the IP to any other Person.

               (h) To Borrowers’ actual knowledge, except for the Licensed IP, no Loan Party requires a license or right under or in respect of any intellectual property of any other Person (except another Loan Party) to conduct such Loan Party’s business as presently conducted and no substantial part of such business is carried on under the agreement or consent of any other Person nor is there any agreement to which any Loan Party is a party which significantly restricts the fields in which such business may be carried on.

               (i) To Borrowers’ actual knowledge, there are and have been no proceedings, actions or claims and no proceedings, actions or claims are pending or threatened, impugning the title, validity or enforceability of any of the IP.

               (j) To Borrowers’ actual knowledge, none of the processes currently used by any Loan Party or any Affiliated IP Party or any of the properties or products currently sold by any Loan Party or any Affiliated IP Party, and none of the IP or Licensed IP, infringes the patent, industrial property, trademark, trade name, domain name, label, other mark, right or copyright or any other similar right of any other Person, except where such infringement could not reasonably be expected to have an IP Material Adverse Effect.

               (k) To Borrowers’ actual knowledge, no basis exists for any adverse claim by any third party with respect to any of the IP, and no act has been done or has been omitted to be done by any Loan Party or any Affiliate thereof to entitle any Person to make such a claim or to cancel, forfeit or modify any of the IP.

               (l) Except the Licensed IP, no Loan Party requires a license or right under or in respect of any intellectual property of any other Person (except another Loan Party) to conduct such Loan Party’s business as presently conducted and no substantial part of such business is carried on under the agreement or consent of any other Person nor is there any agreement to which any Loan Party is a party which significantly restricts the fields in which such business may be carried on.

               (m) To Borrowers’ actual knowledge, no disclosure has been made to any Person of the know-how or financial or trade secrets of any Loan Party, except properly and

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in the ordinary course of business and on condition that such disclosure is to be treated as being of a confidential nature and except where such disclosure would not reasonably be expected to have an IP Material Adverse Effect; and to Borrower’s actual knowledge, none of the IP is being infringed by any other Person, except where such infringement could not reasonably be expected to have an IP Material Adverse Effect.

          4.1.38 No Franchise Agreement. None of the Loan Parties or Managers or Sub-Manager has entered into, and none of the Properties are subject to, any franchise, trademark or license agreement with any Person with respect to the name and/or operation of any Property, other than the IP, the Rank License and the Pink Taco License.

          4.1.39 Merger Agreement. The Acquisition and the Other Transaction Closings (as such capitalized terms are defined in the Merger Agreement) were consummated in accordance with all of the material terms and conditions of the Merger Agreement and the Other Transaction Documents (as defined in the Merger Agreement), with only such amendments, supplements and/or modifications thereto, and waivers and extensions thereof, as Mortgage Lender has approved in writing, to the extent such approval is required under that certain Commitment Letter dated December 22, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking, Inc. and Mortgage Lender.

          4.1.40 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers have delivered, or caused Mortgage Borrowers to deliver, to Lender true, correct and complete copies of each of the Morton Indemnification and the PWR/RWB Escrow Agreement and all amendments thereto. Except for such amendments thereto as have been delivered to Lender, the Morton Indemnification and the PWR/RWB Escrow Agreement have not been amended or modified and are in full force and effect. No Loan Party nor any Affiliate thereof has (a) made any claim under the Morton Indemnification, or (b) requested any disbursement of funds under the PWR/RWB Escrow Agreement with respect to any claim under the Morton Indemnification or otherwise. No Loan Party nor any Affiliate thereof knows of any state of facts currently existing that would be reasonably likely to result in a claim under the Morton Indemnification.

          4.1.41 Gaming Licenses and Other Operating Permits.

               (a) HRHI possesses all Operating Permits (including, but not limited to, all liquor licenses) which are necessary for the execution, delivery and performance of the Liquor Management Agreement, the HRHI Lease and the Gaming Sublease. All of such Operating Permits are in and will be in full force and effect; the Loan Parties and each of their Affiliates, as applicable, including, without limitation, HRHI, are in compliance in all material respects with all such Operating Permits; and no event, including, without limitation, any violation of any Legal Requirement, has occurred which would be reasonably likely to lead to the suspension, revocation or termination of any such Operating Permit or the imposition of any restriction thereon.

               (b) To Borrowers’ actual knowledge, Gaming Operator possesses all Operating Permits (including, without limitation, all Gaming Licenses) which are material to the execution, delivery and performance of the Gaming Sublease and the use, occupation and

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operation of the Casino Component; to Borrowers’ actual knowledge, each such Operating Permit and Gaming License (or any replacement thereof) is and will be in full force and effect; and, to Borrowers’ actual knowledge, Gaming Operator is in compliance in all material respects with the Gaming Sublease, all Gaming Licenses and all other Operating Permits applicable to the operation of the Casino Component as contemplated herein. Further, Borrowers hereby represent and warrant as follows:

               (c) Borrowers have no reason to believe that Gaming Operator will not be able to maintain in effect all Gaming Licenses and other Operating Permits necessary for the lawful conduct of its business or operations as now conducted and as planned to be conducted at the Hotel/Casino Property, including the Gaming Sublease and operation of the Casino Component, pursuant to all applicable Legal Requirements.

               (d) To Borrowers’ actual knowledge, all Gaming Licenses are in full force and effect and have not been amended or otherwise modified in any material adverse respect or suspended, rescinded or revoked.

               (e) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator are in default in any material respect under, or in violation in any material respect of, any Gaming License or other Operating Permit, and no event has occurred, and no condition exists, which, with the giving of notice or passage of time or both, would constitute such a default thereunder or such a violation thereof, that has caused or would reasonably be expected to cause the loss, suspension, revocation, impairment, forfeiture, non-renewal or termination of any Gaming License or the imposition of any restriction thereon.

               (f) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator have received any notice of any violation of any Legal Requirement which has caused or would reasonably be expected to cause any Gaming License or other Operating Permit to be modified in any material adverse respect or suspended, rescinded or revoked.

               (g) The continuation, validity and effectiveness of all Gaming Licenses and other Operating Permits will not be adversely affected by the transactions contemplated by this Agreement.

               (h) The Gaming Sublease is in full force and effect, none of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator is in material default thereof and no event has occurred, and no condition exists, which, with the giving of notice or passage of time, or both, would constitute a material default thereunder or material violation thereof.

               (i) The execution, delivery or performance of any of the Loan Documents will not permit nor result in the imposition of any material penalty under, or the suspension, revocation or termination of, any Gaming License or other Operating Permit or any material impairment of the rights of the holder of any Gaming License.

               (j) There are no restrictions on transfer or agreements not to encumber the ownership interests of any Loan Party in any of the Loan Documents or the Mortgage Loan Documents that require the approval of the Gaming Authorities in order to become effective, except as set forth in Section 17 of the Pledge Agreement.

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               (k) (i) Each of HRHI and Hotel/Casino Borrower meet the suitability standards for a landlord contemplated or set forth in the Gaming Laws; (ii) neither HRHI nor Hotel/Casino Borrower have or will take dominion over the Casino Component while such Casino Component continues to be used for gaming purposes without first obtaining the approvals required by the Gaming Laws; and (iii) HRHI and/or Hotel/Casino Borrower have obtained all necessary approvals to transfer the Gaming Assets to Golden HRC.

          4.1.42 Control of Borrowers and Mortgage Borrowers. Borrowers have the power and authority and the requisite ownership interests to Control the actions of Mortgage Borrowers.

          4.1.43 Separate and Distinct Loans. The Loan, the Mortgage Loan and the Mezzanine Loans are entirely separate, distinct and independent obligations, made to separate and distinct borrowers, on separate and distinct terms and secured by separate and distinct collateral.

          4.1.44 Mortgage Loan Documents. There are no Mortgage Loan Documents other than those set forth on Schedule XI attached hereto. True and correct copies of all the Mortgage Loan Documents have been provided to Lender and none of the Mortgage Loan Documents have been modified or amended since the delivery thereof, except as forth on such Schedule XI.

          4.1.45 No Mortgage Default. No Mortgage Default or Mortgage Event of Default exists as of the Closing Date.

          4.1.46 Mortgage Loan Representations and Warranties. (a) Borrowers have reviewed the representations and warranties made by, and covenants of, Mortgage Borrowers to and for the benefit of Mortgage Lender contained in the Mortgage Loan Documents and such representations and warranties are true, correct and complete in all material respects.

               (b) All of the representations and warranties contained in the Mortgage Loan Documents are hereby incorporated into this Agreement and deemed made hereunder as and when made thereunder and shall remain incorporated without regard to any waiver, amendment or other modification thereof or to whether the related Mortgage Loan Document has been repaid or otherwise terminated, unless otherwise consented to in writing by Lender.

          Section 4.2 Survival of Representations. Borrowers agree that all of the representations and warranties of any Borrower set forth in Section 4.1 hereof and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrowers. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by any Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.

          Section 4.3 Definition of Borrowers’ Knowledge. As used in this Agreement or any other Loan Document, the phrases “Borrowers’ knowledge”, “any Borrower’s knowledge”,

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“Borrowers’ actual knowledge”, “any Borrower’s actual knowledge”, “Borrowers’ best knowledge” or “any Borrower’s best knowledge” or words of similar import, shall mean the actual knowledge, after commercially reasonable due inquiry, of any of Edward Scheetz, Marc Gordon, David Smail, Matt Armstrong, Arthur Blee, Ana Nekhamkin, Ryan Sprott, Brian Zaumeyer and/or Bobby Kelly (the “Named Knowledge Parties”) and/or any additional individual or individuals who in the future are delegated or assume any of the responsibilities of any of the foregoing Named Knowledge Parties with respect to any of the Properties, and the knowledge of no other Person shall be imputed to any of the Named Knowledge Parties or any such other individuals, it being expressly represented and warranted to Lender by Borrowers that it would be unlikely that any material fact regarding any of the Properties or Borrowers or otherwise covered in the representations and warranties contained herein or in any other Loan Document would not come to the attention of one or more of the Named Knowledge Parties, after commercially reasonable due inquiry. Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, none of the Named Knowledge Parties shall have any personal liability hereunder.

ARTICLE V.
COVENANTS OF BORROWERS

     Section 5.1 Affirmative Covenants. From the date hereof and until payment and performance in full of all obligations of Borrowers under the Loan Documents or the earlier release of the Lien of the Pledge Agreement encumbering the Collateral (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrowers hereby jointly and severally covenant and agree with Lender that:

          5.1.1 Existence; Compliance with Legal Requirements. Each Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises necessary for the conduct of its business and comply, or cause Mortgage Borrowers to comply, in all material respects with all Legal Requirements applicable to such Borrower, Mortgage Borrowers, the Collateral, the Properties or the IP, including, without limitation, Prescribed Laws. There shall never be committed by any Borrower, and no Borrower shall, nor shall cause Mortgage Borrowers to, knowingly permit any other Person in occupancy of or involved with the operation or use of any of the Properties to commit, any act or omission affording the federal government or any state or local government the right of forfeiture against the Collateral and/or any Property or any part thereof or any monies paid in performance of any Borrower’s obligations under any of the Loan Documents or paid in performance of Mortgage Borrowers’ obligations under any of the Mortgage Loan Documents. Each Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Each Borrower shall, and shall cause Mortgage Borrowers to, at all times maintain, preserve and protect in all material respects all franchises and trade names and preserve all the remainder of its property necessary for the conduct of its business as contemplated hereunder, and, subject to Mortgage Borrowers’ right to demolish the Improvements on the Adjacent Property subject to, and in accordance with, the provisions of Section 3.18 of the Mortgage Loan Agreement, shall keep the Properties in good working order and repair in all material respects, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgage. Borrowers shall cause Mortgage Borrowers to keep the

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Properties insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in the Mortgage Loan Agreement. Borrowers shall cause Mortgage Borrowers to operate the Properties in accordance with the terms and provisions of the O&M Agreements in all material respects. After prior notice to Lender, any Borrower, at its own expense, may contest, or may cause Mortgage Borrowers to contest, by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to any Loan Party, the Collateral or the Property or any alleged violation of any Legal Requirement, provided that (a) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and remains uncured; (b) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which such Loan Party is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (c) neither any Property nor the Collateral or any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (d) such Borrower shall, and shall cause Mortgage Borrowers to, promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (e) such proceeding shall suspend the enforcement of the contested Legal Requirement against such Loan Party, the Collateral or any Property; and (f) such Borrower shall furnish, or shall cause Mortgage Borrowers to furnish, such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Following any non-compliance with such Legal Requirement as determined by a court of competent jurisdiction, Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or the Collateral or any Property (or any part thereof or interest therein) shall be in imminent danger of being sold, forfeited, terminated, cancelled or lost.

          5.1.2 Taxes and Other Charges. Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof prior to the date upon which any interest or late charges shall begin to accrue thereon; provided, however, Mortgage Borrowers’ obligation to directly pay Taxes shall be suspended for so long as Mortgage Borrowers comply with the terms and provisions of Section 7.2 of the Mortgage Loan Agreement or Borrowers comply with the terms and provisions of Section 7.2 hereof, if applicable. Borrowers will deliver, or will cause Mortgage Borrowers to deliver, to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent. Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender receipts for the payment of the Taxes and the Other Charges prior to the date upon which any interest or late charges shall begin to accrue thereon; provided, however, Mortgage Borrowers shall not be required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Mortgage Lender pursuant to Section 7.2 of the Mortgage Loan Agreement or by Lender pursuant to Section 7.2 hereof, if applicable. Borrowers shall not suffer, and shall not permit Mortgage Borrowers to suffer, and shall promptly cause to be paid and discharged (or provide reasonable security for) any Lien or charge against any of the Properties or the Collateral, and shall promptly pay, or shall cause Mortgage Borrowers to promptly pay, for all utility services

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provided to any of the Properties. After prior notice to Lender, any Borrower, at its own expense, may contest, or may cause Mortgage Borrowers to contest, by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (a) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default exists; (b) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which such Borrower or Mortgage Borrowers is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (c) neither any Property, the Collateral nor any part thereof or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (d) such Borrower shall promptly upon final determination thereof pay, or shall cause Mortgage Borrowers to pay, the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (e) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the applicable Property and the Collateral; and (f) such Borrower shall furnish, or shall cause Mortgage Borrowers to furnish, such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established or the Collateral or any Property (or part thereof or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent danger of the Lien of the Pledge Agreement being primed by any related Lien.

          5.1.3 Litigation. Borrowers shall give prompt notice to Lender of any litigation or governmental proceedings pending or threatened in writing against any Loan Party, HRHI or any Guarantor which, if adversely determined, would have a material adverse effect on (a) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, HRHI, any Guarantor, any Property, the IP or the Collateral, (b) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, (c) the ability of any Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Mortgage Loan Documents or the Loan Documents, as applicable, or (d) the value of, or cash flow from, any Property, the IP or the Collateral.

          5.1.4 Access to the Properties. Borrowers shall cause Mortgage Borrowers to permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice (which may be given verbally), subject to the rights of tenants under their Leases.

          5.1.5 Special Distributions. On each date on which amounts are required to be disbursed to the Cash Management Account or otherwise to be paid to Borrowers or Lender pursuant to the terms of the Mortgage Loan Documents (including the Mortgage Loan Agreement and/or the Mortgage Cash Management Agreement), or are required to be paid to Lender under any of the Loan Documents, Borrowers shall exercise their rights to cause Mortgage Borrowers to make to Borrowers distributions in an aggregate amount such that

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Lender shall receive the amount required to be disbursed to Lender from the Cash Management Account or otherwise paid to Lender on such date.

          5.1.6 Cooperate in Legal Proceedings. Borrowers shall reasonably cooperate, and shall cause Mortgage Borrowers to reasonably cooperate, fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which in any way materially affects the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings.

          5.1.7 Perform Loan Documents. Borrowers shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, any Borrower. Payment of the costs and expenses associated with any of the foregoing shall be in accordance with the terms and provisions of this Agreement, including, without limitation, the provisions of Section 10.13 hereof.

          5.1.8 Award and Insurance Benefits. Subject to the terms of Article VI hereof, Borrowers shall reasonably, and shall cause Mortgage Borrowers to reasonably, cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds to which Lender is entitled under the Loan Documents and which is lawfully or equitably payable in connection with any Property, and Lender shall be reimbursed for any actual, reasonable expenses incurred in connection therewith (including attorneys’ fees and disbursements, and the payment by Borrowers of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation affecting any Property or any part thereof) out of such Insurance Proceeds or Awards.

          5.1.9 Further Assurances. Borrowers shall, and shall cause each other Loan Party to, at Borrowers’ sole cost and expense (subject to the terms and conditions of this Agreement):

               (a) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the Collateral at any time securing or intended to secure the obligations of Borrowers under the Loan Documents, as Lender may reasonably require, including, without limitation, if permitted by applicable law, the execution and delivery of all such writings necessary to transfer any Operating Permits with respect to any Property into the name of Lender or its designee after the occurrence of an Event of Default; and

               (b) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time.

          5.1.10 Personal Property Taxes. Borrowers represent that as of the Closing Date Borrowers have paid all state, county and municipal recording and all other taxes imposed upon the execution and filing of the UCC Financing Statements.

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          5.1.11 Financial Reporting. (a) Borrowers will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with the Uniform System of Accounts and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of each Borrower and all items of income and expense in respect of the Collateral. Borrowers shall cause each other Loan Party to keep and maintain on a Fiscal Year basis, in accordance with the Uniform System of Accounts and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of such Loan Party and all items of income and expense in connection with the operation of each Property. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice (which may be verbal) to examine such books, records and accounts at the office of any Loan Party or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence and during the continuance of an Event of Default, Borrowers shall pay any actual costs and expenses incurred by Lender to examine Borrowers’ and Mortgage Borrowers’ accounting records with respect to the Properties, the IP and the Collateral, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender’s interest.

               (b) Borrowers will furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Borrowers, a complete copy of each Borrower’s, Mortgage Borrower’s, HRHI’s and each Guarantor’s annual financial statements audited by a “Big Four” accounting firm or other independent certified public accountant reasonably acceptable to Lender (it being hereby understood and agreed that BDO Seidman, LLP is acceptable to Lender) in accordance with the Uniform System of Accounts (or, in the case of Guarantors, GAAP) and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender) covering the Collateral and the Properties for such Fiscal Year and containing statements of profit and loss for Borrowers, Mortgage Borrowers, HRHI, each Guarantor, the Collateral and each Property and a balance sheet for Borrowers, Mortgage Borrowers, HRHI and each Guarantor; provided, however, that in the event that any Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by the Officer’s Certificate required under Section 5.1.11(b)(B) of the Mortgage Loan Agreement. Notwithstanding anything to the contrary set forth in this Agreement, the financial statements of Borrowers and Mortgage Borrowers may be consolidated with those of (1) HRHI for so long as (y) HRHI owns no other assets other than the ownership interests in one or more of the Loan Parties and/or other assets related to one or more of the Loan Parties, one or more of the Properties and/or the IP, and (z) engages in no other business other than those related to owning one or more of the Loan Parties and/or other assets related to one or more of the Loan Parties, one or more of the Properties and/or the IP, and (2) HR Holdings for so long as (x) the provisions of the foregoing clause (1) remain true, (y) HR Holdings owns no other assets other than the ownership interests in HRHI and/or one or more of the Loan Parties and/or other assets related to HRHI, one or more of the Loan Parties, one or more of the Properties and/or the IP, and (z) engages in no other business other than those related to owning HRHI and/or one or more of the Loan Parties and/or other assets related to HRHI, one or more of the Loan Parties, one or more of the Properties and/or the IP. Borrowers will furnish, or will cause Mortgage Borrowers to

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furnish, to Lender a copy of the financial statements and all other materials which Mortgage Borrowers are required to provide to Mortgage Lender under Section 5.1.11 of the Mortgage Loan Agreement within the time periods required under such Section.

               (c) For each Fiscal Year during the term of the Loan, Borrowers shall submit to Lender (and Borrowers shall cause Mortgage Borrowers to submit to Mortgage Lender) an Annual Budget not later than twenty (20) days prior to the commencement of such Fiscal Year in form reasonably satisfactory to Lender. The Annual Budget shall be subject to Lender’s and Mortgage Lender’s written reasonable approval (each such Annual Budget, as and when approved or deemed approved pursuant to this Section 5.1.11(c), the “Approved Annual Budget”). Lender’s approval of a proposed Annual Budget shall be deemed to have been given if (i) such proposed Annual Budget is submitted to Lender with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET AND IF LENDER DOES NOT RESPOND WITHIN TEN (10) BUSINESS DAYS, BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE” and Lender does not respond by approving such proposed Annual Budget or stating in reasonable detail its objections to such proposed Annual Budget within ten (10) Business Days of Lender’s receipt thereof, and (ii) after Lender’s failure to respond to the initial request for approval of such proposed Annual Budget within the time period set forth in the foregoing clause (i), Borrowers shall re-submit to Lender (and Borrowers shall cause Mortgage Borrowers to re-submit to Mortgage Lender) such proposed Annual Budget with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET. APPROVAL WILL BE DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN THREE (3) BUSINESS DAYS” and Lender does not respond to such second submission of such proposed Annual Budget by approving such proposed Annual Budget or stating in reasonable detail its objection thereto within three (3) Business Days of Lender’s receipt of such second submission. In the event that Lender objects to a proposed Annual Budget submitted by any Borrower, Lender shall advise Borrowers of such objections within ten (10) Business Days after receipt thereof (and deliver to Borrowers a reasonably detailed description of such objections) and Borrowers shall promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrowers of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrowers a reasonably detailed description of such objections) and Borrowers shall promptly revise (or cause the applicable Manager to revise) the same in accordance with the process described in this subsection until Lender approves each Annual Budget. Until such time that Lender approves a proposed Annual Budget (or is deemed to have approved such Annual Budget), the most recently Approved Annual Budget shall apply; provided, that such Approved Annual Budget shall be automatically adjusted (i) to reflect actual increases in Taxes and Insurance Premiums with respect to each Property, (ii) by three percent (3%) on all other items to account for inflation, and (iii) to reflect any expenses that must be incurred on an “emergency basis” in order to prevent the occurrence of any harm to any individuals on any Property or any Property itself or the operation thereof. Notwithstanding the foregoing, if seventy-five percent (75%) of the aggregate amount of costs set forth in a proposed Annual Budget have been approved by Lender, then until such time as Lender and Mortgage Lender approve the entirety of such proposed Annual Budget (or is deemed to have approved the entirety of such proposed Annual Budget in accordance with this Section 5.1.11(c)), (A) such approved portions of such proposed Annual Budget shall apply and shall constitute an

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“Approved Annual Budget” with respect only to such portions, (B) the remainder of such proposed Annual Budget shall be automatically adjusted as provided in the immediately preceding sentence, and (C) Borrowers and Lender shall diligently continue the process of agreeing to the remaining costs as set forth in this Section 5.1.11(c) for the approval of the Annual Budget as a whole.

               (d) In the event that any Mortgage Borrower must incur any non-recurring extraordinary Operating Expense or Capital Expenditure not set forth in the Approved Annual Budget then in effect (each, an “Extraordinary Expense”), then Borrowers shall promptly deliver to Lender (and Borrowers shall cause Mortgage Borrowers to promptly deliver to Mortgage Lender) a reasonably detailed explanation of such proposed Extraordinary Expense for Lender’s approval. Notwithstanding the foregoing, no prior approval by Lender shall be required for any Extraordinary Expense needed to be incurred immediately to prevent imminent injury to person or damage to property, provided that within three (3) Business Days thereafter Borrowers shall provide reasonably satisfactory evidence to Lender to demonstrate the imminent necessity and reasonableness of the Extraordinary Expense incurred.

               (e) If, at the time a Disclosure Document is being prepared for a Securitization, Lender expects that any or more Borrowers alone or any one or more Borrowers and one or more Affiliates of any Borrower collectively, or the Collateral or any one or more of the Properties alone or any one or more of the Properties and any one or more Related Properties collectively, will be a Significant Obligor, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender upon request (i) the selected financial data or, if applicable, Net Operating Income, required under Item 1112(b)(1) of Regulation AB, if Lender expects that the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed ten percent (10%) (but less than twenty percent (20%)) of the aggregate principal amount of all mezzanine loans included or expected to be included, as applicable, in the Securitization, or (ii) the financial statements required under Item 1112(b)(2) of Regulation AB, if Lender expects that the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed twenty percent (20%) of the aggregate principal amount of all mezzanine loans included or expected to be included, as applicable, in the Securitization. Such financial data or financial statements shall be furnished to Lender (A) within fifteen (15) Business Days after notice from Lender in connection with the preparation of Disclosure Documents for the Securitization, (B) not later than forty-five (45) days after the end of each calendar quarter of Borrowers, and (C) not later than one hundred twenty (120) days after the end of each calendar year of Borrowers; provided, however, that Borrowers shall not be obligated to furnish financial data or financial statements pursuant to clauses (B) or (C) of this sentence with respect to any period for which a filing pursuant to the Exchange Act in connection with or relating to the Securitization (an “Exchange Act Filing”) is not required. If requested by Lender, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender financial data and/or financial statements for any tenant of any Property, but only to the extent such tenant is required to provide such financial data and/or financial statements under its

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Lease, if, in connection with a Securitization, Lender expects there to be, with respect to such tenant or group of Affiliated tenants, a concentration within all of the mezzanine loans included or expected to be included, as applicable, in the Securitization such that such tenant or group of affiliated tenants would constitute a Significant Obligor.

               (f) All financial data and financial statements provided by Borrowers pursuant to Section 5.1.11(e) hereof shall be prepared in accordance with GAAP and shall meet the requirements of Regulation AB and all other applicable Legal Requirements. All financial statements referred to in Section 5.1.11(e) hereof shall be audited by independent accountants of Borrowers or Mortgage Borrowers reasonably acceptable to Lender in accordance with Regulation AB and all other applicable Legal Requirements, shall be accompanied by the manually executed report of the independent accountants thereon, which report shall meet the requirements of Regulation AB and all other applicable Legal Requirements, and shall be further accompanied by a manually executed written consent of the independent accountants, in form and substance reasonably acceptable to Lender, to the inclusion of such financial statements in any Disclosure Document and any Exchange Act Filing and to the use of the name of such independent accountants and the reference to such independent accountants as “experts” in any Disclosure Document and Exchange Act Filing, all of which shall be provided at the same time as the related financial statements are required to be provided. All financial data and financial statements (audited or unaudited) provided by Borrowers or Mortgage Borrowers under Section 5.1.11(e) hereof shall be accompanied by an Officer’s Certificate of each Borrower, which certification shall state that such financial statements meet the requirements set forth in the first sentence of this Section 5.1.11(f).

               (g) If requested by Lender, Borrowers shall provide, or shall cause Mortgage Borrowers to provide, Lender, promptly upon request, with any other or additional financial statements, or financial, statistical or operating information, as Lender shall reasonably determine to be required pursuant to Regulation AB or any amendment, modification or replacement thereto or other Legal Requirements in connection with any Disclosure Document or any Exchange Act Filing or as shall otherwise be reasonably requested by Lender.

               (h) In the event Lender reasonably determines, in connection with a Securitization, that the financial data and financial statements required in order to comply with Regulation AB or any amendment, modification or replacement thereto or any other Legal Requirements are other than as provided herein, then notwithstanding the provisions of Sections 5.1.11(e) and (f) hereof, Lender may request, and Borrowers shall promptly provide, or shall cause Mortgage Borrowers to provide, such other financial data and financial statements as Lender determines to be necessary or appropriate for such compliance.

               (i) Any reports, statements or other information required to be delivered under this Section 5.1.11 shall be delivered (i) in paper form, (ii) on a compact disk or DVD, and (iii) if requested by Lender and within the capabilities of Borrowers’ or Mortgage Borrowers’ data systems without change or modification thereto, in electronic form and prepared using Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). Borrowers agree that Lender may disclose information regarding the Properties, the Collateral and any Loan Party that

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is provided to Lender pursuant to this Section 5.1.11 in connection with any Securitization to such parties requesting such information in connection with such Securitization.

          5.1.12 Business and Operations. Borrowers will continue, and will cause Mortgage Borrowers to continue, to engage in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the Collateral, the Properties or the IP, as applicable. Each Borrower will qualify, and will cause Mortgage Borrowers to qualify, to do business and will remain, and will cause Mortgage Borrowers to remain, in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the Collateral, the Properties or the IP, as applicable.

          5.1.13 Title to the Collateral, the Properties and the IP. (a) Borrowers will warrant and defend (i) the title to the Collateral and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) or under the Pledge Agreement, and (ii) the validity and priority of the Lien of the Pledge Agreement, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever.

               (b) Borrowers will cause Mortgage Borrowers to warrant and defend (i) the title to each Property, the Owned IP and any right in and under all IP Agreements with respect to Licensed IP, and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances, Permitted IP Encumbrances and the asset sales and releases permitted under this Agreement), and (ii) the validity and priority of the Liens of the Mortgage, the Assignment of Leases and the IP Assignments, subject only to Liens permitted hereunder (including Permitted Encumbrances and Permitted IP Encumbrances), in each case against the claims of all Persons whomsoever.

               (c) Borrowers shall reimburse Lender for any actual losses, actual costs, actual damages (excluding lost profits, diminution in value and other consequential damages) or reasonable expenses (including reasonable attorneys’ fees and court costs) incurred by Lender if an interest in the Collateral, any Property or the IP, other than as permitted hereunder, is claimed by another Person.

          5.1.14 Costs of Enforcement. In the event (a) that the Pledge Agreement is foreclosed in whole or in part or that the Pledge Agreement is put into the hands of an attorney for collection, suit, action or foreclosure, or (b) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of any Borrower or any of its Constituent Members or an assignment by any Borrower or any of its Constituent Members for the benefit of its creditors, and Lender incurs costs in connection with any such proceeding as a direct or indirect result of the Loan, then, in any of the foregoing instances, each Borrower, on behalf of itself and its successors or assigns, shall be chargeable with and shall pay all actual out-of-pocket costs of collection and defense, including attorneys’ fees and costs, incurred by Lender or any Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein.

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          5.1.15 Estoppel Statement. (a) After request by Lender from time to time, but in no event more than two (2) times in any twelve (12) month period except in connection with a Securitization, Borrowers shall within ten (10) Business Days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Loan, (ii) the Outstanding Principal Balance, (iii) the Applicable Interest Rate of the Loan, (iv) the date an installment of interest was last paid, (v) any offsets or, to the best of each Borrower’s actual knowledge, defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Pledge Agreement and the other Loan Documents are valid, legal and binding obligations of Borrowers and have not been modified or, if modified, giving particulars of such modification.

               (b) After request by Borrowers, but in no event more than two (2) times in any twelve (12) month period, Lender shall within ten (10) Business Days furnish Borrowers with a statement, duly acknowledged and certified, stating (i) the Outstanding Principal Balance, (ii) the Applicable Interest Rate, (iii) the date an installment of interest was last paid, and (iv) whether or not Lender has sent any notice of default under the Loan Documents which remains uncured in the opinion of Lender.

               (c) Borrowers shall use commercially reasonable efforts to deliver, or cause to be delivered, to Lender within thirty (30) days of receipt of written request, tenant estoppel certificates from each commercial tenant leasing space at any of the Properties, in form and substance reasonably satisfactory to Lender; provided that, except in connection with a Securitization, Borrowers shall not be required to deliver such certificates more frequently than once in any calendar year or less frequently if, and to the extent, so restricted by the terms of any Leases entered into prior to the Closing Date (other than the HRHI Lease).

               (d) Borrowers shall deliver, within ten (10) Business Days after request by Lender from time to time, estoppel certificates from each Mortgage Borrower and/or each Mezzanine Borrower, covering substantially the same matters as set forth in clause (a) above and any other matters reasonably requested by Lender.

          5.1.16 Loan Proceeds. Borrowers shall use the proceeds of the Loan received by them on the Closing Date only for the purposes set forth in Section 2.1.2 hereof.

          5.1.17 Performance by Borrowers. (a) Borrowers shall, in a timely manner and in all material respects, observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, any Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, any Borrower without the prior consent of Lender.

               (b) Except for changes to the Mortgage Loan Documents that Mortgage Borrowers are obligated to enter into pursuant to the terms of the Mortgage Loan Documents, Borrowers shall not cause or permit Mortgage Borrowers to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Mortgage Loan Document executed and delivered by, or applicable to, Mortgage Borrowers as of the Closing Date without the prior written consent of Lender which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers shall cause Mortgage Borrowers to

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provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the Mortgage Loan Documents within five (5) days after the execution thereof.

               (c) Borrowers shall not, and shall not permit any other Loan Party to, (i) amend or modify the organizational documents of such Loan Party in any respect without Lender’s prior written consent, or (ii) take any action that would cause the membership interests of any other Loan Party to cease to constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of New York and Delaware) without Lender’s prior written consent.

          5.1.18 Confirmation of Representations. Borrowers shall deliver, in connection with any Securitization, (a) one or more Officer’s Certificates certifying as to the accuracy of all representations made by Borrowers in the Loan Documents as of the date of the closing of such Securitization in all relevant jurisdictions (or if any such representations are no longer accurate, providing an explanation as to the reason for such inaccuracy), and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of each Borrower and each Mortgage Borrower as of the date of the Securitization.

          5.1.19 No Joint Assessment. Borrowers shall not suffer, permit or initiate, and shall cause Mortgage Borrowers not to suffer, permit or initiate, the joint assessment of any Property (a) with any other real property constituting a tax lot separate from such Property, and (b) which constitutes real property with any portion of such Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Property.

          5.1.20 Leasing Matters. Any Major Leases with respect to any Property executed after the date hereof shall be subject to Lender’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, provided, however, that renewals of any Major Lease by Mortgage Borrowers initially executed prior to the Closing Date shall not require the approval of Lender if the terms of any such Lease provided for renewals at a reasonably determinable rent. Upon request, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, Lender with executed copies of all Leases. All proposed Major Leases shall be on commercially reasonable terms and no Lease shall contain any terms which would materially adversely affect Lender’s rights under the Loan Documents or Mortgage Lender’s rights under the Mortgage Loan Documents. All Leases executed after the Closing Date shall provide that they are subordinate to the Mortgage and that the lessee agrees to attorn to Mortgage Lender or any purchaser at a sale by foreclosure or power of sale, provided that, with respect to Major Leases and except with respect to the HRHI Lease, Mortgage Lender provides commercially reasonable non-disturbance language. Borrowers shall cause Mortgage Borrowers to (i) observe and perform the obligations imposed upon the lessor under the Leases in a commercially reasonable manner; (ii) enforce the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair the value of any Property involved, except that no termination by any Mortgage Borrower or acceptance of surrender by a tenant of any Major Lease (including, without limitation, the HRHI Lease) will be permitted without the consent of

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Lender; (iii) not collect any of the rents more than one (1) month in advance (other than security deposits); (iv) not execute any other assignment of lessor’s interest in the Leases or the Rents (except as contemplated by the Mortgage Loan Documents); and (v) not alter, modify or change the terms of (A) the HRHI Lease other than any ministerial, non-monetary amendment or modification, or (B) any other Major Lease in any material manner, in each of the foregoing instances, without the prior written approval of Lender, not to be unreasonably withheld. To the extent Lender’s approval is required pursuant to this Section 5.1.20, Lender shall endeavor to respond to a request for Lender’s approval within ten (10) Business Days after Borrowers’ written request therefor, delivered together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed Major Lease, Major Lease amendment or Major Lease termination. If the correspondence from Borrowers requesting such approval contains the following statement at the top of the first page thereof in capitalized, boldfaced, 14 point type lettering: “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN TEN (10) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN”, and if Lender shall fail to respond to or to expressly deny such request for approval in writing (stating in reasonable detail the reason for such disapproval) within ten (10) Business Days after receipt of Borrowers’ written request therefor together with the documents and information required above and any other information reasonably requested by Lender in writing prior to the expiration of such ten (10) Business Day period in order to adequately review the same, then Borrowers shall re-submit such proposed Major Lease, Major Lease amendment or Major Lease termination and accompanying information to Lender with a request for approval containing the following statement at the top of the first page thereof in capitalized, boldfaced, 14 point type lettering: “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN”, and if Lender does not respond to such second request by approving such proposed Major Lease, Major Lease amendment or Major Lease termination or stating its objection thereto within five (5) Business Days of Lender’s receipt of such second submission, Lender’s approval shall be deemed given. Notwithstanding anything to the contrary contained herein, Borrowers shall not permit or cause Mortgage Borrowers to enter into a lease of all or substantially all of any Property without Lender’s prior consent.

          5.1.21 Alterations. Other than the construction of the Project, which shall be governed by the provisions of Article III of the Mortgage Loan Agreement, Borrowers shall, or shall cause Mortgage Borrowers to, obtain Lender’s prior consent to any material alterations to any Improvements, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lender’s consent shall not be required in connection with any alterations that will not have a material adverse effect on any Borrower’s or Mortgage Borrower’s financial condition, the value of the Collateral, the applicable Property or the Net Operating Income, provided that such alterations (a) are made in connection with tenant improvement work performed pursuant to the terms of any Lease, (b) do not materially adversely affect any structural component of any Improvements, any utility or HVAC system contained in any Improvements or the exterior of any building constituting a part of any Improvements and the aggregate cost thereof does not exceed the Alteration Threshold Amount, or (c) are performed in connection with the Restoration of a Property after the occurrence of a Casualty or Condemnation in accordance with the terms and provisions of the Mortgage Loan Agreement and this Agreement. To the extent Lender’s prior written approval is required pursuant to this

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Section 5.1.21, Lender shall have fifteen (15) Business Days from receipt of written request and any and all reasonably required information and documentation relating thereto in which to approve or disapprove such request and such written request shall state thereon in bold letters of 14 point font or larger that action is required by Lender. If Lender fails to approve or disapprove the request within such fifteen (15) Business Days, Lender’s approval shall be deemed given. Should Lender fail to approve any such request, Lender shall give Borrowers written notice setting forth in reasonable detail the basis for such disapproval. In no event shall Lender require any “consent fee” as a condition to any required approval. If the total unpaid amounts due and payable with respect to alterations to the Improvements at any Property (other than such amounts to be paid or reimbursed by tenants under the Leases) shall at any time exceed the Alteration Threshold Amount, Borrowers shall promptly deliver to Lender as security for the payment of such amounts and as additional security for Borrowers’ obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization, (D) a Letter of Credit, or (E) a completion and performance bond issued by an Approved Bank; provided, however, that (i) in the event Mortgage Borrowers are required to and do deliver such security to Mortgage Lender under the Mortgage Loan Agreement, and (ii) upon request, Lender receives evidence reasonably acceptable to it of the delivery of such security by Mortgage Borrowers to Mortgage Lender, then Borrowers shall not be required to deliver any such security to Lender. Such security (if given as set forth above) shall be in an amount equal to the excess of the total unpaid amounts with respect to alterations to the Improvements on the applicable Property (other than such amounts to be paid or reimbursed by tenants under the Leases) over the Alteration Threshold Amount and during the continuance of an Event of Default, Lender may apply such security from time to time at the option of Lender to pay for such alterations.

          5.1.22 Operation of the Properties.

               (a) Borrowers shall cause Mortgage Borrowers to operate the Properties, in all material respects, in accordance with the applicable Management Agreement. In the event that any Management Agreement expires or is terminated (without limiting any obligation of Borrowers to obtain Lender’s consent to any termination or modification of any Management Agreement, if applicable, in accordance with the terms and provisions of this Agreement), Borrowers shall cause Mortgage Borrowers to promptly enter into a Replacement Management Agreement with the applicable Manager or another Qualified Manager, as applicable.

               (b) Borrowers shall cause each Mortgage Borrower to: (i) promptly perform and/or observe, in all material respects, all of the covenants and agreements required to be performed and observed by such Mortgage Borrower under the Management Agreement and/or the Sub-Management Agreement to which such Mortgage Borrower is a party and do all things necessary to preserve and to keep unimpaired such Mortgage Borrower’s material rights thereunder; (ii) promptly notify Lender of any material default under the Management Agreement and/or the Sub-Management Agreement of which such Mortgage Borrower or Borrower is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by such Mortgage Borrower

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under the Management Agreement; and/or the Sub-Management Agreement and (iv) enforce the performance and observance of all of the material covenants and agreements required to be performed and/or observed by the Manager under the Management Agreement and by Sub-Manager under the Sub-Management Agreement, in each of the foregoing instances, in a commercially reasonable manner.

               (c) Borrowers shall cause Hotel/Casino Borrower to, at all times, operate and maintain (or cause to be operated and maintained) the Hotel/Casino Property and the Casino Component as a hotel and casino resort in accordance with standards at least equivalent to the Comparable Hotel/Casinos. The theme of the Hotel/Casino Property and the Casino Component shall not be materially changed without the prior written consent of Lender, which consent shall not be unreasonably withheld. Borrowers shall cause Hotel/Casino Borrower to cause the Hotel/Casino Property to be at all times open for business as a hotel and the Casino Component to be open at all times for business as a casino, other than as provided under the Gaming Sublease, pursuant to Legal Requirements, temporary closures as a result of Casualty or other events outside the reasonable control of Borrowers and Mortgage Borrowers.

          5.1.23 Liquor Management at Hotel/Casino Property.

               (a) Unless and until Hotel/Casino Borrower has obtained all Governmental Approvals necessary to provide all alcoholic beverage services provided at the Hotel/Casino Property as of the Closing Date, Borrowers shall cause Hotel/Casino Borrower to cause all alcoholic beverage services at the Hotel/Casino Property to be managed by a Liquor Manager in accordance with a Liquor Management Agreement and Borrowers shall use, or shall cause Hotel/Casino Borrower to use, commercially reasonable best efforts to conduct and/or to cause to be conducted the alcoholic beverage services at the Hotel/Casino Property in such a manner so as to maximize Gross Income from Operations at the Properties in the aggregate. In the event that a Liquor Management Agreement expires or is terminated (without limiting any obligation of Hotel/Casino Borrower to obtain Lender’s consent to any termination or modification of any Liquor Management Agreement, if applicable, in accordance with the terms and provisions of this Agreement), Borrowers shall cause Hotel/Casino Borrower to promptly enter into a Replacement Liquor Management Agreement with the Liquor Manager or another Qualified Liquor Manager, as applicable.

               (b) Borrowers shall cause Hotel/Casino Borrower to: (i) promptly perform and/or observe, in all material respects, all of the covenants and agreements required to be performed and observed by it under the Liquor Management Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Lender of any material default under the Liquor Management Agreement of which it is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by it under the Liquor Management Agreement; and (iv) enforce the performance and observance of all of the material covenants and agreements required to be performed and/or observed by the Liquor Manager under the Liquor Management Agreement, in a commercially reasonable manner.

               (c) Upon the occurrence and during the continuance of an Event of Default, Borrowers shall, at the request of Lender, cause the Liquor Manager, if one of the Loan

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Parties or an Affiliate of any Loan Party, to continue to perform all obligations under the Liquor Management Agreement. Additionally, Borrowers shall, upon and after the foreclosure, deed in lieu of foreclosure or other similar transfer of the Hotel/Casino Property to Mortgage Lender, its designee or nominee (a “Mortgage Lender Successor Owner”), cause Mortgage Borrowers to comply with the provisions of Section 5.1.23 (c) of the Mortgage Loan Agreement.

          5.1.24 Gaming Operations at the Hotel/Casino Property.

               (a) All gaming operations conducted at the Hotel/Casino Property shall at all times be operated by a Qualified Gaming Operator and Borrowers shall cause Mortgage Borrowers to use commercially reasonable best efforts to conduct and/or to cause to be conducted the gaming operations in such a manner so as to maximize Gross Income from Operations at the Properties in the aggregate. Lender acknowledges and agrees that, as of the Closing Date, Golden HRC, LLC is a Qualified Gaming Operator.

               (b) Borrowers shall cause Hotel/Casino Borrower to comply with the provisions of Section 5.1.24(b) of the Mortgage Loan Agreement.

          5.1.25 Intellectual Property.

               (a) Each Borrower shall take, and shall cause Mortgage Borrowers to take, all actions reasonably necessary to protect the IP, subject to, and in compliance with, applicable IP Agreements, including, without limitation, (i) maintaining all registrations and applications with respect to any IP owned by any Loan Party, (ii) maintaining and complying with the terms of all licenses necessary for the use of any IP licensed to any Loan Party, (iii) expeditiously and diligently seeking to stop any acts of infringement or unfair competition with respect to the Owned IP that are brought to any Loan Party’s attention, and using commercially reasonable efforts to cause Rank or Morton, as the case may be, to diligently seek to stop any acts of infringement or unfair competition with respect to the Licensed IP that are brought to any Loan Party’s attention and (iii) refraining from any act or omission that might jeopardize any Loan Party’s ability to use any of the IP.

               (b) Borrowers shall cause Hotel/Casino Borrower to operate the Hotel/Casino Property as a “Hard Rock” hotel unless otherwise consented to in writing by Lender and shall cause Hotel/Casino Borrower to refrain from any act or omission, including, without limitation, any act contemplated under Section 5.1.26 hereof, that would result in, or would be reasonably likely to result in, the loss of its ability to so operate the Hotel/Casino Property as a “Hard Rock” hotel.

          5.1.26 Licensing and Sublicensing of the IP.

               (a) Except as set forth in Sections 5.1.26(b), (c) and (d) hereof, Borrowers shall not permit or cause Mortgage Borrowers to license any of the Owned IP or sublicense any of the Licensed IP (an “IP License”) without Lender’s consent in each instance.

               (b) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and without violating the Loan Documents, to license or sublicense, as

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applicable, the IP (or any portion thereof) (an “Adjacent Property IP License”) to any subsequent purchaser of all or any portion of the Adjacent Property and its successors and assigns, whether or not any such subsequent purchaser, successor or assign is an Affiliate of any Loan Party or any other Restricted Party; provided that all of the following conditions shall be satisfied with respect to any such Adjacent Property IP License:

     (i) IP Borrower shall have notified Lender of such Adjacent Property IP License at least ten (10) Business Days prior to the anticipated date of the execution and delivery thereof, which notice shall include (A) a copy of the Adjacent Property IP License, and (B) an Officer’s Certificate providing a certification that such Adjacent Property IP License (1) does not and will not adversely affect any Mortgage Borrower’s ownership and/or operation of, or any activities conducted on, its Property, (2) does not and will not materially diminish any Mortgage Borrower’s rights to use any of the Owned IP or Licensed IP that is reasonably necessary or desirable to operate its Property as then being operated and as then contemplated to be operated in the future, and (3) does not, and is not reasonably anticipated in the future to, materially diminish the value of any Owned IP or Licensed IP;

     (ii) Such Adjacent Property IP License shall be granted and used only in connection with the ownership, development and/or use of improvements and/or activities on the Adjacent Property or any portion thereof;

     (iii) Such Adjacent Property IP License may be granted (A) without consideration beyond that which is paid to Adjacent Borrower in connection with the sale of the applicable portion of the Adjacent Property and/or (B) on a royalty free basis; provided, however, that, notwithstanding the foregoing, any consideration and/or royalties that is/are paid to IP Borrower in connection with such Adjacent Property IP License shall constitute Gross Income from Operations for all purposes under this Agreement and the other Loan Documents and Borrowers shall cause IP Borrower to deposit the same directly into the Lockbox Account within one (1) Business Day following receipt by IP Borrower from time to time;

     (iv) Such Adjacent Property IP License shall not violate or result in a violation of Section 5.1.25(b) hereof; and

     (v) Such Adjacent Property IP License shall not adversely affect Lender’s Liens and security interests in the Owned IP and Licensed IP, all of which shall remain in full force and effect and, at Lender’s request in its sole discretion, Borrowers shall cause IP Borrower to collaterally assign to Lender such Adjacent Property IP License pursuant to a security agreement reasonably satisfactory to Lender and IP Borrower in form and substance.

               (c) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and without violating the Loan Documents, to license or sublicense, as

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applicable, the IP (or any portion thereof) to any bonafide third party who is not an Affiliate of any Loan Party or any other Restricted Party (a “Third Party IP License”); provided that all of the following conditions shall be satisfied with respect to any such Third Party IP License:

     (i) IP Borrower shall have notified Lender of such proposed Third Party IP License at least ten (10) Business Days prior to the anticipated date of the execution and delivery thereof, which notice shall include (A) a copy of the proposed Third Party IP License, and (B) an Officer’s Certificate providing a certification that (1) as of the date of such notice, no monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing, (2) the proposed licensee or sublicensee, as applicable, is a bonafide third party who is not an Affiliate of any Borrower or any other Restricted Party, (3) the total consideration paid and to be paid under such proposed Third Party IP License, (4) other than the proposed Third Party IP License, there are no other written or oral agreements between any Borrower or any other Restricted Party or any Affiliate of any thereof, on the one hand, and the proposed licensee or sublicensee, as applicable, on the other hand, relating to such proposed Third Party IP License or the IP covered thereunder, (5) the proposed Third Party IP License does not and will not adversely affect any Mortgage Borrower’s ownership and/or operation of, or any activities conducted on, its Property, (6) the proposed Third Party IP License does not and will not materially diminish any Mortgage Borrower’s rights to use any of the Owned IP or Licensed IP that is reasonably necessary or desirable to operate its Property as then being operated and as then contemplated to be operated in the future, and (7) the proposed Third Party IP License does not, and is not reasonably anticipated in the future to, materially diminish the value of any Owned IP or Licensed IP;

     (ii) Such proposed Third Party IP License shall, without limitation, (A) be on arm’s-length, market terms, (B) require cash consideration only, (C) prohibit any material amendment thereof without Lender’s prior reasonable approval, other than any amendment that does not violate any of the requirements of this Section 5.1.26(c)(ii), (D) prohibit the assignment or sub-licensing thereof without Lender’s prior reasonable approval, other than an assignment to a bonafide third party who is not an Affiliate of any Loan Party or any other Restricted Party, and (E) require the proposed licensee or sublicensee, as applicable, to deposit all consideration payable thereunder or otherwise in connection therewith from time to time directly into the Lockbox Account;

     (iii) All consideration and/or royalties that is/are paid under or otherwise in connection with such Third Party IP License shall constitute Gross Income from Operations for all purposes under this Agreement and the other Loan Documents and if, notwithstanding the provisions of the foregoing Section 5.1.26(c)(ii)(E) hereof, any Mortgage Borrower shall receive any such consideration and/or royalties, Borrowers shall cause such Mortgage Borrower to deposit the same directly in the Lockbox Account within one (1) Business Day following receipt by such Mortgage Borrower from time to time;

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     (iv) Such Third Party IP License shall not violate or result in a violation of Section 5.1.25(b) hereof;

     (v) Without limiting the generality of the foregoing, such Third Party IP License shall in no event prohibit or limit in any manner the use of the “Hard Rock” name in connection with the operation of the Hotel/Casino Property or any other Property;

     (vi) Such Third Party IP License shall not adversely affect Lender’s Liens and security interests in the Owned IP and Licensed IP, all of which shall remain in full force and effect and, at Lender’s request in its sole discretion, Borrowers shall cause IP Borrower to collaterally assign to Lender such Third Party IP License pursuant to a security agreement reasonably satisfactory to Lender and IP Borrower in form and substance; and

     (vii) On the date of the full execution and delivery of such Third Party IP License, no monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing.

               (d) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right to license or sublicense, as applicable, the IP (or any portion thereof) to an Affiliate of any Loan Party or any other Restricted Party (an “Affiliate IP License”); provided that (i) all of the conditions set forth in Section 5.1.26(c) hereof shall be satisfied with respect to any such Affiliate IP License, other than the condition set forth in Section 5.1.26(c)(i)(2) hereof, and (ii) such Affiliate IP License shall have been approved in writing by Lender, which approval shall not be unreasonably withheld.

               (e) With respect to any IP License, Adjacent Property IP License, Third Party IP License or Affiliate IP License permitted hereunder, upon satisfaction of such conditions as Lender shall impose with respect to its consent to any IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(b) hereof with respect to any Adjacent Property IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(c) hereof with respect to any Third Party IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(d) hereof with respect to any Affiliate IP License, Lender, at the sole cost and expense of Borrowers, shall execute and deliver to Borrowers (for the benefit of the licensee or sublicensee, as applicable, under such IP License, Adjacent Property IP License, Third Party IP License or Affiliate IP License, as applicable), provided that Borrowers cause the applicable licensee or sublicensee, as applicable, to also execute and deliver, a customary and mutually acceptable non-disturbance and attornment agreement as reasonably requested by IP Borrower.

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          5.1.27 Mortgage Reserve Funds. (a)  Borrowers shall cause Mortgage Borrowers to deposit and maintain each of the Mortgage Reserve Funds as required pursuant to the terms of the Mortgage Loan Agreement and to perform and comply with all the terms and provisions relating thereto.

               (b) Each Borrower grants to Lender a security interest in such Borrower’s interest in each of the Mortgage Reserve Funds, if any, subject to the prior rights of Mortgage Lender, and any and all monies now or hereafter deposited in each Mortgage Loan Reserve Fund as additional security for payment of the Debt to the extent such Borrower has an interest in same. Subject to the qualifications regarding Borrowers’ interest in the Mortgage Reserve Funds, if any, until expended or applied in accordance with the Mortgage Loan Documents or the Loan Documents, Borrowers’ interest in the Mortgage Reserve Funds shall constitute additional security for the Debt and upon the occurrence of an Event of Default, Lender may, in addition to any and all other remedies available to Lender, but subject to the prior rights of Mortgage Lender thereto, apply any sums then present in any or all of the Mortgage Reserve Funds to the payment of the Debt in any order in its sole discretion.

          5.1.28 Mortgage Loan Notices. (a)  Borrowers shall give notice, or cause notice to be given to Lender, promptly upon the occurrence and during the continuance of a Mortgage Event of Default.

               (b) Borrowers shall cause Mortgage Borrowers to promptly notify Lender of all notices received by Mortgage Borrowers under or in connection with the Mortgage Loan, including, without limitation, any notice by Mortgage Lender to Mortgage Borrowers of any default by Mortgage Borrowers in the performance or observance of any of the terms, covenants or conditions of the Mortgage Loan Documents on the part of Mortgage Borrowers to be performed or observed, and deliver to Lender a true copy of each such notice, together with any other consents, notices, requests or other written correspondence between Mortgage Borrowers and Mortgage Lender.

          5.1.29 Compliance with Mortgage Loan Documents. Borrowers shall cause Mortgage Borrowers to comply with all of the terms, covenants and conditions set forth in the Mortgage Loan Documents. Borrowers acknowledge that the obligation to comply with this covenant is separate from, and may be enforced independently from, the obligations of Mortgage Borrowers under the Mortgage Loan Documents.

     Section 5.2 Negative Covenants. From the date hereof until payment and performance in full of all obligations of Borrowers under the Loan Documents or the earlier release of the Lien of the Pledge Agreement in accordance with the terms of this Agreement and the other Loan Documents, each Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following:

          5.2.1 Operation of the Properties; Liquor Management.

               (a) Borrowers shall not, and shall cause Mortgage Borrowers not to, without Lender’s prior consent (which consent shall not be unreasonably withheld, conditioned or delayed): (i) subject to Section 9.5.1 hereof, surrender, terminate or cancel any Management

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Agreement; provided, that Borrowers may, without Lender’s consent, replace, or cause Mortgage Borrowers to replace, any Manager so long as the replacement manager is a Qualified Manager pursuant to a Replacement Management Agreement; (ii) reduce or consent to the reduction of the term of any Management Agreement; (iii) increase or consent to the increase of the amount of any charges or fees under any Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Management Agreement in any material respect. Notwithstanding the foregoing, Borrowers may terminate, or may cause Mortgage Borrowers to terminate, the Sub-Management Agreement without the consent of Lender so long as either (A) the Improvements on the Adjacent Property are and are intended to remain completely vacant or are demolished, or (B) a Manager under a Management Agreement is obligated to perform the duties that were delegated to Sub-Manager under the Sub-Management Agreement.

               (b) Following the occurrence and during the continuance of an Event of Default, Borrowers shall not, and shall cause Mortgage Borrowers not to, exercise any rights, make any decisions, grant any approvals or otherwise take any action under any Management Agreement or the Sub-Management Agreement without the prior consent of Lender, which consent may be withheld in Lender’s sole discretion.

               (c) Borrowers shall cause Hotel/Casino Borrower not to, without Lender’s prior consent (which consent shall not be unreasonably withheld, conditioned or delayed): (i) subject to Section 9.5.2 hereof, surrender, terminate or cancel any Liquor Management Agreement; provided, that Borrowers may replace, or may cause Hotel/Casino Borrower to replace, without Lender’s consent, the Liquor Manager so long as the replacement liquor manager is a Qualified Liquor Manager pursuant to a Replacement Liquor Management Agreement; (ii) reduce or consent to the reduction of the term of the Liquor Management Agreement; (iii) increase or consent to the increase of the amount of any charges or fees under the Liquor Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Liquor Management Agreement in any material respect.

               (d) Following the occurrence and during the continuance of an Event of Default, Borrowers shall cause Hotel/Casino Borrower not to exercise any rights, make any decisions, grant any approvals or otherwise take any action under the Liquor Management Agreement without the prior consent of Lender, which consent may be withheld in Lender’s sole discretion.

          5.2.2 Liens. (a) Borrowers shall not create, incur, assume or suffer to exist any Lien on (i) any portion of the Pledged Collateral except for the Lien created by the Pledge Agreement or (ii) any portion of the other Collateral, except for Permitted Encumbrances and Liens created by or permitted pursuant to the Loan Documents.

               (b) Borrowers shall not permit or cause Mortgage Borrowers to create, incur, assume or suffer to exist any Lien on any portion of any Property or the IP or knowingly permit any such action to be taken, except: (i) Permitted Encumbrances and Permitted IP Encumbrances; (ii) Liens created by or permitted pursuant to the Mortgage Loan Documents; and (iii) Liens for Taxes or Other Charges not yet delinquent.

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          5.2.3 Dissolution. (a) No Borrower shall (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity; (ii) engage in any business activity not related to the ownership and operation of the Collateral; (iii) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the assets of such Borrower except to the extent permitted by the Loan Documents; or (iv) modify, amend, waive or terminate (A) its organizational documents in any material respect or in any respect with regard to the provisions concerning such Borrower’s status as a Special Purpose Entity, or (B) its qualification and good standing in any jurisdiction, in each case, without obtaining the prior consent of Lender.

               (b) Borrowers shall cause each Mortgage Borrower not to (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (ii) engage in any business activity not related to the ownership and operation of its Property or the IP; (ii) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of such Mortgage Borrower except to the extent permitted by the Mortgage Loan Documents and the Loan Documents; or (iii) modify, amend, waive or terminate (A) its organizational documents in any material respect or in any respect with regard to the provisions concerning such Mortgage Borrower’s status as a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof), or (B) its qualification and good standing in any jurisdiction, in each case, without obtaining the prior consent of Lender.

          5.2.4 Change in Business. (a) No Borrower shall enter into any line of business other than the ownership and management of the Collateral, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in a material manner in activities other than the continuance of its present business.

               (b) No Borrower shall permit or cause any Mortgage Borrower to enter into any line of business other than the ownership and operation of its Property or the IP, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in a material manner in activities other than the continuance of its present business.

          5.2.5 Debt Cancellation. (a) No Borrower shall cancel or otherwise forgive or release any material claim or debt owed to such Borrower by any Person, except for adequate consideration and in the ordinary course of such Borrower’s business.

               (b) No Borrower shall permit or cause any Mortgage Borrower to cancel or otherwise forgive or release any material claim or debt (other than termination of Leases in accordance with the Mortgage Loan Agreement) owed to such Mortgage Borrower by any Person, except for adequate consideration and in the ordinary course of such Mortgage Borrower’s business.

          5.2.6 Zoning. No Borrower shall cause or permit any Mortgage Borrower to initiate or consent to any zoning reclassification of any portion of any Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Property in any manner that could result in such use becoming a non-conforming use under any

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zoning ordinance or any other applicable land use law, rule or regulation, in each case, without the prior consent of Lender not to be unreasonably withheld.

          5.2.7 Removal of FF&E. Except in the ordinary course of business, no Borrower shall cause or permit any Mortgage Borrower to remove or transfer any material article of FF&E or other personal property owned by any Mortgage Borrower used in the operation of any Property unless the same is replaced with substantially similar FF&E or is obsolete, without the prior written consent of Lender in each instance, which consent shall not be unreasonably withheld, conditioned or delayed. To the extent Lender’s prior written approval is required pursuant to this Section 5.2.7, Lender shall endeavor to respond to a request for Lender’s approval within five (5) Business Days after Borrowers’ written request therefor, delivered together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed action or matter. Lender’s approval of any action or matter requiring Lender’s consent under this Section 5.2.7 shall be deemed to have been given if (i) a request for approval, together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed action or matter, is submitted to Lender with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL AND IF LENDER DOES NOT RESPOND TO OR EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE”, and Lender does not respond by approving such proposed action or matter or stating in reasonable detail its objections to such proposed action or matter within five (5) Business Days of Lender’s receipt thereof, and (ii) after Lender’s failure to respond to the initial request for approval of such proposed action or matter within the time period set forth in the foregoing clause (i), Borrowers shall re-submit such request to Lender in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL. APPROVAL WILL BE DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN FIVE (5) BUSINESS DAYS”, and Lender does not respond to such second submission by approving such proposed action or matter or stating in reasonable detail its objection thereto within five (5) Business Days of Lender’s receipt of such second submission.

          5.2.8 Principal Place of Business and Organization. No Borrower shall change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Lender thirty (30) days prior notice. No Borrower shall change the place of its organization as set forth in Section 4.1.28 hereof without the consent of Lender, which consent shall not be unreasonably withheld. Upon Lender’s request, Borrowers shall execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender’s security interest in the Collateral as a result of such change of principal place of business or place of organization.

          5.2.9 ERISA. (a) Assuming that Lender is not, and is not lending the assets of, an “employee benefit plan” as defined in Section 3(3) of ERISA, no Borrower shall engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA.

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               (b) Each Borrower shall deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its reasonable discretion, that (i) such Borrower is not an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (ii) none of the assets of such Borrower constitute “plan assets” within the meaning of Section 3(3) of ERISA for purposes of any state law provisions regulating investments of, or fiduciary obligations with respect to, governmental plans; and (iii) one or more of the following circumstances is true:

     (A) Equity interests in such Borrower are publicly offered securities, within the meaning of 29 C.F.R. §2510.3 101(b)(2);

     (B) Less than twenty five percent (25%) of each outstanding class of equity interests in such Borrower is held by “benefit plan investors” within the meaning of 29 C.F.R. §2510.3 101(f)(2); or

     (C) Such Borrower qualifies as an “operating company”, a “venture capital operating company” or a “real estate operating company” within the meaning of 29 C.F.R. §2510.3 101(c), (d) or (e).

          5.2.10 Transfers. (a)  Borrowers acknowledge that Lender has examined and relied on the experience of Borrowers and their direct and indirect members in owning and operating the Collateral and Mortgage Borrowers in agreeing to make the Loan, and will continue to rely on Borrowers’ ownership of the Collateral as a means of maintaining the value of the Collateral as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Additionally, Borrowers acknowledge that Lender has examined and relied on the experience of Mortgage Borrowers and their general partners, members, principals and (if any Mortgage Borrower is a trust) beneficial owners, as applicable, in owning and operating properties such as the Properties and in owning intellectual property such as the IP, in agreeing to make the Loan, and will continue to rely on Mortgage Borrowers’ ownership of the Properties and the IP as a means of maintaining the value of the Properties and the IP and, therefore, indirectly the value of the Collateral, as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Borrowers acknowledge that Lender has a valid interest in maintaining the value of the Collateral so as to ensure that, should Borrowers default in the repayment of the Debt or the performance of the obligations contained in the Loan Documents, Lender can recover the Debt by a sale of the Collateral.

               (b) Without the prior consent of Lender and except to the extent otherwise set forth in this Section 5.2.10, Borrowers shall not, and shall not permit any Transfer Restricted Party to, (i) sell, convey, mortgage, grant, bargain, encumber, pledge, assign, license, grant options with respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) any Property or any part thereof or any legal or beneficial interest therein, or any IP or any part thereof or any legal or beneficial interest therein, or the Collateral or any part thereof or any legal or beneficial interest therein; or (ii) permit a Sale or Pledge of any interest in any Transfer Restricted Party (any of the actions in the foregoing clauses (i) or

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     (ii), a “Transfer”), other than, notwithstanding anything to the contrary contained in this Section 5.2.10:

     (A) pursuant to Leases of space in the Improvements to tenants in accordance with the provisions of Section 5.1.20 hereof, including, without limitation, the HRHI Lease;

     (B) the pledge of the membership interests in each Mortgage Borrower as collateral for the Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the Loan Documents by Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (C) the pledge of the membership interests in each Borrower as collateral for the Second Mezzanine Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the Second Mezzanine Loan Documents by Second Mezzanine Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (D) the pledge of the membership interests in each Second Mezzanine Borrower as collateral for the Third Mezzanine Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the Third Mezzanine Loan Documents by Third Mezzanine Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (E) any Release Parcel Sale, any Adjacent Parcel Sale or an IP Sale, in each instance in accordance with the applicable provisions of Section 2.5 of the Mortgage Loan Agreement;

     (F) a conveyance of the Deeded Adjacent Property as contemplated by Section 3.2(u) of the Mortgage Loan Agreement;

     (G) any IP License or Adjacent Property IP License granted in accordance with the provisions of Section 5.1.26 hereof;

     (H) the Permitted Encumbrances and Permitted IP Encumbrances; and

     (I) the issuance of new stock in, the merger or consolidation of, and/or the Sale or Pledge of the stock in, any Publicly Traded Entity who owns a direct or indirect ownership interest in any Transfer Restricted Party;

     (J) the transfer of indirect ownership interests in any Mortgage Borrower in order to create one or more new mezzanine borrowers for any New Mezzanine Loan as contemplated under the Mortgage Loan Agreement, including, without limitation, the transfers of ownership interests which were necessary to create Third Mezzanine Borrowers and the admission of a new member in each of Second Mezzanine Borrowers in connection with the creation of Third Mezzanine Borrowers; and

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     (K) the transfer by deed of any applicable Partial Release Parcel and/or Partial Adjacent Parcel to a Subsidiary Transferee and the subsequent transfer of all of the membership interests held by Adjacent Borrower in such Subsidiary Transferee, in each instance in accordance with Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable;

          provided, however, that in the case of each of the foregoing clauses (A) – (K), such Transfer shall only be permitted hereunder if it does not violate any Legal Requirements, including specifically, but without limitation, any Gaming Laws.

               (c) A Transfer shall include, but not be limited to, (i) an installment sales agreement wherein any Borrower or Mortgage Borrower, as applicable, agrees to sell a Property or any part thereof, the IP, the Collateral or any part thereof for a price to be paid in installments; (ii) an agreement by any Mortgage Borrower leasing all or a substantial part of a Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, any Mortgage Borrower’s right, title and interest in and to any Leases or any Rents; (iii) if a Transfer Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation’s stock or the creation or issuance of new stock; (iv) if a Transfer Restricted Party is a limited or general partnership or joint venture, any merger or consolidation or the change, removal, resignation, admission or addition of a general partner or the Sale or Pledge of the general partnership interest of any general partner or any profits or proceeds relating to such partnership interest, or the Sale or Pledge of limited partnership interests or any profits or proceeds relating to such limited partnership interest or the creation or issuance of new limited partnership interests; (v) if a Transfer Restricted Party is a limited liability company, any merger or consolidation or the change, removal, resignation, admission or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing or managing membership interests or the creation or issuance of new non-managing or managing membership interests; (vi) if a Transfer Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest in a Transfer Restricted Party or the creation or issuance of new legal or beneficial interests; (vii) the removal or the resignation of any Manager (including, without limitation, an Affiliated Manager) other than in accordance with the Mortgage Loan Agreement and Section 5.1.22 hereof; or (viii) any deed-in-lieu or consensual foreclosure relating to any Property with or for the benefit of Mortgage Lender or any Affiliate thereof.

               (d) Notwithstanding the provisions of this Section 5.2.10, so long as the following Transfers do not violate any Legal Requirements in any instance, including specifically, but without limitation, any Gaming Laws, or cause or otherwise result in the suspension, termination and/or revocation of any Gaming License, the HRHI Lease, the Gaming Sublease or the Casino Component Lease, as applicable, the following Transfers may occur without the consent of Lender or the payment of any transfer or other fee, excluding, however, any Transfer of (i) any direct interest in any Mortgage Borrower for so long as the Loan, the Mortgage Loan or any Mezzanine Loan is outstanding, and/or (ii) any direct interest in any Borrower for so long as the Loan or any Mezzanine Loan is outstanding:

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     (A) the Transfer of any direct or indirect interest in any Transfer Restricted Party, provided that (1) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and is continuing, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) Lender receives (y) at least ten (10) days prior written notice of any such voluntary Transfer and copies of the documents transferring such interest, or (z) written notice of any such involuntary Transfer and copies of the documents transferring such interest within thirty (30) days following such involuntary Transfer, (4) if after such Transfer any Person and its Affiliates collectively would own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received, prior to such Transfer, an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (5) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer;

     (B) the Transfer of any direct or indirect interest in any Transfer Restricted Party to any other Person who is, as of the Closing Date, a holder of any direct or indirect interest in any Transfer Restricted Party, provided that (1) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and is continuing, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) Lender receives (y) at least ten (10) days prior written notice of any such voluntary Transfer and copies of the documents transferring such interest, or (z) written notice of any such involuntary Transfer and copies of the documents transferring such interest within thirty (30) days following such involuntary Transfer, and (4) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer;

     (C) the Transfer of any direct or indirect interest in any Transfer Restricted Party by inheritance, devise, bequest or operation of law upon the death of a natural person who owned such interest, provided that (1) such Transfer is to a non-minor member of the immediate family of the deceased holder of such interest or a trust established for the benefit of one or more

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members of the immediate family of the deceased holder of such interest, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) such Transfer shall not result in a change of Control of the day-to-day operations of any of the Properties, (4) Lender receives written notice of such Transfer and copies of the documents transferring such interest not later than thirty (30) days following such Transfer, (5) the legal and financial structure of each Loan Party and the other Transfer Restricted Parties, and the single purpose nature and bankruptcy remoteness of each Loan Party and the other Transfer Restricted Parties, after such Transfer shall satisfy the applicable provisions of the Loan Documents and/or the Mortgage Loan Documents (including, without limitation, Section 4.1.30 hereof and/or Section 4.1.30 of the Mortgage Loan Agreement, as applicable), (6) if after such Transfer any Person and its Affiliates would collectively own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (7) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer; and

     (D) (1) the merger or consolidation of any Guarantor or any Constituent Member of any Guarantor with or into any other Person, (2) the sale of any Guarantor or substantially all of any Guarantor’s assets to any other Person, or (3) the issuance of new stock or limited partnership or membership interests in, and/or the Sale or Pledge of stock, limited partnership or membership interests in, any Guarantor or any Constituent Member thereof (any of the occurrences in the foregoing clauses (1), (2) or (3), a “Guarantor Transfer”); provided, that, in each of the foregoing instances, whether or not the applicable Guarantor or the applicable Constituent Member of a Guarantor is or is not a Publicly Traded Company, (I) after giving effect to such Guarantor Transfer, when viewed both individually and together with any prior Guarantor Transfers, (y) the Guarantors, collectively, shall continue to satisfy the Net Worth Requirements, and (z) at least one of the Guarantors shall be a Qualified Real Estate Guarantor, (II) except if the applicable Guarantor or the applicable Constituent Member of a Guarantor is a Publicly Traded Company, Lender receives at least ten (10) days prior written notice of any such Guarantor Transfer, (III) if after such Guarantor Transfer any Person and its Affiliates collectively would own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date

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such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received, prior to such Guarantor Transfer, an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Guarantor Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (IV) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Guarantor Transfer.

               (e) With respect to any Transfer permitted under this Section 5.2.10 or otherwise consented to by Lender, Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all fees and expenses incurred by Lender in connection with such Transfer, including, without limitation, the cost of any third party reports, reasonable legal fees and expenses, Rating Agency fees and expenses and required legal opinions.

               (f) Notwithstanding anything to the contrary set forth in this Agreement or in any of the other Loan Documents, Borrowers expressly acknowledge and agree, on behalf of themselves and the other Transfer Restricted Parties, that any Transfer or Guarantor Transfer stated to be permitted hereunder or thereunder shall only be permitted if it does not violate any Legal Requirements, including specifically, but without limitation, any Gaming Laws.

          5.2.11 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers shall not do, and Borrowers shall not permit any Mortgage Borrower or any Affiliate to do, any of the following, in each instance without the prior approval of Lender, which approval shall not be unreasonably withheld: (a) modify, amend, waive any right under, or terminate the Morton Indemnification or the PWR/RWB Escrow Agreement, other than any ministerial, non-monetary amendment or modification; (b) make any claim or otherwise exercise any rights or remedies under the Morton Indemnification or the PWR/RWB Escrow Agreement; or (c) other than the funds released on February 2, 2007 pursuant to the express terms of the PWR/RWB Escrow Agreement, cause any funds escrowed under the PWR/RWB Escrow Agreement to be used for any purpose other than the satisfaction of indemnification claims pursuant to the Morton Indemnification until such time as the Morton Indemnification shall expire by its terms. Borrowers shall cause Mortgage Borrowers to comply with the provisions of Section 5.2.11 of the Mortgage Loan Agreement.

          5.2.12 Distributions to Affiliates. Other than the fees and expense reimbursements payable to any Affiliated Manager pursuant to any Management Agreement reasonably approved by Lender, no Borrower shall, nor shall cause or permit any Mortgage Borrower to, make any distributions to, or otherwise pay any dividends or make any payments to, any Restricted Party unless and until the Excess Cash Termination Conditions shall have occurred, and thereafter, only when no Event of Default, Mortgage Event of Default and/or any Mezzanine Event of Default shall have occurred and be continuing.

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          5.2.13 Limitation on Securities Issuances.

               (a) Borrowers shall not cause any ownership interests in any Mortgage Borrower to be issued other than those that have been issued as of the Closing Date nor shall Borrowers cause or permit any Mortgage Borrower to enter into or grant any option, warrant or other agreement or right with respect to any ownership interest in such Mortgage Borrower or with respect to any income or profits of such Mortgage Borrower.

               (b) No Borrower shall issue any ownership interests or other securities other than those that have been issued as of the Closing Date nor shall any Borrower enter into or grant any option, warrant or other agreement or right with respect to any ownership interest in such Borrower.

          5.2.14 Distributions.

               (a) Any and all dividends, including capital dividends, stock or liquidating dividends, distributions of property, redemptions or other distributions made by any Mortgage Borrower on or in respect of any interests in such Mortgage Borrower, and any and all cash and other property received in payment of the principal of or in redemption of or in exchange for any such interests (collectively, the “Mortgage Distributions”), shall become part of the Collateral.

               (b) If any Mortgage Distributions shall be received by any Borrower or any Affiliate of any Borrower after the occurrence and during the continuance of an Event of Default, each Borrower shall hold, or shall cause the same to be held, in trust for the benefit of Lender. Any and all revenue derived from any Property paid directly by tenants, subtenants or occupants of such Property shall be held and applied in accordance with the terms and provisions of the Mortgage Loan Agreement.

          5.2.15 Refinancing or Prepayment of the Mortgage Loan. Borrowers or Mortgage Borrowers shall not be required to obtain the consent of Lender to refinance the Mortgage Loan, provided that the Loan shall have been (or shall simultaneously be) paid in full in accordance with the terms of this Agreement (including any Spread Maintenance Premiums and other amounts due and payable to Lender under the Loan Documents). Borrowers shall cause Mortgage Borrowers to obtain the prior written consent of Lender to enter into any other refinancing of the Mortgage Loan which consent shall not be unreasonably withheld, conditioned or delayed.

          5.2.16 Acquisition of the Mortgage Loan.

               (a) No Loan Party, Guarantor, or any Affiliate of any of them or any Person acting at any such Person’s request or direction, shall acquire or agree to acquire Mortgage Lender’s interest in the Mortgage Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Mortgage Loan (other than any passive minority interest in the holder of the Mortgage Loan obtained by any Person), via purchase, transfer, exchange or otherwise, and any breach or attempted breach of this provision shall constitute an Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrowers shall have failed to comply with the foregoing, then Borrowers: (i) shall

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immediately notify Lender of such failure; (ii) shall cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents: (A) not to enforce the Mortgage Loan Documents; and (B) upon the request of Lender, to the extent any of such prohibited parties has or have the power or authority to do so, to promptly: (1) cancel the promissory note evidencing the Mortgage Loan, (2) reconvey and release the Lien securing the Mortgage Loan and any other collateral under the Mortgage Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Mortgage Loan Documents.

               (b) Lender shall have the right at any time to acquire all or any portion of the Mortgage Loan or any interest in any holder of, or participant in, the Mortgage Loan without notice or consent of Borrowers or any other Loan Party, in which event Lender shall have and may exercise all rights of Mortgage Lender thereunder (to the extent of its interest), including the right (i) to declare that the Mortgage Loan is in default and (ii) to accelerate the Mortgage Loan indebtedness, in accordance with the terms thereof and (iii) to pursue all remedies against any obligor under the Mortgage Loan Documents.

          5.2.17 Other Limitations. Prior to the payment and performance in full of the Obligations, no Borrower shall, nor shall permit or cause any Mortgage Borrower or any of its respective Affiliates to, without the prior written consent of Lender, which consent shall not be unreasonably withheld, give its consent or approval to any of the following actions or items:

               (a) any Mortgage Borrower creating, incurring, assuming or suffering to exist any additional Liens on any portion of any Property except for Permitted Encumbrances;

               (b) any modification, amendment, consolidation, spreading, restatement, waiver or termination of any of the Mortgage Loan Documents;

               (c) any modification or amendment of any Approved Annual Budget;

               (d) any material change in the method of conduct of the business of any Borrower or any Mortgage Borrower; or

               (e) the settlement of any claim against any Borrower or any Mortgage Borrower, other than a fully insured third party.

ARTICLE VI.
INSURANCE; CASUALTY; CONDEMNATION; RESTORATION

     Section 6.1 Insurance. (a) Borrowers shall cause Mortgage Borrowers to obtain and maintain, or cause to be maintained, at all times during the term of the Loan the insurance required under Section 6.1 of the Mortgage Loan Agreement, including, without limitation, meeting all insurer requirements thereunder. In addition, Borrowers shall cause Mortgage Borrower to cause Lender to be named as an additional named insured under each of the insurance policies described in Section 6.1(a)(ii), (iii), (v), (vii), and (xii) of the Mortgage Loan Agreement, and Borrowers shall cause Mortgage Borrowers to cause Lender to be named as a named insured together with Mortgage Lender, as their interest may appear, under the insurance policies required under Section 6.1 (a)(i), (iv), (vi), (viii), (ix), (x) and (xi) of the Mortgage Loan Agreement. Borrowers shall cause Mortgage Borrowers to cause all insurance policies required

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under this Section 6.1 to provide for at least thirty (30) days prior notice to Lender in the event of policy cancellation or material changes. Not less than five (5) Business Days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to the terms hereof, certificates of insurance evidencing the Policies reasonably satisfactory to Lender and accompanied by evidence reasonably satisfactory to Lender of payment of the premiums due thereunder (the “Insurance Premiums”) shall be delivered by Borrowers to Lender; provided, however, that in the case of renewal Policies, Borrowers may furnish Lender with binders therefor to be followed by the original Policies when issued.

               (b) If at any time Lender is not in receipt of written evidence that all Policies are in full force and effect, Lender shall have the right, upon two (2) Business Days’ written notice to Borrowers, to take such reasonable action as Lender deems necessary to protect its interest in the Collateral, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrowers to Lender within ten (10) days after demand and, until paid, shall be secured by the Pledge Agreement and shall bear interest at the Default Rate from the date of demand.

               (c) Notwithstanding anything to the contrary set forth herein, proof of all property coverages required under Section 6.1(a) of the Mortgage Loan Agreement shall be on an Acord 28 Evidence of Property Form (2003/10 version) or on such other binding form as is then generally used or is otherwise reasonably acceptable to Lender.

               (d) For purposes of this Agreement, Lender shall have the same approval rights over the insurance referred to above (including, without limitation, the insurers, deductibles and coverages thereunder, as well as the right to require other reasonable insurance pursuant to Section 6.1(a)(xii) of the Mortgage Loan Agreement) as are provided in favor of Mortgage Lender in the Mortgage Loan Agreement. All liability insurance provided for in the Mortgage Loan Agreement shall provide insurance with respect to the liabilities of each of the Loan Parties. The Policies delivered pursuant to the Mortgage Loan Agreement shall include endorsements of the type described in Section 6.1(e) of the Mortgage Loan Agreement, but pursuant to which Lender shall have the same rights as Mortgage Lender as referred to in such Section 6.1(e).

               (e) Upon repayment in full of the Mortgage Loan, the provisions of Section 6.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety.

     Section 6.2 Casualty. If any Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a “Casualty”), Borrowers shall cause Mortgage Borrowers to give prompt notice of such damage to Lender and shall cause Mortgage Borrowers to promptly commence and diligently prosecute the completion of the Restoration so that such Property resembles, as nearly as possible, the condition such Property was in immediately prior to such Casualty, with such alterations as may be reasonably approved by Lender (to the extent such alterations are of a type that would require Lender’s approval under Section 5.1.21 hereof) and otherwise in accordance with Section 6.4 of the Mortgage Loan Agreement, provided, that if (A) Mortgage Lender is obligated to make Net Proceeds

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available to Mortgage Borrowers for purposes of Restoration in accordance with Section 6.4 of the Mortgage Loan Agreement, (B) Mortgage Lender has received such Net Proceeds, and (C) Mortgage Lender has not made such Net Proceeds available to Mortgage Borrowers, then Borrowers shall not be required to cause Mortgage Borrowers to repair and restore such Property unless and until such Net Proceeds are made available to Mortgage Borrowers. It is expressly understood, however, that Mortgage Borrowers shall not be obligated to restore such Property to the precise condition of such Property prior to such Casualty provided such Property is restored, to the extent practicable, to be of at least equal value and of substantially the same character as prior to the Casualty. Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by any Borrower or any Mortgage Borrower. In addition, Lender may participate in any settlement discussions with any insurance companies (and shall approve any final settlement) with respect to any Casualty in which the Net Proceeds or the costs of completing the Restoration are equal to or greater than the Restoration Threshold and the applicable Borrower shall, or shall cause the applicable Mortgage Borrower to, deliver to Lender all instruments reasonably required by Lender to permit such participation. In the event of a Casualty in which the Net Proceeds and the costs of completing the Restoration are each less than the Restoration Threshold, Borrowers may settle and adjust such claim without Lender’s consent or participation.

     Section 6.3 Condemnation. Borrowers shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of any Property or any part thereof and shall cause Mortgage Borrowers to deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings with respect to any Condemnation in which Borrowers’ reasonable estimate (based on any statement of value submitted to the condemning authority or any other reasonable evidence in Lender’s reasonable judgment) of the Net Proceeds or the costs of completing the Restoration are equal to or greater than the Restoration Threshold, and the applicable Borrower shall, or shall cause the applicable Mortgage Borrower to, from time to time deliver to Lender all instruments reasonably requested by it to permit such participation. Borrowers shall, or shall cause Mortgage Borrowers to, at their expense, diligently prosecute any such proceedings, and shall, to the extent required hereunder, consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrowers shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If any Property or any portion thereof is taken by a condemning authority, Borrowers shall, or shall cause Mortgage Borrowers to, promptly commence and diligently prosecute the Restoration of the applicable Property and otherwise comply with the provisions of Section 6.4 of the Mortgage Loan Agreement, provided, that if (A) Mortgage Lender is obligated to make Net Proceeds available to Mortgage Borrowers for purposes of

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Restoration in accordance with Section 6.4 of the Mortgage Loan Agreement, (B) Mortgage Lender has received such Net Proceeds, and (C) Mortgage Lender has not made such Net Proceeds available to Mortgage Borrowers, then Mortgage Borrowers shall not be obligated to repair and restore such Property unless and until such Net Proceeds are made available to Mortgage Borrowers. If such Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt.

     Section 6.4 Restoration.

               (a) Borrowers shall, or shall cause Mortgage Borrowers to, deliver to Lender copies of all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under Section 6.4 of the Mortgage Loan Agreement in connection with a Restoration of any Property after a Casualty or Condemnation. If any insurance proceeds or condemnation awards are to be disbursed by Mortgage Lender for Restoration, Borrowers shall deliver or cause to be delivered to Lender copies of all written correspondence delivered to and received from Mortgage Lender that relates to the restoration and release of the insurance proceeds or condemnation awards.

               (b) Notwithstanding any provision in this Agreement to the contrary, all insurance proceeds and condemnation awards will be made available to Mortgage Borrowers in accordance with the Mortgage Loan Agreement. In the event the Mortgage Loan has been paid in full and Lender receives any insurance proceeds or condemnation award, Lender shall either apply such proceeds to the Debt or for the Restoration of any Property in accordance with the same terms and conditions contained in Section 6.4 of the Mortgage Loan Agreement.

               (c) Upon repayment in full of the Mortgage Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 6.4 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety.

     Section 6.5 Rights of Lender. For purposes of this Article VI, Borrowers shall obtain the approval of Lender for each matter requiring the approval of Mortgage Lender under the provisions of Sections 6.4 of the Mortgage Loan Agreement, with each reference in any such provisions to the “Loan” to include the Mortgage Loan and the Loan, and the reference in any such provisions to the “Maturity Date” to mean the Maturity Date, as defined herein. If Mortgage Lender does not require the deposit by Mortgage Borrowers of the “Net Proceeds Deficiency” pursuant to Section 6.4(c)(vi) of the Mortgage Loan Agreement, Lender shall have the right to demand that Borrowers make a deposit of said “Net Proceeds Deficiency” in accordance with the terms of such Section (as if each reference therein to “Borrowers” and “Lender” referred to Borrowers and Lender, respectively).

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ARTICLE VII.
RESERVE FUNDS

     Section 7.1 Required Repair Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.1 of the Mortgage Loan Agreement.

               (b) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Required Repair Fund and the Required Repair Account pursuant to the terms of Section 7.1 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Required Repair Fund and the Required Repair Account in Section 7.1 of the Mortgage Loan Agreement and the provisions of Section 7.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.2 Tax and Insurance Escrow Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.2 of the Mortgage Loan Agreement.

               (b) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Tax and Insurance Escrow Fund in Section 7.2 of the Mortgage Loan Agreement and the provisions of Section 7.2 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.3 Replacement Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.3 of the Mortgage Loan Agreement.

               (b) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Replacement Reserve Fund and the Replacement Reserve Account pursuant to the terms of Section 7.3 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Replacement Reserve Fund and the Replacement Reserve Account in Section 7.3 of the Mortgage Loan Agreement and the provisions of Section 7.3 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided,

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however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.4 Interest Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.4 of the Mortgage Loan Agreement.

               (b) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Interest Reserve Fund pursuant to the terms of Section 7.4 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Interest Reserve Fund in Section 7.4 of the Mortgage Loan Agreement and the provisions of Section 7.4 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.5 Initial Renovation Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.5 of the Mortgage Loan Agreement.

               (b) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account pursuant to the terms of Section 7.5 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account in Section 7.5 of the Mortgage Loan Agreement and the provisions of Section 7.5 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.6 General Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.6 of the Mortgage Loan Agreement.

               (b) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the General Reserve Fund and the General Reserve Account pursuant to the terms of Section 7.6 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the General Reserve Fund and the General Reserve Account in Section 7.6 of the Mortgage Loan Agreement and the provisions of Section 7.6 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to

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“Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.7 Construction Loan Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.7 of the Mortgage Loan Agreement.

               (b) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Construction Loan Reserve Fund and the Construction Loan Reserve Account pursuant to the terms of Section 7.7 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Construction Loan Reserve Fund and the Construction Loan Reserve Account in Section 7.7 of the Mortgage Loan Agreement and the provisions of Section 7.7 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.8 Reserve Funds, Generally.

               (a) Borrowers hereby grant to Lender a first-priority perfected security interest in each of the Reserve Funds held by Lender and any and all monies now or hereafter deposited in each Reserve Fund as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds shall constitute additional security for the Debt.

               (b) Upon the occurrence and during the continuance of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the reduction of the Debt (in such order, proportion and priority as Lender may determine in its sole discretion), until the Debt is paid in full, with any amounts remaining being disbursed, as a distribution permitted under applicable law, (i) to Second Mezzanine Lender for application by Second Mezzanine Lender in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is outstanding, until the Second Mezzanine Debt is paid in full, and then (ii) to Third Mezzanine Lender for application by Third Mezzanine Lender in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is outstanding, until the Third Mezzanine Debt is paid in full, and then (iii) any balance remaining to Borrowers.

               (c) Any amount remaining in any of the Reserve Funds after the Obligations have been satisfied shall be released to Borrowers; provided, however, that Borrowers and Lender hereby agree and acknowledge that (A) if (1) all of the Obligations have been satisfied, (2) there is any amount remaining in any of the Reserve Funds, and (3) the Second Mezzanine Debt (or any portion thereof) is outstanding, then Lender will not pay any such remaining amount in any of the Reserve Funds to Borrowers, but rather shall deliver such amount to Second Mezzanine Lender to be held in accordance with the terms of the Second

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Mezzanine Loan Documents; or (B) if (1) all of the Obligations and the Second Mezzanine Obligations have been satisfied, (2) there is any amount remaining in any of the Reserve Funds, and (3) the Third Mezzanine Debt (or any portion thereof) is outstanding, then Lender will not pay any such remaining amount in any of the Reserve Funds to Borrowers, but rather shall deliver such amount to Third Mezzanine Lender to be held in accordance with the terms of the Third Mezzanine Loan Documents. The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender.

               (d) Except to the extent provided in the Mezzanine Loan Documents, Borrowers shall not, without obtaining the prior consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto.

               (e) The Reserve Funds shall be held in an Eligible Account in Permitted Investments pursuant to the Cash Management Agreement. All interest or other earnings on a Reserve Fund (with the exception of the Tax and Insurance Escrow Fund) shall be added to and become a part of such Reserve Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund, except that all interest or other earnings on the Tax and Insurance Escrow Fund shall be retained by Lender. Borrowers shall have the right to direct Lender to invest sums on deposit in the Eligible Account in Permitted Investments provided (i) such investments are then regularly offered by Lender for accounts of this size, category and type, (ii) such investments are permitted by applicable Legal Requirements, (iii) the maturity date of the Permitted Investment is not later than the date on which the applicable Reserve Fund is required for payment of an obligation for which such Reserve Fund was created, and (iv) no Event of Default shall have occurred and be continuing. Borrowers shall be responsible for payment of any federal, state or local income or other tax applicable to the interest or income earned on the Reserve Funds (with the exception of the Tax and Insurance Escrow Fund). No other investments of the sums on deposit in the Reserve Funds shall be permitted except as set forth in this Section 7.8. Borrowers shall bear all reasonable costs associated with the investment of the sums in the account in Permitted Investments. Such costs shall be deducted from the income or earnings on such investment, if any, and to the extent such income or earnings shall not be sufficient to pay such costs, such costs shall be paid by Borrowers promptly on demand by Lender. Lender shall have no liability for the rate of return earned or losses incurred on the investment of the sums in Permitted Investments.

               (f) Borrowers, jointly and severally, shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, third party claims, demands, liabilities, actual losses, actual damages (excluding lost profits, diminution in value and other consequential damages), obligations and reasonable costs and expenses (including litigation costs and reasonable attorneys’ fees and expenses) arising from or in any way connected with the Reserve Funds held by Lender or the performance of the obligations for which the Reserve Funds were established, excluding matters arising from Lender’s or its agents’ fraud, willful misconduct, illegal acts or gross negligence. Borrowers shall assign to Lender all rights and claims any Borrower may have against all Persons supplying labor, materials or other services which are to be paid from or secured by the Reserve Funds; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured.

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     Section 7.9 Transfer of Mortgage Reserve Funds. If Mortgage Lender waives any reserves or escrow accounts required in accordance with the terms of the Mortgage Loan Agreement, which reserves or escrow accounts are also required in accordance with the terms of this Article VII, or if the Mortgage Loan is paid off in full (without a prepayment of the Loan in full), then Borrowers shall cause any amounts that had been, or would have been, deposited into any reserves or escrow accounts in accordance with the terms of the Mortgage Loan Agreement to be deposited or transferred to Lender in accordance with the terms of this Article VII (and Borrowers shall enter into a cash management and lockbox agreement for the benefit of Lender substantially similar to the arrangement entered into between Mortgage Borrowers and Mortgage Lender at the time of the closing of the Mortgage Loan).

ARTICLE VIII.
DEFAULTS

     Section 8.1 Event of Default. (a)  Each of the following events shall constitute an event of default hereunder (an “Event of Default”):

     (i) if (A) the Debt is not paid in full on the Maturity Date, (B) any Monthly Interest Payment or any required monthly deposit to any Reserve Fund is not paid in full on or before the related Payment Date, or (C) any other portion of the Debt is not paid within three (3) Business Days following notice to Borrowers that the same is due and payable;

     (ii) if any of the Taxes or Other Charges are not paid prior to the date upon which any interest or late charges shall begin to accrue thereon, subject to Section 7.2 of the Mortgage Loan Agreement or Section 7.2 hereof, as applicable;

     (iii) if the Policies are not kept in full force and effect;

     (iv) if any Borrower Transfers or otherwise encumbers any portion of the Collateral or any interest therein, or if any Mortgage Borrower Transfers or otherwise encumbers any portion of any Property or any interest therein or the IP or any portion thereof, or any direct or indirect interest in any Transfer Restricted Party is Transferred, in each instance, in violation of the provisions of this Agreement and not otherwise consented to by Lender;

     (v) if any representation or warranty made by any Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender by or on behalf of any Borrower or any Restricted Party shall have been false or misleading in any material respect as of the date the representation or warranty was made, provided, however, if such representation or warranty is susceptible of being cured, and Lender has not theretofore materially adversely relied thereon, Borrowers shall have the right to cure such representation or warranty within ten (10) Business Days of notice thereof;

     (vi) if any Loan Party, HRHI or any Guarantor shall make an assignment for the benefit of any creditor (other than Lender);

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     (vii) if a receiver, liquidator or trustee shall be appointed for any Loan Party, HRHI or any Guarantor, or if any Loan Party, HRHI or any Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, any Loan Party, HRHI or any Guarantor, or if any proceeding for the dissolution or liquidation of any Loan Party, HRHI or any Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by any Loan Party, HRHI or any Guarantor, upon the same not being discharged, stayed or dismissed within ninety (90) days, and provided that such appointment was not initiated by Lender;

     (viii) if any Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;

     (ix) if any Borrower breaches any of its respective negative covenants contained in Section 5.2 hereof or any covenant contained in Section 4.1.30 or Section 5.1.11 hereof, provided, however, that, unless otherwise addressed in any other clause of this Section 8.1(a), a breach of any covenant contained in Section 4.1.30, Section 5.1.11 or Section 5.2 hereof shall not constitute an Event of Default if (A) such breach is inadvertent and non-recurring, (B) if such breach is curable, Borrowers shall promptly cure such breach within thirty (30) days after notice thereof from Lender, and (C) with respect to a material breach of any material covenant contained in Section 4.1.30 hereof, within fifteen (15) Business Days of the request of Lender, Borrowers deliver to Lender an Additional Insolvency Opinion, or a modification of the Insolvency Opinion, to the effect that such breach shall not in any way impair, negate or amend the opinions rendered in the Insolvency Opinion, which opinion or modification and the counsel delivering such opinion or modification shall be acceptable to Lender in its reasonable discretion;

     (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if any Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period;

     (xi) if any of the assumptions contained in the Insolvency Opinion delivered to Lender in connection with the Loan, or in any Additional Insolvency Opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect;

     (xii) if a material default by any Mortgage Borrower has occurred and continues beyond any applicable cure period under any Management Agreement (or any Replacement Management Agreement) and as a result of such default the Manager thereunder terminates or cancels such Management Agreement (or any Replacement Management Agreement);

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     (xiii) if a material default by Hotel/Casino Borrower has occurred and continues beyond any applicable cure period under the Liquor Management Agreement (or any Replacement Liquor Management Agreement) and as a result of such default the Liquor Manager thereunder terminates or cancels such Liquor Management Agreement (or any Replacement Liquor Management Agreement);

     (xiv) if any Borrower or any Mortgage Borrower fails to comply in any material respect with the covenants as to Prescribed Laws set forth in Section 5.1.1 hereof and such failure to comply continues after ten (10) Business Days notice thereof;

     (xv) except as otherwise contemplated by the Loan Documents, if Hotel/Casino Borrower ceases to do business as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, (other than temporary cessation in connection with any diligent Restoration of the Hotel/Casino Property following a Casualty or Condemnation) and such failure continues after thirty (30) days notice from Lender thereof; provided, however, that if any such failure is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and provided, further, that Borrowers shall have caused Mortgage Borrowers to commence to cure such failure within such thirty (30) day period and shall thereafter diligently and expeditiously proceed to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Mortgage Borrowers in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days, subject to Excusable Delay;

     (xvi) if (A) there shall occur any default by HRHI or Hotel/Casino Borrower under the HRHI Lease in the observance or performance of any term, covenant or condition on its part to be observed or performed and such failure shall continue beyond the expiration of all applicable notice and cure periods under the HRHI Lease, (B) if, without Lender’s prior written consent, the HRHI Lease shall be terminated, changed, modified or amended, other than ministerial non-monetary amendments or modifications, or (C) if, without Lender’s prior written consent, HRHI shall hold over at the expiration or earlier termination of the HRHI Lease;

     (xvii) if (A) there shall occur any default by HRHI under the Gaming Sublease in the observance or performance of any term, covenant or condition on the part of HRHI to be observed or performed and such failure shall continue beyond the expiration of all applicable notice and cure periods under the Gaming Sublease, (B) any event shall occur which would cause the Gaming Sublease to terminate without notice or action by the Gaming Operator or which would entitle the Gaming Operator to terminate the Gaming Sublease by giving notice to HRHI, (C) if HRHI shall waive, excuse, condone or in any way release or discharge the Gaming Operator of or from any of the Gaming Operator’s material obligations, covenants and/or conditions under the Gaming Sublease without the prior written consent of Lender, (D) if, without Lender’s prior written consent,

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HRHI shall terminate (or consent to or approve any such termination), change, modify or amend the Gaming Sublease, other than ministerial non-monetary amendments or modifications, (E) if HRHI shall fail to provide Gaming Employees as and to the extent required pursuant to Paragraph 7 of the HRHI Gaming Agreement, (F) if HRHI shall, without the consent of Mortgage Lender as provided in the HRHI Gaming Agreement, consent to or approve any matter requiring Mortgage Lender’s consent thereunder (other than a termination), in the event that either (1) Mortgage Lender has been materially damaged by such consent or approval or is reasonably likely to be materially damaged by such consent or approval with the further passage of time, or (2) HRHI is unable to rescind or void such consent or approval within thirty (30) days after notice from Mortgage Lender of its objection thereto, and/or (G) HRHI shall otherwise default under the Gaming Recognition Agreement or the HRHI Gaming Agreement and such default, if a monetary default, shall continue beyond the notice and cure period set forth in Section 8.1(a)(i)(C) hereof, or if a non-monetary default, shall continue beyond the notice and cure period set forth in Section 8.1(a)(xxiii) hereof;

               (xviii) if at any time during the term of the Loan, for any reason (including, without limitation, the revocation, suspension or surrender of any required Governmental Approval), (A) the Gaming Operating Condition is not satisfied, provided, however, that if the Gaming Operating Condition is not satisfied at any time on or after February 2, 2008 through and including May 9, 2008, so long as (I) Mortgage Borrowers are diligently pursuing the satisfaction of the Gaming Operating Condition, (II) all Debt Service is being satisfied as and when due, and (III) no other Event of Default has occurred and is continuing, the failure of the Gaming Operating Condition to be satisfied during such period shall not constitute an Event of Default unless the Gaming Operating Condition shall remain unsatisfied beyond May 9, 2008; or (B) any Gaming License or finding of suitability held by the Gaming Operator shall be materially adversely modified, denied, suspended, revoked or canceled or allowed to lapse or if a notice of a material violation is issued under any Gaming License by the issuing agency or other Governmental Authority having jurisdiction, or any proceeding is commenced by any Governmental Authority for the purpose of modifying in any materially adverse respect, suspending, revoking or canceling any Gaming License in any materially adverse respect, in each case, which is not stayed within sixty (60) days after commencement thereof and the result of which is reasonably likely to be Mortgage Borrowers’ inability to continue to conduct gaming operations at the Hotel/Casino Property; provided, however, that during the course of any of the foregoing, substantially the same gaming operations are permitted to continue to operate at the Hotel/Casino Property, or any Governmental Authority shall have appointed a conservator, supervisor or trustee with respect to the Casino Component or the Hotel/Casino Property;

               (xix) if at any time during the term of the Loan, for any reason (including, without limitation, the revocation, suspension or surrender of any required Governmental Approval), the alcoholic beverage services at the

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Hotel/Casino Property (A) are not being managed by a Qualified Liquor Manager pursuant to the Liquor Management Agreement or a Replacement Liquor Management Agreement;

          (xx) if HRHI shall fail to provide liquor management services following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement;

          (xxi) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) hereof;

          (xxii) in the event that Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof shall ever become the Liquor Manager, if Gaming Borrower, such other Mortgage Borrower or such Affiliate thereof thereafter shall fail to provide liquor management services following an Event of Default or following the transfer of the Hotel/Casino Property to a Mortgage Lender Successor Owner as and to the extent required pursuant to Section 5.1.23(c) of the Mortgage Loan Agreement and Section 5.1.23(c) hereof;

          (xxiii) if any Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement or any other Loan Document, in each instance, not specified in subsections (i) to (xxii) above, for ten (10) Business Days after notice to Borrowers from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; provided, however, that if any such non-monetary Default is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and provided further that Borrowers shall have commenced to cure such Default within such thirty (30) day period and thereafter diligently and expeditiously proceed to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrowers in the exercise of due diligence to cure such Default, such additional period not to exceed ninety (90) days, subject to Excusable Delay;

          (xxiv) the occurrence of any event that is expressly specified to be an Event of Default in this Agreement or any other Loan Document;

          (xxv) if the Liens created pursuant to the Pledge Agreement or any other Loan Document shall cease to be a fully perfected enforceable first priority security interest effective under the Gaming Laws or if there shall be a default under the Pledge Agreement beyond any applicable notice and cure periods contained in the Pledge Agreement;

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          (xxvi) if any other event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt; or

          (xxvii) if a Mortgage Event of Default shall occur and be continuing.

                    (b) Upon the occurrence and during the continuance of an Event of Default (other than an Event of Default described in clauses (vi) or (vii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, to the extent permitted by applicable law, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrowers and in and to any Property and/or the IP and/or the Collateral, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrowers, any Property and/or the IP and/or the Collateral, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi) or (vii) above, the Debt and all Other Obligations of Borrowers hereunder and under the other Loan Documents shall, to the extent permitted by applicable law, immediately and automatically become due and payable, without notice or demand, and each Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding.

     Section 8.2 Remedies.

                    (a) Upon the occurrence and during the continuance of an Event of Default, subject to applicable Gaming Laws, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrowers under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrowers or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents, in each case to the extent permitted by applicable law. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singularly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, each Borrower agrees, to the extent permitted by applicable law, that if an Event of Default is continuing (i) Lender shall not be subject to any “one action” or “election of remedies” law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Collateral and the Pledge Agreement has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full.

                    (b) During the continuance of an Event of Default, with respect to each Borrower and the Collateral, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to the Collateral or any particular portion of the

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Collateral for the satisfaction of any of the obligations in preference or priority to any other collateral, and Lender may seek satisfaction out of the Collateral or any part thereof, in its absolute discretion in respect of the Obligations. In addition, to the extent permitted by applicable law, Lender shall have the right from time to time to partially foreclose upon the Collateral under the Pledge Agreement in any manner and for any amounts secured by the Pledge Agreement then due and payable as determined by Lender in its sole discretion, including, without limitation, the following circumstances: (i) in the event Borrowers default beyond any applicable grace period in the payment of one or more scheduled payments of interest, Lender may foreclose upon the Collateral under the Pledge Agreement to recover such delinquent payments, and/or (ii) in the event Lender elects to accelerate less than the entire Outstanding Principal Balance, Lender may foreclose upon the Collateral under the Pledge Agreement to recover so much of the Outstanding Principal Balance as Lender may accelerate and such other sums secured by the Pledge Agreement as Lender may elect in its sole discretion. Notwithstanding one or more partial foreclosures, the Collateral and any other collateral shall remain subject to the Pledge Agreement to secure payment of sums secured by the Pledge Agreement and not previously recovered.

                    (c) Subject to applicable Gaming Laws, Lender shall have the right, at Lender’s sole cost and expense except during the continuance of an Event of Default, in which event the same shall be at Borrowers’ sole cost and expense, from time to time to sever the Note and the other Loan Documents into one or more separate notes, pledges and other security documents (the “Severed Loan Documents”) in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder, provided that Borrowers’ liability or obligation shall not be increased by such severance. Borrowers shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall reasonably request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Subject to applicable Gaming Laws, each Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, each Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such documents under such power until five (5) Business Days after notice has been given to Borrowers by Lender of Lender’s intent to exercise its rights under such power. Except as may be required in connection with a Securitization and expressly provided pursuant to Section 9.1 hereof, (i) Borrowers shall not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents, and (ii) the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents (modified to reflect the current status of such representations and warranties) and any such representations and warranties contained in the Severed Loan Documents will be given by Borrowers only as of the Closing Date.

                    (d) The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrowers pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender’s rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender’s

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sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to any Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by any Borrower or to impair any remedy, right or power consequent thereon.

                    (e) To the extent permitted by applicable law, any amounts recovered from the Collateral or any other collateral for the Loan after an Event of Default may be applied by Lender toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Lender in its sole discretion shall determine.

                    (f) Upon the occurrence and during the continuance of an Event of Default, Lender may declare all unpaid principal of and accrued interest on the Note, together with all other sums payable under the Loan Documents, to be immediately due and payable, whereupon the same shall become and be immediately due and payable, anything in the Loan Documents to the contrary notwithstanding, and without presentation, protest or further demand or notice of any kind, all of which are expressly hereby waived by Borrowers to the extent permitted by applicable law.

     Section 8.3 Right to Cure Defaults. Upon the occurrence and during the continuance of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrowers and without releasing Borrowers from any obligation hereunder, make any payment or do any act required of Borrowers hereunder in such manner and to such extent as Lender may deem necessary to protect the security hereof. Subject to the terms of the Mortgage Loan Agreement, Lender is authorized to enter upon any Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Properties for such purposes, and the cost and expense thereof (including reasonable attorneys’ fees to the extent permitted by law), with interest as provided in this Section 8.3, shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any action or proceeding shall bear interest at the Default Rate, for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and expenses incurred by Lender together with interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the Debt and shall be secured by the Pledge Agreement and enforced as a lien against the Collateral and shall be immediately due and payable upon demand by Lender therefor.

ARTICLE IX.
SPECIAL PROVISIONS

     Section 9.1 Sale of Note and Securitization. (a) Borrowers acknowledge and agree that, at any time from and after the Closing Date, Lender may sell all or any portion of the Loan and the Loan Documents, or require Borrowers to restructure the Loan into multiple notes (which may include component notes and/or senior and junior notes) and/or issue one or more participations therein and/or syndicate the Loan, which restructuring may include the

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restructuring of a portion of the Loan to one or more of the foregoing or into one or more additional mezzanine loans to the direct and/or indirect owners of the equity interests in Borrowers as reasonably, mutually determined by Lender and Borrowers and that are direct or indirect subsidiaries of HR Holdings, secured by a pledge of such interests, or consummate one or more private or public securitizations of rated single- or multi-class securities (the “Securities”) secured by or evidencing ownership interests in all or any portion of the Loan and the Loan Documents or a pool of assets that include the Loan and the Loan Documents (such sales, participations and/or securitizations, collectively, a “Securitization”). At the request of Lender, and to the extent not already required to be provided by Borrowers under this Agreement, Borrowers shall use commercially reasonable good faith efforts to provide information not in the possession of Lender or which may be reasonably required by Lender in order to satisfy the market standards to which Lender customarily adheres or which may be reasonably required by prospective investors and/or the Rating Agencies in connection with any such Securitization, including, without limitation, to:

     (i) provide additional and/or updated Provided Information or other information with respect to the Properties, the IP and/or the Collateral reasonably requested or reasonably required by Lender, prospective investors or the Rating Agencies, together with, if customary or if otherwise requested by any Rating Agency, appropriate verification and/or consents related to the Provided Information through letters of auditors or opinions of counsel of independent attorneys reasonably acceptable to Lender and the Rating Agencies;

     (ii) review descriptive materials for presentations to any or all of the Rating Agencies, and work with third-party service providers engaged to obtain, collect, and deliver information reasonably requested or reasonably required by Lender, prospective investors or the Rating Agencies;

     (iii) if required by any Rating Agency, (A) deliver updated opinions of counsel as to non-consolidation, due execution and enforceability with respect to the Properties, the IP, the Collateral, any Loan Party, HRHI, any Guarantor, any of their respective Affiliates and the Loan Documents, and (B) amend the Special Purpose Entity provisions of the organizational documents for each Loan Party, which counsel opinions and amendments to the organizational documents shall be reasonably satisfactory to Lender and the Rating Agencies;

     (iv) if required by any Rating Agency, use commercially reasonable efforts to deliver such additional tenant estoppel letters, subordination agreements and/or other agreements from parties to agreements that affect any of the Properties, the IP or the Collateral, which estoppel letters, subordination agreements and other agreements shall be reasonably satisfactory to Lender and the Rating Agencies;

     (v) provide, as of the closing date of the Securitization, updated representations and warranties made in the Loan Documents as may be reasonably requested by Lender or the Rating Agencies and consistent with the facts covered by such representations and warranties made in the Loan Documents to the extent they are true as of the closing of the Securitization;

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     (vi) execute such amendments to the Loan Documents as may be reasonably requested by Lender or the Rating Agencies to effect such Securitization and/or deliver one or more new component notes to replace the original note or modify the original note to reflect multiple components of the Loan (and such new notes or modified note shall have the same initial weighted average coupon of the original note, but such new notes or modified note may change the interest rate of the Loan), and modify the Cash Management Agreement with respect to the newly created components such that the pricing and marketability of the Securities and the size of each class of Securities and the rating assigned to each such class by the Rating Agencies shall provide the most favorable rating levels and achieve the optimum rating levels for the Loan, provided, however, that (A) such new notes or modified note will not change the interest rate, the stated maturity or the amortization of principal set forth in the Note unless the varying interest rates shall have the same initial weighted average coupon of the original Note, (B) such amendments to the Loan Documents or the new notes or modified note will not modify or amend any other economic or material term of the Loan in a manner materially adverse to any Loan Party, HRHI or Guarantors or any of their respective Constituent Members, or (C) such amendments to the Loan Documents will not materially increase any Loan Party’s or Guarantors’ obligations and liabilities under the Loan Documents or materially decrease the rights of Borrowers under the Loan Documents;

     (vii) if requested by Lender, review any information regarding any Property, the IP, the Collateral, any Loan Party, any Mezzanine Borrower, HRHI, the Gaming Operator, any Manager, the Liquor Manager and/or the Loan which is contained in any preliminary or final private placement memorandum, prospectus, prospectus supplement (including any amendment or supplement to either thereof), or other disclosure document to be used by Lender or any affiliate thereof; and

     (viii) supply to Lender such documentation, financial statements and reports concerning any Loan Party, any Mezzanine Borrower, HRHI, any Guarantor, the Loan, any Property, the IP and/or the Collateral in form and substance required in order to comply with any applicable securities laws.

                    (b) Lender shall pay all reasonable third party costs and expenses (excluding fees and expenses of Borrower’s legal counsel) in excess of Twenty Thousand Dollars ($20,000) incurred by Borrowers in connection with Borrowers’ complying with requests made under this Section 9.1 and/or under Section 9.2 hereof, provided, however, the fees and expenses of Borrowers’ legal counsel and Borrowers’ administrative costs shall not be included in such amount and Borrowers shall remain at all times responsible for the fees and expenses of their legal counsel and their own administrative costs. In addition to the foregoing, Lender expressly acknowledges and agrees that Borrowers shall not be required to pay any Rating Agency surveillance charges.

                    (c) Notwithstanding anything to the contrary contained in this Agreement, in the event of a Securitization that involves a participation or restructuring into one or more additional mezzanine loans, Borrowers shall not be required to deliver Rating Agency

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confirmations in accordance with the terms and conditions of this Agreement at any time that rated Securities are not outstanding.

     Section 9.2 Re-Dating. In connection with a Securitization or other sale of all or a portion of the Loan, Lender shall have the right to modify all operative dates (including, but not limited to, payment dates, interest period start dates and end dates, etc.) under the Loan Documents, by up to ten (10) days (such action and all related action is a “Re-Dating”) so long as such modification shall not have a materially adverse effect on Borrowers. Borrowers shall cooperate with Lender to implement any Re-Dating. If any Borrower fails to cooperate with Lender within ten (10) Business Days of written request by Lender, Lender is hereby appointed as each Borrower’s attorney-in-fact to execute any and all documents necessary to accomplish the Re-Dating, the foregoing power of attorney being coupled with an interest.

     Section 9.3 Securitization Indemnification. (a) Each Borrower understands that information provided to Lender by Borrowers and their agents, counsel and representatives may be included in Disclosure Documents in connection with the Securitization and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and may be made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to a Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrowers will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects.

                    (b) Upon Lender’s reasonable request, Borrowers shall provide in connection with each of (i) a preliminary and a final private placement memorandum or (ii) a preliminary and final prospectus or prospectus supplement, as applicable, an agreement (A) certifying that Borrowers have examined such Disclosure Documents specified by Lender and that to each Borrower’s actual knowledge, each such Disclosure Document, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors, HRHI, the Properties, the IP, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, does not contain any untrue statement of a material fact or omit to state a material fact in each Borrower’s actual knowledge necessary in order to make the statements made, in the light of the circumstances under which they were made, not materially misleading, (B) jointly and severally indemnifying Lender, Credit Suisse (whether or not it is Lender), any Affiliate of Lender or Credit Suisse that has filed any registration statement relating to the Securitization or has acted as the sponsor or depositor in connection with the Securitization, any Affiliate of Lender or Credit Suisse that acts as an underwriter, placement agent or initial purchaser of Securities issued in the Securitization, any other co-underwriters, co-placement agents or co-initial purchasers of Securities issued in the Securitization, and each of their respective officers, directors, partners, employees, representatives, agents and Affiliates and each Person or entity who controls any such Person within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Indemnified Persons”), for any out-of-pocket losses, third party claims, actual damages (but not lost revenues, diminution in value and other consequential damages) or liabilities (collectively, the “Liabilities”) to which any such Indemnified Person may become subject insofar as the Liabilities arise out of or are based upon any untrue statement

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or alleged untrue statement of any material fact contained in any such Disclosure Document specified by Lender for Borrowers’ review, as it relates to any Loan Party, any Loan Party’s Affiliates, Guarantors, HRHI, the Properties, the IP, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, known by any Borrower to be untrue or arise out of or are based upon the omission or alleged omission to state therein a material fact in any Borrower’s actual knowledge, required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (C) agreeing to reimburse each Indemnified Person for any reasonable legal or other reasonable expenses reasonably incurred by such Indemnified Person in connection with investigating or defending the Liabilities; provided, however, that Borrowers will be liable in any such case under clauses (B) or (C) above only to the extent that any such Liabilities arise out of or are based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by Borrowers in connection with the preparation of any Disclosure Document(s) or in connection with the underwriting or closing of the Loan or in the ordinary course of the Loan, including, without limitation, financial statements of any Loan Party, operating statements and rent rolls with respect to any of the Properties. This indemnity agreement will be in addition to any liability which any Borrower may otherwise have. Moreover, the indemnification provided for in clauses (B) and (C) above shall be effective whether or not a separate indemnification agreement is provided.

                    (c) In connection with Exchange Act Filings, Borrowers, jointly and severally, shall (i) indemnify the Indemnified Persons for Liabilities to which any such Indemnified Persons may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact in any Disclosure Documents specified by Lender for Borrowers’ review, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors, HRHI, the Properties, the IP, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, or the omission or alleged omission to state in any such Disclosure Document a material fact in any Loan Party’s actual knowledge, required to be stated in such Disclosure Document in order to make the statements in such Disclosure Document, in light of the circumstances under which they were made, not misleading, and (ii) reimburse each Indemnified Person for any reasonable legal or other expenses reasonably incurred by such Indemnified Person in connection with defending or investigating the Liabilities; provided, however, that Borrowers will be liable in any such case under clauses (i) or (ii) above only to the extent that any such Liabilities arise out of or are based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by Borrowers in connection with the preparation of any Disclosure Document(s) or in connection with the underwriting or closing of the Loan or in the ordinary course of the Loan, including, without limitation, financial statements of any Loan Party, operating statements and rent rolls with respect to any of the Properties.

                    (d) Promptly after receipt by an Indemnified Person under this Section 9.3 of notice of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is to be made against Borrowers under this Section 9.3, notify Borrowers in writing of the commencement thereof, but the omission to so notify Borrowers will not relieve any Borrower from any liability which any Borrower may have to any Indemnified Person hereunder except to the extent that such failure to notify causes material prejudice to any Borrower. In the event that any action is brought against any Indemnified Person, and it notifies

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Borrowers of the commencement thereof, Borrowers will be entitled to participate therein and, to the extent that they may elect by written notice delivered to such Indemnified Person promptly after receiving the aforesaid notice from such Indemnified Person, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Person. After notice from Borrowers to such Indemnified Person under this Section 9.3, such Indemnified Person shall pay for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both the Indemnified Person and any Borrower and the Indemnified Person shall have reasonably concluded that there are any legal defenses available to it and/or other Indemnified Persons that are different from or additional to those available to Borrowers, the Indemnified Person(s) shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Person(s) at the cost of Borrowers. Borrowers shall not be liable for the expenses of more than one separate counsel unless any Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to another Indemnified Person.

                    (e) Without the prior consent of Credit Suisse or Lender, as applicable (which consent shall not be unreasonably withheld), no Borrower shall settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such claim, action, suit or proceeding) unless Borrowers shall have given Credit Suisse or Lender, as applicable, reasonable prior notice thereof and shall have obtained an unconditional release of each Indemnified Person hereunder from all liability arising out of such claim, action, suit or proceeding. As long as Borrowers have complied with their obligations to defend and indemnify hereunder, Borrowers shall not be liable for any settlement made by any Indemnified Person without the consent of Borrowers (which consent shall not be unreasonably withheld).

                    (f) Borrowers agree that if any indemnification or reimbursement sought pursuant to this Section 9.3 is finally judicially determined to be unavailable for any reason or is insufficient to hold any Indemnified Person harmless (with respect only to the Liabilities that are the subject of this Section 9.3), then Borrowers, on the one hand, and such Indemnified Person, on the other hand, shall contribute to the Liabilities for which such indemnification or reimbursement is held unavailable or is insufficient: (i) in such proportion as is appropriate to reflect the relative benefits to Borrowers, on the one hand, and such Indemnified Person, on the other hand, from the transactions to which such indemnification or reimbursement relates; or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative faults of Borrowers, on the one hand, and all Indemnified Persons, on the other hand, as well as any other equitable considerations. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (A) Lender’s and Borrowers’ relative knowledge and access to information concerning the matter with respect to which the claim was asserted; and (B) the opportunity to correct and prevent any statement or omission. Notwithstanding the provisions of this Section 9.3, no Person found liable for a fraudulent misrepresentation (within the meaning of Section

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11(f) of the Securities Act) shall be entitled to contribution from any other Person who is not also found liable for such fraudulent misrepresentation.

                    (g) Borrowers agree that the indemnification, contribution and reimbursement obligations set forth in this Section 9.3 shall apply whether or not any Indemnified Person is a formal party to any lawsuits, claims or other proceedings. Borrowers further agree that the Indemnified Persons are intended third party beneficiaries under this Section 9.3.

                    (h) Subject to the provisions of Section 9.4 hereof, the liabilities and obligations of Borrowers and Lender under this Section 9.3 shall survive the termination of this Agreement and the satisfaction and discharge of the Debt.

     Section 9.4 Exculpation. Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrowers to perform and observe the obligations contained in the Note, this Agreement, the Pledge Agreement or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against any Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Pledge Agreement and the other Loan Documents, or in the Collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against any Borrower only to the extent of such Borrower’s interest in the Collateral, and Lender, by accepting the Note, this Agreement, the Pledge Agreement and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against any Borrower in any such action or proceeding under, or by reason of, or in connection with, the Note, this Agreement, the Pledge Agreement or the other Loan Documents. The provisions of this Section 9.4 shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name any Borrower as a party defendant in any action or suit for foreclosure and sale under the Pledge Agreement; (c) affect the validity or enforceability of or any guaranty made in connection with the Loan, including, without limitation, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty and the HRHI Guaranty, or any of the rights and remedies of Lender thereunder; (d) impair the right of Lender to obtain the appointment of a receiver; (e) constitute a prohibition against Lender seeking a deficiency judgment against any Borrower in order to fully realize the security granted by the Pledge Agreement or commencing any other appropriate action or proceeding in order for Lender to exercise its remedies against the Collateral; or (f) constitute a waiver of the right of Lender to enforce the liability and obligation of any Borrower, by money judgment or otherwise, to the extent of any actual loss, damage (excluding any lost revenue, diminution of value and other consequential damages), reasonable cost, reasonable expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

               (i) fraud or intentional misrepresentation by any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees in connection with the Loan;

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               (ii) physical waste to any Property arising from the intentional misconduct or gross negligence of any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees and/or any removal of any asset forming a part of any Property in violation of this Agreement or the other Loan Documents;

               (iii) Intentionally Omitted;

               (iv) the misappropriation or conversion by any Loan Party, by any Person Controlled by any Loan Party, including, without limitation, any Affiliated Manager, a Liquor Manager who is an Affiliate of any Loan Party or a Gaming Operator who is an Affiliate of any Loan Party, by any agent of any Loan Party, or by any other Person with whom any Loan Party shall collude or cooperate, of (A) any Insurance Proceeds paid by reason of any Casualty, to the extent so misappropriated or converted; (B) any Awards received in connection with a Condemnation, to the extent so misappropriated or converted; (C) any Rents or other Gross Income from Operations not delivered to Lender following and during the continuance of an Event of Default and not otherwise used to pay actual, customary Operating Expenses reflected on the Approved Annual Budget then in effect, including, without limitation, (I) any income, proceeds or other amounts received by any Loan Party under the Gaming Sublease, and/or (II) without duplication of the foregoing clause (I), any income, proceeds or revenue generated from gaming activities at any Property, in each of the foregoing instances, to the extent so misappropriated or converted; (D) any Rents paid more than one (1) month in advance in violation of this Agreement or the other Loan Documents, to the extent so misappropriated or converted; and/or (E) any security deposits, to the extent so misappropriated or converted;

               (v) the failure of any Loan Party to pay (or to deposit into the Mortgage Reserve Funds or the Reserve Funds, if applicable, amounts sufficient to pay) all Taxes and all other costs giving rise to any Lien on any portion of the Collateral or any Property or the IP with priority over or equal to the Lien of the Loan Documents in violation of this Agreement or the other Loan Documents, to the extent that there is sufficient Gross Income from Operations to make such payments (or deposits, as applicable);

               (vi) if any Loan Party fails to maintain its status as a Special Purpose Entity as required pursuant to the terms hereof;

               (vii) if any Loan Party fails to obtain Lender’s consent to any subordinate financing, mortgage or other voluntary Lien encumbering the Collateral, any Property or the IP other than Permitted Encumbrances and Permitted IP Encumbrances;

               (viii) the failure to maintain insurance coverage under blanket insurance policies to the extent permitted under this Agreement;

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               (ix) if any of the events set forth in clauses (a), (b) or (c) of Section 5.2.11 hereof shall occur without the prior approval of Lender;

               (x) if any of the restrictions to Transfer set forth in Section 5.2.10 hereof or in any of the other Loan Documents are violated;

               (xi) if Lender or any Affiliate thereof shall succeed to the interest of HRHI under the Gaming Sublease following a foreclosure, deed in lieu of foreclosure or similar transfer, any actual loss, cost, damage or expense (including, without limitation, reasonable attorneys’ fees and expenses) suffered by Lender or such Affiliate as a result of: (A) any act, omission, neglect or default of HRHI under the Gaming Sublease, (B) any claim, defense, counterclaim or offset which the Gaming Operator may have under the Gaming Sublease against HRHI, (C) any obligation to make any payment to the Gaming Operator under the Gaming Sublease which was required to be made by or on behalf of HRHI prior to the time Lender or such Affiliate succeeded to HRHI’s interest under the Gaming Sublease, (D) any monies deposited with HRHI under the Gaming Sublease, except to the extent such monies are actually received by Lender or such Affiliate, (E) any obligation to complete or permit the construction of any improvements under the Gaming Sublease arising while HRHI was the sublandlord under the Gaming Sublease, and/or (F) any default by HRHI under the Gaming Lease beyond applicable notice and cure periods;

               (xii) if HRHI or any Affiliate thereof shall send a notice to Gaming Operator under Section 6(a), (c) or (d) of the Gaming Recognition Agreement which conflicts with any notice theretofore sent by Lender to Gaming Operator under said Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement; provided, however, that the liability under this clause (xii) shall be limited to all fees and costs incurred by Gaming Operator in bringing and pursuing any interpleader action contemplated by said Section 6(a), (c) or (d), as applicable, and only to the extent that Gaming Operator seeks to recover and/or does recover such fees and expenses from Lender;

               (xiii) if HRHI shall fail to provide Gaming Employees for the operation of gaming activities at the Hotel/Casino Property as and to the extent required pursuant to Paragraph 7 of the HRHI Gaming Agreement;

               (xiv) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) hereof;

               (xv) in the event that HRHI, Gaming Borrower, any other Loan Party or any Affiliate thereof shall be the Liquor Manager, if HRHI, Gaming Borrower, such other Loan Party or such Affiliate thereof shall fail to provide liquor management services for the Hotel/Casino Property following an Event of Default

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or a foreclosure of the Mortgage as and to the extent required (A) as to HRHI, pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement, as applicable, and (B) as to Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof, pursuant to Section 5.1.23(c) hereof;

               (xvi) in connection with the $250,000.00 lease termination fee pursuant to Section 3.2(B) of that certain Lease by and between PM Realty, LLC and HRHI, as landlord, and Mr. Chow of Las Vegas, LLC, as tenant, dated December 24, 2004;

               (xvii) as a result of the imposition of any tax provided in NRS §§375.020 and 375.023 with respect to the merger transaction contemplated under the Merger Agreement and/or the subsequent conveyance of the Hotel/Casino Property (A) to HRHH Gaming Junior Mezz, LLC, and then (B) to Gaming Mezz Borrower, and then (iii) to Hotel/Casino Borrower, provided, however, that any liability under this clause (xvii) shall terminate upon the payment in full of the Debt;

               (xviii) as a result of Adjacent Borrower selling or attempting to sell any Partial Release Parcel or any Partial Adjacent Parcel in accordance with the procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable, rather than pursuant to a customary direct deed transfer, including, without limitation, (A) the imposition of any tax (including interest and penalties) provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action filed by or against any Subsidiary Transferee prior to or following the consummation of such sale, and/or (C) in connection with any delay in accomplishing any of the steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable; and/or

               (xix) any Interest Shortfall existing on any Payment Date (A) occurring after February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date.

     Notwithstanding anything to the contrary in this Agreement, the Note or any of the other Loan Documents, (A) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Debt secured by the Pledge Agreement or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, and (B) the Debt shall be fully recourse to Borrowers in the event of: (i) any Loan Party, HRHI or both Guarantors filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (ii) the filing of an involuntary petition against any Loan Party, HRHI or both Guarantors under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by or on behalf of any Person other than Lender, and such petition is not dismissed within ninety (90) days after filing, or any Loan Party, or any Affiliate of any of them who Controls any Loan Party, or HRHI or both Guarantors, solicit or cause to be solicited petitioning creditors for any involuntary petition against any Loan Party,

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HRHI or both Guarantors from any Person (other than if requested to do so by or on behalf of Lender); (iii) any Loan Party, HRHI or both Guarantors filing an answer consenting to, or any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, otherwise consenting to or acquiescing or joining in, any involuntary petition filed against any Loan Party, HRHI or both Guarantors, by any other Person (other than if filed by or on behalf of Lender) under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (iv) any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, consenting to or acquiescing or joining in an application for the appointment of a custodian, receiver, trustee or examiner for any Loan Party or any portion of any Property or any portion of the IP or the Collateral (other than any such appointment at the request or petition of Lender); (v) any Loan Party, HRHI or both Guarantors voluntarily making an assignment for the benefit of creditors (other than Lender), or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; and/or (vi) Gaming Mezz Borrower failing to comply, or cause compliance by the applicable Mortgage Borrower, with the requirements of the Gaming Laws to obtain the approval of the Gaming Authorities of the pledge of the Gaming Securities pursuant to Section 17(b) of the Pledge Agreement (it being understood and agreed that Borrowers shall have no liability under this clause (vi) to the extent arising from the failure of Lender to reasonably cooperate with the Gaming Authorities in connection with such Gaming Law requirements to the extent necessary); unless, in the case of any of the foregoing clauses (i), (ii), (iii), (iv), (v) or (vi) as it relates to or affects both Guarantors, one or more guarantors acceptable to Lender in its sole discretion remains or becomes a guarantor of the Loan.

     Notwithstanding anything to the contrary in this Agreement or any other Loan Document, and except for (1) Guarantors’ obligations under the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty and the Construction Completion Guaranty, (2) HRHI’s obligations under the HRHI Guaranty, and (3) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, no present or future Constituent Member in any Borrower, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Borrower or of or in any Person that is or becomes a Constituent Member in any Borrower, shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any of the Loan Documents, or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability. In addition, Lender, for itself and its successors and assigns, acknowledges and agrees that neither Borrowers, nor any Constituent Member, nor any other party, is assuming any personal liability, directly or indirectly, under or in connection with any agreement, lease, instrument, claim or right constituting a part of any Property, the IP or the Collateral or to which any Property, the IP or the Collateral is now or hereafter subject, except as may be expressly set forth therein.

     For purposes of this Agreement and each of the other Loan Documents, neither the negative capital account of any Constituent Member in any Borrower nor any obligation of any Constituent Member in any Borrower to restore a negative capital account or to contribute or

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loan capital to any Borrower or to any other Constituent Member in any Borrower shall at any time be deemed to be the property or an asset of such Borrower (or any such other Constituent Member) and neither Lender nor any of its successors or assigns shall have any right to collect, enforce or proceed against any Constituent Member with respect to any such negative capital account or obligation to restore, contribute or loan.

     Section 9.5 Matters Concerning Managers and Liquor Manager.

          9.5.1 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender, Morgans Parent ceases to Control any Manager, unless following such change of Control, each affected Manager still constitutes a Qualified Manager, (c) any Manager shall become bankrupt or insolvent, or (d) any Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to any Mortgage Borrower and/or any Property and/or the IP or any material default otherwise occurs under any Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of Lender, terminate the applicable Management Agreement and replace the Manager thereunder with a Qualified Manager pursuant to a Replacement Management Agreement, it being understood and agreed that the management fee for such Qualified Manager shall not exceed then prevailing market rates. If (i) an Event of Default occurs and is continuing, (ii) Sub-Manager shall become bankrupt or insolvent, or (iii) Sub-Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to any Mortgage Borrower and/or any Property or any material default otherwise occurs under the Sub-Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of Lender, terminate the Sub-Management Agreement and amend an existing Management Agreement to include the duties previously delegated under the Sub-Management Agreement (if not already included therein).

          9.5.2 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender, HR Holdings ceases to Control the Liquor Manager, unless following such change of Control, the Liquor Manager still constitutes a Qualified Liquor Manager, (c) the Liquor Manager shall become bankrupt or insolvent, or (d) the Liquor Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to Hotel/Casino Borrower and/or the Hotel/Casino Property or any material default otherwise occurs under the Liquor Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause Hotel/Casino Borrower to, at the request of Lender, terminate the Liquor Management Agreement and replace the Liquor Manager thereunder with a Qualified Liquor Manager pursuant to a Replacement Liquor Management Agreement, it being understood and agreed that the management fee for such Qualified Liquor Manager shall not exceed then prevailing market rates; provided, however, that in no event shall Hotel/Casino Borrower be required to terminate such Liquor Manager if such immediate termination would require cessation of liquor-related activities at any of the Properties and, in such event, (i) such termination shall occur immediately upon the ability of Hotel/Casino Borrower to transfer such liquor operations to a Qualified Liquor Manager as required herein, and (ii) Borrowers shall cause Hotel/Casino Borrower to, at its sole cost and expense, diligently pursue the engagement and licensing of a replacement Qualified Liquor Manager.

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          Section 9.6 Matters Concerning Gaming Operator. If (a) the Gaming Operator commits fraud, gross negligence or willful misconduct with respect to the Hotel/Casino Property or any material default otherwise occurs under the Gaming Sublease beyond any applicable grace and cure periods, or (b) the Gaming Operator (i) has its gaming license suspended or revoked, (ii) allows its gaming license to lapse, or (iii) may not lawfully operate gaming at the Hotel/Casino Property pursuant to any Legal Requirements or the order of any Governmental Authority, Borrowers shall cause Hotel/Casino Borrower to, at the request of Lender and to the extent permitted by applicable Legal Requirements and the requirements of any Gaming Authorities, cause HRHI to terminate the Gaming Sublease and replace the Gaming Operator with a Qualified Gaming Operator pursuant to a new gaming sublease or similar agreement and a new recognition agreement, in each instance reasonably acceptable to Lender; provided, however, that in no event shall Hotel/Casino Borrower be required to terminate such Gaming Operator if such immediate termination would require cessation of gaming-related activities at the Hotel/Casino Property and, in such event, (A) such termination shall occur immediately upon the ability of Hotel/Casino Borrower to transfer such gaming operations to a Qualified Gaming Operator as required herein, and (B) Borrowers shall cause Hotel/Casino Borrower to, at its sole cost and expense, diligently pursue the engagement and licensing of a replacement Qualified Gaming Operator.

          Section 9.7 Servicer. (a) At the option of Lender, the Loan may be serviced by a servicer/trustee (the “Servicer”) selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the “Servicing Agreement”) between Lender and Servicer. Borrowers shall not be responsible for any set up fees or any other initial costs relating to or arising under the Servicing Agreement nor shall Borrowers be responsible for payment of the monthly servicing fee due to the Servicer under the Servicing Agreement.

                    (b) Lender shall endeavor in good faith (without liability for failure to do so) to provide Borrowers with notification of any change in the Person servicing the Loan; provided that it is expressly acknowledged and agreed by Lender that it shall not constitute a Default or Event of Default hereunder if due to such failure to provide notification Borrowers send any payments required to be made hereunder to Lender or any predecessor Person servicing the Loan.

ARTICLE X.
MISCELLANEOUS

          Section 10.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of any Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender.

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     Section 10.2 Lender’s Discretion. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Whenever this Agreement expressly provides that Lender may not unreasonably withhold its consent or its approval of an arrangement or term, such provisions shall also be deemed to prohibit Lender from unreasonably delaying or conditioning such consent or approval. Prior to a Securitization, whenever pursuant to this Agreement the Rating Agencies are given any right to approve or disapprove, or any arrangement or term is to be satisfactory to the Rating Agencies, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory, based upon Lender’s determination of Rating Agency criteria, shall be substituted therefor.

     Section 10.3 Governing Law.

                    (a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWERS IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS IN ANY REAL PROPERTY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE REAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

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                    (b) NOTWITHSTANDING THE FOREGOING, THIS AGREEMENT IS SUBJECT TO THE GAMING LAWS. LENDER EXPRESSLY ACKNOWLEDGES AND AGREES THAT ALL RIGHTS, REMEDIES, POWERS AND OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT MAY BE EXERCISED ONLY TO THE EXTENT THAT THE EXERCISE THEREOF DOES NOT VIOLATE ANY APPLICABLE PROVISIONS OF THE GAMING LAWS AND ONLY TO THE EXTENT THAT ANY APPLICABLE REQUIRED APPROVAL OF ANY GAMING AUTHORITY (INCLUDING PRIOR APPROVALS) IS OBTAINED. NOTWITHSTANDING THE FOREGOING, BORROWERS EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE FACT THAT ANY GAMING LAW OR THE LACK OF APPROVAL FROM ANY GAMING AUTHORITY MAY PREVENT ANY BORROWER OR ANY OTHER PERSON FROM TAKING ANY ACTION OR FULFILLING ANY OBLIGATION HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT WHICH RESULTS IN THE OCCURRENCE OF AN EVENT OF DEFAULT AND/OR A CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY UNDER SECTION 9.4 HEREOF, SHALL NOT, IN ANY MANNER, LIMIT OR VITIATE OR BE DEEMED TO LIMIT OR VITIATE SUCH EVENT OF DEFAULT OR SUCH CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY IN ANY MANNER WHATSOEVER.

                    (c) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR ANY BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL, AT LENDER’S OPTION, BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. EACH BORROWER DOES HEREBY DESIGNATE AND APPOINT:

CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NEW YORK 10011

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND NOTICE OF SAID SERVICE MAILED OR DELIVERED TO SUCH BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. EACH BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW

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YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

     Section 10.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on any Borrower, shall entitle such Borrower or any other Borrower to any other or future notice or demand in the same, similar or other circumstances.

     Section 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or under any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount.

     Section 10.6 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 10.6):

If to Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019

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	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock/Rand Peppas
If to Borrowers:	HRHH Gaming Senior Mezz, LLC
	and
	HRHH JV Senior Mezz, LLC
	c/o Morgans Hotel Group Co.
	475 Tenth Avenue
	New York, New York 10018
	Re: Hard Rock
	Attention: Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4201
With a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
With a copy to:	DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
With a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
With a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763

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A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b)or (c) of this Section 10.6. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 10.6, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer. Any Notice sent to one Borrower shall constitute and shall be deemed to constitute such Notice to all Borrowers.

     Section 10.7 Trial by Jury. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND LENDER EACH HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.

     Section 10.8 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

     Section 10.9 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     Section 10.10 Preferences. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrowers to any portion of the Obligations of Borrowers hereunder. To the extent Borrowers make a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations hereunder or part thereof intended

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to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender.

     Section 10.11 Waiver of Notice. Each Borrower hereby expressly waives, and shall not be entitled to, any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrowers and except with respect to matters for which Borrowers are not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice.

     Section 10.12 Remedies of Borrowers. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, each Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrowers’ sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment.

     Section 10.13 Expenses; Indemnity. (a) Borrowers jointly and severally covenant and agree to pay or, if Borrowers fail to pay, to reimburse, Lender, within ten (10) days of receipt of notice from Lender, for all reasonable costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in connection with (i) Borrowers’ ongoing performance of and compliance with Borrowers’ respective agreements and covenants contained in this Agreement and the other Loan Documents on their part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental, gaming and insurance requirements; (ii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by or benefiting any Borrower; (iii) securing Borrowers’ compliance with their obligations pursuant to the provisions of this Agreement and the other Loan Documents; (iv) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (v) all fees payable hereunder; (vi) dealing with any Letter of Credit delivered to Lender hereunder; (vii) subject to the terms hereof, enforcing or preserving any rights, either in response to third party claims or in prosecuting or defending any action or proceeding or other litigation, in each case against, under or affecting any Borrower, this Agreement, the other Loan Documents, any Property, the IP, the Collateral or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from any Borrower under this Agreement or the other Loan Documents or with respect to any Property, the IP or the Collateral or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or of any insolvency or bankruptcy proceedings; provided, however, that Borrowers shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Notwithstanding the provisions set forth in this Section 10.13(a) or in any other provision of this Agreement or the other Loan Documents, in the event that (A) Lender employs

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counsel to collect the Debt, protect or foreclose the Pledge Agreement or as otherwise permitted in this Agreement and the other Loan Documents and (B) Lender has sold or transferred any interests in the Note, then Borrowers shall only be responsible for the attorneys’ fees and expenses of the counsel of one Lender.

                    (b) Borrowers shall, jointly and severally, indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, out-of-pocket losses, actual damages (but not lost revenues, diminution in value and other consequential damages), penalties, actions, judgments, third party suits, third party claims, reasonable costs, reasonable expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by any Borrower of its obligations under, or any material misrepresentation by any Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the “Indemnified Liabilities”); provided, however, that Borrowers shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrowers shall pay the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender.

                    (c) Borrowers, jointly and severally, covenant and agree to pay for or, if Borrowers fail to pay, to reimburse Lender for, any fees and expenses incurred by any Rating Agency in connection with any consent, approval, waiver or confirmation obtained from such Rating Agency and required pursuant to the terms and conditions of this Agreement or any other Loan Document in connection with any request or approval sought by Borrowers, and Lender shall be entitled to require payment of such fees and expenses as a condition precedent to the obtaining of any such consent, approval, waiver or confirmation; provided, however, that Lender expressly acknowledges and agrees that Borrowers shall not be required to pay any Rating Agency surveillance charges.

     Section 10.14 Schedules and Exhibits Incorporated . The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.

     Section 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender’s interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrowers may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by any Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by each Borrower to the extent permitted by applicable law.

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     Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries.

                    (a) Borrowers and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between any Borrower and Lender nor to grant Lender any interest in the Collateral other than that of secured party, pledgee or lender.

                    (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrowers and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrowers any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder and/or to disbursements from the Reserve Funds are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan and/or will refuse to make any disbursement from any Reserve Fund in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable to do so.

                    (c) Without limiting the generality of Section 10.16(a) hereof, Borrowers expressly acknowledge and agree that: (i) DLJ Merchant Banking, Inc. is an affiliate of Lender and various of its indirect subsidiaries and/or affiliates own indirect ownership interests in each Borrower (the “DLJ Entities”), and (ii) neither the Lender named herein nor any successor or assign thereof shall have any liability to Borrower as a result of such relationship between Lender and the DLJ Entities, including, without limitation, under any theory of lender liability.

                    (d) The benefits of this Agreement shall not inure to any third party, nor shall this Agreement be construed to make or render Lender liable to any Trade Contractors including any Major Contractors or others for goods and materials supplied or work and labor furnished in connection with the construction or rehabilitation of the Project or for debts or claims accruing to any such Persons against Mortgage Borrowers or Borrowers. Notwithstanding anything contained in the Loan Documents, or any conduct or course of conduct by the parties hereto, before or after signing the Loan Documents, this Agreement shall not be construed as creating any rights, claims or causes of action against Lender, or any of its officers, directors, agents or employees, in favor of any Major Contractor or other Trade Contractor, or any of their respective creditors, or any other Person.

                    (e) Observation, inspection and approvals, if applicable, by Lender of the Plans and Specifications, the construction of the Project and/or the workmanship and materials used therein shall impose no responsibility or liability of any nature whatsoever on Lender and no Borrower, Mortgage Borrower, Trade Contractor or other interested Person, under any circumstances, shall be entitled to rely upon such inspections and approvals by Lender for any reason. Approvals granted by Lender for any matters covered under this Agreement shall be narrowly construed to cover only the parties and facts identified in any such approval.

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          Section 10.17 Publicity. All news releases, publicity or advertising by any Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents or to Lender, Credit Suisse or any of their Affiliates shall be subject to the prior approval of Lender not to be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, disclosure required by applicable state or federal securities laws, rules or regulations or other applicable Legal Requirements, or as customarily and reasonably requested by any Gaming Authorities, shall not be subject to Lender’s prior written approval.

          Section 10.18 Waiver of Marshalling of Assets. To the fullest extent permitted by law, each Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of any Borrower, any Borrower’s partners and others with interests in any Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of the Pledge Agreement, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Collateral in preference to every other claimant whatsoever.

          Section 10.19 Waiver of Counterclaim. To the fullest extent permitted by law, each Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents or otherwise to offset any Obligations under the Loan Documents. No failure by Lender to perform any of its obligations hereunder shall be a valid defense to, or result in any offset against, any payments which any Borrower is obligated to make under any of the Loan Documents.

          Section 10.20 Conflict; Construction of Documents; Reliance. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Each Borrower acknowledges that, with respect to the Loan, such Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in any Borrower, and each Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender’s exercise of any such rights or remedies. Each Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the businesses of Borrowers or their Affiliates.

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          Section 10.21 Brokers and Financial Advisors.

               (a) Each Borrower hereby represents that neither it nor any of its Affiliates has dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Each Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all third-party claims, liabilities, out-of-pocket costs and reasonable expenses of any kind (including Lender’s reasonable attorneys’ fees and expenses (but only for one (1) set of attorneys)) in any way relating to or arising from a claim by any Person that such Person acted on behalf of any Borrower or an Affiliate of any Borrower in connection with the transactions contemplated herein. The provisions of this Section 10.21(a) shall survive the expiration and termination of this Agreement and the payment of the Debt.

               (b) Lender hereby represents that neither it nor any of its Affiliates has dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Lender hereby agrees to indemnify, defend and hold Borrowers harmless from and against any and all third-party claims, liabilities, out-of-pocket costs and reasonable expenses of any kind (including Borrowers’ reasonable attorneys’ fees and expenses (but only for one (1) set of attorneys)) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Lender or an Affiliate of Lender in connection with the transactions contemplated herein. The provisions of this Section 10.21(b) shall survive the expiration and termination of this Agreement and the payment of the Debt.

          Section 10.22 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, including, without limitation, (i) the Commitment Letter dated May 11, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp and Lender, and (ii) the Commitment Letter dated December 22, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking, Inc. and Lender, are superseded by the terms of this Agreement and the other Loan Documents.

          Section 10.23 Joint and Several Liability. The representations, covenants, warranties and obligations of Borrowers hereunder are joint and several.

          Section 10.24 Certain Additional Rights of Lender (VCOC). Notwithstanding anything to the contrary contained in this Agreement, Lender shall have:

               (a) subject to applicable Gaming Laws, the right to routinely consult with and advise each Borrower’s management regarding the significant business activities and business and financial developments of each Borrower; provided, however, that such consultations shall not include discussions of environmental compliance programs or disposal of hazardous substances. Consultation meetings should occur on a regular basis (no less frequently than quarterly) with Lender having the right to call special meetings at any reasonable times and upon reasonable advance notice;

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               (b) the right, in accordance with the terms of this Agreement, to examine the books and records of each Borrower at any reasonable times upon reasonable notice;

               (c) the right, in accordance with the terms of this Agreement, including, without limitation, Section 5.1.11 hereof, to receive monthly, quarterly and year-end financial reports, including balance sheets, statements of income, shareholder’s equity and cash flow, a management report and schedules of outstanding indebtedness; and

               (d) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to approve any acquisition by any Borrower of any other significant property (other than (i) personal property required for the day to day operation of any Property and (ii) to the extent any such acquisition is contemplated in the Approved Annual Budget then in effect).

     The rights described above in this Section 10.24 may be exercised by any entity which owns and Controls, directly or indirectly, substantially all of the interests in Lender.

          Section 10.25 Note Register. Administrative Agent shall maintain on behalf of Borrowers pursuant to the last sentence of this Section 10.25, or cause to be maintained, (i) a copy of each assignment of all or any portion of the Note (an “Assignment Agreement”) delivered to it and (ii) a register within the meaning of US Treasury Regulation Section 5(f).103-1(c) (the “Register”), in which it will register the name and address of Lender and the name and address of each assignee of Lender under this Agreement, and the principal amount of the Loan owing to each such Lender pursuant to the terms hereof and of each Assignment Agreement. Borrowers, Lender and the Administrative Agent may not treat any Person whose name is not recorded in the Register pursuant to the terms hereof as a Lender for the purposes of this Agreement, notwithstanding notice to the contrary or any notation of ownership or other writing on the Note. The Register shall be available for inspection by any Lender at Administrative Agent’s principal place of business, at any reasonable time and from time to time, upon reasonable prior notice. Borrowers hereby appoint Administrative Agent as their agent for purposes of compliance with US Treasury Regulation Section 5(f).103-1(c) and Administrative Agent hereby accepts such appointment.

ARTICLE XI.
MORTGAGE LOAN AND MEZZANINE LOANS

          Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries.

               (a) Promptly after receipt, Borrowers shall deliver (or cause Mortgage Borrowers, Second Mezzanine Borrowers or Third Mezzanine Borrowers, as applicable, to deliver) to Lender a true, correct and complete copy of all material notices, demands, requests or material correspondence (including electronically transmitted items) received from (i) Mortgage Lender by any Mortgage Borrower or any guarantor under the Mortgage Loan Documents, (ii) Second Mezzanine Lender by any Second Mezzanine Borrower or any guarantor under the Second Mezzanine Loan Documents, or (iii) Third Mezzanine Lender by any Third Mezzanine Borrower or any guarantor under the Third Mezzanine Loan Documents.

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               (b) Unless otherwise delivered to Lender pursuant to the provisions of Section 5.1.11 hereof, Borrowers shall deliver (or cause Mortgage Borrowers, Second Mezzanine Borrowers or Third Mezzanine Borrowers, as applicable, to deliver) to Lender all of the financial statements, reports, material certificates and related items delivered or required to be delivered by (i) Mortgage Borrowers to Mortgage Lender under the Mortgage Loan Documents as and when due under the Mortgage Loan Documents, (ii) Second Mezzanine Borrowers to Second Mezzanine Lender under the Second Mezzanine Loan Documents as and when due under the Second Mezzanine Loan Documents, and (iii) Third Mezzanine Borrowers to Third Mezzanine Lender under the Third Mezzanine Loan Documents as and when due under the Third Mezzanine Loan Documents.

          Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels.

               (a) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause Mortgage Borrowers to) from time to time, use reasonable efforts to obtain from Mortgage Lender such estoppel certificates with respect to the status of the Mortgage Loan and compliance by Mortgage Borrowers with the terms of the Mortgage Loan Documents as may reasonably be requested by Lender. In the event or to the extent that Mortgage Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and Mortgage Borrowers expressly representing to Lender the information requested by Lender regarding the status of the Mortgage Loan and the compliance by Mortgage Borrowers with the terms of the Mortgage Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the Mortgage Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and Mortgage Borrowers.

               (b) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause Second Mezzanine Borrowers to) from time to time, use reasonable efforts to obtain from Second Mezzanine Lender such estoppel certificates with respect to the status of the Second Mezzanine Loan and compliance by Second Mezzanine Borrowers with the terms of the Second Mezzanine Loan Documents as may reasonably be requested by Lender. In the event or to the extent that Second Mezzanine Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and Second Mezzanine Borrowers expressly representing to Lender the information requested by Lender regarding the status of the Second Mezzanine Loan and the compliance by Second Mezzanine Borrowers with the terms of the Second Mezzanine Loan Documents. Borrowers hereby jointly and severally indemnify Lender

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from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the Second Mezzanine Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and Second Mezzanine Borrowers.

               (c) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause Third Mezzanine Borrowers to) from time to time, use reasonable efforts to obtain from Third Mezzanine Lender such estoppel certificates with respect to the status of the Third Mezzanine Loan and compliance by Third Mezzanine Borrowers with the terms of the Third Mezzanine Loan Documents as may reasonably be requested by Lender. In the event or to the extent that Third Mezzanine Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and Third Mezzanine Borrowers expressly representing to Lender the information requested by Lender regarding the status of the Third Mezzanine Loan and the compliance by Third Mezzanine Borrowers with the terms of the Third Mezzanine Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the Third Mezzanine Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and Third Mezzanine Borrowers.

     Section 11.3 Mortgage Loan Defaults.

               (a) Without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrowers from any of their obligations hereunder, if there shall occur any Mortgage Event of Default, Borrowers hereby expressly agree that Lender shall have the immediate right, without notice to or demand on any Loan Party, but shall be under no obligation: (i) to pay all or any part of the Mortgage Loan, and any other sums, that are then due and payable and to perform any act or take any action on behalf of Mortgage Borrowers, as may be appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents on the part of Mortgage Borrowers to be performed or observed thereunder to be promptly performed or observed; and (ii) to pay any other amounts and take any other action as Lender, in its sole and absolute discretion, shall deem advisable to protect or preserve the rights and interests of Lender in the Loan and/or the Collateral. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender. All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section 11.3 (including, without limitation, reasonable attorneys’ and other professional fees),

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with interest at the Default Rate, for the period from the date of demand by Lender to Borrowers for such payments to the date of payment to Lender, shall constitute a portion of the Debt, shall be secured by the Pledge Agreement and shall be due and payable to Lender upon demand therefor.

               (b) Subject to the rights of tenants and the Mortgage Loan Agreement, Borrowers hereby grant, and shall cause Mortgage Borrowers to grant, Lender and any Person designated by Lender the right to enter upon any Property at any time for the purpose of carrying out the rights granted to Lender under this Section 11.3.

               (c) Borrowers shall not, and shall not cause or permit Mortgage Borrowers or any other Person to, impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any default or asserted default under the Mortgage Loan, or to otherwise protect or preserve Lender’s interests in the Loan and the Collateral (including the Properties) following a default or asserted default under the Mortgage Loan, in accordance with the provisions of this Agreement and the other Loan Documents.

               (d) Borrowers hereby indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys’ and other professional fees, whether or not suit is brought, and settlement costs), and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender as a result of the foregoing actions described in Section 11.3(a). Lender shall have no obligation to any Loan Party or any other party to make any such payment or performance.

               (e) If Lender shall receive a copy of any notice of default under the Mortgage Loan Documents, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon. As a material inducement to Lender in making the Loan, Borrowers hereby absolutely and unconditionally release and waive all claims against Lender arising out of Lender’s exercise of its rights and remedies provided in this Section 11.3 other than claims arising out of the fraud, illegal acts, gross negligence or willful misconduct of Lender.

               (f) In the event that Lender cures any Mortgage Event of Default, any such cure by Lender shall not waive or be deemed to have cured such Mortgage Event of Default and shall constitute an immediate Event of Default under this Agreement without any notice, grace or cure period otherwise applicable under this Agreement.

               (g) In the event that Lender makes any payment in respect of the Mortgage Loan, Lender shall be subrogated to all of the rights of Mortgage Lender under the Mortgage Loan Documents against the Properties and Mortgage Borrowers, in addition to all other rights which Lender may have under the Loan Documents or applicable law (including, without limitation, reasonable attorneys’ and other professional fees), and any such payments made by Lender together with interest at the Default Rate, for the period from the date of demand by Lender to Borrowers for such payments to the date of payment to Lender, (i) shall

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constitute a portion of the Debt, (ii) shall be secured by the Pledge Agreement and (iii) shall be due and payable to Lender upon demand therefor.

          Section 11.4 Discussions with Mortgage Lender. In connection with the exercise of its rights set forth in the Loan Documents, Lender shall have the right at any time to discuss the Properties, the Mortgage Loan, the Loan or any other matter directly with Mortgage Lender or Mortgage Lender’s consultants, agents or representatives without notice to or permission from any Borrower or any other Loan Party, nor shall Lender have any obligation to disclose such discussions or the contents thereof with any Borrower or any other Loan Party.

          Section 11.5 Independent Approval Rights.

               (a) If any action, proposed action or other decision is consented to or approved by Mortgage Lender, such consent or approval shall not be binding or controlling on Lender; provided, however, that, notwithstanding anything to the contrary which may be contained in this Agreement, and as between Lender and Borrowers only, Lender shall be deemed to have approved or waived any document delivered or action taken, or required to be delivered or taken, by Mortgage Borrowers to Mortgage Lender under the Mortgage Loan Agreement related to the construction of the Project which is approved or waived in writing by Mortgage Lender under the Mortgage Loan Documents.

               (b) Borrowers hereby acknowledge and agree that (i) the risks of Mortgage Lender in making the Mortgage Loan are different from the risks of Lender in making the Loan, (ii) in determining whether to grant, deny, withhold or condition any requested consent or approval Mortgage Lender and Lender may reasonably reach different conclusions, and (iii) Lender has an absolute independent right to grant, deny, withhold or condition any requested consent or approval based on its own point of view. Further, the denial by Lender of a requested consent or approval shall not create any liability or other obligation of Lender if the denial of such consent or approval results directly or indirectly in a default under the Mortgage Loan, and Borrowers hereby waive any claim of liability against Lender arising from any such denial.

          Section 11.6 Intercreditor Agreement.

               (a) Borrowers hereby acknowledge and agree that (i) the Intercreditor Agreement entered into by and among Lender, Mortgage Lender, Second Mezzanine Lender and Third Mezzanine Lender will be solely for the benefit of Lender, Mortgage Lender, Second Mezzanine Lender and Third Mezzanine Lender; (ii) none of Borrowers, Mortgage Borrowers, Second Mezzanine Borrowers or Third Mezzanine Borrowers shall be intended third-party beneficiaries of any of the provisions therein; and (iii) none Borrowers, Mortgage Borrowers, Second Mezzanine Borrowers or Third Mezzanine Borrowers shall have any rights thereunder or shall be entitled to rely on any of the provisions contained therein. None of Lender, Mortgage Lender, Second Mezzanine Lender or Third Mezzanine Lender shall have any obligation to disclose to Borrowers the contents of the Intercreditor Agreement. Borrowers’ obligations hereunder are and will be independent of the Intercreditor Agreement and shall remain unmodified by the terms and provisions thereof.

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               (b) In the event that Lender, pursuant to the terms of the Intercreditor Agreement, is required to pay over to Mortgage Lender any payment or distribution of assets, whether in cash, property or securities which otherwise would have been applied to the Debt, including, without limitation, any proceeds of any property previously received by Lender on account of the Loan or any payments under the Guaranties, pursuant to voluntary payment or judgment or otherwise, then Borrowers agree to indemnify Lender for any amounts so paid, and any amount so paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding the prior receipt of such payment by Lender.

ARTICLE XII.
GAMING PROVISIONS

          Section 12.1 Operation of Casino Component.

               (a) Borrowers shall (i) cause HRHI to observe and perform the obligations imposed upon the lessor under the Gaming Sublease in a commercially reasonable manner; (ii) cause HRHI to enforce the terms, covenants and conditions contained in the Gaming Sublease and the Gaming Recognition Agreement upon the part of the Gaming Operator thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair the value of the Casino Component or the Hotel/Casino Property; (iii) not allow any amendment to or termination or modification of the Gaming Sublease without the consent of Lender, which consent shall not be unreasonably withheld, other than modifications of a ministerial and non-monetary nature; (iv) not permit HRHI to collect any of the rents or other payments due under the Gaming Sublease more than one (1) month in advance; and (v) not permit HRHI to execute any assignment of its interest in the Gaming Sublease.

               (b) As soon as practicable after the date hereof, Borrowers shall submit or cause to be submitted any and all applications, filings and other submissions required by the Gaming Authorities or pursuant to any Gaming Laws to obtain the Gaming Licenses necessary to permit the operation of the Casino Component by Gaming Borrower as contemplated herein. Borrowers shall, or shall cause Mortgage Borrowers to, timely pay all application fees, investigative fees and other costs or fees required by the Gaming Authorities with respect to said approvals and licenses or arising in connection with the diligent prosecution of such applications. Borrowers shall, or shall cause Mortgage Borrowers to, diligently and comprehensively respond to any inquiries and requests from the Gaming Authorities and promptly file or cause to be filed any additional information required in connection with such applications or filings as soon as practicable after receipt of requests therefor.

               (c) Provided that (i) no Event of Default has occurred and is continuing, (ii) Gaming Borrower is, pursuant to Gaming Laws, the holder of all Gaming Licenses and all other Operating Permits and Governmental Approvals necessary for the operation of the Casino Component as a casino and the performance of the Casino Component Lease, (iii) the Casino Component Lease is in full force and effect and no material default beyond applicable notice and/or cure periods has occurred thereunder, (iv) the Gaming Sublease has either expired by its own terms or has been properly terminated pursuant to the terms thereof, and (v) Borrowers have given Lender thirty (30) days prior written notice, Borrowers shall cause Gaming Borrower to operate the Casino Component pursuant to the Casino Component Lease

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and in accordance with all Gaming Laws and all other applicable Legal Requirements. Borrowers shall cause Mortgage Borrowers to thereafter maintain all Gaming Licenses, Operating Permits and Governmental Approvals necessary for the lawful operation of the Casino Component as a casino consistent with Comparable Hotel/Casinos and use its commercially reasonable efforts to operate the Casino Component in a manner designed to maximize revenues from the Properties in the aggregate. No Loan Party shall take, permit or omit any action that would adversely affect the status or good standing of Gaming Borrower under such Operating Permits, Gaming Licenses or Governmental Approvals.

               (d) Borrowers hereby acknowledge and agree that the Casino Component Lease and any and all rights and interests (whether choate or inchoate and including, without limitation, all mechanic’s and materialmen’s liens under applicable law) owned, claimed or held, by Gaming Borrower thereunder or otherwise in and to the Casino Component, shall be in all respects subordinate and inferior to the liens and security interests created, or to be created, for the benefit of Lender under the Loan Documents, and securing the repayment of the Note and the performance of the Obligations, and all renewals, extensions, increases, supplements, amendments, modifications or replacements thereof.

               (e) Borrowers hereby agree that, at any time after the date the Casino Component Lease becomes effective, if ever, (i) upon the occurrence and during the continuance of an Event of Default and at the request of Lender, Borrowers shall cause Gaming Borrower to continue to perform all of its obligations under the terms of the Casino Component Lease with respect to the Casino Component, (ii) upon and after foreclosure, deed in lieu of foreclosure or other similar transfer of the Casino Component to a Mortgage Lender Successor Owner, Borrowers shall cause Gaming Borrower to (A) recognize such Mortgage Lender Successor Owner as the lessor under the Casino Component Lease, (B) not exercise any right to terminate the Casino Component Lease, and (C) at the request of such Mortgage Lender Successor Owner, continue to operate and manage the Casino Component and maintain all applicable Gaming Licenses with respect to the Casino Component for a period not to exceed fifteen (15) months after the effective date of such transfer to such Mortgage Lender Successor Owner (which period shall in all events terminate upon Mortgage Lender Successor Owner’s appointment of a new gaming operator possessing all Gaming Licenses and other Governmental Approvals necessary to conduct all gaming operations at the Hotel/Casino Property, subject to Gaming Borrower’s obligation to transfer its responsibilities under the Casino Component Lease to such new gaming operator and to reasonably cooperate with the transition of the gaming operations from Gaming Borrower to such new gaming operator), in accordance with the terms of the Casino Component Lease; provided that such Mortgage Lender Successor Owner shall be obligated to pay a then market rate casino management fee which is reasonable and customary for similar casinos in Las Vegas, Nevada, and (iii) at any time after foreclosure, deed in lieu of foreclosure or other similar transfer of the Casino Component to a Mortgage Lender Successor Owner, at the option of such Mortgage Lender Successor Owner exercised by written notice to Gaming Borrower, such Mortgage Lender Successor Owner shall have the right to terminate the Casino Component Lease without penalty or termination fee.

               (f) Upon the occurrence and during the continuance of an Event of Default, Lender may elect, upon written notice, to require Borrowers to cause Gaming Borrower or any other Loan Party to surrender or relinquish one or more or all of the Gaming Licenses

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held by such Person(s). If Gaming Borrower or such other Loan Party fails or refuses to so relinquish such Gaming License(s) within five (5) Business Days after receipt of such written notice, then Lender is hereby appointed (which appointment is coupled with an interest) as each Loan Party’s attorney in fact with full authority to surrender or relinquish each such Gaming License on each such Loan Party’s behalf, the foregoing power being irrevocable and coupled with an interest.

               (g) Borrowers agree to cause Gaming Borrower to (i) execute such affidavits and certificates as Lender shall reasonably require to further evidence the agreements herein contained, (ii) on request from Lender, furnish Lender with copies of such information as Hotel/Casino Borrower is entitled to receive under the Casino Component Lease, and (iii) cooperate with Lender’s representative in any inspection of all or any portion of the Casino Component from time to time at reasonable times during business hours.

               (h) Lender agrees to cooperate with all Gaming Authorities in connection with the administration of its regulatory jurisdiction over the Gaming Operator, Gaming Borrower and any other Person licensed by or registered with the Gaming Authorities, including the provision of such documents or other information as may be requested by the Gaming Authorities relating to the Gaming Sublease, the Casino Component Lease or the Loan Documents. Additionally, Lender acknowledges and understands that (a) it is subject to being called forward by the Gaming Authorities, in their discretion, for licensing or a finding of suitability, (b) all rights, remedies and powers provided in this Agreement may be exercised only to the extent the exercise thereof does not violate any applicable Gaming Laws, and (c) to the extent prior approval of the Gaming Authorities is required pursuant to applicable Gaming Laws for the exercise, operation and effectiveness of any remedy hereunder or under any other Loan Document, or the taking of any action that may be taken by Lender hereunder or under any other Loan Document, such remedy or action shall be subject to such prior approval of the Gaming Authorities, but the foregoing acknowledgements shall not be read or construed, in any manner or at any time, to qualify or limit any representation, warranty, covenant, agreement or obligation of any Loan Party herein, including, without limitation, any of the same relating to the due authorization, execution, delivery, performance and/or enforceability of any Loan Document, or any assignment, issuance, granting or remedy evidenced, created or effected thereby. Notwithstanding the foregoing, Borrowers expressly acknowledge and agree that Lender shall not be liable to any Loan Party or any other Person for any loss, cost, damage, fine or other expense suffered by any Loan Party or any other Person resulting from Lender’s cooperation with, appearance before, or provision of information or documents to, any Gaming Authority as contemplated in this Sections 12.1(h), except for Lender’s gross negligence, willful misconduct or fraud.

          Section 12.2 Gaming Liquidity Requirements. From and after the date, if ever, upon which Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement and this Agreement, Borrowers shall furnish, or shall cause Gaming Borrower to furnish, to Lender, within five (5) Business Days following the end of each calendar month, an Officer’s Certificate certifying as to the amount of the Gaming Liquidity Requirement (including a calculation of the determination thereof) and the Gaming Operating Reserve with respect to such month, including any changes to the foregoing during such month,

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the foregoing to be in form and substance reasonably acceptable to Lender (the “Monthly Gaming Requirement Certificate”).

ARTICLE XIII.
RIGHT OF FIRST OFFER

          Section 13.1 Right of First Offer. Prior to seeking any Refinancing Loan and/or any commitment for a Refinancing Loan, Borrowers shall first notify Credit Suisse in writing (the "Right of First Offer Notice”) of its intention to obtain any such Refinancing Loan, which Right of First Offer Notice shall (a) contain the Material Economic Terms which Borrowers would, in good faith, expect to receive in the market for loans similar in type to the Refinancing Loan being sought, and (b) offer (in each case, a “Right of First Offer”) to Credit Suisse the opportunity to consider whether or not Credit Suisse (or an Affiliate thereof) will provide the Refinancing Loan on Material Economic Terms substantially similar to the Material Economic Terms contained in the Right of First Offer Notice. For the purposes of this Article XIII, “Material Economic Terms” shall mean, collectively, the term of the facility, the approximate amount of the facility, the type of facility (i.e., fixed rate v. floating rate; interest only v. amortization), interest rate, points and other fees, guarantors and types of guaranty agreements, use of deposits/reserves, required equity, and net worth and liquidity requirements. For purposes only of (i) this Article XIII, and (ii) the definition of Applicable Exit Fee Percentage set forth in Section 1.1 of the Mortgage Loan Agreement, the term “Credit Suisse” shall also include any Affiliate of Credit Suisse.

          Section 13.2 Right of First Offer Procedure. The Right of First Offer shall be subject to the procedure set forth below.

               (a) As and when Borrowers determine that they will seek to obtain a Refinancing Loan, Borrowers shall promptly send to Credit Suisse the Right of First Offer Notice.

               (b) Upon receipt of the Right of First Offer Notice, Credit Suisse shall have the right to request all information and materials relating to Borrowers, their direct and indirect principals, the Collateral and the Properties that Credit Suisse shall reasonably require in order to evaluate whether or not it will seek to obtain the requisite internal approvals (the “Internal Approvals”) to extend a Refinancing Loan (collectively, the “Right of First Offer Information and Materials”) and Borrowers hereby agree to cooperate with Credit Suisse in all reasonable respects in connection with providing the Right of First Offer Information and Materials. Such request for the Right of First Offer Information and Materials shall be made within five (5) Business Days of Credit Suisse’s receipt of the Right of First Offer Notice.

               (c) If Credit Suisse is not willing to consider the Refinancing Loan, Credit Suisse shall, prior to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the Right of First Offer Information and Materials, deliver to Borrowers a written notice to such effect (“Lender’s Rejection Notice”). Upon receipt of Lender’s Rejection Notice, Borrowers shall then have the right to solicit Third Party Lenders to provide a Refinancing Loan.

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               (d) If Credit Suisse is willing to consider the Refinancing Loan, Credit Suisse shall, prior to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the Right of First Offer Information and Materials, deliver to Borrowers a term sheet containing Material Economic Terms substantially similar to the Material Economic Terms contained in the Right of First Offer Notice upon which Credit Suisse is prepared to seek the Internal Approvals to extend the Refinancing Loan (the “ROFO Term Sheet”), it being understood that such ROFO Term Sheet shall not be binding upon Credit Suisse and shall in no event be deemed a commitment by Credit Suisse to lend. If Credit Suisse does not deliver a ROFO Term Sheet within such thirty (30) day period, Credit Suisse shall be deemed to be unwilling to provide the Refinancing Loan on the Material Economic Terms contained in the Right of First Offer Notice and the terms and conditions of clause (c) above shall be applicable.

               (e) Credit Suisse shall not be liable in any manner whatsoever for (i) failure to deliver any notice or documents specified herein or (ii) its failure to continue to consider whether or not it will commit to extend the Refinancing Loan.

          Section 13.3 Application to Credit Suisse. Borrowers expressly acknowledge and agree that Borrowers shall afford the rights under this Article XIII to Credit Suisse whether or not Credit Suisse or any Affiliate thereof is then “Lender” under this Agreement and the other Loan Documents.

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     IN WITNESS WHEREOF, the parties hereto have caused this First Mezzanine Loan Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.

HRHH GAMING SENIOR MEZZ, LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Vice President, Secretary and Treasurer
HRHH JV SENIOR MEZZ, LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Vice President

COLUMN FINANCIAL, INC., a Delaware corporation
By:	/s/ PRISCILLA HORNING
	Name:	Priscilla Horning
	Title:	Vice President

SCHEDULE I-A

LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY

SCHEDULE I-B

LEGAL DESCRIPTION OF CAFE PROPERTY

SCHEDULE I-C

LEGAL DESCRIPTION OF ADJACENT PROPERTY

SCHEDULE II

DESCRIPTION OF PROJECT

SCHEDULE III

DESCRIPTION OF PLEDGED INTERESTS

			Percentage of
		Class of	Membership
Issuer	Owner	Membership Interest	Interests
HRHH Cafe, LLC	HRHH JV Senior Mezz, LLC	Regular		100	%
HRHH Development, LLC	HRHH JV Senior Mezz, LLC	Regular		100	%
HRHH Hotel/Casino, LLC	HRHH Gaming Senior Mezz, LLC	Regular		100	%
HRHH IP, LLC	HRHH Gaming Senior Mezz, LLC	Regular		100	%
HRHH Gaming, LLC	HRHH Gaming Senior Mezz, LLC	Regular		99.9	%
HRHH Gaming Member, LLC	HRHH Gaming Senior Mezz, LLC	Regular		100	%

SCHEDULE IV

ALLOCATED LOAN AMOUNTS

SCHEDULE V

NET WORTH REQUIREMENTS

     1. Guarantors Net Worth Requirements. At all times following any Guarantor Transfer, and thereafter throughout the term of the Loan, (i) the aggregate Net Worth of all Guarantors shall equal $400,000,000 or more, and the aggregate Effective Liquidity of all Guarantors shall equal $200,000,000 or more, and (ii) each Guarantor shall maintain (x) Net Worth of not less than $200,000,000, or, in the event that the Morgans Guarantor or any transferee (including an Affiliate of such transferee) of the Morgans Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings, and (y) Effective Liquidity of not less than $100,000,000, or, in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings. Upon request, and at such times as Borrowers are required to deliver to Lender any financial statements or information with regard to Guarantor required by Section 5.1.11 of the Loan Agreement, Borrowers shall deliver or cause to be delivered to Lender a certificate of each Guarantor setting forth in reasonable detail such Guarantor’s Net Worth as of the end of the prior calendar year or quarter, as the case may be, and then Effective Liquidity, and certifying that such calculations and accompanying financial statements are true, correct, accurate and complete in all material respects.

     2. Additional Definitions. As used in this Schedule V, the following terms shall have the following meanings:

          ”Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by any Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request confirming the foregoing, subject to the requirements of any existing Guaranty insofar as

relates to the Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of the Obligations.

          ”Effective Liquidity” means, (A) with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of the Obligations, the Distributable Cash of Morgans Gurantor’s direct or indirect wholly-owned subsidiaries, membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor (so long as the DLJ Guarantor remains guarantor of any of the Obligations), any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities, and (B) with respect to DLJ Guarantor, so long as the DLJ Guarantor remains a guarantor of any of the Obligations, as of a given date, the sum of all of the foregoing with respect to the DLJ Guarantor and, without duplication, each of the DLJMB Parties. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (1) Co-Investments LP’s Available Capital, or (2), if greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or DLJMB Parties to pay and perform any obligations guaranteed with respect to the Loan.

          ”Net Worth” shall mean, (A) with respect to the Morgans Guarantor only, so long as Morgans Guarantor remains a guarantor of the Obligations, as of a given date, an amount equal to the aggregate fair market value of Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld,

delayed, or conditioned) at Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero, and (B) with respect to any other Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP, provided that, so long as DLJ Guarantor remains a guarantor of any of the Obligations, the Net Worth of the DLJ Guarantor shall equal, as of a given date, the sum of the Net Worth (determined as provided in the preceding clause (B)) of the DLJ Guarantor and, without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided further, that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm (x) the Net Worth of the limited partners of Co-Investments LP, and (y) that such limited partners of Co-Investments LP are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or DLJMB Parties to pay and perform any obligations guaranteed with respect to the Loan.

SCHEDULE VI

ORGANIZATIONAL STRUCTURE

SCHEDULE VII

IP

SCHEDULE VIII

LITIGATION

SCHEDULE IX

OPERATING PERMITS

SCHEDULE X

RENT ROLL

SCHEDULE XI

LIST OF MORTGAGE LOAN DOCUMENTS

1.	Amended and Restated Loan Agreement, dated as of November 6, 2007, among Mortgage Borrowers and Mortgage Lender.
2.	Replacement Reduced Acquisition Loan Promissory Note, dated November 6, 2007, in the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by Mortgage Borrowers in favor of Mortgage Lender.
3.	Replacement Construction Loan Promissory Note, dated November 6, 2007, in the principal amount of Six Hundred Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage Borrowers in favor of Mortgage Lender.
4.	Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007, from Mortgage Borrowers to First American Title Insurance Company, as Trustee for the benefit of Mortgage Lender.
5.	Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents, dated as of November 6, 2007, by and among Mortgage Borrowers and Mortgage Lender.
6.	Amended and Restated Cash Management Agreement, dated as of November 6, 2007, by and among Mortgage Borrowers, Mortgage Lender and Manager.
7.	Environmental Indemnity Agreement, dated as of February 2, 2007, by Mortgage Borrowers in favor of Mortgage Lender.
8.	Guaranty Agreement, dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.
9.	Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.
10.	Closing Guaranty of Completion, dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.
11.	Modification and Ratification of Guaranties, dated as of November 6, 2007, by and among Guarantors and Mortgage Lender.
12.	HRHI Guaranty Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.
13.	Modification of HRHI Loan Documents and Ratification of HRHI Guaranty, dated as of November 6, 2007, by and between HRHI and Mortgage Lender.

14.	HRHI Security Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.
15.	Intellectual Property Security Agreement, dated as of February 2, 2007, by IP Borrower and HRHI in favor of Mortgage Lender.
16.	HRHI Gaming Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower and HRHI in connection with the Gaming Sublease and the gaming operations at the Hotel/Casino Property.
17.	Recognition Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower, HRHI and Golden HRC, LLC in connection with the Gaming Sublease.
18.	Agreement, dated as of October 31, 2007, by and among Navegante HR, LLC, Morgans Parent, HRHI, Mortgage Lender and Navegante Gaming, LLC.
19.	Operations and Maintenance Agreement, dated as of February 2, 2007, by and among each of Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.
20.	Collateral Assignment and Acknowledgment (Morton Indemnification), dated as of February 2, 2007, made by PM Realty, LLC, Red, White and Blue Pictures, Inc., Peter A. Morton, 510 Development Corporation, Morgans Hotel Group Co., Morgans Group LLC and Chicago Title Agency of Nevada, Inc. in favor of Mortgage Lender.
21.	Assignment of Contracts, Operating Permits and Construction Permits, dated as of February 2, 2007, from Mortgage Borrowers to Mortgage Lender.
22.	Assignment of Leases and Rents, dated as of February 2, 2007, from Hotel/Casino Borrower, Café Borrower, Adjacent Borrower and Gaming Borrower, as assignors, to Mortgage Lender, as assignee.
23.	Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of February 2, 2007, by Café Borrower, Hotel/Casino Borrower and Adjacent Borrower to Mortgage Lender, and consented and agreed to by the Affiliated Manager of such Properties.
24.	Assignment of Management Agreement (Adjacent Property), dated as of February 2, 2007, by Adjacent Borrower to Mortgage Lender, and consented and agreed to by Sub-Manager.
25.	Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of February 2, 2007, by Hotel/Casino Borrower to Mortgage Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager.
26.	Assignment of Restaurant Management Agreement, dated as of February 2, 2007, by Hotel/Casino Borrower to Mortgage Lender.

27. Collateral Assignment of Interest Rate Cap Agreement (Acquisition Mortgage Loan), dated as of November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:

(a)	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
(b)	Interest Rate Cap Confirmation and ISDA Master Agreement.

28. Collateral Assignment of Interest Rate Cap Agreement (Construction Mortgage Loan), dated as of November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:

(a)	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
(b)	Interest Rate Cap Confirmation and ISDA Master Agreement.

29. Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage Lender, Lender, Second Mezzanine Lender and Third Mezzanine Lender.

EXHIBIT A

FORM OF FIRST MEZZANINE
CONSTRUCTION COMPLETION GUARANTY

EX-10.27

Exhibit 10.27

EXECUTION COPY

SECOND MEZZANINE LOAN AGREEMENT

Dated as of November 6, 2007

among

HRHH GAMING JUNIOR MEZZ, LLC,
as Gaming Mezz Borrower,

HRHH JV JUNIOR MEZZ, LLC,
as JV Borrower,

and

COLUMN FINANCIAL, INC.,
as Lender

TABLE OF CONTENTS

	Page
ARTICLE I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION		2
Section 1.1 Definitions		2
Section 1.2 Principles of Construction		50
ARTICLE II. GENERAL TERMS		51
Section 2.1 Loan Commitment; Disbursement to Borrowers		51
Section 2.2 Interest Rate		51
Section 2.3 Loan Payment		58
Section 2.4 Prepayments		59
Section 2.5 Release of Property		71
Section 2.6 Cash Management		75
Section 2.7 Extensions of the Initial Maturity Date		77
ARTICLE III. CONDITIONS PRECEDENT		88
Section 3.1 Conditions Precedent to Closing		88
Section 3.2 Submission of Construction Loan Advance Documents to Lender		88
Section 3.3 Delivery of Construction Completion Guaranty		88
ARTICLE IV. REPRESENTATIONS AND WARRANTIES		91
Section 4.1 Representations of Borrowers		91
Section 4.2 Survival of Representations		107
Section 4.3 Definition of Borrowers’ Knowledge		107
ARTICLE V. COVENANTS OF BORROWERS		108
Section 5.1 Affirmative Covenants		108
Section 5.2 Negative Covenants		127
ARTICLE VI. INSURANCE; CASUALTY; CONDEMNATION; RESTORATION		138
Section 6.1 Insurance		138
Section 6.2 Casualty		139
Section 6.3 Condemnation		140
Section 6.4 Restoration		141
Section 6.5 Rights of Lender		141
ARTICLE VII. RESERVE FUNDS		141
Section 7.1 Required Repair Fund		141
Section 7.2 Tax and Insurance Escrow Fund		142
Section 7.3 Replacement Reserve Fund		142
Section 7.4 Interest Reserve Fund		143
Section 7.5 Initial Renovation Reserve Fund		143

	Page
Section 7.6 General Reserve Fund		143
Section 7.7 Construction Loan Reserve Fund		144
Section 7.8 Reserve Funds, Generally		144
Section 7.9 Transfer of Mortgage Reserve Funds		146
ARTICLE VIII. DEFAULTS		146
Section 8.1 Event of Default		146
Section 8.2 Remedies		151
Section 8.3 Right to Cure Defaults		153
ARTICLE IX. SPECIAL PROVISIONS		154
Section 9.1 Sale of Note and Securitization		154
Section 9.2 Re-Dating		156
Section 9.3 Securitization Indemnification		156
Section 9.4 Exculpation		159
Section 9.5 Matters Concerning Managers and Liquor Manager		164
Section 9.6 Matters Concerning Gaming Operator		165
Section 9.7 Servicer		165
ARTICLE X. MISCELLANEOUS		166
Section 10.1 Survival		166
Section 10.2 Lender’s Discretion		166
Section 10.3 Governing Law		166
Section 10.4 Modification, Waiver in Writing		168
Section 10.5 Delay Not a Waiver		168
Section 10.6 Notices		168
Section 10.7 Trial by Jury		170
Section 10.8 Headings		171
Section 10.9 Severability		171
Section 10.10 Preferences		171
Section 10.11 Waiver of Notice		171
Section 10.12 Remedies of Borrowers		171
Section 10.13 Expenses; Indemnity		171
Section 10.14 Schedules and Exhibits Incorporated		173
Section 10.15 Offsets, Counterclaims and Defenses		173
Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries		173
Section 10.17 Publicity		174
Section 10.18 Waiver of Marshalling of Assets		174
Section 10.19 Waiver of Counterclaim		174
Section 10.20 Conflict; Construction of Documents; Reliance		175
Section 10.21 Brokers and Financial Advisors		175
Section 10.22 Prior Agreements		175
Section 10.23 Joint and Several Liability		176
Section 10.24 Certain Additional Rights of Lender (VCOC)		176

	Page
ARTICLE XI. MORTGAGE LOAN AND MEZZANINE LOANS		176
Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries		176
Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels		177
Section 11.3 Mortgage Loan and First Mezzanine Loan Defaults		180
Section 11.4 Discussions with Mortgage Lender and First Mezzanine Lender		180
Section 11.5 Independent Approval Rights		180
Section 11.6 Intercreditor Agreement		180
ARTICLE XII. GAMING PROVISIONS		181
Section 12.1 Operation of Casino Component		181
Section 12.2 Gaming Liquidity Requirements		184
ARTICLE XIII. RIGHT OF FIRST OFFER		184
Section 13.1 Right of First Offer		184
Section 13.2 Right of First Offer Procedure		184
Section 13.3 Application to Credit Suisse		185

SCHEDULES
Schedule I-A	–	Legal Description of Hotel/Casino Property
Schedule I-B	–	Legal Description of Café Property
Schedule I-C	–	Legal Description of Adjacent Property
Schedule II	–	Description of Project
Schedule III	–	Description of Pledged Interests
Schedule IV	–	Allocated Loan Amounts
Schedule V	–	Net Worth Requirements
Schedule VI	–	Organizational Structure
Schedule VII	–	IP
Schedule VIII	–	Litigation
Schedule IX	–	Operating Permits
Schedule X	–	Rent Roll
Schedule XI	–	List of Mortgage Loan Documents
Schedule XII	–	List of First Mezzanine Loan Documents
EXHIBITS
Exhibit A	–	Form of Second Mezzanine Construction Completion Guaranty

SECOND MEZZANINE LOAN AGREEMENT

     THIS SECOND MEZZANINE LOAN AGREEMENT, dated as of November 6, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”), among COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”), HRHH GAMING JUNIOR MEZZ, LLC, a Delaware limited liability company, having its principal place of business c/o Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Gaming Mezz Borrower”) and HRHH JV JUNIOR MEZZ, LLC, a Delaware limited liability company, having its principal place of business c/o Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“JV Borrower”; and each of Gaming Borrower and JV Borrower, individually, a “Borrower”, and collectively, “Borrowers”), jointly and severally.

W I T N E S S E T H:

     WHEREAS, pursuant to that certain Loan Agreement, dated as of February 2, 2007 (the “Original Mortgage Loan Agreement”), among Mortgage Lender and Mortgage Borrowers (as such terms are hereinafter defined), Mortgage Lender made a loan to Mortgage Borrowers in the original principal amount of up to $1,360,000,000.00 (the “Original Mortgage Loan”), subject to and in accordance with the terms and conditions of the Original Mortgage Loan Agreement;

     WHEREAS, Mortgage Lender and Mortgage Borrowers have agreed that, as of the date hereof, (i) Mortgage Borrowers shall prepay $350,000,000.00 of the Original Mortgage Loan from the proceeds of three (3) mezzanine loans made to the direct and/or indirect owners of equity interests in Mortgage Borrowers, and (ii) Mortgage Lender shall increase the maximum amount of the Original Mortgage Loan by $20,000,000.00, resulting in the aggregate principal amount of $1,030,000,000.00, in accordance with the terms and conditions of the Mortgage Loan Agreement (as such term is hereinafter defined), and the original promissory note evidencing the Original Mortgage Loan shall be replaced by the Mortgage Notes (as such term is hereinafter defined); and

     WHEREAS, in connection with the partial prepayment of the Original Mortgage Loan: (i) First Mezzanine Lender is willing to make the First Mezzanine Loan to First Mezzanine Borrowers, subject to and in accordance with the terms and conditions of the First Mezzanine Loan Agreement and the other First Mezzanine Loan Documents (as such terms are hereinafter defined); (ii) Lender is willing to make the Loan to Borrowers, subject to and in accordance with the terms and conditions of this Agreement and the other Loan Documents; and (iii) Third Mezzanine Lender is willing to make the Third Mezzanine Loan to Third Mezzanine Borrowers, subject to and in accordance with the terms and conditions of the Third Mezzanine Loan Agreement and the other Third Mezzanine Loan Documents (as such terms are hereinafter defined).

     NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and legal sufficiency of

which are hereby acknowledged, the parties hereto hereby covenant, agree, represent and warrant as follows:

ARTICLE I.
DEFINITIONS; PRINCIPLES OF CONSTRUCTION

     Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

     “Acceptable Counterparty” shall mean any counterparty to the Interest Rate Cap Agreement that has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a long-term unsecured debt rating of at least “AA-” by S&P and “Aa3” from Moody’s, which rating shall not include a “t” or otherwise reflect a termination risk.

     “Additional Insolvency Opinion” shall have the meaning set forth in Section 4.1.30(d) hereof.

     “Additional Non-Qualified Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(c) hereof.

     “Additional Non-Qualified Prepayment Date” shall mean July 1, 2008.

     “Adjacent Borrower” shall mean HRHH Development, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Adjacent Parcel Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Adjacent Parcel Sale” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Adjacent Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Adjacent Property IP License” shall have the meaning set forth in Section 5.1.26(b) hereof.

     “Advance Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Affiliate” shall mean, as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.

     “Affiliate Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

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     “Affiliate IP License” shall have the meaning set forth in Section 5.1.26(d) hereof.

     “Affiliate IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Affiliate Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Affiliated IP Party” shall mean (i) any subsidiary of any Loan Party hereafter formed with Lender’s consent, (ii) HRHI, and (iii) any subsidiary of HRHI.

     “Affiliated Manager” shall mean any Manager in which any Loan Party or any Guarantor has, directly or indirectly, any legal, beneficial or economic interest.

     “Aggregate Outstanding Principal Balance” shall mean, as of any date of determination, the sum of the Outstanding Principal Balance, the Mortgage Loan Outstanding Principal Balance, the First Mezzanine Loan Outstanding Principal Balance and the Third Mezzanine Loan Outstanding Principal Balance.

     “Alteration Threshold Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Alternate Financing Percentages” shall mean the Loan Percentage, the Mortgage Reduced Acquisition Loan Percentage, the First Mezzanine Loan Percentage and the Third Mezzanine Loan Percentage.

     “Alternative Minimum Interest Reserve Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Alternative Minimum Mandatory Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Annual Budget” shall mean the operating budget, including all planned Capital Expenditures, for all of the Properties, collectively, prepared by Mortgage Borrowers or the applicable Manager(s) for the applicable Fiscal Year or other period.

     “Applicable Interest Rate” shall mean the rate or rates at which the Outstanding Principal Balance bears interest from time to time in accordance with the provisions of Section 2.2.3 hereof.

     “Approved Annual Budget” shall have the meaning set forth in Section 5.1.11(c) hereof.

     “Approved Bank” shall mean a bank or other financial institution which has a minimum long term unsecured debt rating of at least “AA” by S&P and Fitch and “Aa2” by Moody’s.

     “Assignment of Leases” shall mean that certain first priority Assignment of Leases and Rents, dated as of February 2, 2007, from Hotel/Casino Borrower, Café Borrower, Adjacent Borrower and Gaming Borrower, as assignors, to Mortgage Lender, as assignee, assigning to

3

Mortgage Lender all of each such Mortgage Borrower’s right, title and interest in and to the Leases and Rents of its Property as security for the Mortgage Loan, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Assignment of Liquor Management Agreement” shall mean that certain Second Mezzanine Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of the date hereof, by Borrowers, as assignors, and Hotel/Casino Borrower, to Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Assignment of Management Agreement (All Properties)” shall mean that certain Second Mezzanine Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of the date hereof, by Borrowers, as assignors, Café Borrower, Hotel/Casino Borrower and Adjacent Borrower, to Lender, and consented and agreed to by the Affiliated Manager of such Properties, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Award” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation of all or any part of any Property.

     “Bankruptcy Action” shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person; (d) such Person consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of any Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due.

     “Bankruptcy Code” shall mean 11 U.S.C. § 101 et seq., as the same may be amended from time to time.

     “Bonafide Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Bonafide IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Bonafide Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Borrower” and “Borrowers” shall have the meanings set forth in the introductory paragraph hereto, together with its or their successors and permitted assigns.

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     “Breakage Costs” shall have the meaning set forth in Section 2.2.3(h) hereof.

     “Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business.

     “Café Borrower” shall mean HRHH Cafe, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Café Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Capital Expenditures” shall mean, for any period, the amount expended for items capitalized under GAAP and the Uniform System of Accounts (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements, but excluding capitalized interest).

     “Cash Management Account” shall have the meaning set forth in Section 2.6.3(a) hereof.

     “Cash Management Agreement” shall mean that certain Cash Management Agreement (Second Mezzanine Loan), dated as of the date hereof, by and among Borrowers, Mortgage Borrowers and Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Casino Account” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, individually or collectively, one or more accounts established and maintained from time to time by Gaming Borrower and reasonably approved by Mortgage Lender; provided, however, that any such Casino Account shall be established and maintained pursuant to, and in accordance with, all applicable Gaming Laws and shall be subject to a security interest in favor of Mortgage Lender pursuant to the Mortgage Loan Documents.

     “Casino Component” shall mean that portion of the Hotel/Casino Property devoted to the operation of a casino gaming operation and, as of February 2, 2007, leased to HRHI pursuant to the HRHI Lease and subleased to Gaming Operator pursuant to the Gaming Sublease, including, without limitation, those areas devoted to the conduct of games of chance, facilities associated directly with gaming operations, including, without limitation, casino support areas such as surveillance and security areas, cash cages, counting and accounting areas and gaming back-of-the-house areas, in each case, to the extent the operation thereof requires a Gaming License under applicable Gaming Laws, as more particularly described and set forth in the HRHI Lease and the Gaming Sublease as the “Premises”.

     “Casino Component Lease” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Casualty” shall have the meaning set forth in Section 6.2 hereof.

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     “Certificate of Occupancy” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Closing Completion Guaranty” shall mean that certain Second Mezzanine Closing Guaranty of Completion, dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Closing Date” shall mean the date of this Agreement.

     “Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

     “Collateral” shall mean (i) the Pledged Collateral and (ii) all other collateral for the Loan granted in the Loan Documents.

     “Collateral Assignment of Interest Rate Cap Agreement” shall mean that certain Collateral Assignment of Interest Rate Cap Agreement (Second Mezzanine Loan), dated as of the date hereof, executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Comparable Hotel/Casinos” shall mean hotel and casino resorts in Las Vegas, Nevada which are of a similar nature, quality and scope as the hotel and casino resort being operated on the Hotel/Casino Property as of February 2, 2007, including, without limitation, Mandalay Bay Resort and Casino, MGM Grand Hotel and Casino, The Palms Casino Resort and Caesars Palace, in each of the foregoing instances, as existing and being operated on the date hereof.

     “Component” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Component Percentages” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Condemnation” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Property or any part thereof.

     “Constituent Member” shall mean any direct member or partner in any Loan Party, any Mezzanine Borrower or any Guarantor and any Person that, directly or indirectly through one or more other partnerships, limited liability companies, corporations or other entities is a stockholder, member or partner in any Loan Party, any Mezzanine Borrower or any Guarantor.

     “Construction Completion Guaranty” shall mean a Second Mezzanine Construction Guaranty of Completion from Guarantors in favor of Lender in the form attached hereto as

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     Exhibit A, as such agreement may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Construction Loan” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Construction Loan Advance” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Construction Loan Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.7 hereof.

     “Construction Qualification Date” shall mean May 1, 2008, subject to Excusable Delay not to exceed fifteen (15) days.

     “Construction Schedule” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise. “Controlled” and “Controlling” shall have correlative meanings.

     “Counterparty” shall mean, with respect to the Interest Rate Cap Agreement, Natixis Financial Products Inc., and with respect to any Replacement Interest Rate Cap Agreement, any substitute Acceptable Counterparty.

     “Credit Suisse” shall mean Credit Suisse Securities (USA) LLC and its successors in interest.

     “Deemed Relinquishment” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Debt” shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including, if applicable, any Spread Maintenance Premium and any Prepayment Fee) due to Lender in respect of the Loan under the Note, this Agreement, the Pledge Agreement and the other Loan Documents.

     “Debt Service” shall mean, with respect to any particular period of time, scheduled interest payments due under this Agreement and the Note.

     “Debt Service Coverage Ratio” shall mean, as of any date of determination, a ratio in which:

     (a) the numerator is the Pro-Forma Net Cash Flow as of such date of determination; and

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     (b) the denominator is the aggregate amount of interest that is reasonably estimated by Lender to be due and payable on the Outstanding Principal Balance, the Mortgage Loan Outstanding Principal Balance, the First Mezzanine Loan Outstanding Principal Balance and the Third Mezzanine Loan Outstanding Principal Balance as of such date of determination for the following full twelve (12) calendar month period.

          “Debt Yield” shall mean:

     (a) for all calculations of Debt Yield except in connection with the Second Qualified Extension Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net Cash Flow for the trailing twelve (12) calendar month period ending with the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, as reasonably determined by Mortgage Lender based on the financial statements delivered to Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan Agreement and to Lender pursuant to Section 5.1.11 hereof, and (ii) the denominator is the Aggregate Outstanding Principal Balance as of such date of determination, subject, however, to the provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section 2.7.3 hereof; and

     (b) for the calculation of Debt Yield in connection with the Second Qualified Extension Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net Cash Flow for a period equal to the lesser of (A) the trailing twelve (12) calendar month period ending with the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, or (B) the period commencing on the first (1st) day of the First Full Operating Month through and including the last day of the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, with such Net Cash Flow, in the case of the foregoing clause (B), then being reasonably annualized by Mortgage Lender, and in each of the foregoing cases under clause (A) or (B) above, as reasonably determined by Mortgage Lender based on the financial statements delivered to Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan Agreement and to Lender pursuant to Section 5.1.11 hereof, and (ii) the denominator is the Aggregate Outstanding Principal Balance as of such date of determination, subject, however, to the provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section 2.7.3 hereof.

     “Debt Yield Letter of Credit” shall have the meaning set forth in Section 2.7.3(b) hereof.

     “Default” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default.

     “Default Rate” shall mean a rate per annum equal to the lesser of (a) the Maximum Legal Rate and (b) four percent (4%) above the Applicable Interest Rate.

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     “Determination Date” shall mean, with respect to any Interest Period, the date that is two (2) London Business Days prior to the fifteenth (15th) day of the calendar month in which such Interest Period commences; provided, that with respect to the initial Interest Period, the Determination Date was two (2) London Business Days prior to the Closing Date.

     “Disclosure Document” shall mean a prospectus, prospectus supplement, private placement memorandum, offering memorandum, offering circular or other offering documents, in each case in preliminary or final form, used to offer Securities in connection with a Securitization.

     “DLJ Entities” shall have the meaning set forth in Section 10.16(c) hereof.

     “DLJ Guarantor” shall mean DLJ MB IV HRH, LLC, a Delaware limited liability company, together with its successors and permitted assigns.

     “DLJMB Commitment Letter” shall mean that certain Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of the date hereof, by the DLJMB Parties in favor of Lender, Mortgage Lender, First Mezzanine Lender and Third Mezzanine Lender.

     “DLJMB Parties” shall have the meaning set forth in Section 9.4 hereof.

     “Draw Request” shall mean, with respect to each Construction Loan Advance, an Advance Request together with all other documents required by the Mortgage Loan Agreement to be furnished to Mortgage Lender as a condition to such Construction Loan Advance.

     “Eligible Account” shall mean a separate and identifiable “deposit account”, as such term is defined in any applicable Uniform Commercial Code, from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. §9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.

     “Eligible Institution” shall mean a depository institution or trust company, the short term unsecured debt obligations or commercial paper of which are rated at least “A-1+” by S&P, “P-1” by Moody’s and “F-1+” by Fitch in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least “AA” by Fitch and S&P and “Aa2” by Moody’s).

     “Embargoed Person” shall have the meaning set forth in Section 4.1.35 hereof.

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     “Environmental Indemnity” shall mean that certain Second Mezzanine Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     “Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.

     “Excess Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Excess Cash Termination Conditions” shall mean that (i) as of any Financial Determination Date, the Properties have achieved and maintained a Debt Service Coverage Ratio of not less than 1.10 to 1.00 for the immediately preceding two (2) consecutive calendar quarters, and (ii) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing.

     “Excess Fully Funded IP Release Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Excess IP Release Price Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Excess Non-Fully Funded IP Release Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Exchange Act” shall have the meaning set forth in Section 9.3(a) hereof.

     “Exchange Act Filing” shall have the meaning set forth in Section 5.1.11(e) hereof.

     “Excluded Taxes” shall mean, with respect to Lender or any other recipient of any payment to be made by or on account of any obligation of Borrowers hereunder, (a) income or franchise taxes imposed on (or measured by reference to) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, or any other jurisdiction in which it is subject to tax solely as a result of any present or former connection between Lender or other recipient, as applicable, and the jurisdiction imposing such tax other than a present or former connection solely as a result of the activities and transactions specifically contemplated by this Agreement, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) of this definition, and (c) in the case of a Non-U.S. Lender, any withholding tax that is imposed on amounts payable to such Non-U.S. Lender at the time such Non-U.S. Lender designates a new lending office, unless the designation of such new lending office was at the request of Borrowers, or is attributable to such Non-U.S. Lender’s failure to comply with Section 2.2.3(e)(iii) hereof, except to the extent that such Non-U.S. Lender was

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entitled, at the time of designation of a new lending office, to receive additional amounts from Borrowers with respect to such withholding tax pursuant to Section 2.2.3(e) hereof.

     “Excusable Delay” shall mean a delay due to acts of god, governmental restrictions, stays, judgments, orders, decrees, enemy actions, civil commotion, fire, casualty, strikes, work stoppages, shortages of labor or materials or other causes beyond the reasonable control of any Loan Party and not arising out of (a) the negligence, willful misconduct or illegal act of any Loan Party or any Affiliate of any Loan Party, or (b) any cause or circumstance resulting from the insolvency, bankruptcy or lack of funds of any Loan Party, any Guarantor or any Affiliate of any Loan Party or any Guarantor.

     “Existing FF&E Leases” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Extended Maturity Date” shall mean, as applicable, either (a) the Qualified Extended Maturity Date as set forth in Section 2.7.2 hereof, or (b) the Non-Qualified Extended Maturity Date as set forth in Section 2.7.1 hereof.

     “Extension Debt Service Coverage Ratio” shall mean, with respect to any Extension Term, a ratio for the applicable twelve (12) month period in which:

     (a) the numerator is the Projected Underwritten Net Cash Flow for such Extension Term; and

     (b) the denominator is the sum of:

     (i) the aggregate amount of interest that would be payable on the sum of the Mortgage Outstanding Principal Balance as of the first day of such Extension Term plus the amount of any anticipated Construction Loan Advances in accordance with the Construction Schedule (excluding any Construction Loan Advances anticipated to be made out of the Construction Loan Reserve Account pursuant to the Mortgage Loan Agreement), if any, for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the applicable Mortgage Spread; plus

     (ii) the aggregate amount of interest that would be payable on the First Mezzanine Loan Outstanding Principal Balance as of the first day of such Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the First Mezzanine Spread; plus

     (iii) the aggregate amount of interest that would be payable on the Outstanding Principal Balance as of the first day of such Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the Spread; plus

     (iv) the aggregate amount of interest that would be payable on the Third Mezzanine Loan Outstanding Principal Balance as of the first day of such

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Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the Third Mezzanine Spread.

     “Extension Interest Shortfall” shall mean, with respect to each Extension Term, the difference between: (a) the Required Net Cash Flow with respect to such Extension Term, less (b) the amount on deposit in the Interest Reserve Fund as of the day immediately preceding the first (1^st) day of such Extension Term.

     “Extension Option” shall mean any Qualified Extension Option or Non-Qualified Extension Option, as applicable.

     “Extension Term” shall mean any Qualified Extension Term or Non-Qualified Extension Term, as applicable.

     “Extra Non-Accrued Interest” shall have the meaning set forth in Section 2.4.6 hereof.

     “Extraordinary Expense” shall have the meaning set forth in Section 5.1.11(d) hereof.

     “FF&E” shall mean all furniture, furnishings, fixtures and equipment required for the operation of any of the Properties, including, without limitation, (i) lobby furniture, carpeting, draperies, paintings, bedspreads, television sets, office furniture and equipment such as safes, cash registers, and accounting, duplicating and communication equipment, telephone systems, back and front of the house computerized systems, guest room furniture, specialized hotel equipment such as equipment required for the operation of kitchens, laundries, the front desk, dry cleaning facilities, bar and cocktail lounges, restaurants, recreational facilities as they may exist from time to time, and decorative lighting, material handling equipment and cleaning and engineering equipment and all other fixtures, equipment, apparatus and personal property needed for such purposes, (ii) Gaming Equipment which any Mortgage Borrower is lawfully permitted to own or lease, and (iii) rock and roll memorabilia unique to the Hotel/Casino Property and similar in character to the other rock and roll memorabilia displayed at the Hotel/Casino Property.

     “FF&E Expenditures” shall mean amounts expended for the purchase, replacement and/or installation of FF&E at the Properties.

     “FF&E Expenditures Work” shall mean any labor performed or materials installed in connection with any FF&E Expenditures.

     “Financial Determination Date” shall have the meaning set forth in Section 2.6.4 hereof.

     “Financing Percentages” shall mean the Loan Percentage, the Mortgage Loan Percentage, the First Mezzanine Loan Percentage and the Third Mezzanine Loan Percentage.

     “First Anniversary” shall mean the first anniversary of the Closing Date.

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     “First Full Operating Month” shall mean the calendar month following the month in which Substantial Completion occurs.

     “First Mezzanine Borrower” and “First Mezzanine Borrowers” shall mean, individually or collectively, as applicable, HRHH Gaming Senior Mezz, LLC, a Delaware limited liability company, and HRHH JV Senior Mezz, LLC, a Delaware limited liability company, each in its capacity as a borrower under the First Mezzanine Loan, together with its or their successors or permitted assigns.

     “First Mezzanine Collateral” shall mean the “Collateral” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Debt” shall mean the “Debt” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Default” shall mean a “Default” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Event of Default” shall mean an “Event of Default” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the First Mezzanine Loan, together with its successors and assigns.

     “First Mezzanine Loan” shall mean the loan in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), made by First Mezzanine Lender to First Mezzanine Borrowers pursuant to the First Mezzanine Loan Agreement.

     “First Mezzanine Loan Agreement” shall mean that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Lender and First Mezzanine Borrowers, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “First Mezzanine Loan Documents” shall mean the First Mezzanine Loan Agreement and all other documents evidencing and/or securing the First Mezzanine Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “First Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the First Mezzanine Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

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     “First Mezzanine Reserve Funds” shall mean the “Reserve Funds” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Spread” shall mean the “Spread” as defined in the First Mezzanine Loan Agreement.

     “First Non-Qualified Extended Maturity Date” shall mean February 9, 2010.

     “First Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1(a) hereof.

     “First Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1(a) hereof.

     “First Qualified Extended Maturity Date” shall mean February 9, 2011.

     “First Qualified Extension Option” shall have the meaning set forth in Section 2.7.2(a) hereof.

     “First Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(a) hereof.

     “Fiscal Year” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan.

     “Fitch” shall mean Fitch, Inc.

     “Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “GAAP” shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

     “Gaming Assets” shall have the meaning set forth in the Gaming Sublease.

     “Gaming Assets Note” shall mean that certain Gaming Asset Note, dated as February 2, 2007, made by the Gaming Operator to HRHI, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Authority” shall mean any of the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board and any other Governmental Authority and/or regulatory authority or body or any agency which has, or may at any time after the Closing Date have, jurisdiction over the gaming activities or the sale or distribution of liquor at any of the Properties, or any successor to any such authority.

     “Gaming Borrower” shall mean HRHH Gaming, LLC, a Nevada limited liability company, together with its successors and assigns.

     “Gaming Employees” shall have the meaning set forth in the Gaming Sublease.

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     “Gaming Equipment” shall mean any and all gaming devices (as defined in NRS 463.0155), gaming device parts, inventory and other related gaming equipment and supplies used in connection with the operation of a casino, including, without limitation, slot machines, gaming tables, cards, dice, chips, tokens (including slot machine tokens not currently in circulation, and “reserve” chips, if any, not currently in circulation), player tracking systems, cashless wagering systems (as defined in NRS 463.014) and associated equipment (as defined in NRS 463.0136), which are located at any Property, are owned or leased by any Borrower and are used or useable exclusively in the present or future operation of slot machines and live games at any Property, together with all improvements and/or additions thereto, mobile gaming systems (as defined in Regulation 14.010(11) under NRS Chapter 463), all contracts necessary to own or operate any of the Gaming Equipment and/or to conduct gaming operations for the Casino Component, all assignable manufacturers and other warranties applicable to the Gaming Equipment, all computer hardware and software used to operate the Gaming Equipment and/or to conduct gaming operations for the Casino Component.

     “Gaming Laws” shall mean the provisions of the Nevada Gaming Control Act, codified as NRS Chapter 463, as amended from time to time, all regulations of the Gaming Authorities promulgated thereunder, as amended from time to time, the provisions of the Clark County Code, as amended from time to time, and all other laws, statutes, rules, rulings, orders, ordinances, regulations and other Legal Requirements of any Gaming Authority.

     “Gaming Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Gaming License” shall mean any license, qualification, franchise, accreditation, approval, registration, permit, finding of suitability or other authorization relating to gaming, the gaming business or the operation of a casino under the Gaming Laws or required by any Gaming Authority or otherwise necessary under any Gaming Laws for the operation of gaming, the gaming business or a resort casino at the Hotel/Casino Property.

     “Gaming Liquidity Requirement” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, the minimum bankroll requirements for cash and cash equivalents required to be maintained by Gaming Borrower pursuant to the Gaming Laws in an amount no greater than is mandated by Nevada Gaming Commission Regulation 6.150.

     “Gaming Member” shall mean HRHH Gaming Member, LLC, a Delaware limited liability company.

     “Gaming Operating Condition” shall mean that the gaming operations at the Hotel/Casino Property are being operated by a Qualified Gaming Operator pursuant to either (i) the Gaming Sublease and the Gaming Recognition Agreement or (ii) one or more other written agreements previously approved by Lender.

     “Gaming Operating Reserve” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, such cash funds and reserves that are held and maintained by Gaming Borrower, in its capacity as the duly

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licensed operator of the Casino Component under applicable Gaming Laws, either on-site at the Hotel/Casino Property or in the Casino Account, including, without limitation, casino chips, tokens, checks and markers; provided that all such Gaming Operating Reserves (i) are established and maintained solely for use in the day-to-day operation and management of the Casino Component in the ordinary course of business, and (ii) are funded and maintained in accordance with the requirements of all applicable Gaming Laws and are in the amounts that are reasonable and customary for casino operations at Comparable Hotel/Casinos (it being agreed that 110% of statutory or regulatory minimums shall be deemed a reasonable and customary minimum amount for these purposes).

     “Gaming Operator” shall mean (i) subject to clause (ii) below, for so long as the Gaming Sublease is in effect and all required Gaming Licenses are maintained in accordance with applicable Gaming Laws, Golden HRC, LLC, a Nevada limited liability company, the subtenant under the Gaming Sublease, (ii) if Navegante HR, LLC, a Nevada limited liability company, replaces Golden HRC, LLC as the subtenant under the Gaming Sublease pursuant to the Navegante Agreement, for so long as the Gaming Sublease is in effect and all required Gaming Licenses are maintained in accordance with applicable Gaming Laws, Navegante HR, LLC, as replacement subtenant under the Gaming Sublease, and (iii) during any time when the Gaming Sublease is not in effect, a Qualified Gaming Operator who is supervising, managing and operating all gaming activities at the Hotel/Casino Property.

     “Gaming Recognition Agreement” shall mean that certain Recognition Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower, HRHI and Golden HRC, LLC in connection with the Gaming Sublease, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Shortfall Notes” shall mean the “Shortfall Notes” as defined in the Gaming Sublease.

     “Gaming Sublease” shall mean that certain Casino Sublease, dated as of November 6, 2006, by and among MHG HR Acquisition Corp., as sublandlord, Morgans Hotel Group Co., and Golden HRC, LLC, as subtenant (it being acknowledged and agreed that, upon consummation of the transactions under the Merger Agreement, HRHI succeeded to the interests of MHG HR Acquisition Corp. thereunder), covering the Casino Component of the Hotel/Casino Property as more particularly described therein, as such Casino Sublease was modified by that certain First Amendment to Casino Sublease, dated as of January 9, 2007 and by the Gaming Recognition Agreement, and as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Surplus Fund Reserve” shall mean the “Surplus Fund Reserve” as defined in the Gaming Sublease.

     “Gaming Working Capital Note” shall mean the “Working Capital Note” as defined in the Gaming Sublease.

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     “General Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.6 hereof.

     “General Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.6 hereof.

     “Governmental Approvals” shall mean all approvals, consents, waivers, orders, acknowledgments, authorizations, permits and licenses required under applicable Legal Requirements to be obtained from any Governmental Authority for the construction of any and all of the Project and/or the use, occupancy and operation following completion of construction, as the context requires.

     “Governmental Authority” shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence, including, without limitation, any Gaming Authority.

     “Gross Income from Operations” shall mean, for any period, all Rents and all other income and proceeds (whether in cash or on credit, and computed in accordance with GAAP and, to the extent applicable with respect to the Hotel/Casino Property, the Uniform System of Accounts), received by any Mortgage Borrower or by any Manager (on behalf of any Mortgage Borrower) or by Sub-Manager (on behalf of any Mortgage Borrower or any Manager) for the use, occupancy or enjoyment of any of the Properties, or any part thereof, or received by any Mortgage Borrower or any Manager or Sub-Manager for the sale of any goods, services or other items sold on or provided from any of the Properties in the ordinary course of such Property’s operation, including, without limitation: (a) all income and proceeds received under Leases, including, without limitation, the HRHI Lease; (b) all income and proceeds received from rental of rooms and commercial, meeting, conference and/or banquet space within any of the Properties including net parking revenue; (c) all income and proceeds received from food and beverage operations and from catering services conducted from any of the Properties even though rendered outside of any of the Properties; (d) without duplication of the foregoing clause (a) or the following clause (e), all income, proceeds and other amounts received by any Mortgage Borrower under the Gaming Sublease; (e) without duplication of the foregoing clauses (a) or (d), all income, proceeds and revenue generated from gaming activities at any Property; (f) any payments received by or on behalf of any Mortgage Borrower under the Gaming Assets Note, the Gaming Shortfall Notes or the Working Capital Note or from the Surplus Fund Reserve; (g) all income and proceeds from business interruption, rental interruption and use and occupancy insurance with respect to the operation of any of the Properties (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof); (h) all Awards for temporary use (after deducting therefrom all costs incurred in the adjustment or collection thereof and in Restoration of any of the Properties); (i) all income and proceeds from judgments, settlements and other resolutions of disputes with respect to matters which would be includable in this definition of “Gross Income from Operations” if received in the ordinary course of any of the Properties’ operation (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof); (j) interest on credit accounts, rent concessions or credits,

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and other required pass-throughs and interest on Reserve Funds; and (k) deposits received for rental of rooms; and “Gross Income from Operations” shall also include all licensing fees and other income and receipts generated by the IP; but “Gross Income from Operations” shall exclude (1) gross receipts received by lessees, licensees or concessionaires of any of the Properties (but not any percentage rents or similar payments derived therefrom); (2) income and proceeds from the sale or other disposition of goods, FF&E, capital assets and other items not in the ordinary course of the operation of the applicable Property; (3) federal, state and municipal excise, sales and use taxes collected directly from customers, patrons or guests of any of the Properties as a part of or based on the sales price of any goods, services or other items, such as gross receipts, room, admission, cabaret or equivalent taxes; (4) Awards (except to the extent provided in clause (h) above); (5) refunds, rebates, discounts and other similar credits of amounts not included in Operating Expenses at any time and uncollectible accounts; (6) gratuities collected by the employees at any of the Properties; (7) the proceeds of any financing, refinancing or sale of any of the Properties (or all of the membership interests in any Mortgage Borrower) or the FF&E; (8) other non-recurring income or proceeds resulting other than from the use or occupancy of any of the Properties, or any part thereof, or other than from the sale of goods, services or other items sold on or provided from any of the Properties in the ordinary course of business; (9) any credits or refunds made to customers, guests or patrons in the form of allowances or adjustments to previously recorded revenues; (10) deposits received for rental of banquet space or business or conference meeting rooms; (11) security deposits received under any Leases, unless and until the same shall be applied in accordance with the terms of the applicable Lease(s); (12) all proceeds from insurance to the extent not included in income pursuant to clause (g) above; and (13) any disbursements to (i) any Mortgage Borrower from any of the Mortgage Reserve Funds, (ii) any First Mezzanine Borrower from any of the First Mezzanine Reserve Funds, or (iii) any Borrower from any of the Reserve Funds, as applicable, and any interest earned thereon.

     “Guaranties” shall mean, collectively, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty (if and when executed and delivered in accordance with the terms of this Agreement), and the HRHI Guaranty.

     “Guarantor” shall mean each of the Morgans Guarantor and the DLJ Guarantor.

     “Guarantor Transfer” shall have the meaning set forth in Section 5.2.10(d)(D) hereof.

     “Hotel/Casino Borrower” shall mean HRHH Hotel/Casino, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Hotel/Casino Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “HRHI” shall mean Hard Rock Hotel, Inc., a Nevada corporation, together with its successors and permitted assigns.

     “HRHI Gaming Agreement” shall mean that certain HRHI Gaming Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower and HRHI in

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connection with the Gaming Sublease and the gaming operations at the Hotel/Casino Property, as amended by the Mortgage Loan Document Modification Agreement and the HRHI Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Guaranty” shall mean that certain Second Mezzanine HRHI Guaranty Agreement, dated as of the date hereof, from HRHI to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Lease” shall mean that certain Lease, dated as of February 2, 2007, between Hotel/Casino Borrower, as landlord, and HRHI, as tenant, covering the Casino Component of the Hotel/Casino Property as more particularly described therein, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Modification Agreement” shall mean that certain Modification of HRHI Loan Documents and Ratification of HRHI Guaranty, dated as of the date hereof, by and among HRHI and Mortgage Lender.

     “HRHI Security Agreement” shall mean that certain Second Mezzanine HRHI Security Agreement, dated as of the date hereof, from HRHI in favor of Lender, securing the HRHI Guaranty and covering certain assets of HRHI described therein, including, without limitation, all of HRHI’s right, title and interest in and to the Gaming Assets Note, the Gaming Shortfall Notes, the Gaming Surplus Fund Reserve and the Gaming Working Capital Note, as such HRHI Security Agreement may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HR Holdings” shall mean Hard Rock Hotel Holdings, LLC, a Delaware limited liability company.

     “Improvements” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Property.

     “Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such date of (a) all indebtedness or liability of such Person (including, without limitation, amounts for borrowed money and indebtedness in the form of mezzanine debt and preferred equity); (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations for which such Person or its assets are liable); (d) obligations under letters of credit (for which such Person is liable if such amounts were advanced thereunder or for which such Person is liable to reimburse); (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss for which funds are required to be paid; and (g) obligations secured by any Liens, for which such Person or its assets are liable.

     “Indemnified Liabilities” shall have the meaning set forth in Section 10.13(b) hereof.

     “Indemnified Person” shall have the meaning set forth in Section 9.3(b) hereof.

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     “Indemnified Taxes” shall mean taxes other than Excluded Taxes.

     “Independent Director” or “Independent Manager” shall mean a Person who is not at the time of initial appointment, or at any time while serving as a director or manager, as applicable, and has not been at any time during the preceding five (5) years: (a) a stockholder, director (with the exception of serving as the Independent Director or Independent Manager of a Borrower), officer, employee, partner, member (other than a “special member” or “springing member”), manager, attorney or counsel of any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of any of them; (b) a customer, supplier or other person who derives any of its purchases or revenues from its activities with any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of any of them; (c) a Person Controlling or under common Control with any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person. A natural Person who satisfies the foregoing definition other than clause (b) shall not be disqualified from serving as an Independent Director or Independent Manager of a Borrower if such natural Person is an independent director or independent manager provided by a nationally recognized company that provides professional independent directors or independent managers and that also provides other corporate services in the ordinary course of its business. A natural Person who otherwise satisfies the foregoing definition except for being the independent director or independent manager of a “special purpose entity” affiliated with any Borrower that does not own a direct or indirect equity interest in any Borrower shall not be disqualified from serving as an Independent Director or Independent Manager of a Borrower if such individual is at the time of initial appointment, or at any time while serving as a Independent Director of a Borrower, an Independent Director or Independent Manager of a “special purpose entity” affiliated with a Borrower (other than any Person that owns a direct or indirect equity interest in any Borrower) if such natural Person is an independent director or independent manager provided by a nationally-recognized company that provides professional independent directors or independent managers.

     “Initial Construction Loan Advance” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Initial Maturity Date” shall mean, as applicable, either (a) the Qualified Initial Maturity Date, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date, or (b) the Non-Qualified Initial Maturity Date, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date.

     “Initial Renovation Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.5 hereof.

     “Initial Renovation Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.5 hereof.

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     “Insolvency Opinion” shall mean that certain non-consolidation opinion letter dated the date hereof delivered by Latham & Watkins LLP in connection with the Loan.

     “Insurance Premiums” shall have the meaning set forth in Section 6.1(a) hereof.

     “Insurance Proceeds” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Intellectual Property Security Agreement” shall mean that certain Second Mezzanine Intellectual Property Security Agreement, dated as of the date hereof, by HRHI in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated as of the date hereof, by and among Lender, Mortgage Lender, First Mezzanine Lender and Third Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with the terms thereof.

     “Interest Period” shall mean, with respect to any Payment Date, the period commencing on the ninth (9th) day of the preceding calendar month and terminating on and including the eighth (8th) day of the calendar month in which such Payment Date occurs; provided, however, that no Interest Period shall end later than the Maturity Date (other than for purposes of calculating interest at the Default Rate), and the initial Interest Period shall begin on and include the Closing Date and shall end on and include November 8, 2007.

     “Interest Rate Cap Agreement” shall mean, as applicable, an interest rate cap agreement (together with the confirmation and schedules relating thereto) in form and substance reasonably satisfactory to Lender by and among Borrowers and an Acceptable Counterparty or a Replacement Interest Rate Cap Agreement.

     “Interest Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.4 hereof.

     “Interest Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.4 hereof.

     “Interest Shortfall” shall mean, as of any applicable Payment Date, the amount by which the Monthly Interest Payment due on such Payment Date exceeds the sum of the funds available in the Mortgage Cash Management Account on such Payment Date after satisfying the items in clauses (i) through (ix) inclusive of Section 2.6.2(b) of the Mortgage Loan Agreement.

     “Internal Approvals” shall have the meaning set forth in Section 13.2(b) hereof.

     “IP” shall have the meaning set forth in Section 4.1.37(a) hereof.

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     “IP Agreements” shall have the meaning set forth in Section 4.1.37(a) hereof.

     “IP Borrower” shall mean HRHH IP, LLC, a Delaware limited liability company, together with its successors and assigns.

     “IP License” shall have the meaning set forth in Section 5.1.26(a) hereof.

     “IP Material Adverse Effect” shall have the meaning set forth in Section 4.1.37(d) hereof.

     “IP Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “IP Sale” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Lease” shall mean any lease, sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Property, including, without limitation, the HRHI Lease, and (a) every modification, amendment or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement, and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. The foregoing definition expressly excludes ordinary course hotel room rentals.

     “Legal Requirements” shall mean, with respect to each Property and the Collateral, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting such Property or the Collateral or any part of either of the foregoing, or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, including, without limitation, the Gaming Laws and the Americans with Disabilities Act of 1990, as amended, and all permits, licenses and authorizations and regulations relating thereto, including, without limitation, all Governmental Approvals, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to any Loan Party, at any time in force affecting such Property or the Collateral or any part of either of the foregoing, including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Property or any part thereof, or (b) in any way limit the use and enjoyment thereof.

     “Lender” shall have the meaning set forth in the introductory paragraph hereto.

     “Lender’s Rejection Notice” shall have the meaning set forth in Section 13.2(c) hereof.

     “Letter of Credit” shall mean an irrevocable, unconditional (other than ministerial conditions), transferable, clean sight draft letter of credit, as the same may be replaced, split, substituted, modified, amended, supplemented, assigned or otherwise restated from time to time, (either an evergreen letter of credit or a letter of credit which does not expire until at least two (2) Business Days after the Maturity Date or such earlier date as such Letter of Credit is no longer

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required pursuant to the terms of this Agreement) in favor of Lender and entitling Lender to draw thereon based solely on a statement purportedly executed by an officer of Lender stating that it has the right to draw thereon, and issued by a (i) domestic Approved Bank or the U.S. agency or branch of a foreign Approved Bank, or if there are no domestic Approved Banks or U.S. agencies or branches of a foreign Approved Bank then issuing letters of credit, then such letter of credit may be issued by a domestic bank, the long term unsecured debt rating of which is the highest such rating then given by the Rating Agency or Rating Agencies, as applicable, to a domestic commercial bank, or (ii) Credit Suisse, Cayman Islands Branch so long as it has and maintains a minimum long term unsecured debt rating of at least “A+” by S&P and Fitch and “A1” by Moody’s.

     “Liabilities” shall have the meaning set forth in Section 9.3(b) hereof.

     “LIBOR” shall mean, with respect to each Interest Period, the rate (expressed as a percentage per annum and rounded upward, if necessary, to the next nearest 1/100,000th of 1% (0.00001%)) for deposits in U.S. dollars, for a one-month period, that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m., London time, on the related Determination Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on such Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period that appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, Lender shall request the principal London office of any four major reference banks in the London interbank market selected by Lender in its reasonable discretion to provide such bank’s offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. dollars for a one-month period as of 11:00 a.m., London time, on such Determination Date for amounts of not less than U.S. $1,000,000. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Lender shall request any three major banks in New York City selected by Lender in its reasonable discretion to provide such bank’s rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European banks for a one-month period as of approximately 11:00 a.m., New York City time on the applicable Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determined conclusively by Lender or its agent, absent manifest error.

     “LIBOR Loan” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon LIBOR.

     “Licensed IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Lien” shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, put, call, option, warrant, proxy, voting agreement or any other encumbrance, charge or transfer of, on or affecting any Loan Party, any of the Properties, the First Mezzanine Collateral, the Collateral or any portion of any of the foregoing or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease

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having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances. For the avoidance of doubt, “Lien” shall not be deemed to include any Permitted IP Encumbrances.

     “Liquidation Event” shall have the meaning set forth in Section 2.4.3(a) hereof.

     “Liquor Management Agreement” shall mean, with respect to the Hotel/Casino Property and, if applicable, the Adjacent Property, that certain Liquor Management and Employee Services Agreement, dated as of February 2, 2007, between Hotel/Casino Borrower and HRHI, in its capacity as the Liquor Manager, as the same may be amended, modified or supplemented from time to time, pursuant to which the Liquor Manager shall manage all alcoholic beverage services at the Hotel/Casino Property and, if applicable, the Adjacent Property, or, if the context requires, a Replacement Liquor Management Agreement.

     “Liquor Manager” shall mean, with respect to the Hotel/Casino Property, HRHI, or, if the context requires, another Qualified Liquor Manager.

     “Loan” shall mean the loan made by Lender to Borrowers pursuant to this Agreement in a maximum principal amount of One Hundred Million and No/100 Dollars ($100,000,000), which shall be evidenced by the Note.

     “Loan Budget” shall mean the budget for total estimated Project Costs prepared by Mortgage Borrowers and approved by Mortgage Lender in its reasonable discretion, which shall detail all items of direct and indirect costs estimated to be incurred in connection with the construction of the Project, and all amendments and modifications thereto approved by Mortgage Lender in accordance with the Mortgage Loan Agreement.

     “Loan Documents” shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the Assignment of Management Agreement (All Properties), the Assignment of Liquor Management Agreement, the Intellectual Property Security Agreement, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty (if and when executed and delivered in accordance with the terms of this Agreement), the HRHI Guaranty, the HRHI Security Agreement, the Cash Management Agreement, the Collateral Assignment of Interest Rate Cap Agreement and all other documents executed and/or delivered in connection with the Loan, as any of the foregoing hereafter may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Loan Party” shall mean any of Borrowers and/or any of Mortgage Borrowers and/or any of First Mezzanine Borrowers and “Loan Parties” shall refer collectively to all of them.

     “Loan Percentage” shall mean, as of any date and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Outstanding Principal Balance on such date and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date.

     “Lockbox Account” shall have the meaning set forth in Section 2.6.1(a) hereof.

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     “Lockbox Bank” shall mean Wells Fargo Bank, National Association, or any successor or permitted assigns thereof.

     “London Business Day” shall mean any day other than a Saturday, Sunday or any other day on which commercial banks in London, England are not open for business.

     “Major Lease” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Management Agreement” shall mean, with respect to each Property, the property management agreement entered into by and between the applicable Mortgage Borrower or Mortgage Borrowers and the applicable Manager, as the same has been and may be amended, modified or supplemented from time to time, pursuant to which such Manager is to provide property management and other services with respect to the Property owned by such Mortgage Borrower, or, if the context requires, a Replacement Management Agreement; provided, however, that the foregoing definition shall expressly exclude the Sub-Management Agreement.

     “Manager” shall mean Morgans Hotel Group Management LLC or, if the context requires, a Qualified Manager who is managing any of the Properties, it being understood that the foregoing definition shall expressly exclude the Sub-Manager.

     “Material Economic Terms” shall have the meaning set forth in Section 13.1 hereof.

     “Maturity Date” shall mean the Initial Maturity Date or, if applicable, the Extended Maturity Date, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise.

     “Maximum Legal Rate” shall mean the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.

     “Merger Agreement” shall mean that certain Agreement and Plan of Merger, dated as of May 11, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter A. Morton, as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of January 30, 2007.

     “Mezzanine Borrower” or “Mezzanine Borrowers” shall mean, individually or collectively, as the context may require, First Mezzanine Borrowers and Third Mezzanine Borrowers.

     “Mezzanine Default” shall mean any First Mezzanine Default and/or Third Mezzanine Default, as applicable.

     “Mezzanine Event of Default” shall mean any First Mezzanine Event of Default and/or Third Mezzanine Event of Default, as applicable.

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     “Mezzanine Lender” or “Mezzanine Lenders” shall mean, individually or collectively, as the context may require, First Mezzanine Lender and Third Mezzanine Lender, and each of First Mezzanine Lender and/or Third Mezzanine Lender.

     “Mezzanine Loan” or “Mezzanine Loans” shall mean, individually or collectively, as the context may require, the First Mezzanine Loan and the Third Mezzanine Loan, and each of the First Mezzanine Loan and/or the Third Mezzanine Loan, individually, a “Mezzanine Loan”.

     “Mezzanine Loan Documents” shall mean all documents evidencing and/or securing the Mezzanine Loans and all documents executed and/or delivered in connection therewith, as any of the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Minimum Mandatory Amount” shall mean, as of any date of determination, (a) if one or more Release Parcel Sales have not resulted in Release Parcel Release Prices paid to Mortgage Lender in an aggregate amount of at least $40,000,000.00 prior to such date of determination, then the Minimum Mandatory Amount shall mean $110,000,000.00, or (b) if one or more Release Parcel Sales have resulted in Release Parcel Release Prices paid to Mortgage Lender in an aggregate amount in excess of $40,000,000.00 prior to such date of determination, then the Minimum Mandatory Amount shall mean an amount equal to the difference between (i) $110,000,000.00 and (ii) the aggregate amount of Release Parcel Release Prices paid to Mortgage Lender prior to such date of determination, but in no event shall such calculation result in a negative number.

     “Minimum Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(a)(i) hereof.

     “Moody’s” shall mean Moody’s Investors Service, Inc.

     “Monthly Interest Payment” shall have the meaning set forth in Section 2.3.1 hereof.

     “Monthly Gaming Requirement Certificate” shall have the meaning set forth in Section 12.2 hereof.

     “Morgans Guarantor” shall mean Morgans Group LLC, a Delaware limited liability company, together with its successors and permitted assigns.

     “Morgans Parent” shall mean Morgans Hotel Group Co., a Delaware corporation, together with its successors and permitted assigns.

     “Mortgage” shall mean that certain first priority Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007, from Mortgage Borrowers to Mortgage Lender, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Mortgage Applicable Interest Rate” shall mean the “Applicable Interest Rate” as defined in the Mortgage Loan Agreement.

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     “Mortgage Borrower” shall mean any of Hotel/Casino Borrower, Café Borrower, Adjacent Borrower, IP Borrower and Gaming Borrower, and “Mortgage Borrowers” shall refer collectively to all of them.

     “Mortgage Cash Management Account” shall have the meaning set forth in Section 2.6.2(a) hereof.

     “Mortgage Cash Management Agreement” shall mean the “Cash Management Agreement” as defined in the Mortgage Loan Agreement.

     “Mortgage Debt” shall mean the “Debt” as defined in the Mortgage Loan Agreement.

     “Mortgage Default” shall mean a “Default” under and as defined in the Mortgage Loan Agreement.

     “Mortgage Distributions” shall have the meaning set forth in Section 5.2.14(a) hereof.

     “Mortgage Event of Default” shall mean an “Event of Default” under and as defined in the Mortgage Loan Agreement.

     “Mortgage Lender” shall mean Column Financial, Inc., in its capacity as holder of the Mortgage Loan, together with its successors and assigns.

     “Mortgage Lender Successor Owner” shall have the meaning set forth in Section 5.1.23 hereof.

     “Mortgage Loan” shall mean the loan in a maximum principal amount of up to One Billion Thirty Million and No/100 Dollars ($1,030,000,000), made by Mortgage Lender to Mortgage Borrowers pursuant to the Mortgage Loan Agreement, comprised of (i) the Reduced Acquisition Loan and (ii) the Construction Loan (as such terms are defined in the Mortgage Loan Agreement).

     “Mortgage Loan Agreement” shall mean that certain Loan Agreement dated as of February 2, 2007, as amended and restated by the Amended and Restated Loan Agreement dated as of the date hereof, each among Mortgage Lender and Mortgage Borrowers, as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Mortgage Loan Documents” shall mean, collectively, the Mortgage Loan Agreement, the Mortgage Note, the Mortgage, and any an all other documents defined as “Loan Documents” in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Mortgage Loan Document Modification Agreement” shall mean that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of the date hereof, by and among Mortgage Borrowers and Mortgage Lender.

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     “Mortgage Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the Mortgage Loan Agreement.

     “Mortgage Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Mortgage Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

     “Mortgage Note” and “Mortgage Notes” shall mean, individually or collectively, as applicable, (i) that certain Replacement Reduced Acquisition Loan Promissory Note, dated the date hereof, in the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by Mortgage Borrowers in favor of Mortgage Lender, as the same may be further replaced, amended, restated, supplemented or otherwise modified from time to time, and (ii) that certain Replacement Construction Loan Promissory Note, dated the date hereof, in the principal amount of Six Hundred Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage Borrowers in favor of Mortgage Lender, as the same may be further replaced, amended, restated, supplemented or otherwise modified from time to time.

     “Mortgage Reduced Acquisition Loan Percentage” shall mean the “Reduced Acquisition Loan Percentage” as defined in the Mortgage Loan Agreement.

     “Mortgage Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the Interest Reserve Fund, the General Reserve Fund, any funds on deposit in the Construction Loan Reserve Account, any Shortfall Funds and any other escrow fund established pursuant to the Mortgage Loan Documents.

     “Mortgage Spread” shall mean the “Reduced Acquisition Loan Spread” and/or the “Construction Loan Spread” each as defined in the Mortgage Loan Agreement.

     “Morton” shall mean Peter A. Morton.

     “Morton Assigned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Morton Indemnification” shall mean that certain Indemnification Agreement, dated as of May 11, 2006, between Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, and Morton, as the same has been and may be amended, modified or supplemented from time to time.

     “Named Knowledge Parties” shall have the meaning set forth in Section 4.3 hereof.

     “Navegante Agreement” shall mean that certain Agreement, dated as of October 31, 2007, by and among Navegante HR, LLC, Morgans Parent, HRHI, Mortgage Lender and Navegante Gaming, LLC, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

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     “Net Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Net Liquidation Proceeds After Debt Service” shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of any Loan Party in connection with such Liquidation Event after payment of all amounts then due to Mortgage Lender, and then, First Mezzanine Lender, and then, Lender, including, without limitation, proceeds resulting from any Casualty to or Condemnation of any Property and proceeds of any sale, refinancing or other disposition or liquidation, less (without duplication of amounts already paid to or retained by Mortgage Lender, First Mezzanine Lender or Lender) (a) in the event of a Liquidation Event consisting of a Casualty or Condemnation, Mortgage Lender’s, First Mezzanine Lender’s and/or Lender’s reasonable costs incurred in connection with the recovery thereof; (b) in the event of a Liquidation Event consisting of a Casualty or Condemnation, the costs incurred by any Mortgage Borrower in connection with a Restoration of all or any portion of any Property made in accordance with the Mortgage Loan Documents; (c) in the event of a Liquidation Event consisting of a Casualty or Condemnation or a Transfer, amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender; (d) in the event of a Liquidation Event consisting of a Casualty or Condemnation, those proceeds paid to any Mortgage Borrower pursuant to Section 6.4(c)(vii) of the Mortgage Loan Agreement; (e) in the case of a foreclosure sale, disposition or transfer of any Property in connection with realization thereon following a Mortgage Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (f) in the case of a foreclosure sale, disposition or transfer of the First Mezzanine Collateral in connection with realization thereon following a First Mezzanine Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (g) in the case of a foreclosure sale, disposition or transfer of the Collateral in connection with realization thereon following an Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (h) in the case of a foreclosure sale, such costs and expenses incurred by (i) Mortgage Lender under the Mortgage Loan Documents as Mortgage Lender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents, (ii) First Mezzanine Lender under the First Mezzanine Loan Documents as First Mezzanine Lender shall be entitled to receive reimbursement for under the terms of the First Mezzanine Loan Documents, and/or (iii) Lender under the Loan Documents as Lender shall be entitled to receive reimbursement for under the terms of the Loan Documents; (i) in the case of a refinancing of the Mortgage Loan, the First Mezzanine Loan or the Loan, such costs and expenses (including attorneys’ fees) of such refinancing; and (j) the amount of any prepayments required pursuant to the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Loan Documents in connection with any such Liquidation Event.

     “Net Operating Income” shall mean, for any period, the amount obtained by subtracting Operating Expenses for the Properties for such period from Gross Income from Operations for such period.

     “Net Proceeds” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

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     “Net Worth Requirements” shall mean those requirements set forth on Schedule V attached hereto and made a part hereof.

     “Non-Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Non-Qualified Extended Maturity Date” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Initial Maturity Date” shall mean February 9, 2009.

     “Non-Qualified Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(b) hereof.

     “Non-Qualified Prepayment Guaranty” shall mean that certain Second Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Non-Qualified Prepayment Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Non-Recourse Guaranty” shall mean that certain Second Mezzanine Guaranty Agreement, dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Non-U.S. Lender” shall mean any Lender that is organized under the laws of a jurisdiction other than laws of the United States of America, any State thereof or the District of Columbia.

     “Note” shall mean that certain Second Mezzanine Promissory Note, dated the date hereof, in the principal amount of One Hundred Million and No/100 Dollars ($100,000,000), made by Borrowers in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Notice” shall have the meaning set forth in Section 10.6 hereof.

     “NRS” shall mean the Nevada Revised Statutes, as amended from time to time.

     “O&M Agreement” shall mean an Operations and Maintenance Agreement, dated as of February 2, 2007, by and among a Mortgage Borrower and Mortgage Lender given in connection with the Mortgage Loan, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified

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from time to time. On February 2, 2007, O&M Agreements were entered into by each of Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.

     “Obligations” shall mean, collectively, Borrowers’ obligations for the payment of the Debt and the performance of the Other Obligations.

     “Officer’s Certificate” shall mean a certificate delivered to Lender by a Borrower or a Guarantor, as applicable, which is signed by an authorized officer or manager of such Borrower or Guarantor or a Constituent Member thereof, as applicable, which shall in all events be subject to Section 9.4 hereof.

     “Operating Expenses” shall mean, for any period, the total of all expenditures, computed in accordance with GAAP, of whatever kind during such period relating to the operation, maintenance and/or management of any of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs, maintenance, environmental and engineering (but excluding utilities) (which ordinary repairs, maintenance, environmental and engineering (but excluding utilities) for the purposes of this definition shall be no less than an assumed expense of $400,000.00 per month, and following the First Full Operating Month, such assumed expense shall increase to $600,000.00 per month, insurance, license fees, property taxes and assessments, advertising expenses, base and incentive management fees, payroll and related taxes, computer processing charges, tenant improvements and leasing commissions, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation and amortization with respect to the Properties, Debt Service, debt service under the Mortgage Loan, debt service under each of the Mezzanine Loans, Capital Expenditures, items that would otherwise constitute Project Costs, Extraordinary Expenses, the cost of any items incurred at any Manager’s expense pursuant to any Management Agreement or at the Sub-Manager’s expense pursuant to the Sub-Management Agreement, non-recurring expenses and contributions to any of the Mortgage Reserve Funds, the First Mezzanine Reserve Funds or the Reserve Funds, as applicable. Operating Expenses shall also include the cost (computed in accordance with GAAP) of any complimentary food, beverages, hotel room and/or other amenities provided to any customers or guests of the Hotel/Casino Property, including, without limitation, under the Gaming Sublease, under the Liquor Management Agreement and/or under any Management Agreement.

     “Operating Permits” shall have the meaning set forth in Section 4.1.22 hereof.

     “Optional IP Release Payment” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Original Mortgage Loan” shall have the meaning set forth in the recitals hereof.

     “Original Mortgage Loan Agreement” shall have the meaning set forth in the recitals hereof.

     “Other Charges” shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Property, now or hereafter levied or assessed or imposed against such Property or any part thereof.

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     “Other Obligations” shall mean (a) the performance of all obligations of each Borrower contained herein; (b) the performance of each obligation of each Borrower contained in any other Loan Document; and (c) the performance of each obligation of each Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of this Agreement, the Note or any other Loan Documents.

     “Other Taxes” means any and all stamp or documentary taxes or any other excise or property taxes, or similar governmental charges or levies imposed, enacted or to become effective after the date hereof, arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. Other Taxes shall not include Excluded Taxes.

     “Outstanding Principal Balance” shall mean, as of any date, the outstanding principal balance of the Loan.

     “Owned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Partial Adjacent Parcel” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Partial Release Parcel” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Payment Date” shall mean the ninth (9th) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day. The first Payment Date shall be November 9, 2007.

     “Permitted Adjacent/Café Uses” shall have the meaning set forth in Section 4.1.11 hereof.

     “Permitted Encumbrances” shall mean, with respect to a Property, collectively (a) the Liens and security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policy relating to such Property, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet delinquent, (d) such other title and survey exceptions, documents, agreements or instruments as Mortgage Lender has approved or may approve in writing in Mortgage Lender’s reasonable discretion, (e) easements, restrictions, covenants and/or reservations which are necessary for the operation of such Property that do not and would not have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, any Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (f) zoning restrictions and/or laws affecting such Property that do not and would not have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, any Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (g) the Liens securing any Existing FF&E Leases and/or any Permitted Future FF&E Leases, and (h) any other Liens which are being duly contested in accordance with the provisions of Section 5.1.1 or 5.1.2 hereof or Section 3.6(b) of the Mortgage, but only for so long as such contest shall be permitted pursuant to said Section 5.1.1 or 5.1.2 hereof or Section 3.6(b) of the Mortgage, as applicable.

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     “Permitted Future FF&E Leases” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Permitted Investment Fund” shall have the meaning set forth in the definition of “Qualified Guarantor Transferee” set forth below.

     “Permitted Investments” shall have the meaning set forth in the Cash Management Agreement.

     “Permitted IP Encumbrances” shall mean, with respect to the IP, collectively (a) the Liens and security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents, (b) such other Liens or security interests as Lender may approve in writing in Lender’s sole discretion, (c) the Liens on the IP set forth on Schedule VII hereto, which were extinguished on or prior to the Closing Date, and (d) any IP Agreements permitted under this Agreement.

     “Person” shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

     “Personal Property” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Property.

     “Physical Conditions Report” shall mean, with respect to each Property, a report prepared by a company reasonably satisfactory to Mortgage Lender regarding the physical condition of such Property, reasonably satisfactory in form and substance to Mortgage Lender.

     “Pink Taco IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Pink Taco License” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Plans and Specifications” shall mean the plans and specifications for the Project prepared by the Architect and reasonably approved by Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement, as the same may be amended and supplemented from time to time in accordance with the terms of the Mortgage Loan Agreement.

     “Pledge Agreement” shall mean that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, executed and delivered by Borrowers to Lender as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Pledged Collateral” shall mean the “Collateral” as defined in the Pledge Agreement.

     “Pledged Interests” shall mean all membership and manager interests in each of First Mezzanine Borrowers, as described on Schedule III attached hereto.

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     “Policies” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Pre-Construction Budget” shall mean a budget, prepared by Mortgage Borrowers and approved by Mortgage Lender in its reasonable discretion, which shall identify the costs and expenses for which the proceeds of any Pre-Construction Advance may be used, and all amendments and modifications thereto reasonably approved by Mortgage Lender.

     “Prepayment Fee” shall mean an amount equal to the following:

     (i) two percent (2.0%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement after the Closing Date through, but excluding, May 9, 2007;

     (ii) one and one-half percent (1.5%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement on or after May 9, 2007 through, but excluding, December 9, 2007; and

     (iii) one percent (1.0%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement on or after December 9, 2007 through, but excluding, the Prepayment Fee Release Date.

     “Prepayment Fee-Generating Prepayment” shall have the meaning set forth in Section 2.4.7 hereof.

     “Prepayment Fee Release Date” shall mean May 9, 2008.

     “Prescribed Laws” shall mean, collectively, (a) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power Act, 50 U.S.C. §1701 et. seq., and (d) all other Legal Requirements relating to money laundering or terrorism.

     “Prime Rate” shall mean the annual rate of interest publicly announced by Citibank, N.A. in New York, New York, as its base rate, as such rate shall change from time to time. If Citibank, N.A. ceases to announce a base rate, Prime Rate shall mean the rate of interest published in The Wall Street Journal from time to time as the “Prime Rate”. If more than one “Prime Rate” is published in The Wall Street Journal for a day, the average of such “Prime Rates” shall be used, and such average shall be rounded up to the nearest one-hundredth (100th) of one percent (1%). If The Wall Street Journal ceases to publish the “Prime Rate”, Lender shall

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select an equivalent publication that publishes such “Prime Rate”, and if such “Prime Rates” are no longer generally published or are limited, regulated or administered by a governmental or quasigovernmental body, then Lender shall select a comparable interest rate index.

     “Prime Rate Loan” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon the Prime Rate.

     “Prime Rate Spread” shall mean the difference (expressed as the number of basis points) between (a) LIBOR plus the Spread on the date LIBOR was last applicable to the Loan and (b) the Prime Rate on the date that LIBOR was last applicable to the Loan; provided, however, in no event shall such difference be a negative number.

     “Pro-Forma Net Cash Flow” shall mean, as of any date of determination, (i) Gross Income from Operations collected for the trailing three (3) month period ending with the last calendar month for which financial reports are then required to have been delivered under Section 5.1.11 hereof, multiplied by four (4), less (ii) actual Operating Expenses for the trailing twelve (12) month period ending with such last calendar month for which financial reports are then required to have been delivered under Section 5.1.11 hereof, as adjusted by Lender to reflect any actual increases to Operating Expenses then known to Lender (i.e., real estate taxes and insurance premiums) as reflected in the Approved Annual Budget in effect.

     “Project” shall mean those renovations and improvements (exclusive of the Initial Renovations) expected to be constructed and performed on the Hotel/Casino Property and the Adjacent Property in accordance with the terms of the Mortgage Loan Agreement and the other Mortgage Loan Documents, including, without limitation, a parking facility, an expansion of the hotel and casino on the Hotel/Casino Property and the construction of an approximately 440 room hotel facility, as generally described on Schedule II attached hereto and as more particularly described in the Plans and Specifications.

     “Project Costs” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Projected Underwritten Net Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Property” and “Properties” shall mean, individually and collectively, each and every one of the Hotel/Casino Property, the Café Property and the Adjacent Property that, as of any particular date, is subject to the terms of the Mortgage Loan Agreement, the Mortgage and the other Mortgage Loan Documents.

     “Provided Information” shall mean any and all financial and other information prepared and provided by any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor or under the supervision or control of any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor (but excluding third party independent reports) with respect to one or more of the Properties, the IP, the Collateral, any Loan Party, any Mezzanine Borrower, any Manager, Sub-Manager, HRHI and/or any Guarantor.

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     “Publicly Traded Company” shall mean any Person with a class of securities traded on a national or international securities exchange and/or registered under Section 12(b) or 12(g) of the Securities Exchange Act or 1934.

     “PWR/RWB Escrow Agreement” shall mean that certain Escrow Agreement, dated as of May 11, 2006, between PM Realty, LLC, Red, White and Blue Pictures, Inc., Morton, 510 Development Corporation, Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, Morgans Group LLC and Chicago Title Agency of Nevada, Inc., as the same has been and may be amended, modified or supplemented from time to time.

     “Qualification Conditions” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Qualified Extended Maturity Date” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Extension Option” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Extension Term” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Gaming Operator” shall mean (a) Golden HRC, LLC, (b) Gaming Borrower, if and when Gaming Borrower shall become the Gaming Operator for the Hotel/Casino Property in accordance with the provisions of Article XII hereof, (c) Navegante HR, LLC, if and when Navegante HR, LLC shall become the Gaming Operator for the Hotel/Casino Property in accordance with the provisions of the Navegante Agreement, or (d) a reputable and experienced gaming operator (which may be an Affiliate of any Mortgage Borrower) possessing experience in supervising, operating and managing gaming activities at properties similar in size, scope, use and value as the Hotel/Casino Property; provided, that with respect to any Person under any of the foregoing clauses (a), (b), (c) or (d), such Person shall have, at all times during its engagement as Gaming Operator, all required approvals and licenses from all applicable Governmental Authorities, including, without limitation, all Gaming Authorities, and provided, further, that with respect to the foregoing clause (d): (i) such Person shall be reasonably acceptable to Mortgage Lender and such Person shall agree to operate the gaming operations at the Hotel/Casino Property pursuant to one or more written agreements previously approved by Mortgage Lender in its reasonable discretion (including, by way of example but without limitation, a new lease and/or sublease and related recognition agreement), (ii) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that the supervision, operation and management of the gaming activities at the Hotel/Casino Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (iii) if such Person is an Affiliate of any Loan Party, (A) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (B) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained

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and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Guarantor Transferee” shall mean any one or more of the following:

     (i) an investment trust, bank, saving and loan association, insurance company, trust company, commercial credit corporation, pension plan, pension fund or pension advisory firm, mutual fund, government entity or plan;

     (ii) an investment company, money management firm or “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act, as amended, or an entity that is an “accredited investor” within the meaning of Regulation D under the Securities Act, as amended;

     (iii) an institution substantially similar to any of the entities described in the foregoing clause (i) or (ii);

     (iv) any entity Controlling or Controlled by or under common Control with any of the entities described in the foregoing clause (i) or (ii);

     (v) any Person (a) with a long-term unsecured debt rating from the Rating Agencies of at least Investment Grade or (b) who, together with its Affiliates, (A) (x) owns in its entirety, or (y) owns a general partnership interest, managing membership interest or other equivalent ownership and management interest in, an entity that owns, or (z) operates, at least ten (10) full service hotels exclusive of the Properties totaling in the aggregate no less than 3,500 rooms; or

     (vi) any other Person (including opportunity funds) that has been approved as a Qualified Guarantor Transferee by the Rating Agencies.

     “Qualified Initial Maturity Date” shall mean February 9, 2010.

     “Qualified Liquor Manager” shall mean either (a) HRHI, (b) Gaming Borrower, (c) Hotel Casino Borrower, (d) Golden HRC, LLC, or (e) a reputable and experienced liquor management organization (which may be an Affiliate of any Mortgage Borrower) possessing experience in managing all or substantially all alcoholic beverage services at properties similar in size, scope, use and value as the Hotel/Casino Property, provided, that (i) any Person referred to in the foregoing clause (a) through (e) shall have, at all times during its engagement as the Liquor Manager, all Governmental Approvals necessary to provide all alcoholic beverage services at the Hotel/Casino Property, and (ii) with respect to clause (e) above, (A) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that management of all alcoholic beverage services at the Hotel/Casino Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (B) if such Person is an Affiliate of any Loan Party, (1) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (2) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency

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Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Manager” shall mean either (a) any Manager with respect to the Property it is managing on the date hereof, or (b) in the reasonable judgment of Lender, a reputable and experienced property management organization (which may be an Affiliate of any Mortgage Borrower or Guarantor) possessing experience in managing properties similar in size, scope, use and value as the applicable Property, provided, that with respect to clause (b) above, (i) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that management of the applicable Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (ii) if such Person is an Affiliate of any Loan Party, (A) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (B) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Real Estate Guarantor” shall mean (i) Morgans Group LLC or (ii) a Qualified Guarantor Transferee that (i) is regularly engaged in the business of making or owning commercial real estate loans (including mezzanine loans with respect to commercial real estate), (ii) operating hospitality properties, or (iii) employing executive level employees with at least ten (10) years of experience with regard to the same as part of a business segment or business sector of a Qualified Guarantor Transferee.

     “Rank” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rank IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rank License” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rating Agencies” shall mean, prior to the final Securitization of the Loan, each of S&P, Moody’s and Fitch, or any other nationally recognized statistical rating agency which has been designated by Lender and, after the final Securitization of the Loan, shall mean any of the foregoing that have rated any of the Securities.

     “Re-Dating” shall have the meaning set forth in Section 9.2 hereof.

     “Reduced Acquisition Loan” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Refinancing Loan” shall mean a loan or loans (i) the proceeds of which is/are used in whole or in part to refinance the Loan, and/or (ii) is/are secured by a lien on any of the Properties and/or the IP and/or the direct or indirect ownership interests in one or more Borrowers.

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     “Registered” with respect to any IP, means any IP issued by, registered with, renewed by or the subject of a pending application before, any Governmental Authority or Internet domain name registrar.

     “Regulation AB” shall mean Regulation AB under the Securities Act and the Exchange Act, as such Regulation may be amended from time to time.

     “Related Loan” shall mean a loan to an Affiliate of any Borrower or secured by a Related Property, that is included in a Securitization with the Loan.

     “Related Property” shall mean a parcel of real property, together with improvements thereon and personal property related thereto, that is “related” within the meaning of the definition of Significant Obligor, to any Property.

     “Release Parcel” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Release Parcel Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Release Parcel Sale” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Relinquishment Notice” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Remaining Adjacent Property” shall mean that portion of the Adjacent Property that does not constitute the Release Parcel.

     “Rents” shall mean, with respect to each Property, all rents (including, without limitation, percentage rents), rent equivalents, moneys payable as damages (including payments by reason of the rejection of a Lease in a Bankruptcy Action) or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues (including liquor revenues), deposits (including, without limitation, security deposits, utility deposits and deposits for rental of rooms, but excluding deposits for rental of banquet space or business or conference meeting rooms), accounts, cash, issues, profits, charges for services rendered, all other amounts payable as rent under any Lease or other agreement relating to any Property (including without limitation the Liquor Management Agreement or Replacement Liquor Management Agreement), and other payments and consideration of whatever form or nature received by or paid to or for the account of or benefit of any Mortgage Borrower, any Manager, Sub-Manager or any of their respective agents or employees from any and all sources arising from or attributable to any Property and/or the Improvements thereon, and proceeds, if any, from business interruption or other loss of income insurance, including, without limitation, all hotel receipts, revenues and net credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreational facilities, revenues from telephone services, internet services, laundry services and television, all receivables, customer obligations, installment payment obligations and other

39

obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of any Property or rendering of services by any Mortgage Borrower or any operator or manager of the hotel or the commercial space located in any of the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), net license, lease, sublease and net concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges and vending machine sales.

     “Replacement Interest Rate Cap Agreement” shall mean an interest rate cap agreement from an Acceptable Counterparty with terms substantially identical to the Interest Rate Cap Agreement except that the same shall be effective in connection with replacement of the Interest Rate Cap Agreement following a downgrade of the long-term unsecured debt rating of the Counterparty; provided, that with respect to any Replacement Interest Rate Cap Agreement to be delivered by Borrowers to Lender in connection with Borrowers’ exercise of any Extension Option, the strike price shall be the Strike Price applicable to such Extension Option being exercised; and, provided, further, that to the extent any such interest rate cap agreement does not meet the foregoing requirements, a “Replacement Interest Rate Cap Agreement” shall be such interest rate cap agreement reasonably approved in writing by Lender.

     “Replacement Liquor Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualified Liquor Manager substantially in the same form and substance as the Liquor Management Agreement being replaced, or (ii) a liquor management agreement with a Qualified Liquor Manager, which liquor management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), after the occurrence of a Securitization, Lender, at its option, may require that Loan Parties obtain confirmation from the applicable Rating Agencies that such liquor management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; and (b) an assignment of liquor management agreement and subordination of liquor management fees in a form reasonably acceptable to Lender, executed and delivered to Lender by Borrowers and such Qualified Liquor Manager at Borrowers’ expense.

     “Replacement Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualified Manager substantially in the same form and substance as the Management Agreement being replaced, or (ii) a management agreement with a Qualified Manager, which management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), after the occurrence of a Securitization, Lender, at its option, may require that Loan Parties obtain confirmation from the applicable Rating Agencies that such management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; and (b) an assignment of management agreement and subordination of management fees substantially in the form then used by Lender (or such other form and substance reasonably acceptable to Lender), executed and delivered to Lender by Borrowers and such Qualified Manager at Borrowers’ expense.

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     “Replacement Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.3 hereof.

     “Replacement Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.3 hereof.

     “Required Equity Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Required Net Cash Flow” shall mean, with respect to each Extension Term, the amount of Net Cash Flow that will need to be generated during such Extension Term in order to achieve an Extension Debt Service Coverage Ratio of 1.05 to 1.00.

     “Required Repair Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.1 hereof.

     “Required Repair Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.1 hereof.

     “Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the Interest Reserve Fund, the General Reserve Fund, any funds on deposit in the Construction Loan Reserve Account, any Shortfall Funds and any other escrow fund established pursuant to the Loan Documents.

     “Restoration” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Restoration Threshold” shall mean Ten Million Dollars ($10,000,000.00).

     “Restoration Value Threshold” shall mean that (i) in the case of a Condemnation, the Net Proceeds are less than 15% of the then current fair market value of the applicable Property, and (ii) in the case of a Casualty, the Net Proceeds are less than 30% of the then current fair market value of the applicable Property.

     “Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine Borrower, HRHI, HR Holdings and each Guarantor.

     “Right of First Offer” shall have the meaning set forth in Section 13.1 hereof.

     “Right of First Offer Notice” shall have the meaning set forth in Section 13.1 hereof.

     “Right of First Offer Information and Materials” shall have the meaning set forth in Section 13.2(b) hereof.

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     “ROFO Term Sheet” shall have the meaning set forth in Section 13.2(d) hereof.

     “S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.

     “Sale or Pledge” shall mean a voluntary or involuntary sale, conveyance, assignment, transfer, encumbrance or pledge of, or a grant of option with respect to, a legal or beneficial interest.

     “Sale Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Second Non-Qualified Extended Maturity Date” shall mean February 9, 2011.

     “Second Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1(b) hereof.

     “Second Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1(b) hereof.

     “Second Qualified Extended Maturity Date” shall mean February 9, 2012.

     “Second Qualified Extension Option” shall have the meaning set forth in Section 2.7.2(b) hereof.

     “Second Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(b) hereof.

     “Securities” shall have the meaning set forth in Section 9.1(a) hereof.

     “Securities Act” shall have the meaning set forth in Section 9.3(a) hereof.

     “Securitization” shall have the meaning set forth in Section 9.1(a) hereof.

     “Servicer” shall have the meaning set forth in Section 9.7 hereof.

     “Servicing Agreement” shall have the meaning set forth in Section 9.7 hereof.

     “Severed Loan Documents” shall have the meaning set forth in Section 8.2(c) hereof.

     “Significant Obligor” shall have the meaning set forth in Item 1101(k) of Regulation AB under the Securities Act.

     “Special Purpose Entity” shall mean a limited partnership or limited liability company that since the date of its formation and at all times on and after the date thereof, has complied with and shall at all times comply with the following requirements:

     (a) was, is and will be organized solely for the purpose of (i) (A) acquiring, owning, holding, selling, transferring, managing and operating the Collateral, (B) entering into this

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Agreement with Lender, (C) refinancing the Collateral in connection with repayment of the Loan, and/or (D) transacting lawful business that is incident, necessary and appropriate to accomplish any of the foregoing; or (ii) acting as a general partner of the limited partnership that owns the Collateral or managing member of the limited liability company that owns the Collateral;

     (b) has not been and is not engaged in, and will not engage in, any business unrelated to (i) the acquisition, ownership, management, sale, transfer or operation of the Collateral, (ii) acting as general partner of the limited partnership that owns the Collateral, or (iii) acting as managing member of the limited liability company that owns the Collateral;

     (c) has not had, does not have, and will not have, any assets other than those related to the Collateral, or, if such entity is a general partner in a limited partnership, its general partnership interest in the limited partnership that owns the Collateral, or, if such entity is a managing member of a limited liability company, its membership interest in the limited liability company that owns the Collateral;

     (d) has not engaged, sought or consented to, and to the fullest extent permitted by law, will not engage in, seek or consent to, any: (i) dissolution, winding up, liquidation, consolidation, merger or sale of all or substantially all of its assets outside of its ordinary course of business and other than as expressly permitted in this Agreement; (ii) other than as expressly permitted in this Agreement, transfer of partnership or membership interests (if such entity is a general partner in a limited partnership or a managing member in a limited liability company); or (iii) amendment of its limited partnership agreement, articles of organization, certificate of formation or operating agreement (as applicable) with respect to the matters set forth in this definition unless Lender issues its prior written consent, which consent shall not be unreasonably withheld, and, after the occurrence of a Securitization, the confirmation in writing from the applicable Rating Agencies that such amendment will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization;

     (e) if such entity is a limited partnership, has had, now has, and will have, as its only general partners, Special Purpose Entities that are limited liability companies;

     (f) if such entity is a limited liability company with more than one member, has had, now has and will have at least one member that is a Special Purpose Entity that is a corporation that has at least two (2) Independent Directors or a limited liability company that has at least two (2) Independent Managers and that, in either instance, owns at least one-tenth of one percent (.10%) of the equity of the limited liability company;

     (g) if such entity is a limited liability company with only one member, has been, now is, and will be, a limited liability company organized in the State of Delaware that (i) has as its only member a non-managing member; (ii) has at least two (2) Independent Managers and has not caused or allowed and will not cause or allow the taking of any “Material Action” (as defined in such entity’s operating agreement) without the unanimous affirmative vote of one hundred percent (100%) of the member and such entity’s two (2) Independent Managers; (iii) at least one (1) springing member (or two (2) springing members if such springing members are natural

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persons who will replace a member of such entity seriatim not simultaneously) that will become a member of such entity upon the occurrence of an event causing the member to cease to be a member of such limited liability company; and (iv) whose membership interests constitute and will constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of New York and Delaware);

     (h) if such entity is (i) a limited liability company, has had, now has and will have an operating agreement, or (ii) a limited partnership, has had, now has and will have a limited partnership agreement, that, in each case, provides that such entity will not: (A) to the fullest extent permitted by law, take any actions described in clause (d)(i) above; (B) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition, in each instance, without the prior written consent of Lender, which consent shall not be unreasonably withheld, and, after the occurrence of a Securitization, confirmation in writing from the applicable Rating Agencies that engaging in such other business activity or such amendment, as applicable, will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization; or (C) without the affirmative vote of two (2) Independent Managers and of all the partners or members of such entity, as applicable (or the vote of two (2) Independent Managers of its general partner or managing member, if applicable), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest;

     (i) has been, is and will remain solvent and has paid and will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same have or shall become due, and has maintained, is maintaining and will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; provided, however, this provision shall not require the equity owner(s) of such entity to make any additional capital contributions;

     (j) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity;

     (k) other than as provided in the Cash Management Agreement with respect to one or more other Borrowers, has maintained and will maintain its accounts, books and records separate from any other Person (except other Borrowers) and has filed and will file its own tax returns, except to the extent that it has been or is (i) required to file consolidated tax returns by law; or (ii) treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law;

     (l) has maintained and will maintain its own (except with other Borrowers) records, books, resolutions (if any) and agreements;

     (m) other than as provided in the Cash Management Agreement with respect to one or more other Borrowers, (i) has not commingled and will not commingle its funds or assets with those of any other Person; and (ii) has not participated and will not participate in any cash management system with any other Person;

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     (n) has held and will hold its assets in its own name;

     (o) has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of any Borrower or any Mortgage Borrower, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in clause (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of such Borrower;

     (p) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required by GAAP (or such other accounting basis acceptable to Lender); provided, however, that a Borrower’s assets may be included in a consolidated financial statement of its Affiliate, provided that such assets shall also be listed on such Special Purpose Entity’s own separate balance sheet;

     (q) has paid and will pay its own liabilities and expenses, including the salaries of its own employees (if any), out of its own funds and assets, and has maintained and will maintain, or will enter into a contract with an Affiliate to maintain, which contract shall be reasonably satisfactory to Lender in form and substance and shall be subject to the requirements of clause (dd) below, a sufficient number of employees (if any) in light of its contemplated business operations; provided, however, this provision shall not require the equity owner(s) of such entity to make any additional capital contributions;

     (r) has observed and will observe all Delaware partnership or limited liability company formalities, as applicable;

     (s) has not incurred and will not incur any Indebtedness other than (i) the Debt, and (ii) unsecured trade payables and operational debt not evidenced by a note and in an aggregate amount not exceeding $50,000; provided that any Indebtedness incurred pursuant to subclause (ii) shall be (A) paid within sixty (60) days of the date incurred (other than attorneys’ and other professional fees) and (B) incurred in the ordinary course of business;

     (t) has not assumed or guaranteed or become obligated for, and will not assume or guarantee or become obligated for, the debts of any other Person and has not held out and will not hold out its credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; except, if such entity is a general partner of a limited partnership, in such entity’s capacity as general partner of such limited partnership or a member of a limited liability company, in such entity’s capacity as a member of such limited liability company;

     (u) has not acquired and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate except with respect to the ownership of the limited liability company interests or partnership interests (as applicable) of the Special Purpose Entities as shown on the organizational chart attached to this Agreement as Schedule VI;

     (v) has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and

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services performed by any employee of an Affiliate; provided, however, to the extent invoices for such services are not allocated and separately billed to each entity, there is a system in place that provides that the amount thereof that is to be allocated among the relevant parties will be reasonably related to the services provided to each such party;

     (w) has maintained and used, now maintains and uses and will maintain and use separate invoices and checks bearing its name. The invoices and checks utilized by the Special Purpose Entity or utilized to collect its funds or pay its expenses have borne and shall bear its own name and have not borne and shall not bear the name of any other entity unless such entity is clearly designated as being the Special Purpose Entity’s agent;

     (x) except as provided in the Third Mezzanine Loan Documents, has not pledged and will not pledge its assets to secure the obligations of any other Person;

     (y) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of any Borrower or any Mortgage Borrower and not as a division or part of any other Person, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in clause (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of such Borrower;

     (z) except as provided in the Cash Management Agreement, has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

     (aa) has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other Person or entity (other than cash and investment grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity);

     (bb) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person;

     (cc) except for capital contributions and capital distributions expressly permitted under the terms and conditions of its organizational documents and properly reflected in its books and records, has not entered into or been a party to and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except in the ordinary course of its business and on terms which are commercially reasonable and are no less favorable to it than would be obtained in a comparable arm’s length transaction with an unrelated third party;

     (dd) except with respect to the Independent Managers, has not had and will not have any obligation to indemnify, and has not indemnified and will not indemnify, its partners, officers, directors or members, as the case may be, unless such an obligation was and is fully subordinated to the Debt and will not constitute a claim against it in the event that cash flow in excess of the amount required to pay the Debt is insufficient to pay such obligation;

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     (ee) does not and will not have any of its obligations guaranteed by any Affiliate except for (i) Guarantors pursuant to the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty and the Construction Completion Guaranty, and (ii) HRHI pursuant to the HRHI Guaranty; provided, that if such entity is a limited partnership, such entity’s general partner will be generally liable for its obligations; and

     (ff) has complied and will comply with all of the terms and provisions contained in its organizational documents.

     “Spread” shall mean, subject to application of the Default Rate, 7.2000000000%; provided, however, that (a) subject to the following clause (b), if Substantial Completion has not occurred on or before the date which is twenty-four (24) months from the date of the Initial Construction Loan Advance, the Spread shall increase to 8.0470588235% from and including such date which is twenty-four (24) months from the date of the Initial Construction Loan Advance through but excluding the first Payment Date following Substantial Completion, following which the Spread shall again be 7.2000000000%, and (b) if the Second Non-Qualified Extension Term is exercised in accordance with the terms of Section 2.7.1 hereof, the Spread in effect from time to time pursuant to the foregoing clause (a) shall increase by 0.4235294118% throughout the Second Non-Qualified Extension Term and thereafter until the Obligations are paid in full.

     “Spread Maintenance Premium” shall mean, with respect to any prepayment of the Outstanding Principal Balance prior to the Spread Maintenance Release Date, other than any prepayment from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price, an amount equal to the product of (a) the principal amount of such prepayment, multiplied by (b) the Spread, and multiplied by (c) a fraction, the numerator of which shall equal the actual number of days from the date of such payment through the Spread Maintenance Release Date and the denominator of which is 360; provided, however, if any such prepayment shall occur on a day other than a Payment Date, the numerator of such fraction shall equal the actual number of days from the next succeeding ninth (9th) day of a calendar month through the Spread Maintenance Release Date.

     “Spread Maintenance Release Date” shall mean , as applicable, either (i) May 9, 2008, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, or (ii) August 9, 2008, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date.

     “State” shall mean the State of Nevada.

     “Strike Price” shall mean, as applicable, with respect to:

     (i) the period commencing on the Closing Date through and including the Initial Maturity Date, five and one-half percent (5.5%) per annum; and

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     (ii) for each Extension Term, a rate to be selected by Borrowers no later than ten (10) days prior to the first day of such Extension Term, which shall in no event exceed one percent (1%) in excess of LIBOR as of the most recent Determination Date.

     “Sub-Management Agreement” shall mean that certain Paradise Bay Club Apartments Management Agreement, dated as of September 17, 2004, between PM Realty LLC (predecessor-in-interest to Adjacent Borrower) and Sub-Manger, with respect to the Adjacent Property, as the same has been and may be amended, modified or supplemented from time to time.

     “Sub-Manager” shall mean, with respect to the Adjacent Property, ConAm Management Corporation.

     “Subsequent Required Equity Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Subsidiary Transferee” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Substantial Completion” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Survey” shall mean a current survey of each of the Properties, certified to the Title Company and Mortgage Lender and their successors and assigns, in form and content reasonably satisfactory to Mortgage Lender.

     “Tax and Insurance Escrow Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.2 hereof.

     “Taxes” shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Property or part thereof, together with all interest and penalties thereon.

     “Third Mezzanine Borrower” and “Third Mezzanine Borrowers” shall mean, individually or collectively, as applicable, HRHH Gaming Junior Mezz Two, LLC, a Delaware limited liability company, and HRHH JV Junior Mezz Two, LLC, a Delaware limited liability company, each in its capacity as a borrower under the Third Mezzanine Loan, together with its or their successors or permitted assigns.

     “Third Mezzanine Debt” shall mean the “Debt” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Default” shall mean a “Default” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Event of Default” shall mean an “Event of Default” as defined in the Third Mezzanine Loan Agreement.

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     “Third Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the Third Mezzanine Loan, together with its successors and assigns.

     “Third Mezzanine Loan” shall mean the loan in the original principal amount of up to Sixty Five Million and No/100 Dollars ($65,000,000), made by Third Mezzanine Lender to Third Mezzanine Borrowers pursuant to the Third Mezzanine Loan Agreement.

     “Third Mezzanine Loan Agreement” shall mean that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Lender and Third Mezzanine Borrowers, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Third Mezzanine Loan Documents” shall mean the Third Mezzanine Loan Agreement and all other documents evidencing and/or securing the Third Mezzanine Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Third Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Third Mezzanine Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

     “Third Mezzanine Obligations” shall mean the “Obligations” as defined in the Third Mezzanine Loan Agreement.

     “Third Mezzanine Spread” shall mean the “Spread” as defined in the Third Mezzanine Loan Agreement.

     “Third Party IP License” shall have the meaning set forth in Section 5.1.26(c) hereof.

     “Third Party Lenders” shall mean third party institutional lenders which are in the business of providing loans similar to the Refinancing Loans

     “Title Company” shall mean First American Title Insurance Company, or any successor title company reasonably acceptable to Mortgage Lender and licensed to issue title insurance in the State of Nevada.

     “Title Insurance Policy” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.

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     “Transfer Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine Borrower, each Constituent Member of each Loan Party, HRHI, HR Holdings and each Guarantor.

     “Trust” shall have the meaning set forth in Section 10.25(a) hereof.

     “UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the State of Nevada, the State of New York or the State of Delaware, as applicable.

     “UCC Financing Statements” shall mean the UCC Financing Statement executed in connection with the Pledge Agreement and the other Loan Documents and filed in the applicable filing offices.

     “UCC Insurance Policy” shall have the meaning set forth in Section 3.1.2(b) hereof.

     “Uniform System of Accounts” shall mean the most recent edition of the Uniform System of Accounts for Hotels, as adopted by the American Hotel and Motel Association.

     “U.S. Obligations” shall mean non-redeemable securities evidencing an obligation to timely pay principal and/or interest in a full and timely manner that are direct obligations of the United States of America for the payment of which its full faith and credit is pledged.

     Section 1.2 Principles of Construction. (a) All references to sections, subsections, clauses, exhibits and schedules are to sections, subsections, clauses, exhibits and schedules in or to this Agreement unless otherwise specified. All uses of the word “including” shall mean “including, without limitation” unless the context shall indicate otherwise. Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All uses in this Agreement of the phrase “any Borrower” shall be deemed to mean “any one or more of the Borrowers including all of the Borrowers”. All uses in this Agreement of the phrase “any Property” or “any of the Properties” shall be deemed to mean “any one or more of the Properties including all of the Properties”. All uses in this Agreement of the phrase “the IP” shall be deemed to mean “all or any part of the IP”. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.

               (b) With respect to terms defined by cross-reference to the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Third Mezzanine Loan Documents, as applicable, such defined terms shall have the definitions set forth in the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Third Mezzanine Loan Documents as of the date hereof, and no modifications to the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Third Mezzanine Loan Documents, as the case may be, shall have the effect of changing such definitions for the purpose of this Agreement unless Lender expressly agrees that such definitions as used in this Agreement have been revised or Lender consents to the modification documents. With respect to any provisions incorporated by reference herein from the Mortgage Loan Agreement and/or the First Mezzanine Loan Agreement, as applicable, such provisions shall be deemed a part of this Agreement

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notwithstanding the fact that the Mortgage Loan and/or the First Mezzanine Loan, as the case may be, shall no longer be effective for any reason.

               (c) The words “Borrowers shall cause First Mezzanine Borrowers to” or “Borrowers shall cause First Mezzanine Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the sole members of First Mezzanine Borrowers, shall cause First Mezzanine Borrowers to so act or not to so act, as applicable. The words “Borrowers shall cause Mortgage Borrowers to” or “Borrowers shall cause Mortgage Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the sole members of First Mezzanine Borrowers, shall cause First Mezzanine Borrowers, as the direct or indirect sole members of Mortgage Borrowers, to cause Mortgage Borrowers to so act or not to so act, as applicable.

ARTICLE II.
GENERAL TERMS

     Section 2.1 Loan Commitment; Disbursement to Borrowers.

          2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrowers hereby jointly and severally agree to accept the Loan on the Closing Date.

          2.1.2 Loan. (a) The Loan is evidenced by the Note and this Agreement, is secured by the Pledge Agreement and the other Loan Documents and shall be repaid with interest, costs and charges as more particularly set forth in the Note, this Agreement, the Pledge Agreement and the other Loan Documents. Principal amounts of the Loan which are repaid for any reason may not be reborrowed. Lender shall not fund any portion of the Loan from any account holding “plan assets” of one or more plans within the meaning of 29 C.F.R. 2510.3-101 unless such Loan will not constitute a non-exempt prohibited transaction under ERISA.

               (b) Borrowers shall use the proceeds of the Loan to make a contribution to First Mezzanine Borrowers, and then shall cause First Mezzanine Borrowers to make a contribution to Mortgage Borrowers for use by Mortgage Borrowers to partially prepay the principal balance of the Original Mortgage Loan.

     Section 2.2 Interest Rate.

          2.2.1 Interest Generally. Interest on the Outstanding Principal Balance shall accrue from the Closing Date to but excluding the Maturity Date at the Applicable Interest Rate. Borrowers shall pay to Lender on each Payment Date the interest accrued on the Loan for the preceding Interest Period.

          2.2.2 Interest Calculation. Interest on the Outstanding Principal Balance shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate based on a three hundred sixty (360) day year by (c) the Outstanding Principal Balance. If, at any time, Lender or Borrowers determine that Lender has miscalculated the Applicable Interest Rate (whether because of a miscalculation of LIBOR or otherwise), such party shall notify the other of the necessary correction. Upon the agreement of the parties as to the correction, if the corrected Applicable Interest Rate represents an increase

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in the applicable monthly payment, Borrowers shall, within ten (10) days after receipt of notice from Lender, pay to Lender the corrected amount. Upon the agreement of the parties as to the correction, if the corrected Applicable Interest Rate represents an overpayment by Borrowers to Lender and no Event of Default then exists, Lender shall promptly refund the overpayment to Borrowers or, at Borrowers’ option, credit such amounts against Borrowers’ payment next due hereunder.

          2.2.3 Determination of Interest Rate. (a) The Applicable Interest Rate with respect to the Loan shall be: (i) LIBOR plus the Spread with respect to the applicable Interest Period for a LIBOR Loan or (ii) the Prime Rate plus the Prime Rate Spread for a Prime Rate Loan if the Loan is converted to a Prime Rate Loan pursuant to the provisions of Section 2.2.3(c) or (f) hereof.

               (b) Subject to the terms and conditions of this Section 2.2.3, the Loan shall be a LIBOR Loan and Borrowers shall pay interest on the Outstanding Principal Balance at LIBOR plus the Spread for the applicable Interest Period. Any change in the Applicable Interest Rate hereunder due to a change in LIBOR shall become effective as of the opening of business on the first day of the applicable Interest Period.

               (c) In the event that Lender shall have determined in good faith (which determination shall be conclusive and binding upon Borrowers’ absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrowers at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding LIBOR Loan shall be converted, on the first day of the next occurring Interest Period, to a Prime Rate Loan.

               (d) If, pursuant to the terms of this Agreement, any portion of the Loan has been converted to a Prime Rate Loan and Lender shall determine in good faith (which determination shall be conclusive and binding upon Borrowers absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice by telephone of such determination, confirmed in writing, to Borrowers at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding Prime Rate Loan shall be converted to a LIBOR Loan on the first day of the next occurring Interest Period.

               (e) (i) Except as otherwise expressly provided in this Section 2.2.3(e), with respect to a LIBOR Loan, all payments made by Borrowers hereunder shall be made free and clear of, and without reduction for or on account of, any Indemnified Taxes or Other Taxes; provided that if Borrowers shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (A) the sum payable shall be increased as necessary so that after making all such required deductions (including deductions applicable to additional sums payable under this Section 2.2.3) Lender receives an amount equal to the sum it would have received had no such deductions been made, (B) Borrowers shall make such deductions, and (C) Borrowers shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. If Lender gives Borrowers written notice that any such amounts are payable by

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Borrowers, Borrowers shall pay all such amounts to the relevant Governmental Authority in accordance with applicable Legal Requirements by the later of (1) five (5) Business Days after receipt of demand from Lender and (2) their due date, and, as promptly as possible thereafter, Borrowers shall send to Lender an original official receipt, if available, or certified copy thereof showing payment of such Indemnified Taxes or Other Taxes.

               (ii) Without duplication of any additional amounts paid pursuant to this Section 2.2.3(e), each Borrower shall indemnify Lender, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.2.3) paid by Lender, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority, provided that, if Borrowers determine that any such Indemnified Taxes or Other Taxes were not correctly or legally imposed or asserted, Lender shall, upon payment by Borrowers of the full amount of any Indemnified Taxes or Other Taxes, allow Borrowers to contest (and shall cooperate in such contest), the imposition of such tax upon the reasonable request of Borrowers and at Borrowers’ expense; provided, however, that Lender shall not be required to participate in any contest that would, in its reasonable judgment, expose it to a material commercial disadvantage or require it to disclose any information it considers confidential or proprietary. A certificate as to the amount of such payment or liability delivered to Borrowers by Lender (together with any supporting detail reasonably requested by Borrowers), shall be conclusive, provided that such amounts are determined on a reasonable basis.

               (iii) Any Non-U.S. Lender that is entitled to an exemption from or reduction of withholding tax under U.S. law, the law of the jurisdiction in which Borrowers are located (if other than the U.S.), or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to Borrowers, at the time or times prescribed by applicable law, or as reasonably requested by Borrowers, such properly completed and executed documentation prescribed by applicable law or reasonably requested by Borrowers as will permit such payments to be made without withholding or at a reduced rate of withholding. Each Non-U.S. Lender shall deliver to Borrowers (or, in the case of a participant, to the Lender from which the related participation shall have been purchased), on or before the date that such Non-U.S. Lender becomes a party to this Agreement, two (2) properly completed and duly executed copies of U.S. Internal Revenue Service Form W-8BEN, Form W-8IMY, Form W-8EXP or Form W-8ECI, as applicable (or successor forms thereto), claiming a complete exemption from, or reduction of, U.S. federal withholding tax on all payments by Borrowers under this Agreement. Each Non-U.S. Lender shall promptly provide such forms upon becoming aware of the obsolescence, expiration or invalidity of any form previously delivered by such Non-U.S. Lender (unless it is legally unable to do so as a result of a change in law) and shall promptly notify Borrowers at any time it determines that any previously delivered forms are no longer valid.

               (iv) Lender or any successor and/or assign of Lender that is incorporated under the laws of the United States of America or a state thereof agrees that, on or before it becomes a party to this Agreement and from time to time thereafter before the expiration or obsolescence of the previously delivered form, it will deliver to Borrowers a United States Internal Revenue Service Form W-9 or successor applicable form, as the case may be, to

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establish exemption from United States backup withholding tax. If required by applicable law, Borrowers are hereby authorized to deduct from any payments due to Lender pursuant to Section 2.2.3 hereof the amount of any withholding taxes resulting from Lender’s failure to comply with this Section 2.2.3(e)(iv).

               (v) If Lender determines, in its reasonable discretion, that it has received a refund of or will receive a credit for Indemnified Taxes or Other Taxes with respect to which Borrowers have paid additional amounts pursuant to this Section 2.2.3(e), it shall pay over to Borrowers an amount equal to the additional amounts paid by Borrowers under this Section 2.2.3(e) (with respect to the Indemnified Taxes or Other Taxes giving rise to such refund or credit), net of all out-of-pocket expenses of Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that Borrowers, upon the request of Lender, agrees to repay the amount paid over to Borrowers (plus any interest to the extent accrued from the date such refund is paid over to Borrowers) to Lender in the event Lender is required to repay such refund to such Governmental Authority or is unable to claim the credit. This Section 2.2.3(e)(v) shall not be construed to require Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to Borrowers or any other Person.

               (f) Except as otherwise expressly provided in Section 2.2.3(e) hereof, if any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender to make or maintain a LIBOR Loan as contemplated hereunder (i) the obligation of Lender hereunder to make a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted automatically to a Prime Rate Loan on the next succeeding Payment Date or within such earlier period as required by law. Borrowers hereby agree promptly to pay Lender, upon demand, any additional amounts necessary to compensate Lender for any actual out-of-pocket costs incurred by Lender in making any conversion in accordance with this Agreement, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the LIBOR Loan hereunder; provided that such additional amount is generally charged by Lender to other borrowers with loans similar to the Loan.

               (g) Except as otherwise expressly provided in Section 2.2.3(e) hereof, in the event that any change in any requirement of law or in the interpretation or application thereof, or compliance by Lender with any request or directive having the force of law hereafter issued from any central bank or other Governmental Authority:

     (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of LIBOR hereunder;

     (ii) shall hereafter have the effect of reducing the rate of return on Lender’s capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or

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compliance (taking into consideration Lender’s policies with respect to capital adequacy) by any material amount; or

     (iii) shall hereafter impose on Lender any other condition and the result of any of the foregoing is to increase the actual out-of-pocket cost to Lender of maintaining loans or extensions of credit or to reduce any amount receivable hereunder;

then, in any such case, Borrowers shall promptly pay Lender, upon demand, any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable; provided that such additional amount is generally charged by Lender to other borrowers with loans similar to the Loan. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(g), Lender shall provide Borrowers with not less than ninety (90) days notice specifying in reasonable detail the event by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount.

               (h) Each Borrower agrees to pay to Lender and to hold Lender harmless from any actual out-of-pocket expense which Lender sustains or incurs as a consequence of (i) any default by Borrowers in payment of the principal of or interest on a LIBOR Loan, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder, (ii) any prepayment (whether voluntary or mandatory) of the LIBOR Loan on a day that (A) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (B) is the Payment Date immediately following the last day of an Interest Period with respect thereto if Borrowers did not give the prior notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the LIBOR Loan hereunder, and (iii) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from LIBOR plus the Spread to the Prime Rate plus the Prime Rate Spread with respect to any portion of the Outstanding Principal Balance then bearing interest at LIBOR plus the Spread on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, such actual out-of-pocket expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder (the amounts referred to in clauses (i), (ii) and (iii) are herein referred to collectively as the “Breakage Costs”); provided, however, that Borrowers shall not indemnify Lender from any loss or expense arising from Lender’s willful misconduct, fraud, illegal acts or gross negligence. No Breakage Costs shall be due or payable if, in connection with any prepayment of the Loan by Borrowers, Borrowers pay interest through the next Payment Date as provided in Section 2.4.1 hereof.

               (i) Subject to Section 2.2.3(e) above, Lender shall not be entitled to claim compensation pursuant to this Section 2.2.3 for any Indemnified Taxes or Other Taxes, increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of return, which was incurred or which accrued more than ninety (90) days before the date Lender notified Borrowers in writing of the change in law or other circumstance on which such claim of

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compensation is based and delivered to Borrowers a written statement setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.2.3, which statement, made in good faith, shall be conclusive and binding upon all parties hereto absent manifest error.

          2.2.4 Additional Costs. Lender will use reasonable efforts (consistent with legal and regulatory restrictions) to maintain the availability of the LIBOR Loan and to avoid or reduce any increased or additional costs payable by Borrowers under Section 2.2.3 hereof, including, if requested by Borrowers, a transfer or assignment of the Loan to a branch, office or Affiliate of Lender in another jurisdiction, or a redesignation of its lending office with respect to the Loan, in order to maintain the availability of the LIBOR Loan or to avoid or reduce such increased or additional costs, provided that the transfer or assignment or redesignation (a) would not result in any additional costs, expenses or risk to Lender that are not separately agreed to by Borrowers to be reimbursed by Borrowers and (b) would not be disadvantageous in any other material respect to Lender as determined by Lender in its reasonable discretion.

          2.2.5 Default Rate. In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the Outstanding Principal Balance and, to the extent permitted by law, all accrued and unpaid interest in respect of the Loan and any other amounts due pursuant to the Loan Documents, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.

          2.2.6 Usury Savings. This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall any Borrower be obligated or required to pay interest on the Outstanding Principal Balance at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, any Borrower is at any time required or obligated to pay interest on the Outstanding Principal Balance at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.

          2.2.7 Interest Rate Cap Agreement. (a) Prior to or contemporaneously with the Closing Date, Borrowers shall enter into one or more Interest Rate Cap Agreements with a blended LIBOR strike price equal to the Strike Price. Each Interest Rate Cap Agreement (i) shall be in a form and substance reasonably acceptable to Lender, (ii) shall be with an Acceptable Counterparty, (iii) shall direct such Acceptable Counterparty to deposit directly into the Cash Management Account any amounts due Borrowers under such Interest Rate Cap Agreement so long as any portion of the Debt exists, provided that the Debt shall be deemed to exist even if one or more of the Properties, the IP or the Collateral is transferred by judicial or non-judicial foreclosure or deed-in-lieu thereof, (iv) shall be for a period equal to the current term of the

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Loan, and (v) when aggregated with all other Interest Rate Cap Agreements, shall have an initial notional amount equal to the outstanding principal balance of the Loan as of the Closing Date. Borrowers shall collaterally assign to Lender, pursuant to the Collateral Assignment of Interest Rate Cap Agreement, all of its right, title and interest to receive any and all payments under all Interest Rate Cap Agreements, and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreements (which shall, by their respective terms, authorize the assignment to Lender and require that payments be deposited directly into the Cash Management Account).

               (b) Borrowers shall comply with all of their obligations under the terms and provisions of each Interest Rate Cap Agreement. All amounts paid by the Counterparty under each Interest Rate Cap Agreement to Borrowers or Lender shall be deposited immediately into the Cash Management Account. Borrowers shall take all actions reasonably requested by Lender to enforce Lender’s rights under each Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder.

               (c) In the event of any downgrade of the rating of the Acceptable Counterparty below “AA-” by S&P or “Aa3” by Moody’s, Borrowers shall replace the applicable Interest Rate Cap Agreement(s) with one or more Replacement Interest Rate Cap Agreements not later than ten (10) Business Days following receipt of notice from Lender of such downgrade.

               (d) In the event that Borrowers fail to purchase and deliver to Lender any Interest Rate Cap Agreement or fail to maintain each Interest Rate Cap Agreement in accordance with the terms and provisions of this Agreement, after ten (10) Business Days notice to Borrowers and Borrowers’ failure to cure, Lender may purchase the required Interest Rate Cap Agreement(s) and the actual out-of-pocket cost incurred by Lender in purchasing such Interest Rate Cap Agreement(s) shall be paid by Borrowers to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such actual out-of-pocket cost is reimbursed by Borrowers to Lender.

               (e) In connection with each Interest Rate Cap Agreement, Borrowers shall obtain and deliver to Lender an opinion from counsel (which counsel may be in-house counsel for the Counterparty) for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that:

     (i) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the organizational power and authority to execute and deliver, and to perform its obligations under, such Interest Rate Cap Agreement;

     (ii) the execution and delivery of such Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or

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equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property;

     (iii) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of such Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and

     (iv) such Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

               (f) At such time as the Loan is repaid in full, all of Lender’s right, title and interest in all Interest Rate Cap Agreements shall terminate and Lender shall, at Borrowers’ reasonable expense, promptly execute and deliver such documents as may be reasonably required and prepared by the Counterparty and/or Borrowers to evidence release of each Interest Rate Cap Agreement.

     Section 2.3 Loan Payment.

          2.3.1 Payments Generally. Borrowers shall pay to Lender on each Payment Date the interest accrued on the Loan for the preceding Interest Period (the “Monthly Interest Payment”), except that Borrowers shall pay to Lender an amount equal to the interest accrued on the Outstanding Principal Balance for the initial Interest Period on the Closing Date. For purposes of making payments hereunder, but not for purposes of calculating Interest Periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day. With respect to payments of principal due on the Maturity Date, interest shall be payable at the Applicable Interest Rate or the Default Rate, as the case may be, through and including the day immediately preceding such Maturity Date. All amounts due pursuant to this Agreement and the other Loan Documents shall be payable without setoff, counterclaim, defense or any other deduction whatsoever, except as otherwise expressly provided in Section 2.2.3(e) hereof.

     Lender shall have the right from time to time, in its sole discretion, upon not less than ten (10) days prior written notice to Borrowers, to change the monthly Payment Date to a different calendar day and to correspondingly adjust the Interest Period and Lender and Borrowers shall promptly execute an amendment to this Agreement to evidence any such changes.

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          2.3.2 Payment on Maturity Date. Borrowers shall pay to Lender on the Maturity Date the Outstanding Principal Balance, all accrued and unpaid interest, and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents.

          2.3.3 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents (other than the payment of principal due on the Maturity Date) is not paid by Borrowers by the date on which it is due, Borrowers shall pay to Lender upon demand an amount equal to the lesser of (a) four percent (4%) of such unpaid sum or (b) the maximum amount permitted by applicable law, in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by applicable law.

          2.3.4 Method and Place of Payment. Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 2:00 P.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office at 11 Madison Avenue, New York, New York 10010, Attention: Edmund Taylor, or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.

     Section 2.4 Prepayments.

          2.4.1 Voluntary Prepayments. From and after the date hereof, so long as no Event of Default has occurred and is continuing, Borrowers may, at their option and upon at least ten (10) days prior written notice to Lender (or such shorter period as may be permitted by Lender), prepay the Debt in whole or in part, but in no event shall any partial prepayment be less than $5,000,000.00; provided that any prepayment is accompanied by (a) if such prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Loan to be paid through, but not including, the next succeeding ninth (9th) day of a calendar month, or, if such prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date; (b) if such prepayment occurs prior to the Spread Maintenance Release Date, the Spread Maintenance Premium due with respect to the amount prepaid, if any; and (c) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to, the Breakage Costs, if any, the applicable Prepayment Fee, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such prepayment. No Spread Maintenance Premium or, subject to the proviso at the end of this sentence, any other prepayment premium or fee shall be due in connection with any prepayment of the Loan (i) made after the Spread Maintenance Release Date, or (ii) made from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price; provided, however, that the applicable Prepayment Fee shall be due in connection with any

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prepayment of the Loan made from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price if any such prepayment shall occur prior to the Prepayment Fee Release Date. If a notice of prepayment is given by Borrowers to Lender pursuant to this Section 2.4.1, the amount designated for prepayment and all other sums required under this Section 2.4 shall be due and payable on the proposed prepayment date; provided, however, Borrowers shall have the right to postpone or revoke such prepayment upon written notice to Lender not less than two (2) Business Days prior to the date such prepayment is due so long as Borrowers pay Lender and/or Servicer all actual out-of-pocket third party costs and expenses incurred by Lender and/or Servicer in connection with such postponement or revocation.

          2.4.2 Mandatory Prepayments.

               (a) Minimum Mandatory Prepayment and Alternative Minimum Mandatory Letter of Credit.

               (i) Section 2.4.2(b) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to either (A) pay to Mortgage Lender a mandatory prepayment of the Aggregate Outstanding Principal Balance in the Minimum Mandatory Amount (the “Minimum Mandatory Prepayment”), or (B) deliver to Mortgage Lender the Alternative Minimum Mandatory Letter of Credit and the Alternative Minimum Interest Reserve Amount, in each case, in the event that the entire Release Parcel has not been sold pursuant to one or more Release Parcel Sales consummated in accordance with the provisions of Section 2.5.1 of the Mortgage Loan Agreement, including, without limitation, the payment of the Release Parcel Release Price(s) resulting from any such Release Parcel Sale(s), on or prior to the First Anniversary, subject to extension upon satisfaction of certain conditions as set forth in Section 2.4.2(b) of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Minimum Mandatory Prepayment or delivery of the Alternative Minimum Mandatory Letter of Credit and the Alternative Minimum Interest Reserve Amount by Mortgage Borrowers in accordance with the terms of Section 2.4.2(b) and Section 2.4.2(e) of the Mortgage Loan Agreement provided that:

          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices relating to such Minimum Mandatory Prepayment or Alternative Minimum Mandatory Letter of Credit delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (B) all certifications made by Mortgage Borrowers in connection with such Minimum Mandatory Prepayment or Alternative Minimum Mandatory Letter of Credit also run for the benefit of Lender; and

          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the

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sum of the Minimum Mandatory Prepayment (or deliver an Alternative Minimum Mandatory Letter of Credit in lieu thereof) determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Minimum Mandatory Prepayment (or a partial payment on account thereof) occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Minimum Mandatory Prepayment (or a partial payment on account thereof) occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, (2) the applicable Prepayment Fee, and (3) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Minimum Mandatory Prepayment (or such partial payment on account thereof), but Lender acknowledges and agrees that no Spread Maintenance Premium shall be due at any time in connection with the Minimum Mandatory Prepayment (or any partial payment on account thereof).

               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its option, to draw on any Alternative Minimum Mandatory Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

               (iv) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(b) and Section 2.4.2(e) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

               (b) Non-Qualified Mandatory Prepayment.

               (i) Section 2.4.2(c) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to either (A) pay to Mortgage Lender on or prior to the Construction Qualification Date a mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $50,000,000.00 (the “Non-Qualified Mandatory Prepayment”), or (B) deliver to Mortgage Lender the Non-Qualified Prepayment Letter of Credit, in each case, in the event that Mortgage Borrowers shall deliver a Relinquishment Notice or in the event that a Deemed Relinquishment shall occur, and whether or not the entire Release Parcel shall have been sold pursuant to one or more Release Parcel Sales in accordance with the provisions of Section 2.5.1 of the Mortgage Loan Agreement.

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               (ii) Lender hereby consents to the payment of any Non-Qualified Mandatory Prepayment or delivery of the Non-Qualified Prepayment Letter of Credit by Mortgage Borrowers in accordance with the terms of Section 2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement provided that:

          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices (including any Relinquishment Notice) relating to such Non-Qualified Mandatory Prepayment or Non-Qualified Prepayment Letter of Credit delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (B) all certifications made by Mortgage Borrowers in connection with such Non-Qualified Mandatory Prepayment or Non-Qualified Prepayment Letter of Credit also run for the benefit of Lender; and

          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Non-Qualified Mandatory Prepayment (or deliver a Non-Qualified Prepayment Letter of Credit in lieu thereof) determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Non-Qualified Mandatory Prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Non-Qualified Mandatory Prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, and (2) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Non-Qualified Mandatory Prepayment, but Lender acknowledges and agrees that (x) no Spread Maintenance Premium shall be due at any time in connection with the Non-Qualified Mandatory Prepayment, and (y) no Prepayment Fee shall be due at any time in connection with the Non-Qualified Mandatory Prepayment.

               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its option, to draw on any Non-Qualified Prepayment Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

               (iv) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section

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2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

               (c) Additional Non-Qualified Mandatory Prepayment.

               (i) Section 2.4.2(d) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to pay to Mortgage Lender on the Additional Non-Qualified Prepayment Date an additional mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $75,000,000.00 (the “Additional Non-Qualified Mandatory Prepayment”), in accordance with the provisions of Section 2.4.2(d) of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Additional Non-Qualified Mandatory Prepayment by Mortgage Borrowers in accordance with the terms of Section 2.4.2(d) of the Mortgage Loan Agreement provided that:

          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices relating to such Additional Non-Qualified Mandatory Prepayment delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (B) all certifications made by Mortgage Borrowers in connection with such Additional Non-Qualified Mandatory Prepayment also run for the benefit of Lender; and

          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Additional Non-Qualified Mandatory Prepayment determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Additional Non-Qualified Mandatory Prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Additional Non-Qualified Mandatory Prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, and (2) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Additional Non-Qualified Mandatory Prepayment, but Lender acknowledges and agrees that (x) no Spread Maintenance Premium shall be due at any time in connection with

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the Additional Non-Qualified Mandatory Prepayment, and (y) no Prepayment Fee shall be due at any time in connection with the Additional Non-Qualified Mandatory Prepayment.

               (iii) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(d) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.4.3 Prepayment Upon Occurrence of Liquidation Events.

               (a) In the event of (i) any Casualty to all or any portion of the Property, (ii) any Condemnation of all or any portion of any Property, (iii) a Transfer of any Property in connection with realization thereon by Mortgage Lender following a Mortgage Event of Default, including, without limitation, a foreclosure sale, or (iv) any refinancing of any Property or the Mortgage Loan (each, a “Liquidation Event”), Borrowers shall cause the related Net Liquidation Proceeds After Debt Service to be deposited with Lender or directly into the Cash Management Account. On each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt Service, if such date is a Payment Date, such Net Liquidation Proceeds After Debt Service shall be applied to the Outstanding Principal Balance in an amount equal to one hundred percent (100%) of such Net Liquidation Proceeds After Debt Service and all other sums then due to prepay the Loan. In the event Lender receives a distribution of Net Liquidation Proceeds After Debt Service on a date other than a Payment Date, such amounts shall be held by Lender as collateral security for the Loan in an interest bearing account, with such interest accruing to the benefit of Borrowers, and shall be applied by Lender on the next Payment Date. Any such prepayment shall be applied to all accrued and unpaid interest amounts and other amounts then due to Lender under this Agreement or any of the other Loan Documents and then to the Outstanding Principal Balance.

               (b) Borrowers shall immediately notify Lender of any Liquidation Event once any Borrower has knowledge of such event. Borrowers shall be deemed to have knowledge of (i) a sale (other than a foreclosure sale) of any Property on the date on which a contract of sale for such sale is entered into, and a foreclosure sale, on the date notice of such foreclosure sale is given, and (ii) a refinancing of the Property, on the date on which a binding commitment for such refinancing is entered into and a closing date for the funding of such refinancing has been scheduled. The provisions of this Section 2.4.3 shall not be construed to contravene in any manner either (i) the restrictions and other provisions regarding refinancing of the Mortgage Loan or Transfer of any Property set forth in this Agreement, any other Loan Document or any Mortgage Loan Document, whether or not notice is given pursuant to this Section 2.4.3 or (ii) Borrowers’ right to prepay set forth in this Agreement and the other Loan Documents or the Mortgage Loan Documents.

               (c) Upon payment in full of the Debt and all other Obligations, Lender shall disburse any Net Liquidation Proceeds After Debt Service to:

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     (i) in the event the Third Mezzanine Loan is outstanding, to Third Mezzanine Lender; and

     (ii) in the event the Third Mezzanine Loan has been paid in full, to Borrowers.

          2.4.4 Application of Payments of Principal. Notwithstanding anything to the contrary contained in this Agreement, the following principal payments shall be allocated among the Loan, the Mortgage Loan and the Mezzanine Loans as follows:

               (a) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment, including, without limitation, any prepayment pursuant to Section 2.7.3(a) or 2.7.3(b)(i) hereof or Section 3.2(h), 3.2(h)(A) or 3.3(d) of the Mortgage Loan Agreement (but expressly excluding (1) any prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(j) thereof and Section 2.4.4(j) below; (2) any prepayment pursuant to Section 3.1(e) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below; (3) any prepayment pursuant to Section 3.17.5(a) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below; and (4) any prepayment pursuant to Section 3.22(a)(iii)(A) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below), shall be applied, pro rata in accordance with the Financing Percentages, to (i) the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages, (ii) the First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine Debt, until the Mortgage Debt, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt are paid in full, which Financing Percentages and Component Percentages shall be calculated as of the date of such prepayment; provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment first, to payment of the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (i) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iii) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) any balance to Mortgage Borrowers;

               (b) so long as no Mortgage Event of Default shall have occurred and be continuing, any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment and/or Additional Non-Qualified Mandatory Prepayment shall be applied, pro rata in accordance with the Financing Percentages, to (i) the Mortgage Debt, pro rata between the Components in accordance with the Component

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Percentages, (ii) the First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine Debt, until the Mortgage Debt, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt are paid in full, which Financing Percentages and Component Percentages shall be calculated as of the date of such prepayment; provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment and/or Additional Non-Qualified Mandatory Prepayment first, to payment of the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (i) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iii) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) any balance to Mortgage Borrowers;

          (c) all Net Proceeds not required to be made available for Restoration, and as to which Mortgage Lender has not otherwise elected in its sole discretion to make available for Restoration, shall be applied first, to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then, as a distribution permitted under applicable law, (i) disbursed to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iii) disbursed to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) the balance disbursed to Mortgage Borrowers;

          (d) any Mortgage Reserve Funds or other cash collateral held by or on behalf of Mortgage Lender, whether in the Mortgage Cash Management Account or any of the Mortgage Reserve Funds, or otherwise, including, without limitation, any Net Proceeds and/or any Excess Cash Flow then being held by Mortgage Lender, shall, upon the occurrence and during the continuance of a Mortgage Event of Default, be applied by Mortgage Lender as follows or may continue to be held by Mortgage Lender as additional collateral for the Mortgage Loan, all in Mortgage Lender’s sole discretion: first, to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then, as a distribution permitted under applicable law, (i) disbursed to First Mezzanine

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Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iii) disbursed to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (iv) the balance disbursed to Mortgage Borrowers;

          (e) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, the proceeds of any Release Parcel Release Price shall be allocated, pro rata in accordance with the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (ii) the First Mezzanine Loan, (iii) the Loan and (iv) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such Release Parcel Release Price;

          (f) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, the proceeds of any Adjacent Parcel Release Price shall be allocated, pro rata in accordance with the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (ii) the First Mezzanine Loan, (iii) the Loan and (iv) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such Adjacent Parcel Release Price;

          (g) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, (i) the proceeds of any IP Release Price which is less than or equal to $80,000,000 and arises from an IP Sale (a “Non-Fully Prepaid IP Sale”) occurring at any time when Mortgage Borrowers have not paid in full the Minimum Mandatory Prepayment, the Non-Qualified Mandatory Prepayment and the Additional Non-Qualified Mandatory Prepayment, shall be allocated, pro rata in accordance with the Financing Percentages, among (I) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (II) the First Mezzanine Loan, (III) the Loan and (IV) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price; (ii) the proceeds of any IP Release Price which is less than or equal to $60,000,000 and arises from an IP Sale (a “Fully Prepaid IP Sale”) occurring at any time after Mortgage Borrowers have paid in full the Minimum Mandatory Prepayment, the Non-Qualified Mandatory Prepayment and the Additional Non-Qualified Mandatory Prepayment, shall be allocated, pro rata in accordance with the Financing Percentages, among (I) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (II) the First Mezzanine Loan, (III) the Loan and (IV) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price; and (iii) the proceeds of any IP Release Price in excess of $80,000,000 which arise from a Non-Fully Prepaid IP Sale (the “Excess Non-Fully Funded IP Release Proceeds”) or the proceeds of any IP Release Price in excess of $60,000,000 which arise from a Fully Prepaid IP Sale (“Excess Fully Funded IP Release Proceeds”; and whichever of the Excess Fully Funded IP Release Proceeds or the Excess Non-Fully Funded IP

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Release Proceeds is applicable, the “Excess IP Release Price Proceeds”), shall, at Mortgage Borrowers’ option, either (A) be deposited in the General Reserve Account and thereafter constitute a part of the General Reserve Fund for all purposes under the Mortgage Loan Agreement, to be held and disbursed by Mortgage Lender as set forth in Section 7.6 thereof, or (B) applied as follows, in such amounts as Mortgage Borrowers shall elect: (1) up to fifty percent (50%) of such Excess IP Release Price Proceeds shall be applied to satisfy any Required Equity Amount or Subsequent Required Equity Amount then due and payable, and/or (2) the balance of such Excess IP Release Price Proceeds after application in accordance with the foregoing clause (1), but in no event less than fifty percent (50%) thereof, to repayment, pro rata in accordance with the Financing Percentages, of (w) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (x) the First Mezzanine Loan, (y) the Loan and (z) the Third Mezzanine Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price (any repayment of the Mortgage Loan, the First Mezzanine Loan, the Loan and the Third Mezzanine Loan pursuant to this Section 2.4.3(g)(iii)(B)(2) paid out of Excess Non-Fully Funded IP Release Proceeds being referred to as the “Optional IP Release Payment”);

          (h) all Rents received by Mortgage Lender upon the occurrence and during the continuance of a Mortgage Event of Default pursuant to Section 3.1 of the Assignment of Leases shall be applied by Mortgage Lender as follows or may continue to be held by Mortgage Lender as additional collateral for the Mortgage Loan, all in Mortgage Lender’s sole discretion: first, (i) to the expenses of managing and securing any of the Properties, as contemplated by clause (a) of said Section 3.1 of the Assignment of Leases, and/or (ii) to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then (A) disbursed to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (B) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (C) disbursed to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (D) the balance disbursed to Mortgage Borrowers;

          (i) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan Agreement shall be applied as follows: (A) first, to the Construction Loan until the Construction Loan is repaid in full, and then (B) second, out of any remaining balance of such voluntary prepayment, $10,000,000 thereof shall be applied to the Third Mezzanine Debt provided that the Third Mezzanine Construction Funds (as such term is defined in the Mortgage Loan Agreement) were previously delivered to Mortgage Lender for deposit into the Construction Loan Reserve Account pursuant to Section 3.4.2 of the Third Mezzanine Loan Agreement, and then (C) third, any remaining balance of such voluntary prepayment shall be applied, pro rata in accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition Loan, (ii) the First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine

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Debt, until the Reduced Acquisition Loan, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt are paid in full, which Alternate Financing Percentages shall be calculated as of the date of such prepayment and taking into account the prepayments made pursuant to the foregoing clauses (A) and (B); provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan Agreement first, to payment of the Construction Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Construction Loan is paid in full, and then second, to payment of the Reduced Acquisition Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Reduced Acquisition Loan is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (1) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (2) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (3) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (4) any balance to Mortgage Borrowers; and

          (j) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement shall be applied as follows: (A) first, to the Construction Loan until the Construction Loan is repaid in full, and then (B) second, any remaining balance of such voluntary prepayment shall be applied, pro rata in accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition Loan, (ii) the First Mezzanine Debt, (iii) the Debt and (iv) the Third Mezzanine Debt, until the Reduced Acquisition Loan, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt are paid in full, which Alternate Financing Percentages shall be calculated as of the date of such prepayment and taking into account the prepayment made pursuant to the foregoing clause (A); provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement first, to payment of the Construction Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Construction Loan is paid in full, and then second, to payment of the Reduced Acquisition Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Reduced Acquisition Loan is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (1) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (2) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (3) to Third Mezzanine Lender for application in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt (or any portion thereof) is then outstanding, until the Third Mezzanine Debt is paid in full, and then (4) any balance to Mortgage Borrowers.

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          2.4.5 Prepayments After Default. If during the continuance of an Event of Default payment of all or any part of the Debt is tendered by Borrowers or otherwise recovered by Lender (including through application of any Reserve Funds or any Net Liquidation Proceeds After Debt Service), (a) such tender or recovery shall be deemed made on the next occurring Payment Date together with the monthly Debt Service amount calculated at the Default Rate from and after the date of such Event of Default, (b) if such tender or recovery occurs on or prior to the Spread Maintenance Release Date, Borrowers shall pay, in addition to the Debt, the Spread Maintenance Premium due on the amount of the Loan being prepaid or satisfied, and (c) Borrower shall also pay an amount equal to one percent (1%) of the amount of the Loan being prepaid or satisfied.

          2.4.6 Prepayments Made on Dates Other Than Payment Dates. With respect to any provision herein or in any other Loan Document providing that if a payment or prepayment of the Loan is made on a date other than a Payment Date such payment or prepayment shall be accompanied by all interest which would have accrued on the amount of the Loan so paid or prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month, Borrowers shall be entitled to a credit toward the following month’s Monthly Interest Payment or any other amounts due under the Loan in an amount equal to the amount of interest actually earned by Lender on the portion of such interest payment in excess of the amount of interest actually accrued on the date of such payment or prepayment (the “Extra Non-Accrued Interest”). In order to effectuate the foregoing, upon any prepayment resulting in any Extra Non-Accrued Interest pursuant to the terms hereof, Lender shall deposit such Extra Non-Accrued Interest in an interest-bearing account for the benefit of Lender until the next Payment Date in order to determine the credit against the next Monthly Interest Payment due to Borrowers under this Section 2.4.6, following which Payment Date (a) Lender may withdraw such Extra Non-Accrued Interest, together with all interest accrued thereon, from such account and apply the amount of the interest accrued on such Extra Non-Accrued Interest to amounts due and payable to Lender on such Payment Date, (b) such Extra Non-Accrued Interest, together with all interest accrued thereon, shall constitute the sole and exclusive property of Lender, and (c) Lender shall have no further obligations to Borrowers with respect to such Extra Non-Accrued Interest and/or the interest accrued thereon. Lender shall not be responsible for obtaining any particular interest rate with respect to any Extra Non-Accrued Interest.

          2.4.7 Application of Prepayment Fee. Any Prepayment Fee received by Mortgage Lender in connection with the Minimum Mandatory Prepayment (or any partial payment on account thereof), any Release Parcel Release Price, any Adjacent Parcel Release Price or the IP Release Price (any of the foregoing, a “Prepayment Fee-Generating Prepayment”) shall be allocated among the Mortgage Loan (and the Components thereof), the First Mezzanine Loan, the Loan and the Third Mezzanine Loan based on the following formula: Mortgage Lender, First Mezzanine Lender, Lender and/or Third Mezzanine Lender, as applicable, shall be entitled to an amount equal to the product resulting from multiplying (a) the amount of the applicable Prepayment Fee, by (b) a fraction, the numerator of which is the amount of the applicable Prepayment Fee-Generating Prepayment allocated to the Mortgage Loan (or the applicable Component thereof), the First Mezzanine Loan, the Loan or the Third Mezzanine Loan, as applicable, pursuant to the applicable provision of Section 2.4.3 of the Mortgage Loan Agreement and Section 2.4.4 hereof, and the denominator of which is the total amount of the applicable Prepayment Fee-Generating Prepayment.

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     Section 2.5 Release of Property. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of the Lien of the Pledge Agreement or any other Loan Document.

          2.5.1 Releases of Release Parcel.

               (a) Section 2.5.1 of the Mortgage Loan Agreement contains provisions permitting Adjacent Borrower to (i) sell one or more portions of the Release Parcel (each, including the entire Release Parcel, a “Partial Release Parcel”) either to a bonafide third party purchaser (a “Bonafide Release Parcel Purchaser”) or to an Affiliate of Mortgage Borrower or any other Restricted Party (an “Affiliate Release Parcel Purchaser”; and together with a Bonafide Release Parcel Purchaser, individually, a “Release Parcel Purchaser”), or (2) refinance one or more Partial Release Parcels (each of the foregoing, including a sale or refinancing of the entire Release Parcel, a “Release Parcel Sale”), and obtain a release of such Partial Release Parcel from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.1 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any Release Parcel Sale conducted in accordance with the terms of Section 2.5.1 of the Mortgage Loan Agreement provided that:

     (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such Release Parcel Sale (including the Sale Request) delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

     (ii) all certifications made by Adjacent Borrower in connection with such Release Parcel Sale also run for the benefit of Lender;

     (iii) contemporaneously with such Release Parcel Sale, Borrowers shall cause Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the Release Parcel Release Price for the applicable Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(e) of the Mortgage Loan Agreement and Section 2.4.4(e) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the Release Parcel Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to a Release Parcel Sale, whether or not the Release Parcel Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.1(a) of the Mortgage Loan Agreement, and (C) providing all release documents in

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connection with any Release Parcel Sale as provided in Section 2.5.1(d) of the Mortgage Loan Agreement; and

     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by Adjacent Borrower of a Sale Request or at the time of the closing of such Release Parcel Sale.

               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.2 Releases of Remaining Adjacent Parcel.

               (a) Section 2.5.2 of the Mortgage Loan Agreement contains provisions permitting Adjacent Borrower to (1) sell one or more portions of the Remaining Adjacent Parcel (each, including the entire Remaining Adjacent Parcel, a “Partial Adjacent Parcel”) either to a bonafide third party purchaser (a “Bonafide Adjacent Parcel Purchaser”) or to an Affiliate of Borrower or any other Restricted Party (an “Affiliate Adjacent Parcel Purchaser”; and together with a Bonafide Adjacent Parcel Purchaser, individually, an “Adjacent Parcel Purchaser”), or (2) refinance one or more Partial Adjacent Parcels (each of the foregoing, including a sale or refinancing of the entire Remaining Adjacent Parcel, an “Adjacent Parcel Sale”), and obtain a release of such Partial Adjacent Parcel from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.2 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any Adjacent Parcel Sale conducted in accordance with the terms of Section 2.5.2 of the Mortgage Loan Agreement provided that:

     (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such Adjacent Parcel Sale delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

     (ii) all certifications made by Adjacent Borrower in connection with such Adjacent Parcel Sale also run for the benefit of Lender;

     (iii) contemporaneously with such Adjacent Parcel Sale, Borrowers shall cause Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the Adjacent Parcel Release Price for the applicable Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(f) of the Mortgage Loan Agreement and Section 2.4.4(f) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest

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on the Adjacent Parcel Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to an Adjacent Parcel Sale, whether or not the Adjacent Parcel Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.2(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any Adjacent Parcel Sale as provided in Section 2.5.2(d) of the Mortgage Loan Agreement; and

     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by Adjacent Borrower of a sale request or at the time of the closing of such Adjacent Parcel Sale.

               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.2 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.3 Release of IP.

               (a) Section 2.5.3 of the Mortgage Loan Agreement contains provisions permitting IP Borrower to sell the IP (in whole but not in part) (an “IP Sale”), to either a bonafide third party purchaser (a “Bonafide IP Purchaser”) or to an Affiliate of Borrower or any other Restricted Party (an “Affiliate IP Purchaser”; and together with a Bonafide IP Purchaser, individually, an “IP Purchaser”), and obtain a release of the IP from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.3 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any IP Sale conducted in accordance with the terms of Section 2.5.3 of the Mortgage Loan Agreement provided that:

     (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such IP Sale delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

     (ii) all certifications made by IP Borrower in connection with such IP Sale also run for the benefit of Lender;

     (iii) contemporaneously with such IP Sale, Borrowers shall cause IP Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the IP Release Price determined in accordance

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with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(g) of the Mortgage Loan Agreement and Section 2.4.4(g) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the IP Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to an IP Sale, whether or not the IP Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.3(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any IP Sale as provided in Section 2.5.3(d) of the Mortgage Loan Agreement; and

     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by IP Borrower of a sale request or at the time of the closing of such IP Sale.

               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.3 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.4 Sale of Properties or IP during Event of Default. Notwithstanding the provisions of the foregoing Sections 2.5.1, 2.5.2 and 2.5.3 or any other provision to the contrary in this Agreement or the other Loan Documents, it is expressly acknowledged and agreed by Borrowers that, upon the occurrence and during the continuance of an Event of Default: (i) no Borrower shall have any right to cause any Mortgage Borrower to sell any Property or any portion thereof or any IP without, in each instance, Lender’s prior written consent, which consent may be given or withheld in Lender’s sole discretion, (ii) any such sale of one or more of the Properties or any portion thereof and/or any IP shall be on such terms and conditions as to which Lender and Borrowers shall agree, Lender, however, having the right to impose such terms and conditions as it shall elect in its sole discretion, (iii) the provisions of this Section 2.5 (other than this Section 2.5.4) shall not be applicable to any such sale of one or more of the Properties or any portion thereof and/or any IP consented to by Lender as aforesaid, Borrowers expressly acknowledging and agreeing that neither Lender nor any Mezzanine Lender shall be entitled to any Release Parcel Release Price, Adjacent Parcel Release Price or IP Release Price or any portion of any of the foregoing or any proceeds of any of the foregoing unless and until the Mortgage Debt has been paid in full, and (iv) in the event that, following any such sale of one or more of the Properties or any portion thereof and/or any IP, the Mortgage Debt and the First Mezzanine Debt shall have been paid in full, Borrowers shall cause Mortgage Borrowers and/or

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Mortgage Lender, as applicable, to distribute to Lender any remaining proceeds thereof to be applied as provided in this Agreement, and thereafter, in the event that the Debt shall have been paid in full, Lender shall distribute (i) to Third Mezzanine Lender any remaining proceeds thereof to be applied as provided in the Third Mezzanine Loan Agreement, and thereafter, (ii) in the event that the Third Mezzanine Debt shall have been paid in full, Third Mezzanine Lender shall distribute any remaining proceeds to Mortgage Borrowers.

     2.5.5 Release on Payment in Full. Upon the written request and payment by Borrowers of the customary recording fees and the actual out-of-pocket third-party costs and expenses of Lender and upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, Lender shall release the Lien of the Pledge Agreement and the other Loan Documents.

     Section 2.6 Cash Management.

          2.6.1 Lockbox Account.

               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and maintain a segregated Eligible Account (the “Lockbox Account”) with Lockbox Bank in trust for the benefit of Mortgage Lender, which Lockbox Account shall be under the sole dominion and control of Mortgage Lender pursuant to and in accordance with the Mortgage Loan Documents and shall comply with all of the terms and conditions set forth in Section 2.6.1 of the Mortgage Loan Agreement.

               (b) Borrowers shall cause each Mortgage Borrower and its Manager and/or Sub-Manager, as applicable, to deposit all amounts received by such Mortgage Borrower or Manager and/or Sub-Manager constituting Rents into the Lockbox Account in accordance with the terms of Section 2.6.1(b) of the Mortgage Loan Agreement.

               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Lockbox Account pursuant to the terms of Section 2.6.1 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrowers to establish and maintain an account that would operate in the same manner as the Lockbox Account in Section 2.6.1 of the Mortgage Loan Agreement and the provisions of Section 2.6.1 of the Mortgage Loan Agreement shall be incorporated herein by reference.

          2.6.2 Mortgage Cash Management Account.

               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and maintain a segregated Eligible Account (the “Mortgage Cash Management Account”), which Mortgage Cash Management Account shall be under the sole dominion and control of Mortgage Lender and shall comply with all of the terms and conditions set forth in Section 2.6.2 of the Mortgage Loan Agreement.

               (b) Borrowers shall direct or cause Mortgage Borrowers to direct that all cash contributions from the Lockbox Account and the Mortgage Cash Management Account

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to be paid to or for the benefit of Lender in accordance with the Mortgage Loan Agreement and the Mortgage Cash Management Agreement shall be deposited into the Cash Management Account maintained in accordance with this Agreement and the Cash Management Agreement. Lender agrees that it shall deliver to Mortgage Lender, not less than five (5) days prior to each Payment Date, a written notice setting forth (i) the amount of the Monthly Interest Payment that will be due on the next Payment Date, and (ii) an itemized list of any other amounts that will be due on such next Payment Date pursuant to the terms of this Agreement and/or the other Loan Documents.

               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Mortgage Cash Management Account pursuant to the terms of Section 2.6.2 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrowers to establish and maintain an account that would operate in the same manner as the Mortgage Cash Management Account in Section 2.6.2 of the Mortgage Loan Agreement and the provisions of Section 2.6.2 of the Mortgage Loan Agreement shall be incorporated herein by reference; provided, however, that references to “Lender,” “Cash Management Account,” and other applicable terms shall be deemed to refer to the Lender, Cash Management Account and other applicable terms hereunder.

          2.6.3 Cash Management Account.

               (a) There shall be established and maintained a segregated Eligible Account (the “Cash Management Account”) to be held by Servicer in trust for the benefit of Lender, which Cash Management Account shall be under the sole dominion and control of Lender. The Cash Management Account shall be entitled “Column Financial, Inc., its successors and/or assigns – Hard Rock Second Mezzanine Cash Management Account” or such other title as shall be reasonably acceptable to Lender and the bank holding the Cash Management Account. Each Borrower hereby grants to Lender a first priority security interest in the Cash Management Account and all deposits at any time contained therein and the proceeds thereof, and will take all actions requested by Lender that are necessary to maintain in favor of Lender a perfected first priority security interest in the Cash Management Account, including, without limitation, executing and filing UCC-1 Financing Statements and continuations thereof. Lender and Servicer shall have the sole right to make withdrawals from the Cash Management Account for application pursuant to the terms of this Agreement and the other Loan Documents and all reasonable costs and expenses for establishing and maintaining the Cash Management Account shall be paid by Borrowers.

               (b) All funds on deposit in the Cash Management Account following the occurrence of an Event of Default may be applied by Lender in such order and priority as Lender shall determine.

               (c) Provided no Event of Default shall have occurred and be continuing, all funds on deposit in the Cash Management Account shall be applied by Lender in accordance with the terms of this Agreement (including, without limitation, Section 2.4.3 and Section 2.4.4 hereof) and the Cash Management Agreement.

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          2.6.4 Financial Determination Dates. Borrowers shall provide, or shall cause Mortgage Borrowers to provide, evidence to Lender of (i) the Debt Service Coverage Ratio for the Properties, and (ii) for purposes of determining whether the General Reserve Excess Cash Conditions have been satisfied, the results of operations at the Properties for the preceding calendar month, within thirty (30) days after the end of each calendar month (the “Financial Determination Date”). All calculations of Debt Service Coverage Ratio and results of operations shall be subject to verification by Mortgage Lender.

     Section 2.7 Extensions of the Initial Maturity Date.

          2.7.1 Non-Qualified Extensions. As provided in this Section 2.7.1, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, Borrowers shall have the option (each, a “Non-Qualified Extension Option”) to extend the term of the Loan beyond the Non-Qualified Initial Maturity Date for two (2) successive terms (each, a “Non-Qualified Extension Term”) of one (1) year each (the Non-Qualified Initial Maturity Date following the exercise of each Non-Qualified Extension Option being the “Non-Qualified Extended Maturity Date”).

               (a) First Non-Qualified Extension Option. Borrowers shall have the right to extend the Non-Qualified Initial Maturity Date to the First Non-Qualified Extended Maturity Date (the “First Non-Qualified Extension Option”; and the period commencing on the first (1st) day following the Non-Qualified Initial Maturity Date and ending on the First Non-Qualified Extended Maturity Date being referred to herein as the “First Non-Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the First Non-Qualified Extension Option is exercised or on the date that the First Non-Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the First Non-Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the Non-Qualified Initial Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the First Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the First Non-Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the First Non-Qualified Extended Maturity Date;

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     (iv) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the First Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the First Non-Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the First Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII

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hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the First Non-Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) the Debt Yield immediately preceding the commencement of the First Non-Qualified Extension Term shall be equal to or greater than 10.25%; and

     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

               (b) Second Non-Qualified Extension Option. Borrowers shall have the right to extend the First Non-Qualified Extended Maturity Date to the Second Non-Qualified Extended Maturity Date (the “Second Non-Qualified Extension Option”; and the period commencing on the first (1st) day following the First Non-Qualified Extended Maturity Date and ending on the Second Non-Qualified Extended Maturity Date being referred to herein as the “Second Non-Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the Second Non-Qualified Extension Option is exercised or on the date that the Second Non-Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the Second Non-Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the First Non-Qualified Extended Maturity Date;

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     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the Second Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the Second Non-Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the Second Non-Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the Second Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the Second Non-Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

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     (vii) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the Second Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the Second Non-Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) the Debt Yield immediately preceding the commencement of the Second Non-Qualified Extension Term shall be equal to or greater than 11.25%; and

     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

          2.7.2 Qualified Extensions. As provided in this Section 2.7.2, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date, Borrowers shall have the option (each, a “Qualified Extension Option”) to extend the term of the Loan beyond the Qualified Initial Maturity Date for two (2) successive terms (each, a “Qualified Extension Term”) of one (1) year each (the Qualified Initial Maturity Date

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following the exercise of each Qualified Extension Option being the “Qualified Extended Maturity Date”).

               (a) First Qualified Extension Option. Borrowers shall have the right to extend the Qualified Initial Maturity Date to the First Qualified Extended Maturity Date (the “First Qualified Extension Option”; and the period commencing on the first (1st) day following the Qualified Initial Maturity Date and ending on the First Qualified Extended Maturity Date being referred to herein as the “First Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the First Qualified Extension Option is exercised or on the date that the First Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the First Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the Qualified Initial Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the First Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the First Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the First Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the First Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such

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amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the First Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the First Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the First Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

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     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) there shall exist no Shortfall as of the Business Day immediately preceding the first day of the First Qualified Extension Term; and

     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

               (b) Second Qualified Extension Option. Borrowers shall have the right to extend the First Qualified Extended Maturity Date to the Second Qualified Extended Maturity Date (the “Second Qualified Extension Option”; and the period commencing on the first (1st) day following the First Qualified Extended Maturity Date and ending on the Second Qualified Extended Maturity Date being referred to herein as the “Second Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the Second Qualified Extension Option is exercised or on the date that the Second Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the Second Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the First Qualified Extended Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the Second Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the Second Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the Second Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums

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then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the Second Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the Second Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the Second Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the Second Qualified Extension Option;

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     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (x) the maturity date of the Third Mezzanine Loan, if the Third Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) there shall exist no Shortfall as of the Business Day immediately preceding the first day of the Second Qualified Extension Term;

     (xii) the Debt Yield immediately preceding the commencement of the Second Qualified Extension Term shall be equal to or greater than 13%;

     (xiii) Borrowers shall have paid to Lender an extension fee equal to one-quarter of one percent (0.25%) of the Outstanding Principal Balance not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term; and

     (xiv) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

          2.7.3 Achieving Required Debt Yields.

               (a) Lender hereby acknowledges and agrees that nothing herein contained shall prohibit Borrowers, in accordance with the provisions of Section 2.4.1 hereof, and provided that no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing, from satisfying any Debt Yield requirement set forth in Section 2.7.1 or 2.7.2 hereof by partially prepaying the Mortgage Loan, the Loan or the Mezzanine Loans prior to the commencement of the First Non-Qualified Extension Term, the Second Non-Qualified Extension Term or the Second Qualified Extension Term, as applicable, which prepayment shall be applied in accordance with Section 2.4.4(a) hereof.

               (b) Without limiting the generality of the foregoing Section 2.7.3(a), Mortgage Borrowers shall also have the right to satisfy any Debt Yield requirement set forth in Section 2.7.1 or 2.7.2 hereof by delivering to Mortgage Lender (for the benefit of Mortgage Lender, Lender and Mezzanine Lenders) a Letter of Credit in an amount equal to the principal repayment of the Aggregate Outstanding Principal Balance that would be required in order to

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achieve the applicable required Debt Yield (each, a “Debt Yield Letter of Credit”). If Mortgage Borrowers elect to deliver any Debt Yield Letter of Credit, the following shall apply to each such Debt Yield Letter of Credit:

     (i) Borrowers shall cause Mortgage Borrowers to pay to Mortgage Lender all of Mortgage Lender’s reasonable out-of-pocket costs and expenses in connection therewith, including, without limitation, any costs or expenses incurred in drawing down on such Debt Yield Letter of Credit. Mortgage Borrowers shall not be entitled to draw from any such Debt Yield Letter of Credit. Upon five (5) days notice to Lender and Mortgage Lender and provided that no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing, Mortgage Borrowers may replace such Debt Yield Letter of Credit with a partial prepayment of the Mortgage Loan, the Loan and the Mezzanine Loans in an aggregate amount equal to such Debt Yield Letter of Credit, which prepayment shall be applied in accordance with Section 2.4.3(a) of the Mortgage Loan Agreement and Section 2.4.4(a) hereof, following which prepayment, Mortgage Lender shall promptly return such Debt Yield Letter of Credit to Mortgage Borrowers.

     (ii) Each Debt Yield Letter of Credit delivered under this Agreement shall be additional security for the payment of the Mortgage Debt. Upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall have the right, at its option, to draw on any Debt Yield Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(a) of the Mortgage Loan Agreement and Section 2.4.4(a) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

     (iii) In addition to any other right Mortgage Lender may have to draw upon a Debt Yield Letter of Credit pursuant to the terms and conditions of the Mortgage Loan Agreement, Mortgage Lender shall have the additional rights to draw in full on any Debt Yield Letter of Credit: (A) with respect to any evergreen Debt Yield Letter of Credit, if Mortgage Lender has received a notice from the issuing bank that such Debt Yield Letter of Credit will not be renewed and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to expire; (B) with respect to any Debt Yield Letter of Credit with a stated expiration date, if Mortgage Lender has not received a notice from the issuing bank that it has renewed such Debt Yield Letter of Credit at least ten (10) Business Days prior to the date on which such Debt Yield Letter of Credit is scheduled to expire and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to expire; (C) upon receipt of notice from the issuing bank that such Debt Yield Letter of Credit will be terminated and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to be terminated; or (D) if Mortgage Lender has received notice that the bank issuing

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any Debt Yield Letter of Credit shall cease to be an Eligible Institution and within ten (10) Business Days after Mortgage Lender notifies Mortgage Borrowers in writing of such circumstance, Mortgage Borrowers shall fail to deliver to Mortgage Lender a substitute Debt Yield Letter of Credit issued by an Eligible Institution. Notwithstanding anything to the contrary contained in the above, Mortgage Lender is not obligated to draw upon any Debt Yield Letter of Credit upon the happening of an event specified in clause (A), (B), (C) or (D) above and shall not be liable for any losses sustained by Mortgage Borrowers due to the insolvency of the bank issuing any such Debt Yield Letter of Credit if Mortgage Lender has not drawn upon such Debt Yield Letter of Credit.

ARTICLE III.
CONDITIONS PRECEDENT.

     Section 3.1 Conditions Precedent to Closing. Lender’s obligation to make the Loan shall be subject to the satisfaction or Lender’s waiver in writing of the following conditions precedent no later than the Closing Date:

          3.1.1 Loan Agreement and Note. Lender shall have received a counterpart original of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrowers.

          3.1.2 Delivery of Loan Documents; UCC Insurance; Reports.

               (a) Loan Documents. Lender shall have received from Borrowers fully executed and acknowledged counterparts of the Pledge Agreement and authority to file UCC Financing Statements and such other documents required pursuant to the Pledge Agreement, in the reasonable judgment of Lender, so as to effectively create valid and enforceable first priority Liens upon the Pledged Collateral in favor of Lender, subject to no Liens or encumbrances. Lender shall have also received from Borrowers and Guarantors fully executed counterparts of the other Loan Documents.

               (b) UCC Insurance. Lender shall have received a UCC insurance policy (the “UCC Insurance Policy”) issued by the Title Company and dated as of the Closing Date, which UCC Insurance Policy shall (i) provide coverage in an amount equal to the original principal amount of the Loan, (ii) insure Lender that the Pledge Agreement and the documents executed and delivered in connection therewith create a valid first priority lien on the Pledged Collateral, free and clear of all exceptions from coverage and subject only to the standard exceptions and exclusions from coverage, as modified by the terms of any endorsements, as shall be reasonably required by Lender, including, without limitation, coverage with respect to the validity of the lien on the Pledged Collateral and ability to exercise rights and remedies with respect thereto, (iii) contain such endorsements and affirmative coverages as Lender may reasonably request, and (iv) name Lender and its successors and assigns as the insured. The UCC Insurance Policy shall be assignable with an assignment of the Loan. Lender also shall have received evidence that all premiums in respect of the UCC Insurance Policy have been paid.

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               (c) Mezzanine Lender Endorsement. Borrowers shall have caused Mortgage Borrowers to obtain as part of their owners’ title insurance policy, a so-called “Endorsement 16 (Mezzanine Financing)” for the benefit of Lender in form and substance, and providing coverage in amounts, that are satisfactory to Lender, and that shall name Lender and its successors and assigns as the beneficiary of such endorsement. Mortgage Borrowers’ owners’ title insurance policy shall provide that such “Endorsement 16 (Mezzanine Financing)” shall be assignable with an assignment of the Loan. Lender also shall have received evidence that all premiums in respect of Mortgage Borrowers’ owners’ title insurance policy have been paid;

               (d) Insurance. Lender shall have received (i) valid certificates of insurance for the Policies required hereunder, satisfactory to Lender in its sole discretion, (ii) evidence of the payment of all Insurance Premiums payable for the existing policy period and (iii) evidence that Lender has been included as an “additional insured” under such Policies;

               (e) Environmental Reports. Lender shall have received copies of the Phase I environmental reports (and, if recommended by the Phase I environmental report, Phase II environmental reports) in respect of the Properties, as delivered to Mortgage Lender, satisfactory in form and substance to Lender; and

               (f) Encumbrances. Borrowers shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first priority Lien as of the Closing Date on the Pledged Collateral, subject only to such Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof.

          3.1.3 Amendments to Mortgage Loan Documents. The Amended and Restated Mortgage Loan Agreement shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies of said documents.

          3.1.4 Mezzanine Loan Documents. The Mezzanine Loan Documents shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received copies of said Mezzanine Loan Documents.

          3.1.5 Pre-Construction Budget; Loan Budget and Annual Budget. Borrowers shall have delivered to Lender (i) the Pre-Construction Budget; (ii) the Loan Budget, to the extent required under the Mortgage Loan Agreement; and (iii) the Annual Budget for the current Fiscal Year.

          3.1.6 Required Equity Amount. Borrowers shall have furnished to Lender evidence in form and content reasonably satisfactory to Lender that Borrowers have contributed the Required Equity Amount.

          3.1.7 Delivery of Organizational Documents.

               (a) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers of all organizational documentation related to Borrowers and/or their formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its sole discretion, including, without limitation, good standing certificates,

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qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Lender.

               (b) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers or the respective entity, as applicable, of all organizational documentation related to each of the Loan Parties, Guarantors, and other direct or indirect members and/or partners of Borrowers, and/or the formation, structure, existence, good standing and/or qualifications to do business of any of the foregoing, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, authorizing resolutions and incumbency certificates as may be requested by Lender.

          3.1.8 Legal Opinions. Lender shall have received opinions from Borrowers’ counsel with respect to non-consolidation and the due execution, authority, enforceability of the Loan Documents, perfection of the security interests in the Collateral and such other matters as Lender may require, all such opinions in form, scope and substance satisfactory to Lender and Lender’s counsel in their sole discretion.

          3.1.9 Performance; No Monetary Default or Event of Default. Borrowers shall have performed and complied with all terms and conditions herein required to be performed or complied with by them at or prior to the Closing Date, and on the Closing Date, there shall exist no monetary Default or any Event of Default.

          3.1.10 Representations and Warranties. All representations and warranties made by Borrowers and/or Guarantors in the Loan Documents or otherwise made by or on behalf of Borrowers and/or Guarantors in connection therewith shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date (except to the extent of changes in circumstances or conditions which are not otherwise prohibited by this Agreement).

          3.1.11 Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory to Lender and Lender’s counsel in form and substance, and Lender shall have received all information and such counterpart originals or certified copies of such documents and such other certificates, opinions or documents as Lender and Lender’s counsel may require.

     Section 3.2 Submission of Construction Loan Advance Documents to Lender. Borrowers shall submit, or shall cause Mortgage Borrowers to submit, to Lender, contemporaneously with any submission thereof by Mortgage Borrowers to Mortgage Lender, a copy of each Draw Request related to each Construction Loan Advance and all documents required to be delivered by Mortgage Borrowers to Mortgage Lender in connection therewith pursuant to Article III of the Mortgage Loan Agreement; provided, however, that any breach of this provision shall not constitute an Event of Default hereunder.

     Section 3.3 Delivery of Construction Completion Guaranty. Borrowers shall deliver to Lender, contemporaneously with the submission thereof by Mortgage Borrowers to

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Mortgage Lender pursuant to Section 3.2(f) of the Mortgage Loan Agreement, two (2) fully-executed originals of the Construction Completion Guaranty in favor of Lender.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES.

     Section 4.1 Representations of Borrowers. Each Borrower represents and warrants as to itself that as of the Closing Date:

          4.1.1 Organization.

               (a) Such Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own its assets and to transact the businesses in which it is now engaged. Such Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its assets, businesses and operations. Such Borrower possesses all material rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its properties and to transact the businesses in which it is now engaged, and the sole business of such Borrower is the ownership and management of the relevant First Mezzanine Borrower. The ownership interests of such Borrower are as set forth on the organizational chart attached hereto as Schedule VI.

               (b) Such Borrower has the power and authority and the requisite ownership interests to control the actions of the relevant First Mezzanine Borrower and, in turn, the relevant Mortgage Borrower and upon the realization of the Pledged Collateral under the Pledge Agreement, Lender or any other party succeeding to such Borrower’s interest in the Pledged Collateral described in the Pledge Agreement would have such control. Without limiting the foregoing, such Borrower has sufficient control over the relevant First Mezzanine Borrower and, in turn, the relevant Mortgage Borrower to cause such Mortgage Borrower to (i) take any action on Mortgage Borrower’s part required by the Mortgage Loan Documents and (ii) refrain from taking any action prohibited by the Mortgage Loan Documents.

          4.1.2 Proceedings. Such Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents have been duly executed and delivered by or on behalf of such Borrower and constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

          4.1.3 No Conflicts. The execution, delivery and performance of this Agreement and the other Loan Documents by such Borrower will not materially conflict with or result in a material breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of such Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement or other agreement or instrument to which such Borrower is a party or by which any

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of such Borrower’s property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over such Borrower or any of such Borrower’s properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any such Governmental Authority necessary to permit the execution, delivery and performance by such Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect.

          4.1.4 Litigation. Except as set forth on Schedule VIII attached hereto:

               (a) There is no action, suit, claim, proceeding or investigation pending against any Loan Party, HRHI or any Guarantor or, to such Borrower’s actual knowledge, pending against any Property, the IP, the First Mezzanine Collateral or the Collateral or, to such Borrower’s actual knowledge, threatened in writing against any Loan Party, HRHI or any Guarantor, or any Property, the IP, the First Mezzanine Collateral or the Collateral in any court or by or before any other Governmental Authority that would have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of such Loan Party, HRHI, any Guarantor, any Property, the IP, the First Mezzanine Collateral or the Collateral, (ii) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, (iii) the ability of any Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Mortgage Loan Documents, the First Mezzanine Loan Documents or the Loan Documents, as applicable, or (iv) the value of, or cash flow from, any Property, the IP, the First Mezzanine Collateral or the Collateral.

               (b) There is no proceeding, investigation or disciplinary action (including, without limitation, before any Gaming authority, under any Gaming Law or under any Gaming License or other Operating Permit) pending or, to Borrower’s actual knowledge, threatened in writing, either (i) in connection with, or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge, any of the Loan Documents, the First Mezzanine Loan Documents or the Mortgage Loan Documents or any of the transactions contemplated therein, or (ii) to Borrower’s actual knowledge, that, either singly or in the aggregate, could reasonably be expected to have an adverse effect on any Gaming License currently in effect with respect to the Casino Component, including, without limitation, any such proceeding, investigation or disciplinary action pending or, threatened against Gaming Operator, any Loan Party or any of their respective directors, members, managers, officers, key personnel or Persons holding a five percent (5%) or greater direct or indirect equity or economic interest in such Borrower or any Loan Party. Additionally, there is no proceeding (including, without limitation, before any Gaming Authority, under any Gaming Law or under any Gaming License or other Operating Permit) pending or, to Borrowers’ actual knowledge, threatened in writing that could reasonably be expected to have a material adverse effect on any application for a Gaming License or other Operating Permit by Gaming Borrower or any Affiliate thereof or any officer, director, employee or agent of any Loan Party or any Affiliate of any Loan Party.

          4.1.5 Agreements. Such Borrower is not a party to any agreement or instrument or subject to any restriction which would be reasonably likely to materially and adversely affect any Loan Party, any Property, the IP, the First Mezzanine Collateral or the

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Collateral, or such Borrower’s business, properties or assets, operations or condition, financial or otherwise. To the best of such Borrower’s actual knowledge, no Loan Party is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, license or instrument to which it is a party or by which such Loan Party or any of the Properties, the IP, the First Mezzanine Collateral or the Collateral are bound. Such Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Borrower is a party or by which such Borrower or its properties or assets is otherwise bound, other than (a) obligations incurred in the ordinary course of business relating to such Borrower’s ownership and operation of the Collateral permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 hereof, (b) obligations incurred in the ordinary course of the business relating to Mortgage Borrowers’ ownership and operation of the Properties as permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof, (c) obligations incurred in the ordinary course of business relating to First Mezzanine Borrowers’ ownership and operation of the First Mezzanine Collateral permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 of the First Mezzanine Loan Agreement as in effect on the date hereof, and (d) obligations under the Loan Documents.

          4.1.6 Title.

               (a) Such Borrower is the record and beneficial owner of, and has good and valid title to, its Pledged Interests, free and clear of all Liens, except those Liens granted to Lender under the Loan Documents. The Pledge Agreement, together with the UCC Financing Statements relating to the Pledged Collateral when properly filed in the appropriate records, will create a valid, perfected first priority security interest in and to the portion of the Pledged Collateral covered thereby, all in accordance with the terms thereof for which a Lien can be perfected by filing a UCC Financing Statement. For so long as the Lien of the Pledge Agreement is outstanding, such Borrower shall forever warrant, defend and preserve such title and the validity and priority of the Lien of the Pledge Agreement and shall forever warrant and defend such title, validity and priority to Lender against the claims of all persons whomsoever.

               (b) Each Mortgage Borrower has good, marketable and insurable fee simple title to the real property comprising part of its Property and good title to the balance of such Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Mortgage Loan Documents and the Liens created by the Mortgage Loan Documents.

               (c) First Mezzanine Borrowers are the record and beneficial owners of, and have good and marketable title to, the First Mezzanine Collateral, free and clear of all Liens whatsoever, except for the Liens contemplated by the First Mezzanine Loan Documents.

               (d) To the best of each Borrower’s actual knowledge, the Permitted Encumbrances in the aggregate do not materially and adversely affect the operation or use of the Properties (as currently used) or (i) such Borrower’s ability to repay the Loan, (ii) Mortgage Borrowers’ ability to repay the Mortgage Loan, or (iii) First Mezzanine Borrowers’ ability to repay the First Mezzanine Loan.

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               (e) To such Borrower’s actual knowledge after due inquiry, there are no claims for payment for work, labor or materials affecting any of the Properties that are or may become a Lien prior to, or of equal priority with, the Liens created by the Mortgage Loan Documents, except any Lien then being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage.

          4.1.7 Solvency. Borrowers have (a) not entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) received reasonably equivalent value in exchange for their obligations under such Loan Documents. Taking into account the Loan, the aggregate fair saleable value of Borrowers’ assets collectively exceeds and will exceed Borrowers’ total aggregate liabilities, including, without limitation, subordinated, unliquidated, disputed and contingent liabilities. Taking into account the Loan, the aggregate fair saleable value of Borrowers’ assets collectively is and will be greater than Borrowers’ probable aggregate liabilities, including the maximum amount of their contingent liabilities on its debts as such debts become absolute and matured. Taking into account the Loan, each Borrower’s assets do not and will not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrowers do not intend to, and do not believe that they will, incur Indebtedness and liabilities (including contingent liabilities and other commitments) beyond their respective abilities to pay such Indebtedness and liabilities as they mature (taking into account the timing and amounts of cash to be received by each Borrower and the amounts to be payable on or in respect of obligations of each Borrower). No petition in bankruptcy has been filed against any Loan Party, HRHI or any Guarantor, and none of the Loan Parties, HRHI nor any Guarantor has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. None of the Loan Parties, HRHI nor any Guarantor are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or properties, and no Borrower has any actual knowledge of any Person contemplating the filing of any such petition against any Loan Party, HRHI or any Guarantor.

          4.1.8 Full and Accurate Disclosure. To such Borrower’s actual knowledge, no statement of fact made by any Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact or circumstance presently known to such Borrower which has not been disclosed to Lender and which will have a material adverse effect on (a) the use and operation of any of the Properties, the IP, the First Mezzanine Collateral or the Collateral, (b) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, or (c) the ability of such Borrower, any other Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Loan Documents, the Mortgage Loan Documents or the First Mezzanine Loan Documents, as applicable.

          4.1.9 No Plan Assets. As of the date hereof and throughout the term of the Loan (a) no Borrower is nor will any Borrower be an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA, (b) none of the assets of any Borrower constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29

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C.F.R. Section 2510.3-101, (c) no Borrower is nor will any Borrower be a “governmental plan” within the meaning of Section 3(32) of ERISA, and (d) none of the assets of any Borrower constitute “plan assets” of a governmental plan within the meaning of 29 C.F.R. Section 2510.3-101 for purposes of any state law provisions regulating investments of, or fiduciary obligations with respect to, governmental plans.

          4.1.10 Compliance. Except as set forth in the applicable Zoning Report, each Loan Party and, to the best of such Borrower’s actual knowledge after due inquiry, the Land and Improvements (including the use thereof) comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes and Prescribed Laws. No Loan Party is in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by any Loan Party or, to any Borrower’s actual knowledge, any other Person in occupancy of or involved with the operation or use of any of the Properties, the First Mezzanine Collateral or the Collateral any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Property, the First Mezzanine Collateral, the Collateral or any part of any of the foregoing or any monies paid in performance of (i) any Mortgage Borrower’s obligations under any of the Mortgage Loan Documents, (ii) any First Mezzanine Borrower’s obligations under any of the First Mezzanine Loan Documents, or (iii) any Borrower’s obligations under any of the Loan Documents.

          4.1.11 Financial Information. To such Borrower’s actual knowledge, all historical financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender in connection with the Loan (i) are true, complete and correct in all material respects, (ii) accurately represent in all material respects the financial condition of the Properties (and each Property) and the Collateral, as applicable, as of the date of such reports, and (iii) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with the Uniform System of Accounts and reconciled with GAAP throughout the periods covered, except as disclosed therein. Except for Permitted Encumbrances and except as referred to or reflected in said financial statements previously delivered to Lender in connection with the Loan, no Loan Party has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to any Borrower and are reasonably likely to have a materially adverse effect on the Collateral, the First Mezzanine Collateral or any Property or (a) the operation of the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and/or (b) the operation of the Café Property and the Adjacent Property for a use or uses that is/are consistent with the operation of the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, which use may include, without limitation, expansion of the Hotel/Casino Property, restaurants, retail and residential complexes (the “Permitted Adjacent/Café Uses”). Since the date of such financial statements, there has been no material adverse change in the financial condition, operation or business of any Loan Party or, to each Borrower’s actual knowledge after due inquiry, to the Collateral and, to the extent not prohibited by the Merger Agreement, any Property from that set forth in said financial statements.

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          4.1.12 Condemnation. No Condemnation or other proceeding has been commenced or, to each Borrower’s actual knowledge, is threatened in writing received by such Borrower or contemplated with respect to all or any portion of any Property or for the relocation of any roadway providing direct access to any Property.

          4.1.13 Federal Reserve Regulations. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by any Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents.

          4.1.14 Utilities and Public Access. To such Borrower’s actual knowledge after due inquiry, each Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Property for its intended uses. All public utilities necessary to the continued current use and enjoyment of each Property are located either in the public right-of-way abutting such Property (which are connected so as to serve such Property without passing over other property) or in recorded easements serving such Property and such easements are set forth in and insured by the Title Insurance Policy covering such Property. To such Borrower’s actual knowledge after due inquiry, all roads necessary for the use of each Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities or are located in recorded easements serving such Property and such easements are set forth in and insured by the Title Insurance Policy.

          4.1.15 Not a Foreign Person. No Borrower is a “foreign person” within the meaning of §1445(f)(3) of the Code.

          4.1.16 Separate Lots. Each Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Property.

          4.1.17 Assessments. Except as disclosed in the Title Insurance Policy, to each Borrower’s actual knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Property, nor are there any contemplated improvements to any Property that may result in such special or other assessments.

          4.1.18 Enforceability. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by any Borrower, HRHI or any Guarantor, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable (subject to principles of equity and bankruptcy, insolvency and other laws generally affecting creditors’ rights and the enforcement of debtors’ obligations), and none of any Borrower, HRHI nor any Guarantor has asserted any right of rescission, set-off, counterclaim or defense with respect thereto.

          4.1.19 No Prior Assignment. Other than under the Mortgage Loan Documents, there are no prior assignments by Mortgage Borrowers of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding. There are no

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prior assignments of the Collateral which are presently outstanding except in accordance with the Loan Documents.

          4.1.20 Insurance. Mortgage Borrowers have obtained and Borrowers have delivered to Lender certified copies of all Policies (or “Accord” certificates evidencing coverage thereof) reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any such Policies, and no Person, including any Loan Party, has done, by act or omission, anything which would impair the coverage of any such Policies.

          4.1.21 Use of the Properties. (a) The Hotel/Casino Property is used exclusively as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and otherwise as a top-end hotel and other appurtenant and related uses, and (b) the Café Property and the Adjacent Property are used for Permitted Adjacent/Café Uses and other appurtenant and related uses.

          4.1.22 Certificate of Occupancy; Operating Permits. To the best of each Borrower’s actual knowledge after due inquiry, all certifications, permits, licenses and approvals, including, without limitation, certificates of completion and occupancy permits, all environmental, health and safety licenses, gaming licenses and permits and any applicable liquor license necessary to permit the legal use, occupancy and operation of (a) the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and (b) the Café Property and the Adjacent Property as currently operated on the date hereof, or, subsequent to the date hereof, for Permitted Adjacent/Café Uses (collectively, the “Operating Permits”), have been obtained and are in full force and effect. Each Borrower shall cause Mortgage Borrowers to keep and maintain, or cause to be kept and maintained, all Operating Permits necessary for the operation of (i) the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, and (ii) the Café Property and the Adjacent Property for one or more Permitted Adjacent/Café Purposes. To the best of each Borrower’s actual knowledge after due inquiry, the use being made of each Property is in conformity with the Certificate(s) of Occupancy issued for such Property. Attached hereto as Schedule IX is, to the best of each Borrower’s actual knowledge after due inquiry, a true and complete list of all current Operating Permits and those which are subject to renewal.

          4.1.23 Flood Zone. None of the Improvements on any Property are located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards or, if so located, the flood insurance required pursuant to Section 6.1(a)(i) of the Mortgage Loan Agreement is in full force and effect with respect to each such Property.

          4.1.24 Physical Condition. Except as provided in the Physical Conditions Reports, to each Borrower’s actual knowledge after due inquiry, (a) each Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; (b) there exists no material structural or other material defects or damages in any Property, whether latent

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or otherwise; and (c) no Loan Party has received notice from any insurance company or bonding company of any defects or inadequacies in any Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.

          4.1.25 Boundaries. Except as disclosed on the Surveys, to each Borrower’s actual knowledge, all of the Improvements which were included in determining the appraised value of each Property lie wholly within the boundaries and building restriction lines of such Property, and no improvements on adjoining properties encroach upon such Property, and no easements or other encumbrances upon any Property encroach upon any of the Improvements, so as to materially and adversely affect the value or marketability of such Property except those which are insured against by the applicable Title Insurance Policy for such Property.

          4.1.26 Leases. To each Borrower’s actual knowledge after due inquiry and except as set forth on Schedule X attached hereto or as otherwise disclosed in the estoppel certificates delivered to Lender in connection with the closing of the Loan, (a) the Properties are not subject to any Leases other than the HRHI Lease and the other Leases described in said Schedule X, (b) each Mortgage Borrower is the owner and lessor of the landlord’s interest in each such Lease affecting its Property, (c) no Person has any possessory interest in any Property or any right to occupy the same except under and pursuant to the provisions of such Leases, (d) all commercial Leases are in full force and effect and there are no material defaults thereunder by either party and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute material defaults thereunder, (e) the copies of the commercial Leases delivered to Lender are true and complete, and there are no oral agreements with respect thereto, (f) no Rent (including security deposits) has been paid more than one (1) month in advance of its due date, (g) all work to be performed by the landlord under each Lease has been performed as required in such Lease and has been accepted by the applicable tenant, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by any Mortgage Borrower to any tenant has already been received by such tenant, (h) there has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is still in effect, (i) no commercial tenant listed on Schedule X has assigned its Lease or sublet all or any portion of the premises demised thereby, no such commercial tenant holds its leased premises under assignment or sublease, nor does anyone except such commercial tenant and its employees occupy such leased premises, (j) no tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the Property of which the leased premises are a part, and (k) no tenant under any Lease has any right or option for additional space in the Improvements.

          4.1.27 Affiliates. Such Borrower does not own any equity interests in any other Person other than the related Pledged Interests.

          4.1.28 Principal Place of Business; State of Organization. Each Borrower’s principal place of business as of the date hereof is the address set forth in the introductory paragraph of this Agreement. Each Borrower is organized under the laws of the State of Delaware.

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          4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Properties and/or the IP to Mortgage Borrowers and/or the transfer of the First Mezzanine Collateral to First Mezzanine Borrowers and/or the transfer of the Collateral to Borrowers have been paid as of the Closing Date. Borrowers and each of their Affiliates have filed or caused to be filed all reports relating to gaming taxes or fees to any Gaming Authority required to be filed by them on or prior to the date hereof. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Mortgage Loan Documents, including, without limitation, the Mortgage, or of any of the Loan Documents, including, without limitation, the Pledge Agreement and the related UCC Financing Statements, have been paid as of the Closing Date. The Pledge Agreement and the other Loan Documents are enforceable against Borrowers in accordance with their respective terms by Lender (or any subsequent holder thereof), subject to principles of equity and bankruptcy, insolvency and other laws generally applicable to creditors’ rights and the enforcement of debtors’ obligations.

          4.1.30 Special Purpose Entity/Separateness. (a) Until the Debt has been paid in full and the obligations under the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents have been paid in full, each Borrower hereby represents, warrants and covenants that (i) such Borrower is, shall be and shall continue to be a Special Purpose Entity, (ii) each Mortgage Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof), and (iii) each First Mezzanine Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such term is defined in Section 1.1 of the First Mezzanine Loan Agreement as in effect on the date hereof).

               (b) The representations, warranties and covenants set forth in Section 4.1.30(a) hereof shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document.

               (c) All of the assumptions made in the Insolvency Opinion, including, but not limited to, any exhibits attached thereto, are true and correct in all respects. Each Borrower has complied and will comply with all of the assumptions made with respect to such Borrower in the Insolvency Opinion.

               (d) Each Borrower hereby covenants and agrees that (i) any assumptions made in any subsequent non-consolidation opinion required to be delivered in connection with the Loan Documents (an "Additional Insolvency Opinion”), including, but not limited to, any exhibits attached thereto, shall be true and correct in all respects, (ii) each Borrower will comply with all of the assumptions made with respect to each Borrower in any Additional Insolvency Opinion, and (iii) each Person other than any Borrower with respect to which an assumption shall be made in any Additional Insolvency Opinion will comply with all of the assumptions made with respect to it in any Additional Insolvency Opinion.

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               (e) Mortgage Borrowers and First Mezzanine Borrowers have complied, and each Borrower will cause Mortgage Borrowers and First Mezzanine Borrowers, as applicable, to comply, with all of the assumptions made with respect to Mortgage Borrowers and First Mezzanine Borrowers, as applicable, in the Insolvency Opinion and each Borrower will cause Mortgage Borrowers and First Mezzanine Borrowers, as applicable, to comply with all of the assumptions made with respect to Mortgage Borrowers and First Mezzanine Borrowers, as applicable, in any Additional Insolvency Opinion.

          4.1.31 Management Agreements; Liquor Management Agreement.

               (a) Each of the Management Agreements is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. Following the date hereof, there shall be no material default thereunder.

               (b) The Sub-Management Agreement is in full force and effect and there is no material default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a material default thereunder.

               (c) The Liquor Management Agreement is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder.

          4.1.32 Illegal Activity. No portion of any Property, the IP or the Collateral has been or will be purchased by any Loan Party or any other Restricted Party with proceeds of any illegal activity.

          4.1.33 No Change in Facts or Circumstances; Disclosure. To each Borrower’s actual knowledge, all material information submitted by any Borrower or Mortgage Borrower to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by any Borrower in this Agreement or in any other Loan Document, and, to the knowledge of each Borrower, all statements of fact made by Mortgage Borrowers in the Mortgage Loan Agreement or in any other Mortgage Loan Document, are accurate, complete and correct in all material respects. To each Borrower’s actual knowledge, there has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely impairs, or is reasonably likely to do so after the date hereof, the use or operation of the Properties, the IP or the Collateral or the business operations or the financial condition of any Loan Party. Each Borrower has disclosed to Lender all material facts actually known to such Borrower and has not failed to disclose any material fact actually known to such Borrower that could cause any Provided Information or representation or warranty made herein to be materially misleading.

          4.1.34 Investment Company Act. No Borrower is (a) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment

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Company Act of 1940, as amended; or (b) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

          4.1.35 Embargoed Person. At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of any Loan Party, HRHI or any Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by, any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated under any such United States laws (each, an “Embargoed Person”), with the result that the Loan made by Lender is or would be in violation of law; (b) no Embargoed Person shall have any interest of any nature whatsoever in any Loan Party, HRHI or any Guarantor, as applicable, with the result that the Loan is or would be in violation of law; and (c) none of the funds of any Loan Party, HRHI or any Guarantor, as applicable, shall be derived from any unlawful activity with the result that the Loan is or would be in violation of law; provided, however, that Borrowers’ representation in this clause (c) shall not extend to gaming revenues generated at the Hotel/Casino Property from the general public unless any Loan Party or any other Restricted Party has actual knowledge that such revenues are derived from any unlawful activity.

          4.1.36 Cash Management Account. (a) This Agreement, together with the other Loan Documents, creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of New York) in the Cash Management Account in favor of Lender, which security interest is prior to all other Liens and is enforceable as such against creditors of and purchasers from any Borrower. Other than in connection with the Loan Documents, no Borrower has sold or otherwise conveyed the Cash Management Account;

               (b) The Cash Management Account constitutes a “deposit account” within the meaning of the Uniform Commercial Code of the State of New York; and

               (c) The Cash Management Account is not in the name of any Person other than Borrowers, as pledgors, or Lender, as pledgee.

          4.1.37 Intellectual Property.

               (a) The Intellectual Property Security Agreement creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of New York) in all of HRHI’s rights, title and interest in and to all of the following (collectively, the “IP”):

          (i) all trademarks, service marks, domain names, trademark registrations, service mark registrations, domain name registrations, applications for trademark registrations, applications for service mark registrations, applications for domain name registrations, trade names, brand names, product names and common law marks, and the renewals thereof owned or used by any Loan Party or any Affiliated IP Party in connection with the operation and/or use

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of one or more of the Properties, including for each such trademark, service mark or domain name the registration number or application number and country;

     (ii) all copyrights, and the renewals thereof, owned or used by any Loan Party or any Affiliated IP Party in connection with the operation and/or use of one or more of the Properties, including for each such copyright the registration number or application number and country;

     (iii) all trade secrets, discoveries, formulae, proprietary processes, improvements and inventions for which no patent applications are pending and all other industrial property rights presently owned, in whole or in part, or used, by any Loan Party or any Affiliated IP Party in connection with the ownership, operation and/or use of one or more of the Properties; and

     (iv) all trademark licenses, service mark licenses, copyright licenses, royalty agreements, assignments, grants and contracts with employees or others relating in whole or in part to any of the foregoing IP to which any Loan Party and/or any Affiliated IP Party is a party, which is related to the ownership, operation and/or use of one or more of the Properties (collectively, the “IP Agreements”).

          (b) Schedule VII attached hereto is a true, correct and complete list of all the Registered IP used by any Loan Party in connection with the ownership, operation and/or use of one or more of the Properties. Part I of said Schedule VII is a true, correct and complete list of all Registered IP owned by IP Borrower or any Affiliated IP Party, including Registered IP and that has been assigned to IP Borrower by Morton pursuant to that certain Trademark Assignment dated as of February 2, 2007 from Morton in favor of IP Borrower (the “Morton Assigned IP”; and all of the foregoing, collectively, the “Owned IP”). Part II of said Schedule VII is a true, correct and complete list of all Registered IP that is licensed from Rank Licensing, Inc. (“Rank”) to Morton pursuant to that certain Trademark License and Cooperation Agreement, dated June 7, 1996, between Rank and Morton and which has been assigned from Morton to IP Borrower pursuant to that certain Assignment and Assumption Agreement dated as of February 2, 2007 (the “Rank License”) from Morton in favor of IP Borrower (all such IP listed on Part II of said Schedule VII, the "Rank IP”). Part III of said Schedule VII is a true, correct and complete list of all Registered IP that is licensed from Morton to IP Borrower pursuant to that certain License Agreement, dated as of February 2, 2007 (the “Pink Taco License”) from Morton in favor of IP Borrower (all such IP listed on Part IV of said Schedule VII, the “Pink Taco IP”; and the Pink Taco IP, together with the Rank IP, the “Licensed IP”).

          (c) Intentionally Omitted.

          (d) Except as set forth on Part IV of Schedule VII, Mortgage Borrowers or an Affiliated IP Party owns or possesses licenses or other rights in or under all patents, trademarks, service marks, trade names, domain names, copyrights and any other IP, which is necessary for the use, ownership, management, promotion and operation of its Property and associated merchandising as currently so used, except where the failure to so own or possess

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such IP, licenses or other rights could not reasonably be expected to have a material adverse effect on such use, ownership or operations (a “IP Material Adverse Effect”).

     (e) Part V of said Schedule VII hereto sets forth:

     (i) any written communications from any Loan Party or any Affiliate thereof to one or more third parties, or from one or more third parties to any Loan Party or any Affiliate thereof, alleging infringement by any third party or any Loan Party or any Affiliate thereof, of any of the IP or alleging related acts of unfair competition or activities or actions of any anti-competitive nature, together with all responses to such communications and a description of the status of each such alleged infringement, in each case, which the failure to resolve such alleged infringement or competition could reasonably be expected to have a IP Material Adverse Effect; and

     (ii) a complete list of any goods and/or services sold by any Person other than any Loan Party and of whom any Loan Party has actual knowledge, which in the opinion of any Loan Party infringes upon any IP listed in said Schedule VII hereof.

     (f) Except as disclosed in said Schedule VII:

     (i) IP Borrower or an Affiliated IP Party owns the Owned IP, and IP Borrower has a valid and enforceable license to use the Licensed IP, in each case free and clear of any Liens other than the Permitted IP Encumbrances;

     (ii) no Loan Party or an Affiliated IP Party has granted nor is obligated to grant any other Person any rights (including, without limitation licenses) with respect to any of the IP other than the Permitted IP Encumbrances;

     (iii) to Borrowers’ actual knowledge, the trademarks, service marks, domain names and copyrights included in the Owned IP and in the Licensed IP are valid;

     (iv) to Borrowers’ actual knowledge, the trademark registrations, service mark registrations, domain name registrations and copyright registrations included in the Owned IP and Licensed IP have been duly issued and have not been canceled, abandoned or otherwise terminated;

     (v) to Borrowers’ actual knowledge, the trademark applications, service mark applications, domain name applications and copyright applications included in the Owned IP have been duly filed; and

     (vi) to Borrowers’ actual knowledge, all material IP Agreements are valid and binding in accordance with their terms (except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by general principles of equity) and are in full force and effect.

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               (g) To Borrowers’ actual knowledge, no Loan Party or Affiliated IP Party is obligated to disclose any of the IP to any other Person.

               (h) To Borrowers’ actual knowledge, except for the Licensed IP, no Loan Party requires a license or right under or in respect of any intellectual property of any other Person (except another Loan Party) to conduct such Loan Party’s business as presently conducted and no substantial part of such business is carried on under the agreement or consent of any other Person nor is there any agreement to which any Loan Party is a party which significantly restricts the fields in which such business may be carried on.

               (i) To Borrowers’ actual knowledge, there are and have been no proceedings, actions or claims and no proceedings, actions or claims are pending or threatened, impugning the title, validity or enforceability of any of the IP.

               (j) To Borrowers’ actual knowledge, none of the processes currently used by any Loan Party or any Affiliated IP Party or any of the properties or products currently sold by any Loan Party or any Affiliated IP Party, and none of the IP or Licensed IP, infringes the patent, industrial property, trademark, trade name, domain name, label, other mark, right or copyright or any other similar right of any other Person, except where such infringement could not reasonably be expected to have an IP Material Adverse Effect.

               (k) To Borrowers’ actual knowledge, no basis exists for any adverse claim by any third party with respect to any of the IP, and no act has been done or has been omitted to be done by any Loan Party or any Affiliate thereof to entitle any Person to make such a claim or to cancel, forfeit or modify any of the IP.

               (l) Except the Licensed IP, no Loan Party requires a license or right under or in respect of any intellectual property of any other Person (except another Loan Party) to conduct such Loan Party’s business as presently conducted and no substantial part of such business is carried on under the agreement or consent of any other Person nor is there any agreement to which any Loan Party is a party which significantly restricts the fields in which such business may be carried on.

               (m) To Borrowers’ actual knowledge, no disclosure has been made to any Person of the know-how or financial or trade secrets of any Loan Party, except properly and in the ordinary course of business and on condition that such disclosure is to be treated as being of a confidential nature and except where such disclosure would not reasonably be expected to have an IP Material Adverse Effect; and to Borrower’s actual knowledge, none of the IP is being infringed by any other Person, except where such infringement could not reasonably be expected to have an IP Material Adverse Effect.

          4.1.38 No Franchise Agreement. None of the Loan Parties or Managers or Sub-Manager has entered into, and none of the Properties are subject to, any franchise, trademark or license agreement with any Person with respect to the name and/or operation of any Property, other than the IP, the Rank License and the Pink Taco License.

          4.1.39 Merger Agreement. The Acquisition and the Other Transaction Closings (as such capitalized terms are defined in the Merger Agreement) were consummated in

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accordance with all of the material terms and conditions of the Merger Agreement and the Other Transaction Documents (as defined in the Merger Agreement), with only such amendments, supplements and/or modifications thereto, and waivers and extensions thereof, as Mortgage Lender has approved in writing, to the extent such approval is required under that certain Commitment Letter dated December 22, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking, Inc. and Mortgage Lender.

          4.1.40 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers have delivered, or caused Mortgage Borrowers to deliver, to Lender true, correct and complete copies of each of the Morton Indemnification and the PWR/RWB Escrow Agreement and all amendments thereto. Except for such amendments thereto as have been delivered to Lender, the Morton Indemnification and the PWR/RWB Escrow Agreement have not been amended or modified and are in full force and effect. No Loan Party nor any Affiliate thereof has (a) made any claim under the Morton Indemnification, or (b) requested any disbursement of funds under the PWR/RWB Escrow Agreement with respect to any claim under the Morton Indemnification or otherwise. No Loan Party nor any Affiliate thereof knows of any state of facts currently existing that would be reasonably likely to result in a claim under the Morton Indemnification.

          4.1.41 Gaming Licenses and Other Operating Permits.

               (a) HRHI possesses all Operating Permits (including, but not limited to, all liquor licenses) which are necessary for the execution, delivery and performance of the Liquor Management Agreement, the HRHI Lease and the Gaming Sublease. All of such Operating Permits are in and will be in full force and effect; the Loan Parties and each of their Affiliates, as applicable, including, without limitation, HRHI, are in compliance in all material respects with all such Operating Permits; and no event, including, without limitation, any violation of any Legal Requirement, has occurred which would be reasonably likely to lead to the suspension, revocation or termination of any such Operating Permit or the imposition of any restriction thereon.

               (b) To Borrowers’ actual knowledge, Gaming Operator possesses all Operating Permits (including, without limitation, all Gaming Licenses) which are material to the execution, delivery and performance of the Gaming Sublease and the use, occupation and operation of the Casino Component; to Borrowers’ actual knowledge, each such Operating Permit and Gaming License (or any replacement thereof) is and will be in full force and effect; and, to Borrowers’ actual knowledge, Gaming Operator is in compliance in all material respects with the Gaming Sublease, all Gaming Licenses and all other Operating Permits applicable to the operation of the Casino Component as contemplated herein. Further, Borrowers hereby represent and warrant as follows:

               (c) Borrowers have no reason to believe that Gaming Operator will not be able to maintain in effect all Gaming Licenses and other Operating Permits necessary for the lawful conduct of its business or operations as now conducted and as planned to be conducted at the Hotel/Casino Property, including the Gaming Sublease and operation of the Casino Component, pursuant to all applicable Legal Requirements.

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               (d) To Borrowers’ actual knowledge, all Gaming Licenses are in full force and effect and have not been amended or otherwise modified in any material adverse respect or suspended, rescinded or revoked.

               (e) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator are in default in any material respect under, or in violation in any material respect of, any Gaming License or other Operating Permit, and no event has occurred, and no condition exists, which, with the giving of notice or passage of time or both, would constitute such a default thereunder or such a violation thereof, that has caused or would reasonably be expected to cause the loss, suspension, revocation, impairment, forfeiture, non-renewal or termination of any Gaming License or the imposition of any restriction thereon.

               (f) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator have received any notice of any violation of any Legal Requirement which has caused or would reasonably be expected to cause any Gaming License or other Operating Permit to be modified in any material adverse respect or suspended, rescinded or revoked.

               (g) The continuation, validity and effectiveness of all Gaming Licenses and other Operating Permits will not be adversely affected by the transactions contemplated by this Agreement.

               (h) The Gaming Sublease is in full force and effect, none of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator is in material default thereof and no event has occurred, and no condition exists, which, with the giving of notice or passage of time, or both, would constitute a material default thereunder or material violation thereof.

               (i) The execution, delivery or performance of any of the Loan Documents will not permit nor result in the imposition of any material penalty under, or the suspension, revocation or termination of, any Gaming License or other Operating Permit or any material impairment of the rights of the holder of any Gaming License.

               (j) There are no restrictions on transfer or agreements not to encumber the ownership interests of any Loan Party in any of the Loan Documents, the Mortgage Loan Documents or the First Mezzanine Loan Documents, as applicable, that require the approval of the Gaming Authorities in order to become effective, except as set forth in Section 17 of the Pledge Agreement and the Pledge Agreement affecting the First Mezzanine Collateral.

               (k) (i) Each of HRHI and Hotel/Casino Borrower meet the suitability standards for a landlord contemplated or set forth in the Gaming Laws; (ii) neither HRHI nor Hotel/Casino Borrower have or will take dominion over the Casino Component while such Casino Component continues to be used for gaming purposes without first obtaining the approvals required by the Gaming Laws; and (iii) HRHI and/or Hotel/Casino Borrower have obtained all necessary approvals to transfer the Gaming Assets to Golden HRC.

          4.1.42 Control of First Mezzanine Borrowers and Mortgage Borrowers. Borrowers have the power and authority and the requisite ownership interests to Control the actions of First Mezzanine Borrowers and, in turn, Mortgage Borrowers.

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          4.1.43 Separate and Distinct Loans. The Loan, the Mortgage Loan and the Mezzanine Loans are entirely separate, distinct and independent obligations, made to separate and distinct borrowers, on separate and distinct terms and secured by separate and distinct collateral.

          4.1.44 Mortgage Loan Documents and First Mezzanine Loan Documents. (a) There are no Mortgage Loan Documents and no First Mezzanine Loan Documents other than those set forth on Schedule XI and Schedule XII, respectively.

               (b) True and correct copies of all the Mortgage Loan Documents have been provided to Lender and none of the Mortgage Loan Documents have been modified or amended since the delivery thereof, except as forth on such Schedule XI.

               (c) True and correct copies of all the First Mezzanine Loan Documents have been provided to Lender and none of the First Mezzanine Loan Documents have been modified or amended since the delivery thereof.

          4.1.45 No Defaults. No Mortgage Default, Mortgage Event of Default, First Mezzanine Default or First Mezzanine Event of Default exists as of the Closing Date.

          4.1.46 Loan Party Representations and Warranties. (a) Borrowers have reviewed the representations and warranties made by, and covenants of, (i) Mortgage Borrowers to and for the benefit of Mortgage Lender contained in the Mortgage Loan Documents, and (ii) First Mezzanine Borrowers to and for the benefit of First Mezzanine Lender contained in the First Mezzanine Loan Documents and all such representations and warranties are true, correct and complete in all material respects.

               (b) All of the representations and warranties contained in the Mortgage Loan Documents are hereby incorporated into this Agreement and deemed made hereunder as and when made thereunder and shall remain incorporated without regard to any waiver, amendment or other modification thereof or to whether the related Mortgage Loan Document has been repaid or otherwise terminated, unless otherwise consented to in writing by Lender.

     Section 4.2 Survival of Representations. Borrowers agree that all of the representations and warranties of any Borrower set forth in Section 4.1 hereof and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrowers. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by any Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.

     Section 4.3 Definition of Borrowers’ Knowledge. As used in this Agreement or any other Loan Document, the phrases “Borrowers’ knowledge”, “any Borrower’s knowledge”, “Borrowers’ actual knowledge”, “any Borrower’s actual knowledge”, “Borrowers’ best knowledge” or “any Borrower’s best knowledge” or words of similar import, shall mean the actual knowledge, after commercially reasonable due inquiry, of any of Edward Scheetz, Marc

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Gordon, David Smail, Matt Armstrong, Arthur Blee, Ana Nekhamkin, Ryan Sprott, Brian Zaumeyer and/or Bobby Kelly (the “Named Knowledge Parties”) and/or any additional individual or individuals who in the future are delegated or assume any of the responsibilities of any of the foregoing Named Knowledge Parties with respect to any of the Properties, and the knowledge of no other Person shall be imputed to any of the Named Knowledge Parties or any such other individuals, it being expressly represented and warranted to Lender by Borrowers that it would be unlikely that any material fact regarding any of the Properties or Borrowers or otherwise covered in the representations and warranties contained herein or in any other Loan Document would not come to the attention of one or more of the Named Knowledge Parties, after commercially reasonable due inquiry. Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, none of the Named Knowledge Parties shall have any personal liability hereunder.

ARTICLE V.
COVENANTS OF BORROWERS

     Section 5.1 Affirmative Covenants. From the date hereof and until payment and performance in full of all obligations of Borrowers under the Loan Documents or the earlier release of the Lien of the Pledge Agreement encumbering the Collateral (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrowers hereby jointly and severally covenant and agree with Lender that:

          5.1.1 Existence; Compliance with Legal Requirements. Each Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises necessary for the conduct of its business and comply, or cause each other Loan Party to comply, in all material respects with all Legal Requirements applicable to such Loan Party, the First Mezzanine Collateral, the Collateral, the Properties or the IP, including, without limitation, Prescribed Laws. There shall never be committed by any Borrower, and no Borrower shall, nor shall cause any other Loan Party to, knowingly permit any other Person in occupancy of or involved with the operation or use of any of the Properties to commit, any act or omission affording the federal government or any state or local government the right of forfeiture against the First Mezzanine Collateral, the Collateral and/or any Property or any part thereof or any monies paid in performance of any Borrower’s obligations under any of the Loan Documents or paid in performance of First Mezzanine Borrowers’ obligations under any of the First Mezzanine Loan Documents or paid in performance of Mortgage Borrowers’ obligations under any of the Mortgage Loan Documents. Each Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Each Borrower shall, and shall cause each other Loan Party to, at all times maintain, preserve and protect in all material respects all franchises and trade names and preserve all the remainder of its property necessary for the conduct of its business as contemplated hereunder, and, subject to Mortgage Borrowers’ right to demolish the Improvements on the Adjacent Property subject to, and in accordance with, the provisions of Section 3.18 of the Mortgage Loan Agreement, shall keep the Properties in good working order and repair in all material respects, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgage. Borrowers shall cause Mortgage Borrowers to keep the Properties insured at all times by financially sound and reputable insurers, to such extent and

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against such risks, and maintain liability and such other insurance, as is more fully provided in the Mortgage Loan Agreement. Borrowers shall cause Mortgage Borrowers to operate the Properties in accordance with the terms and provisions of the O&M Agreements in all material respects. After prior notice to Lender, any Borrower, at its own expense, may contest, or may cause each other Loan Party to contest, by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to any Loan Party, the First Mezzanine Collateral, the Collateral or the Property or any alleged violation of any Legal Requirement, provided that (a) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and remains uncured; (b) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which such Loan Party is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (c) neither any Property, the First Mezzanine Collateral, the Collateral or any part of any of the foregoing or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (d) such Borrower shall, and shall cause each other Loan Party to, promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (e) such proceeding shall suspend the enforcement of the contested Legal Requirement against such Loan Party, the First Mezzanine Collateral, the Collateral or any Property; and (f) such Borrower shall furnish, or shall cause each other Loan Party to furnish, such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Following any non-compliance with such Legal Requirement as determined by a court of competent jurisdiction, Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or the First Mezzanine Collateral, the Collateral or any Property (or any part of any of the foregoing or interest therein) shall be in imminent danger of being sold, forfeited, terminated, cancelled or lost.

          5.1.2 Taxes and Other Charges. Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof prior to the date upon which any interest or late charges shall begin to accrue thereon; provided, however, Mortgage Borrowers’ obligation to directly pay Taxes shall be suspended for so long as Mortgage Borrowers comply with the terms and provisions of Section 7.2 of the Mortgage Loan Agreement or Borrowers comply with the terms and provisions of Section 7.2 hereof, if applicable. Borrowers will deliver, or will cause Mortgage Borrowers to deliver, to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent. Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender receipts for the payment of the Taxes and the Other Charges prior to the date upon which any interest or late charges shall begin to accrue thereon; provided, however, Mortgage Borrowers shall not be required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Mortgage Lender pursuant to Section 7.2 of the Mortgage Loan Agreement or by Lender pursuant to Section 7.2 hereof, if applicable. Borrowers shall not suffer, and shall not permit any other Loan Party to suffer, and shall promptly cause to be paid and discharged (or provide reasonable security for) any Lien or charge against any of the Properties, the First Mezzanine

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Collateral or the Collateral, and shall promptly pay, or shall cause Mortgage Borrowers to promptly pay, for all utility services provided to any of the Properties. After prior notice to Lender, any Borrower, at its own expense, may contest, or may cause each other Loan Party to contest, by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (a) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default exists; (b) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which such Borrower or such other Loan Party is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (c) neither any Property, the First Mezzanine Collateral, the Collateral nor any part of any of the foregoing or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (d) such Borrower shall promptly upon final determination thereof pay, or shall cause such other Loan Party to pay, the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (e) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the applicable Property, the First Mezzanine Collateral and the Collateral; and (f) such Borrower shall furnish, or shall cause such other Loan Party to furnish, such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established or the First Mezzanine Collateral, the Collateral or any Property (or any part of any of the foregoing or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent danger of the Lien of the Pledge Agreement being primed by any related Lien.

          5.1.3 Litigation. Borrowers shall give prompt notice to Lender of any litigation or governmental proceedings pending or threatened in writing against any Loan Party, HRHI or any Guarantor which, if adversely determined, would have a material adverse effect on (a) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, HRHI, any Guarantor, any Property, the IP, the First Mezzanine Collateral or the Collateral, (b) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, (c) the ability of any Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Mortgage Loan Documents, the First Mezzanine Loan Documents or the Loan Documents, as applicable, or (d) the value of, or cash flow from, any Property, the IP, the First Mezzanine Collateral or the Collateral.

          5.1.4 Access to the Properties. Borrowers shall cause Mortgage Borrowers to permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice (which may be given verbally), subject to the rights of tenants under their Leases.

          5.1.5 Special Distributions. On each date on which amounts are required to be disbursed to the Cash Management Account or otherwise to be paid to Borrowers or Lender

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pursuant to the terms of the Mortgage Loan Documents (including the Mortgage Loan Agreement and/or the Mortgage Cash Management Agreement), or are required to be paid to Lender under any of the Loan Documents, Borrowers shall exercise their rights to cause First Mezzanine Borrowers and, in turn, First Mezzanine Borrowers shall exercise their rights to cause Mortgage Borrowers to make to Borrowers distributions in an aggregate amount such that Lender shall receive the amount required to be disbursed to Lender from the Cash Management Account or otherwise paid to Lender on such date.

          5.1.6 Cooperate in Legal Proceedings. Borrowers shall reasonably cooperate, and shall cause each other Loan Party to reasonably cooperate, fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which in any way materially affects the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings.

          5.1.7 Perform Loan Documents. Borrowers shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, any Borrower. Payment of the costs and expenses associated with any of the foregoing shall be in accordance with the terms and provisions of this Agreement, including, without limitation, the provisions of Section 10.13 hereof.

          5.1.8 Award and Insurance Benefits. Subject to the terms of Article VI hereof, Borrowers shall reasonably, and shall cause Mortgage Borrowers to reasonably, cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds to which Lender is entitled under the Loan Documents and which is lawfully or equitably payable in connection with any Property, and Lender shall be reimbursed for any actual, reasonable expenses incurred in connection therewith (including attorneys’ fees and disbursements, and the payment by Borrowers of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation affecting any Property or any part thereof) out of such Insurance Proceeds or Awards.

          5.1.9 Further Assurances. Borrowers shall, and shall cause each other Loan Party to, at Borrowers’ sole cost and expense (subject to the terms and conditions of this Agreement):

               (a) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the Collateral at any time securing or intended to secure the obligations of Borrowers under the Loan Documents, as Lender may reasonably require, including, without limitation, if permitted by applicable law, the execution and delivery of all such writings necessary to transfer any Operating Permits with respect to any Property into the name of Lender or its designee after the occurrence of an Event of Default; and

               (b) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and

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purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time.

          5.1.10 Personal Property Taxes. Borrowers represent that as of the Closing Date Borrowers have paid all state, county and municipal recording and all other taxes imposed upon the execution and filing of the UCC Financing Statements.

          5.1.11 Financial Reporting. (a) Borrowers will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with the Uniform System of Accounts and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of each Borrower and all items of income and expense in respect of the Collateral. Borrowers shall cause each other Loan Party to keep and maintain on a Fiscal Year basis, in accordance with the Uniform System of Accounts and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of such Loan Party and all items of income and expense in connection with the operation of each Property. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice (which may be verbal) to examine such books, records and accounts at the office of any Loan Party or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence and during the continuance of an Event of Default, Borrowers shall pay any actual costs and expenses incurred by Lender to examine Borrowers’ and each of the other Loan Parties’ accounting records with respect to the Properties, the IP, the First Mezzanine Collateral and the Collateral, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender’s interest.

               (b) Borrowers will furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Borrowers, a complete copy of each Borrower’s, Mortgage Borrower’s, HRHI’s and each Guarantor’s annual financial statements audited by a “Big Four” accounting firm or other independent certified public accountant reasonably acceptable to Lender (it being hereby understood and agreed that BDO Seidman, LLP is acceptable to Lender) in accordance with the Uniform System of Accounts (or, in the case of Guarantors, GAAP) and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender) covering the Collateral and the Properties for such Fiscal Year and containing statements of profit and loss for Borrowers, Mortgage Borrowers, HRHI, each Guarantor, the Collateral and each Property and a balance sheet for Borrowers, Mortgage Borrowers, HRHI and each Guarantor; provided, however, that in the event that any Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by the Officer’s Certificate required under Section 5.1.11(b)(B) of the Mortgage Loan Agreement. Notwithstanding anything to the contrary set forth in this Agreement, the financial statements of Borrowers and Mortgage Borrowers may be consolidated with those of (1) HRHI for so long as (y) HRHI owns no other assets other than the ownership interests in one or more of the Loan Parties and/or other assets related to one or more of the Loan Parties, one or more of the Properties and/or the IP, and (z) engages in no other business other than those related to owning one or more of the Loan Parties and/or other assets related to one or more of the Loan Parties,

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one or more of the Properties and/or the IP, and (2) HR Holdings for so long as (x) the provisions of the foregoing clause (1) remain true, (y) HR Holdings owns no other assets other than the ownership interests in HRHI and/or one or more of the Loan Parties and/or other assets related to HRHI, one or more of the Loan Parties, one or more of the Properties and/or the IP, and (z) engages in no other business other than those related to owning HRHI and/or one or more of the Loan Parties and/or other assets related to HRHI, one or more of the Loan Parties, one or more of the Properties and/or the IP. Borrowers will furnish, or will cause each of the other Loan Parties to furnish, to Lender a copy of the financial statements and all other materials which such Loan Parties are required to provide to Mortgage Lender or First Mezzanine Lender under Section 5.1.11 of the Mortgage Loan Agreement or the First Mezzanine Loan Agreement, respectively, within the time periods required under such Section.

               (c) For each Fiscal Year during the term of the Loan, Borrowers shall submit to Lender (and Borrowers shall cause Mortgage Borrowers to submit to Mortgage Lender) an Annual Budget not later than twenty (20) days prior to the commencement of such Fiscal Year in form reasonably satisfactory to Lender. The Annual Budget shall be subject to Lender’s and Mortgage Lender’s written reasonable approval (each such Annual Budget, as and when approved or deemed approved pursuant to this Section 5.1.11(c), the “Approved Annual Budget”). Lender’s approval of a proposed Annual Budget shall be deemed to have been given if (i) such proposed Annual Budget is submitted to Lender with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET AND IF LENDER DOES NOT RESPOND WITHIN TEN (10) BUSINESS DAYS, BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE” and Lender does not respond by approving such proposed Annual Budget or stating in reasonable detail its objections to such proposed Annual Budget within ten (10) Business Days of Lender’s receipt thereof, and (ii) after Lender’s failure to respond to the initial request for approval of such proposed Annual Budget within the time period set forth in the foregoing clause (i), Borrowers shall re-submit to Lender (and Borrowers shall cause Mortgage Borrowers to re-submit to Mortgage Lender) such proposed Annual Budget with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET. APPROVAL WILL BE DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN THREE (3) BUSINESS DAYS” and Lender does not respond to such second submission of such proposed Annual Budget by approving such proposed Annual Budget or stating in reasonable detail its objection thereto within three (3) Business Days of Lender’s receipt of such second submission. In the event that Lender objects to a proposed Annual Budget submitted by any Borrower, Lender shall advise Borrowers of such objections within ten (10) Business Days after receipt thereof (and deliver to Borrowers a reasonably detailed description of such objections) and Borrowers shall promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrowers of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrowers a reasonably detailed description of such objections) and Borrowers shall promptly revise (or cause the applicable Manager to revise) the same in accordance with the process described in this subsection until Lender approves each Annual Budget. Until such time that Lender approves a proposed Annual Budget (or is deemed to have approved such Annual Budget), the most recently Approved Annual Budget shall apply; provided, that such Approved Annual Budget shall be automatically adjusted (i) to reflect actual increases in Taxes and Insurance Premiums with respect to each Property, (ii) by three percent

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(3%) on all other items to account for inflation, and (iii) to reflect any expenses that must be incurred on an “emergency basis” in order to prevent the occurrence of any harm to any individuals on any Property or any Property itself or the operation thereof. Notwithstanding the foregoing, if seventy-five percent (75%) of the aggregate amount of costs set forth in a proposed Annual Budget have been approved by Lender, then until such time as Lender and Mortgage Lender approve the entirety of such proposed Annual Budget (or is deemed to have approved the entirety of such proposed Annual Budget in accordance with this Section 5.1.11(c)), (A) such approved portions of such proposed Annual Budget shall apply and shall constitute an “Approved Annual Budget” with respect only to such portions, (B) the remainder of such proposed Annual Budget shall be automatically adjusted as provided in the immediately preceding sentence, and (C) Borrowers and Lender shall diligently continue the process of agreeing to the remaining costs as set forth in this Section 5.1.11(c) for the approval of the Annual Budget as a whole.

               (d) In the event that any Mortgage Borrower must incur any non-recurring extraordinary Operating Expense or Capital Expenditure not set forth in the Approved Annual Budget then in effect (each, an “Extraordinary Expense”), then Borrowers shall promptly deliver to Lender (and Borrowers shall cause Mortgage Borrowers to promptly deliver to Mortgage Lender) a reasonably detailed explanation of such proposed Extraordinary Expense for Lender’s approval. Notwithstanding the foregoing, no prior approval by Lender shall be required for any Extraordinary Expense needed to be incurred immediately to prevent imminent injury to person or damage to property, provided that within three (3) Business Days thereafter Borrowers shall provide reasonably satisfactory evidence to Lender to demonstrate the imminent necessity and reasonableness of the Extraordinary Expense incurred.

               (e) If, at the time a Disclosure Document is being prepared for a Securitization, Lender expects that any or more Borrowers alone or any one or more Borrowers and one or more Affiliates of any Borrower collectively, or the Collateral or any one or more of the Properties alone or any one or more of the Properties and any one or more Related Properties collectively, will be a Significant Obligor, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender upon request (i) the selected financial data or, if applicable, Net Operating Income, required under Item 1112(b)(1) of Regulation AB, if Lender expects that the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed ten percent (10%) (but less than twenty percent (20%)) of the aggregate principal amount of all mezzanine loans included or expected to be included, as applicable, in the Securitization, or (ii) the financial statements required under Item 1112(b)(2) of Regulation AB, if Lender expects that the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed twenty percent (20%) of the aggregate principal amount of all mezzanine loans included or expected to be included, as applicable, in the Securitization. Such financial data or financial statements shall be furnished to Lender (A) within fifteen (15) Business Days after notice from Lender in connection with the preparation of Disclosure Documents for the Securitization, (B) not later than forty-five (45) days after the end of each

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calendar quarter of Borrowers, and (C) not later than one hundred twenty (120) days after the end of each calendar year of Borrowers; provided, however, that Borrowers shall not be obligated to furnish financial data or financial statements pursuant to clauses (B) or (C) of this sentence with respect to any period for which a filing pursuant to the Exchange Act in connection with or relating to the Securitization (an “Exchange Act Filing”) is not required. If requested by Lender, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender financial data and/or financial statements for any tenant of any Property, but only to the extent such tenant is required to provide such financial data and/or financial statements under its Lease, if, in connection with a Securitization, Lender expects there to be, with respect to such tenant or group of Affiliated tenants, a concentration within all of the mezzanine loans included or expected to be included, as applicable, in the Securitization such that such tenant or group of affiliated tenants would constitute a Significant Obligor.

               (f) All financial data and financial statements provided by Borrowers pursuant to Section 5.1.11(e) hereof shall be prepared in accordance with GAAP and shall meet the requirements of Regulation AB and all other applicable Legal Requirements. All financial statements referred to in Section 5.1.11(e) hereof shall be audited by independent accountants of Borrowers or Mortgage Borrowers reasonably acceptable to Lender in accordance with Regulation AB and all other applicable Legal Requirements, shall be accompanied by the manually executed report of the independent accountants thereon, which report shall meet the requirements of Regulation AB and all other applicable Legal Requirements, and shall be further accompanied by a manually executed written consent of the independent accountants, in form and substance reasonably acceptable to Lender, to the inclusion of such financial statements in any Disclosure Document and any Exchange Act Filing and to the use of the name of such independent accountants and the reference to such independent accountants as “experts” in any Disclosure Document and Exchange Act Filing, all of which shall be provided at the same time as the related financial statements are required to be provided. All financial data and financial statements (audited or unaudited) provided by Borrowers or Mortgage Borrowers under Section 5.1.11(e) hereof shall be accompanied by an Officer’s Certificate of each Borrower, which certification shall state that such financial statements meet the requirements set forth in the first sentence of this Section 5.1.11(f).

               (g) If requested by Lender, Borrowers shall provide, or shall cause Mortgage Borrowers to provide, Lender, promptly upon request, with any other or additional financial statements, or financial, statistical or operating information, as Lender shall reasonably determine to be required pursuant to Regulation AB or any amendment, modification or replacement thereto or other Legal Requirements in connection with any Disclosure Document or any Exchange Act Filing or as shall otherwise be reasonably requested by Lender.

               (h) In the event Lender reasonably determines, in connection with a Securitization, that the financial data and financial statements required in order to comply with Regulation AB or any amendment, modification or replacement thereto or any other Legal Requirements are other than as provided herein, then notwithstanding the provisions of Sections 5.1.11(e) and (f) hereof, Lender may request, and Borrowers shall promptly provide, or shall cause Mortgage Borrowers to provide, such other financial data and financial statements as Lender determines to be necessary or appropriate for such compliance.

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               (i) Any reports, statements or other information required to be delivered under this Section 5.1.11 shall be delivered (i) in paper form, (ii) on a compact disk or DVD, and (iii) if requested by Lender and within the capabilities of Borrowers’ or Mortgage Borrowers’ data systems without change or modification thereto, in electronic form and prepared using Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). Borrowers agree that Lender may disclose information regarding the Properties, the Collateral and any Loan Party that is provided to Lender pursuant to this Section 5.1.11 in connection with any Securitization to such parties requesting such information in connection with such Securitization.

          5.1.12 Business and Operations. Borrowers will continue, and will cause each Loan Party to continue, to engage in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the First Mezzanine Collateral, the Collateral, the Properties or the IP, as applicable. Each Borrower will qualify, and will cause each other Loan Party to qualify, to do business and will remain, and will cause each other Loan Party to remain, in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the First Mezzanine Collateral, the Collateral, the Properties or the IP, as applicable.

          5.1.13 Title to the Collateral, the Properties and the IP. (a) Borrowers will warrant and defend (i) the title to the Collateral and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) or under the Pledge Agreement, and (ii) the validity and priority of the Lien of the Pledge Agreement, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever.

               (b) Borrowers will cause Mortgage Borrowers to warrant and defend (i) the title to each Property, the Owned IP and any right in and under all IP Agreements with respect to Licensed IP, and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances, Permitted IP Encumbrances and the asset sales and releases permitted under this Agreement), and (ii) the validity and priority of the Liens of the Mortgage, the Assignment of Leases and the IP Assignments, subject only to Liens permitted hereunder (including Permitted Encumbrances and Permitted IP Encumbrances), in each case against the claims of all Persons whomsoever.

               (c) Borrowers shall reimburse Lender for any actual losses, actual costs, actual damages (excluding lost profits, diminution in value and other consequential damages) or reasonable expenses (including reasonable attorneys’ fees and court costs) incurred by Lender if an interest in the Collateral, any Property or the IP, other than as permitted hereunder, is claimed by another Person.

          5.1.14 Costs of Enforcement. In the event (a) that the Pledge Agreement is foreclosed in whole or in part or that the Pledge Agreement is put into the hands of an attorney for collection, suit, action or foreclosure, or (b) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of any Borrower or any of its Constituent Members or an assignment by any Borrower or any of its Constituent Members for the benefit of its creditors, and Lender incurs costs in connection with any such proceeding as a direct or indirect result of

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the Loan, then, in any of the foregoing instances, each Borrower, on behalf of itself and its successors or assigns, shall be chargeable with and shall pay all actual out-of-pocket costs of collection and defense, including attorneys’ fees and costs, incurred by Lender or any Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein.

          5.1.15 Estoppel Statement. (a) After request by Lender from time to time, but in no event more than two (2) times in any twelve (12) month period except in connection with a Securitization, Borrowers shall within ten (10) Business Days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Loan, (ii) the Outstanding Principal Balance, (iii) the Applicable Interest Rate of the Loan, (iv) the date an installment of interest was last paid, (v) any offsets or, to the best of each Borrower’s actual knowledge, defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Pledge Agreement and the other Loan Documents are valid, legal and binding obligations of Borrowers and have not been modified or, if modified, giving particulars of such modification.

               (b) After request by Borrowers, but in no event more than two (2) times in any twelve (12) month period, Lender shall within ten (10) Business Days furnish Borrowers with a statement, duly acknowledged and certified, stating (i) the Outstanding Principal Balance, (ii) the Applicable Interest Rate, (iii) the date an installment of interest was last paid, and (iv) whether or not Lender has sent any notice of default under the Loan Documents which remains uncured in the opinion of Lender.

               (c) Borrowers shall use commercially reasonable efforts to deliver, or cause to be delivered, to Lender within thirty (30) days of receipt of written request, tenant estoppel certificates from each commercial tenant leasing space at any of the Properties, in form and substance reasonably satisfactory to Lender; provided that, except in connection with a Securitization, Borrowers shall not be required to deliver such certificates more frequently than once in any calendar year or less frequently if, and to the extent, so restricted by the terms of any Leases entered into prior to the Closing Date (other than the HRHI Lease).

               (d) Borrowers shall deliver, within ten (10) Business Days after request by Lender from time to time, estoppel certificates from each Mortgage Borrower and/or each Mezzanine Borrower, covering substantially the same matters as set forth in clause (a) above and any other matters reasonably requested by Lender.

          5.1.16 Loan Proceeds. Borrowers shall use the proceeds of the Loan received by them on the Closing Date only for the purposes set forth in Section 2.1.2 hereof.

          5.1.17 Performance by Borrowers. (a) Borrowers shall, in a timely manner and in all material respects, observe, perform and fulfill each and every covenant, term and provision of each Loan Document executed and delivered by, or applicable to, any Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, any Borrower without the prior consent of Lender.

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               (b) Except for changes to the Mortgage Loan Documents that Mortgage Borrowers are obligated to enter into pursuant to the terms of the Mortgage Loan Documents, Borrowers shall not cause or permit Mortgage Borrowers to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Mortgage Loan Document executed and delivered by, or applicable to, Mortgage Borrowers as of the Closing Date without the prior written consent of Lender which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers shall cause Mortgage Borrowers to provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the Mortgage Loan Documents within five (5) days after the execution thereof.

               (c) Borrowers shall not cause or permit First Mezzanine Borrowers to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any First Mezzanine Loan Document executed and delivered by, or applicable to, First Mezzanine Borrowers as of the Closing Date without the prior written consent of Lender which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers shall cause First Mezzanine Borrowers to provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the First Mezzanine Loan Documents within five (5) days after the execution thereof.

               (d) Borrowers shall not, and shall not permit any other Loan Party to, (i) amend or modify the organizational documents of such Loan Party in any respect without Lender’s prior written consent, or (ii) take any action that would cause the membership interests of any other Loan Party to cease to constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of New York and Delaware) without Lender’s prior written consent.

          5.1.18 Confirmation of Representations. Borrowers shall deliver, in connection with any Securitization, (a) one or more Officer’s Certificates certifying as to the accuracy of all representations made by Borrowers in the Loan Documents as of the date of the closing of such Securitization in all relevant jurisdictions (or if any such representations are no longer accurate, providing an explanation as to the reason for such inaccuracy), and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of each Borrower and each Mortgage Borrower as of the date of the Securitization.

          5.1.19 No Joint Assessment. Borrowers shall not suffer, permit or initiate, and shall cause Mortgage Borrowers not to suffer, permit or initiate, the joint assessment of any Property (a) with any other real property constituting a tax lot separate from such Property, and (b) which constitutes real property with any portion of such Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Property.

          5.1.20 Leasing Matters. Any Major Leases with respect to any Property executed after the date hereof shall be subject to Lender’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, provided, however, that renewals of any Major Lease by Mortgage Borrowers initially executed prior to the Closing Date shall not require the

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approval of Lender if the terms of any such Lease provided for renewals at a reasonably determinable rent. Upon request, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, Lender with executed copies of all Leases. All proposed Major Leases shall be on commercially reasonable terms and no Lease shall contain any terms which would materially adversely affect Lender’s rights under the Loan Documents or Mortgage Lender’s rights under the Mortgage Loan Documents. All Leases executed after the Closing Date shall provide that they are subordinate to the Mortgage and that the lessee agrees to attorn to Mortgage Lender or any purchaser at a sale by foreclosure or power of sale, provided that, with respect to Major Leases and except with respect to the HRHI Lease, Mortgage Lender provides commercially reasonable non-disturbance language. Borrowers shall cause Mortgage Borrowers to (i) observe and perform the obligations imposed upon the lessor under the Leases in a commercially reasonable manner; (ii) enforce the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair the value of any Property involved, except that no termination by any Mortgage Borrower or acceptance of surrender by a tenant of any Major Lease (including, without limitation, the HRHI Lease) will be permitted without the consent of Lender; (iii) not collect any of the rents more than one (1) month in advance (other than security deposits); (iv) not execute any other assignment of lessor’s interest in the Leases or the Rents (except as contemplated by the Mortgage Loan Documents); and (v) not alter, modify or change the terms of (A) the HRHI Lease other than any ministerial, non-monetary amendment or modification, or (B) any other Major Lease in any material manner, in each of the foregoing instances, without the prior written approval of Lender, not to be unreasonably withheld. To the extent Lender’s approval is required pursuant to this Section 5.1.20, Lender shall endeavor to respond to a request for Lender’s approval within ten (10) Business Days after Borrowers’ written request therefor, delivered together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed Major Lease, Major Lease amendment or Major Lease termination. If the correspondence from Borrowers requesting such approval contains the following statement at the top of the first page thereof in capitalized, boldfaced, 14 point type lettering: “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN TEN (10) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN”, and if Lender shall fail to respond to or to expressly deny such request for approval in writing (stating in reasonable detail the reason for such disapproval) within ten (10) Business Days after receipt of Borrowers’ written request therefor together with the documents and information required above and any other information reasonably requested by Lender in writing prior to the expiration of such ten (10) Business Day period in order to adequately review the same, then Borrowers shall re-submit such proposed Major Lease, Major Lease amendment or Major Lease termination and accompanying information to Lender with a request for approval containing the following statement at the top of the first page thereof in capitalized, boldfaced, 14 point type lettering: “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN”, and if Lender does not respond to such second request by approving such proposed Major Lease, Major Lease amendment or Major Lease termination or stating its objection thereto within five (5) Business Days of Lender’s receipt of such second submission, Lender’s approval shall be deemed given. Notwithstanding anything to

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the contrary contained herein, Borrowers shall not permit or cause Mortgage Borrowers to enter into a lease of all or substantially all of any Property without Lender’s prior consent.

          5.1.21 Alterations. Other than the construction of the Project, which shall be governed by the provisions of Article III of the Mortgage Loan Agreement, Borrowers shall, or shall cause Mortgage Borrowers to, obtain Lender’s prior consent to any material alterations to any Improvements, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lender’s consent shall not be required in connection with any alterations that will not have a material adverse effect on any Borrower’s or Mortgage Borrower’s financial condition, the value of the Collateral, the applicable Property or the Net Operating Income, provided that such alterations (a) are made in connection with tenant improvement work performed pursuant to the terms of any Lease, (b) do not materially adversely affect any structural component of any Improvements, any utility or HVAC system contained in any Improvements or the exterior of any building constituting a part of any Improvements and the aggregate cost thereof does not exceed the Alteration Threshold Amount, or (c) are performed in connection with the Restoration of a Property after the occurrence of a Casualty or Condemnation in accordance with the terms and provisions of the Mortgage Loan Agreement and this Agreement. To the extent Lender’s prior written approval is required pursuant to this Section 5.1.21, Lender shall have fifteen (15) Business Days from receipt of written request and any and all reasonably required information and documentation relating thereto in which to approve or disapprove such request and such written request shall state thereon in bold letters of 14 point font or larger that action is required by Lender. If Lender fails to approve or disapprove the request within such fifteen (15) Business Days, Lender’s approval shall be deemed given. Should Lender fail to approve any such request, Lender shall give Borrowers written notice setting forth in reasonable detail the basis for such disapproval. In no event shall Lender require any “consent fee” as a condition to any required approval. If the total unpaid amounts due and payable with respect to alterations to the Improvements at any Property (other than such amounts to be paid or reimbursed by tenants under the Leases) shall at any time exceed the Alteration Threshold Amount, Borrowers shall promptly deliver to Lender as security for the payment of such amounts and as additional security for Borrowers’ obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization, (D) a Letter of Credit, or (E) a completion and performance bond issued by an Approved Bank; provided, however, that (i) in the event (A) Mortgage Borrowers are required to and do deliver such security to Mortgage Lender under the Mortgage Loan Agreement, or (B) if the Mortgage Loan has been paid in full, First Mezzanine Borrowers are required to and do deliver such security to First Mezzanine Lender under the First Mezzanine Loan Agreement; and (ii) upon request, Lender receives evidence reasonably acceptable to it of the delivery of such security by Mortgage Borrowers to Mortgage Lender, or by First Mezzanine Borrowers to First Mezzanine Lender, as applicable, then Borrowers shall not be required to deliver any such security to Lender. Such security (if given as set forth above) shall be in an amount equal to the excess of the total unpaid amounts with respect to alterations to the Improvements on the applicable Prope rty (other than such amounts to be paid or reimbursed by tenants under the Leases) over the Alteration Threshold Amount and during the continuance of an Event of Default, Lender may apply such security from time to time at the option of Lender to pay for such alterations.

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          5.1.22 Operation of the Properties.

               (a) Borrowers shall cause Mortgage Borrowers to operate the Properties, in all material respects, in accordance with the applicable Management Agreement. In the event that any Management Agreement expires or is terminated (without limiting any obligation of Borrowers to obtain Lender’s consent to any termination or modification of any Management Agreement, if applicable, in accordance with the terms and provisions of this Agreement), Borrowers shall cause Mortgage Borrowers to promptly enter into a Replacement Management Agreement with the applicable Manager or another Qualified Manager, as applicable.

               (b) Borrowers shall cause each Mortgage Borrower to: (i) promptly perform and/or observe, in all material respects, all of the covenants and agreements required to be performed and observed by such Mortgage Borrower under the Management Agreement and/or the Sub-Management Agreement to which such Mortgage Borrower is a party and do all things necessary to preserve and to keep unimpaired such Mortgage Borrower’s material rights thereunder; (ii) promptly notify Lender of any material default under the Management Agreement and/or the Sub-Management Agreement of which such Mortgage Borrower or Borrower is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by such Mortgage Borrower under the Management Agreement; and/or the Sub-Management Agreement and (iv) enforce the performance and observance of all of the material covenants and agreements required to be performed and/or observed by the Manager under the Management Agreement and by Sub-Manager under the Sub-Management Agreement, in each of the foregoing instances, in a commercially reasonable manner.

               (c) Borrowers shall cause Hotel/Casino Borrower to, at all times, operate and maintain (or cause to be operated and maintained) the Hotel/Casino Property and the Casino Component as a hotel and casino resort in accordance with standards at least equivalent to the Comparable Hotel/Casinos. The theme of the Hotel/Casino Property and the Casino Component shall not be materially changed without the prior written consent of Lender, which consent shall not be unreasonably withheld. Borrowers shall cause Hotel/Casino Borrower to cause the Hotel/Casino Property to be at all times open for business as a hotel and the Casino Component to be open at all times for business as a casino, other than as provided under the Gaming Sublease, pursuant to Legal Requirements, temporary closures as a result of Casualty or other events outside the reasonable control of Borrowers and Mortgage Borrowers.

          5.1.23 Liquor Management at Hotel/Casino Property.

               (a) Unless and until Hotel/Casino Borrower has obtained all Governmental Approvals necessary to provide all alcoholic beverage services provided at the Hotel/Casino Property as of the Closing Date, Borrowers shall cause Hotel/Casino Borrower to cause all alcoholic beverage services at the Hotel/Casino Property to be managed by a Liquor Manager in accordance with a Liquor Management Agreement and Borrowers shall use, or shall cause Hotel/Casino Borrower to use, commercially reasonable best efforts to conduct and/or to cause to be conducted the alcoholic beverage services at the Hotel/Casino Property in such a manner so as to maximize Gross Income from Operations at the Properties in the aggregate. In

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the event that a Liquor Management Agreement expires or is terminated (without limiting any obligation of Hotel/Casino Borrower to obtain Lender’s consent to any termination or modification of any Liquor Management Agreement, if applicable, in accordance with the terms and provisions of this Agreement), Borrowers shall cause Hotel/Casino Borrower to promptly enter into a Replacement Liquor Management Agreement with the Liquor Manager or another Qualified Liquor Manager, as applicable.

               (b) Borrowers shall cause Hotel/Casino Borrower to: (i) promptly perform and/or observe, in all material respects, all of the covenants and agreements required to be performed and observed by it under the Liquor Management Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Lender of any material default under the Liquor Management Agreement of which it is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by it under the Liquor Management Agreement; and (iv) enforce the performance and observance of all of the material covenants and agreements required to be performed and/or observed by the Liquor Manager under the Liquor Management Agreement, in a commercially reasonable manner.

               (c) Upon the occurrence and during the continuance of an Event of Default, Borrowers shall, at the request of Lender, cause the Liquor Manager, if one of the Loan Parties or an Affiliate of any Loan Party, to continue to perform all obligations under the Liquor Management Agreement. Additionally, Borrowers shall, upon and after the foreclosure, deed in lieu of foreclosure or other similar transfer of the Hotel/Casino Property to Mortgage Lender, its designee or nominee (a “Mortgage Lender Successor Owner”), cause Mortgage Borrowers to comply with the provisions of Section 5.1.23 (c) of the Mortgage Loan Agreement.

          5.1.24 Gaming Operations at the Hotel/Casino Property.

               (a) All gaming operations conducted at the Hotel/Casino Property shall at all times be operated by a Qualified Gaming Operator and Borrowers shall cause Mortgage Borrowers to use commercially reasonable best efforts to conduct and/or to cause to be conducted the gaming operations in such a manner so as to maximize Gross Income from Operations at the Properties in the aggregate. Lender acknowledges and agrees that, as of the Closing Date, Golden HRC, LLC is a Qualified Gaming Operator.

               (b) Borrowers shall cause Hotel/Casino Borrower to comply with the provisions of Section 5.1.24(b) of the Mortgage Loan Agreement.

          5.1.25 Intellectual Property.

               (a) Each Borrower shall take, and shall cause Mortgage Borrowers to take, all actions reasonably necessary to protect the IP, subject to, and in compliance with, applicable IP Agreements, including, without limitation, (i) maintaining all registrations and applications with respect to any IP owned by any Loan Party, (ii) maintaining and complying with the terms of all licenses necessary for the use of any IP licensed to any Loan Party, (iii) expeditiously and diligently seeking to stop any acts of infringement or unfair competition with respect to the Owned IP that are brought to any Loan Party’s attention, and using commercially

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reasonable efforts to cause Rank or Morton, as the case may be, to diligently seek to stop any acts of infringement or unfair competition with respect to the Licensed IP that are brought to any Loan Party’s attention and (iii) refraining from any act or omission that might jeopardize any Loan Party’s ability to use any of the IP.

               (b) Borrowers shall cause Hotel/Casino Borrower to operate the Hotel/Casino Property as a “Hard Rock” hotel unless otherwise consented to in writing by Lender and shall cause Hotel/Casino Borrower to refrain from any act or omission, including, without limitation, any act contemplated under Section 5.1.26 hereof, that would result in, or would be reasonably likely to result in, the loss of its ability to so operate the Hotel/Casino Property as a “Hard Rock” hotel.

          5.1.26 Licensing and Sublicensing of the IP.

               (a) Except as set forth in Sections 5.1.26(b), (c) and (d) hereof, Borrowers shall not permit or cause Mortgage Borrowers to license any of the Owned IP or sublicense any of the Licensed IP (an “IP License”) without Lender’s consent in each instance.

               (b) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and without violating the Loan Documents, to license or sublicense, as applicable, the IP (or any portion thereof) (an “Adjacent Property IP License”) to any subsequent purchaser of all or any portion of the Adjacent Property and its successors and assigns, whether or not any such subsequent purchaser, successor or assign is an Affiliate of any Loan Party or any other Restricted Party; provided that all of the following conditions shall be satisfied with respect to any such Adjacent Property IP License:

     (i) IP Borrower shall have notified Lender of such Adjacent Property IP License at least ten (10) Business Days prior to the anticipated date of the execution and delivery thereof, which notice shall include (A) a copy of the Adjacent Property IP License, and (B) an Officer’s Certificate providing a certification that such Adjacent Property IP License (1) does not and will not adversely affect any Mortgage Borrower’s ownership and/or operation of, or any activities conducted on, its Property, (2) does not and will not materially diminish any Mortgage Borrower’s rights to use any of the Owned IP or Licensed IP that is reasonably necessary or desirable to operate its Property as then being operated and as then contemplated to be operated in the future, and (3) does not, and is not reasonably anticipated in the future to, materially diminish the value of any Owned IP or Licensed IP;

     (ii) Such Adjacent Property IP License shall be granted and used only in connection with the ownership, development and/or use of improvements and/or activities on the Adjacent Property or any portion thereof;

     (iii) Such Adjacent Property IP License may be granted (A) without consideration beyond that which is paid to Adjacent Borrower in connection with the sale of the applicable portion of the Adjacent Property and/or (B) on a royalty

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free basis; provided, however, that, notwithstanding the foregoing, any consideration and/or royalties that is/are paid to IP Borrower in connection with such Adjacent Property IP License shall constitute Gross Income from Operations for all purposes under this Agreement and the other Loan Documents and Borrowers shall cause IP Borrower to deposit the same directly into the Lockbox Account within one (1) Business Day following receipt by IP Borrower from time to time;

     (iv) Such Adjacent Property IP License shall not violate or result in a violation of Section 5.1.25(b) hereof; and

     (v) Such Adjacent Property IP License shall not adversely affect Lender’s Liens and security interests in the Owned IP and Licensed IP, all of which shall remain in full force and effect and, at Lender’s request in its sole discretion, Borrowers shall cause IP Borrower to collaterally assign to Lender such Adjacent Property IP License pursuant to a security agreement reasonably satisfactory to Lender and IP Borrower in form and substance.

               (c) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and without violating the Loan Documents, to license or sublicense, as applicable, the IP (or any portion thereof) to any bonafide third party who is not an Affiliate of any Loan Party or any other Restricted Party (a “Third Party IP License”); provided that all of the following conditions shall be satisfied with respect to any such Third Party IP License:

     (i) IP Borrower shall have notified Lender of such proposed Third Party IP License at least ten (10) Business Days prior to the anticipated date of the execution and delivery thereof, which notice shall include (A) a copy of the proposed Third Party IP License, and (B) an Officer’s Certificate providing a certification that (1) as of the date of such notice, no monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing, (2) the proposed licensee or sublicensee, as applicable, is a bonafide third party who is not an Affiliate of any Borrower or any other Restricted Party, (3) the total consideration paid and to be paid under such proposed Third Party IP License, (4) other than the proposed Third Party IP License, there are no other written or oral agreements between any Borrower or any other Restricted Party or any Affiliate of any thereof, on the one hand, and the proposed licensee or sublicensee, as applicable, on the other hand, relating to such proposed Third Party IP License or the IP covered thereunder, (5) the proposed Third Party IP License does not and will not adversely affect any Mortgage Borrower’s ownership and/or operation of, or any activities conducted on, its Property, (6) the proposed Third Party IP License does not and will not materially diminish any Mortgage Borrower’s rights to use any of the Owned IP or Licensed IP that is reasonably necessary or desirable to operate its Property as then being operated and as then contemplated to be operated in the future, and (7) the

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proposed Third Party IP License does not, and is not reasonably anticipated in the future to, materially diminish the value of any Owned IP or Licensed IP;

     (ii) Such proposed Third Party IP License shall, without limitation, (A) be on arm’s-length, market terms, (B) require cash consideration only, (C) prohibit any material amendment thereof without Lender’s prior reasonable approval, other than any amendment that does not violate any of the requirements of this Section 5.1.26(c)(ii), (D) prohibit the assignment or sub-licensing thereof without Lender’s prior reasonable approval, other than an assignment to a bonafide third party who is not an Affiliate of any Loan Party or any other Restricted Party, and (E) require the proposed licensee or sublicensee, as applicable, to deposit all consideration payable thereunder or otherwise in connection therewith from time to time directly into the Lockbox Account;

     (iii) All consideration and/or royalties that is/are paid under or otherwise in connection with such Third Party IP License shall constitute Gross Income from Operations for all purposes under this Agreement and the other Loan Documents and if, notwithstanding the provisions of the foregoing Section 5.1.26(c)(ii)(E) hereof, any Mortgage Borrower shall receive any such consideration and/or royalties, Borrowers shall cause such Mortgage Borrower to deposit the same directly in the Lockbox Account within one (1) Business Day following receipt by such Mortgage Borrower from time to time;

     (iv) Such Third Party IP License shall not violate or result in a violation of Section 5.1.25(b) hereof;

     (v) Without limiting the generality of the foregoing, such Third Party IP License shall in no event prohibit or limit in any manner the use of the “Hard Rock” name in connection with the operation of the Hotel/Casino Property or any other Property;

     (vi) Such Third Party IP License shall not adversely affect Lender’s Liens and security interests in the Owned IP and Licensed IP, all of which shall remain in full force and effect and, at Lender’s request in its sole discretion, Borrowers shall cause IP Borrower to collaterally assign to Lender such Third Party IP License pursuant to a security agreement reasonably satisfactory to Lender and IP Borrower in form and substance; and

     (vii) On the date of the full execution and delivery of such Third Party IP License, no monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing.

               (d) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right to license or sublicense, as applicable, the IP (or any portion thereof) to an Affiliate of any Loan Party or any other Restricted Party (an “Affiliate IP License”); provided that (i) all of the conditions set

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forth in Section 5.1.26(c) hereof shall be satisfied with respect to any such Affiliate IP License, other than the condition set forth in Section 5.1.26(c)(i)(2) hereof, and (ii) such Affiliate IP License shall have been approved in writing by Lender, which approval shall not be unreasonably withheld.

               (e) With respect to any IP License, Adjacent Property IP License, Third Party IP License or Affiliate IP License permitted hereunder, upon satisfaction of such conditions as Lender shall impose with respect to its consent to any IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(b) hereof with respect to any Adjacent Property IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(c) hereof with respect to any Third Party IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(d) hereof with respect to any Affiliate IP License, Lender, at the sole cost and expense of Borrowers, shall execute and deliver to Borrowers (for the benefit of the licensee or sublicensee, as applicable, under such IP License, Adjacent Property IP License, Third Party IP License or Affiliate IP License, as applicable), provided that Borrowers cause the applicable licensee or sublicensee, as applicable, to also execute and deliver, a customary and mutually acceptable non-disturbance and attornment agreement as reasonably requested by IP Borrower.

          5.1.27 Mortgage Reserve Funds. (a)  Borrowers shall cause Mortgage Borrowers to deposit and maintain each of the Mortgage Reserve Funds as required pursuant to the terms of the Mortgage Loan Agreement and to perform and comply with all the terms and provisions relating thereto.

               (b) Each Borrower grants to Lender a security interest in such Borrower’s interest in each of the Mortgage Reserve Funds, if any, subject to the prior rights of Mortgage Lender and First Mezzanine Lender, and any and all monies now or hereafter deposited in each Mortgage Loan Reserve Fund as additional security for payment of the Debt to the extent such Borrower has an interest in same. Subject to the qualifications regarding Borrowers’ interest in the Mortgage Reserve Funds, if any, until expended or applied in accordance with the Mortgage Loan Documents, the First Mezzanine Loan Documents or the Loan Documents, Borrowers’ interest in the Mortgage Reserve Funds shall constitute additional security for the Debt and upon the occurrence of an Event of Default, Lender may, in addition to any and all other remedies available to Lender, but subject to the prior rights of Mortgage Lender and First Mezzanine Lender thereto, apply any sums then present in any or all of the Mortgage Reserve Funds to the payment of the Debt in any order in its sole discretion.

          5.1.28 Mortgage Loan and First Mezzanine Loan Notices. (a)  Borrowers shall give notice, or cause notice to be given to Lender, promptly upon the occurrence and during the continuance of a Mortgage Event of Default or a First Mezzanine Event of Default.

               (b) Borrowers shall cause each Loan Party to promptly notify Lender of all notices received by such Loan Party under or in connection with the Mortgage Loan or the First Mezzanine Loan, including, without limitation, any notice by Mortgage Lender or First Mezzanine Lender to the applicable Loan Party of any default by such Loan Party in the performance or observance of any of the terms, covenants or conditions of the Mortgage Loan Documents or the First Mezzanine Loan Documents on the part of such Loan Party to be performed or observed, and deliver to Lender a true copy of each such notice, together with any

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other consents, notices, requests or other written correspondence between the applicable Loan Party and Mortgage Lender or First Mezzanine Lender.

          5.1.29 Compliance with Mortgage Loan Documents and First Mezzanine Loan Documents. (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms, covenants and conditions set forth in the Mortgage Loan Documents. Borrowers acknowledge that the obligation to comply with this covenant is separate from, and may be enforced independently from, the obligations of Mortgage Borrowers under the Mortgage Loan Documents.

               (b) Borrowers shall cause First Mezzanine Borrowers to comply with all of the terms, covenants and conditions set forth in the First Mezzanine Loan Documents. Borrowers acknowledge that the obligation to comply with this covenant is separate from, and may be enforced independently from, the obligations of First Mezzanine Borrowers under the First Mezzanine Loan Documents.

          Section 5.2 Negative Covenants. From the date hereof until payment and performance in full of all obligations of Borrowers under the Loan Documents or the earlier release of the Lien of the Pledge Agreement in accordance with the terms of this Agreement and the other Loan Documents, each Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following:

          5.2.1 Operation of the Properties; Liquor Management.

               (a) Borrowers shall not, and shall cause Mortgage Borrowers not to, without Lender’s prior consent (which consent shall not be unreasonably withheld, conditioned or delayed): (i) subject to Section 9.5.1 hereof, surrender, terminate or cancel any Management Agreement; provided, that Borrowers may, without Lender’s consent, replace, or cause Mortgage Borrowers to replace, any Manager so long as the replacement manager is a Qualified Manager pursuant to a Replacement Management Agreement; (ii) reduce or consent to the reduction of the term of any Management Agreement; (iii) increase or consent to the increase of the amount of any charges or fees under any Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Management Agreement in any material respect. Notwithstanding the foregoing, Borrowers may terminate, or may cause Mortgage Borrowers to terminate, the Sub-Management Agreement without the consent of Lender so long as either (A) the Improvements on the Adjacent Property are and are intended to remain completely vacant or are demolished, or (B) a Manager under a Management Agreement is obligated to perform the duties that were delegated to Sub-Manager under the Sub-Management Agreement.

               (b) Following the occurrence and during the continuance of an Event of Default, Borrowers shall not, and shall cause Mortgage Borrowers not to, exercise any rights, make any decisions, grant any approvals or otherwise take any action under any Management Agreement or the Sub-Management Agreement without the prior consent of Lender, which consent may be withheld in Lender’s sole discretion.

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               (c) Borrowers shall cause Hotel/Casino Borrower not to, without Lender’s prior consent (which consent shall not be unreasonably withheld, conditioned or delayed): (i) subject to Section 9.5.2 hereof, surrender, terminate or cancel any Liquor Management Agreement; provided, that Borrowers may replace, or may cause Hotel/Casino Borrower to replace, without Lender’s consent, the Liquor Manager so long as the replacement liquor manager is a Qualified Liquor Manager pursuant to a Replacement Liquor Management Agreement; (ii) reduce or consent to the reduction of the term of the Liquor Management Agreement; (iii) increase or consent to the increase of the amount of any charges or fees under the Liquor Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Liquor Management Agreement in any material respect.

               (d) Following the occurrence and during the continuance of an Event of Default, Borrowers shall cause Hotel/Casino Borrower not to exercise any rights, make any decisions, grant any approvals or otherwise take any action under the Liquor Management Agreement without the prior consent of Lender, which consent may be withheld in Lender’s sole discretion.

          5.2.2 Liens. (a) Borrowers shall not create, incur, assume or suffer to exist any Lien on (i) any portion of the Pledged Collateral except for the Lien created by the Pledge Agreement or (ii) any portion of the other Collateral, except for Permitted Encumbrances and Liens created by or permitted pursuant to the Loan Documents.

               (b) Borrowers shall not permit or cause any Loan Party to create, incur, assume or suffer to exist any Lien on any portion of any Property, the IP or the First Mezzanine Collateral or knowingly permit any such action to be taken, except: (i) Permitted Encumbrances and Permitted IP Encumbrances; (ii) Liens created by or permitted pursuant to the Mortgage Loan Documents and the First Mezzanine Loan Documents, as applicable; and (iii) Liens for Taxes or Other Charges not yet delinquent.

          5.2.3 Dissolution. (a) No Borrower shall (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity; (ii) engage in any business activity not related to the ownership and operation of the Collateral; (iii) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the assets of such Borrower except to the extent permitted by the Loan Documents; or (iv) modify, amend, waive or terminate (A) its organizational documents in any material respect or in any respect with regard to the provisions concerning such Borrower’s status as a Special Purpose Entity, or (B) its qualification and good standing in any jurisdiction, in each case, without obtaining the prior consent of Lender.

               (b) Borrowers shall cause each other Loan Party not to (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (ii) engage in any business activity not related to the ownership and operation of its Property, the IP or the First Mezzanine Collateral; (ii) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of such Loan Party except to the extent permitted by the Mortgage Loan Documents, the First Mezzanine Loan Documents and the Loan Documents; or (iii) modify, amend, waive or

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terminate (A) its organizational documents in any material respect or in any respect with regard to the provisions concerning such Mortgage Borrower’s or such First Mezzanine Borrower’s status as a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Mortgage Loan Agreement or the First Mezzanine Loan Agreement, as applicable, in each case as in effect on the date hereof), or (B) its qualification and good standing in any jurisdiction, in each case, without obtaining the prior consent of Lender.

          5.2.4 Change in Business. (a) No Borrower shall enter into any line of business other than the ownership and management of the Collateral, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in a material manner in activities other than the continuance of its present business.

               (b) No Borrower shall permit or cause any other Loan Party to enter into any line of business other than the ownership and operation of its Property, the IP or the First Mezzanine Collateral, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in a material manner in activities other than the continuance of its present business.

          5.2.5 Debt Cancellation. (a) No Borrower shall cancel or otherwise forgive or release any material claim or debt owed to such Borrower by any Person, except for adequate consideration and in the ordinary course of such Borrower’s business.

               (b) No Borrower shall permit or cause any other Loan Party to cancel or otherwise forgive or release any material claim or debt (other than termination of Leases by Mortgage Borrowers in accordance with the Mortgage Loan Agreement) owed to such Loan Party by any Person, except for adequate consideration and in the ordinary course of such Loan Party’s business.

          5.2.6 Zoning. No Borrower shall cause or permit any Mortgage Borrower to initiate or consent to any zoning reclassification of any portion of any Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, in each case, without the prior consent of Lender not to be unreasonably withheld.

          5.2.7 Removal of FF&E. Except in the ordinary course of business, no Borrower shall cause or permit any Mortgage Borrower to remove or transfer any material article of FF&E or other personal property owned by any Mortgage Borrower used in the operation of any Property unless the same is replaced with substantially similar FF&E or is obsolete, without the prior written consent of Lender in each instance, which consent shall not be unreasonably withheld, conditioned or delayed. To the extent Lender’s prior written approval is required pursuant to this Section 5.2.7, Lender shall endeavor to respond to a request for Lender’s approval within five (5) Business Days after Borrowers’ written request therefor, delivered together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed action or matter. Lender’s approval of any action or matter requiring Lender’s consent under this Section 5.2.7 shall be deemed to have been given if (i) a request for approval, together with any documents or information required to

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be provided by Borrowers hereunder in connection with Lender’s review of the proposed action or matter, is submitted to Lender with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL AND IF LENDER DOES NOT RESPOND TO OR EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE”, and Lender does not respond by approving such proposed action or matter or stating in reasonable detail its objections to such proposed action or matter within five (5) Business Days of Lender’s receipt thereof, and (ii) after Lender’s failure to respond to the initial request for approval of such proposed action or matter within the time period set forth in the foregoing clause (i), Borrowers shall re-submit such request to Lender in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL. APPROVAL WILL BE DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN FIVE (5) BUSINESS DAYS”, and Lender does not respond to such second submission by approving such proposed action or matter or stating in reasonable detail its objection thereto within five (5) Business Days of Lender’s receipt of such second submission.

          5.2.8 Principal Place of Business and Organization. No Borrower shall change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Lender thirty (30) days prior notice. No Borrower shall change the place of its organization as set forth in Section 4.1.28 hereof without the consent of Lender, which consent shall not be unreasonably withheld. Upon Lender’s request, Borrowers shall execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender’s security interest in the Collateral as a result of such change of principal place of business or place of organization.

          5.2.9 ERISA. (a) Assuming that Lender is not, and is not lending the assets of, an “employee benefit plan” as defined in Section 3(3) of ERISA, no Borrower shall engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA.

               (b) Each Borrower shall deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its reasonable discretion, that (i) such Borrower is not an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (ii) none of the assets of such Borrower constitute “plan assets” within the meaning of Section 3(3) of ERISA for purposes of any state law provisions regulating investments of, or fiduciary obligations with respect to, governmental plans; and (iii) one or more of the following circumstances is true:

     (A) Equity interests in such Borrower are publicly offered securities, within the meaning of 29 C.F.R. §2510.3 101(b)(2);

     (B) Less than twenty five percent (25%) of each outstanding class of equity interests in such Borrower is held by “benefit plan investors” within the meaning of 29 C.F.R. §2510.3 101(f)(2); or

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     (C) Such Borrower qualifies as an “operating company”, a “venture capital operating company” or a “real estate operating company” within the meaning of 29 C.F.R. §2510.3 101(c), (d) or (e).

          5.2.10 Transfers. (a)  Borrowers acknowledge that Lender has examined and relied on the experience of Borrowers and their direct and indirect members in owning and operating the Collateral and Mortgage Borrowers in agreeing to make the Loan, and will continue to rely on Borrowers’ ownership of the Collateral as a means of maintaining the value of the Collateral as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Additionally, Borrowers acknowledge that Lender has examined and relied on the experience of Mortgage Borrowers and their general partners, members, principals and (if any Mortgage Borrower is a trust) beneficial owners, as applicable, in owning and operating properties such as the Properties and in owning intellectual property such as the IP, in agreeing to make the Loan, and will continue to rely on Mortgage Borrowers’ ownership of the Properties and the IP as a means of maintaining the value of the Properties and the IP and, therefore, indirectly the value of the Collateral, as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Borrowers acknowledge that Lender has a valid interest in maintaining the value of the Collateral so as to ensure that, should Borrowers default in the repayment of the Debt or the performance of the obligations contained in the Loan Documents, Lender can recover the Debt by a sale of the Collateral.

               (b) Without the prior consent of Lender and except to the extent otherwise set forth in this Section 5.2.10, Borrowers shall not, and shall not permit any Transfer Restricted Party to, (i) sell, convey, mortgage, grant, bargain, encumber, pledge, assign, license, grant options with respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for consideration or of record) any Property or any part thereof or any legal or beneficial interest therein, or any IP or any part thereof or any legal or beneficial interest therein, or the Collateral or any part thereof or any legal or beneficial interest therein; or (ii) permit a Sale or Pledge of any interest in any Transfer Restricted Party (any of the actions in the foregoing clauses (i) or (ii), a “Transfer”), other than, notwithstanding anything to the contrary contained in this Section 5.2.10:

     (A) pursuant to Leases of space in the Improvements to tenants in accordance with the provisions of Section 5.1.20 hereof, including, without limitation, the HRHI Lease;

     (B) the pledge of the membership interests in each Mortgage Borrower as collateral for the First Mezzanine Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the First Mezzanine Loan Documents by First Mezzanine Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (C) the pledge of the membership interests in each First Mezzanine Borrower as collateral for the Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the Loan Documents by

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Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (D) the pledge of the membership interests in each Borrower as collateral for the Third Mezzanine Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the Third Mezzanine Loan Documents by Third Mezzanine Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (E) any Release Parcel Sale, any Adjacent Parcel Sale or an IP Sale, in each instance in accordance with the applicable provisions of Section 2.5 of the Mortgage Loan Agreement;

     (F) a conveyance of the Deeded Adjacent Property as contemplated by Section 3.2(u) of the Mortgage Loan Agreement;

     (G) any IP License or Adjacent Property IP License granted in accordance with the provisions of Section 5.1.26 hereof;

     (H) the Permitted Encumbrances and Permitted IP Encumbrances; and

     (I) the issuance of new stock in, the merger or consolidation of, and/or the Sale or Pledge of the stock in, any Publicly Traded Entity who owns a direct or indirect ownership interest in any Transfer Restricted Party;

     (J) the transfer of indirect ownership interests in any Mortgage Borrower in order to create one or more new mezzanine borrowers for any New Mezzanine Loan as contemplated under the Mortgage Loan Agreement; and

     (K) the transfer by deed of any applicable Partial Release Parcel and/or Partial Adjacent Parcel to a Subsidiary Transferee and the subsequent transfer of all of the membership interests held by Adjacent Borrower in such Subsidiary Transferee, in each instance in accordance with Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable;

          provided, however, that in the case of each of the foregoing clauses (A) – (K), such Transfer shall only be permitted hereunder if it does not violate any Legal Requirements, including specifically, but without limitation, any Gaming Laws.

               (c) A Transfer shall include, but not be limited to, (i) an installment sales agreement wherein any Borrower or Mortgage Borrower, as applicable, agrees to sell a Property or any part thereof, the IP, the Collateral or any part thereof for a price to be paid in installments; (ii) an agreement by any Mortgage Borrower leasing all or a substantial part of a Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, any Mortgage Borrower’s right, title and interest in and to any Leases or any Rents; (iii) if a Transfer Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation’s stock or the creation or issuance of new stock; (iv) if a Transfer Restricted Party is a limited or general partnership or joint venture,

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any merger or consolidation or the change, removal, resignation, admission or addition of a general partner or the Sale or Pledge of the general partnership interest of any general partner or any profits or proceeds relating to such partnership interest, or the Sale or Pledge of limited partnership interests or any profits or proceeds relating to such limited partnership interest or the creation or issuance of new limited partnership interests; (v) if a Transfer Restricted Party is a limited liability company, any merger or consolidation or the change, removal, resignation, admission or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing or managing membership interests or the creation or issuance of new non-managing or managing membership interests; (vi) if a Transfer Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest in a Transfer Restricted Party or the creation or issuance of new legal or beneficial interests; (vii) the removal or the resignation of any Manager (including, without limitation, an Affiliated Manager) other than in accordance with the Mortgage Loan Agreement and Section 5.1.22 hereof; or (viii) any deed-in-lieu or consensual foreclosure relating to any Property with or for the benefit of Mortgage Lender or any Affiliate thereof.

               (d) Notwithstanding the provisions of this Section 5.2.10, so long as the following Transfers do not violate any Legal Requirements in any instance, including specifically, but without limitation, any Gaming Laws, or cause or otherwise result in the suspension, termination and/or revocation of any Gaming License, the HRHI Lease, the Gaming Sublease or the Casino Component Lease, as applicable, the following Transfers may occur without the consent of Lender or the payment of any transfer or other fee, excluding, however, any Transfer of (i) any direct interest in any Mortgage Borrower for so long as the Loan, the Mortgage Loan or any Mezzanine Loan is outstanding, and/or (ii) any direct interest in any Borrower for so long as the Loan or any Mezzanine Loan is outstanding:

     (A) the Transfer of any direct or indirect interest in any Transfer Restricted Party, provided that (1) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and is continuing, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) Lender receives (y) at least ten (10) days prior written notice of any such voluntary Transfer and copies of the documents transferring such interest, or (z) written notice of any such involuntary Transfer and copies of the documents transferring such interest within thirty (30) days following such involuntary Transfer, (4) if after such Transfer any Person and its Affiliates collectively would own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received, prior to such Transfer, an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Transfer will not result in a re-qualification, reduction or

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withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (5) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer;

     (B) the Transfer of any direct or indirect interest in any Transfer Restricted Party to any other Person who is, as of the Closing Date, a holder of any direct or indirect interest in any Transfer Restricted Party, provided that (1) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and is continuing, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) Lender receives (y) at least ten (10) days prior written notice of any such voluntary Transfer and copies of the documents transferring such interest, or (z) written notice of any such involuntary Transfer and copies of the documents transferring such interest within thirty (30) days following such involuntary Transfer, and (4) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer;

     (C) the Transfer of any direct or indirect interest in any Transfer Restricted Party by inheritance, devise, bequest or operation of law upon the death of a natural person who owned such interest, provided that (1) such Transfer is to a non-minor member of the immediate family of the deceased holder of such interest or a trust established for the benefit of one or more members of the immediate family of the deceased holder of such interest, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) such Transfer shall not result in a change of Control of the day-to-day operations of any of the Properties, (4) Lender receives written notice of such Transfer and copies of the documents transferring such interest not later than thirty (30) days following such Transfer, (5) the legal and financial structure of each Loan Party and the other Transfer Restricted Parties, and the single purpose nature and bankruptcy remoteness of each Loan Party and the other Transfer Restricted Parties, after such Transfer shall satisfy the applicable provisions of the Loan Documents, the Mortgage Loan Documents and/or the First Mezzanine Loan Documents (including, without limitation, Section 4.1.30 hereof and/or Section 4.1.30 of the Mortgage Loan Agreement or the First Mezzanine Loan Agreement, as applicable), (6) if after such Transfer any Person and its Affiliates would collectively own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of

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any Loan Party, Lender shall have received an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (7) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer; and

     (D) (1) the merger or consolidation of any Guarantor or any Constituent Member of any Guarantor with or into any other Person, (2) the sale of any Guarantor or substantially all of any Guarantor’s assets to any other Person, or (3) the issuance of new stock or limited partnership or membership interests in, and/or the Sale or Pledge of stock, limited partnership or membership interests in, any Guarantor or any Constituent Member thereof (any of the occurrences in the foregoing clauses (1), (2) or (3), a “Guarantor Transfer”); provided, that, in each of the foregoing instances, whether or not the applicable Guarantor or the applicable Constituent Member of a Guarantor is or is not a Publicly Traded Company, (I) after giving effect to such Guarantor Transfer, when viewed both individually and together with any prior Guarantor Transfers, (y) the Guarantors, collectively, shall continue to satisfy the Net Worth Requirements, and (z) at least one of the Guarantors shall be a Qualified Real Estate Guarantor, (II) except if the applicable Guarantor or the applicable Constituent Member of a Guarantor is a Publicly Traded Company, Lender receives at least ten (10) days prior written notice of any such Guarantor Transfer, (III) if after such Guarantor Transfer any Person and its Affiliates collectively would own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received, prior to such Guarantor Transfer, an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Guarantor Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (IV) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Guarantor Transfer.

               (e) With respect to any Transfer permitted under this Section 5.2.10 or otherwise consented to by Lender, Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all fees and expenses incurred by Lender in connection with such Transfer, including, without limitation, the cost of any third party reports, reasonable legal fees and expenses, Rating Agency fees and expenses and required legal opinions.

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               (f) Notwithstanding anything to the contrary set forth in this Agreement or in any of the other Loan Documents, Borrowers expressly acknowledge and agree, on behalf of themselves and the other Transfer Restricted Parties, that any Transfer or Guarantor Transfer stated to be permitted hereunder or thereunder shall only be permitted if it does not violate any Legal Requirements, including specifically, but without limitation, any Gaming Laws.

          5.2.11 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers shall not do, and Borrowers shall not permit any Mortgage Borrower or any Affiliate to do, any of the following, in each instance without the prior approval of Lender, which approval shall not be unreasonably withheld: (a) modify, amend, waive any right under, or terminate the Morton Indemnification or the PWR/RWB Escrow Agreement, other than any ministerial, non-monetary amendment or modification; (b) make any claim or otherwise exercise any rights or remedies under the Morton Indemnification or the PWR/RWB Escrow Agreement; or (c) other than the funds released on February 2, 2007 pursuant to the express terms of the PWR/RWB Escrow Agreement, cause any funds escrowed under the PWR/RWB Escrow Agreement to be used for any purpose other than the satisfaction of indemnification claims pursuant to the Morton Indemnification until such time as the Morton Indemnification shall expire by its terms. Borrowers shall cause Mortgage Borrowers to comply with the provisions of Section 5.2.11 of the Mortgage Loan Agreement.

          5.2.12 Distributions to Affiliates. Other than the fees and expense reimbursements payable to any Affiliated Manager pursuant to any Management Agreement reasonably approved by Lender, no Borrower shall, nor shall cause or permit any other Loan Party to, make any distributions to, or otherwise pay any dividends or make any payments to, any Restricted Party unless and until the Excess Cash Termination Conditions shall have occurred, and thereafter, only when no Event of Default, Mortgage Event of Default and/or any Mezzanine Event of Default shall have occurred and be continuing.

          5.2.13 Limitation on Securities Issuances.

               (a) Borrowers shall not cause any ownership interests in any other Loan Party to be issued other than those that have been issued as of the Closing Date nor shall Borrowers cause or permit any other Loan Party to enter into or grant any option, warrant or other agreement or right with respect to any ownership interest in such Loan Party or with respect to any income or profits of such Loan Party.

               (b) No Borrower shall issue any ownership interests or other securities other than those that have been issued as of the Closing Date nor shall any Borrower enter into or grant any option, warrant or other agreement or right with respect to any ownership interest in such Borrower.

          5.2.14 Distributions.

               (a) Any and all dividends, including capital dividends, stock or liquidating dividends, distributions of property, redemptions or other distributions made by any Mortgage Borrower on or in respect of any interests in such Mortgage Borrower, and any and all

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cash and other property received in payment of the principal of or in redemption of or in exchange for any such interests (collectively, the “Mortgage Distributions”), shall become part of the Collateral.

               (b) If any Mortgage Distributions shall be received by any Borrower or any Affiliate of any Borrower after the occurrence and during the continuance of an Event of Default, each Borrower shall hold, or shall cause the same to be held, in trust for the benefit of Lender. Any and all revenue derived from any Property paid directly by tenants, subtenants or occupants of such Property shall be held and applied in accordance with the terms and provisions of the Mortgage Loan Agreement.

          5.2.15 Refinancing or Prepayment of the Mortgage Loan or the First Mezzanine Loan.

               (a) Borrowers or Mortgage Borrowers shall not be required to obtain the consent of Lender to refinance the Mortgage Loan, provided that the Loan shall have been (or shall simultaneously be) paid in full in accordance with the terms of this Agreement (including any Spread Maintenance Premiums and other amounts due and payable to Lender under the Loan Documents). Borrowers shall cause Mortgage Borrowers to obtain the prior written consent of Lender to enter into any other refinancing of the Mortgage Loan which consent shall not be unreasonably withheld, conditioned or delayed.

               (b) Borrowers or First Mezzanine Borrowers shall not be required to obtain the consent of Lender to refinance the First Mezzanine Loan, provided that the Loan shall have been (or shall simultaneously be) paid in full in accordance with the terms of this Agreement (including any Spread Maintenance Premiums and other amounts due and payable to Lender under the Loan Documents). Borrowers shall cause First Mezzanine Borrowers to obtain the prior written consent of Lender to enter into any other refinancing of the First Mezzanine Loan which consent shall not be unreasonably withheld, conditioned or delayed.

          5.2.16 Acquisition of the Mortgage Loan.

               (a) No Loan Party, Guarantor, or any Affiliate of any of them or any Person acting at any such Person’s request or direction, shall acquire or agree to acquire Mortgage Lender’s interest in the Mortgage Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Mortgage Loan (other than any passive minority interest in the holder of the Mortgage Loan obtained by any Person), via purchase, transfer, exchange or otherwise, and any breach or attempted breach of this provision shall constitute an Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrowers shall have failed to comply with the foregoing, then Borrowers: (i) shall immediately notify Lender of such failure; (ii) shall cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents: (A) not to enforce the Mortgage Loan Documents; and (B) upon the request of Lender, to the extent any of such prohibited parties has or have the power or authority to do so, to promptly: (1) cancel the promissory note evidencing the Mortgage Loan, (2) reconvey and release the Lien securing the Mortgage Loan and any other collateral under the Mortgage Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Mortgage Loan Documents.

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               (b) Lender shall have the right at any time to acquire all or any portion of the Mortgage Loan or any interest in any holder of, or participant in, the Mortgage Loan without notice or consent of Borrowers or any other Loan Party, in which event Lender shall have and may exercise all rights of Mortgage Lender thereunder (to the extent of its interest), including the right (i) to declare that the Mortgage Loan is in default and (ii) to accelerate the Mortgage Loan indebtedness, in accordance with the terms thereof and (iii) to pursue all remedies against any obligor under the Mortgage Loan Documents.

          5.2.17 Other Limitations. Prior to the payment and performance in full of the Obligations, no Borrower shall, nor shall permit or cause any other Loan Party or any of its respective Affiliates to, without the prior written consent of Lender, which consent shall not be unreasonably withheld, give its consent or approval to any of the following actions or items:

               (a) any Mortgage Borrower or any First Mezzanine Borrower creating, incurring, assuming or suffering to exist any additional Liens on any portion of any Property or the First Mezzanine Collateral, as applicable, except for Permitted Encumbrances;

               (b) any modification, amendment, consolidation, spreading, restatement, waiver or termination of any of the Mortgage Loan Documents or any of the First Mezzanine Loan Documents;

               (c) any modification or amendment of any Approved Annual Budget;

               (d) any material change in the method of conduct of the business of any Borrower or any other Loan Party; or

               (e) the settlement of any claim against any Borrower or any other Loan Party, other than a fully insured third party.

ARTICLE VI.
INSURANCE; CASUALTY; CONDEMNATION; RESTORATION

          Section 6.1 Insurance. (a)  Borrowers shall cause Mortgage Borrowers to obtain and maintain, or cause to be maintained, at all times during the term of the Loan the insurance required under Section 6.1 of the Mortgage Loan Agreement, including, without limitation, meeting all insurer requirements thereunder. In addition, Borrowers shall cause Mortgage Borrower to cause Lender to be named as an additional named insured under each of the insurance policies described in Section 6.1(a)(ii), (iii), (v), (vii), and (xii) of the Mortgage Loan Agreement, and Borrowers shall cause Mortgage Borrowers to cause Lender to be named as a named insured together with Mortgage Lender, as their interest may appear, under the insurance policies required under Section 6.1 (a)(i), (iv), (vi), (viii), (ix), (x) and (xi) of the Mortgage Loan Agreement. Borrowers shall cause Mortgage Borrowers to cause all insurance policies required under this Section 6.1 to provide for at least thirty (30) days prior notice to Lender in the event of policy cancellation or material changes. Not less than five (5) Business Days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to the terms hereof, certificates of insurance evidencing the Policies reasonably satisfactory to Lender and accompanied by evidence reasonably satisfactory to Lender of payment of the premiums due thereunder (the “Insurance Premiums”) shall be delivered by Borrowers to Lender; provided,

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however, that in the case of renewal Policies, Borrowers may furnish Lender with binders therefor to be followed by the original Policies when issued.

               (b) If at any time Lender is not in receipt of written evidence that all Policies are in full force and effect, Lender shall have the right, upon two (2) Business Days’ written notice to Borrowers, to take such reasonable action as Lender deems necessary to protect its interest in the Collateral, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrowers to Lender within ten (10) days after demand and, until paid, shall be secured by the Pledge Agreement and shall bear interest at the Default Rate from the date of demand.

               (c) Notwithstanding anything to the contrary set forth herein, proof of all property coverages required under Section 6.1(a) of the Mortgage Loan Agreement shall be on an Acord 28 Evidence of Property Form (2003/10 version) or on such other binding form as is then generally used or is otherwise reasonably acceptable to Lender.

               (d) For purposes of this Agreement, Lender shall have the same approval rights over the insurance referred to above (including, without limitation, the insurers, deductibles and coverages thereunder, as well as the right to require other reasonable insurance pursuant to Section 6.1(a)(xii) of the Mortgage Loan Agreement) as are provided in favor of Mortgage Lender in the Mortgage Loan Agreement. All liability insurance provided for in the Mortgage Loan Agreement shall provide insurance with respect to the liabilities of each of the Loan Parties. The Policies delivered pursuant to the Mortgage Loan Agreement shall include endorsements of the type described in Section 6.1(e) of the Mortgage Loan Agreement, but pursuant to which Lender shall have the same rights as Mortgage Lender as referred to in such Section 6.1(e).

               (e) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, the provisions of Section 6.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety.

     Section 6.2 Casualty. If any Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a “Casualty”), Borrowers shall cause Mortgage Borrowers to give prompt notice of such damage to Lender and shall cause Mortgage Borrowers to promptly commence and diligently prosecute the completion of the Restoration so that such Property resembles, as nearly as possible, the condition such Property was in immediately prior to such Casualty, with such alterations as may be reasonably approved by Lender (to the extent such alterations are of a type that would require Lender’s approval under Section 5.1.21 hereof) and otherwise in accordance with Section 6.4 of the Mortgage Loan Agreement, provided, that if (A) Mortgage Lender is obligated to make Net Proceeds available to Mortgage Borrowers for purposes of Restoration in accordance with Section 6.4 of the Mortgage Loan Agreement, (B) Mortgage Lender has received such Net Proceeds, and (C) Mortgage Lender has not made such Net Proceeds available to Mortgage Borrowers, then Borrowers shall not be required to cause Mortgage Borrowers to repair and restore such Property unless and until such Net Proceeds are made available to Mortgage Borrowers. It is expressly understood, however, that Mortgage Borrowers shall not be obligated to restore

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such Property to the precise condition of such Property prior to such Casualty provided such Property is restored, to the extent practicable, to be of at least equal value and of substantially the same character as prior to the Casualty. Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by any Borrower or any Mortgage Borrower. In addition, Lender may participate in any settlement discussions with any insurance companies (and shall approve any final settlement) with respect to any Casualty in which the Net Proceeds or the costs of completing the Restoration are equal to or greater than the Restoration Threshold and the applicable Borrower shall, or shall cause the applicable Mortgage Borrower to, deliver to Lender all instruments reasonably required by Lender to permit such participation. In the event of a Casualty in which the Net Proceeds and the costs of completing the Restoration are each less than the Restoration Threshold, Borrowers may settle and adjust such claim without Lender’s consent or participation.

     Section 6.3 Condemnation. Borrowers shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of any Property or any part thereof and shall cause Mortgage Borrowers to deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings with respect to any Condemnation in which Borrowers’ reasonable estimate (based on any statement of value submitted to the condemning authority or any other reasonable evidence in Lender’s reasonable judgment) of the Net Proceeds or the costs of completing the Restoration are equal to or greater than the Restoration Threshold, and the applicable Borrower shall, or shall cause the applicable Mortgage Borrower to, from time to time deliver to Lender all instruments reasonably requested by it to permit such participation. Borrowers shall, or shall cause Mortgage Borrowers to, at their expense, diligently prosecute any such proceedings, and shall, to the extent required hereunder, consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrowers shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If any Property or any portion thereof is taken by a condemning authority, Borrowers shall, or shall cause Mortgage Borrowers to, promptly commence and diligently prosecute the Restoration of the applicable Property and otherwise comply with the provisions of Section 6.4 of the Mortgage Loan Agreement, provided, that if (A) Mortgage Lender is obligated to make Net Proceeds available to Mortgage Borrowers for purposes of Restoration in accordance with Section 6.4 of the Mortgage Loan Agreement, (B) Mortgage Lender has received such Net Proceeds, and (C) Mortgage Lender has not made such Net Proceeds available to Mortgage Borrowers, then Mortgage Borrowers shall not be obligated to repair and restore such Property unless and until such Net Proceeds are made available to Mortgage Borrowers. If such Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency

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judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt.

          Section 6.4 Restoration.

               (a) Borrowers shall, or shall cause Mortgage Borrowers to, deliver to Lender copies of all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under Section 6.4 of the Mortgage Loan Agreement in connection with a Restoration of any Property after a Casualty or Condemnation. If any insurance proceeds or condemnation awards are to be disbursed by Mortgage Lender for Restoration, Borrowers shall deliver or cause to be delivered to Lender copies of all written correspondence delivered to and received from Mortgage Lender that relates to the restoration and release of the insurance proceeds or condemnation awards.

               (b) Notwithstanding any provision in this Agreement to the contrary, all insurance proceeds and condemnation awards will be made available to Mortgage Borrowers in accordance with the Mortgage Loan Agreement. In the event the Mortgage Loan has been paid in full and Lender receives any insurance proceeds or condemnation award, Lender shall either apply such proceeds to the Debt or for the Restoration of any Property in accordance with the same terms and conditions contained in Section 6.4 of the Mortgage Loan Agreement.

               (c) Upon repayment in full of the Mortgage Loan and the First Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 6.4 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety.

          Section 6.5 Rights of Lender. For purposes of this Article VI, Borrowers shall obtain the approval of Lender for each matter requiring the approval of Mortgage Lender under the provisions of Sections 6.4 of the Mortgage Loan Agreement, with each reference in any such provisions to the “Loan” to include the Mortgage Loan and the Loan, and the reference in any such provisions to the “Maturity Date” to mean the Maturity Date, as defined herein. If (a) Mortgage Lender does not require the deposit by Mortgage Borrowers of the “Net Proceeds Deficiency” pursuant to Section 6.4(c)(vi) of the Mortgage Loan Agreement or (b) First Mezzanine Lender does not require the deposit by First Mezzanine Borrowers of the “Net Proceeds Deficiency” pursuant to Section 6.5 of the First Mezzanine Loan Agreement, Lender shall have the right to demand that Borrowers make a deposit of said “Net Proceeds Deficiency” in accordance with the terms of such Section (as if each reference therein to “Borrowers” and “Lender” referred to Borrowers and Lender, respectively).

ARTICLE VII.
RESERVE FUNDS

          Section 7.1 Required Repair Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.1 of the Mortgage Loan Agreement.

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               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Required Repair Fund and the Required Repair Account pursuant to the terms of Section 7.1 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Required Repair Fund and the Required Repair Account pursuant to the terms of Section 7.1 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Required Repair Fund and the Required Repair Account in Section 7.1 of the Mortgage Loan Agreement and the provisions of Section 7.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

          Section 7.2 Tax and Insurance Escrow Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.2 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Tax and Insurance Escrow Fund in Section 7.2 of the Mortgage Loan Agreement and the provisions of Section 7.2 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

          Section 7.3 Replacement Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.3 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Replacement Reserve Fund and the Replacement Reserve Account pursuant to the terms of Section 7.3 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Replacement Reserve Fund and the Replacement Reserve Account pursuant to the terms of Section 7.3 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Replacement Reserve Fund and the Replacement Reserve Account in Section 7.3 of the Mortgage Loan Agreement and the provisions of Section 7.3 of the Mortgage

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Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

          Section 7.4 Interest Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.4 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Interest Reserve Fund pursuant to the terms of Section 7.4 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Interest Reserve Fund pursuant to the terms of Section 7.4 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Interest Reserve Fund in Section 7.4 of the Mortgage Loan Agreement and the provisions of Section 7.4 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

          Section 7.5 Initial Renovation Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.5 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account pursuant to the terms of Section 7.5 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account pursuant to the terms of Section 7.5 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account in Section 7.5 of the Mortgage Loan Agreement and the provisions of Section 7.5 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

          Section 7.6 General Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.6 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the General Reserve Fund and the General Reserve Account

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pursuant to the terms of Section 7.6 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the General Reserve Fund and the General Reserve Account pursuant to the terms of Section 7.6 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the General Reserve Fund and the General Reserve Account in Section 7.6 of the Mortgage Loan Agreement and the provisions of Section 7.6 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

          Section 7.7 Construction Loan Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.7 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Construction Loan Reserve Fund and the Construction Loan Reserve Account pursuant to the terms of Section 7.7 of the Mortgage Loan Agreement and (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Construction Loan Reserve Fund and the Construction Loan Reserve Account pursuant to the terms of Section 7.7 of the First Mezzanine Loan Agreement; or (ii) the Mortgage Loan and the First Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Construction Loan Reserve Fund and the Construction Loan Reserve Account in Section 7.7 of the Mortgage Loan Agreement and the provisions of Section 7.7 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

          Section 7.8 Reserve Funds, Generally.

               (a) Borrowers hereby grant to Lender a first-priority perfected security interest in each of the Reserve Funds held by Lender and any and all monies now or hereafter deposited in each Reserve Fund as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds shall constitute additional security for the Debt.

               (b) Upon the occurrence and during the continuance of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the reduction of the Debt (in such order, proportion and priority as Lender may determine in its sole discretion), until the Debt is paid in full, with any amounts remaining being disbursed, as a distribution permitted under applicable law, (i) to Third Mezzanine Lender for application by Third Mezzanine Lender in accordance with the terms of the Third Mezzanine Loan Documents if the Third Mezzanine Debt

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(or any portion thereof) is outstanding, until the Third Mezzanine Debt is paid in full, and then (ii) any balance remaining to Borrowers.

               (c) Any amount remaining in any of the Reserve Funds after the Obligations have been satisfied shall be released to Borrowers; provided, however, that Borrowers and Lender hereby agree and acknowledge that if (1) all of the Obligations have been satisfied, (2) there is any amount remaining in any of the Reserve Funds, and (3) the Third Mezzanine Debt (or any portion thereof) is outstanding, then Lender will not pay any such remaining amount in any of the Reserve Funds to Borrowers, but rather shall deliver such amount to Third Mezzanine Lender to be held in accordance with the terms of the Third Mezzanine Loan Documents. The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender.

               (d) Except to the extent provided in the Mezzanine Loan Documents, Borrowers shall not, without obtaining the prior consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto.

               (e) The Reserve Funds shall be held in an Eligible Account in Permitted Investments pursuant to the Cash Management Agreement. All interest or other earnings on a Reserve Fund (with the exception of the Tax and Insurance Escrow Fund) shall be added to and become a part of such Reserve Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund, except that all interest or other earnings on the Tax and Insurance Escrow Fund shall be retained by Lender. Borrowers shall have the right to direct Lender to invest sums on deposit in the Eligible Account in Permitted Investments provided (i) such investments are then regularly offered by Lender for accounts of this size, category and type, (ii) such investments are permitted by applicable Legal Requirements, (iii) the maturity date of the Permitted Investment is not later than the date on which the applicable Reserve Fund is required for payment of an obligation for which such Reserve Fund was created, and (iv) no Event of Default shall have occurred and be continuing. Borrowers shall be responsible for payment of any federal, state or local income or other tax applicable to the interest or income earned on the Reserve Funds (with the exception of the Tax and Insurance Escrow Fund). No other investments of the sums on deposit in the Reserve Funds shall be permitted except as set forth in this Section 7.8. Borrowers shall bear all reasonable costs associated with the investment of the sums in the account in Permitted Investments. Such costs shall be deducted from the income or earnings on such investment, if any, and to the extent such income or earnings shall not be sufficient to pay such costs, such costs shall be paid by Borrowers promptly on demand by Lender. Lender shall have no liability for the rate of return earned or losses incurred on the investment of the sums in Permitted Investments.

               (f) Borrowers, jointly and severally, shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, third party claims, demands, liabilities, actual losses, actual damages (excluding lost profits, diminution in value and other consequential damages), obligations and reasonable costs and expenses (including litigation costs and reasonable attorneys’ fees and expenses) arising from or in any way connected with the Reserve Funds held by Lender or the performance of the obligations for which the Reserve

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Funds were established, excluding matters arising from Lender’s or its agents’ fraud, willful misconduct, illegal acts or gross negligence. Borrowers shall assign to Lender all rights and claims any Borrower may have against all Persons supplying labor, materials or other services which are to be paid from or secured by the Reserve Funds; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured.

     Section 7.9 Transfer of Mortgage Reserve Funds. If Mortgage Lender waives any reserves or escrow accounts required in accordance with the terms of the Mortgage Loan Agreement, which reserves or escrow accounts are also required in accordance with the terms of this Article VII, or if the Mortgage Loan is paid off in full (without a prepayment of the Loan in full), then Borrowers shall cause any amounts that had been, or would have been, deposited into any reserves or escrow accounts in accordance with the terms of the Mortgage Loan Agreement to be deposited or transferred to Lender in accordance with the terms of this Article VII (and Borrowers shall enter into a cash management and lockbox agreement for the benefit of Lender substantially similar to the arrangement entered into between Mortgage Borrowers and Mortgage Lender at the time of the closing of the Mortgage Loan).

ARTICLE VIII.
DEFAULTS

     Section 8.1 Event of Default. (a)  Each of the following events shall constitute an event of default hereunder (an “Event of Default”):

     (i) if (A) the Debt is not paid in full on the Maturity Date, (B) any Monthly Interest Payment or any required monthly deposit to any Reserve Fund is not paid in full on or before the related Payment Date, or (C) any other portion of the Debt is not paid within three (3) Business Days following notice to Borrowers that the same is due and payable;

     (ii) if any of the Taxes or Other Charges are not paid prior to the date upon which any interest or late charges shall begin to accrue thereon, subject to Section 7.2 of the Mortgage Loan Agreement or Section 7.2 hereof, as applicable;

     (iii) if the Policies are not kept in full force and effect;

     (iv) if any Borrower Transfers or otherwise encumbers any portion of the Collateral or any interest therein, or if any Mortgage Borrower Transfers or otherwise encumbers any portion of any Property or any interest therein or the IP or any portion thereof, or any direct or indirect interest in any Transfer Restricted Party is Transferred, in each instance, in violation of the provisions of this Agreement and not otherwise consented to by Lender;

     (v) if any representation or warranty made by any Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender by or on behalf of any Borrower or any Restricted Party shall have been false or misleading in any material respect as of the date the representation or warranty was made, provided, however, if such representation or warranty is susceptible of being cured, and

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Lender has not theretofore materially adversely relied thereon, Borrowers shall have the right to cure such representation or warranty within ten (10) Business Days of notice thereof;

     (vi) if any Loan Party, HRHI or any Guarantor shall make an assignment for the benefit of any creditor (other than Lender);

     (vii) if a receiver, liquidator or trustee shall be appointed for any Loan Party, HRHI or any Guarantor, or if any Loan Party, HRHI or any Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, any Loan Party, HRHI or any Guarantor, or if any proceeding for the dissolution or liquidation of any Loan Party, HRHI or any Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by any Loan Party, HRHI or any Guarantor, upon the same not being discharged, stayed or dismissed within ninety (90) days, and provided that such appointment was not initiated by Lender;

     (viii) if any Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;

     (ix) if any Borrower breaches any of its respective negative covenants contained in Section 5.2 hereof or any covenant contained in Section 4.1.30 or Section 5.1.11 hereof, provided, however, that, unless otherwise addressed in any other clause of this Section 8.1(a), a breach of any covenant contained in Section 4.1.30, Section 5.1.11 or Section 5.2 hereof shall not constitute an Event of Default if (A) such breach is inadvertent and non-recurring, (B) if such breach is curable, Borrowers shall promptly cure such breach within thirty (30) days after notice thereof from Lender, and (C) with respect to a material breach of any material covenant contained in Section 4.1.30 hereof, within fifteen (15) Business Days of the request of Lender, Borrowers deliver to Lender an Additional Insolvency Opinion, or a modification of the Insolvency Opinion, to the effect that such breach shall not in any way impair, negate or amend the opinions rendered in the Insolvency Opinion, which opinion or modification and the counsel delivering such opinion or modification shall be acceptable to Lender in its reasonable discretion;

     (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if any Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period;

     (xi) if any of the assumptions contained in the Insolvency Opinion delivered to Lender in connection with the Loan, or in any Additional Insolvency

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Opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect;

     (xii) if a material default by any Mortgage Borrower has occurred and continues beyond any applicable cure period under any Management Agreement (or any Replacement Management Agreement) and as a result of such default the Manager thereunder terminates or cancels such Management Agreement (or any Replacement Management Agreement);

     (xiii) if a material default by Hotel/Casino Borrower has occurred and continues beyond any applicable cure period under the Liquor Management Agreement (or any Replacement Liquor Management Agreement) and as a result of such default the Liquor Manager thereunder terminates or cancels such Liquor Management Agreement (or any Replacement Liquor Management Agreement);

     (xiv) if any Borrower or any other Loan Party fails to comply in any material respect with the covenants as to Prescribed Laws set forth in Section 5.1.1 hereof and such failure to comply continues after ten (10) Business Days notice thereof;

     (xv) except as otherwise contemplated by the Loan Documents, if Hotel/Casino Borrower ceases to do business as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, (other than temporary cessation in connection with any diligent Restoration of the Hotel/Casino Property following a Casualty or Condemnation) and such failure continues after thirty (30) days notice from Lender thereof; provided, however, that if any such failure is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and provided, further, that Borrowers shall have caused Mortgage Borrowers to commence to cure such failure within such thirty (30) day period and shall thereafter diligently and expeditiously proceed to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Mortgage Borrowers in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days, subject to Excusable Delay;

     (xvi) if (A) there shall occur any default by HRHI or Hotel/Casino Borrower under the HRHI Lease in the observance or performance of any term, covenant or condition on its part to be observed or performed and such failure shall continue beyond the expiration of all applicable notice and cure periods under the HRHI Lease, (B) if, without Lender’s prior written consent, the HRHI Lease shall be terminated, changed, modified or amended, other than ministerial non-monetary amendments or modifications, or (C) if, without Lender’s prior written consent, HRHI shall hold over at the expiration or earlier termination of the HRHI Lease;

     (xvii) if (A) there shall occur any default by HRHI under the Gaming Sublease in the observance or performance of any term, covenant or condition on

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the part of HRHI to be observed or performed and such failure shall continue beyond the expiration of all applicable notice and cure periods under the Gaming Sublease, (B) any event shall occur which would cause the Gaming Sublease to terminate without notice or action by the Gaming Operator or which would entitle the Gaming Operator to terminate the Gaming Sublease by giving notice to HRHI, (C) if HRHI shall waive, excuse, condone or in any way release or discharge the Gaming Operator of or from any of the Gaming Operator’s material obligations, covenants and/or conditions under the Gaming Sublease without the prior written consent of Lender, (D) if, without Lender’s prior written consent, HRHI shall terminate (or consent to or approve any such termination), change, modify or amend the Gaming Sublease, other than ministerial non-monetary amendments or modifications, (E) if HRHI shall fail to provide Gaming Employees as and to the extent required pursuant to Paragraph 7 of the HRHI Gaming Agreement, (F) if HRHI shall, without the consent of Mortgage Lender as provided in the HRHI Gaming Agreement, consent to or approve any matter requiring Mortgage Lender’s consent thereunder (other than a termination), in the event that either (1) Mortgage Lender has been materially damaged by such consent or approval or is reasonably likely to be materially damaged by such consent or approval with the further passage of time, or (2) HRHI is unable to rescind or void such consent or approval within thirty (30) days after notice from Mortgage Lender of its objection thereto, and/or (G) HRHI shall otherwise default under the Gaming Recognition Agreement or the HRHI Gaming Agreement and such default, if a monetary default, shall continue beyond the notice and cure period set forth in Section 8.1(a)(i)(C) hereof, or if a non-monetary default, shall continue beyond the notice and cure period set forth in Section 8.1(a)(xxiii) hereof;

     (xviii) if at any time during the term of the Loan, for any reason (including, without limitation, the revocation, suspension or surrender of any required Governmental Approval), (A) the Gaming Operating Condition is not satisfied, provided, however, that if the Gaming Operating Condition is not satisfied at any time on or after February 2, 2008 through and including May 9, 2008, so long as (I) Mortgage Borrowers are diligently pursuing the satisfaction of the Gaming Operating Condition, (II) all Debt Service is being satisfied as and when due, and (III) no other Event of Default has occurred and is continuing, the failure of the Gaming Operating Condition to be satisfied during such period shall not constitute an Event of Default unless the Gaming Operating Condition shall remain unsatisfied beyond May 9, 2008; or (B) any Gaming License or finding of suitability held by the Gaming Operator shall be materially adversely modified, denied, suspended, revoked or canceled or allowed to lapse or if a notice of a material violation is issued under any Gaming License by the issuing agency or other Governmental Authority having jurisdiction, or any proceeding is commenced by any Governmental Authority for the purpose of modifying in any materially adverse respect, suspending, revoking or canceling any Gaming License in any materially adverse respect, in each case, which is not stayed within sixty (60) days after commencement thereof and the result of which is reasonably likely to be Mortgage Borrowers’ inability to continue to conduct gaming

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operations at the Hotel/Casino Property; provided, however, that during the course of any of the foregoing, substantially the same gaming operations are permitted to continue to operate at the Hotel/Casino Property, or any Governmental Authority shall have appointed a conservator, supervisor or trustee with respect to the Casino Component or the Hotel/Casino Property;

     (xix) if at any time during the term of the Loan, for any reason (including, without limitation, the revocation, suspension or surrender of any required Governmental Approval), the alcoholic beverage services at the Hotel/Casino Property (A) are not being managed by a Qualified Liquor Manager pursuant to the Liquor Management Agreement or a Replacement Liquor Management Agreement;

     (xx) if HRHI shall fail to provide liquor management services following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement;

     (xxi) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) hereof;

     (xxii) in the event that Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof shall ever become the Liquor Manager, if Gaming Borrower, such other Mortgage Borrower or such Affiliate thereof thereafter shall fail to provide liquor management services following an Event of Default or following the transfer of the Hotel/Casino Property to a Mortgage Lender Successor Owner as and to the extent required pursuant to Section 5.1.23(c) of the Mortgage Loan Agreement and Section 5.1.23(c) hereof;

     (xxiii) if any Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement or any other Loan Document, in each instance, not specified in subsections (i) to (xxii) above, for ten (10) Business Days after notice to Borrowers from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; provided, however, that if any such non-monetary Default is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and provided further that Borrowers shall have commenced to cure such Default within such thirty (30) day period and thereafter diligently and expeditiously proceed to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrowers in the exercise of due diligence to cure such Default, such additional period not to exceed ninety (90) days, subject to Excusable Delay;

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     (xxiv) the occurrence of any event that is expressly specified to be an Event of Default in this Agreement or any other Loan Document;

     (xxv) if the Liens created pursuant to the Pledge Agreement or any other Loan Document shall cease to be a fully perfected enforceable first priority security interest effective under the Gaming Laws or if there shall be a default under the Pledge Agreement beyond any applicable notice and cure periods contained in the Pledge Agreement;

     (xxvi) if any other event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt;

     (xxvii) if a Mortgage Event of Default shall occur and be continuing; or

     (xxviii) if a First Mezzanine Event of Default shall occur and be continuing.

               (b) Upon the occurrence and during the continuance of an Event of Default (other than an Event of Default described in clauses (vi) or (vii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, to the extent permitted by applicable law, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrowers and in and to any Property and/or the IP and/or the Collateral, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrowers, any Property and/or the IP and/or the Collateral, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi) or (vii) above, the Debt and all Other Obligations of Borrowers hereunder and under the other Loan Documents shall, to the extent permitted by applicable law, immediately and automatically become due and payable, without notice or demand, and each Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding.

     Section 8.2 Remedies.

               (a) Upon the occurrence and during the continuance of an Event of Default, subject to applicable Gaming Laws, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrowers under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrowers or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents, in each case to the extent permitted by applicable law. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singularly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without

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impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, each Borrower agrees, to the extent permitted by applicable law, that if an Event of Default is continuing (i) Lender shall not be subject to any “one action” or “election of remedies” law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Collateral and the Pledge Agreement has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full.

               (b) During the continuance of an Event of Default, with respect to each Borrower and the Collateral, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to the Collateral or any particular portion of the Collateral for the satisfaction of any of the obligations in preference or priority to any other collateral, and Lender may seek satisfaction out of the Collateral or any part thereof, in its absolute discretion in respect of the Obligations. In addition, to the extent permitted by applicable law, Lender shall have the right from time to time to partially foreclose upon the Collateral under the Pledge Agreement in any manner and for any amounts secured by the Pledge Agreement then due and payable as determined by Lender in its sole discretion, including, without limitation, the following circumstances: (i) in the event Borrowers default beyond any applicable grace period in the payment of one or more scheduled payments of interest, Lender may foreclose upon the Collateral under the Pledge Agreement to recover such delinquent payments, and/or (ii) in the event Lender elects to accelerate less than the entire Outstanding Principal Balance, Lender may foreclose upon the Collateral under the Pledge Agreement to recover so much of the Outstanding Principal Balance as Lender may accelerate and such other sums secured by the Pledge Agreement as Lender may elect in its sole discretion. Notwithstanding one or more partial foreclosures, the Collateral and any other collateral shall remain subject to the Pledge Agreement to secure payment of sums secured by the Pledge Agreement and not previously recovered.

               (c) Subject to applicable Gaming Laws, Lender shall have the right, at Lender’s sole cost and expense except during the continuance of an Event of Default, in which event the same shall be at Borrowers’ sole cost and expense, from time to time to sever the Note and the other Loan Documents into one or more separate notes, pledges and other security documents (the “Severed Loan Documents”) in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder, provided that Borrowers’ liability or obligation shall not be increased by such severance. Borrowers shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall reasonably request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Subject to applicable Gaming Laws, each Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, each Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such documents under such power until five (5) Business Days after notice has been given to Borrowers by Lender of Lender’s intent to exercise its rights under such power. Except as may be required in connection with a Securitization and expressly provided pursuant to Section 9.1 hereof, (i) Borrowers shall

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not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents, and (ii) the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the Loan Documents (modified to reflect the current status of such representations and warranties) and any such representations and warranties contained in the Severed Loan Documents will be given by Borrowers only as of the Closing Date.

               (d) The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrowers pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender’s rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender’s sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to any Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by any Borrower or to impair any remedy, right or power consequent thereon.

               (e) To the extent permitted by applicable law, any amounts recovered from the Collateral or any other collateral for the Loan after an Event of Default may be applied by Lender toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Lender in its sole discretion shall determine.

               (f) Upon the occurrence and during the continuance of an Event of Default, Lender may declare all unpaid principal of and accrued interest on the Note, together with all other sums payable under the Loan Documents, to be immediately due and payable, whereupon the same shall become and be immediately due and payable, anything in the Loan Documents to the contrary notwithstanding, and without presentation, protest or further demand or notice of any kind, all of which are expressly hereby waived by Borrowers to the extent permitted by applicable law.

     Section 8.3 Right to Cure Defaults. Upon the occurrence and during the continuance of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrowers and without releasing Borrowers from any obligation hereunder, make any payment or do any act required of Borrowers hereunder in such manner and to such extent as Lender may deem necessary to protect the security hereof. Subject to the terms of the Mortgage Loan Agreement, Lender is authorized to enter upon any Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Properties for such purposes, and the cost and expense thereof (including reasonable attorneys’ fees to the extent permitted by law), with interest as provided in this Section 8.3, shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any action or proceeding shall bear interest at the Default Rate, for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and expenses incurred by Lender together with

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interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the Debt and shall be secured by the Pledge Agreement and enforced as a lien against the Collateral and shall be immediately due and payable upon demand by Lender therefor.

ARTICLE IX.
SPECIAL PROVISIONS

     Section 9.1 Sale of Note and Securitization. (a) Borrowers acknowledge and agree that, at any time from and after the Closing Date, Lender may sell all or any portion of the Loan and the Loan Documents, or require Borrowers to restructure the Loan into multiple notes (which may include component notes and/or senior and junior notes) and/or issue one or more participations therein and/or syndicate the Loan, which restructuring may include the restructuring of a portion of the Loan to one or more of the foregoing or into one or more additional mezzanine loans to the direct and/or indirect owners of the equity interests in Borrowers as reasonably, mutually determined by Lender and Borrowers and that are direct or indirect subsidiaries of HR Holdings, secured by a pledge of such interests, or consummate one or more private or public securitizations of rated single- or multi-class securities (the “Securities”) secured by or evidencing ownership interests in all or any portion of the Loan and the Loan Documents or a pool of assets that include the Loan and the Loan Documents (such sales, participations and/or securitizations, collectively, a “Securitization”). At the request of Lender, and to the extent not already required to be provided by Borrowers under this Agreement, Borrowers shall use commercially reasonable good faith efforts to provide information not in the possession of Lender or which may be reasonably required by Lender in order to satisfy the market standards to which Lender customarily adheres or which may be reasonably required by prospective investors and/or the Rating Agencies in connection with any such Securitization, including, without limitation, to:

     (i) provide additional and/or updated Provided Information or other information with respect to the Properties, the IP, the First Mezzanine Collateral and/or the Collateral reasonably requested or reasonably required by Lender, prospective investors or the Rating Agencies, together with, if customary or if otherwise requested by any Rating Agency, appropriate verification and/or consents related to the Provided Information through letters of auditors or opinions of counsel of independent attorneys reasonably acceptable to Lender and the Rating Agencies;

     (ii) review descriptive materials for presentations to any or all of the Rating Agencies, and work with third-party service providers engaged to obtain, collect, and deliver information reasonably requested or reasonably required by Lender, prospective investors or the Rating Agencies;

     (iii) if required by any Rating Agency, (A) deliver updated opinions of counsel as to non-consolidation, due execution and enforceability with respect to the Properties, the IP, the Collateral, any Loan Party, HRHI, any Guarantor, any of their respective Affiliates and the Loan Documents, and (B) amend the Special Purpose Entity provisions of the organizational documents for each Loan Party, which counsel opinions and amendments to the organizational documents shall be reasonably satisfactory to Lender and the Rating Agencies;

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     (iv) if required by any Rating Agency, use commercially reasonable efforts to deliver such additional tenant estoppel letters, subordination agreements and/or other agreements from parties to agreements that affect any of the Properties, the IP or the Collateral, which estoppel letters, subordination agreements and other agreements shall be reasonably satisfactory to Lender and the Rating Agencies;

     (v) provide, as of the closing date of the Securitization, updated representations and warranties made in the Loan Documents as may be reasonably requested by Lender or the Rating Agencies and consistent with the facts covered by such representations and warranties made in the Loan Documents to the extent they are true as of the closing of the Securitization;

     (vi) execute such amendments to the Loan Documents as may be reasonably requested by Lender or the Rating Agencies to effect such Securitization and/or deliver one or more new component notes to replace the original note or modify the original note to reflect multiple components of the Loan (and such new notes or modified note shall have the same initial weighted average coupon of the original note, but such new notes or modified note may change the interest rate of the Loan), and modify the Cash Management Agreement with respect to the newly created components such that the pricing and marketability of the Securities and the size of each class of Securities and the rating assigned to each such class by the Rating Agencies shall provide the most favorable rating levels and achieve the optimum rating levels for the Loan, provided, however, that (A) such new notes or modified note will not change the interest rate, the stated maturity or the amortization of principal set forth in the Note unless the varying interest rates shall have the same initial weighted average coupon of the original Note, (B) such amendments to the Loan Documents or the new notes or modified note will not modify or amend any other economic or material term of the Loan in a manner materially adverse to any Loan Party, HRHI or Guarantors or any of their respective Constituent Members, or (C) such amendments to the Loan Documents will not materially increase any Loan Party’s or Guarantors’ obligations and liabilities under the Loan Documents or materially decrease the rights of Borrowers under the Loan Documents;

     (vii) if requested by Lender, review any information regarding any Property, the IP, the First Mezzanine Collateral, the Collateral, any Loan Party, any Mezzanine Borrower, HRHI, the Gaming Operator, any Manager, the Liquor Manager and/or the Loan which is contained in any preliminary or final private placement memorandum, prospectus, prospectus supplement (including any amendment or supplement to either thereof), or other disclosure document to be used by Lender or any affiliate thereof; and

     (viii) supply to Lender such documentation, financial statements and reports concerning any Loan Party, any Mezzanine Borrower, HRHI, any Guarantor, the Loan, any Property, the IP, the First Mezzanine Collateral and/or the Collateral in form and substance required in order to comply with any applicable securities laws.

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               (b) Lender shall pay all reasonable third party costs and expenses (excluding fees and expenses of Borrower’s legal counsel) in excess of Twenty Thousand Dollars ($20,000) incurred by Borrowers in connection with Borrowers’ complying with requests made under this Section 9.1 and/or under Section 9.2 hereof, provided, however, the fees and expenses of Borrowers’ legal counsel and Borrowers’ administrative costs shall not be included in such amount and Borrowers shall remain at all times responsible for the fees and expenses of their legal counsel and their own administrative costs. In addition to the foregoing, Lender expressly acknowledges and agrees that Borrowers shall not be required to pay any Rating Agency surveillance charges.

               (c) Notwithstanding anything to the contrary contained in this Agreement, in the event of a Securitization that involves a participation or restructuring into one or more additional mezzanine loans, Borrowers shall not be required to deliver Rating Agency confirmations in accordance with the terms and conditions of this Agreement at any time that rated Securities are not outstanding.

     Section 9.2 Re-Dating. In connection with a Securitization or other sale of all or a portion of the Loan, Lender shall have the right to modify all operative dates (including, but not limited to, payment dates, interest period start dates and end dates, etc.) under the Loan Documents, by up to ten (10) days (such action and all related action is a “Re-Dating”) so long as such modification shall not have a materially adverse effect on Borrowers. Borrowers shall cooperate with Lender to implement any Re-Dating. If any Borrower fails to cooperate with Lender within ten (10) Business Days of written request by Lender, Lender is hereby appointed as each Borrower’s attorney-in-fact to execute any and all documents necessary to accomplish the Re-Dating, the foregoing power of attorney being coupled with an interest.

     Section 9.3 Securitization Indemnification. (a) Each Borrower understands that information provided to Lender by Borrowers and their agents, counsel and representatives may be included in Disclosure Documents in connection with the Securitization and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and may be made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to a Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrowers will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects.

               (b) Upon Lender’s reasonable request, Borrowers shall provide in connection with each of (i) a preliminary and a final private placement memorandum or (ii) a preliminary and final prospectus or prospectus supplement, as applicable, an agreement (A) certifying that Borrowers have examined such Disclosure Documents specified by Lender and that to each Borrower’s actual knowledge, each such Disclosure Document, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors, HRHI, the Properties, the IP, the First Mezzanine Collateral, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, does not contain any untrue statement of a material fact or omit to state a material fact in each Borrower’s actual knowledge necessary in order to make the statements

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made, in the light of the circumstances under which they were made, not materially misleading, (B) jointly and severally indemnifying Lender, Credit Suisse (whether or not it is Lender), any Affiliate of Lender or Credit Suisse that has filed any registration statement relating to the Securitization or has acted as the sponsor or depositor in connection with the Securitization, any Affiliate of Lender or Credit Suisse that acts as an underwriter, placement agent or initial purchaser of Securities issued in the Securitization, any other co-underwriters, co-placement agents or co-initial purchasers of Securities issued in the Securitization, and each of their respective officers, directors, partners, employees, representatives, agents and Affiliates and each Person or entity who controls any such Person within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Indemnified Persons”), for any out-of-pocket losses, third party claims, actual damages (but not lost revenues, diminution in value and other consequential damages) or liabilities (collectively, the “Liabilities”) to which any such Indemnified Person may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such Disclosure Document specified by Lender for Borrowers’ review, as it relates to any Loan Party, any Loan Party’s Affiliates, Guarantors, HRHI, the Properties, the IP, the First Mezzanine Collateral, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, known by any Borrower to be untrue or arise out of or are based upon the omission or alleged omission to state therein a material fact in any Borrower’s actual knowledge, required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (C) agreeing to reimburse each Indemnified Person for any reasonable legal or other reasonable expenses reasonably incurred by such Indemnified Person in connection with investigating or defending the Liabilities; provided, however, that Borrowers will be liable in any such case under clauses (B) or (C) above only to the extent that any such Liabilities arise out of or are based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by Borrowers in connection with the preparation of any Disclosure Document(s) or in connection with the underwriting or closing of the Loan or in the ordinary course of the Loan, including, without limitation, financial statements of any Loan Party, operating statements and rent rolls with respect to any of the Properties. This indemnity agreement will be in addition to any liability which any Borrower may otherwise have. Moreover, the indemnification provided for in clauses (B) and (C) above shall be effective whether or not a separate indemnification agreement is provided.

               (c) In connection with Exchange Act Filings, Borrowers, jointly and severally, shall (i) indemnify the Indemnified Persons for Liabilities to which any such Indemnified Persons may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact in any Disclosure Documents specified by Lender for Borrowers’ review, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors, HRHI, the Properties, the IP, the First Mezzanine Collateral, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, or the omission or alleged omission to state in any such Disclosure Document a material fact in any Loan Party’s actual knowledge, required to be stated in such Disclosure Document in order to make the statements in such Disclosure Document, in light of the circumstances under which they were made, not misleading, and (ii) reimburse each Indemnified Person for any reasonable legal or other expenses reasonably incurred by such Indemnified Person in connection with defending or investigating the Liabilities; provided, however, that Borrowers will be liable in any

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such case under clauses (i) or (ii) above only to the extent that any such Liabilities arise out of or are based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by Borrowers in connection with the preparation of any Disclosure Document(s) or in connection with the underwriting or closing of the Loan or in the ordinary course of the Loan, including, without limitation, financial statements of any Loan Party, operating statements and rent rolls with respect to any of the Properties.

               (d) Promptly after receipt by an Indemnified Person under this Section 9.3 of notice of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is to be made against Borrowers under this Section 9.3, notify Borrowers in writing of the commencement thereof, but the omission to so notify Borrowers will not relieve any Borrower from any liability which any Borrower may have to any Indemnified Person hereunder except to the extent that such failure to notify causes material prejudice to any Borrower. In the event that any action is brought against any Indemnified Person, and it notifies Borrowers of the commencement thereof, Borrowers will be entitled to participate therein and, to the extent that they may elect by written notice delivered to such Indemnified Person promptly after receiving the aforesaid notice from such Indemnified Person, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Person. After notice from Borrowers to such Indemnified Person under this Section 9.3, such Indemnified Person shall pay for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both the Indemnified Person and any Borrower and the Indemnified Person shall have reasonably concluded that there are any legal defenses available to it and/or other Indemnified Persons that are different from or additional to those available to Borrowers, the Indemnified Person(s) shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Person(s) at the cost of Borrowers. Borrowers shall not be liable for the expenses of more than one separate counsel unless any Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to another Indemnified Person.

               (e) Without the prior consent of Credit Suisse or Lender, as applicable (which consent shall not be unreasonably withheld), no Borrower shall settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such claim, action, suit or proceeding) unless Borrowers shall have given Credit Suisse or Lender, as applicable, reasonable prior notice thereof and shall have obtained an unconditional release of each Indemnified Person hereunder from all liability arising out of such claim, action, suit or proceeding. As long as Borrowers have complied with their obligations to defend and indemnify hereunder, Borrowers shall not be liable for any settlement made by any Indemnified Person without the consent of Borrowers (which consent shall not be unreasonably withheld).

               (f) Borrowers agree that if any indemnification or reimbursement sought pursuant to this Section 9.3 is finally judicially determined to be unavailable for any reason or is insufficient to hold any Indemnified Person harmless (with respect only to the Liabilities that are the subject of this Section 9.3), then Borrowers, on the one hand, and such

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Indemnified Person, on the other hand, shall contribute to the Liabilities for which such indemnification or reimbursement is held unavailable or is insufficient: (i) in such proportion as is appropriate to reflect the relative benefits to Borrowers, on the one hand, and such Indemnified Person, on the other hand, from the transactions to which such indemnification or reimbursement relates; or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative faults of Borrowers, on the one hand, and all Indemnified Persons, on the other hand, as well as any other equitable considerations. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (A) Lender’s and Borrowers’ relative knowledge and access to information concerning the matter with respect to which the claim was asserted; and (B) the opportunity to correct and prevent any statement or omission. Notwithstanding the provisions of this Section 9.3, no Person found liable for a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any other Person who is not also found liable for such fraudulent misrepresentation.

               (g) Borrowers agree that the indemnification, contribution and reimbursement obligations set forth in this Section 9.3 shall apply whether or not any Indemnified Person is a formal party to any lawsuits, claims or other proceedings. Borrowers further agree that the Indemnified Persons are intended third party beneficiaries under this Section 9.3.

               (h) Subject to the provisions of Section 9.4 hereof, the liabilities and obligations of Borrowers and Lender under this Section 9.3 shall survive the termination of this Agreement and the satisfaction and discharge of the Debt.

     Section 9.4 Exculpation. Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrowers to perform and observe the obligations contained in the Note, this Agreement, the Pledge Agreement or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against any Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Pledge Agreement and the other Loan Documents, or in the Collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against any Borrower only to the extent of such Borrower’s interest in the Collateral, and Lender, by accepting the Note, this Agreement, the Pledge Agreement and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against any Borrower in any such action or proceeding under, or by reason of, or in connection with, the Note, this Agreement, the Pledge Agreement or the other Loan Documents. The provisions of this Section 9.4 shall not, however, (a) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (b) impair the right of Lender to name any Borrower as a party defendant in any action or suit for foreclosure and sale under the Pledge Agreement; (c) affect the validity or enforceability of or any guaranty made in connection with the Loan, including, without limitation, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty and the HRHI Guaranty, or any of the rights and remedies of Lender thereunder; (d) impair the right of

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Lender to obtain the appointment of a receiver; (e) constitute a prohibition against Lender seeking a deficiency judgment against any Borrower in order to fully realize the security granted by the Pledge Agreement or commencing any other appropriate action or proceeding in order for Lender to exercise its remedies against the Collateral; or (f) constitute a waiver of the right of Lender to enforce the liability and obligation of any Borrower, by money judgment or otherwise, to the extent of any actual loss, damage (excluding any lost revenue, diminution of value and other consequential damages), reasonable cost, reasonable expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

     (i) fraud or intentional misrepresentation by any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees in connection with the Loan;

     (ii) physical waste to any Property arising from the intentional misconduct or gross negligence of any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees and/or any removal of any asset forming a part of any Property in violation of this Agreement or the other Loan Documents;

     (iii) Intentionally Omitted;

     (iv) the misappropriation or conversion by any Loan Party, by any Person Controlled by any Loan Party, including, without limitation, any Affiliated Manager, a Liquor Manager who is an Affiliate of any Loan Party or a Gaming Operator who is an Affiliate of any Loan Party, by any agent of any Loan Party, or by any other Person with whom any Loan Party shall collude or cooperate, of (A) any Insurance Proceeds paid by reason of any Casualty, to the extent so misappropriated or converted; (B) any Awards received in connection with a Condemnation, to the extent so misappropriated or converted; (C) any Rents or other Gross Income from Operations not delivered to Lender following and during the continuance of an Event of Default and not otherwise used to pay actual, customary Operating Expenses reflected on the Approved Annual Budget then in effect, including, without limitation, (I) any income, proceeds or other amounts received by any Loan Party under the Gaming Sublease, and/or (II) without duplication of the foregoing clause (I), any income, proceeds or revenue generated from gaming activities at any Property, in each of the foregoing instances, to the extent so misappropriated or converted; (D) any Rents paid more than one (1) month in advance in violation of this Agreement or the other Loan Documents, to the extent so misappropriated or converted; and/or (E) any security deposits, to the extent so misappropriated or converted;

     (v) the failure of any Loan Party to pay (or to deposit into the Mortgage Reserve Funds or the Reserve Funds, if applicable, amounts sufficient to pay) all Taxes and all other costs giving rise to any Lien on any portion of the Collateral or any Property or the IP with priority over or equal to the Lien of the Loan Documents in violation of this Agreement or the other Loan Documents, to

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the extent that there is sufficient Gross Income from Operations to make such payments (or deposits, as applicable);

     (vi) if any Loan Party fails to maintain its status as a Special Purpose Entity as required pursuant to the terms hereof;

     (vii) if any Loan Party fails to obtain Lender’s consent to any subordinate financing, mortgage or other voluntary Lien encumbering the Collateral, any Property or the IP other than Permitted Encumbrances and Permitted IP Encumbrances;

     (viii) the failure to maintain insurance coverage under blanket insurance policies to the extent permitted under this Agreement;

     (ix) if any of the events set forth in clauses (a), (b) or (c) of Section 5.2.11 hereof shall occur without the prior approval of Lender;

     (x) if any of the restrictions to Transfer set forth in Section 5.2.10 hereof or in any of the other Loan Documents are violated;

     (xi) if Lender or any Affiliate thereof shall succeed to the interest of HRHI under the Gaming Sublease following a foreclosure, deed in lieu of foreclosure or similar transfer, any actual loss, cost, damage or expense (including, without limitation, reasonable attorneys’ fees and expenses) suffered by Lender or such Affiliate as a result of: (A) any act, omission, neglect or default of HRHI under the Gaming Sublease, (B) any claim, defense, counterclaim or offset which the Gaming Operator may have under the Gaming Sublease against HRHI, (C) any obligation to make any payment to the Gaming Operator under the Gaming Sublease which was required to be made by or on behalf of HRHI prior to the time Lender or such Affiliate succeeded to HRHI’s interest under the Gaming Sublease, (D) any monies deposited with HRHI under the Gaming Sublease, except to the extent such monies are actually received by Lender or such Affiliate, (E) any obligation to complete or permit the construction of any improvements under the Gaming Sublease arising while HRHI was the sublandlord under the Gaming Sublease, and/or (F) any default by HRHI under the Gaming Lease beyond applicable notice and cure periods;

     (xii) if HRHI or any Affiliate thereof shall send a notice to Gaming Operator under Section 6(a), (c) or (d) of the Gaming Recognition Agreement which conflicts with any notice theretofore sent by Lender to Gaming Operator under said Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement; provided, however, that the liability under this clause (xii) shall be limited to all fees and costs incurred by Gaming Operator in bringing and pursuing any interpleader action contemplated by said Section 6(a), (c) or (d), as applicable, and only to the extent that Gaming Operator seeks to recover and/or does recover such fees and expenses from Lender;

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     (xiii) if HRHI shall fail to provide Gaming Employees for the operation of gaming activities at the Hotel/Casino Property as and to the extent required pursuant to Paragraph 7 of the HRHI Gaming Agreement;

     (xiv) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) hereof;

     (xv) in the event that HRHI, Gaming Borrower, any other Loan Party or any Affiliate thereof shall be the Liquor Manager, if HRHI, Gaming Borrower, such other Loan Party or such Affiliate thereof shall fail to provide liquor management services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required (A) as to HRHI, pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement, as applicable, and (B) as to Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof, pursuant to Section 5.1.23(c) hereof;

     (xvi) in connection with the $250,000.00 lease termination fee pursuant to Section 3.2(B) of that certain Lease by and between PM Realty, LLC and HRHI, as landlord, and Mr. Chow of Las Vegas, LLC, as tenant, dated December 24, 2004;

     (xvii) as a result of the imposition of any tax provided in NRS §§375.020 and 375.023 with respect to the merger transaction contemplated under the Merger Agreement and/or the subsequent conveyance of the Hotel/Casino Property (A) to HRHH Gaming Junior Mezz, LLC, and then (B) to Gaming Mezz Borrower, and then (iii) to Hotel/Casino Borrower, provided, however, that any liability under this clause (xvii) shall terminate upon the payment in full of the Debt;

     (xviii) as a result of Adjacent Borrower selling or attempting to sell any Partial Release Parcel or any Partial Adjacent Parcel in accordance with the procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable, rather than pursuant to a customary direct deed transfer, including, without limitation, (A) the imposition of any tax (including interest and penalties) provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action filed by or against any Subsidiary Transferee prior to or following the consummation of such sale, and/or (C) in connection with any delay in accomplishing any of the steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable; and/or

     (xix) any Interest Shortfall existing on any Payment Date (A) occurring after February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date.

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     Notwithstanding anything to the contrary in this Agreement, the Note or any of the other Loan Documents, (A) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Debt secured by the Pledge Agreement or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, and (B) the Debt shall be fully recourse to Borrowers in the event of: (i) any Loan Party, HRHI or both Guarantors filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (ii) the filing of an involuntary petition against any Loan Party, HRHI or both Guarantors under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by or on behalf of any Person other than Lender, and such petition is not dismissed within ninety (90) days after filing, or any Loan Party, or any Affiliate of any of them who Controls any Loan Party, or HRHI or both Guarantors, solicit or cause to be solicited petitioning creditors for any involuntary petition against any Loan Party, HRHI or both Guarantors from any Person (other than if requested to do so by or on behalf of Lender); (iii) any Loan Party, HRHI or both Guarantors filing an answer consenting to, or any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, otherwise consenting to or acquiescing or joining in, any involuntary petition filed against any Loan Party, HRHI or both Guarantors, by any other Person (other than if filed by or on behalf of Lender) under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (iv) any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, consenting to or acquiescing or joining in an application for the appointment of a custodian, receiver, trustee or examiner for any Loan Party or any portion of any Property or any portion of the IP or the Collateral (other than any such appointment at the request or petition of Lender); (v) any Loan Party, HRHI or both Guarantors voluntarily making an assignment for the benefit of creditors (other than Lender), or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; and/or (vi) Gaming Mezz Borrower failing to comply, or cause compliance by the applicable Loan Party, with the requirements of the Gaming Laws to obtain the approval of the Gaming Authorities of the pledge of the Gaming Securities pursuant to Section 17(b) of the Pledge Agreement (it being understood and agreed that Borrowers shall have no liability under this clause (vi) to the extent arising from the failure of Lender to reasonably cooperate with the Gaming Authorities in connection with such Gaming Law requirements to the extent necessary); unless, in the case of any of the foregoing clauses (i), (ii), (iii), (iv), (v) or (vi) as it relates to or affects both Guarantors, one or more guarantors acceptable to Lender in its sole discretion remains or becomes a guarantor of the Loan.

     Notwithstanding anything to the contrary in this Agreement or any other Loan Document, and except for (1) Guarantors’ obligations under the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty and the Construction Completion Guaranty, (2) HRHI’s obligations under the HRHI Guaranty, and (3) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, no present or future Constituent Member in any Borrower, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Borrower or of or in any Person that is or becomes a Constituent Member in any Borrower, shall have any personal

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liability, directly or indirectly, under or in connection with this Agreement or any of the Loan Documents, or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability. In addition, Lender, for itself and its successors and assigns, acknowledges and agrees that neither Borrowers, nor any Constituent Member, nor any other party, is assuming any personal liability, directly or indirectly, under or in connection with any agreement, lease, instrument, claim or right constituting a part of any Property, the IP or the Collateral or to which any Property, the IP or the Collateral is now or hereafter subject, except as may be expressly set forth therein.

     For purposes of this Agreement and each of the other Loan Documents, neither the negative capital account of any Constituent Member in any Borrower nor any obligation of any Constituent Member in any Borrower to restore a negative capital account or to contribute or loan capital to any Borrower or to any other Constituent Member in any Borrower shall at any time be deemed to be the property or an asset of such Borrower (or any such other Constituent Member) and neither Lender nor any of its successors or assigns shall have any right to collect, enforce or proceed against any Constituent Member with respect to any such negative capital account or obligation to restore, contribute or loan.

          Section 9.5 Matters Concerning Managers and Liquor Manager.

               9.5.1 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender, Morgans Parent ceases to Control any Manager, unless following such change of Control, each affected Manager still constitutes a Qualified Manager, (c) any Manager shall become bankrupt or insolvent, or (d) any Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to any Mortgage Borrower and/or any Property and/or the IP or any material default otherwise occurs under any Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of Lender, terminate the applicable Management Agreement and replace the Manager thereunder with a Qualified Manager pursuant to a Replacement Management Agreement, it being understood and agreed that the management fee for such Qualified Manager shall not exceed then prevailing market rates. If (i) an Event of Default occurs and is continuing, (ii) Sub-Manager shall become bankrupt or insolvent, or (iii) Sub-Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to any Mortgage Borrower and/or any Property or any material default otherwise occurs under the Sub-Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of Lender, terminate the Sub-Management Agreement and amend an existing Management Agreement to include the duties previously delegated under the Sub-Management Agreement (if not already included therein).

               9.5.2 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender, HR Holdings ceases to Control the Liquor Manager, unless following such change of Control, the Liquor Manager still constitutes a Qualified Liquor Manager, (c) the Liquor Manager shall become bankrupt or insolvent, or (d) the Liquor Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to Hotel/Casino Borrower and/or the Hotel/Casino Property or any material default otherwise occurs under the

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Liquor Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause Hotel/Casino Borrower to, at the request of Lender, terminate the Liquor Management Agreement and replace the Liquor Manager thereunder with a Qualified Liquor Manager pursuant to a Replacement Liquor Management Agreement, it being understood and agreed that the management fee for such Qualified Liquor Manager shall not exceed then prevailing market rates; provided, however, that in no event shall Hotel/Casino Borrower be required to terminate such Liquor Manager if such immediate termination would require cessation of liquor-related activities at any of the Properties and, in such event, (i) such termination shall occur immediately upon the ability of Hotel/Casino Borrower to transfer such liquor operations to a Qualified Liquor Manager as required herein, and (ii) Borrowers shall cause Hotel/Casino Borrower to, at its sole cost and expense, diligently pursue the engagement and licensing of a replacement Qualified Liquor Manager.

     Section 9.6 Matters Concerning Gaming Operator. If (a) the Gaming Operator commits fraud, gross negligence or willful misconduct with respect to the Hotel/Casino Property or any material default otherwise occurs under the Gaming Sublease beyond any applicable grace and cure periods, or (b) the Gaming Operator (i) has its gaming license suspended or revoked, (ii) allows its gaming license to lapse, or (iii) may not lawfully operate gaming at the Hotel/Casino Property pursuant to any Legal Requirements or the order of any Governmental Authority, Borrowers shall cause Hotel/Casino Borrower to, at the request of Lender and to the extent permitted by applicable Legal Requirements and the requirements of any Gaming Authorities, cause HRHI to terminate the Gaming Sublease and replace the Gaming Operator with a Qualified Gaming Operator pursuant to a new gaming sublease or similar agreement and a new recognition agreement, in each instance reasonably acceptable to Lender; provided, however, that in no event shall Hotel/Casino Borrower be required to terminate such Gaming Operator if such immediate termination would require cessation of gaming-related activities at the Hotel/Casino Property and, in such event, (A) such termination shall occur immediately upon the ability of Hotel/Casino Borrower to transfer such gaming operations to a Qualified Gaming Operator as required herein, and (B) Borrowers shall cause Hotel/Casino Borrower to, at its sole cost and expense, diligently pursue the engagement and licensing of a replacement Qualified Gaming Operator.

     Section 9.7 Servicer. (a) At the option of Lender, the Loan may be serviced by a servicer/trustee (the “Servicer”) selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the “Servicing Agreement”) between Lender and Servicer. Borrowers shall not be responsible for any set up fees or any other initial costs relating to or arising under the Servicing Agreement nor shall Borrowers be responsible for payment of the monthly servicing fee due to the Servicer under the Servicing Agreement.

               (b) Lender shall endeavor in good faith (without liability for failure to do so) to provide Borrowers with notification of any change in the Person servicing the Loan; provided that it is expressly acknowledged and agreed by Lender that it shall not constitute a Default or Event of Default hereunder if due to such failure to provide notification Borrowers send any payments required to be made hereunder to Lender or any predecessor Person servicing the Loan.

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ARTICLE X.
MISCELLANEOUS

     Section 10.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of any Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender.

     Section 10.2 Lender’s Discretion. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Whenever this Agreement expressly provides that Lender may not unreasonably withhold its consent or its approval of an arrangement or term, such provisions shall also be deemed to prohibit Lender from unreasonably delaying or conditioning such consent or approval. Prior to a Securitization, whenever pursuant to this Agreement the Rating Agencies are given any right to approve or disapprove, or any arrangement or term is to be satisfactory to the Rating Agencies, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory, based upon Lender’s determination of Rating Agency criteria, shall be substituted therefor.

     Section 10.3 Governing Law.

               (a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWERS IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS IN ANY REAL PROPERTY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED

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ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE REAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

               (b) NOTWITHSTANDING THE FOREGOING, THIS AGREEMENT IS SUBJECT TO THE GAMING LAWS. LENDER EXPRESSLY ACKNOWLEDGES AND AGREES THAT ALL RIGHTS, REMEDIES, POWERS AND OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT MAY BE EXERCISED ONLY TO THE EXTENT THAT THE EXERCISE THEREOF DOES NOT VIOLATE ANY APPLICABLE PROVISIONS OF THE GAMING LAWS AND ONLY TO THE EXTENT THAT ANY APPLICABLE REQUIRED APPROVAL OF ANY GAMING AUTHORITY (INCLUDING PRIOR APPROVALS) IS OBTAINED. NOTWITHSTANDING THE FOREGOING, BORROWERS EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE FACT THAT ANY GAMING LAW OR THE LACK OF APPROVAL FROM ANY GAMING AUTHORITY MAY PREVENT ANY BORROWER OR ANY OTHER PERSON FROM TAKING ANY ACTION OR FULFILLING ANY OBLIGATION HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT WHICH RESULTS IN THE OCCURRENCE OF AN EVENT OF DEFAULT AND/OR A CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY UNDER SECTION 9.4 HEREOF, SHALL NOT, IN ANY MANNER, LIMIT OR VITIATE OR BE DEEMED TO LIMIT OR VITIATE SUCH EVENT OF DEFAULT OR SUCH CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY IN ANY MANNER WHATSOEVER.

               (c) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR ANY BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL, AT LENDER’S OPTION, BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. EACH BORROWER DOES HEREBY DESIGNATE AND APPOINT:

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CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NEW YORK 10011

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND NOTICE OF SAID SERVICE MAILED OR DELIVERED TO SUCH BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. EACH BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

     Section 10.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein, no notice to, or demand on any Borrower, shall entitle such Borrower or any other Borrower to any other or future notice or demand in the same, similar or other circumstances.

     Section 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or under any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount.

     Section 10.6 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery

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service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 10.6):

If to Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock/Rand Peppas
If to Borrowers:	HRHH Gaming Junior Mezz, LLC
	and
	HRHH JV Junior Mezz, LLC
	c/o Morgans Hotel Group Co.
	475 Tenth Avenue
	New York, New York 10018
	Re: Hard Rock
	Attention: Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4201
With a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
With a copy to:	DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010

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	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
With a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
With a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b)or (c) of this Section 10.6. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 10.6, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer. Any Notice sent to one Borrower shall constitute and shall be deemed to constitute such Notice to all Borrowers.

          Section 10.7 Trial by Jury. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND LENDER EACH HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.

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     Section 10.8 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

     Section 10.9 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     Section 10.10 Preferences. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrowers to any portion of the Obligations of Borrowers hereunder. To the extent Borrowers make a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender.

     Section 10.11 Waiver of Notice. Each Borrower hereby expressly waives, and shall not be entitled to, any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrowers and except with respect to matters for which Borrowers are not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice.

     Section 10.12 Remedies of Borrowers. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, each Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrowers’ sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment.

     Section 10.13 Expenses; Indemnity . (a) Borrowers jointly and severally covenant and agree to pay or, if Borrowers fail to pay, to reimburse, Lender, within ten (10) days of receipt of notice from Lender, for all reasonable costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in connection with (i) Borrowers’ ongoing performance of and compliance with Borrowers’ respective agreements and covenants contained in this Agreement and the other Loan Documents on their part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental, gaming and insurance requirements; (ii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by or benefiting any Borrower; (iii) securing Borrowers’ compliance with their obligations pursuant to the

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provisions of this Agreement and the other Loan Documents; (iv) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (v) all fees payable hereunder; (vi) dealing with any Letter of Credit delivered to Lender hereunder; (vii) subject to the terms hereof, enforcing or preserving any rights, either in response to third party claims or in prosecuting or defending any action or proceeding or other litigation, in each case against, under or affecting any Borrower, this Agreement, the other Loan Documents, any Property, the IP, the Collateral or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from any Borrower under this Agreement or the other Loan Documents or with respect to any Property, the IP or the Collateral or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or of any insolvency or bankruptcy proceedings; provided, however, that Borrowers shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Notwithstanding the provisions set forth in this Section 10.13(a) or in any other provision of this Agreement or the other Loan Documents, in the event that (A) Lender employs counsel to collect the Debt, protect or foreclose the Pledge Agreement or as otherwise permitted in this Agreement and the other Loan Documents and (B) Lender has sold or transferred any interests in the Note, then Borrowers shall only be responsible for the attorneys’ fees and expenses of the counsel of one Lender.

          (b) Borrowers shall, jointly and severally, indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, out-of-pocket losses, actual damages (but not lost revenues, diminution in value and other consequential damages), penalties, actions, judgments, third party suits, third party claims, reasonable costs, reasonable expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by any Borrower of its obligations under, or any material misrepresentation by any Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the “Indemnified Liabilities”); provided, however, that Borrowers shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrowers shall pay the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender.

               (c) Borrowers, jointly and severally, covenant and agree to pay for or, if Borrowers fail to pay, to reimburse Lender for, any fees and expenses incurred by any Rating Agency in connection with any consent, approval, waiver or confirmation obtained from such Rating Agency and required pursuant to the terms and conditions of this Agreement or any other Loan Document in connection with any request or approval sought by Borrowers, and Lender shall be entitled to require payment of such fees and expenses as a condition precedent to the

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obtaining of any such consent, approval, waiver or confirmation; provided, however, that Lender expressly acknowledges and agrees that Borrowers shall not be required to pay any Rating Agency surveillance charges.

     Section 10.14 Schedules and Exhibits Incorporated. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.

     Section 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender’s interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrowers may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by any Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by each Borrower to the extent permitted by applicable law.

     Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries.

          (a) Borrowers and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between any Borrower and Lender nor to grant Lender any interest in the Collateral other than that of secured party, pledgee or lender.

          (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrowers and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrowers any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder and/or to disbursements from the Reserve Funds are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan and/or will refuse to make any disbursement from any Reserve Fund in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable to do so.

          (c) Without limiting the generality of Section 10.16(a) hereof, Borrowers expressly acknowledge and agree that: (i) DLJ Merchant Banking, Inc. is an affiliate of Lender and various of its indirect subsidiaries and/or affiliates own indirect ownership interests in each Borrower (the “DLJ Entities”), and (ii) neither the Lender named herein nor any successor or assign thereof shall have any liability to Borrower as a result of such relationship between Lender and the DLJ Entities, including, without limitation, under any theory of lender liability.

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          (d) The benefits of this Agreement shall not inure to any third party, nor shall this Agreement be construed to make or render Lender liable to any Trade Contractors including any Major Contractors or others for goods and materials supplied or work and labor furnished in connection with the construction or rehabilitation of the Project or for debts or claims accruing to any such Persons against Mortgage Borrowers or Borrowers. Notwithstanding anything contained in the Loan Documents, or any conduct or course of conduct by the parties hereto, before or after signing the Loan Documents, this Agreement shall not be construed as creating any rights, claims or causes of action against Lender, or any of its officers, directors, agents or employees, in favor of any Major Contractor or other Trade Contractor, or any of their respective creditors, or any other Person.

          (e) Observation, inspection and approvals, if applicable, by Lender of the Plans and Specifications, the construction of the Project and/or the workmanship and materials used therein shall impose no responsibility or liability of any nature whatsoever on Lender and no Borrower, Mortgage Borrower, Trade Contractor or other interested Person, under any circumstances, shall be entitled to rely upon such inspections and approvals by Lender for any reason. Approvals granted by Lender for any matters covered under this Agreement shall be narrowly construed to cover only the parties and facts identified in any such approval.

     Section 10.17 Publicity. All news releases, publicity or advertising by any Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents or to Lender, Credit Suisse or any of their Affiliates shall be subject to the prior approval of Lender not to be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, disclosure required by applicable state or federal securities laws, rules or regulations or other applicable Legal Requirements, or as customarily and reasonably requested by any Gaming Authorities, shall not be subject to Lender’s prior written approval.

     Section 10.18 Waiver of Marshalling of Assets. To the fullest extent permitted by law, each Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of any Borrower, any Borrower’s partners and others with interests in any Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of the Pledge Agreement, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Collateral in preference to every other claimant whatsoever.

     Section 10.19 Waiver of Counterclaim. To the fullest extent permitted by law, each Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents or otherwise to offset any Obligations under the Loan Documents. No failure by Lender to perform any of its obligations hereunder shall be a valid defense to, or result in any offset against, any payments which any Borrower is obligated to make under any of the Loan Documents.

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     Section 10.20 Conflict; Construction of Documents; Reliance. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Each Borrower acknowledges that, with respect to the Loan, such Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in any Borrower, and each Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender’s exercise of any such rights or remedies. Each Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the businesses of Borrowers or their Affiliates.

     Section 10.21 Brokers and Financial Advisors.

          (a) Each Borrower hereby represents that neither it nor any of its Affiliates has dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Each Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all third-party claims, liabilities, out-of-pocket costs and reasonable expenses of any kind (including Lender’s reasonable attorneys’ fees and expenses (but only for one (1) set of attorneys)) in any way relating to or arising from a claim by any Person that such Person acted on behalf of any Borrower or an Affiliate of any Borrower in connection with the transactions contemplated herein. The provisions of this Section 10.21(a) shall survive the expiration and termination of this Agreement and the payment of the Debt.

          (b) Lender hereby represents that neither it nor any of its Affiliates has dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Lender hereby agrees to indemnify, defend and hold Borrowers harmless from and against any and all third-party claims, liabilities, out-of-pocket costs and reasonable expenses of any kind (including Borrowers’ reasonable attorneys’ fees and expenses (but only for one (1) set of attorneys)) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Lender or an Affiliate of Lender in connection with the transactions contemplated herein. The provisions of this Section 10.21(b) shall survive the expiration and termination of this Agreement and the payment of the Debt.

     Section 10.22 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, including, without limitation, (i) the Commitment Letter dated May 11,

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2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp and Lender, and (ii) the Commitment Letter dated December 22, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking, Inc. and Lender, are superseded by the terms of this Agreement and the other Loan Documents.

     Section 10.23 Joint and Several Liability. The representations, covenants, warranties and obligations of Borrowers hereunder are joint and several.

     Section 10.24 Certain Additional Rights of Lender (VCOC). Notwithstanding anything to the contrary contained in this Agreement, Lender shall have:

          (a) subject to applicable Gaming Laws, the right to routinely consult with and advise each Borrower’s management regarding the significant business activities and business and financial developments of each Borrower; provided, however, that such consultations shall not include discussions of environmental compliance programs or disposal of hazardous substances. Consultation meetings should occur on a regular basis (no less frequently than quarterly) with Lender having the right to call special meetings at any reasonable times and upon reasonable advance notice;

          (b) the right, in accordance with the terms of this Agreement, to examine the books and records of each Borrower at any reasonable times upon reasonable notice;

          (c) the right, in accordance with the terms of this Agreement, including, without limitation, Section 5.1.11 hereof, to receive monthly, quarterly and year-end financial reports, including balance sheets, statements of income, shareholder’s equity and cash flow, a management report and schedules of outstanding indebtedness; and

          (d) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to approve any acquisition by any Borrower of any other significant property (other than (i) personal property required for the day to day operation of any Property and (ii) to the extent any such acquisition is contemplated in the Approved Annual Budget then in effect).

     The rights described above in this Section 10.24 may be exercised by any entity which owns and Controls, directly or indirectly, substantially all of the interests in Lender.

ARTICLE XI.
MORTGAGE LOAN AND MEZZANINE LOANS

     Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries.

          (a) Promptly after receipt, Borrowers shall deliver (or cause Mortgage Borrowers, First Mezzanine Borrowers or Third Mezzanine Borrowers, as applicable, to deliver) to Lender a true, correct and complete copy of all material notices, demands, requests or material correspondence (including electronically transmitted items) received from (i) Mortgage Lender by any Mortgage Borrower or any guarantor under the Mortgage Loan Documents, (ii) First Mezzanine Lender by any First Mezzanine Borrower or any guarantor under the First Mezzanine

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Loan Documents, or (iii) Third Mezzanine Lender by any Third Mezzanine Borrower or any guarantor under the Third Mezzanine Loan Documents.

          (b) Unless otherwise delivered to Lender pursuant to the provisions of Section 5.1.11 hereof, Borrowers shall deliver (or cause Mortgage Borrowers, First Mezzanine Borrowers or Third Mezzanine Borrowers, as applicable, to deliver) to Lender all of the financial statements, reports, material certificates and related items delivered or required to be delivered by (i) Mortgage Borrowers to Mortgage Lender under the Mortgage Loan Documents as and when due under the Mortgage Loan Documents, (ii) First Mezzanine Borrowers to First Mezzanine Lender under the First Mezzanine Loan Documents as and when due under the First Mezzanine Loan Documents, and (iii) Third Mezzanine Borrowers to Third Mezzanine Lender under the Third Mezzanine Loan Documents as and when due under the Third Mezzanine Loan Documents.

     Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels.

          (a) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause Mortgage Borrowers to) from time to time, use reasonable efforts to obtain from Mortgage Lender such estoppel certificates with respect to the status of the Mortgage Loan and compliance by Mortgage Borrowers with the terms of the Mortgage Loan Documents as may reasonably be requested by Lender. In the event or to the extent that Mortgage Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and Mortgage Borrowers expressly representing to Lender the information requested by Lender regarding the status of the Mortgage Loan and the compliance by Mortgage Borrowers with the terms of the Mortgage Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the Mortgage Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and Mortgage Borrowers.

          (b) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause First Mezzanine Borrowers to) from time to time, use reasonable efforts to obtain from First Mezzanine Lender such estoppel certificates with respect to the status of the First Mezzanine Loan and compliance by First Mezzanine Borrowers with the terms of the First Mezzanine Loan Documents as may reasonably be requested by Lender. In the event or to the extent that First Mezzanine Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and First Mezzanine Borrowers expressly representing to

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Lender the information requested by Lender regarding the status of the First Mezzanine Loan and the compliance by First Mezzanine Borrowers with the terms of the First Mezzanine Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the First Mezzanine Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and First Mezzanine Borrowers.

          (c) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause Third Mezzanine Borrowers to) from time to time, use reasonable efforts to obtain from Third Mezzanine Lender such estoppel certificates with respect to the status of the Third Mezzanine Loan and compliance by Third Mezzanine Borrowers with the terms of the Third Mezzanine Loan Documents as may reasonably be requested by Lender. In the event or to the extent that Third Mezzanine Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and Third Mezzanine Borrowers expressly representing to Lender the information requested by Lender regarding the status of the Third Mezzanine Loan and the compliance by Third Mezzanine Borrowers with the terms of the Third Mezzanine Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the Third Mezzanine Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and Third Mezzanine Borrowers.

     Section 11.3 Mortgage Loan and First Mezzanine Loan Defaults.

          (a) Without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrowers from any of their obligations hereunder, if there shall occur any Mortgage Event of Default or any First Mezzanine Event of Default, Borrowers hereby expressly agree that Lender shall have the immediate right, without notice to or demand on any of the applicable Loan Parties, but shall be under no obligation: (i) to pay all or any part of the Mortgage Loan and/or the First Mezzanine Loan, as applicable, and any other sums, that are then due and payable and to perform any act or take any action on behalf of the applicable Loan Parties, as may be appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents or the First Mezzanine Loan Documents on the part of such Loan Parties to be performed or observed thereunder to be promptly performed or observed; and (ii) to pay any other amounts and take any other action as Lender, in its sole and

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absolute discretion, shall deem advisable to protect or preserve the rights and interests of Lender in the Loan and/or the Collateral. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender. All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section 11.3 (including, without limitation, reasonable attorneys’ and other professional fees), with interest at the Default Rate, for the period from the date of demand by Lender to Borrowers for such payments to the date of payment to Lender, shall constitute a portion of the Debt, shall be secured by the Pledge Agreement and shall be due and payable to Lender upon demand therefor.

          (b) Subject to the rights of tenants and the Mortgage Loan Agreement, Borrowers hereby grant, and shall cause Mortgage Borrowers to grant, Lender and any Person designated by Lender the right to enter upon any Property at any time for the purpose of carrying out the rights granted to Lender under this Section 11.3.

          (c) Borrowers shall not, and shall not cause or permit any of the Loan Parties or any other Person to, impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any default or asserted default under the Mortgage Loan or the First Mezzanine Loan, as applicable, or to otherwise protect or preserve Lender’s interests in the Loan and the Collateral (including the Properties) following a default or asserted default under the Mortgage Loan or the First Mezzanine Loan, as applicable, in accordance with the provisions of this Agreement and the other Loan Documents.

          (d) Borrowers hereby indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable attorneys’ and other professional fees, whether or not suit is brought, and settlement costs), and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender as a result of the foregoing actions described in Section 11.3(a). Lender shall have no obligation to any Loan Party or any other party to make any such payment or performance.

          (e) If Lender shall receive a copy of any notice of default under the Mortgage Loan Documents or the First Mezzanine Loan Documents, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon. As a material inducement to Lender in making the Loan, Borrowers hereby absolutely and unconditionally release and waive all claims against Lender arising out of Lender’s exercise of its rights and remedies provided in this Section 11.3 other than claims arising out of the fraud, illegal acts, gross negligence or willful misconduct of Lender.

          (f) In the event that Lender cures any Mortgage Event of Default or any First Mezzanine Event of Default, any such cure by Lender shall not waive or be deemed to have cured such Mortgage Event of Default or such First Mezzanine Event of Default and shall constitute an immediate Event of Default under this Agreement without any notice, grace or cure period otherwise applicable under this Agreement.

          (g) In the event that Lender makes any payment in respect of the Mortgage Loan and/or the First Mezzanine Loan, Lender shall be subrogated to (i) all of the

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rights of Mortgage Lender under the Mortgage Loan Documents against the Properties and Mortgage Borrowers, and/or (ii) all of the rights of First Mezzanine Lender under the First Mezzanine Loan Documents against the First Mezzanine Collateral and First Mezzanine Borrowers, as applicable, in each case in addition to all other rights which Lender may have under the Loan Documents or applicable law (including, without limitation, reasonable attorneys’ and other professional fees), and any such payments made by Lender together with interest at the Default Rate, for the period from the date of demand by Lender to Borrowers for such payments to the date of payment to Lender, (A) shall constitute a portion of the Debt, (B) shall be secured by the Pledge Agreement and (C) shall be due and payable to Lender upon demand therefor.

     Section 11.4 Discussions with Mortgage Lender and First Mezzanine Lender . In connection with the exercise of its rights set forth in the Loan Documents, Lender shall have the right at any time to discuss the Properties, the Mortgage Loan, the First Mezzanine Loan, the Loan or any other matter directly with Mortgage Lender and/or First Mezzanine Lender or its respective consultants, agents or representatives without notice to or permission from any Borrower or any other Loan Party, nor shall Lender have any obligation to disclose such discussions or the contents thereof with any Borrower or any other Loan Party.

     Section 11.5 Independent Approval Rights.

          (a) If any action, proposed action or other decision is consented to or approved by Mortgage Lender or First Mezzanine Lender, such consent or approval shall not be binding or controlling on Lender; provided, however, that, notwithstanding anything to the contrary which may be contained in this Agreement, and as between Lender and Borrowers only, Lender shall be deemed to have approved or waived any document delivered or action taken, or required to be delivered or taken, by Mortgage Borrowers to Mortgage Lender under the Mortgage Loan Agreement related to the construction of the Project which is approved or waived in writing by Mortgage Lender under the Mortgage Loan Documents.

          (b) Borrowers hereby acknowledge and agree that (i) the risks of Mortgage Lender in making the Mortgage Loan, and the risks of First Mezzanine Lender in making the First Mezzanine Loan, are different from the risks of Lender in making the Loan, (ii) in determining whether to grant, deny, withhold or condition any requested consent or approval, Mortgage Lender, First Mezzanine Lender and Lender may reasonably reach different conclusions, and (iii) Lender has an absolute independent right to grant, deny, withhold or condition any requested consent or approval based on its own point of view. Further, the denial by Lender of a requested consent or approval shall not create any liability or other obligation of Lender if the denial of such consent or approval results directly or indirectly in a default under the Mortgage Loan and/or the First Mezzanine Loan, and Borrowers hereby waive any claim of liability against Lender arising from any such denial.

     Section 11.6 Intercreditor Agreement.

          (a) Borrowers hereby acknowledge and agree that (i) the Intercreditor Agreement entered into by and among Lender, Mortgage Lender, First

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Mezzanine Lender and Third Mezzanine Lender will be solely for the benefit of Lender, Mortgage Lender, First Mezzanine Lender and Third Mezzanine Lender; (ii) none of Borrowers, Mortgage Borrowers, First Mezzanine Borrowers or Third Mezzanine Borrowers shall be intended third-party beneficiaries of any of the provisions therein; and (iii) none Borrowers, Mortgage Borrowers, First Mezzanine Borrowers or Third Mezzanine Borrowers shall have any rights thereunder or shall be entitled to rely on any of the provisions contained therein. None of Lender, Mortgage Lender, First Mezzanine Lender or Third Mezzanine Lender shall have any obligation to disclose to Borrowers the contents of the Intercreditor Agreement. Borrowers’ obligations hereunder are and will be independent of the Intercreditor Agreement and shall remain unmodified by the terms and provisions thereof.

          (b) In the event that Lender, pursuant to the terms of the Intercreditor Agreement, is required to pay over to Mortgage Lender or First Mezzanine Lender any payment or distribution of assets, whether in cash, property or securities which otherwise would have been applied to the Debt, including, without limitation, any proceeds of any property previously received by Lender on account of the Loan or any payments under the Guaranties, pursuant to voluntary payment or judgment or otherwise, then Borrowers agree to indemnify Lender for any amounts so paid, and any amount so paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding the prior receipt of such payment by Lender.

ARTICLE XII.
GAMING PROVISIONS

     Section 12.1 Operation of Casino Component.

          (a) Borrowers shall (i) cause HRHI to observe and perform the obligations imposed upon the lessor under the Gaming Sublease in a commercially reasonable manner; (ii) cause HRHI to enforce the terms, covenants and conditions contained in the Gaming Sublease and the Gaming Recognition Agreement upon the part of the Gaming Operator thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair the value of the Casino Component or the Hotel/Casino Property; (iii) not allow any amendment to or termination or modification of the Gaming Sublease without the consent of Lender, which consent shall not be unreasonably withheld, other than modifications of a ministerial and non-monetary nature; (iv) not permit HRHI to collect any of the rents or other payments due under the Gaming Sublease more than one (1) month in advance; and (v) not permit HRHI to execute any assignment of its interest in the Gaming Sublease.

          (b) As soon as practicable after the date hereof, Borrowers shall submit or cause to be submitted any and all applications, filings and other submissions required by the Gaming Authorities or pursuant to any Gaming Laws to obtain the Gaming Licenses necessary to permit the operation of the Casino Component by Gaming Borrower as contemplated herein. Borrowers shall, or shall cause Mortgage Borrowers to, timely pay all application fees, investigative fees and other costs or fees required by the Gaming Authorities with respect to said approvals and licenses or arising in connection with the diligent prosecution of such applications. Borrowers shall, or shall cause Mortgage Borrowers to, diligently and comprehensively respond to any inquiries and requests from the Gaming Authorities and promptly file or cause to be filed any additional information required in connection with such applications or filings as soon as practicable after receipt of requests therefor.

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          (c) Provided that (i) no Event of Default has occurred and is continuing, (ii) Gaming Borrower is, pursuant to Gaming Laws, the holder of all Gaming Licenses and all other Operating Permits and Governmental Approvals necessary for the operation of the Casino Component as a casino and the performance of the Casino Component Lease, (iii) the Casino Component Lease is in full force and effect and no material default beyond applicable notice and/or cure periods has occurred thereunder, (iv) the Gaming Sublease has either expired by its own terms or has been properly terminated pursuant to the terms thereof, and (v) Borrowers have given Lender thirty (30) days prior written notice, Borrowers shall cause Gaming Borrower to operate the Casino Component pursuant to the Casino Component Lease and in accordance with all Gaming Laws and all other applicable Legal Requirements. Borrowers shall cause Mortgage Borrowers to thereafter maintain all Gaming Licenses, Operating Permits and Governmental Approvals necessary for the lawful operation of the Casino Component as a casino consistent with Comparable Hotel/Casinos and use its commercially reasonable efforts to operate the Casino Component in a manner designed to maximize revenues from the Properties in the aggregate. No Loan Party shall take, permit or omit any action that would adversely affect the status or good standing of Gaming Borrower under such Operating Permits, Gaming Licenses or Governmental Approvals.

          (d) Borrowers hereby acknowledge and agree that the Casino Component Lease and any and all rights and interests (whether choate or inchoate and including, without limitation, all mechanic’s and materialmen’s liens under applicable law) owned, claimed or held, by Gaming Borrower thereunder or otherwise in and to the Casino Component, shall be in all respects subordinate and inferior to the liens and security interests created, or to be created, for the benefit of Lender under the Loan Documents, and securing the repayment of the Note and the performance of the Obligations, and all renewals, extensions, increases, supplements, amendments, modifications or replacements thereof.

          (e) Borrowers hereby agree that, at any time after the date the Casino Component Lease becomes effective, if ever, (i) upon the occurrence and during the continuance of an Event of Default and at the request of Lender, Borrowers shall cause Gaming Borrower to continue to perform all of its obligations under the terms of the Casino Component Lease with respect to the Casino Component, (ii) upon and after foreclosure, deed in lieu of foreclosure or other similar transfer of the Casino Component to a Mortgage Lender Successor Owner, Borrowers shall cause Gaming Borrower to (A) recognize such Mortgage Lender Successor Owner as the lessor under the Casino Component Lease, (B) not exercise any right to terminate the Casino Component Lease, and (C) at the request of such Mortgage Lender Successor Owner, continue to operate and manage the Casino Component and maintain all applicable Gaming Licenses with respect to the Casino Component for a period not to exceed fifteen (15) months after the effective date of such transfer to such Mortgage Lender Successor Owner (which period shall in all events terminate upon Mortgage Lender Successor Owner’s appointment of a new gaming operator possessing all Gaming Licenses and other Governmental Approvals necessary to conduct all gaming operations at the Hotel/Casino Property, subject to Gaming Borrower’s obligation to transfer its responsibilities under the Casino Component Lease to such new gaming operator and to reasonably cooperate with the transition of the gaming operations from Gaming Borrower to such new gaming operator), in accordance with the terms of the Casino Component Lease; provided that such Mortgage Lender Successor Owner shall be obligated to pay a then market rate casino management fee which is reasonable and customary for similar casinos in Las

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Vegas, Nevada, and (iii) at any time after foreclosure, deed in lieu of foreclosure or other similar transfer of the Casino Component to a Mortgage Lender Successor Owner, at the option of such Mortgage Lender Successor Owner exercised by written notice to Gaming Borrower, such Mortgage Lender Successor Owner shall have the right to terminate the Casino Component Lease without penalty or termination fee.

          (f) Upon the occurrence and during the continuance of an Event of Default, Lender may elect, upon written notice, to require Borrowers to cause Gaming Borrower or any other Loan Party to surrender or relinquish one or more or all of the Gaming Licenses held by such Person(s). If Gaming Borrower or such other Loan Party fails or refuses to so relinquish such Gaming License(s) within five (5) Business Days after receipt of such written notice, then Lender is hereby appointed (which appointment is coupled with an interest) as each Loan Party’s attorney in fact with full authority to surrender or relinquish each such Gaming License on each such Loan Party’s behalf, the foregoing power being irrevocable and coupled with an interest.

          (g) Borrowers agree to cause Gaming Borrower to (i) execute such affidavits and certificates as Lender shall reasonably require to further evidence the agreements herein contained, (ii) on request from Lender, furnish Lender with copies of such information as Hotel/Casino Borrower is entitled to receive under the Casino Component Lease, and (iii) cooperate with Lender’s representative in any inspection of all or any portion of the Casino Component from time to time at reasonable times during business hours.

          (h) Lender agrees to cooperate with all Gaming Authorities in connection with the administration of its regulatory jurisdiction over the Gaming Operator, Gaming Borrower and any other Person licensed by or registered with the Gaming Authorities, including the provision of such documents or other information as may be requested by the Gaming Authorities relating to the Gaming Sublease, the Casino Component Lease or the Loan Documents. Additionally, Lender acknowledges and understands that (a) it is subject to being called forward by the Gaming Authorities, in their discretion, for licensing or a finding of suitability, (b) all rights, remedies and powers provided in this Agreement may be exercised only to the extent the exercise thereof does not violate any applicable Gaming Laws, and (c) to the extent prior approval of the Gaming Authorities is required pursuant to applicable Gaming Laws for the exercise, operation and effectiveness of any remedy hereunder or under any other Loan Document, or the taking of any action that may be taken by Lender hereunder or under any other Loan Document, such remedy or action shall be subject to such prior approval of the Gaming Authorities, but the foregoing acknowledgements shall not be read or construed, in any manner or at any time, to qualify or limit any representation, warranty, covenant, agreement or obligation of any Loan Party herein, including, without limitation, any of the same relating to the due authorization, execution, delivery, performance and/or enforceability of any Loan Document, or any assignment, issuance, granting or remedy evidenced, created or effected thereby. Notwithstanding the foregoing, Borrowers expressly acknowledge and agree that Lender shall not be liable to any Loan Party or any other Person for any loss, cost, damage, fine or other expense suffered by any Loan Party or any other Person resulting from Lender’s cooperation with, appearance before, or provision of information or documents to, any Gaming Authority as contemplated in this Sections 12.1(h), except for Lender’s gross negligence, willful misconduct or fraud.

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     Section 12.2 Gaming Liquidity Requirements. From and after the date, if ever, upon which Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement and this Agreement, Borrowers shall furnish, or shall cause Gaming Borrower to furnish, to Lender, within five (5) Business Days following the end of each calendar month, an Officer’s Certificate certifying as to the amount of the Gaming Liquidity Requirement (including a calculation of the determination thereof) and the Gaming Operating Reserve with respect to such month, including any changes to the foregoing during such month, the foregoing to be in form and substance reasonably acceptable to Lender (the “Monthly Gaming Requirement Certificate”).

ARTICLE XIII.
RIGHT OF FIRST OFFER

     Section 13.1 Right of First Offer. Prior to seeking any Refinancing Loan and/or any commitment for a Refinancing Loan, Borrowers shall first notify Credit Suisse in writing (the "Right of First Offer Notice”) of its intention to obtain any such Refinancing Loan, which Right of First Offer Notice shall (a) contain the Material Economic Terms which Borrowers would, in good faith, expect to receive in the market for loans similar in type to the Refinancing Loan being sought, and (b) offer (in each case, a “Right of First Offer”) to Credit Suisse the opportunity to consider whether or not Credit Suisse (or an Affiliate thereof) will provide the Refinancing Loan on Material Economic Terms substantially similar to the Material Economic Terms contained in the Right of First Offer Notice. For the purposes of this Article XIII, “Material Economic Terms” shall mean, collectively, the term of the facility, the approximate amount of the facility, the type of facility (i.e., fixed rate v. floating rate; interest only v. amortization), interest rate, points and other fees, guarantors and types of guaranty agreements, use of deposits/reserves, required equity, and net worth and liquidity requirements. For purposes only of (i) this Article XIII, and (ii) the definition of Applicable Exit Fee Percentage set forth in Section 1.1 of the Mortgage Loan Agreement, the term “Credit Suisse” shall also include any Affiliate of Credit Suisse.

     Section 13.2 Right of First Offer Procedure. The Right of First Offer shall be subject to the procedure set forth below.

          (a) As and when Borrowers determine that they will seek to obtain a Refinancing Loan, Borrowers shall promptly send to Credit Suisse the Right of First Offer Notice.

          (b) Upon receipt of the Right of First Offer Notice, Credit Suisse shall have the right to request all information and materials relating to Borrowers, their direct and indirect principals, the Collateral and the Properties that Credit Suisse shall reasonably require in order to evaluate whether or not it will seek to obtain the requisite internal approvals (the “Internal Approvals”) to extend a Refinancing Loan (collectively, the “Right of First Offer Information and Materials”) and Borrowers hereby agree to cooperate with Credit Suisse in all reasonable respects in connection with providing the Right of First Offer Information and Materials. Such request for the Right of First Offer Information and Materials shall be made within five (5) Business Days of Credit Suisse’s receipt of the Right of First Offer Notice.

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     (c) If Credit Suisse is not willing to consider the Refinancing Loan, Credit Suisse shall, prior to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the Right of First Offer Information and Materials, deliver to Borrowers a written notice to such effect (“Lender’s Rejection Notice”). Upon receipt of Lender’s Rejection Notice, Borrowers shall then have the right to solicit Third Party Lenders to provide a Refinancing Loan.

          (d) If Credit Suisse is willing to consider the Refinancing Loan, Credit Suisse shall, prior to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the Right of First Offer Information and Materials, deliver to Borrowers a term sheet containing Material Economic Terms substantially similar to the Material Economic Terms contained in the Right of First Offer Notice upon which Credit Suisse is prepared to seek the Internal Approvals to extend the Refinancing Loan (the “ROFO Term Sheet”), it being understood that such ROFO Term Sheet shall not be binding upon Credit Suisse and shall in no event be deemed a commitment by Credit Suisse to lend. If Credit Suisse does not deliver a ROFO Term Sheet within such thirty (30) day period, Credit Suisse shall be deemed to be unwilling to provide the Refinancing Loan on the Material Economic Terms contained in the Right of First Offer Notice and the terms and conditions of clause (c) above shall be applicable.

          (e) Credit Suisse shall not be liable in any manner whatsoever for (i) failure to deliver any notice or documents specified herein or (ii) its failure to continue to consider whether or not it will commit to extend the Refinancing Loan.

     Section 13.3 Application to Credit Suisse. Borrowers expressly acknowledge and agree that Borrowers shall afford the rights under this Article XIII to Credit Suisse whether or not Credit Suisse or any Affiliate thereof is then “Lender” under this Agreement and the other Loan Documents.

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     IN WITNESS WHEREOF, the parties hereto have caused this Second Mezzanine Loan Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.

HRHH GAMING JUNIOR MEZZ, LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Vice President, Secretary and Treasurer
HRHH JV JUNIOR MEZZ, LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Vice President

COLUMN FINANCIAL, INC., a Delaware corporation
By:	/s/ HEATHER C. JONES
	Name:	Heather C. Jones
	Title:	Vice President

SCHEDULE I-A

LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY

SCHEDULE I-B

LEGAL DESCRIPTION OF CAFE PROPERTY

SCHEDULE I-C

LEGAL DESCRIPTION OF ADJACENT PROPERTY

SCHEDULE II

DESCRIPTION OF PROJECT

SCHEDULE III

DESCRIPTION OF PLEDGED INTERESTS

			Percentage of
		Class of	Membership
Issuer	Owner	Membership Interest	Interests
HRHH JV Senior	HRHH JV Junior	Regular	100%
Mezz, LLC	Mezz, LLC
HRHH Gaming Senior	HRHH Gaming Junior	Regular	100%
Mezz, LLC	Mezz, LLC

SCHEDULE IV

ALLOCATED LOAN AMOUNTS

SCHEDULE V

NET WORTH REQUIREMENTS

     1. Guarantors Net Worth Requirements. At all times following any Guarantor Transfer, and thereafter throughout the term of the Loan, (i) the aggregate Net Worth of all Guarantors shall equal $400,000,000 or more, and the aggregate Effective Liquidity of all Guarantors shall equal $200,000,000 or more, and (ii) each Guarantor shall maintain (x) Net Worth of not less than $200,000,000, or, in the event that the Morgans Guarantor or any transferee (including an Affiliate of such transferee) of the Morgans Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings, and (y) Effective Liquidity of not less than $100,000,000, or, in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings. Upon request, and at such times as Borrowers are required to deliver to Lender any financial statements or information with regard to Guarantor required by Section 5.1.11 of the Loan Agreement, Borrowers shall deliver or cause to be delivered to Lender a certificate of each Guarantor setting forth in reasonable detail such Guarantor’s Net Worth as of the end of the prior calendar year or quarter, as the case may be, and then Effective Liquidity, and certifying that such calculations and accompanying financial statements are true, correct, accurate and complete in all material respects.

     2. Additional Definitions. As used in this Schedule V, the following terms shall have the following meanings:

          “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by any Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request confirming the foregoing, subject to the requirements of any existing Guaranty insofar as

relates to the Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of the Obligations.

          “Effective Liquidity” means, (A) with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of the Obligations, the Distributable Cash of Morgans Gurantor’s direct or indirect wholly-owned subsidiaries, membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor (so long as the DLJ Guarantor remains guarantor of any of the Obligations), any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities, and (B) with respect to DLJ Guarantor, so long as the DLJ Guarantor remains a guarantor of any of the Obligations, as of a given date, the sum of all of the foregoing with respect to the DLJ Guarantor and, without duplication, each of the DLJMB Parties. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (1) Co-Investments LP’s Available Capital, or (2), if greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or DLJMB Parties to pay and perform any obligations guaranteed with respect to the Loan.

          “Net Worth” shall mean, (A) with respect to the Morgans Guarantor only, so long as Morgans Guarantor remains a guarantor of the Obligations, as of a given date, an amount equal to the aggregate fair market value of Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld,

delayed, or conditioned) at Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero, and (B) with respect to any other Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP, provided that, so long as DLJ Guarantor remains a guarantor of any of the Obligations, the Net Worth of the DLJ Guarantor shall equal, as of a given date, the sum of the Net Worth (determined as provided in the preceding clause (B)) of the DLJ Guarantor and, without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided further, that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm (x) the Net Worth of the limited partners of Co-Investments LP, and (y) that such limited partners of Co-Investments LP are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or DLJMB Parties to pay and perform any obligations guaranteed with respect to the Loan.

SCHEDULE VI

ORGANIZATIONAL STRUCTURE

SCHEDULE VII

IP

SCHEDULE VIII

LITIGATION

SCHEDULE IX

OPERATING PERMITS

SCHEDULE X

RENT ROLL

SCHEDULE XI

LIST OF MORTGAGE LOAN DOCUMENTS

1.	Amended and Restated Loan Agreement, dated as of November 6, 2007, among Mortgage Borrowers and Mortgage Lender.
2.	Replacement Reduced Acquisition Loan Promissory Note, dated November 6, 2007, in the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by Mortgage Borrowers in favor of Mortgage Lender.
3.	Replacement Construction Loan Promissory Note, dated November 6, 2007, in the principal amount of Six Hundred Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage Borrowers in favor of Mortgage Lender.
4.	Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007, from Mortgage Borrowers to First American Title Insurance Company, as Trustee for the benefit of Mortgage Lender.
5.	Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents, dated as of November 6, 2007, by and among Mortgage Borrowers and Mortgage Lender.
6.	Amended and Restated Cash Management Agreement, dated as of November 6, 2007, by and among Mortgage Borrowers, Mortgage Lender and Manager.
7.	Environmental Indemnity Agreement, dated as of February 2, 2007, by Mortgage Borrowers in favor of Mortgage Lender.
8.	Guaranty Agreement, dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.
9.	Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.
10.	Closing Guaranty of Completion, dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.
11.	Modification and Ratification of Guaranties, dated as of November 6, 2007, by and among Guarantors and Mortgage Lender.
12.	HRHI Guaranty Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.
13.	Modification of HRHI Loan Documents and Ratification of HRHI Guaranty, dated as of November 6, 2007, by and between HRHI and Mortgage Lender.

14.	HRHI Security Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.
15.	Intellectual Property Security Agreement, dated as of February 2, 2007, by IP Borrower and HRHI in favor of Mortgage Lender.
16.	HRHI Gaming Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower and HRHI in connection with the Gaming Sublease and the gaming operations at the Hotel/Casino Property.
17.	Recognition Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower, HRHI and Golden HRC, LLC in connection with the Gaming Sublease.
18.	Agreement, dated as of October 31, 2007, by and among Navegante HR, LLC, Morgans Parent, HRHI, Mortgage Lender and Navegante Gaming, LLC.
19.	Operations and Maintenance Agreement, dated as of February 2, 2007, by and among each of Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.
20.	Collateral Assignment and Acknowledgment (Morton Indemnification), dated as of February 2, 2007, made by PM Realty, LLC, Red, White and Blue Pictures, Inc., Peter A. Morton, 510 Development Corporation, Morgans Hotel Group Co., Morgans Group LLC and Chicago Title Agency of Nevada, Inc. in favor of Mortgage Lender.
21.	Assignment of Contracts, Operating Permits and Construction Permits, dated as of February 2, 2007, from Mortgage Borrowers to Mortgage Lender.
22.	Assignment of Leases and Rents, dated as of February 2, 2007, from Hotel/Casino Borrower, Café Borrower, Adjacent Borrower and Gaming Borrower, as assignors, to Mortgage Lender, as assignee.
23.	Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of February 2, 2007, by Café Borrower, Hotel/Casino Borrower and Adjacent Borrower to Mortgage Lender, and consented and agreed to by the Affiliated Manager of such Properties.
24.	Assignment of Management Agreement (Adjacent Property), dated as of February 2, 2007, by Adjacent Borrower to Mortgage Lender, and consented and agreed to by Sub-Manager.
25.	Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of February 2, 2007, by Hotel/Casino Borrower to Mortgage Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager.
26.	Assignment of Restaurant Management Agreement, dated as of February 2, 2007, by Hotel/Casino Borrower to Mortgage Lender.

27. Collateral Assignment of Interest Rate Cap Agreement (Acquisition Mortgage Loan), dated as of November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:

(a)	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
(b)	Interest Rate Cap Confirmation and ISDA Master Agreement.

28. Collateral Assignment of Interest Rate Cap Agreement (Construction Mortgage Loan), dated as of November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:

(a)	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
(b)	Interest Rate Cap Confirmation and ISDA Master Agreement.

29. Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage Lender, First Mezzanine Lender, Lender and Third Mezzanine Lender.

SCHEDULE XII

LIST OF FIRST MEZZANINE LOAN DOCUMENTS

1.	First Mezzanine Loan Agreement, dated as of November 6, 2007, among First Mezzanine Borrowers and First Mezzanine Lender.
2.	First Mezzanine Promissory Note, dated November 6, 2007, in the principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), made by First Mezzanine Borrowers in favor of First Mezzanine Lender.
3.	First Mezzanine Pledge and Security Agreement, dated as of November 6, 2007, by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, together with:

(a)	Assignment of Membership Interest in: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(b)	Acknowledgment and Consent of Pledge by: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(c)	Instruction to Register Pledge from the applicable First Mezzanine Borrower to: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(d)	Confirmation Statement and Instruction Agreement from: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(e)	Original Membership Certificate in each Mortgage Borrower with Transfer Endorsed in Blank: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.

4.	Cash Management Agreement (First Mezzanine Loan), dated as of November 6, 2007, by and among First Mezzanine Borrowers, Mortgage Borrowers and First Mezzanine Lender.
5.	First Mezzanine Environmental Indemnity Agreement, dated as of November 6, 2007, by First Mezzanine Borrowers in favor of First Mezzanine Lender.
6.	First Mezzanine Guaranty Agreement, dated as of November 6, 2007, by Guarantors in favor of First Mezzanine Lender.
7.	First Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of November 6, 2007, by Guarantors in favor of First Mezzanine Lender.

8.	First Mezzanine Closing Guaranty of Completion, dated as of November 6, 2007, by Guarantors in favor of First Mezzanine Lender.
9.	First Mezzanine HRHI Guaranty Agreement, dated as of November 6, 2007, by HRHI in favor of First Mezzanine Lender.
10.	First Mezzanine HRHI Security Agreement, dated as of November 6, 2007, by HRHI in favor of First Mezzanine Lender.
11.	First Mezzanine Intellectual Property Security Agreement, dated as of November 6, 2007, by HRHI in favor of First Mezzanine Lender.
12.	First Mezzanine Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of November 6, 2007, by First Mezzanine Borrowers, as assignors, Café Borrower, Hotel/Casino Borrower and Adjacent Borrower, to First Mezzanine Lender, and consented and agreed to by the Affiliated Manager of such Properties.
13.	First Mezzanine Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of November 6, 2007, by First Mezzanine Borrowers, as assignors, and Hotel/Casino Borrower, to First Mezzanine Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager.
14.	Collateral Assignment of Interest Rate Cap Agreement (First Mezzanine Loan), dated as of November 6, 2007, by First Mezzanine Borrowers in favor of First Mezzanine Lender, together with:

(a)	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
(b)	Interest Rate Cap Confirmation and ISDA Master Agreement.

15. Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage Lender, Lender, Second Mezzanine Lender and Third Mezzanine Lender.

EXHIBIT A

FORM OF SECOND MEZZANINE
CONSTRUCTION COMPLETION GUARANTY

EX-10.28

Exhibit 10.28

EXECUTION COPY

THIRD MEZZANINE LOAN AGREEMENT

Dated as of November 6, 2007

among

HRHH GAMING JUNIOR MEZZ TWO, LLC,
as Gaming Mezz Borrower,

HRHH JV JUNIOR MEZZ TWO, LLC,
as JV Borrower,

and

COLUMN FINANCIAL, INC.,
as Lender

TABLE OF CONTENTS

	Page
ARTICLE I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION		2
Section 1.1 Definitions		2
Section 1.2 Principles of Construction		51
ARTICLE II. GENERAL TERMS		52
Section 2.1 Loan Commitment; Disbursement to Borrowers		52
Section 2.2 Interest Rate		52
Section 2.3 Loan Payment		59
Section 2.4 Prepayments		60
Section 2.5 Release of Property		72
Section 2.6 Cash Management		76
Section 2.7 Extensions of the Initial Maturity Date		78
ARTICLE III. CONDITIONS PRECEDENT		89
Section 3.1 Conditions Precedent to Closing		89
Section 3.2 Submission of Construction Loan Advance Documents to Lender		89
Section 3.3 Delivery of Construction Completion Guaranty		89
Section 3.4 Advance of Construction Holdback		89
ARTICLE IV. REPRESENTATIONS AND WARRANTIES.		92
Section 4.1 Representations of Borrowers		92
Section 4.2 Survival of Representations		109
Section 4.3 Definition of Borrowers’ Knowledge		109
ARTICLE V. COVENANTS OF BORROWERS		110
Section 5.1 Affirmative Covenants		110
Section 5.2 Negative Covenants		129
ARTICLE VI. INSURANCE; CASUALTY; CONDEMNATION; RESTORATION		141
Section 6.1 Insurance		141
Section 6.2 Casualty		142
Section 6.3 Condemnation		142
Section 6.4 Restoration		143
Section 6.5 Rights of Lender		144
ARTICLE VII. RESERVE FUNDS		144
Section 7.1 Required Repair Fund		144
Section 7.2 Tax and Insurance Escrow Fund		145
Section 7.3 Replacement Reserve Fund		145
Section 7.4 Interest Reserve Fund		146

	Page
Section 7.5 Initial Renovation Reserve Fund		146
Section 7.6 General Reserve Fund		146
Section 7.7 Construction Loan Reserve Fund		147
Section 7.8 Reserve Funds, Generally		147
Section 7.9 Transfer of Mortgage Reserve Funds		149
ARTICLE VIII. DEFAULTS		149
Section 8.1 Event of Default		149
Section 8.2 Remedies		154
Section 8.3 Right to Cure Defaults		156
ARTICLE IX. SPECIAL PROVISIONS		157
Section 9.1 Sale of Note and Securitization		157
Section 9.2 Re-Dating		159
Section 9.3 Securitization Indemnification		159
Section 9.4 Exculpation		162
Section 9.5 Matters Concerning Managers and Liquor Manager		167
Section 9.6 Matters Concerning Gaming Operator		168
Section 9.7 Servicer		169
ARTICLE X. MISCELLANEOUS		169
Section 10.1 Survival		169
Section 10.2 Lender’s Discretion		169
Section 10.3 Governing Law		170
Section 10.4 Modification, Waiver in Writing		171
Section 10.5 Delay Not a Waiver		172
Section 10.6 Notices		172
Section 10.7 Trial by Jury		174
Section 10.8 Headings		174
Section 10.9 Severability		174
Section 10.10 Preferences		174
Section 10.11 Waiver of Notice		174
Section 10.12 Remedies of Borrowers		175
Section 10.13 Expenses; Indemnity		175
Section 10.14 Schedules and Exhibits Incorporated		176
Section 10.15 Offsets, Counterclaims and Defenses		176
Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries		176
Section 10.17 Publicity		177
Section 10.18 Waiver of Marshalling of Assets		178
Section 10.19 Waiver of Counterclaim		178
Section 10.20 Conflict; Construction of Documents; Reliance		178
Section 10.21 Brokers and Financial Advisors		178
Section 10.22 Prior Agreements		179
Section 10.23 Joint and Several Liability		179
Section 10.24 Certain Additional Rights of Lender (VCOC)		179

	Page
ARTICLE XI. MORTGAGE LOAN AND MEZZANINE LOANS		179
Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries		179
Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels		179
Section 11.3 Mortgage Loan and Mezzanine Loan Defaults		179
Section 11.4 Discussions with Mortgage Lender and Mezzanine Lenders		182
Section 11.5 Independent Approval Rights		183
Section 11.6 Intercreditor Agreement		183
ARTICLE XII. GAMING PROVISIONS		184
Section 12.1 Operation of Casino Component		184
Section 12.2 Gaming Liquidity Requirements		186
ARTICLE XIII. RIGHT OF FIRST OFFER		186
Section 13.1 Right of First Offer		186
Section 13.2 Right of First Offer Procedure		187
Section 13.3 Application to Credit Suisse		188

SCHEDULES
Schedule I-A	-	Legal Description of Hotel/Casino Property
Schedule I-B	-	Legal Description of Café Property
Schedule I-C	-	Legal Description of Adjacent Property
Schedule II	-	Description of Project
Schedule III	-	Description of Pledged Interests
Schedule IV	-	Allocated Loan Amounts
Schedule V	-	Net Worth Requirements
Schedule VI	-	Organizational Structure
Schedule VII	-	IP
Schedule VIII	-	Litigation
Schedule IX	-	Operating Permits
Schedule X	-	Rent Roll
Schedule XI	-	List of Mortgage Loan Documents
Schedule XII	-	List of First Mezzanine Loan Documents
Schedule XIII	-	List of Second Mezzanine Loan Documents
EXHIBITS
Exhibit A	-	Form of Third Mezzanine Construction Completion Guaranty

THIRD MEZZANINE LOAN AGREEMENT

     THIS THIRD MEZZANINE LOAN AGREEMENT, dated as of November 6, 2007 (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Agreement”), among COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”), HRHH GAMING JUNIOR MEZZ TWO, LLC, a Delaware limited liability company, having its principal place of business c/o Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Gaming Mezz Borrower”) and HRHH JV JUNIOR MEZZ TWO, LLC, a Delaware limited liability company, having its principal place of business c/o Morgans Hotel Group Co., 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“JV Borrower”; and each of Gaming Borrower and JV Borrower, individually, a “Borrower”, and collectively, “Borrowers”), jointly and severally.

W I T N E S S E T H:

     WHEREAS, pursuant to that certain Loan Agreement, dated as of February 2, 2007 (the “Original Mortgage Loan Agreement”), among Mortgage Lender and Mortgage Borrowers (as such terms are hereinafter defined), Mortgage Lender made a loan to Mortgage Borrowers in the original principal amount of up to $1,360,000,000.00 (the “Original Mortgage Loan”), subject to and in accordance with the terms and conditions of the Original Mortgage Loan Agreement;

     WHEREAS, Mortgage Lender and Mortgage Borrowers have agreed that, as of the date hereof, (i) Mortgage Borrowers shall prepay $350,000,000.00 of the Original Mortgage Loan from the proceeds of three (3) mezzanine loans made to the direct and/or indirect owners of equity interests in Mortgage Borrowers, and (ii) Mortgage Lender shall increase the maximum amount of the Original Mortgage Loan by $20,000,000.00, resulting in the aggregate principal amount of $1,030,000,000.00, in accordance with the terms and conditions of the Mortgage Loan Agreement (as such term is hereinafter defined), and the original promissory note evidencing the Original Mortgage Loan shall be replaced by the Mortgage Notes (as such term is hereinafter defined); and

     WHEREAS, in connection with the partial prepayment of the Original Mortgage Loan: (i) First Mezzanine Lender is willing to make the First Mezzanine Loan to First Mezzanine Borrowers, subject to and in accordance with the terms and conditions of the First Mezzanine Loan Agreement and the other First Mezzanine Loan Documents (as such terms are hereinafter defined); (ii) Second Mezzanine Lender is willing to make the Second Mezzanine Loan to Second Mezzanine Borrowers, subject to and in accordance with the terms and conditions of the Second Mezzanine Loan Agreement and the other Second Mezzanine Loan Documents (as such terms are hereinafter defined); and (iii) Lender is willing to make the Loan to Borrowers, subject to and in accordance with the terms and conditions of this Agreement and the other Loan Documents.

     NOW, THEREFORE, in consideration of the making of the Loan by Lender and the covenants, agreements, representations and warranties set forth in this Agreement, and for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and legal sufficiency of

which are hereby acknowledged, the parties hereto hereby covenant, agree, represent and warrant as follows:

ARTICLE I.
DEFINITIONS; PRINCIPLES OF CONSTRUCTION

     Section 1.1 Definitions. For all purposes of this Agreement, except as otherwise expressly required or unless the context clearly indicates a contrary intent:

     “Acceptable Counterparty” shall mean any counterparty to the Interest Rate Cap Agreement that has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a long-term unsecured debt rating of at least “AA-” by S&P and “Aa3” from Moody’s, which rating shall not include a “t” or otherwise reflect a termination risk.

     “Additional Insolvency Opinion” shall have the meaning set forth in Section 4.1.30(d) hereof.

     “Additional Non-Qualified Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(c) hereof.

     “Additional Non-Qualified Prepayment Date” shall mean July 1, 2008.

     “Adjacent Borrower” shall mean HRHH Development, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Adjacent Parcel Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Adjacent Parcel Sale” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Adjacent Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Adjacent Property IP License” shall have the meaning set forth in Section 5.1.26(b) hereof.

     “Advance Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Affiliate” shall mean, as to any Person, any other Person that, directly or indirectly, is in Control of, is Controlled by or is under common Control with such Person or is a director or officer of such Person or of an Affiliate of such Person.

     “Affiliate Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Affiliate IP License” shall have the meaning set forth in Section 5.1.26(d) hereof.

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     “Affiliate IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Affiliate Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Affiliated IP Party” shall mean (i) any subsidiary of any Loan Party hereafter formed with Lender’s consent, (ii) HRHI, and (iii) any subsidiary of HRHI.

     “Affiliated Manager” shall mean any Manager in which any Loan Party or any Guarantor has, directly or indirectly, any legal, beneficial or economic interest.

     “Aggregate Outstanding Principal Balance” shall mean, as of any date of determination, the sum of the Outstanding Principal Balance, the Mortgage Loan Outstanding Principal Balance, the First Mezzanine Loan Outstanding Principal Balance and the Second Mezzanine Loan Outstanding Principal Balance.

     “Alteration Threshold Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Alternate Financing Percentages” shall mean the Loan Percentage, the Mortgage Reduced Acquisition Loan Percentage, the First Mezzanine Loan Percentage and the Second Mezzanine Loan Percentage.

     “Alternative Minimum Interest Reserve Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Alternative Minimum Mandatory Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Annual Budget” shall mean the operating budget, including all planned Capital Expenditures, for all of the Properties, collectively, prepared by Mortgage Borrowers or the applicable Manager(s) for the applicable Fiscal Year or other period.

     “Applicable Interest Rate” shall mean the rate or rates at which the Outstanding Principal Balance bears interest from time to time in accordance with the provisions of Section 2.2.3 hereof.

     “Approved Annual Budget” shall have the meaning set forth in Section 5.1.11(c) hereof.

     “Approved Bank” shall mean a bank or other financial institution which has a minimum long term unsecured debt rating of at least “AA” by S&P and Fitch and “Aa2” by Moody’s.

     “Assignment of Leases” shall mean that certain first priority Assignment of Leases and Rents, dated as of February 2, 2007, from Hotel/Casino Borrower, Café Borrower, Adjacent Borrower and Gaming Borrower, as assignors, to Mortgage Lender, as assignee, assigning to

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Mortgage Lender all of each such Mortgage Borrower’s right, title and interest in and to the Leases and Rents of its Property as security for the Mortgage Loan, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Assignment of Liquor Management Agreement” shall mean that certain Third Mezzanine Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of the date hereof, by Borrowers, as assignors, and Hotel/Casino Borrower, to Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Assignment of Management Agreement (All Properties)” shall mean that certain Third Mezzanine Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of the date hereof, by Borrowers, as assignors, Café Borrower, Hotel/Casino Borrower and Adjacent Borrower, to Lender, and consented and agreed to by the Affiliated Manager of such Properties, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Award” shall mean any compensation paid by any Governmental Authority in connection with a Condemnation of all or any part of any Property.

     “Bankruptcy Action” shall mean with respect to any Person (a) such Person filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (b) the filing of an involuntary petition against such Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (c) such Person filing an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law, or soliciting or causing to be solicited petitioning creditors for any involuntary petition from any Person; (d) such Person consenting to or acquiescing in or joining in an application for the appointment of a custodian, receiver, trustee, or examiner for such Person or any portion of any Property; or (e) such Person making an assignment for the benefit of creditors, or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due.

     “Bankruptcy Code” shall mean 11 U.S.C. § 101 et seq., as the same may be amended from time to time.

     “Bonafide Adjacent Parcel Purchaser” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Bonafide IP Purchaser” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Bonafide Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Borrower” and “Borrowers” shall have the meanings set forth in the introductory paragraph hereto, together with its or their successors and permitted assigns.

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     “Breakage Costs” shall have the meaning set forth in Section 2.2.3(h) hereof.

     “Business Day” shall mean any day other than a Saturday, Sunday or any other day on which national banks in New York, New York are not open for business.

     “Café Borrower” shall mean HRHH Cafe, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Café Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Capital Expenditures” shall mean, for any period, the amount expended for items capitalized under GAAP and the Uniform System of Accounts (including expenditures for building improvements or major repairs, leasing commissions and tenant improvements, but excluding capitalized interest).

     “Cash Management Account” shall have the meaning set forth in Section 2.6.3(a) hereof.

     “Cash Management Agreement” shall mean that certain Cash Management Agreement (Third Mezzanine Loan), dated as of the date hereof, by and among Borrowers, Mortgage Borrowers and Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Casino Account” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, individually or collectively, one or more accounts established and maintained from time to time by Gaming Borrower and reasonably approved by Mortgage Lender; provided, however, that any such Casino Account shall be established and maintained pursuant to, and in accordance with, all applicable Gaming Laws and shall be subject to a security interest in favor of Mortgage Lender pursuant to the Mortgage Loan Documents.

     “Casino Component” shall mean that portion of the Hotel/Casino Property devoted to the operation of a casino gaming operation and, as of February 2, 2007, leased to HRHI pursuant to the HRHI Lease and subleased to Gaming Operator pursuant to the Gaming Sublease, including, without limitation, those areas devoted to the conduct of games of chance, facilities associated directly with gaming operations, including, without limitation, casino support areas such as surveillance and security areas, cash cages, counting and accounting areas and gaming back-of-the-house areas, in each case, to the extent the operation thereof requires a Gaming License under applicable Gaming Laws, as more particularly described and set forth in the HRHI Lease and the Gaming Sublease as the “Premises”.

     “Casino Component Lease” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Casualty” shall have the meaning set forth in Section 6.2 hereof.

5

     “Certificate of Occupancy” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Closing Completion Guaranty” shall mean that certain Third Mezzanine Closing Guaranty of Completion, dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Closing Date” shall mean the date of this Agreement.

     “Code” shall mean the Internal Revenue Code of 1986, as amended, as it may be further amended from time to time, and any successor statutes thereto, and applicable U.S. Department of Treasury regulations issued pursuant thereto in temporary or final form.

     “Collateral” shall mean (i) the Pledged Collateral and (ii) all other collateral for the Loan granted in the Loan Documents.

     “Collateral Assignment of Interest Rate Cap Agreement” shall mean that certain Collateral Assignment of Interest Rate Cap Agreement (Third Mezzanine Loan), dated as of the date hereof, executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Comparable Hotel/Casinos” shall mean hotel and casino resorts in Las Vegas, Nevada which are of a similar nature, quality and scope as the hotel and casino resort being operated on the Hotel/Casino Property as of February 2, 2007, including, without limitation, Mandalay Bay Resort and Casino, MGM Grand Hotel and Casino, The Palms Casino Resort and Caesars Palace, in each of the foregoing instances, as existing and being operated on the date hereof.

     “Component” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Component Percentages” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Condemnation” shall mean a temporary or permanent taking by any Governmental Authority as the result or in lieu or in anticipation of the exercise of the right of condemnation or eminent domain, of all or any part of any Property, or any interest therein or right accruing thereto, including any right of access thereto or any change of grade affecting such Property or any part thereof.

     “Constituent Member” shall mean any direct member or partner in any Loan Party, any Mezzanine Borrower or any Guarantor and any Person that, directly or indirectly through one or more other partnerships, limited liability companies, corporations or other entities is a stockholder, member or partner in any Loan Party, any Mezzanine Borrower or any Guarantor.

     “Construction Completion Guaranty” shall mean a Third Mezzanine Construction Guaranty of Completion from Guarantors in favor of Lender in the form attached hereto as

6

Exhibit A, as such agreement may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Construction Holdback” shall have the meaning set forth in Section 2.1.3(b) hereof.

     “Construction Loan” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Construction Loan Advance” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Construction Loan Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.7 hereof.

     “Construction Qualification Date” shall mean May 1, 2008, subject to Excusable Delay not to exceed fifteen (15) days.

     “Construction Schedule” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise. “Controlled” and “Controlling” shall have correlative meanings.

     “Counterparty” shall mean, with respect to the Interest Rate Cap Agreement, Natixis Financial Products Inc., and with respect to any Replacement Interest Rate Cap Agreement, any substitute Acceptable Counterparty.

     “Credit Suisse” shall mean Credit Suisse Securities (USA) LLC and its successors in interest.

     “Deemed Relinquishment” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Debt” shall mean the outstanding principal amount set forth in, and evidenced by, this Agreement and the Note together with all interest accrued and unpaid thereon and all other sums (including, if applicable, any Spread Maintenance Premium and any Prepayment Fee) due to Lender in respect of the Loan under the Note, this Agreement, the Pledge Agreement and the other Loan Documents.

     “Debt Service” shall mean, with respect to any particular period of time, scheduled interest payments due under this Agreement and the Note.

     “Debt Service Coverage Ratio” shall mean, as of any date of determination, a ratio in which:

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     (a) the numerator is the Pro-Forma Net Cash Flow as of such date of determination; and

     (b) the denominator is the aggregate amount of interest that is reasonably estimated by Lender to be due and payable on the Outstanding Principal Balance, the Mortgage Loan Outstanding Principal Balance, the First Mezzanine Loan Outstanding Principal Balance and the Second Mezzanine Loan Outstanding Principal Balance as of such date of determination for the following full twelve (12) calendar month period.

     “Debt Yield” shall mean:

     (a) for all calculations of Debt Yield except in connection with the Second Qualified Extension Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net Cash Flow for the trailing twelve (12) calendar month period ending with the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, as reasonably determined by Mortgage Lender based on the financial statements delivered to Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan Agreement and to Lender pursuant to Section 5.1.11 hereof, and (ii) the denominator is the Aggregate Outstanding Principal Balance as of such date of determination, subject, however, to the provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section 2.7.3 hereof; and

     (b) for the calculation of Debt Yield in connection with the Second Qualified Extension Option, a ratio (expressed as a percentage) in which: (i) the numerator is the Net Cash Flow for a period equal to the lesser of (A) the trailing twelve (12) calendar month period ending with the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, or (B) the period commencing on the first (1st) day of the First Full Operating Month through and including the last day of the last calendar month prior to the date of determination for which financial reports have been delivered under Section 5.1.11 of the Mortgage Loan Agreement and Section 5.1.11 hereof, with such Net Cash Flow, in the case of the foregoing clause (B), then being reasonably annualized by Mortgage Lender, and in each of the foregoing cases under clause (A) or (B) above, as reasonably determined by Mortgage Lender based on the financial statements delivered to Mortgage Lender pursuant to Section 5.1.11 of the Mortgage Loan Agreement and to Lender pursuant to Section 5.1.11 hereof, and (ii) the denominator is the Aggregate Outstanding Principal Balance as of such date of determination, subject, however, to the provisions of Section 2.7.3 of the Mortgage Loan Agreement and Section 2.7.3 hereof.

     “Debt Yield Letter of Credit” shall have the meaning set forth in Section 2.7.3(b) hereof.

     “Default” shall mean the occurrence of any event hereunder or under any other Loan Document which, but for the giving of notice or passage of time, or both, would be an Event of Default.

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     “Default Rate” shall mean a rate per annum equal to the lesser of (a) the Maximum Legal Rate and (b) four percent (4%) above the Applicable Interest Rate.

     “Determination Date” shall mean, with respect to any Interest Period, the date that is two (2) London Business Days prior to the fifteenth (15th) day of the calendar month in which such Interest Period commences; provided, that with respect to the initial Interest Period, the Determination Date was two (2) London Business Days prior to the Closing Date.

     “Disclosure Document” shall mean a prospectus, prospectus supplement, private placement memorandum, offering memorandum, offering circular or other offering documents, in each case in preliminary or final form, used to offer Securities in connection with a Securitization.

     “DLJ Entities” shall have the meaning set forth in Section 10.16(c) hereof.

     “DLJ Guarantor” shall mean DLJ MB IV HRH, LLC, a Delaware limited liability company, together with its successors and permitted assigns.

     “DLJMB Commitment Letter” shall mean that certain Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of the date hereof, by the DLJMB Parties in favor of Lender, Mortgage Lender, First Mezzanine Lender and Second Mezzanine Lender.

     “DLJMB Parties” shall have the meaning set forth in Section 9.4(a) hereof.

     “Draw Request” shall mean, with respect to each Construction Loan Advance, an Advance Request together with all other documents required by the Mortgage Loan Agreement to be furnished to Mortgage Lender as a condition to such Construction Loan Advance.

     “Eligible Account” shall mean a separate and identifiable “deposit account”, as such term is defined in any applicable Uniform Commercial Code, from all other funds held by the holding institution that is either (a) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution or (b) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company, is subject to regulations substantially similar to 12 C.F.R. §9.10(b), having in either case a combined capital and surplus of at least $50,000,000 and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument.

     “Eligible Institution” shall mean a depository institution or trust company, the short term unsecured debt obligations or commercial paper of which are rated at least “A-1+” by S&P, “P-1” by Moody’s and “F-1+” by Fitch in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least “AA” by Fitch and S&P and “Aa2” by Moody’s).

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     “Embargoed Person” shall have the meaning set forth in Section 4.1.35 hereof.

     “Environmental Indemnity” shall mean that certain Third Mezzanine Environmental Indemnity Agreement, dated as of the date hereof, executed by Borrowers in connection with the Loan for the benefit of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

     “Event of Default” shall have the meaning set forth in Section 8.1(a) hereof.

     “Excess Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Excess Cash Termination Conditions” shall mean that (i) as of any Financial Determination Date, the Properties have achieved and maintained a Debt Service Coverage Ratio of not less than 1.10 to 1.00 for the immediately preceding two (2) consecutive calendar quarters, and (ii) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing.

     “Excess Fully Funded IP Release Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Excess IP Release Price Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Excess Non-Fully Funded IP Release Proceeds” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Exchange Act” shall have the meaning set forth in Section 9.3(a) hereof.

     “Exchange Act Filing” shall have the meaning set forth in Section 5.1.11(e) hereof.

     “Excluded Taxes” shall mean, with respect to Lender or any other recipient of any payment to be made by or on account of any obligation of Borrowers hereunder, (a) income or franchise taxes imposed on (or measured by reference to) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable lending office is located, or any other jurisdiction in which it is subject to tax solely as a result of any present or former connection between Lender or other recipient, as applicable, and the jurisdiction imposing such tax other than a present or former connection solely as a result of the activities and transactions specifically contemplated by this Agreement, (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction described in clause (a) of this definition, and (c) in the case of a Non-U.S. Lender, any withholding tax that is imposed on amounts payable to such Non-U.S. Lender at the time such Non-U.S. Lender designates a new lending office, unless the designation of such new lending office was at the request of Borrowers, or is attributable to such Non-U.S. Lender’s failure to

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comply with Section 2.2.3(e)(iii) hereof, except to the extent that such Non-U.S. Lender was entitled, at the time of designation of a new lending office, to receive additional amounts from Borrowers with respect to such withholding tax pursuant to Section 2.2.3(e) hereof.

     “Excusable Delay” shall mean a delay due to acts of god, governmental restrictions, stays, judgments, orders, decrees, enemy actions, civil commotion, fire, casualty, strikes, work stoppages, shortages of labor or materials or other causes beyond the reasonable control of any Loan Party and not arising out of (a) the negligence, willful misconduct or illegal act of any Loan Party or any Affiliate of any Loan Party, or (b) any cause or circumstance resulting from the insolvency, bankruptcy or lack of funds of any Loan Party, any Guarantor or any Affiliate of any Loan Party or any Guarantor.

     “Existing FF&E Leases” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Extended Maturity Date” shall mean, as applicable, either (a) the Qualified Extended Maturity Date as set forth in Section 2.7.2 hereof, or (b) the Non-Qualified Extended Maturity Date as set forth in Section 2.7.1 hereof.

     “Extension Debt Service Coverage Ratio” shall mean, with respect to any Extension Term, a ratio for the applicable twelve (12) month period in which:

     (a) the numerator is the Projected Underwritten Net Cash Flow for such Extension Term; and

     (b) the denominator is the sum of:

     (i) the aggregate amount of interest that would be payable on the sum of the Mortgage Outstanding Principal Balance as of the first day of such Extension Term plus the amount of any anticipated Construction Loan Advances in accordance with the Construction Schedule (excluding any Construction Loan Advances anticipated to be made out of the Construction Loan Reserve Account pursuant to the Mortgage Loan Agreement), if any, for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the applicable Mortgage Spread; plus

     (ii) the aggregate amount of interest that would be payable on the First Mezzanine Loan Outstanding Principal Balance as of the first day of such Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the First Mezzanine Spread; plus

     (iii) the aggregate amount of interest that would be payable on the Second Mezzanine Loan Outstanding Principal Balance as of the first day of such Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the Second Mezzanine Spread; plus

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     (iv) the aggregate amount of interest that would be payable on the Outstanding Principal Balance as of the first day of such Extension Term for the following full twelve (12) calendar month period at an interest rate equal to the Strike Price applicable to such Extension Term plus the Spread.

     “Extension Interest Shortfall” shall mean, with respect to each Extension Term, the difference between: (a) the Required Net Cash Flow with respect to such Extension Term, less (b) the amount on deposit in the Interest Reserve Fund as of the day immediately preceding the first (1^st) day of such Extension Term.

     “Extension Option” shall mean any Qualified Extension Option or Non-Qualified Extension Option, as applicable.

     “Extension Term” shall mean any Qualified Extension Term or Non-Qualified Extension Term, as applicable.

     “Extra Non-Accrued Interest” shall have the meaning set forth in Section 2.4.6 hereof.

     “Extraordinary Expense” shall have the meaning set forth in Section 5.1.11(d) hereof.

     “FF&E” shall mean all furniture, furnishings, fixtures and equipment required for the operation of any of the Properties, including, without limitation, (i) lobby furniture, carpeting, draperies, paintings, bedspreads, television sets, office furniture and equipment such as safes, cash registers, and accounting, duplicating and communication equipment, telephone systems, back and front of the house computerized systems, guest room furniture, specialized hotel equipment such as equipment required for the operation of kitchens, laundries, the front desk, dry cleaning facilities, bar and cocktail lounges, restaurants, recreational facilities as they may exist from time to time, and decorative lighting, material handling equipment and cleaning and engineering equipment and all other fixtures, equipment, apparatus and personal property needed for such purposes, (ii) Gaming Equipment which any Mortgage Borrower is lawfully permitted to own or lease, and (iii) rock and roll memorabilia unique to the Hotel/Casino Property and similar in character to the other rock and roll memorabilia displayed at the Hotel/Casino Property.

     “FF&E Expenditures” shall mean amounts expended for the purchase, replacement and/or installation of FF&E at the Properties.

     “FF&E Expenditures Work” shall mean any labor performed or materials installed in connection with any FF&E Expenditures.

     “Financial Determination Date” shall have the meaning set forth in Section 2.6.4 hereof.

     “Financing Percentages” shall mean the Loan Percentage, the Mortgage Loan Percentage, the First Mezzanine Loan Percentage and the Second Mezzanine Loan Percentage.

     “First Anniversary” shall mean the first anniversary of the Closing Date.

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     “First Full Operating Month” shall mean the calendar month following the month in which Substantial Completion occurs.

     “First Mezzanine Borrower” and “First Mezzanine Borrowers” shall mean, individually or collectively, as applicable, HRHH Gaming Senior Mezz, LLC, a Delaware limited liability company, and HRHH JV Senior Mezz, LLC, a Delaware limited liability company, each in its capacity as a borrower under the First Mezzanine Loan, together with its or their successors or permitted assigns.

     “First Mezzanine Collateral” shall mean the “Collateral” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Debt” shall mean the “Debt” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Default” shall mean a “Default” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Event of Default” shall mean an “Event of Default” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the First Mezzanine Loan, together with its successors and assigns.

     “First Mezzanine Loan” shall mean the loan in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), made by First Mezzanine Lender to First Mezzanine Borrowers pursuant to the First Mezzanine Loan Agreement.

     “First Mezzanine Loan Agreement” shall mean that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Lender and First Mezzanine Borrowers, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “First Mezzanine Loan Documents” shall mean the First Mezzanine Loan Agreement and all other documents evidencing and/or securing the First Mezzanine Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “First Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the First Mezzanine Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

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     “First Mezzanine Reserve Funds” shall mean the “Reserve Funds” as defined in the First Mezzanine Loan Agreement.

     “First Mezzanine Spread” shall mean the “Spread” as defined in the First Mezzanine Loan Agreement.

     “First Non-Qualified Extended Maturity Date” shall mean February 9, 2010.

     “First Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1(a) hereof.

     “First Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1(a) hereof.

     “First Qualified Extended Maturity Date” shall mean February 9, 2011.

     “First Qualified Extension Option” shall have the meaning set forth in Section 2.7.2(a) hereof.

     “First Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(a) hereof.

     “Fiscal Year” shall mean each twelve (12) month period commencing on January 1 and ending on December 31 during each year of the term of the Loan.

     “Fitch” shall mean Fitch, Inc.

     “Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Future Funding Obligation” shall have the meaning set forth in Section 9.1(d) hereof.

     “GAAP” shall mean generally accepted accounting principles in the United States of America as of the date of the applicable financial report.

     “Gaming Assets” shall have the meaning set forth in the Gaming Sublease.

     “Gaming Assets Note” shall mean that certain Gaming Asset Note, dated as February 2, 2007, made by the Gaming Operator to HRHI, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Authority” shall mean any of the Nevada Gaming Commission, the Nevada State Gaming Control Board, the Clark County Liquor and Gaming Licensing Board and any other Governmental Authority and/or regulatory authority or body or any agency which has, or may at any time after the Closing Date have, jurisdiction over the gaming activities or the sale or distribution of liquor at any of the Properties, or any successor to any such authority.

     “Gaming Borrower” shall mean HRHH Gaming, LLC, a Nevada limited liability company, together with its successors and assigns.

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     “Gaming Employees” shall have the meaning set forth in the Gaming Sublease.

     “Gaming Equipment” shall mean any and all gaming devices (as defined in NRS 463.0155), gaming device parts, inventory and other related gaming equipment and supplies used in connection with the operation of a casino, including, without limitation, slot machines, gaming tables, cards, dice, chips, tokens (including slot machine tokens not currently in circulation, and “reserve” chips, if any, not currently in circulation), player tracking systems, cashless wagering systems (as defined in NRS 463.014) and associated equipment (as defined in NRS 463.0136), which are located at any Property, are owned or leased by any Borrower and are used or useable exclusively in the present or future operation of slot machines and live games at any Property, together with all improvements and/or additions thereto, mobile gaming systems (as defined in Regulation 14.010(11) under NRS Chapter 463), all contracts necessary to own or operate any of the Gaming Equipment and/or to conduct gaming operations for the Casino Component, all assignable manufacturers and other warranties applicable to the Gaming Equipment, all computer hardware and software used to operate the Gaming Equipment and/or to conduct gaming operations for the Casino Component.

     “Gaming Laws” shall mean the provisions of the Nevada Gaming Control Act, codified as NRS Chapter 463, as amended from time to time, all regulations of the Gaming Authorities promulgated thereunder, as amended from time to time, the provisions of the Clark County Code, as amended from time to time, and all other laws, statutes, rules, rulings, orders, ordinances, regulations and other Legal Requirements of any Gaming Authority.

     “Gaming Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Gaming License” shall mean any license, qualification, franchise, accreditation, approval, registration, permit, finding of suitability or other authorization relating to gaming, the gaming business or the operation of a casino under the Gaming Laws or required by any Gaming Authority or otherwise necessary under any Gaming Laws for the operation of gaming, the gaming business or a resort casino at the Hotel/Casino Property.

     “Gaming Liquidity Requirement” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, the minimum bankroll requirements for cash and cash equivalents required to be maintained by Gaming Borrower pursuant to the Gaming Laws in an amount no greater than is mandated by Nevada Gaming Commission Regulation 6.150.

     “Gaming Member” shall mean HRHH Gaming Member, LLC, a Delaware limited liability company.

     “Gaming Operating Condition” shall mean that the gaming operations at the Hotel/Casino Property are being operated by a Qualified Gaming Operator pursuant to either (i) the Gaming Sublease and the Gaming Recognition Agreement or (ii) one or more other written agreements previously approved by Lender.

     “Gaming Operating Reserve” shall mean, if and when Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement, such cash

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funds and reserves that are held and maintained by Gaming Borrower, in its capacity as the duly licensed operator of the Casino Component under applicable Gaming Laws, either on-site at the Hotel/Casino Property or in the Casino Account, including, without limitation, casino chips, tokens, checks and markers; provided that all such Gaming Operating Reserves (i) are established and maintained solely for use in the day-to-day operation and management of the Casino Component in the ordinary course of business, and (ii) are funded and maintained in accordance with the requirements of all applicable Gaming Laws and are in the amounts that are reasonable and customary for casino operations at Comparable Hotel/Casinos (it being agreed that 110% of statutory or regulatory minimums shall be deemed a reasonable and customary minimum amount for these purposes).

     “Gaming Operator” shall mean (i) subject to clause (ii) below, for so long as the Gaming Sublease is in effect and all required Gaming Licenses are maintained in accordance with applicable Gaming Laws, Golden HRC, LLC, a Nevada limited liability company, the subtenant under the Gaming Sublease, (ii) if Navegante HR, LLC, a Nevada limited liability company, replaces Golden HRC, LLC as the subtenant under the Gaming Sublease pursuant to the Navegante Agreement, for so long as the Gaming Sublease is in effect and all required Gaming Licenses are maintained in accordance with applicable Gaming Laws, Navegante HR, LLC, as replacement subtenant under the Gaming Sublease, and (iii) during any time when the Gaming Sublease is not in effect, a Qualified Gaming Operator who is supervising, managing and operating all gaming activities at the Hotel/Casino Property.

     “Gaming Recognition Agreement” shall mean that certain Recognition Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower, HRHI and Golden HRC, LLC in connection with the Gaming Sublease, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Shortfall Notes” shall mean the “Shortfall Notes” as defined in the Gaming Sublease.

     “Gaming Sublease” shall mean that certain Casino Sublease, dated as of November 6, 2006, by and among MHG HR Acquisition Corp., as sublandlord, Morgans Hotel Group Co., and Golden HRC, LLC, as subtenant (it being acknowledged and agreed that, upon consummation of the transactions under the Merger Agreement, HRHI succeeded to the interests of MHG HR Acquisition Corp. thereunder), covering the Casino Component of the Hotel/Casino Property as more particularly described therein, as such Casino Sublease was modified by that certain First Amendment to Casino Sublease, dated as of January 9, 2007 and by the Gaming Recognition Agreement, and as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Gaming Surplus Fund Reserve” shall mean the “Surplus Fund Reserve” as defined in the Gaming Sublease.

     “Gaming Working Capital Note” shall mean the “Working Capital Note” as defined in the Gaming Sublease.

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     “General Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.6 hereof.

     “General Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.6 hereof.

     “Governmental Approvals” shall mean all approvals, consents, waivers, orders, acknowledgments, authorizations, permits and licenses required under applicable Legal Requirements to be obtained from any Governmental Authority for the construction of any and all of the Project and/or the use, occupancy and operation following completion of construction, as the context requires.

     “Governmental Authority” shall mean any court, board, agency, commission, office or other authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence, including, without limitation, any Gaming Authority.

     “Gross Income from Operations” shall mean, for any period, all Rents and all other income and proceeds (whether in cash or on credit, and computed in accordance with GAAP and, to the extent applicable with respect to the Hotel/Casino Property, the Uniform System of Accounts), received by any Mortgage Borrower or by any Manager (on behalf of any Mortgage Borrower) or by Sub-Manager (on behalf of any Mortgage Borrower or any Manager) for the use, occupancy or enjoyment of any of the Properties, or any part thereof, or received by any Mortgage Borrower or any Manager or Sub-Manager for the sale of any goods, services or other items sold on or provided from any of the Properties in the ordinary course of such Property’s operation, including, without limitation: (a) all income and proceeds received under Leases, including, without limitation, the HRHI Lease; (b) all income and proceeds received from rental of rooms and commercial, meeting, conference and/or banquet space within any of the Properties including net parking revenue; (c) all income and proceeds received from food and beverage operations and from catering services conducted from any of the Properties even though rendered outside of any of the Properties; (d) without duplication of the foregoing clause (a) or the following clause (e), all income, proceeds and other amounts received by any Mortgage Borrower under the Gaming Sublease; (e) without duplication of the foregoing clauses (a) or (d), all income, proceeds and revenue generated from gaming activities at any Property; (f) any payments received by or on behalf of any Mortgage Borrower under the Gaming Assets Note, the Gaming Shortfall Notes or the Working Capital Note or from the Surplus Fund Reserve; (g) all income and proceeds from business interruption, rental interruption and use and occupancy insurance with respect to the operation of any of the Properties (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof); (h) all Awards for temporary use (after deducting therefrom all costs incurred in the adjustment or collection thereof and in Restoration of any of the Properties); (i) all income and proceeds from judgments, settlements and other resolutions of disputes with respect to matters which would be includable in this definition of “Gross Income from Operations” if received in the ordinary course of any of the Properties’ operation (after deducting therefrom all necessary costs and expenses incurred in the adjustment or collection thereof); (j) interest on credit accounts, rent concessions or credits,

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and other required pass-throughs and interest on Reserve Funds; and (k) deposits received for rental of rooms; and “Gross Income from Operations” shall also include all licensing fees and other income and receipts generated by the IP; but “Gross Income from Operations” shall exclude (1) gross receipts received by lessees, licensees or concessionaires of any of the Properties (but not any percentage rents or similar payments derived therefrom); (2) income and proceeds from the sale or other disposition of goods, FF&E, capital assets and other items not in the ordinary course of the operation of the applicable Property; (3) federal, state and municipal excise, sales and use taxes collected directly from customers, patrons or guests of any of the Properties as a part of or based on the sales price of any goods, services or other items, such as gross receipts, room, admission, cabaret or equivalent taxes; (4) Awards (except to the extent provided in clause (h) above); (5) refunds, rebates, discounts and other similar credits of amounts not included in Operating Expenses at any time and uncollectible accounts; (6) gratuities collected by the employees at any of the Properties; (7) the proceeds of any financing, refinancing or sale of any of the Properties (or all of the membership interests in any Mortgage Borrower) or the FF&E; (8) other non-recurring income or proceeds resulting other than from the use or occupancy of any of the Properties, or any part thereof, or other than from the sale of goods, services or other items sold on or provided from any of the Properties in the ordinary course of business; (9) any credits or refunds made to customers, guests or patrons in the form of allowances or adjustments to previously recorded revenues; (10) deposits received for rental of banquet space or business or conference meeting rooms; (11) security deposits received under any Leases, unless and until the same shall be applied in accordance with the terms of the applicable Lease(s); (12) all proceeds from insurance to the extent not included in income pursuant to clause (g) above; and (13) any disbursements to (i) any Mortgage Borrower from any of the Mortgage Reserve Funds, (ii) any First Mezzanine Borrower from any of the First Mezzanine Reserve Funds, (iii) any Second Mezzanine Borrower from any of the Second Mezzanine Reserve Funds, or (iv) any Borrower from any of the Reserve Funds, as applicable, and any interest earned thereon.

     “Guaranties” shall mean, collectively, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty (if and when executed and delivered in accordance with the terms of this Agreement), and the HRHI Guaranty.

     “Guarantor” shall mean each of the Morgans Guarantor and the DLJ Guarantor.

     “Guarantor Transfer” shall have the meaning set forth in Section 5.2.10(d)(D) hereof.

     “Hotel/Casino Borrower” shall mean HRHH Hotel/Casino, LLC, a Delaware limited liability company, together with its successors and assigns.

     “Hotel/Casino Property” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “HRHI” shall mean Hard Rock Hotel, Inc., a Nevada corporation, together with its successors and permitted assigns.

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     “HRHI Gaming Agreement” shall mean that certain HRHI Gaming Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower and HRHI in connection with the Gaming Sublease and the gaming operations at the Hotel/Casino Property, as amended by the Mortgage Loan Document Modification Agreement and the HRHI Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Guaranty” shall mean that certain Third Mezzanine HRHI Guaranty Agreement, dated as of the date hereof, from HRHI to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Lease” shall mean that certain Lease, dated as of February 2, 2007, between Hotel/Casino Borrower, as landlord, and HRHI, as tenant, covering the Casino Component of the Hotel/Casino Property as more particularly described therein, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HRHI Modification Agreement” shall mean that certain Modification of HRHI Loan Documents and Ratification of HRHI Guaranty, dated as of the date hereof, by and among HRHI and Mortgage Lender.

     “HRHI Security Agreement” shall mean that certain Third Mezzanine HRHI Security Agreement, dated as of the date hereof, from HRHI in favor of Lender, securing the HRHI Guaranty and covering certain assets of HRHI described therein, including, without limitation, all of HRHI’s right, title and interest in and to the Gaming Assets Note, the Gaming Shortfall Notes, the Gaming Surplus Fund Reserve and the Gaming Working Capital Note, as such HRHI Security Agreement may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “HR Holdings” shall mean Hard Rock Hotel Holdings, LLC, a Delaware limited liability company.

     “Improvements” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Property.

     “Indebtedness” of a Person, at a particular date, means the sum (without duplication) at such date of (a) all indebtedness or liability of such Person (including, without limitation, amounts for borrowed money and indebtedness in the form of mezzanine debt and preferred equity); (b) obligations evidenced by bonds, debentures, notes, or other similar instruments; (c) obligations for the deferred purchase price of property or services (including trade obligations for which such Person or its assets are liable); (d) obligations under letters of credit (for which such Person is liable if such amounts were advanced thereunder or for which such Person is liable to reimburse); (e) obligations under acceptance facilities; (f) all guaranties, endorsements (other than for collection or deposit in the ordinary course of business) and other contingent obligations to purchase, to provide funds for payment, to supply funds, to invest in any Person or entity, or otherwise to assure a creditor against loss for which funds are required to be paid; and (g) obligations secured by any Liens, for which such Person or its assets are liable.

     “Indemnified Liabilities” shall have the meaning set forth in Section 10.13(b) hereof.

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     “Indemnified Person” shall have the meaning set forth in Section 9.3(b) hereof.

     “Indemnified Taxes” shall mean taxes other than Excluded Taxes.

     “Independent Director” or “Independent Manager” shall mean a Person who is not at the time of initial appointment, or at any time while serving as a director or manager, as applicable, and has not been at any time during the preceding five (5) years: (a) a stockholder, director (with the exception of serving as the Independent Director or Independent Manager of a Borrower), officer, employee, partner, member (other than a “special member” or “springing member”), manager, attorney or counsel of any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of any of them; (b) a customer, supplier or other person who derives any of its purchases or revenues from its activities with any Loan Party, any Mezzanine Borrower, Gaming Member, HRHI or any Affiliate of any of them; (c) a Person Controlling or under common Control with any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person; or (d) a member of the immediate family of any such stockholder, director, officer, employee, partner, member, manager, customer, supplier or other Person. A natural Person who satisfies the foregoing definition other than clause (b) shall not be disqualified from serving as an Independent Director or Independent Manager of a Borrower if such natural Person is an independent director or independent manager provided by a nationally recognized company that provides professional independent directors or independent managers and that also provides other corporate services in the ordinary course of its business. A natural Person who otherwise satisfies the foregoing definition except for being the independent director or independent manager of a “special purpose entity” affiliated with any Borrower that does not own a direct or indirect equity interest in any Borrower shall not be disqualified from serving as an Independent Director or Independent Manager of a Borrower if such individual is at the time of initial appointment, or at any time while serving as a Independent Director of a Borrower, an Independent Director or Independent Manager of a “special purpose entity” affiliated with a Borrower (other than any Person that owns a direct or indirect equity interest in any Borrower) if such natural Person is an independent director or independent manager provided by a nationally-recognized company that provides professional independent directors or independent managers.

     “Initial Construction Loan Advance” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Initial Maturity Date” shall mean, as applicable, either (a) the Qualified Initial Maturity Date, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date, or (b) the Non-Qualified Initial Maturity Date, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date.

     “Initial Renovation Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.5 hereof.

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     “Initial Renovation Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.5 hereof.

     “Insolvency Opinion” shall mean that certain non-consolidation opinion letter dated the date hereof delivered by Latham & Watkins LLP in connection with the Loan.

     “Insurance Premiums” shall have the meaning set forth in Section 6.1(a) hereof.

     “Insurance Proceeds” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Intellectual Property Security Agreement” shall mean that certain Third Mezzanine Intellectual Property Security Agreement, dated as of the date hereof, by HRHI in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Intercreditor Agreement” shall mean that certain Intercreditor Agreement, dated as of the date hereof, by and among Lender, Mortgage Lender, First Mezzanine Lender and Second Mezzanine Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time in accordance with the terms thereof.

     “Interest Period” shall mean, with respect to any Payment Date, the period commencing on the ninth (9th) day of the preceding calendar month and terminating on and including the eighth (8th) day of the calendar month in which such Payment Date occurs; provided, however, that no Interest Period shall end later than the Maturity Date (other than for purposes of calculating interest at the Default Rate), and the initial Interest Period shall begin on and include the Closing Date and shall end on and include November 8, 2007.

     “Interest Rate Cap Agreement” shall mean, as applicable, an interest rate cap agreement (together with the confirmation and schedules relating thereto) in form and substance reasonably satisfactory to Lender by and among Borrowers and an Acceptable Counterparty or a Replacement Interest Rate Cap Agreement.

     “Interest Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.4 hereof.

     “Interest Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.4 hereof.

     “Interest Shortfall” shall mean, as of any applicable Payment Date, the amount by which the Monthly Interest Payment due on such Payment Date exceeds the sum of the funds available in the Mortgage Cash Management Account on such Payment Date after satisfying the items in clauses (i) through (x) inclusive of Section 2.6.2(b) of the Mortgage Loan Agreement.

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     “Internal Approvals” shall have the meaning set forth in Section 13.2(b) hereof.

     “IP” shall have the meaning set forth in Section 4.1.37(a) hereof.

     “IP Agreements” shall have the meaning set forth in Section 4.1.37(a) hereof.

     “IP Borrower” shall mean HRHH IP, LLC, a Delaware limited liability company, together with its successors and assigns.

     “IP License” shall have the meaning set forth in Section 5.1.26(a) hereof.

     “IP Material Adverse Effect” shall have the meaning set forth in Section 4.1.37(d) hereof.

     “IP Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “IP Sale” shall have the meaning set forth in Section 2.5.3(a) hereof.

     “Lease” shall mean any lease, sublease or subsublease, letting, license, concession or other agreement (whether written or oral and whether now or hereafter in effect) pursuant to which any Person is granted a possessory interest in, or right to use or occupy all or any portion of any space in any Property, including, without limitation, the HRHI Lease, and (a) every modification, amendment or other agreement relating to such lease, sublease, subsublease, or other agreement entered into in connection with such lease, sublease, subsublease, or other agreement, and (b) every guarantee of the performance and observance of the covenants, conditions and agreements to be performed and observed by the other party thereto. The foregoing definition expressly excludes ordinary course hotel room rentals.

     “Legal Requirements” shall mean, with respect to each Property and the Collateral, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting such Property or the Collateral or any part of either of the foregoing, or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, including, without limitation, the Gaming Laws and the Americans with Disabilities Act of 1990, as amended, and all permits, licenses and authorizations and regulations relating thereto, including, without limitation, all Governmental Approvals, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to any Loan Party, at any time in force affecting such Property or the Collateral or any part of either of the foregoing, including, without limitation, any which may (a) require repairs, modifications or alterations in or to such Property or any part thereof, or (b) in any way limit the use and enjoyment thereof.

     “Lender” shall have the meaning set forth in the introductory paragraph hereto.

     “Lender’s Rejection Notice” shall have the meaning set forth in Section 13.2(c) hereof.

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     “Letter of Credit” shall mean an irrevocable, unconditional (other than ministerial conditions), transferable, clean sight draft letter of credit, as the same may be replaced, split, substituted, modified, amended, supplemented, assigned or otherwise restated from time to time, (either an evergreen letter of credit or a letter of credit which does not expire until at least two (2) Business Days after the Maturity Date or such earlier date as such Letter of Credit is no longer required pursuant to the terms of this Agreement) in favor of Lender and entitling Lender to draw thereon based solely on a statement purportedly executed by an officer of Lender stating that it has the right to draw thereon, and issued by a (i) domestic Approved Bank or the U.S. agency or branch of a foreign Approved Bank, or if there are no domestic Approved Banks or U.S. agencies or branches of a foreign Approved Bank then issuing letters of credit, then such letter of credit may be issued by a domestic bank, the long term unsecured debt rating of which is the highest such rating then given by the Rating Agency or Rating Agencies, as applicable, to a domestic commercial bank, or (ii) Credit Suisse, Cayman Islands Branch so long as it has and maintains a minimum long term unsecured debt rating of at least “A+” by S&P and Fitch and “A1” by Moody’s.

     “Liabilities” shall have the meaning set forth in Section 9.3(b) hereof.

     “LIBOR” shall mean, with respect to each Interest Period, the rate (expressed as a percentage per annum and rounded upward, if necessary, to the next nearest 1/100,000th of 1% (0.00001%)) for deposits in U.S. dollars, for a one-month period, that appears on Telerate Page 3750 (or the successor thereto) as of 11:00 a.m., London time, on the related Determination Date. If such rate does not appear on Telerate Page 3750 as of 11:00 a.m., London time, on such Determination Date, LIBOR shall be the arithmetic mean of the offered rates (expressed as a percentage per annum) for deposits in U.S. dollars for a one-month period that appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, if at least two such offered rates so appear. If fewer than two such offered rates appear on the Reuters Screen Libor Page as of 11:00 a.m., London time, on such Determination Date, Lender shall request the principal London office of any four major reference banks in the London interbank market selected by Lender in its reasonable discretion to provide such bank’s offered quotation (expressed as a percentage per annum) to prime banks in the London interbank market for deposits in U.S. dollars for a one-month period as of 11:00 a.m., London time, on such Determination Date for amounts of not less than U.S. $1,000,000. If at least two such offered quotations are so provided, LIBOR shall be the arithmetic mean of such quotations. If fewer than two such quotations are so provided, Lender shall request any three major banks in New York City selected by Lender in its reasonable discretion to provide such bank’s rate (expressed as a percentage per annum) for loans in U.S. dollars to leading European banks for a one-month period as of approximately 11:00 a.m., New York City time on the applicable Determination Date for amounts of not less than U.S. $1,000,000. If at least two such rates are so provided, LIBOR shall be the arithmetic mean of such rates. LIBOR shall be determined conclusively by Lender or its agent, absent manifest error.

     “LIBOR Loan” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon LIBOR.

     “Licensed IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

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     “Lien” shall mean any mortgage, deed of trust, lien, pledge, hypothecation, assignment, security interest, put, call, option, warrant, proxy, voting agreement or any other encumbrance, charge or transfer of, on or affecting any Loan Party, any of the Properties, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral or any portion of any of the foregoing or any interest therein, including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, the filing of any financing statement, and mechanic’s, materialmen’s and other similar liens and encumbrances. For the avoidance of doubt, “Lien” shall not be deemed to include any Permitted IP Encumbrances.

     “Liquidation Event” shall have the meaning set forth in Section 2.4.3(a) hereof.

     “Liquor Management Agreement” shall mean, with respect to the Hotel/Casino Property and, if applicable, the Adjacent Property, that certain Liquor Management and Employee Services Agreement, dated as of February 2, 2007, between Hotel/Casino Borrower and HRHI, in its capacity as the Liquor Manager, as the same may be amended, modified or supplemented from time to time, pursuant to which the Liquor Manager shall manage all alcoholic beverage services at the Hotel/Casino Property and, if applicable, the Adjacent Property, or, if the context requires, a Replacement Liquor Management Agreement.

     “Liquor Manager” shall mean, with respect to the Hotel/Casino Property, HRHI, or, if the context requires, another Qualified Liquor Manager.

     “Loan” shall mean the loan made by Lender to Borrowers pursuant to this Agreement in a maximum principal amount of up to Sixty Five Million and No/100 Dollars ($65,000,000), which shall be evidenced by the Note.

     “Loan Budget” shall mean the budget for total estimated Project Costs prepared by Mortgage Borrowers and approved by Mortgage Lender in its reasonable discretion, which shall detail all items of direct and indirect costs estimated to be incurred in connection with the construction of the Project, and all amendments and modifications thereto approved by Mortgage Lender in accordance with the Mortgage Loan Agreement.

     “Loan Documents” shall mean, collectively, this Agreement, the Note, the Pledge Agreement, the Environmental Indemnity, the Assignment of Management Agreement (All Properties), the Assignment of Liquor Management Agreement, the Intellectual Property Security Agreement, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty (if and when executed and delivered in accordance with the terms of this Agreement), the HRHI Guaranty, the HRHI Security Agreement, the Cash Management Agreement, the Collateral Assignment of Interest Rate Cap Agreement and all other documents executed and/or delivered in connection with the Loan, as any of the foregoing hereafter may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Loan Party” shall mean any of Borrowers and/or any of Mortgage Borrowers and/or any of First Mezzanine Borrowers and/or any of Second Mezzanine Borrowers and “Loan Parties” shall refer collectively to all of them.

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     “Loan Percentage” shall mean, as of any date and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Outstanding Principal Balance on such date and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date.

     “Lockbox Account” shall have the meaning set forth in Section 2.6.1(a) hereof.

     “Lockbox Bank” shall mean Wells Fargo Bank, National Association, or any successor or permitted assigns thereof.

     “London Business Day” shall mean any day other than a Saturday, Sunday or any other day on which commercial banks in London, England are not open for business.

     “Major Lease” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Management Agreement” shall mean, with respect to each Property, the property management agreement entered into by and between the applicable Mortgage Borrower or Mortgage Borrowers and the applicable Manager, as the same has been and may be amended, modified or supplemented from time to time, pursuant to which such Manager is to provide property management and other services with respect to the Property owned by such Mortgage Borrower, or, if the context requires, a Replacement Management Agreement; provided, however, that the foregoing definition shall expressly exclude the Sub-Management Agreement.

     “Manager” shall mean Morgans Hotel Group Management LLC or, if the context requires, a Qualified Manager who is managing any of the Properties, it being understood that the foregoing definition shall expressly exclude the Sub-Manager.

     “Material Economic Terms” shall have the meaning set forth in Section 13.1 hereof.

     “Maturity Date” shall mean the Initial Maturity Date or, if applicable, the Extended Maturity Date, or such other date on which the final payment of principal of the Note becomes due and payable as therein or herein provided, whether at such stated maturity date, by declaration of acceleration, or otherwise.

     “Maximum Legal Rate” shall mean the maximum non-usurious interest rate, if any, that at any time or from time to time may be contracted for, taken, reserved, charged or received on the indebtedness evidenced by the Note and as provided for herein or the other Loan Documents, under the laws of such state or states whose laws are held by any court of competent jurisdiction to govern the interest rate provisions of the Loan.

     “Merger Agreement” shall mean that certain Agreement and Plan of Merger, dated as of May 11, 2006, by and among Morgans Hotel Group Co., MHG HR Acquisition Corp., Hard Rock Hotel, Inc. and Peter A. Morton, as amended by that certain First Amendment to Agreement and Plan of Merger, dated as of January 30, 2007.

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     “Mezzanine Borrower” or “Mezzanine Borrowers” shall mean, individually or collectively, as the context may require, First Mezzanine Borrowers and Second Mezzanine Borrowers.

     “Mezzanine Default” shall mean any First Mezzanine Default and/or Second Mezzanine Default, as applicable.

     “Mezzanine Event of Default” shall mean any First Mezzanine Event of Default and/or Second Mezzanine Event of Default, as applicable.

     “Mezzanine Lender” or “Mezzanine Lenders” shall mean, individually or collectively, as the context may require, First Mezzanine Lender and Second Mezzanine Lender, and each of First Mezzanine Lender and/or Second Mezzanine Lender.

     “Mezzanine Loan” or “Mezzanine Loans” shall mean, individually or collectively, as the context may require, the First Mezzanine Loan and the Second Mezzanine Loan, and each of the First Mezzanine Loan and/or the Second Mezzanine Loan, individually, a “Mezzanine Loan”.

     “Mezzanine Loan Documents” shall mean all documents evidencing and/or securing the Mezzanine Loans and all documents executed and/or delivered in connection therewith, as any of the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Minimum Mandatory Amount” shall mean, as of any date of determination, (a) if one or more Release Parcel Sales have not resulted in Release Parcel Release Prices paid to Mortgage Lender in an aggregate amount of at least $40,000,000.00 prior to such date of determination, then the Minimum Mandatory Amount shall mean $110,000,000.00, or (b) if one or more Release Parcel Sales have resulted in Release Parcel Release Prices paid to Mortgage Lender in an aggregate amount in excess of $40,000,000.00 prior to such date of determination, then the Minimum Mandatory Amount shall mean an amount equal to the difference between (i) $110,000,000.00 and (ii) the aggregate amount of Release Parcel Release Prices paid to Mortgage Lender prior to such date of determination, but in no event shall such calculation result in a negative number.

     “Minimum Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(a)(i) hereof.

     “Moody’s” shall mean Moody’s Investors Service, Inc.

     “Monthly Interest Payment” shall have the meaning set forth in Section 2.3.1 hereof.

     “Monthly Gaming Requirement Certificate” shall have the meaning set forth in Section 12.2 hereof.

     “Morgans Guarantor” shall mean Morgans Group LLC, a Delaware limited liability company, together with its successors and permitted assigns.

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     “Morgans Parent” shall mean Morgans Hotel Group Co., a Delaware corporation, together with its successors and permitted assigns.

     “Mortgage” shall mean that certain first priority Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007, from Mortgage Borrowers to Mortgage Lender, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Mortgage Applicable Interest Rate” shall mean the “Applicable Interest Rate” as defined in the Mortgage Loan Agreement.

     “Mortgage Borrower” shall mean any of Hotel/Casino Borrower, Café Borrower, Adjacent Borrower, IP Borrower and Gaming Borrower, and “Mortgage Borrowers” shall refer collectively to all of them.

     “Mortgage Cash Management Account” shall have the meaning set forth in Section 2.6.2(a) hereof.

     “Mortgage Cash Management Agreement” shall mean the “Cash Management Agreement” as defined in the Mortgage Loan Agreement.

     “Mortgage Debt” shall mean the “Debt” as defined in the Mortgage Loan Agreement.

     “Mortgage Default” shall mean a “Default” under and as defined in the Mortgage Loan Agreement.

     “Mortgage Distributions” shall have the meaning set forth in Section 5.2.14(a) hereof.

     “Mortgage Event of Default” shall mean an “Event of Default” under and as defined in the Mortgage Loan Agreement.

     “Mortgage Lender” shall mean Column Financial, Inc., in its capacity as holder of the Mortgage Loan, together with its successors and assigns.

     “Mortgage Lender Successor Owner” shall have the meaning set forth in Section 5.1.23 hereof.

     “Mortgage Loan” shall mean the loan in a maximum principal amount of up to One Billion Thirty Million and No/100 Dollars ($1,030,000,000), made by Mortgage Lender to Mortgage Borrowers pursuant to the Mortgage Loan Agreement, comprised of (i) the Reduced Acquisition Loan and (ii) the Construction Loan (as such terms are defined in the Mortgage Loan Agreement).

     “Mortgage Loan Agreement” shall mean that certain Loan Agreement dated as of February 2, 2007, as amended and restated by the Amended and Restated Loan Agreement dated as of the date hereof, each among Mortgage Lender and Mortgage Borrowers, as the same may

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be further amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Mortgage Loan Documents” shall mean, collectively, the Mortgage Loan Agreement, the Mortgage Note, the Mortgage, and any an all other documents defined as “Loan Documents” in the Mortgage Loan Agreement, as amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Mortgage Loan Document Modification Agreement” shall mean that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of the date hereof, by and among Mortgage Borrowers and Mortgage Lender.

     “Mortgage Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the Mortgage Loan Agreement.

     “Mortgage Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Mortgage Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

     “Mortgage Note” and “Mortgage Notes” shall mean, individually or collectively, as applicable, (i) that certain Replacement Reduced Acquisition Loan Promissory Note, dated the date hereof, in the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by Mortgage Borrowers in favor of Mortgage Lender, as the same may be further replaced, amended, restated, supplemented or otherwise modified from time to time, and (ii) that certain Replacement Construction Loan Promissory Note, dated the date hereof, in the principal amount of Six Hundred Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage Borrowers in favor of Mortgage Lender, as the same may be further replaced, amended, restated, supplemented or otherwise modified from time to time.

     “Mortgage Reduced Acquisition Loan Percentage” shall mean the “Reduced Acquisition Loan Percentage” as defined in the Mortgage Loan Agreement.

     “Mortgage Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the Interest Reserve Fund, the General Reserve Fund, any funds on deposit in the Construction Loan Reserve Account, any Shortfall Funds and any other escrow fund established pursuant to the Mortgage Loan Documents.

     “Mortgage Spread” shall mean the “Reduced Acquisition Loan Spread” and/or the “Construction Loan Spread” each as defined in the Mortgage Loan Agreement.

     “Morton” shall mean Peter A. Morton.

     “Morton Assigned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

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     “Morton Indemnification” shall mean that certain Indemnification Agreement, dated as of May 11, 2006, between Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, and Morton, as the same has been and may be amended, modified or supplemented from time to time.

     “Named Knowledge Parties” shall have the meaning set forth in Section 4.3 hereof.

     “Navegante Agreement” shall mean that certain Agreement, dated as of October 31, 2007, by and among Navegante HR, LLC, Morgans Parent, HRHI, Mortgage Lender and Navegante Gaming, LLC, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Net Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Net Liquidation Proceeds After Debt Service” shall mean, with respect to any Liquidation Event, all amounts paid to or received by or on behalf of any Loan Party in connection with such Liquidation Event after payment of all amounts then due to Mortgage Lender, and then, First Mezzanine Lender, and then, Second Mezzanine Lender, and then, Lender, including, without limitation, proceeds resulting from any Casualty to or Condemnation of any Property and proceeds of any sale, refinancing or other disposition or liquidation, less (without duplication of amounts already paid to or retained by Mortgage Lender, First Mezzanine Lender, Second Mezzanine Lender or Lender) (a) in the event of a Liquidation Event consisting of a Casualty or Condemnation, Mortgage Lender’s, First Mezzanine Lender’s, Second Mezzanine Lender’s and/or Lender’s reasonable costs incurred in connection with the recovery thereof; (b) in the event of a Liquidation Event consisting of a Casualty or Condemnation, the costs incurred by any Mortgage Borrower in connection with a Restoration of all or any portion of any Property made in accordance with the Mortgage Loan Documents; (c) in the event of a Liquidation Event consisting of a Casualty or Condemnation or a Transfer, amounts required or permitted to be deducted therefrom and amounts paid pursuant to the Mortgage Loan Documents to Mortgage Lender; (d) in the event of a Liquidation Event consisting of a Casualty or Condemnation, those proceeds paid to any Mortgage Borrower pursuant to Section 6.4(c)(vii) of the Mortgage Loan Agreement; (e) in the case of a foreclosure sale, disposition or transfer of any Property in connection with realization thereon following a Mortgage Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (f) in the case of a foreclosure sale, disposition or transfer of the First Mezzanine Collateral in connection with realization thereon following a First Mezzanine Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (g) in the case of a foreclosure sale, disposition or transfer of the Second Mezzanine Collateral in connection with realization thereon following a Second Mezzanine Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (h) in the case of a foreclosure sale, disposition or transfer of the Collateral in connection with realization thereon following an Event of Default, such reasonable and customary costs and expenses of sale or other disposition (including attorneys’ fees and brokerage commissions); (i) in the case of a foreclosure sale, such costs and expenses incurred by (i) Mortgage Lender under the Mortgage Loan Documents as

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Mortgage Lender shall be entitled to receive reimbursement for under the terms of the Mortgage Loan Documents, (ii) First Mezzanine Lender under the First Mezzanine Loan Documents as First Mezzanine Lender shall be entitled to receive reimbursement for under the terms of the First Mezzanine Loan Documents, (iii) Second Mezzanine Lender under the Second Mezzanine Loan Documents as Second Mezzanine Lender shall be entitled to receive reimbursement for under the terms of the Second Mezzanine Loan Documents, and/or (iv) Lender under the Loan Documents as Lender shall be entitled to receive reimbursement for under the terms of the Loan Documents; (j) in the case of a refinancing of the Mortgage Loan, the First Mezzanine Loan, the Second Mezzanine Loan or the Loan, such costs and expenses (including attorneys’ fees) of such refinancing; and (k) the amount of any prepayments required pursuant to the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents and/or the Loan Documents in connection with any such Liquidation Event.

     “Net Operating Income” shall mean, for any period, the amount obtained by subtracting Operating Expenses for the Properties for such period from Gross Income from Operations for such period.

     “Net Proceeds” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Net Worth Requirements” shall mean those requirements set forth on Schedule V attached hereto and made a part hereof.

     “Non-Fully Prepaid IP Sale” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Non-Qualified Extended Maturity Date” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1 hereof.

     “Non-Qualified Initial Maturity Date” shall mean February 9, 2009.

     “Non-Qualified Mandatory Prepayment” shall have the meaning set forth in Section 2.4.2(b) hereof.

     “Non-Qualified Prepayment Guaranty” shall mean that certain Third Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Non-Qualified Prepayment Letter of Credit” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

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     “Non-Recourse Guaranty” shall mean that certain Third Mezzanine Guaranty Agreement, dated as of the date hereof, from Guarantors to Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Non-U.S. Lender” shall mean any Lender that is organized under the laws of a jurisdiction other than laws of the United States of America, any State thereof or the District of Columbia.

     “Note” shall mean that certain Third Mezzanine Promissory Note, dated the date hereof, in the principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), made by Borrowers in favor of Lender, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Notice” shall have the meaning set forth in Section 10.6 hereof.

     “NRS” shall mean the Nevada Revised Statutes, as amended from time to time.

     “O&M Agreement” shall mean an Operations and Maintenance Agreement, dated as of February 2, 2007, by and among a Mortgage Borrower and Mortgage Lender given in connection with the Mortgage Loan, as amended by the Mortgage Loan Document Modification Agreement and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time. On February 2, 2007, O&M Agreements were entered into by each of Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.

     “Obligations” shall mean, collectively, Borrowers’ obligations for the payment of the Debt and the performance of the Other Obligations.

     “Officer’s Certificate” shall mean a certificate delivered to Lender by a Borrower or a Guarantor, as applicable, which is signed by an authorized officer or manager of such Borrower or Guarantor or a Constituent Member thereof, as applicable, which shall in all events be subject to Section 9.4(a) hereof.

     “Operating Expenses” shall mean, for any period, the total of all expenditures, computed in accordance with GAAP, of whatever kind during such period relating to the operation, maintenance and/or management of any of the Properties that are incurred on a regular monthly or other periodic basis, including without limitation, utilities, ordinary repairs, maintenance, environmental and engineering (but excluding utilities) (which ordinary repairs, maintenance, environmental and engineering (but excluding utilities) for the purposes of this definition shall be no less than an assumed expense of $400,000.00 per month, and following the First Full Operating Month, such assumed expense shall increase to $600,000.00 per month, insurance, license fees, property taxes and assessments, advertising expenses, base and incentive management fees, payroll and related taxes, computer processing charges, tenant improvements and leasing commissions, operational equipment or other lease payments as approved by Lender, and other similar costs, but excluding depreciation and amortization with respect to the Properties, Debt Service, debt service under the Mortgage Loan, debt service under each of the Mezzanine Loans, Capital Expenditures, items that would otherwise constitute Project Costs, Extraordinary Expenses, the cost of any items incurred at any Manager’s expense pursuant to any Management Agreement or at the Sub-Manager’s expense pursuant to the Sub-Management

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Agreement, non-recurring expenses and contributions to any of the Mortgage Reserve Funds, the First Mezzanine Reserve Funds, the Second Mezzanine Reserve Funds or the Reserve Funds, as applicable. Operating Expenses shall also include the cost (computed in accordance with GAAP) of any complimentary food, beverages, hotel room and/or other amenities provided to any customers or guests of the Hotel/Casino Property, including, without limitation, under the Gaming Sublease, under the Liquor Management Agreement and/or under any Management Agreement.

     “Operating Permits” shall have the meaning set forth in Section 4.1.22 hereof.

     “Optional IP Release Payment” shall have the meaning set forth in Section 2.4.4(g) hereof.

     “Original Mortgage Loan” shall have the meaning set forth in the recitals hereof.

     “Original Mortgage Loan Agreement” shall have the meaning set forth in the recitals hereof.

     “Other Charges” shall mean all ground rents, maintenance charges, impositions other than Taxes, and any other charges, including, without limitation, vault charges and license fees for the use of vaults, chutes and similar areas adjoining any Property, now or hereafter levied or assessed or imposed against such Property or any part thereof.

     “Other Obligations” shall mean (a) the performance of all obligations of each Borrower contained herein; (b) the performance of each obligation of each Borrower contained in any other Loan Document; and (c) the performance of each obligation of each Borrower contained in any renewal, extension, amendment, modification, consolidation, change of, or substitution or replacement for, all or any part of this Agreement, the Note or any other Loan Documents.

     “Other Taxes” means any and all stamp or documentary taxes or any other excise or property taxes, or similar governmental charges or levies imposed, enacted or to become effective after the date hereof, arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement. Other Taxes shall not include Excluded Taxes.

     “Outstanding Principal Balance” shall mean, as of any date, the outstanding principal balance of the Loan.

     “Owned IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Partial Adjacent Parcel” shall have the meaning set forth in Section 2.5.2(a) hereof.

     “Partial Release Parcel” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Payment Date” shall mean the ninth (9th) day of each calendar month during the term of the Loan or, if such day is not a Business Day, the immediately preceding Business Day. The first Payment Date shall be November 9, 2007.

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     “Permitted Adjacent/Café Uses” shall have the meaning set forth in Section 4.1.11 hereof.

     “Permitted Encumbrances” shall mean, with respect to a Property, collectively (a) the Liens and security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents, (b) all Liens, encumbrances and other matters disclosed in the Title Insurance Policy relating to such Property, (c) Liens, if any, for Taxes imposed by any Governmental Authority not yet delinquent, (d) such other title and survey exceptions, documents, agreements or instruments as Mortgage Lender has approved or may approve in writing in Mortgage Lender’s reasonable discretion, (e) easements, restrictions, covenants and/or reservations which are necessary for the operation of such Property that do not and would not have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, any Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (f) zoning restrictions and/or laws affecting such Property that do not and would not have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, any Guarantor or any Property or (ii) the value of, or cash flow from, any Property, (g) the Liens securing any Existing FF&E Leases and/or any Permitted Future FF&E Leases, and (h) any other Liens which are being duly contested in accordance with the provisions of Section 5.1.1 or 5.1.2 hereof or Section 3.6(b) of the Mortgage, but only for so long as such contest shall be permitted pursuant to said Section 5.1.1 or 5.1.2 hereof or Section 3.6(b) of the Mortgage, as applicable.

     “Permitted Future FF&E Leases” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Permitted Investment Fund” shall have the meaning set forth in the definition of “Qualified Guarantor Transferee” set forth below.

     “Permitted Investments” shall have the meaning set forth in the Cash Management Agreement.

     “Permitted IP Encumbrances” shall mean, with respect to the IP, collectively (a) the Liens and security interests created by the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents, (b) such other Liens or security interests as Lender may approve in writing in Lender’s sole discretion, (c) the Liens on the IP set forth on Schedule VII hereto, which were extinguished on or prior to the Closing Date, and (d) any IP Agreements permitted under this Agreement.

     “Person” shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

     “Personal Property” shall have the meaning set forth in the granting clause of the Mortgage with respect to each Property.

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     “Physical Conditions Report” shall mean, with respect to each Property, a report prepared by a company reasonably satisfactory to Mortgage Lender regarding the physical condition of such Property, reasonably satisfactory in form and substance to Mortgage Lender.

     “Pink Taco IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Pink Taco License” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Plans and Specifications” shall mean the plans and specifications for the Project prepared by the Architect and reasonably approved by Mortgage Lender in accordance with the terms of the Mortgage Loan Agreement, as the same may be amended and supplemented from time to time in accordance with the terms of the Mortgage Loan Agreement.

     “Pledge Agreement” shall mean that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, executed and delivered by Borrowers to Lender as security for the Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time.

     “Pledged Collateral” shall mean the “Collateral” as defined in the Pledge Agreement.

     “Pledged Interests” shall mean all membership and manager interests in each of Second Mezzanine Borrowers, as described on Schedule III attached hereto.

     “Policies” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Pre-Construction Budget” shall mean a budget, prepared by Mortgage Borrowers and approved by Mortgage Lender in its reasonable discretion, which shall identify the costs and expenses for which the proceeds of any Pre-Construction Advance may be used, and all amendments and modifications thereto reasonably approved by Mortgage Lender.

     “Prepayment Fee” shall mean an amount equal to the following:

     (i) two percent (2.0%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement after the Closing Date through, but excluding, May 9, 2007;

     (ii) one and one-half percent (1.5%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due and payable in accordance with the terms of this Agreement on or after May 9, 2007 through, but excluding, December 9, 2007; and

     (iii) one percent (1.0%) of each of the Minimum Mandatory Prepayment (or any partial payment on account thereof), each Release Parcel Release Price, each Adjacent Parcel Release Price and the IP Release Price, if any of the foregoing are due

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and payable in accordance with the terms of this Agreement on or after December 9, 2007 through, but excluding, the Prepayment Fee Release Date.

     “Prepayment Fee-Generating Prepayment” shall have the meaning set forth in Section 2.4.7 hereof.

     “Prepayment Fee Release Date” shall mean May 9, 2008.

     “Prescribed Laws” shall mean, collectively, (a) the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Public Law 107-56) (The USA PATRIOT Act), (b) Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, and relating to Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, (c) the International Emergency Economic Power Act, 50 U.S.C. §1701 et. seq., and (d) all other Legal Requirements relating to money laundering or terrorism.

     “Prime Rate” shall mean the annual rate of interest publicly announced by Citibank, N.A. in New York, New York, as its base rate, as such rate shall change from time to time. If Citibank, N.A. ceases to announce a base rate, Prime Rate shall mean the rate of interest published in The Wall Street Journal from time to time as the “Prime Rate”. If more than one “Prime Rate” is published in The Wall Street Journal for a day, the average of such “Prime Rates” shall be used, and such average shall be rounded up to the nearest one-hundredth (100th) of one percent (1%). If The Wall Street Journal ceases to publish the “Prime Rate”, Lender shall select an equivalent publication that publishes such “Prime Rate”, and if such “Prime Rates” are no longer generally published or are limited, regulated or administered by a governmental or quasigovernmental body, then Lender shall select a comparable interest rate index.

     “Prime Rate Loan” shall mean the Loan at such time as interest thereon accrues at a rate of interest based upon the Prime Rate.

     “Prime Rate Spread” shall mean the difference (expressed as the number of basis points) between (a) LIBOR plus the Spread on the date LIBOR was last applicable to the Loan and (b) the Prime Rate on the date that LIBOR was last applicable to the Loan; provided, however, in no event shall such difference be a negative number.

     “Pro-Forma Net Cash Flow” shall mean, as of any date of determination, (i) Gross Income from Operations collected for the trailing three (3) month period ending with the last calendar month for which financial reports are then required to have been delivered under Section 5.1.11 hereof, multiplied by four (4), less (ii) actual Operating Expenses for the trailing twelve (12) month period ending with such last calendar month for which financial reports are then required to have been delivered under Section 5.1.11 hereof, as adjusted by Lender to reflect any actual increases to Operating Expenses then known to Lender (i.e., real estate taxes and insurance premiums) as reflected in the Approved Annual Budget in effect.

     “Project” shall mean those renovations and improvements (exclusive of the Initial Renovations) expected to be constructed and performed on the Hotel/Casino Property and the Adjacent Property in accordance with the terms of the Mortgage Loan Agreement and the other Mortgage Loan Documents, including, without limitation, a parking facility, an expansion of the

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hotel and casino on the Hotel/Casino Property and the construction of an approximately 440 room hotel facility, as generally described on Schedule II attached hereto and as more particularly described in the Plans and Specifications.

     “Project Costs” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Projected Underwritten Net Cash Flow” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Property” and “Properties” shall mean, individually and collectively, each and every one of the Hotel/Casino Property, the Café Property and the Adjacent Property that, as of any particular date, is subject to the terms of the Mortgage Loan Agreement, the Mortgage and the other Mortgage Loan Documents.

     “Provided Information” shall mean any and all financial and other information prepared and provided by any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor or under the supervision or control of any Loan Party, any Manager, Sub-Manager, HRHI or any Guarantor (but excluding third party independent reports) with respect to one or more of the Properties, the IP, the Collateral, any Loan Party, any Mezzanine Borrower, any Manager, Sub-Manager, HRHI and/or any Guarantor.

     “Publicly Traded Company” shall mean any Person with a class of securities traded on a national or international securities exchange and/or registered under Section 12(b) or 12(g) of the Securities Exchange Act or 1934.

     “PWR/RWB Escrow Agreement” shall mean that certain Escrow Agreement, dated as of May 11, 2006, between PM Realty, LLC, Red, White and Blue Pictures, Inc., Morton, 510 Development Corporation, Morgans Hotel Group Co., the indirect parent of each of Mortgage Borrowers, Morgans Group LLC and Chicago Title Agency of Nevada, Inc., as the same has been and may be amended, modified or supplemented from time to time.

     “Qualification Conditions” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Qualified Extended Maturity Date” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Extension Option” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Extension Term” shall have the meaning set forth in Section 2.7.2 hereof.

     “Qualified Gaming Operator” shall mean (a) Golden HRC, LLC, (b) Gaming Borrower, if and when Gaming Borrower shall become the Gaming Operator for the Hotel/Casino Property in accordance with the provisions of Article XII hereof, (c) Navegante HR, LLC, if and when Navegante HR, LLC shall become the Gaming Operator for the Hotel/Casino Property in accordance with the provisions of the Navegante Agreement, or (d) a reputable and experienced gaming operator (which may be an Affiliate of any Mortgage

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Borrower) possessing experience in supervising, operating and managing gaming activities at properties similar in size, scope, use and value as the Hotel/Casino Property; provided, that with respect to any Person under any of the foregoing clauses (a), (b), (c) or (d), such Person shall have, at all times during its engagement as Gaming Operator, all required approvals and licenses from all applicable Governmental Authorities, including, without limitation, all Gaming Authorities, and provided, further, that with respect to the foregoing clause (d): (i) such Person shall be reasonably acceptable to Mortgage Lender and such Person shall agree to operate the gaming operations at the Hotel/Casino Property pursuant to one or more written agreements previously approved by Mortgage Lender in its reasonable discretion (including, by way of example but without limitation, a new lease and/or sublease and related recognition agreement), (ii) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that the supervision, operation and management of the gaming activities at the Hotel/Casino Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (iii) if such Person is an Affiliate of any Loan Party, (A) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (B) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Guarantor Transferee” shall mean any one or more of the following:

     (i) an investment trust, bank, saving and loan association, insurance company, trust company, commercial credit corporation, pension plan, pension fund or pension advisory firm, mutual fund, government entity or plan;

     (ii) an investment company, money management firm or “qualified institutional buyer” within the meaning of Rule 144A under the Securities Act, as amended, or an entity that is an “accredited investor” within the meaning of Regulation D under the Securities Act, as amended;

     (iii) an institution substantially similar to any of the entities described in the foregoing clause (i) or (ii);

     (iv) any entity Controlling or Controlled by or under common Control with any of the entities described in the foregoing clause (i) or (ii);

     (v) any Person (a) with a long-term unsecured debt rating from the Rating Agencies of at least Investment Grade or (b) who, together with its Affiliates, (A) (x) owns in its entirety, or (y) owns a general partnership interest, managing membership interest or other equivalent ownership and management interest in, an entity that owns, or (z) operates, at least ten (10) full service hotels exclusive of the Properties totaling in the aggregate no less than 3,500 rooms; or

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     (vi) any other Person (including opportunity funds) that has been approved as a Qualified Guarantor Transferee by the Rating Agencies.

     “Qualified Initial Maturity Date” shall mean February 9, 2010.

     “Qualified Liquor Manager” shall mean either (a) HRHI, (b) Gaming Borrower, (c) Hotel Casino Borrower, (d) Golden HRC, LLC, or (e) a reputable and experienced liquor management organization (which may be an Affiliate of any Mortgage Borrower) possessing experience in managing all or substantially all alcoholic beverage services at properties similar in size, scope, use and value as the Hotel/Casino Property, provided, that (i) any Person referred to in the foregoing clause (a) through (e) shall have, at all times during its engagement as the Liquor Manager, all Governmental Approvals necessary to provide all alcoholic beverage services at the Hotel/Casino Property, and (ii) with respect to clause (e) above, (A) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that management of all alcoholic beverage services at the Hotel/Casino Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (B) if such Person is an Affiliate of any Loan Party, (1) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (2) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Manager” shall mean either (a) any Manager with respect to the Property it is managing on the date hereof, or (b) in the reasonable judgment of Lender, a reputable and experienced property management organization (which may be an Affiliate of any Mortgage Borrower or Guarantor) possessing experience in managing properties similar in size, scope, use and value as the applicable Property, provided, that with respect to clause (b) above, (i) after a Securitization has occurred, Loan Parties shall have obtained prior written confirmation from the applicable Rating Agencies that management of the applicable Property by such Person will not cause a downgrade, withdrawal or qualification of the then current ratings of the Securities or any class thereof, and (ii) if such Person is an Affiliate of any Loan Party, (A) if such Affiliate was covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an update of such Insolvency Opinion or Additional Insolvency Opinion, as applicable, which addresses the new relationship between such Affiliate and Loan Parties, or (B) if such Affiliate was not covered in the Insolvency Opinion or in any subsequent Additional Insolvency Opinion, Loan Parties shall have obtained and delivered to Lender an Additional Insolvency Opinion with respect to such Affiliate and Loan Parties.

     “Qualified Real Estate Guarantor” shall mean (i) Morgans Group LLC or (ii) a Qualified Guarantor Transferee that (i) is regularly engaged in the business of making or owning commercial real estate loans (including mezzanine loans with respect to commercial real estate), (ii) operating hospitality properties, or (iii) employing executive level employees with at least ten

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(10) years of experience with regard to the same as part of a business segment or business sector of a Qualified Guarantor Transferee.

     “Rank” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rank IP” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rank License” shall have the meaning set forth in Section 4.1.37(b) hereof.

     “Rating Agencies” shall mean, prior to the final Securitization of the Loan, each of S&P, Moody’s and Fitch, or any other nationally recognized statistical rating agency which has been designated by Lender and, after the final Securitization of the Loan, shall mean any of the foregoing that have rated any of the Securities.

     “Re-Dating” shall have the meaning set forth in Section 9.2 hereof.

     “Reduced Acquisition Loan” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Refinancing Loan” shall mean a loan or loans (i) the proceeds of which is/are used in whole or in part to refinance the Loan, and/or (ii) is/are secured by a lien on any of the Properties and/or the IP and/or the direct or indirect ownership interests in one or more Borrowers.

     “Registered” with respect to any IP, means any IP issued by, registered with, renewed by or the subject of a pending application before, any Governmental Authority or Internet domain name registrar.

     “Regulation AB” shall mean Regulation AB under the Securities Act and the Exchange Act, as such Regulation may be amended from time to time.

     “Related Loan” shall mean a loan to an Affiliate of any Borrower or secured by a Related Property, that is included in a Securitization with the Loan.

     “Related Property” shall mean a parcel of real property, together with improvements thereon and personal property related thereto, that is “related” within the meaning of the definition of Significant Obligor, to any Property.

     “Release Parcel” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Release Parcel Purchaser” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Release Parcel Release Price” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Release Parcel Sale” shall have the meaning set forth in Section 2.5.1(a) hereof.

     “Relinquishment Notice” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

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     “Remaining Adjacent Property” shall mean that portion of the Adjacent Property that does not constitute the Release Parcel.

     “Rents” shall mean, with respect to each Property, all rents (including, without limitation, percentage rents), rent equivalents, moneys payable as damages (including payments by reason of the rejection of a Lease in a Bankruptcy Action) or in lieu of rent or rent equivalents, royalties (including, without limitation, all oil and gas or other mineral royalties and bonuses), income, receivables, receipts, revenues (including liquor revenues), deposits (including, without limitation, security deposits, utility deposits and deposits for rental of rooms, but excluding deposits for rental of banquet space or business or conference meeting rooms), accounts, cash, issues, profits, charges for services rendered, all other amounts payable as rent under any Lease or other agreement relating to any Property (including without limitation the Liquor Management Agreement or Replacement Liquor Management Agreement), and other payments and consideration of whatever form or nature received by or paid to or for the account of or benefit of any Mortgage Borrower, any Manager, Sub-Manager or any of their respective agents or employees from any and all sources arising from or attributable to any Property and/or the Improvements thereon, and proceeds, if any, from business interruption or other loss of income insurance, including, without limitation, all hotel receipts, revenues and net credit card receipts collected from guest rooms, restaurants, bars, meeting rooms, banquet rooms and recreational facilities, revenues from telephone services, internet services, laundry services and television, all receivables, customer obligations, installment payment obligations and other obligations now existing or hereafter arising or created out of the sale, lease, sublease, license, concession or other grant of the right of the use and occupancy of any Property or rendering of services by any Mortgage Borrower or any operator or manager of the hotel or the commercial space located in any of the Improvements or acquired from others (including, without limitation, from the rental of any office space, retail space, guest rooms or other space, halls, stores, and offices, and deposits securing reservations of such space), net license, lease, sublease and net concession fees and rentals, health club membership fees, food and beverage wholesale and retail sales, service charges and vending machine sales.

     “Replacement Interest Rate Cap Agreement” shall mean an interest rate cap agreement from an Acceptable Counterparty with terms substantially identical to the Interest Rate Cap Agreement except that the same shall be effective in connection with replacement of the Interest Rate Cap Agreement following a downgrade of the long-term unsecured debt rating of the Counterparty; provided, that with respect to any Replacement Interest Rate Cap Agreement to be delivered by Borrowers to Lender in connection with Borrowers’ exercise of any Extension Option, the strike price shall be the Strike Price applicable to such Extension Option being exercised; and, provided, further, that to the extent any such interest rate cap agreement does not meet the foregoing requirements, a “Replacement Interest Rate Cap Agreement” shall be such interest rate cap agreement reasonably approved in writing by Lender.

     “Replacement Liquor Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualified Liquor Manager substantially in the same form and substance as the Liquor Management Agreement being replaced, or (ii) a liquor management agreement with a Qualified Liquor Manager, which liquor management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), after the occurrence of a Securitization, Lender, at its option, may require that Loan Parties

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obtain confirmation from the applicable Rating Agencies that such liquor management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; and (b) an assignment of liquor management agreement and subordination of liquor management fees in a form reasonably acceptable to Lender, executed and delivered to Lender by Borrowers and such Qualified Liquor Manager at Borrowers’ expense.

     “Replacement Management Agreement” shall mean, collectively, (a) either (i) a management agreement with a Qualified Manager substantially in the same form and substance as the Management Agreement being replaced, or (ii) a management agreement with a Qualified Manager, which management agreement shall be reasonably acceptable to Lender in form and substance, provided, with respect to this subclause (ii), after the occurrence of a Securitization, Lender, at its option, may require that Loan Parties obtain confirmation from the applicable Rating Agencies that such management agreement will not cause a downgrade, withdrawal or qualification of the then current rating of the Securities or any class thereof; and (b) an assignment of management agreement and subordination of management fees substantially in the form then used by Lender (or such other form and substance reasonably acceptable to Lender), executed and delivered to Lender by Borrowers and such Qualified Manager at Borrowers’ expense.

     “Replacement Reserve Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.3 hereof.

     “Replacement Reserve Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.3 hereof.

     “Required Equity Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Required Net Cash Flow” shall mean, with respect to each Extension Term, the amount of Net Cash Flow that will need to be generated during such Extension Term in order to achieve an Extension Debt Service Coverage Ratio of 1.05 to 1.00.

     “Required Repair Account” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable account as shall be established under this Agreement in accordance with Section 7.1 hereof.

     “Required Repair Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.1 hereof.

     “Reserve Funds” shall mean, collectively, the Tax and Insurance Escrow Fund, the Replacement Reserve Fund, the Required Repair Fund, the Initial Renovation Reserve Fund, the Interest Reserve Fund, the General Reserve Fund, any funds on deposit in the Construction Loan Reserve Account, any Shortfall Funds and any other escrow fund established pursuant to the Loan Documents.

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     “Restoration” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Restoration Threshold” shall mean Ten Million Dollars ($10,000,000.00).

     “Restoration Value Threshold” shall mean that (i) in the case of a Condemnation, the Net Proceeds are less than 15% of the then current fair market value of the applicable Property, and (ii) in the case of a Casualty, the Net Proceeds are less than 30% of the then current fair market value of the applicable Property.

     “Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine Borrower, HRHI, HR Holdings and each Guarantor.

     “Right of First Offer” shall have the meaning set forth in Section 13.1 hereof.

     “Right of First Offer Notice” shall have the meaning set forth in Section 13.1 hereof.

     “Right of First Offer Information and Materials” shall have the meaning set forth in Section 13.2(b) hereof.

     “ROFO Term Sheet” shall have the meaning set forth in Section 13.2(d) hereof.

     “S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.

     “Sale or Pledge” shall mean a voluntary or involuntary sale, conveyance, assignment, transfer, encumbrance or pledge of, or a grant of option with respect to, a legal or beneficial interest.

     “Sale Request” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Second Mezzanine Borrower” and “Second Mezzanine Borrowers” shall mean, individually or collectively, as applicable, HRHH Gaming Junior Mezz, LLC, a Delaware limited liability company, and HRHH JV Junior Mezz, LLC, a Delaware limited liability company, each in its capacity as a borrower under the Second Mezzanine Loan, together with its or their successors or permitted assigns.

     “Second Mezzanine Collateral” shall mean the “Collateral” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Debt” shall mean the “Debt” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Default” shall mean a “Default” as defined in the Second Mezzanine Loan Agreement.

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     “Second Mezzanine Event of Default” shall mean an “Event of Default” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Lender” shall mean Column Financial, Inc., in its capacity as holder of the Second Mezzanine Loan, together with its successors and assigns.

     “Second Mezzanine Loan” shall mean the loan in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), made by Second Mezzanine Lender to Second Mezzanine Borrowers pursuant to the Second Mezzanine Loan Agreement.

     “Second Mezzanine Loan Agreement” shall mean that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Lender and Second Mezzanine Borrowers, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Second Mezzanine Loan Documents” shall mean the Second Mezzanine Loan Agreement and all other documents evidencing and/or securing the Second Mezzanine Loan, as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time subject to the terms of the Intercreditor Agreement.

     “Second Mezzanine Loan Outstanding Principal Balance” shall mean the “Outstanding Principal Balance” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Loan Percentage” shall mean, as of any date of determination and prior to the application of the principal amount with respect to which the Financing Percentages or the Alternate Financing Percentages are then being calculated, the ratio, expressed as a percentage, the numerator of which is an amount equal to the Second Mezzanine Loan Outstanding Principal Balance on such date of determination and the denominator of which is an amount equal to the Aggregate Outstanding Principal Balance on such date of determination.

     “Second Mezzanine Reserve Funds” shall mean the “Reserve Funds” as defined in the Second Mezzanine Loan Agreement.

     “Second Mezzanine Spread” shall mean the “Spread” as defined in the Second Mezzanine Loan Agreement.

     “Second Non-Qualified Extended Maturity Date” shall mean February 9, 2011.

     “Second Non-Qualified Extension Option” shall have the meaning set forth in Section 2.7.1(b) hereof.

     “Second Non-Qualified Extension Term” shall have the meaning set forth in Section 2.7.1(b) hereof.

     “Second Qualified Extended Maturity Date” shall mean February 9, 2012.

     “Second Qualified Extension Option” shall have the meaning set forth in Section 2.7.2(b) hereof.

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     “Second Qualified Extension Term” shall have the meaning set forth in Section 2.7.2(b) hereof.

     “Securities” shall have the meaning set forth in Section 9.1(a) hereof.

     “Securities Act” shall have the meaning set forth in Section 9.3(a) hereof.

     “Securitization” shall have the meaning set forth in Section 9.1(a) hereof.

     “Servicer” shall have the meaning set forth in Section 9.7 hereof.

     “Servicing Agreement” shall have the meaning set forth in Section 9.7 hereof.

     “Severed Loan Documents” shall have the meaning set forth in Section 8.2(c) hereof.

     “Significant Obligor” shall have the meaning set forth in Item 1101(k) of Regulation AB under the Securities Act.

     “Special Purpose Entity” shall mean a limited partnership or limited liability company that since the date of its formation and at all times on and after the date thereof, has complied with and shall at all times comply with the following requirements:

     (a) was, is and will be organized solely for the purpose of (i) (A) acquiring, owning, holding, selling, transferring, managing and operating the Collateral, (B) entering into this Agreement with Lender, (C) refinancing the Collateral in connection with repayment of the Loan, and/or (D) transacting lawful business that is incident, necessary and appropriate to accomplish any of the foregoing; or (ii) acting as a general partner of the limited partnership that owns the Collateral or managing member of the limited liability company that owns the Collateral;

     (b) has not been and is not engaged in, and will not engage in, any business unrelated to (i) the acquisition, ownership, management, sale, transfer or operation of the Collateral, (ii) acting as general partner of the limited partnership that owns the Collateral, or (iii) acting as managing member of the limited liability company that owns the Collateral;

     (c) has not had, does not have, and will not have, any assets other than those related to the Collateral, or, if such entity is a general partner in a limited partnership, its general partnership interest in the limited partnership that owns the Collateral, or, if such entity is a managing member of a limited liability company, its membership interest in the limited liability company that owns the Collateral;

     (d) has not engaged, sought or consented to, and to the fullest extent permitted by law, will not engage in, seek or consent to, any: (i) dissolution, winding up, liquidation, consolidation, merger or sale of all or substantially all of its assets outside of its ordinary course of business and other than as expressly permitted in this Agreement; (ii) other than as expressly permitted in this Agreement, transfer of partnership or membership interests (if such entity is a general partner in a limited partnership or a managing member in a limited liability company); or (iii) amendment of its limited partnership agreement, articles of organization, certificate of

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formation or operating agreement (as applicable) with respect to the matters set forth in this definition unless Lender issues its prior written consent, which consent shall not be unreasonably withheld, and, after the occurrence of a Securitization, the confirmation in writing from the applicable Rating Agencies that such amendment will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization;

     (e) if such entity is a limited partnership, has had, now has, and will have, as its only general partners, Special Purpose Entities that are limited liability companies;

     (f) if such entity is a limited liability company with more than one member, has had, now has and will have at least one member that is a Special Purpose Entity that is a corporation that has at least two (2) Independent Directors or a limited liability company that has at least two (2) Independent Managers and that, in either instance, owns at least one-tenth of one percent (.10%) of the equity of the limited liability company;

     (g) if such entity is a limited liability company with only one member, has been, now is, and will be, a limited liability company organized in the State of Delaware that (i) has as its only member a non-managing member; (ii) has at least two (2) Independent Managers and has not caused or allowed and will not cause or allow the taking of any “Material Action” (as defined in such entity’s operating agreement) without the unanimous affirmative vote of one hundred percent (100%) of the member and such entity’s two (2) Independent Managers; (iii) at least one (1) springing member (or two (2) springing members if such springing members are natural persons who will replace a member of such entity seriatim not simultaneously) that will become a member of such entity upon the occurrence of an event causing the member to cease to be a member of such limited liability company; and (iv) whose membership interests constitute and will constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of New York and Delaware);

     (h) if such entity is (i) a limited liability company, has had, now has and will have an operating agreement, or (ii) a limited partnership, has had, now has and will have a limited partnership agreement, that, in each case, provides that such entity will not: (A) to the fullest extent permitted by law, take any actions described in clause (d)(i) above; (B) engage in any other business activity, or amend its organizational documents with respect to the matters set forth in this definition, in each instance, without the prior written consent of Lender, which consent shall not be unreasonably withheld, and, after the occurrence of a Securitization, confirmation in writing from the applicable Rating Agencies that engaging in such other business activity or such amendment, as applicable, will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization; or (C) without the affirmative vote of two (2) Independent Managers and of all the partners or members of such entity, as applicable (or the vote of two (2) Independent Managers of its general partner or managing member, if applicable), file a bankruptcy or insolvency petition or otherwise institute insolvency proceedings with respect to itself or to any other entity in which it has a direct or indirect legal or beneficial ownership interest;

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     (i) has been, is and will remain solvent and has paid and will pay its debts and liabilities (including, as applicable, shared personnel and overhead expenses) from its assets as the same have or shall become due, and has maintained, is maintaining and will maintain adequate capital for the normal obligations reasonably foreseeable in a business of its size and character and in light of its contemplated business operations; provided, however, this provision shall not require the equity owner(s) of such entity to make any additional capital contributions;

     (j) has not failed and will not fail to correct any known misunderstanding regarding the separate identity of such entity;

     (k) other than as provided in the Cash Management Agreement with respect to one or more other Borrowers, has maintained and will maintain its accounts, books and records separate from any other Person (except other Borrowers) and has filed and will file its own tax returns, except to the extent that it has been or is (i) required to file consolidated tax returns by law; or (ii) treated as a “disregarded entity” for tax purposes and is not required to file tax returns under applicable law;

     (l) has maintained and will maintain its own (except with other Borrowers) records, books, resolutions (if any) and agreements;

     (m) other than as provided in the Cash Management Agreement with respect to one or more other Borrowers, (i) has not commingled and will not commingle its funds or assets with those of any other Person; and (ii) has not participated and will not participate in any cash management system with any other Person;

     (n) has held and will hold its assets in its own name;

     (o) has conducted and will conduct its business in its name or in a name franchised or licensed to it by an entity other than an Affiliate of any Borrower or any Mortgage Borrower, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in clause (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of such Borrower;

     (p) has maintained and will maintain its financial statements, accounting records and other entity documents separate from any other Person and has not permitted and will not permit its assets to be listed as assets on the financial statement of any other entity except as required by GAAP (or such other accounting basis acceptable to Lender); provided, however, that a Borrower’s assets may be included in a consolidated financial statement of its Affiliate, provided that such assets shall also be listed on such Special Purpose Entity’s own separate balance sheet;

     (q) has paid and will pay its own liabilities and expenses, including the salaries of its own employees (if any), out of its own funds and assets, and has maintained and will maintain, or will enter into a contract with an Affiliate to maintain, which contract shall be reasonably satisfactory to Lender in form and substance and shall be subject to the requirements of clause (dd) below, a sufficient number of employees (if any) in light of its contemplated business operations; provided, however, this provision shall not require the equity owner(s) of such entity to make any additional capital contributions;

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     (r) has observed and will observe all Delaware partnership or limited liability company formalities, as applicable;

     (s) has not incurred and will not incur any Indebtedness other than (i) the Debt, and (ii) unsecured trade payables and operational debt not evidenced by a note and in an aggregate amount not exceeding $50,000; provided that any Indebtedness incurred pursuant to subclause (ii) shall be (A) paid within sixty (60) days of the date incurred (other than attorneys’ and other professional fees) and (B) incurred in the ordinary course of business;

     (t) has not assumed or guaranteed or become obligated for, and will not assume or guarantee or become obligated for, the debts of any other Person and has not held out and will not hold out its credit as being available to satisfy the obligations of any other Person except as permitted pursuant to this Agreement; except, if such entity is a general partner of a limited partnership, in such entity’s capacity as general partner of such limited partnership or a member of a limited liability company, in such entity’s capacity as a member of such limited liability company;

     (u) has not acquired and will not acquire obligations or securities of its partners, members or shareholders or any other Affiliate except with respect to the ownership of the limited liability company interests or partnership interests (as applicable) of the Special Purpose Entities as shown on the organizational chart attached to this Agreement as Schedule VI;

     (v) has allocated and will allocate fairly and reasonably any overhead expenses that are shared with any Affiliate, including, but not limited to, paying for shared office space and services performed by any employee of an Affiliate; provided, however, to the extent invoices for such services are not allocated and separately billed to each entity, there is a system in place that provides that the amount thereof that is to be allocated among the relevant parties will be reasonably related to the services provided to each such party;

     (w) has maintained and used, now maintains and uses and will maintain and use separate invoices and checks bearing its name. The invoices and checks utilized by the Special Purpose Entity or utilized to collect its funds or pay its expenses have borne and shall bear its own name and have not borne and shall not bear the name of any other entity unless such entity is clearly designated as being the Special Purpose Entity’s agent;

     (x) has not pledged and will not pledge its assets to secure the obligations of any other Person;

     (y) has held itself out and identified itself and will hold itself out and identify itself as a separate and distinct entity under its own name or in a name franchised or licensed to it by an entity other than an Affiliate of any Borrower or any Mortgage Borrower and not as a division or part of any other Person, except for services rendered under a business management services agreement with an Affiliate that complies with the terms contained in clause (dd) below, so long as the manager, or equivalent thereof, under such business management services agreement holds itself out as an agent of such Borrower;

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     (z) except as provided in the Cash Management Agreement, has maintained and will maintain its assets in such a manner that it will not be costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person;

     (aa) has not made and will not make loans to any Person or hold evidence of indebtedness issued by any other Person or entity (other than cash and investment grade securities issued by an entity that is not an Affiliate of or subject to common ownership with such entity);

     (bb) has not identified and will not identify its partners, members or shareholders, or any Affiliate of any of them, as a division or part of it, and has not identified itself and shall not identify itself as a division of any other Person;

     (cc) except for capital contributions and capital distributions expressly permitted under the terms and conditions of its organizational documents and properly reflected in its books and records, has not entered into or been a party to and will not enter into or be a party to, any transaction with its partners, members, shareholders or Affiliates except in the ordinary course of its business and on terms which are commercially reasonable and are no less favorable to it than would be obtained in a comparable arm’s length transaction with an unrelated third party;

     (dd) except with respect to the Independent Managers, has not had and will not have any obligation to indemnify, and has not indemnified and will not indemnify, its partners, officers, directors or members, as the case may be, unless such an obligation was and is fully subordinated to the Debt and will not constitute a claim against it in the event that cash flow in excess of the amount required to pay the Debt is insufficient to pay such obligation;

     (ee) does not and will not have any of its obligations guaranteed by any Affiliate except for (i) Guarantors pursuant to the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty and the Construction Completion Guaranty, and (ii) HRHI pursuant to the HRHI Guaranty; provided, that if such entity is a limited partnership, such entity’s general partner will be generally liable for its obligations; and

     (ff) has complied and will comply with all of the terms and provisions contained in its organizational documents.

     “Spread” shall mean, subject to application of the Default Rate, 8.7500000000%; provided, however, that (a) subject to the following clause (b), if Substantial Completion has not occurred on or before the date which is twenty-four (24) months from the date of the Initial Construction Loan Advance, the Spread shall increase to 9.7794117647% from and including such date which is twenty-four (24) months from the date of the Initial Construction Loan Advance through but excluding the first Payment Date following Substantial Completion, following which the Spread shall again be 8.7500000000%, and (b) if the Second Non-Qualified Extension Term is exercised in accordance with the terms of Section 2.7.1 hereof, the Spread in effect from time to time pursuant to the foregoing clause (a) shall increase by 0.5147058824% throughout the Second Non-Qualified Extension Term and thereafter until the Obligations are paid in full.

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     “Spread Maintenance Premium” shall mean, with respect to any prepayment of the Outstanding Principal Balance prior to the Spread Maintenance Release Date, other than any prepayment from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price, an amount equal to the product of (a) the principal amount of such prepayment, multiplied by (b) the Spread, and multiplied by (c) a fraction, the numerator of which shall equal the actual number of days from the date of such payment through the Spread Maintenance Release Date and the denominator of which is 360; provided, however, if any such prepayment shall occur on a day other than a Payment Date, the numerator of such fraction shall equal the actual number of days from the next succeeding ninth (9th) day of a calendar month through the Spread Maintenance Release Date.

     “Spread Maintenance Release Date” shall mean , as applicable, either (i) May 9, 2008, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, or (ii) August 9, 2008, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date.

     “State” shall mean the State of Nevada.

     “Strike Price” shall mean, as applicable, with respect to:

     (i) the period commencing on the Closing Date through and including the Initial Maturity Date, five and one-half percent (5.5%) per annum; and

     (ii) for each Extension Term, a rate to be selected by Borrowers no later than ten (10) days prior to the first day of such Extension Term, which shall in no event exceed one percent (1%) in excess of LIBOR as of the most recent Determination Date.

     “Sub-Management Agreement” shall mean that certain Paradise Bay Club Apartments Management Agreement, dated as of September 17, 2004, between PM Realty LLC (predecessor-in-interest to Adjacent Borrower) and Sub-Manger, with respect to the Adjacent Property, as the same has been and may be amended, modified or supplemented from time to time.

     “Sub-Manager” shall mean, with respect to the Adjacent Property, ConAm Management Corporation.

     “Subsequent Required Equity Amount” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Subsidiary Transferee” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Substantial Completion” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

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     “Survey” shall mean a current survey of each of the Properties, certified to the Title Company and Mortgage Lender and their successors and assigns, in form and content reasonably satisfactory to Mortgage Lender.

     “Tax and Insurance Escrow Fund” shall have the meaning assigned to such term in the Mortgage Loan Agreement or such comparable fund as shall be established under this Agreement in accordance with Section 7.2 hereof.

     “Taxes” shall mean all real estate and personal property taxes, assessments, water rates or sewer rents, now or hereafter levied or assessed or imposed against any Property or part thereof, together with all interest and penalties thereon.

     “Third Party IP License” shall have the meaning set forth in Section 5.1.26(c) hereof.

     “Third Party Lenders” shall mean third party institutional lenders which are in the business of providing loans similar to the Refinancing Loans

     “Title Company” shall mean First American Title Insurance Company, or any successor title company reasonably acceptable to Mortgage Lender and licensed to issue title insurance in the State of Nevada.

     “Title Insurance Policy” shall have the meaning assigned to such term in the Mortgage Loan Agreement.

     “Transfer” shall have the meaning set forth in Section 5.2.10(b) hereof.

     “Transfer Restricted Party” shall mean, collectively, each Loan Party, each Mezzanine Borrower, each Constituent Member of each Loan Party, HRHI, HR Holdings and each Guarantor.

     “Trust” shall have the meaning set forth in Section 10.25(a) hereof.

     “UCC” or “Uniform Commercial Code” shall mean the Uniform Commercial Code as in effect in the State of Nevada, the State of New York or the State of Delaware, as applicable.

     “UCC Financing Statements” shall mean the UCC Financing Statement executed in connection with the Pledge Agreement and the other Loan Documents and filed in the applicable filing offices.

     “UCC Insurance Policy” shall have the meaning set forth in Section 3.1.2(b) hereof.

     “Uniform System of Accounts” shall mean the most recent edition of the Uniform System of Accounts for Hotels, as adopted by the American Hotel and Motel Association.

     “U.S. Obligations” shall mean non-redeemable securities evidencing an obligation to timely pay principal and/or interest in a full and timely manner that are direct obligations of the United States of America for the payment of which its full faith and credit is pledged.

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     Section 1.2 Principles of Construction. (a) All references to sections, subsections, clauses, exhibits and schedules are to sections, subsections, clauses, exhibits and schedules in or to this Agreement unless otherwise specified. All uses of the word “including” shall mean “including, without limitation” unless the context shall indicate otherwise. Unless otherwise specified, the words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. All uses in this Agreement of the phrase “any Borrower” shall be deemed to mean “any one or more of the Borrowers including all of the Borrowers”. All uses in this Agreement of the phrase “any Property” or “any of the Properties” shall be deemed to mean “any one or more of the Properties including all of the Properties”. All uses in this Agreement of the phrase “the IP” shall be deemed to mean “all or any part of the IP”. Unless otherwise specified, all meanings attributed to defined terms herein shall be equally applicable to both the singular and plural forms of the terms so defined.

          (b) With respect to terms defined by cross-reference to the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Second Mezzanine Loan Documents, as applicable, such defined terms shall have the definitions set forth in the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Second Mezzanine Loan Documents as of the date hereof, and no modifications to the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Second Mezzanine Loan Documents, as the case may be, shall have the effect of changing such definitions for the purpose of this Agreement unless Lender expressly agrees that such definitions as used in this Agreement have been revised or Lender consents to the modification documents. With respect to any provisions incorporated by reference herein from the Mortgage Loan Agreement, the First Mezzanine Loan Agreement and/or the Second Mezzanine Loan Agreement, as applicable, such provisions shall be deemed a part of this Agreement notwithstanding the fact that the Mortgage Loan, the First Mezzanine Loan and/or the Second Mezzanine Loan, as the case may be, shall no longer be effective for any reason.

          (c) The words “Borrowers shall cause Second Mezzanine Borrowers to” or “Borrowers shall cause Second Mezzanine Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the sole members of Second Mezzanine Borrowers, shall cause Second Mezzanine Borrowers to so act or not to so act, as applicable. The words “Borrowers shall cause First Mezzanine Borrowers to” or “Borrowers shall cause First Mezzanine Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the sole members of Second Mezzanine Borrowers, shall cause Second Mezzanine Borrowers, as the sole members of First Mezzanine Borrowers, to cause First Mezzanine Borrowers to so act or not to so act, as applicable. The words “Borrowers shall cause Mortgage Borrowers to” or “Borrowers shall cause Mortgage Borrowers not to” (or words of similar meaning) shall mean Borrowers, as the sole members of Second Mezzanine Borrowers, shall cause Second Mezzanine Borrowers, as the sole members of First Mezzanine Borrowers, to cause First Mezzanine Borrowers, as the direct or indirect sole members of Mortgage Borrowers, to cause Mortgage Borrowers to so act or not to so act, as applicable.

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ARTICLE II.
GENERAL TERMS

     Section 2.1 Loan Commitment; Disbursement to Borrowers.

          2.1.1 Agreement to Lend and Borrow. Subject to and upon the terms and conditions set forth herein, Lender hereby agrees to make and Borrowers hereby jointly and severally agree to accept the Loan on the Closing Date.

          2.1.2 Loan. (a) The Loan is evidenced by the Note and this Agreement, is secured by the Pledge Agreement and the other Loan Documents and shall be repaid with interest, costs and charges as more particularly set forth in the Note, this Agreement, the Pledge Agreement and the other Loan Documents. Principal amounts of the Loan which are repaid for any reason may not be reborrowed.

               (b) Lender shall not fund any portion of the Loan from any account holding “plan assets” of one or more plans within the meaning of 29 C.F.R. 2510.3-101 unless such Loan will not constitute a non-exempt prohibited transaction under ERISA.

          2.1.3 Use of Proceeds; Initial Funding; Construction Holdback. (a) On the date hereof, Lender shall disburse Fifty Five Million and No/100 Dollars ($55,000,000) of the Loan proceeds to or on behalf of Borrowers and Borrowers shall use (i) $50,000,000 of such proceeds to make or cause to be made a contribution to Mortgage Borrowers for use by Mortgage Borrowers to partially prepay the principal balance of the Original Mortgage Loan; (ii) $2,894,363.08 of such proceeds for deposit into the Initial Renovation Reserve Account to be held in accordance with the provisions of Sections 7.5 and 7.8 of the Mortgage Loan Agreement and advanced from the Initial Renovation Reserve Account, subject to the satisfaction of all conditions to funding with respect thereto set forth in the Mortgage Loan Agreement; and (iii) $2,105,636.92 of such proceeds to pay costs, expenses and fees incurred in connection with the closing of the Loan, as reasonably approved by Lender.

               (b) A portion of the Loan proceeds in an amount equal to Ten Million and No/100 Dollars ($10,000,000) (the “Construction Holdback”) shall be retained by Lender as a holdback to be advanced for the payment of Project Costs in accordance with the terms and conditions of Section 3.4 hereof and no amount of the Construction Holdback shall bear interest under the Note until actually advanced hereunder.

               (c) Use of the proceeds of the Loan by Mortgage Borrowers shall constitute a distribution by Borrowers to Second Mezzanine Borrowers, and then a distribution by Second Mezzanine Borrowers to First Mezzanine Borrowers, and then a distribution by First Mezzanine Borrowers to Mortgage Borrowers.

     Section 2.2 Interest Rate.

          2.2.1 Interest Generally. Interest on the Outstanding Principal Balance shall accrue from the Closing Date to but excluding the Maturity Date at the Applicable Interest Rate. Borrowers shall pay to Lender on each Payment Date the interest accrued on the Loan for the preceding Interest Period.

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          2.2.2 Interest Calculation. Interest on the Outstanding Principal Balance shall be calculated by multiplying (a) the actual number of days elapsed in the period for which the calculation is being made by (b) a daily rate based on a three hundred sixty (360) day year by (c) the Outstanding Principal Balance. If, at any time, Lender or Borrowers determine that Lender has miscalculated the Applicable Interest Rate (whether because of a miscalculation of LIBOR or otherwise), such party shall notify the other of the necessary correction. Upon the agreement of the parties as to the correction, if the corrected Applicable Interest Rate represents an increase in the applicable monthly payment, Borrowers shall, within ten (10) days after receipt of notice from Lender, pay to Lender the corrected amount. Upon the agreement of the parties as to the correction, if the corrected Applicable Interest Rate represents an overpayment by Borrowers to Lender and no Event of Default then exists, Lender shall promptly refund the overpayment to Borrowers or, at Borrowers’ option, credit such amounts against Borrowers’ payment next due hereunder.

          2.2.3 Determination of Interest Rate. (a) The Applicable Interest Rate with respect to the Loan shall be: (i) LIBOR plus the Spread with respect to the applicable Interest Period for a LIBOR Loan or (ii) the Prime Rate plus the Prime Rate Spread for a Prime Rate Loan if the Loan is converted to a Prime Rate Loan pursuant to the provisions of Section 2.2.3(c) or (f) hereof.

               (b) Subject to the terms and conditions of this Section 2.2.3, the Loan shall be a LIBOR Loan and Borrowers shall pay interest on the Outstanding Principal Balance at LIBOR plus the Spread for the applicable Interest Period. Any change in the Applicable Interest Rate hereunder due to a change in LIBOR shall become effective as of the opening of business on the first day of the applicable Interest Period.

               (c) In the event that Lender shall have determined in good faith (which determination shall be conclusive and binding upon Borrowers’ absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrowers at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding LIBOR Loan shall be converted, on the first day of the next occurring Interest Period, to a Prime Rate Loan.

               (d) If, pursuant to the terms of this Agreement, any portion of the Loan has been converted to a Prime Rate Loan and Lender shall determine in good faith (which determination shall be conclusive and binding upon Borrowers absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice by telephone of such determination, confirmed in writing, to Borrowers at least one (1) Business Day prior to the last day of the related Interest Period. If such notice is given, the related outstanding Prime Rate Loan shall be converted to a LIBOR Loan on the first day of the next occurring Interest Period.

               (e) (i) Except as otherwise expressly provided in this Section 2.2.3(e), with respect to a LIBOR Loan, all payments made by Borrowers hereunder shall be made free and clear of, and without reduction for or on account of, any Indemnified Taxes or Other Taxes;

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provided that if Borrowers shall be required to deduct any Indemnified Taxes or Other Taxes from such payments, then (A) the sum payable shall be increased as necessary so that after making all such required deductions (including deductions applicable to additional sums payable under this Section 2.2.3) Lender receives an amount equal to the sum it would have received had no such deductions been made, (B) Borrowers shall make such deductions, and (C) Borrowers shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. If Lender gives Borrowers written notice that any such amounts are payable by Borrowers, Borrowers shall pay all such amounts to the relevant Governmental Authority in accordance with applicable Legal Requirements by the later of (1) five (5) Business Days after receipt of demand from Lender and (2) their due date, and, as promptly as possible thereafter, Borrowers shall send to Lender an original official receipt, if available, or certified copy thereof showing payment of such Indemnified Taxes or Other Taxes.

               (ii) Without duplication of any additional amounts paid pursuant to this Section 2.2.3(e), each Borrower shall indemnify Lender, within ten (10) days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.2.3) paid by Lender, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority, provided that, if Borrowers determine that any such Indemnified Taxes or Other Taxes were not correctly or legally imposed or asserted, Lender shall, upon payment by Borrowers of the full amount of any Indemnified Taxes or Other Taxes, allow Borrowers to contest (and shall cooperate in such contest), the imposition of such tax upon the reasonable request of Borrowers and at Borrowers’ expense; provided, however, that Lender shall not be required to participate in any contest that would, in its reasonable judgment, expose it to a material commercial disadvantage or require it to disclose any information it considers confidential or proprietary. A certificate as to the amount of such payment or liability delivered to Borrowers by Lender (together with any supporting detail reasonably requested by Borrowers), shall be conclusive, provided that such amounts are determined on a reasonable basis.

               (iii) Any Non-U.S. Lender that is entitled to an exemption from or reduction of withholding tax under U.S. law, the law of the jurisdiction in which Borrowers are located (if other than the U.S.), or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to Borrowers, at the time or times prescribed by applicable law, or as reasonably requested by Borrowers, such properly completed and executed documentation prescribed by applicable law or reasonably requested by Borrowers as will permit such payments to be made without withholding or at a reduced rate of withholding. Each Non-U.S. Lender shall deliver to Borrowers (or, in the case of a participant, to the Lender from which the related participation shall have been purchased), on or before the date that such Non-U.S. Lender becomes a party to this Agreement, two (2) properly completed and duly executed copies of U.S. Internal Revenue Service Form W-8BEN, Form W-8IMY, Form W-8EXP or Form W-8ECI, as applicable (or successor forms thereto), claiming a complete exemption from, or reduction of, U.S. federal withholding tax on all payments by Borrowers under this Agreement. Each Non-U.S. Lender shall promptly provide such forms upon becoming aware of the obsolescence, expiration or invalidity of any form previously delivered by such Non-U.S. Lender

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(unless it is legally unable to do so as a result of a change in law) and shall promptly notify Borrowers at any time it determines that any previously delivered forms are no longer valid.

               (iv) Lender or any successor and/or assign of Lender that is incorporated under the laws of the United States of America or a state thereof agrees that, on or before it becomes a party to this Agreement and from time to time thereafter before the expiration or obsolescence of the previously delivered form, it will deliver to Borrowers a United States Internal Revenue Service Form W-9 or successor applicable form, as the case may be, to establish exemption from United States backup withholding tax. If required by applicable law, Borrowers are hereby authorized to deduct from any payments due to Lender pursuant to Section 2.2.3 hereof the amount of any withholding taxes resulting from Lender’s failure to comply with this Section 2.2.3(e)(iv).

               (v) If Lender determines, in its reasonable discretion, that it has received a refund of or will receive a credit for Indemnified Taxes or Other Taxes with respect to which Borrowers have paid additional amounts pursuant to this Section 2.2.3(e), it shall pay over to Borrowers an amount equal to the additional amounts paid by Borrowers under this Section 2.2.3(e) (with respect to the Indemnified Taxes or Other Taxes giving rise to such refund or credit), net of all out-of-pocket expenses of Lender and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund); provided, that Borrowers, upon the request of Lender, agrees to repay the amount paid over to Borrowers (plus any interest to the extent accrued from the date such refund is paid over to Borrowers) to Lender in the event Lender is required to repay such refund to such Governmental Authority or is unable to claim the credit. This Section 2.2.3(e)(v) shall not be construed to require Lender to make available its tax returns (or any other information relating to its taxes which it deems confidential) to Borrowers or any other Person.

               (f) Except as otherwise expressly provided in Section 2.2.3(e) hereof, if any requirement of law or any change therein or in the interpretation or application thereof, shall hereafter make it unlawful for Lender to make or maintain a LIBOR Loan as contemplated hereunder (i) the obligation of Lender hereunder to make a LIBOR Loan or to convert a Prime Rate Loan to a LIBOR Loan shall be canceled forthwith and (ii) any outstanding LIBOR Loan shall be converted automatically to a Prime Rate Loan on the next succeeding Payment Date or within such earlier period as required by law. Borrowers hereby agree promptly to pay Lender, upon demand, any additional amounts necessary to compensate Lender for any actual out-of-pocket costs incurred by Lender in making any conversion in accordance with this Agreement, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the LIBOR Loan hereunder; provided that such additional amount is generally charged by Lender to other borrowers with loans similar to the Loan.

               (g) Except as otherwise expressly provided in Section 2.2.3(e) hereof, in the event that any change in any requirement of law or in the interpretation or application thereof, or compliance by Lender with any request or directive having the force of law hereafter issued from any central bank or other Governmental Authority:

          (i) shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or

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deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of LIBOR hereunder;

          (ii) shall hereafter have the effect of reducing the rate of return on Lender’s capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender’s policies with respect to capital adequacy) by any material amount; or

          (iii) shall hereafter impose on Lender any other condition and the result of any of the foregoing is to increase the actual out-of-pocket cost to Lender of maintaining loans or extensions of credit or to reduce any amount receivable hereunder;

then, in any such case, Borrowers shall promptly pay Lender, upon demand, any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable; provided that such additional amount is generally charged by Lender to other borrowers with loans similar to the Loan. If Lender becomes entitled to claim any additional amounts pursuant to this Section 2.2.3(g), Lender shall provide Borrowers with not less than ninety (90) days notice specifying in reasonable detail the event by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount.

               (h) Each Borrower agrees to pay to Lender and to hold Lender harmless from any actual out-of-pocket expense which Lender sustains or incurs as a consequence of (i) any default by Borrowers in payment of the principal of or interest on a LIBOR Loan, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder, (ii) any prepayment (whether voluntary or mandatory) of the LIBOR Loan on a day that (A) is not the Payment Date immediately following the last day of an Interest Period with respect thereto or (B) is the Payment Date immediately following the last day of an Interest Period with respect thereto if Borrowers did not give the prior notice of such prepayment required pursuant to the terms of this Agreement, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the LIBOR Loan hereunder, and (iii) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from LIBOR plus the Spread to the Prime Rate plus the Prime Rate Spread with respect to any portion of the Outstanding Principal Balance then bearing interest at LIBOR plus the Spread on a date other than the Payment Date immediately following the last day of an Interest Period, including, without limitation, such actual out-of-pocket expenses arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain a LIBOR Loan hereunder (the amounts referred to in clauses (i), (ii) and (iii) are herein referred to collectively as the “Breakage Costs”); provided, however, that Borrowers shall not indemnify Lender from any loss or expense arising from Lender’s willful misconduct, fraud, illegal acts or gross negligence. No Breakage Costs shall be due or payable if, in connection with any prepayment of the Loan by

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Borrowers, Borrowers pay interest through the next Payment Date as provided in Section 2.4.1 hereof.

               (i) Subject to Section 2.2.3(e) above, Lender shall not be entitled to claim compensation pursuant to this Section 2.2.3 for any Indemnified Taxes or Other Taxes, increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of return, which was incurred or which accrued more than ninety (90) days before the date Lender notified Borrowers in writing of the change in law or other circumstance on which such claim of compensation is based and delivered to Borrowers a written statement setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.2.3, which statement, made in good faith, shall be conclusive and binding upon all parties hereto absent manifest error.

          2.2.4 Additional Costs. Lender will use reasonable efforts (consistent with legal and regulatory restrictions) to maintain the availability of the LIBOR Loan and to avoid or reduce any increased or additional costs payable by Borrowers under Section 2.2.3 hereof, including, if requested by Borrowers, a transfer or assignment of the Loan to a branch, office or Affiliate of Lender in another jurisdiction, or a redesignation of its lending office with respect to the Loan, in order to maintain the availability of the LIBOR Loan or to avoid or reduce such increased or additional costs, provided that the transfer or assignment or redesignation (a) would not result in any additional costs, expenses or risk to Lender that are not separately agreed to by Borrowers to be reimbursed by Borrowers and (b) would not be disadvantageous in any other material respect to Lender as determined by Lender in its reasonable discretion.

          2.2.5 Default Rate. In the event that, and for so long as, any Event of Default shall have occurred and be continuing, the Outstanding Principal Balance and, to the extent permitted by law, all accrued and unpaid interest in respect of the Loan and any other amounts due pursuant to the Loan Documents, shall accrue interest at the Default Rate, calculated from the date such payment was due without regard to any grace or cure periods contained herein.

          2.2.6 Usury Savings. This Agreement, the Note and the other Loan Documents are subject to the express condition that at no time shall any Borrower be obligated or required to pay interest on the Outstanding Principal Balance at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the Maximum Legal Rate. If, by the terms of this Agreement or the other Loan Documents, any Borrower is at any time required or obligated to pay interest on the Outstanding Principal Balance at a rate in excess of the Maximum Legal Rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to the Maximum Legal Rate and all previous payments in excess of the Maximum Legal Rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the sums due under the Loan, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of the Loan until payment in full so that the rate or amount of interest on account of the Loan does not exceed the Maximum Legal Rate of interest from time to time in effect and applicable to the Loan for so long as the Loan is outstanding.

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          2.2.7 Interest Rate Cap Agreement. (a) Prior to or contemporaneously with the Closing Date, Borrowers shall enter into one or more Interest Rate Cap Agreements with a blended LIBOR strike price equal to the Strike Price. Each Interest Rate Cap Agreement (i) shall be in a form and substance reasonably acceptable to Lender, (ii) shall be with an Acceptable Counterparty, (iii) shall direct such Acceptable Counterparty to deposit directly into the Cash Management Account any amounts due Borrowers under such Interest Rate Cap Agreement so long as any portion of the Debt exists, provided that the Debt shall be deemed to exist even if one or more of the Properties, the IP or the Collateral is transferred by judicial or non-judicial foreclosure or deed-in-lieu thereof, (iv) shall be for a period equal to the current term of the Loan, and (v) when aggregated with all other Interest Rate Cap Agreements, shall have an initial notional amount equal to the outstanding principal balance of the Loan as of the Closing Date. Borrowers shall collaterally assign to Lender, pursuant to the Collateral Assignment of Interest Rate Cap Agreement, all of its right, title and interest to receive any and all payments under all Interest Rate Cap Agreements, and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreements (which shall, by their respective terms, authorize the assignment to Lender and require that payments be deposited directly into the Cash Management Account).

               (b) Borrowers shall comply with all of their obligations under the terms and provisions of each Interest Rate Cap Agreement. All amounts paid by the Counterparty under each Interest Rate Cap Agreement to Borrowers or Lender shall be deposited immediately into the Cash Management Account. Borrowers shall take all actions reasonably requested by Lender to enforce Lender’s rights under each Interest Rate Cap Agreement in the event of a default by the Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder.

               (c) In the event of any downgrade of the rating of the Acceptable Counterparty below “AA-” by S&P or “Aa3” by Moody’s, Borrowers shall replace the applicable Interest Rate Cap Agreement(s) with one or more Replacement Interest Rate Cap Agreements not later than ten (10) Business Days following receipt of notice from Lender of such downgrade.

               (d) In the event that Borrowers fail to purchase and deliver to Lender any Interest Rate Cap Agreement or fail to maintain each Interest Rate Cap Agreement in accordance with the terms and provisions of this Agreement, after ten (10) Business Days notice to Borrowers and Borrowers’ failure to cure, Lender may purchase the required Interest Rate Cap Agreement(s) and the actual out-of-pocket cost incurred by Lender in purchasing such Interest Rate Cap Agreement(s) shall be paid by Borrowers to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such actual out-of-pocket cost is reimbursed by Borrowers to Lender.

               (e) In connection with each Interest Rate Cap Agreement, Borrowers shall obtain and deliver to Lender an opinion from counsel (which counsel may be in-house counsel for the Counterparty) for the Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that:

     (i) the Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation and has the

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organizational power and authority to execute and deliver, and to perform its obligations under, such Interest Rate Cap Agreement;

     (ii) the execution and delivery of such Interest Rate Cap Agreement by the Counterparty, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by-laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property;

     (iii) all consents, authorizations and approvals required for the execution and delivery by the Counterparty of such Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and

     (iv) such Interest Rate Cap Agreement, and any other agreement which the Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Counterparty and constitutes the legal, valid and binding obligation of the Counterparty, enforceable against the Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

               (f) At such time as the Loan is repaid in full, all of Lender’s right, title and interest in all Interest Rate Cap Agreements shall terminate and Lender shall, at Borrowers’ reasonable expense, promptly execute and deliver such documents as may be reasonably required and prepared by the Counterparty and/or Borrowers to evidence release of each Interest Rate Cap Agreement.

     Section 2.3 Loan Payment.

          2.3.1 Payments Generally. Borrowers shall pay to Lender on each Payment Date the interest accrued on the Loan for the preceding Interest Period (the “Monthly Interest Payment”), except that Borrowers shall pay to Lender an amount equal to the interest accrued on the Outstanding Principal Balance for the initial Interest Period on the Closing Date. For purposes of making payments hereunder, but not for purposes of calculating Interest Periods, if the day on which such payment is due is not a Business Day, then amounts due on such date shall be due on the immediately preceding Business Day. With respect to payments of principal due on the Maturity Date, interest shall be payable at the Applicable Interest Rate or the Default Rate, as the case may be, through and including the day immediately preceding such Maturity Date. All amounts due pursuant to this Agreement and the other Loan Documents shall be

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payable without setoff, counterclaim, defense or any other deduction whatsoever, except as otherwise expressly provided in Section 2.2.3(e) hereof.

  Lender shall have the right from time to time, in its sole discretion, upon not less than ten (10) days prior written notice to Borrowers, to change the monthly Payment Date to a different calendar day and to correspondingly adjust the Interest Period and Lender and Borrowers shall promptly execute an amendment to this Agreement to evidence any such changes.

     2.3.2 Payment on Maturity Date. Borrowers shall pay to Lender on the Maturity Date the Outstanding Principal Balance, all accrued and unpaid interest, and all other amounts due hereunder and under the Note, the Pledge Agreement and the other Loan Documents.

     2.3.3 Late Payment Charge. If any principal, interest or any other sums due under the Loan Documents (other than the payment of principal due on the Maturity Date) is not paid by Borrowers by the date on which it is due, Borrowers shall pay to Lender upon demand an amount equal to the lesser of (a) four percent (4%) of such unpaid sum or (b) the maximum amount permitted by applicable law, in order to defray the expense incurred by Lender in handling and processing such delinquent payment and to compensate Lender for the loss of the use of such delinquent payment. Any such amount shall be secured by the Pledge Agreement and the other Loan Documents to the extent permitted by applicable law.

     2.3.4 Method and Place of Payment. Except as otherwise specifically provided herein, all payments and prepayments under this Agreement and the Note shall be made to Lender not later than 2:00 P.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office at 11 Madison Avenue, New York, New York 10010, Attention: Edmund Taylor, or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day.

     Section 2.4 Prepayments.

     2.4.1 Voluntary Prepayments. From and after the date hereof, so long as no Event of Default has occurred and is continuing, Borrowers may, at their option and upon at least ten (10) days prior written notice to Lender (or such shorter period as may be permitted by Lender), prepay the Debt in whole or in part, but in no event shall any partial prepayment be less than $5,000,000.00; provided that any prepayment is accompanied by (a) if such prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Loan to be paid through, but not including, the next succeeding ninth (9th) day of a calendar month, or, if such prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date; (b) if such prepayment occurs prior to the Spread Maintenance Release Date, the Spread Maintenance Premium due with respect to the amount prepaid, if any; and (c) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to, the Breakage Costs, if any, the applicable Prepayment Fee, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and

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disbursements) incurred by Lender in connection with such prepayment. No Spread Maintenance Premium or, subject to the proviso at the end of this sentence, any other prepayment premium or fee shall be due in connection with any prepayment of the Loan (i) made after the Spread Maintenance Release Date, or (ii) made from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment, Additional Non-Qualified Mandatory Prepayment, Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price; provided, however, that the applicable Prepayment Fee shall be due in connection with any prepayment of the Loan made from the proceeds of any Minimum Mandatory Prepayment (or any partial payment on account thereof), Release Parcel Release Price, Adjacent Parcel Release Price and/or IP Release Price if any such prepayment shall occur prior to the Prepayment Fee Release Date. If a notice of prepayment is given by Borrowers to Lender pursuant to this Section 2.4.1, the amount designated for prepayment and all other sums required under this Section 2.4 shall be due and payable on the proposed prepayment date; provided, however, Borrowers shall have the right to postpone or revoke such prepayment upon written notice to Lender not less than two (2) Business Days prior to the date such prepayment is due so long as Borrowers pay Lender and/or Servicer all actual out-of-pocket third party costs and expenses incurred by Lender and/or Servicer in connection with such postponement or revocation.

     2.4.2 Mandatory Prepayments.

               (a) Minimum Mandatory Prepayment and Alternative Minimum Mandatory Letter of Credit.

               (i) Section 2.4.2(b) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to either (A) pay to Mortgage Lender a mandatory prepayment of the Aggregate Outstanding Principal Balance in the Minimum Mandatory Amount (the “Minimum Mandatory Prepayment”), or (B) deliver to Mortgage Lender the Alternative Minimum Mandatory Letter of Credit and the Alternative Minimum Interest Reserve Amount, in each case, in the event that the entire Release Parcel has not been sold pursuant to one or more Release Parcel Sales consummated in accordance with the provisions of Section 2.5.1 of the Mortgage Loan Agreement, including, without limitation, the payment of the Release Parcel Release Price(s) resulting from any such Release Parcel Sale(s), on or prior to the First Anniversary, subject to extension upon satisfaction of certain conditions as set forth in Section 2.4.2(b) of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Minimum Mandatory Prepayment or delivery of the Alternative Minimum Mandatory Letter of Credit and the Alternative Minimum Interest Reserve Amount by Mortgage Borrowers in accordance with the terms of Section 2.4.2(b) and Section 2.4.2(e) of the Mortgage Loan Agreement provided that:

          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices relating to such Minimum Mandatory Prepayment or Alternative Minimum Mandatory Letter

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of Credit delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (B) all certifications made by Mortgage Borrowers in connection with such Minimum Mandatory Prepayment or Alternative Minimum Mandatory Letter of Credit also run for the benefit of Lender; and

          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Minimum Mandatory Prepayment (or deliver an Alternative Minimum Mandatory Letter of Credit in lieu thereof) determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Minimum Mandatory Prepayment (or a partial payment on account thereof) occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Minimum Mandatory Prepayment (or a partial payment on account thereof) occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, (2) the applicable Prepayment Fee, and (3) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Minimum Mandatory Prepayment (or such partial payment on account thereof), but Lender acknowledges and agrees that no Spread Maintenance Premium shall be due at any time in connection with the Minimum Mandatory Prepayment (or any partial payment on account thereof).

               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its option, to draw on any Alternative Minimum Mandatory Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

               (iv) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(b) and Section 2.4.2(e) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

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               (b) Non-Qualified Mandatory Prepayment.

               (i) Section 2.4.2(c) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to either (A) pay to Mortgage Lender on or prior to the Construction Qualification Date a mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $50,000,000.00 (the “Non-Qualified Mandatory Prepayment”), or (B) deliver to Mortgage Lender the Non-Qualified Prepayment Letter of Credit, in each case, in the event that Mortgage Borrowers shall deliver a Relinquishment Notice or in the event that a Deemed Relinquishment shall occur, and whether or not the entire Release Parcel shall have been sold pursuant to one or more Release Parcel Sales in accordance with the provisions of Section 2.5.1 of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Non-Qualified Mandatory Prepayment or delivery of the Non-Qualified Prepayment Letter of Credit by Mortgage Borrowers in accordance with the terms of Section 2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement provided that:

          (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices (including any Relinquishment Notice) relating to such Non-Qualified Mandatory Prepayment or Non-Qualified Prepayment Letter of Credit delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

          (B) all certifications made by Mortgage Borrowers in connection with such Non-Qualified Mandatory Prepayment or Non-Qualified Prepayment Letter of Credit also run for the benefit of Lender; and

          (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Non-Qualified Mandatory Prepayment (or deliver a Non-Qualified Prepayment Letter of Credit in lieu thereof) determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Non-Qualified Mandatory Prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Non-Qualified Mandatory Prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, and (2) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Non-Qualified Mandatory Prepayment, but Lender acknowledges and agrees that (x) no Spread Maintenance Premium shall be due at any time in connection with the Non-

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Qualified Mandatory Prepayment, and (y) no Prepayment Fee shall be due at any time in connection with the Non-Qualified Mandatory Prepayment.

               (iii) Pursuant to Section 2.4.2(e) of the Mortgage Loan Agreement, upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender has the right, at its option, to draw on any Non-Qualified Prepayment Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

               (iv) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(c) and Section 2.4.2(e) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

               (c) Additional Non-Qualified Mandatory Prepayment.

               (i) Section 2.4.2(d) of the Mortgage Loan Agreement contains provisions requiring Mortgage Borrowers to pay to Mortgage Lender on the Additional Non-Qualified Prepayment Date an additional mandatory prepayment of the Aggregate Outstanding Principal Balance in the amount of $75,000,000.00 (the “Additional Non-Qualified Mandatory Prepayment”), in accordance with the provisions of Section 2.4.2(d) of the Mortgage Loan Agreement.

               (ii) Lender hereby consents to the payment of any Additional Non-Qualified Mandatory Prepayment by Mortgage Borrowers in accordance with the terms of Section 2.4.2(d) of the Mortgage Loan Agreement provided that:

     (A) Borrowers shall deliver, or shall cause Mortgage Borrowers to deliver, to Lender a copy of all requests and other notices relating to such Additional Non-Qualified Mandatory Prepayment delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

     (B) all certifications made by Mortgage Borrowers in connection with such Additional Non-Qualified Mandatory Prepayment also run for the benefit of Lender; and

     (C) Borrowers shall cause Mortgage Borrowers to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of the Additional Non-Qualified Mandatory Prepayment determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) hereof, plus (1) if such Additional Non-Qualified Mandatory Prepayment occurs on a date other than a Payment Date, all interest which would have accrued on the

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amount of the Mortgage Loan, the Loan and the Mezzanine Loans to be prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month (subject to Section 2.4.6 hereof), or, if such Additional Non-Qualified Mandatory Prepayment occurs on a Payment Date, through and including the last day of the Interest Period immediately prior to the applicable Payment Date, and (2) all other sums due and payable under this Agreement, the Note, and the other Loan Documents, including, but not limited to the Breakage Costs, if any, and all of Lender’s costs and expenses (including reasonable attorney’s fees and disbursements) incurred by Lender in connection with such Additional Non-Qualified Mandatory Prepayment, but Lender acknowledges and agrees that (x) no Spread Maintenance Premium shall be due at any time in connection with the Additional Non-Qualified Mandatory Prepayment, and (y) no Prepayment Fee shall be due at any time in connection with the Additional Non-Qualified Mandatory Prepayment.

               (iii) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.4.2(d) of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.4.3 Prepayment Upon Occurrence of Liquidation Events.

               (a) In the event of (i) any Casualty to all or any portion of the Property, (ii) any Condemnation of all or any portion of any Property, (iii) a Transfer of any Property in connection with realization thereon by Mortgage Lender following a Mortgage Event of Default, including, without limitation, a foreclosure sale, or (iv) any refinancing of any Property or the Mortgage Loan (each, a “Liquidation Event”), Borrowers shall cause the related Net Liquidation Proceeds After Debt Service to be deposited with Lender or directly into the Cash Management Account. On each date on which Lender actually receives a distribution of Net Liquidation Proceeds After Debt Service, if such date is a Payment Date, such Net Liquidation Proceeds After Debt Service shall be applied to the Outstanding Principal Balance in an amount equal to one hundred percent (100%) of such Net Liquidation Proceeds After Debt Service and all other sums then due to prepay the Loan. In the event Lender receives a distribution of Net Liquidation Proceeds After Debt Service on a date other than a Payment Date, such amounts shall be held by Lender as collateral security for the Loan in an interest bearing account, with such interest accruing to the benefit of Borrowers, and shall be applied by Lender on the next Payment Date. Any such prepayment shall be applied to all accrued and unpaid interest amounts and other amounts then due to Lender under this Agreement or any of the other Loan Documents and then to the Outstanding Principal Balance.

               (b) Borrowers shall immediately notify Lender of any Liquidation Event once any Borrower has knowledge of such event. Borrowers shall be deemed to have knowledge of (i) a sale (other than a foreclosure sale) of any Property on the date on which a contract of sale for such sale is entered into, and a foreclosure sale, on the date notice of such foreclosure sale is given, and (ii) a refinancing of the Property, on the date on which a binding

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commitment for such refinancing is entered into and a closing date for the funding of such refinancing has been scheduled. The provisions of this Section 2.4.3 shall not be construed to contravene in any manner either (i) the restrictions and other provisions regarding refinancing of the Mortgage Loan or Transfer of any Property set forth in this Agreement, any other Loan Document or any Mortgage Loan Document, whether or not notice is given pursuant to this Section 2.4.3 or (ii) Borrowers’ right to prepay set forth in this Agreement and the other Loan Documents or the Mortgage Loan Documents.

               (c) Upon payment in full of the Debt and all other Obligations, Lender shall disburse any Net Liquidation Proceeds After Debt Service to Borrowers.

          2.4.4 Application of Payments of Principal. Notwithstanding anything to the contrary contained in this Agreement, the following principal payments shall be allocated among the Loan, the Mortgage Loan and the Mezzanine Loans as follows:

               (a) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment, including, without limitation, any prepayment pursuant to Section 2.7.3(a) or 2.7.3(b)(i) hereof or Section 3.2(h), 3.2(h)(A) or 3.3(d) of the Mortgage Loan Agreement (but expressly excluding (1) any prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(j) thereof and Section 2.4.4(j) below; (2) any prepayment pursuant to Section 3.1(e) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below; (3) any prepayment pursuant to Section 3.17.5(a) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below; and (4) any prepayment pursuant to Section 3.22(a)(iii)(A) of the Mortgage Loan Agreement, which shall be governed by the provisions of Section 2.4.3(i) thereof and Section 2.4.4(i) below), shall be applied, pro rata in accordance with the Financing Percentages, to (i) the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages, (ii) the First Mezzanine Debt, (iii) the Second Mezzanine Debt and (iv) the Debt, until the Mortgage Debt, the First Mezzanine Debt, the Second Mezzanine Debt and the Debt are paid in full, which Financing Percentages and Component Percentages shall be calculated as of the date of such prepayment; provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment first, to payment of the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (i) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iv) any balance to Mortgage Borrowers;

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               (b) so long as no Mortgage Event of Default shall have occurred and be continuing, any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment and/or Additional Non-Qualified Mandatory Prepayment shall be applied, pro rata in accordance with the Financing Percentages, to (i) the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages, (ii) the First Mezzanine Debt, (iii) the Second Mezzanine Debt and (iv) the Debt, until the Mortgage Debt, the First Mezzanine Debt, the Second Mezzanine Debt and the Debt are paid in full, which Financing Percentages and Component Percentages shall be calculated as of the date of such prepayment; provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any Minimum Mandatory Prepayment (or any partial payment on account thereof), Non-Qualified Mandatory Prepayment and/or Additional Non-Qualified Mandatory Prepayment first, to payment of the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (i) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iv) any balance to Mortgage Borrowers;

               (c) all Net Proceeds not required to be made available for Restoration, and as to which Mortgage Lender has not otherwise elected in its sole discretion to make available for Restoration, shall be applied first, to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then, as a distribution permitted under applicable law, (i) disbursed to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) disbursed to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iv) the balance disbursed to Mortgage Borrowers;

               (d) any Mortgage Reserve Funds or other cash collateral held by or on behalf of Mortgage Lender, whether in the Mortgage Cash Management Account or any of the Mortgage Reserve Funds, or otherwise, including, without limitation, any Net Proceeds and/or any Excess Cash Flow then being held by Mortgage Lender, shall, upon the occurrence and during the continuance of a Mortgage Event of Default, be applied by Mortgage Lender as

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follows or may continue to be held by Mortgage Lender as additional collateral for the Mortgage Loan, all in Mortgage Lender’s sole discretion: first, to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then, as a distribution permitted under applicable law, (i) disbursed to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (ii) disbursed to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (iii) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (iv) the balance disbursed to Mortgage Borrowers;

               (e) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, the proceeds of any Release Parcel Release Price shall be allocated, pro rata in accordance with the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (ii) the First Mezzanine Loan, (iii) the Second Mezzanine Loan and (iv) the Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such Release Parcel Release Price;

               (f) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, the proceeds of any Adjacent Parcel Release Price shall be allocated, pro rata in accordance with the Financing Percentages, among (i) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (ii) the First Mezzanine Loan, (iii) the Second Mezzanine Loan and (iv) the Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such Adjacent Parcel Release Price;

               (g) subject to Section 2.5.4 of the Mortgage Loan Agreement and Section 2.5.4 hereof, (i) the proceeds of any IP Release Price which is less than or equal to $80,000,000 and arises from an IP Sale (a “Non-Fully Prepaid IP Sale”) occurring at any time when Mortgage Borrowers have not paid in full the Minimum Mandatory Prepayment, the Non-Qualified Mandatory Prepayment and the Additional Non-Qualified Mandatory Prepayment, shall be allocated, pro rata in accordance with the Financing Percentages, among (I) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (II) the First Mezzanine Loan, (III) the Second Mezzanine Loan and (IV) the Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price; (ii) the proceeds of any IP Release Price which is less than or equal to $60,000,000 and arises from an IP Sale (a “Fully Prepaid IP Sale”) occurring at any time after Mortgage Borrowers have paid in full the Minimum Mandatory Prepayment, the Non-Qualified Mandatory Prepayment and the Additional Non-Qualified Mandatory Prepayment, shall be allocated, pro rata in accordance with the Financing Percentages, among (I) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (II) the First Mezzanine Loan, (III) the Second Mezzanine Loan and (IV) the Loan,

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which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price; and (iii) the proceeds of any IP Release Price in excess of $80,000,000 which arise from a Non-Fully Prepaid IP Sale (the “Excess Non-Fully Funded IP Release Proceeds”) or the proceeds of any IP Release Price in excess of $60,000,000 which arise from a Fully Prepaid IP Sale (“Excess Fully Funded IP Release Proceeds”; and whichever of the Excess Fully Funded IP Release Proceeds or the Excess Non-Fully Funded IP Release Proceeds is applicable, the "Excess IP Release Price Proceeds”), shall, at Mortgage Borrowers’ option, either (A) be deposited in the General Reserve Account and thereafter constitute a part of the General Reserve Fund for all purposes under the Mortgage Loan Agreement, to be held and disbursed by Mortgage Lender as set forth in Section 7.6 thereof, or (B) applied as follows, in such amounts as Mortgage Borrowers shall elect: (1) up to fifty percent (50%) of such Excess IP Release Price Proceeds shall be applied to satisfy any Required Equity Amount or Subsequent Required Equity Amount then due and payable, and/or (2) the balance of such Excess IP Release Price Proceeds after application in accordance with the foregoing clause (1), but in no event less than fifty percent (50%) thereof, to repayment, pro rata in accordance with the Financing Percentages, of (w) the Mortgage Loan, pro rata between the Components in accordance with the Component Percentages, (x) the First Mezzanine Loan, (y) the Second Mezzanine Loan and (z) the Loan, which Financing Percentages and Component Percentages shall be calculated as of the date of payment of such IP Release Price (any repayment of the Mortgage Loan, the First Mezzanine Loan, the Second Mezzanine Loan and the Loan pursuant to this Section 2.4.3(g)(iii)(B)(2) paid out of Excess Non-Fully Funded IP Release Proceeds being referred to as the “Optional IP Release Payment”);

               (h) all Rents received by Mortgage Lender upon the occurrence and during the continuance of a Mortgage Event of Default pursuant to Section 3.1 of the Assignment of Leases shall be applied by Mortgage Lender as follows or may continue to be held by Mortgage Lender as additional collateral for the Mortgage Loan, all in Mortgage Lender’s sole discretion: first, (i) to the expenses of managing and securing any of the Properties, as contemplated by clause (a) of said Section 3.1 of the Assignment of Leases, and/or (ii) to the Mortgage Debt, pro rata between the Components in accordance with the Component Percentages (as calculated as of the date of such prepayment), and applied to each Component in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Mortgage Debt is paid in full, and then (A) disbursed to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (B) disbursed to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (C) disbursed to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (D) the balance disbursed to Mortgage Borrowers;

               (i) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan Agreement shall be applied as follows: (A) first, to the Construction Loan until the Construction Loan is repaid in full, and then (B) second, out of any remaining balance of such voluntary prepayment, $10,000,000 thereof shall be applied to the Debt provided that the

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Construction Holdback has been funded into the Construction Loan Reserve Account pursuant to Section 3.4.2 hereof, and then (C) third, any remaining balance of such voluntary prepayment shall be applied, pro rata in accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition Loan, (ii) the First Mezzanine Debt, (iii) the Second Mezzanine Debt and (iv) the Debt, until the Reduced Acquisition Loan, the First Mezzanine Debt, the Second Mezzanine Debt and the Debt are paid in full, which Alternate Financing Percentages shall be calculated as of the date of such prepayment and taking into account the prepayments made pursuant to the foregoing clauses (A) and (B); provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment pursuant to Section 3.1(e), 3.17.5(a) or 3.22(a)(iii)(A) of the Mortgage Loan Agreement first, to payment of the Construction Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Construction Loan is paid in full, and then second, to payment of the Reduced Acquisition Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Reduced Acquisition Loan is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (1) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (2) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the Second Mezzanine Debt is paid in full, and then (3) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (4) any balance to Mortgage Borrowers; and

               (j) so long as no Mortgage Event of Default shall have occurred and be continuing, any voluntary prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement shall be applied as follows: (A) first, to the Construction Loan until the Construction Loan is repaid in full, and then (B) second, any remaining balance of such voluntary prepayment shall be applied, pro rata in accordance with the Alternate Financing Percentages, to (i) the Reduced Acquisition Loan, (ii) the First Mezzanine Debt, (iii) the Second Mezzanine Debt and (iv) the Debt, until the Reduced Acquisition Loan, the First Mezzanine Debt, the Second Mezzanine Debt and the Debt are paid in full, which Alternate Financing Percentages shall be calculated as of the date of such prepayment and taking into account the prepayment made pursuant to the foregoing clause (A); provided, however, that upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall apply any voluntary prepayment pursuant to Section 3.17.2 of the Mortgage Loan Agreement first, to payment of the Construction Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Construction Loan is paid in full, and then second, to payment of the Reduced Acquisition Loan, to be applied in any order, priority and proportions as Mortgage Lender shall elect in its sole discretion from time to time, until the Reduced Acquisition Loan is paid in full, and shall then disburse any remainder, as a distribution permitted under applicable law, (1) to First Mezzanine Lender for application in accordance with the terms of the First Mezzanine Loan Documents if the First Mezzanine Debt (or any portion thereof) is then outstanding, until the First Mezzanine Debt is paid in full, and then (2) to Second Mezzanine Lender for application in accordance with the terms of the Second Mezzanine Loan Documents if the Second Mezzanine Debt (or any portion thereof) is then outstanding, until the

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Second Mezzanine Debt is paid in full, and then (3) to Lender for application in accordance with the terms of the Loan Documents if the Debt (or any portion thereof) is then outstanding, until the Debt is paid in full, and then (4) any balance to Mortgage Borrowers.

          2.4.5 Prepayments After Default. If during the continuance of an Event of Default payment of all or any part of the Debt is tendered by Borrowers or otherwise recovered by Lender (including through application of any Reserve Funds or any Net Liquidation Proceeds After Debt Service), (a) such tender or recovery shall be deemed made on the next occurring Payment Date together with the monthly Debt Service amount calculated at the Default Rate from and after the date of such Event of Default, (b) if such tender or recovery occurs on or prior to the Spread Maintenance Release Date, Borrowers shall pay, in addition to the Debt, the Spread Maintenance Premium due on the amount of the Loan being prepaid or satisfied, and (c) Borrower shall also pay an amount equal to one percent (1%) of the amount of the Loan being prepaid or satisfied.

          2.4.6 Prepayments Made on Dates Other Than Payment Dates. With respect to any provision herein or in any other Loan Document providing that if a payment or prepayment of the Loan is made on a date other than a Payment Date such payment or prepayment shall be accompanied by all interest which would have accrued on the amount of the Loan so paid or prepaid through, but not including, the next succeeding ninth (9th) day of a calendar month, Borrowers shall be entitled to a credit toward the following month’s Monthly Interest Payment or any other amounts due under the Loan in an amount equal to the amount of interest actually earned by Lender on the portion of such interest payment in excess of the amount of interest actually accrued on the date of such payment or prepayment (the “Extra Non-Accrued Interest”). In order to effectuate the foregoing, upon any prepayment resulting in any Extra Non-Accrued Interest pursuant to the terms hereof, Lender shall deposit such Extra Non-Accrued Interest in an interest-bearing account for the benefit of Lender until the next Payment Date in order to determine the credit against the next Monthly Interest Payment due to Borrowers under this Section 2.4.6, following which Payment Date (a) Lender may withdraw such Extra Non-Accrued Interest, together with all interest accrued thereon, from such account and apply the amount of the interest accrued on such Extra Non-Accrued Interest to amounts due and payable to Lender on such Payment Date, (b) such Extra Non-Accrued Interest, together with all interest accrued thereon, shall constitute the sole and exclusive property of Lender, and (c) Lender shall have no further obligations to Borrowers with respect to such Extra Non-Accrued Interest and/or the interest accrued thereon. Lender shall not be responsible for obtaining any particular interest rate with respect to any Extra Non-Accrued Interest.

          2.4.7 Application of Prepayment Fee. Any Prepayment Fee received by Mortgage Lender in connection with the Minimum Mandatory Prepayment (or any partial payment on account thereof), any Release Parcel Release Price, any Adjacent Parcel Release Price or the IP Release Price (any of the foregoing, a “Prepayment Fee-Generating Prepayment”) shall be allocated among the Mortgage Loan (and the Components thereof), the First Mezzanine Loan, the Second Mezzanine Loan and the Loan based on the following formula: Mortgage Lender, First Mezzanine Lender, Second Mezzanine Lender and/or Lender, as applicable, shall be entitled to an amount equal to the product resulting from multiplying (a) the amount of the applicable Prepayment Fee, by (b) a fraction, the numerator of which is the amount of the applicable Prepayment Fee-Generating Prepayment allocated to the Mortgage

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Loan (or the applicable Component thereof), the First Mezzanine Loan, the Second Mezzanine Loan or the Loan, as applicable, pursuant to the applicable provision of Section 2.4.3 of the Mortgage Loan Agreement and Section 2.4.4 hereof, and the denominator of which is the total amount of the applicable Prepayment Fee-Generating Prepayment.

     Section 2.5 Release of Property. Except as set forth in this Section 2.5, no repayment or prepayment of all or any portion of the Note shall cause, give rise to a right to require, or otherwise result in, the release of the Lien of the Pledge Agreement or any other Loan Document.

          2.5.1 Releases of Release Parcel.

               (a) Section 2.5.1 of the Mortgage Loan Agreement contains provisions permitting Adjacent Borrower to (i) sell one or more portions of the Release Parcel (each, including the entire Release Parcel, a “Partial Release Parcel”) either to a bonafide third party purchaser (a “Bonafide Release Parcel Purchaser”) or to an Affiliate of Mortgage Borrower or any other Restricted Party (an "Affiliate Release Parcel Purchaser”; and together with a Bonafide Release Parcel Purchaser, individually, a “Release Parcel Purchaser”), or (2) refinance one or more Partial Release Parcels (each of the foregoing, including a sale or refinancing of the entire Release Parcel, a “Release Parcel Sale”), and obtain a release of such Partial Release Parcel from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.1 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any Release Parcel Sale conducted in accordance with the terms of Section 2.5.1 of the Mortgage Loan Agreement provided that:

     (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such Release Parcel Sale (including the Sale Request) delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

     (ii) all certifications made by Adjacent Borrower in connection with such Release Parcel Sale also run for the benefit of Lender;

     (iii) contemporaneously with such Release Parcel Sale, Borrowers shall cause Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the Release Parcel Release Price for the applicable Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(e) of the Mortgage Loan Agreement and Section 2.4.4(e) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the Release Parcel Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and

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processing any Sale Request with respect to a Release Parcel Sale, whether or not the Release Parcel Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.1(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any Release Parcel Sale as provided in Section 2.5.1(d) of the Mortgage Loan Agreement; and

     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by Adjacent Borrower of a Sale Request or at the time of the closing of such Release Parcel Sale.

               (c) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

2.5.2 Releases of Remaining Adjacent Parcel.

               (a) Section 2.5.2 of the Mortgage Loan Agreement contains provisions permitting Adjacent Borrower to (1) sell one or more portions of the Remaining Adjacent Parcel (each, including the entire Remaining Adjacent Parcel, a “Partial Adjacent Parcel”) either to a bonafide third party purchaser (a “Bonafide Adjacent Parcel Purchaser”) or to an Affiliate of Borrower or any other Restricted Party (an “Affiliate Adjacent Parcel Purchaser”; and together with a Bonafide Adjacent Parcel Purchaser, individually, an “Adjacent Parcel Purchaser”), or (2) refinance one or more Partial Adjacent Parcels (each of the foregoing, including a sale or refinancing of the entire Remaining Adjacent Parcel, an “Adjacent Parcel Sale”), and obtain a release of such Partial Adjacent Parcel from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.2 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any Adjacent Parcel Sale conducted in accordance with the terms of Section 2.5.2 of the Mortgage Loan Agreement provided that:

     (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such Adjacent Parcel Sale delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

     (ii) all certifications made by Adjacent Borrower in connection with such Adjacent Parcel Sale also run for the benefit of Lender;

     (iii) contemporaneously with such Adjacent Parcel Sale, Borrowers shall cause Adjacent Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the Adjacent Parcel Release Price for the applicable Parcel determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(f) of the Mortgage Loan Agreement and Section 2.4.4(f)

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hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the Adjacent Parcel Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to an Adjacent Parcel Sale, whether or not the Adjacent Parcel Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.2(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any Adjacent Parcel Sale as provided in Section 2.5.2(d) of the Mortgage Loan Agreement; and

     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by Adjacent Borrower of a sale request or at the time of the closing of such Adjacent Parcel Sale.

               (c) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.2 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.3 Release of IP.

               (a) Section 2.5.3 of the Mortgage Loan Agreement contains provisions permitting IP Borrower to sell the IP (in whole but not in part) (an “IP Sale”), to either a bonafide third party purchaser (a “Bonafide IP Purchaser”) or to an Affiliate of Borrower or any other Restricted Party (an "Affiliate IP Purchaser”; and together with a Bonafide IP Purchaser, individually, an “IP Purchaser”), and obtain a release of the IP from the Liens of the Mortgage upon satisfaction of certain conditions and requirements set forth in Section 2.5.3 of the Mortgage Loan Agreement.

               (b) Lender hereby consents to any IP Sale conducted in accordance with the terms of Section 2.5.3 of the Mortgage Loan Agreement provided that:

     (i) Borrowers deliver to Lender a copy of all requests and other notices relating to such IP Sale delivered to Mortgage Lender concurrently with delivery of the same to Mortgage Lender;

     (ii) all certifications made by IP Borrower in connection with such IP Sale also run for the benefit of Lender;

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     (iii) contemporaneously with such IP Sale, Borrowers shall cause IP Borrower to deposit directly into the Mortgage Cash Management Account an amount equal to the sum of (A) the IP Release Price determined in accordance with the Mortgage Loan Agreement, which funds shall be applied by Mortgage Lender as provided in Section 2.4.3(g) of the Mortgage Loan Agreement and Section 2.4.4(g) hereof, plus (B) all accrued and unpaid interest on said amount prepaid in accordance with the terms of this Agreement and the Mortgage Loan Agreement, plus (C) if such prepayment occurs on a day other than a Payment Date, interest on the IP Release Price to, but not including, the next succeeding ninth (9^th) day of a calendar month, plus (D) the Prepayment Fee, if any;

     (iv) Borrowers shall have paid all of the actual out-of-pocket reasonable third party legal fees and actual out-of pocket reasonable third party expenses incurred by Lender, if any, in connection with (A) reviewing and processing any Sale Request with respect to an IP Sale, whether or not the IP Sale which is the subject of a Sale Request actually closes, (B) the satisfaction of any of the conditions set forth in Section 2.5.3(a) of the Mortgage Loan Agreement, and (C) providing all release documents in connection with any IP Sale as provided in Section 2.5.3(d) of the Mortgage Loan Agreement; and

     (v) No monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing at the time of the submission by IP Borrower of a sale request or at the time of the closing of such IP Sale.

               (c) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 2.5.3 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety, but the terms used therein shall mean and refer to the correlative terms defined herein.

          2.5.4 Sale of Properties or IP during Event of Default. Notwithstanding the provisions of the foregoing Sections 2.5.1, 2.5.2 and 2.5.3 or any other provision to the contrary in this Agreement or the other Loan Documents, it is expressly acknowledged and agreed by Borrowers that, upon the occurrence and during the continuance of an Event of Default: (i) no Borrower shall have any right to cause any Mortgage Borrower to sell any Property or any portion thereof or any IP without, in each instance, Lender’s prior written consent, which consent may be given or withheld in Lender’s sole discretion, (ii) any such sale of one or more of the Properties or any portion thereof and/or any IP shall be on such terms and conditions as to which Lender and Borrowers shall agree, Lender, however, having the right to impose such terms and conditions as it shall elect in its sole discretion, (iii) the provisions of this Section 2.5 (other than this Section 2.5.4) shall not be applicable to any such sale of one or more of the Properties or any portion thereof and/or any IP consented to by Lender as aforesaid, Borrowers expressly acknowledging and agreeing that neither Lender nor any Mezzanine Lender shall be entitled to any Release Parcel Release Price, Adjacent Parcel Release Price or IP Release Price or any portion of any of the foregoing or any proceeds of any of the foregoing unless and until the

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Mortgage Debt has been paid in full, and (iv) in the event that, following any such sale of one or more of the Properties or any portion thereof and/or any IP, the Mortgage Debt, the First Mezzanine Debt and the Second Mezzanine Debt shall have been paid in full, Borrowers shall cause Mortgage Borrowers and/or Mortgage Lender, as applicable, to distribute to Lender any remaining proceeds thereof to be applied as provided in this Agreement, and thereafter, in the event that the Debt shall have been paid in full, Lender shall distribute any remaining proceeds to Mortgage Borrowers.

          2.5.5 Release on Payment in Full. Upon the written request and payment by Borrowers of the customary recording fees and the actual out-of-pocket third-party costs and expenses of Lender and upon payment in full of all principal and interest due on the Loan and all other amounts due and payable under the Loan Documents in accordance with the terms and provisions of the Note and this Agreement, Lender shall release the Lien of the Pledge Agreement and the other Loan Documents.

     Section 2.6 Cash Management.

          2.6.1 Lockbox Account.

               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and maintain a segregated Eligible Account (the “Lockbox Account”) with Lockbox Bank in trust for the benefit of Mortgage Lender, which Lockbox Account shall be under the sole dominion and control of Mortgage Lender pursuant to and in accordance with the Mortgage Loan Documents and shall comply with all of the terms and conditions set forth in Section 2.6.1 of the Mortgage Loan Agreement.

               (b) Borrowers shall cause each Mortgage Borrower and its Manager and/or Sub-Manager, as applicable, to deposit all amounts received by such Mortgage Borrower or Manager and/or Sub-Manager constituting Rents into the Lockbox Account in accordance with the terms of Section 2.6.1(b) of the Mortgage Loan Agreement.

               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Lockbox Account pursuant to the terms of Section 2.6.1 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrowers to establish and maintain an account that would operate in the same manner as the Lockbox Account in Section 2.6.1 of the Mortgage Loan Agreement and the provisions of Section 2.6.1 of the Mortgage Loan Agreement shall be incorporated herein by reference.

          2.6.2 Mortgage Cash Management Account.

               (a) During the term of the Loan, Borrowers shall cause Mortgage Borrowers to establish and maintain a segregated Eligible Account (the “Mortgage Cash Management Account”), which Mortgage Cash Management Account shall be under the sole dominion and control of Mortgage Lender and shall comply with all of the terms and conditions set forth in Section 2.6.2 of the Mortgage Loan Agreement.

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               (b) Borrowers shall direct or cause Mortgage Borrowers to direct that all cash contributions from the Lockbox Account and the Mortgage Cash Management Account to be paid to or for the benefit of Lender in accordance with the Mortgage Loan Agreement and the Mortgage Cash Management Agreement shall be deposited into the Cash Management Account maintained in accordance with this Agreement and the Cash Management Agreement. Lender agrees that it shall deliver to Mortgage Lender, not less than five (5) days prior to each Payment Date, a written notice setting forth (i) the amount of the Monthly Interest Payment that will be due on the next Payment Date, and (ii) an itemized list of any other amounts that will be due on such next Payment Date pursuant to the terms of this Agreement and/or the other Loan Documents.

               (c) In the event (i) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Mortgage Cash Management Account pursuant to the terms of Section 2.6.2 of the Mortgage Loan Agreement, or (ii) the Mortgage Loan has been repaid in full, Lender shall have the right to require Borrowers to establish and maintain an account that would operate in the same manner as the Mortgage Cash Management Account in Section 2.6.2 of the Mortgage Loan Agreement and the provisions of Section 2.6.2 of the Mortgage Loan Agreement shall be incorporated herein by reference; provided, however, that references to “Lender,” “Cash Management Account,” and other applicable terms shall be deemed to refer to the Lender, Cash Management Account and other applicable terms hereunder.

          2.6.3 Cash Management Account.

               (a) There shall be established and maintained a segregated Eligible Account (the “Cash Management Account”) to be held by Servicer in trust for the benefit of Lender, which Cash Management Account shall be under the sole dominion and control of Lender. The Cash Management Account shall be entitled “Column Financial, Inc., its successors and/or assigns — Hard Rock Third Mezzanine Cash Management Account” or such other title as shall be reasonably acceptable to Lender and the bank holding the Cash Management Account. Each Borrower hereby grants to Lender a first priority security interest in the Cash Management Account and all deposits at any time contained therein and the proceeds thereof, and will take all actions requested by Lender that are necessary to maintain in favor of Lender a perfected first priority security interest in the Cash Management Account, including, without limitation, executing and filing UCC-1 Financing Statements and continuations thereof. Lender and Servicer shall have the sole right to make withdrawals from the Cash Management Account for application pursuant to the terms of this Agreement and the other Loan Documents and all reasonable costs and expenses for establishing and maintaining the Cash Management Account shall be paid by Borrowers.

               (b) All funds on deposit in the Cash Management Account following the occurrence of an Event of Default may be applied by Lender in such order and priority as Lender shall determine.

               (c) Provided no Event of Default shall have occurred and be continuing, all funds on deposit in the Cash Management Account shall be applied by Lender in accordance with the terms of this Agreement (including, without limitation, Section 2.4.3 and Section 2.4.4 hereof) and the Cash Management Agreement.

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          2.6.4 Financial Determination Dates. Borrowers shall provide, or shall cause Mortgage Borrowers to provide, evidence to Lender of (i) the Debt Service Coverage Ratio for the Properties, and (ii) for purposes of determining whether the General Reserve Excess Cash Conditions have been satisfied, the results of operations at the Properties for the preceding calendar month, within thirty (30) days after the end of each calendar month (the “Financial Determination Date”). All calculations of Debt Service Coverage Ratio and results of operations shall be subject to verification by Mortgage Lender.

     Section 2.7 Extensions of the Initial Maturity Date.

          2.7.1 Non-Qualified Extensions. As provided in this Section 2.7.1, in the event the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, Borrowers shall have the option (each, a “Non-Qualified Extension Option”) to extend the term of the Loan beyond the Non-Qualified Initial Maturity Date for two (2) successive terms (each, a “Non-Qualified Extension Term”) of one (1) year each (the Non-Qualified Initial Maturity Date following the exercise of each Non-Qualified Extension Option being the "Non-Qualified Extended Maturity Date”).

               (a) First Non-Qualified Extension Option. Borrowers shall have the right to extend the Non-Qualified Initial Maturity Date to the First Non-Qualified Extended Maturity Date (the "First Non-Qualified Extension Option”; and the period commencing on the first (1st) day following the Non-Qualified Initial Maturity Date and ending on the First Non-Qualified Extended Maturity Date being referred to herein as the “First Non-Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the First Non-Qualified Extension Option is exercised or on the date that the First Non-Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the First Non-Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the Non-Qualified Initial Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the First Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the First Non-Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the First Non-Qualified Extended Maturity Date;

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     (iv) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the First Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the First Non-Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the First Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the First Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for

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deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the First Non-Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (x) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) the Debt Yield immediately preceding the commencement of the First Non-Qualified Extension Term shall be equal to or greater than 10.25%; and

     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

               (b) Second Non-Qualified Extension Option. Borrowers shall have the right to extend the First Non-Qualified Extended Maturity Date to the Second Non-Qualified Extended Maturity Date (the “Second Non-Qualified Extension Option”; and the period commencing on the first (1st) day following the First Non-Qualified Extended Maturity Date and ending on the Second Non-Qualified Extended Maturity Date being referred to herein as the “Second Non-Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the Second Non-Qualified Extension Option is exercised or on the date that the Second Non-Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the Second Non-Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the First Non-Qualified Extended Maturity Date;

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     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the Second Non-Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the Second Non-Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the Second Non-Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the Second Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the Second Non-Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

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     (vii) not later than one (1) Business Day immediately preceding the first day of the Second Non-Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the Second Non-Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the Second Non-Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (x) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Non-Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) the Debt Yield immediately preceding the commencement of the Second Non-Qualified Extension Term shall be equal to or greater than 11.25%; and

     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

          2.7.2 Qualified Extensions. As provided in this Section 2.7.2, in the event the Qualification Conditions have been satisfied on or prior to the Construction Qualification Date, Borrowers shall have the option (each, a “Qualified Extension Option”) to extend the term of the Loan beyond the Qualified Initial Maturity Date for two (2) successive terms (each, a “Qualified Extension Term”) of one (1) year each (the Qualified Initial Maturity Date

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following the exercise of each Qualified Extension Option being the “Qualified Extended Maturity Date”).

               (a) First Qualified Extension Option. Borrowers shall have the right to extend the Qualified Initial Maturity Date to the First Qualified Extended Maturity Date (the “First Qualified Extension Option”; and the period commencing on the first (1st) day following the Qualified Initial Maturity Date and ending on the First Qualified Extended Maturity Date being referred to herein as the “First Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the First Qualified Extension Option is exercised or on the date that the First Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the First Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the Qualified Initial Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the First Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the First Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the First Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the First Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the

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Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the First Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the First Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the First Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the First Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

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     (x) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the First Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) there shall exist no Shortfall as of the Business Day immediately preceding the first day of the First Qualified Extension Term; and

     (xii) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

               (b) Second Qualified Extension Option. Borrowers shall have the right to extend the First Qualified Extended Maturity Date to the Second Qualified Extended Maturity Date (the “Second Qualified Extension Option”; and the period commencing on the first (1st) day following the First Qualified Extended Maturity Date and ending on the Second Qualified Extended Maturity Date being referred to herein as the “Second Qualified Extension Term”), provided that all of the following conditions are satisfied:

     (i) no monetary Default, Event of Default, monetary Mortgage Default, Mortgage Event of Default, any monetary Mezzanine Default or any Mezzanine Event of Default shall have occurred and be continuing at the time the Second Qualified Extension Option is exercised or on the date that the Second Qualified Extension Term commences;

     (ii) Borrowers shall notify Lender of their irrevocable election to exercise the Second Qualified Extension Option not earlier than six (6) months, and not later than thirty (30) days, prior to the First Qualified Extended Maturity Date;

     (iii) if the Interest Rate Cap Agreement is scheduled to mature prior to the Second Qualified Extended Maturity Date, Borrowers shall obtain and deliver to Lender not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, one or more Replacement Interest Rate Cap Agreements (or extension(s) of the existing Interest Rate Cap Agreement(s)) from an Acceptable Counterparty, which Replacement Interest Rate Cap Agreement(s) (or extension(s) of the existing Interest Rate Cap Agreement(s)) shall (i) be effective commencing on the first day of the Second Qualified Extension Term, (ii) have a LIBOR strike price equal to the applicable Strike Price, and (iii) have a maturity date not earlier than the Second Qualified Extended Maturity Date;

     (iv) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, all accrued and unpaid interest and any unpaid or unreimbursed amounts in respect of the Loan and any other sums

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then due to Lender hereunder or under any of the other Loan Documents shall have been paid in full;

     (v) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the Interest Reserve Account, an amount equal to the Extension Interest Shortfall with respect to the Second Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Interest Reserve Fund and shall be held and disbursed by Mortgage Lender as set forth in Section 7.4 of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the Interest Reserve Account to be held and disbursed by Lender as set forth in Section 7.4 hereof);

     (vi) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into the applicable Mortgage Reserve Fund(s), any shortfalls in such Mortgage Reserve Fund(s) with respect to the Second Qualified Extension Term, if any, as reasonably estimated and underwritten by Mortgage Lender based on (A) the Approved Annual Budget then in effect and (B) underwriting criteria consistent with that used by Mortgage Lender to determine the amount of the deposit to the applicable Mortgage Reserve Fund(s) on the Closing Date (and throughout the term of the Loan), which amount thereafter shall constitute a part of the applicable Mortgage Reserve Fund(s) and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into the applicable Reserve Fund(s) to be held and disbursed by Lender as set forth in Article VII hereof);

     (vii) not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term, Borrowers shall have caused Mortgage Borrowers to deposit with Mortgage Lender in immediately available funds, for deposit by Mortgage Lender into one or more new Mortgage Reserve Funds, such other reserves as Mortgage Lender shall reasonably require in order to cover reasonably anticipated Operating Expense shortfalls during the Second Qualified Extension Term, if any, which amount thereafter shall constitute a part of the Mortgage Reserve Funds and shall be held and disbursed by Mortgage Lender as set forth in Article VII of the Mortgage Loan Agreement (or, if the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been paid in full, Borrowers shall have deposited such amount with Lender for deposit into one more new Reserve Funds to be held and disbursed by Lender as set forth in Article VII hereof) and/or in an amendment to this Agreement

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reasonably negotiated and executed by Borrowers and Lender at such time and as a condition to the exercise of the Second Qualified Extension Option;

     (viii) the maturity date of the Mortgage Loan, if the Mortgage Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (ix) the maturity date of the First Mezzanine Loan, if the First Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (x) the maturity date of the Second Mezzanine Loan, if the Second Mezzanine Loan is then outstanding, shall be extended to not earlier than the Second Qualified Extended Maturity Date on the same terms and conditions as in effect on the date hereof;

     (xi) there shall exist no Shortfall as of the Business Day immediately preceding the first day of the Second Qualified Extension Term;

     (xii) the Debt Yield immediately preceding the commencement of the Second Qualified Extension Term shall be equal to or greater than 13%;

     (xiii) Borrowers shall have paid to Lender an extension fee equal to one-quarter of one percent (0.25%) of the Outstanding Principal Balance not later than one (1) Business Day immediately preceding the first day of the Second Qualified Extension Term; and

     (xiv) Borrowers shall have reimbursed Lender for all costs reasonably incurred by Lender in processing the extension request, including, without limitation, reasonable legal fees and expenses; provided, however, that in no event shall Borrowers be required to pay any such fees, costs or expenses in excess of Five Thousand Dollars ($5,000).

          2.7.3 Achieving Required Debt Yields.

               (a) Lender hereby acknowledges and agrees that nothing herein contained shall prohibit Borrowers, in accordance with the provisions of Section 2.4.1 hereof, and provided that no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing, from satisfying any Debt Yield requirement set forth in Section 2.7.1 or 2.7.2 hereof by partially prepaying the Mortgage Loan, the Loan or the Mezzanine Loans prior to the commencement of the First Non-Qualified Extension Term, the Second Non-Qualified Extension Term or the Second Qualified Extension Term, as applicable, which prepayment shall be applied in accordance with Section 2.4.4(a) hereof.

               (b) Without limiting the generality of the foregoing Section 2.7.3(a), Mortgage Borrowers shall also have the right to satisfy any Debt Yield requirement set forth in

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Section 2.7.1 or 2.7.2 hereof by delivering to Mortgage Lender (for the benefit of Mortgage Lender, Lender and Mezzanine Lenders) a Letter of Credit in an amount equal to the principal repayment of the Aggregate Outstanding Principal Balance that would be required in order to achieve the applicable required Debt Yield (each, a “Debt Yield Letter of Credit”). If Mortgage Borrowers elect to deliver any Debt Yield Letter of Credit, the following shall apply to each such Debt Yield Letter of Credit:

     (i) Borrowers shall cause Mortgage Borrowers to pay to Mortgage Lender all of Mortgage Lender’s reasonable out-of-pocket costs and expenses in connection therewith, including, without limitation, any costs or expenses incurred in drawing down on such Debt Yield Letter of Credit. Mortgage Borrowers shall not be entitled to draw from any such Debt Yield Letter of Credit. Upon five (5) days notice to Lender and Mortgage Lender and provided that no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default shall have occurred and be continuing, Mortgage Borrowers may replace such Debt Yield Letter of Credit with a partial prepayment of the Mortgage Loan, the Loan and the Mezzanine Loans in an aggregate amount equal to such Debt Yield Letter of Credit, which prepayment shall be applied in accordance with Section 2.4.3(a) of the Mortgage Loan Agreement and Section 2.4.4(a) hereof, following which prepayment, Mortgage Lender shall promptly return such Debt Yield Letter of Credit to Mortgage Borrowers.

     (ii) Each Debt Yield Letter of Credit delivered under this Agreement shall be additional security for the payment of the Mortgage Debt. Upon the occurrence and during the continuance of a Mortgage Event of Default, Mortgage Lender shall have the right, at its option, to draw on any Debt Yield Letter of Credit and to apply all or any part of the proceeds thereof in accordance with the provisions of Section 2.4.3(a) of the Mortgage Loan Agreement and Section 2.4.4(a) hereof applicable to a prepayment following the occurrence and during the continuance of a Mortgage Event of Default.

     (iii) In addition to any other right Mortgage Lender may have to draw upon a Debt Yield Letter of Credit pursuant to the terms and conditions of the Mortgage Loan Agreement, Mortgage Lender shall have the additional rights to draw in full on any Debt Yield Letter of Credit: (A) with respect to any evergreen Debt Yield Letter of Credit, if Mortgage Lender has received a notice from the issuing bank that such Debt Yield Letter of Credit will not be renewed and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to expire; (B) with respect to any Debt Yield Letter of Credit with a stated expiration date, if Mortgage Lender has not received a notice from the issuing bank that it has renewed such Debt Yield Letter of Credit at least ten (10) Business Days prior to the date on which such Debt Yield Letter of Credit is scheduled to expire and a substitute Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to expire; (C) upon receipt of notice from the issuing bank that such Debt Yield Letter of Credit will be terminated and a substitute

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Debt Yield Letter of Credit is not provided at least ten (10) Business Days prior to the date on which the outstanding Debt Yield Letter of Credit is scheduled to be terminated; or (D) if Mortgage Lender has received notice that the bank issuing any Debt Yield Letter of Credit shall cease to be an Eligible Institution and within ten (10) Business Days after Mortgage Lender notifies Mortgage Borrowers in writing of such circumstance, Mortgage Borrowers shall fail to deliver to Mortgage Lender a substitute Debt Yield Letter of Credit issued by an Eligible Institution. Notwithstanding anything to the contrary contained in the above, Mortgage Lender is not obligated to draw upon any Debt Yield Letter of Credit upon the happening of an event specified in clause (A), (B), (C) or (D) above and shall not be liable for any losses sustained by Mortgage Borrowers due to the insolvency of the bank issuing any such Debt Yield Letter of Credit if Mortgage Lender has not drawn upon such Debt Yield Letter of Credit.

ARTICLE III.
CONDITIONS PRECEDENT.

     Section 3.1 Conditions Precedent to Closing. Lender’s obligation to make the Loan shall be subject to the satisfaction or Lender’s waiver in writing of the following conditions precedent no later than the Closing Date:

          3.1.1 Loan Agreement and Note. Lender shall have received a counterpart original of this Agreement and the Note, in each case, duly executed and delivered on behalf of Borrowers.

          3.1.2 Delivery of Loan Documents; UCC Insurance; Reports.

               (a) Loan Documents. Lender shall have received from Borrowers fully executed and acknowledged counterparts of the Pledge Agreement and authority to file UCC Financing Statements and such other documents required pursuant to the Pledge Agreement, in the reasonable judgment of Lender, so as to effectively create valid and enforceable first priority Liens upon the Pledged Collateral in favor of Lender, subject to no Liens or encumbrances. Lender shall have also received from Borrowers and Guarantors fully executed counterparts of the other Loan Documents.

               (b) UCC Insurance. Lender shall have received a UCC insurance policy (the “UCC Insurance Policy”) issued by the Title Company and dated as of the Closing Date, which UCC Insurance Policy shall (i) provide coverage in an amount equal to the original principal amount of the Loan, (ii) insure Lender that the Pledge Agreement and the documents executed and delivered in connection therewith create a valid first priority lien on the Pledged Collateral, free and clear of all exceptions from coverage and subject only to the standard exceptions and exclusions from coverage, as modified by the terms of any endorsements, as shall be reasonably required by Lender, including, without limitation, coverage with respect to the validity of the lien on the Pledged Collateral and ability to exercise rights and remedies with respect thereto, (iii) contain such endorsements and affirmative coverages as Lender may reasonably request, and (iv) name Lender and its successors and assigns as the insured. The

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UCC Insurance Policy shall be assignable with an assignment of the Loan. Lender also shall have received evidence that all premiums in respect of the UCC Insurance Policy have been paid.

               (c) Mezzanine Lender Endorsement. Borrowers shall have caused Mortgage Borrowers to obtain as part of their owners’ title insurance policy, a so-called “Endorsement 16 (Mezzanine Financing)” for the benefit of Lender in form and substance, and providing coverage in amounts, that are satisfactory to Lender, and that shall name Lender and its successors and assigns as the beneficiary of such endorsement. Mortgage Borrowers’ owners’ title insurance policy shall provide that such “Endorsement 16 (Mezzanine Financing)” shall be assignable with an assignment of the Loan. Lender also shall have received evidence that all premiums in respect of Mortgage Borrowers’ owners’ title insurance policy have been paid;

               (d) Insurance. Lender shall have received (i) valid certificates of insurance for the Policies required hereunder, satisfactory to Lender in its sole discretion, (ii) evidence of the payment of all Insurance Premiums payable for the existing policy period and (iii) evidence that Lender has been included as an “additional insured” under such Policies;

               (e) Environmental Reports. Lender shall have received copies of the Phase I environmental reports (and, if recommended by the Phase I environmental report, Phase II environmental reports) in respect of the Properties, as delivered to Mortgage Lender, satisfactory in form and substance to Lender; and

               (f) Encumbrances. Borrowers shall have taken or caused to be taken such actions in such a manner so that Lender has a valid and perfected first priority Lien as of the Closing Date on the Pledged Collateral, subject only to such Liens as are permitted pursuant to the Loan Documents, and Lender shall have received satisfactory evidence thereof.

          3.1.3 Amendments to Mortgage Loan Documents. The Amended and Restated Mortgage Loan Agreement shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received and approved certified copies of said documents.

          3.1.4 Mezzanine Loan Documents. The Mezzanine Loan Documents shall have been duly authorized, executed and delivered by all parties thereto and Lender shall have received copies of said Mezzanine Loan Documents.

          3.1.5 Pre-Construction Budget; Loan Budget and Annual Budget. Borrowers shall have delivered to Lender (i) the Pre-Construction Budget; (ii) the Loan Budget, to the extent required under the Mortgage Loan Agreement; and (iii) the Annual Budget for the current Fiscal Year.

          3.1.6 Required Equity Amount. Borrowers shall have furnished to Lender evidence in form and content reasonably satisfactory to Lender that Borrowers have contributed the Required Equity Amount.

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          3.1.7 Delivery of Organizational Documents.

               (a) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers of all organizational documentation related to Borrowers and/or their formation, structure, existence, good standing and/or qualification to do business, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, resolutions authorizing the entering into of the Loan and incumbency certificates as may be requested by Lender.

               (b) Borrowers shall deliver or cause to be delivered to Lender copies certified by Borrowers or the respective entity, as applicable, of all organizational documentation related to each of the Loan Parties, Guarantors, and other direct or indirect members and/or partners of Borrowers, and/or the formation, structure, existence, good standing and/or qualifications to do business of any of the foregoing, as Lender may request in its sole discretion, including, without limitation, good standing certificates, qualifications to do business in the appropriate jurisdictions, authorizing resolutions and incumbency certificates as may be requested by Lender.

          3.1.8 Legal Opinions. Lender shall have received opinions from Borrowers’ counsel with respect to non-consolidation and the due execution, authority, enforceability of the Loan Documents, perfection of the security interests in the Collateral and such other matters as Lender may require, all such opinions in form, scope and substance satisfactory to Lender and Lender’s counsel in their sole discretion.

          3.1.9 Performance; No Monetary Default or Event of Default. Borrowers shall have performed and complied with all terms and conditions herein required to be performed or complied with by them at or prior to the Closing Date, and on the Closing Date, there shall exist no monetary Default or any Event of Default.

          3.1.10 Representations and Warranties. All representations and warranties made by Borrowers and/or Guarantors in the Loan Documents or otherwise made by or on behalf of Borrowers and/or Guarantors in connection therewith shall be true and correct in all material respects on and as of the Closing Date with the same effect as if made on and as of such date (except to the extent of changes in circumstances or conditions which are not otherwise prohibited by this Agreement).

          3.1.11 Proceedings and Documents. All proceedings in connection with the transactions contemplated by this Agreement and the other Loan Documents shall be satisfactory to Lender and Lender’s counsel in form and substance, and Lender shall have received all information and such counterpart originals or certified copies of such documents and such other certificates, opinions or documents as Lender and Lender’s counsel may require.

     Section 3.2 Submission of Construction Loan Advance Documents to Lender. Borrowers shall submit, or shall cause Mortgage Borrowers to submit, to Lender, contemporaneously with any submission thereof by Mortgage Borrowers to Mortgage Lender, a copy of each Draw Request related to each Construction Loan Advance and all documents required to be delivered by Mortgage Borrowers to Mortgage Lender in connection therewith

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pursuant to Article III of the Mortgage Loan Agreement; provided, however, that any breach of this provision shall not constitute an Event of Default hereunder.

     Section 3.3 Delivery of Construction Completion Guaranty. Borrowers shall deliver to Lender, contemporaneously with the submission thereof by Mortgage Borrowers to Mortgage Lender pursuant to Section 3.2(f) of the Mortgage Loan Agreement, two (2) fully-executed originals of the Construction Completion Guaranty in favor of Lender.

     Section 3.4 Advance of Construction Holdback.

          3.4.1 Unadvanced Construction Holdback. Until advanced, if ever, the Construction Holdback shall be and remain the sole property of Lender.

          3.4.2 Advance of Construction Holdback. On or about (but in no event prior to) November 30, 2007, so long as no monetary Default or Event of Default shall have occurred and be continuing (which condition may be waived in Lender’s sole discretion), Lender shall automatically, without the necessity of notifying, or obtaining the approval of, Borrowers or any other Person, and without Borrowers’ request, advance on behalf of Borrowers the Construction Holdback for deposit into the Construction Loan Reserve Account, following which the same shall (a) be deemed to be a part of the Obligations and shall bear interest as a part of the Outstanding Principal Balance in accordance with the terms of this Agreement, (b) be held in accordance with the provisions of Sections 7.7 and 7.8 of the Mortgage Loan Agreement, and (c) be advanced from the Construction Loan Reserve Account, subject to the satisfaction of all conditions to funding with respect thereto set forth in the Mortgage Loan Agreement.

ARTICLE IV.
REPRESENTATIONS AND WARRANTIES.

     Section 4.1 Representations of Borrowers. Each Borrower represents and warrants as to itself that as of the Closing Date:

          4.1.1 Organization.

               (a) Such Borrower has been duly organized and is validly existing and in good standing with requisite power and authority to own its assets and to transact the businesses in which it is now engaged. Such Borrower is duly qualified to do business and is in good standing in each jurisdiction where it is required to be so qualified in connection with its assets, businesses and operations. Such Borrower possesses all material rights, licenses, permits and authorizations, governmental or otherwise, necessary to entitle it to own its properties and to transact the businesses in which it is now engaged, and the sole business of such Borrower is the ownership and management of the relevant Second Mezzanine Borrower. The ownership interests of such Borrower are as set forth on the organizational chart attached hereto as Schedule VI.

               (b) Such Borrower has the power and authority and the requisite ownership interests to control the actions of the relevant Second Mezzanine Borrower and, in turn, the relevant First Mezzanine Borrower and, in turn, the relevant Mortgage Borrower and upon the realization of the Pledged Collateral under the Pledge Agreement, Lender or any other

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party succeeding to such Borrower’s interest in the Pledged Collateral described in the Pledge Agreement would have such control. Without limiting the foregoing, such Borrower has sufficient control over the relevant Second Mezzanine Borrower and, in turn, the relevant First Mezzanine Borrower and, in turn, the relevant Mortgage Borrower to cause such Mortgage Borrower to (i) take any action on Mortgage Borrower’s part required by the Mortgage Loan Documents and (ii) refrain from taking any action prohibited by the Mortgage Loan Documents.

          4.1.2 Proceedings. Such Borrower has taken all necessary action to authorize the execution, delivery and performance of this Agreement and the other Loan Documents. This Agreement and the other Loan Documents have been duly executed and delivered by or on behalf of such Borrower and constitute legal, valid and binding obligations of such Borrower enforceable against such Borrower in accordance with their respective terms, subject only to applicable bankruptcy, insolvency and similar laws affecting rights of creditors generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

          4.1.3 No Conflicts. The execution, delivery and performance of this Agreement and the other Loan Documents by such Borrower will not materially conflict with or result in a material breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance (other than pursuant to the Loan Documents) upon any of the property or assets of such Borrower pursuant to the terms of any indenture, mortgage, deed of trust, loan agreement, partnership agreement, management agreement or other agreement or instrument to which such Borrower is a party or by which any of such Borrower’s property or assets is subject, nor will such action result in any violation of the provisions of any statute or any order, rule or regulation of any Governmental Authority having jurisdiction over such Borrower or any of such Borrower’s properties or assets, and any consent, approval, authorization, order, registration or qualification of or with any such Governmental Authority necessary to permit the execution, delivery and performance by such Borrower of this Agreement or any other Loan Documents has been obtained and is in full force and effect.

          4.1.4 Litigation. Except as set forth on Schedule VIII attached hereto:

               (a) There is no action, suit, claim, proceeding or investigation pending against any Loan Party, HRHI or any Guarantor or, to such Borrower’s actual knowledge, pending against any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral or, to such Borrower’s actual knowledge, threatened in writing against any Loan Party, HRHI or any Guarantor, or any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral in any court or by or before any other Governmental Authority that would have a material adverse effect on (i) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of such Loan Party, HRHI, any Guarantor, any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral, (ii) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, (iii) the ability of any Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Mortgage Loan Documents, the Mezzanine Loan Documents or the Loan Documents, as applicable, or (iv) the value of, or cash flow from,

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any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral.

               (b) There is no proceeding, investigation or disciplinary action (including, without limitation, before any Gaming authority, under any Gaming Law or under any Gaming License or other Operating Permit) pending or, to Borrower’s actual knowledge, threatened in writing, either (i) in connection with, or that seeks to restrain, enjoin, prevent the consummation of or otherwise challenge, any of the Loan Documents, the Mezzanine Loan Documents or the Mortgage Loan Documents or any of the transactions contemplated therein, or (ii) to Borrower’s actual knowledge, that, either singly or in the aggregate, could reasonably be expected to have an adverse effect on any Gaming License currently in effect with respect to the Casino Component, including, without limitation, any such proceeding, investigation or disciplinary action pending or, threatened against Gaming Operator, any Loan Party or any of their respective directors, members, managers, officers, key personnel or Persons holding a five percent (5%) or greater direct or indirect equity or economic interest in such Borrower or any Loan Party. Additionally, there is no proceeding (including, without limitation, before any Gaming Authority, under any Gaming Law or under any Gaming License or other Operating Permit) pending or, to Borrowers’ actual knowledge, threatened in writing that could reasonably be expected to have a material adverse effect on any application for a Gaming License or other Operating Permit by Gaming Borrower or any Affiliate thereof or any officer, director, employee or agent of any Loan Party or any Affiliate of any Loan Party.

          4.1.5 Agreements. Such Borrower is not a party to any agreement or instrument or subject to any restriction which would be reasonably likely to materially and adversely affect any Loan Party, any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral, or such Borrower’s business, properties or assets, operations or condition, financial or otherwise. To the best of such Borrower’s actual knowledge, no Loan Party is in default in any material respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement, license or instrument to which it is a party or by which such Loan Party or any of the Properties, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral are bound. Such Borrower has no material financial obligation under any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which such Borrower is a party or by which such Borrower or its properties or assets is otherwise bound, other than (a) obligations incurred in the ordinary course of business relating to such Borrower’s ownership and operation of the Collateral permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 hereof, (b) obligations incurred in the ordinary course of the business relating to Mortgage Borrowers’ ownership and operation of the Properties as permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof, (c) obligations incurred in the ordinary course of business relating to First Mezzanine Borrowers’ ownership and operation of the First Mezzanine Collateral permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 of the First Mezzanine Loan Agreement as in effect on the date hereof, (d) obligations incurred in the ordinary course of business relating to Second Mezzanine Borrowers’ ownership and operation of the Second Mezzanine Collateral permitted pursuant to clause (s) of the definition of “Special Purpose Entity” set forth in Section 1.1 of the Second Mezzanine Loan Agreement as in effect on the date hereof, and (e) obligations under the Loan Documents.

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          4.1.6 Title.

               (a) Such Borrower is the record and beneficial owner of, and has good and valid title to, its Pledged Interests, free and clear of all Liens, except those Liens granted to Lender under the Loan Documents. The Pledge Agreement, together with the UCC Financing Statements relating to the Pledged Collateral when properly filed in the appropriate records, will create a valid, perfected first priority security interest in and to the portion of the Pledged Collateral covered thereby, all in accordance with the terms thereof for which a Lien can be perfected by filing a UCC Financing Statement. For so long as the Lien of the Pledge Agreement is outstanding, such Borrower shall forever warrant, defend and preserve such title and the validity and priority of the Lien of the Pledge Agreement and shall forever warrant and defend such title, validity and priority to Lender against the claims of all persons whomsoever.

               (b) Each Mortgage Borrower has good, marketable and insurable fee simple title to the real property comprising part of its Property and good title to the balance of such Property, free and clear of all Liens whatsoever except the Permitted Encumbrances, such other Liens as are permitted pursuant to the Mortgage Loan Documents and the Liens created by the Mortgage Loan Documents.

               (c) First Mezzanine Borrowers are the record and beneficial owners of, and have good and marketable title to, the First Mezzanine Collateral, free and clear of all Liens whatsoever, except for the Liens contemplated by the First Mezzanine Loan Documents.

               (d) Second Mezzanine Borrowers are the record and beneficial owners of, and have good and marketable title to, the Second Mezzanine Collateral, free and clear of all Liens whatsoever, except for the Liens contemplated by the Second Mezzanine Loan Documents.

               (e) To the best of each Borrower’s actual knowledge, the Permitted Encumbrances in the aggregate do not materially and adversely affect the operation or use of the Properties (as currently used) or (i) such Borrower’s ability to repay the Loan, (ii) Mortgage Borrowers’ ability to repay the Mortgage Loan, (iii) First Mezzanine Borrowers’ ability to repay the First Mezzanine Loan, or (iv) Second Mezzanine Borrowers’ ability to repay the Second Mezzanine Loan.

               (f) To such Borrower’s actual knowledge after due inquiry, there are no claims for payment for work, labor or materials affecting any of the Properties that are or may become a Lien prior to, or of equal priority with, the Liens created by the Mortgage Loan Documents, except any Lien then being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage.

          4.1.7 Solvency. Borrowers have (a) not entered into the transaction or executed the Note, this Agreement or any other Loan Documents with the actual intent to hinder, delay or defraud any creditor and (b) received reasonably equivalent value in exchange for their obligations under such Loan Documents. Taking into account the Loan, the aggregate fair saleable value of Borrowers’ assets collectively exceeds and will exceed Borrowers’ total aggregate liabilities, including, without limitation, subordinated, unliquidated, disputed and

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contingent liabilities. Taking into account the Loan, the aggregate fair saleable value of Borrowers’ assets collectively is and will be greater than Borrowers’ probable aggregate liabilities, including the maximum amount of their contingent liabilities on its debts as such debts become absolute and matured. Taking into account the Loan, each Borrower’s assets do not and will not constitute unreasonably small capital to carry out its business as conducted or as proposed to be conducted. Borrowers do not intend to, and do not believe that they will, incur Indebtedness and liabilities (including contingent liabilities and other commitments) beyond their respective abilities to pay such Indebtedness and liabilities as they mature (taking into account the timing and amounts of cash to be received by each Borrower and the amounts to be payable on or in respect of obligations of each Borrower). No petition in bankruptcy has been filed against any Loan Party, HRHI or any Guarantor, and none of the Loan Parties, HRHI nor any Guarantor has ever made an assignment for the benefit of creditors or taken advantage of any insolvency act for the benefit of debtors. None of the Loan Parties, HRHI nor any Guarantor are contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of its assets or properties, and no Borrower has any actual knowledge of any Person contemplating the filing of any such petition against any Loan Party, HRHI or any Guarantor.

          4.1.8 Full and Accurate Disclosure. To such Borrower’s actual knowledge, no statement of fact made by any Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact necessary to make statements contained herein or therein not misleading. There is no fact or circumstance presently known to such Borrower which has not been disclosed to Lender and which will have a material adverse effect on (a) the use and operation of any of the Properties, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral, (b) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, or (c) the ability of such Borrower, any other Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Loan Documents, the Mortgage Loan Documents or the Mezzanine Loan Documents, as applicable.

          4.1.9 No Plan Assets. As of the date hereof and throughout the term of the Loan (a) no Borrower is nor will any Borrower be an “employee benefit plan,” as defined in Section 3(3) of ERISA, subject to Title I of ERISA, (b) none of the assets of any Borrower constitutes or will constitute “plan assets” of one or more such plans within the meaning of 29 C.F.R. Section 2510.3-101, (c) no Borrower is nor will any Borrower be a “governmental plan” within the meaning of Section 3(32) of ERISA, and (d) none of the assets of any Borrower constitute “plan assets” of a governmental plan within the meaning of 29 C.F.R. Section 2510.3-101 for purposes of any state law provisions regulating investments of, or fiduciary obligations with respect to, governmental plans.

          4.1.10 Compliance. Except as set forth in the applicable Zoning Report, each Loan Party and, to the best of such Borrower’s actual knowledge after due inquiry, the Land and Improvements (including the use thereof) comply in all material respects with all applicable Legal Requirements, including, without limitation, building and zoning ordinances and codes and Prescribed Laws. No Loan Party is in default or violation of any order, writ, injunction, decree or demand of any Governmental Authority. There has not been committed by any Loan

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Party or, to any Borrower’s actual knowledge, any other Person in occupancy of or involved with the operation or use of any of the Properties, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral any act or omission affording the federal government or any other Governmental Authority the right of forfeiture as against any Property, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral or any part of any of the foregoing or any monies paid in performance of (i) any Mortgage Borrower’s obligations under any of the Mortgage Loan Documents, (ii) any First Mezzanine Borrower’s obligations under any of the First Mezzanine Loan Documents, (iii) any Second Mezzanine Borrower’s obligations under any of the Second Mezzanine Loan Documents, or (iv) any Borrower’s obligations under any of the Loan Documents.

          4.1.11 Financial Information. To such Borrower’s actual knowledge, all historical financial data, including, without limitation, the statements of cash flow and income and operating expense, that have been delivered to Lender in connection with the Loan (i) are true, complete and correct in all material respects, (ii) accurately represent in all material respects the financial condition of the Properties (and each Property) and the Collateral, as applicable, as of the date of such reports, and (iii) to the extent prepared or audited by an independent certified public accounting firm, have been prepared in accordance with the Uniform System of Accounts and reconciled with GAAP throughout the periods covered, except as disclosed therein. Except for Permitted Encumbrances and except as referred to or reflected in said financial statements previously delivered to Lender in connection with the Loan, no Loan Party has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that are known to any Borrower and are reasonably likely to have a materially adverse effect on the Collateral, the First Mezzanine Collateral, the Second Mezzanine Collateral or any Property or (a) the operation of the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and/or (b) the operation of the Café Property and the Adjacent Property for a use or uses that is/are consistent with the operation of the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, which use may include, without limitation, expansion of the Hotel/Casino Property, restaurants, retail and residential complexes (the “Permitted Adjacent/Café Uses”). Since the date of such financial statements, there has been no material adverse change in the financial condition, operation or business of any Loan Party or, to each Borrower’s actual knowledge after due inquiry, to the Collateral and, to the extent not prohibited by the Merger Agreement, any Property from that set forth in said financial statements.

          4.1.12 Condemnation. No Condemnation or other proceeding has been commenced or, to each Borrower’s actual knowledge, is threatened in writing received by such Borrower or contemplated with respect to all or any portion of any Property or for the relocation of any roadway providing direct access to any Property.

          4.1.13 Federal Reserve Regulations. No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of

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Governors, or for any purposes prohibited by any Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents.

          4.1.14 Utilities and Public Access. To such Borrower’s actual knowledge after due inquiry, each Property has rights of access to public ways and is served by water, sewer, sanitary sewer and storm drain facilities adequate to service such Property for its intended uses. All public utilities necessary to the continued current use and enjoyment of each Property are located either in the public right-of-way abutting such Property (which are connected so as to serve such Property without passing over other property) or in recorded easements serving such Property and such easements are set forth in and insured by the Title Insurance Policy covering such Property. To such Borrower’s actual knowledge after due inquiry, all roads necessary for the use of each Property for its current purpose have been completed and dedicated to public use and accepted by all Governmental Authorities or are located in recorded easements serving such Property and such easements are set forth in and insured by the Title Insurance Policy.

          4.1.15 Not a Foreign Person. No Borrower is a “foreign person” within the meaning of §1445(f)(3) of the Code.

          4.1.16 Separate Lots. Each Property is comprised of one (1) or more parcels which constitute a separate tax lot or lots and does not constitute a portion of any other tax lot not a part of such Property.

          4.1.17 Assessments. Except as disclosed in the Title Insurance Policy, to each Borrower’s actual knowledge, there are no pending or proposed special or other assessments for public improvements or otherwise affecting any Property, nor are there any contemplated improvements to any Property that may result in such special or other assessments.

          4.1.18 Enforceability. The Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by any Borrower, HRHI or any Guarantor, including the defense of usury, nor would the operation of any of the terms of the Loan Documents, or the exercise of any right thereunder, render the Loan Documents unenforceable (subject to principles of equity and bankruptcy, insolvency and other laws generally affecting creditors’ rights and the enforcement of debtors’ obligations), and none of any Borrower, HRHI nor any Guarantor has asserted any right of rescission, set-off, counterclaim or defense with respect thereto.

          4.1.19 No Prior Assignment. Other than under the Mortgage Loan Documents, there are no prior assignments by Mortgage Borrowers of the Leases or any portion of the Rents due and payable or to become due and payable which are presently outstanding. There are no prior assignments of the Collateral which are presently outstanding except in accordance with the Loan Documents.

          4.1.20 Insurance. Mortgage Borrowers have obtained and Borrowers have delivered to Lender certified copies of all Policies (or “Accord” certificates evidencing coverage thereof) reflecting the insurance coverages, amounts and other requirements set forth in this Agreement. No claims have been made under any such Policies, and no Person, including any Loan Party, has done, by act or omission, anything which would impair the coverage of any such Policies.

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          4.1.21 Use of the Properties. (a) The Hotel/Casino Property is used exclusively as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and otherwise as a top-end hotel and other appurtenant and related uses, and (b) the Café Property and the Adjacent Property are used for Permitted Adjacent/Café Uses and other appurtenant and related uses.

          4.1.22 Certificate of Occupancy; Operating Permits. To the best of each Borrower’s actual knowledge after due inquiry, all certifications, permits, licenses and approvals, including, without limitation, certificates of completion and occupancy permits, all environmental, health and safety licenses, gaming licenses and permits and any applicable liquor license necessary to permit the legal use, occupancy and operation of (a) the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, and (b) the Café Property and the Adjacent Property as currently operated on the date hereof, or, subsequent to the date hereof, for Permitted Adjacent/Café Uses (collectively, the “Operating Permits”), have been obtained and are in full force and effect. Each Borrower shall cause Mortgage Borrowers to keep and maintain, or cause to be kept and maintained, all Operating Permits necessary for the operation of (i) the Hotel/Casino Property as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, and (ii) the Café Property and the Adjacent Property for one or more Permitted Adjacent/Café Purposes. To the best of each Borrower’s actual knowledge after due inquiry, the use being made of each Property is in conformity with the Certificate(s) of Occupancy issued for such Property. Attached hereto as Schedule IX is, to the best of each Borrower’s actual knowledge after due inquiry, a true and complete list of all current Operating Permits and those which are subject to renewal.

          4.1.23 Flood Zone. None of the Improvements on any Property are located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards or, if so located, the flood insurance required pursuant to Section 6.1(a)(i) of the Mortgage Loan Agreement is in full force and effect with respect to each such Property.

          4.1.24 Physical Condition. Except as provided in the Physical Conditions Reports, to each Borrower’s actual knowledge after due inquiry, (a) each Property, including, without limitation, all buildings, improvements, parking facilities, sidewalks, storm drainage systems, roofs, plumbing systems, HVAC systems, fire protection systems, electrical systems, equipment, elevators, exterior sidings and doors, landscaping, irrigation systems and all structural components, are in good condition, order and repair in all material respects; (b) there exists no material structural or other material defects or damages in any Property, whether latent or otherwise; and (c) no Loan Party has received notice from any insurance company or bonding company of any defects or inadequacies in any Property, or any part thereof, which would adversely affect the insurability of the same or cause the imposition of extraordinary premiums or charges thereon or of any termination or threatened termination of any policy of insurance or bond.

          4.1.25 Boundaries. Except as disclosed on the Surveys, to each Borrower’s actual knowledge, all of the Improvements which were included in determining the appraised value of each Property lie wholly within the boundaries and building restriction lines of such Property, and no improvements on adjoining properties encroach upon such Property, and no

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easements or other encumbrances upon any Property encroach upon any of the Improvements, so as to materially and adversely affect the value or marketability of such Property except those which are insured against by the applicable Title Insurance Policy for such Property.

          4.1.26 Leases. To each Borrower’s actual knowledge after due inquiry and except as set forth on Schedule X attached hereto or as otherwise disclosed in the estoppel certificates delivered to Lender in connection with the closing of the Loan, (a) the Properties are not subject to any Leases other than the HRHI Lease and the other Leases described in said Schedule X, (b) each Mortgage Borrower is the owner and lessor of the landlord’s interest in each such Lease affecting its Property, (c) no Person has any possessory interest in any Property or any right to occupy the same except under and pursuant to the provisions of such Leases, (d) all commercial Leases are in full force and effect and there are no material defaults thereunder by either party and there are no conditions that, with the passage of time or the giving of notice, or both, would constitute material defaults thereunder, (e) the copies of the commercial Leases delivered to Lender are true and complete, and there are no oral agreements with respect thereto, (f) no Rent (including security deposits) has been paid more than one (1) month in advance of its due date, (g) all work to be performed by the landlord under each Lease has been performed as required in such Lease and has been accepted by the applicable tenant, and any payments, free rent, partial rent, rebate of rent or other payments, credits, allowances or abatements required to be given by any Mortgage Borrower to any tenant has already been received by such tenant, (h) there has been no prior sale, transfer or assignment, hypothecation or pledge of any Lease or of the Rents received therein which is still in effect, (i) no commercial tenant listed on Schedule X has assigned its Lease or sublet all or any portion of the premises demised thereby, no such commercial tenant holds its leased premises under assignment or sublease, nor does anyone except such commercial tenant and its employees occupy such leased premises, (j) no tenant under any Lease has a right or option pursuant to such Lease or otherwise to purchase all or any part of the Property of which the leased premises are a part, and (k) no tenant under any Lease has any right or option for additional space in the Improvements.

          4.1.27 Affiliates. Such Borrower does not own any equity interests in any other Person other than the related Pledged Interests.

          4.1.28 Principal Place of Business; State of Organization. Each Borrower’s principal place of business as of the date hereof is the address set forth in the introductory paragraph of this Agreement. Each Borrower is organized under the laws of the State of Delaware.

          4.1.29 Filing and Recording Taxes. All transfer taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid by any Person under applicable Legal Requirements currently in effect in connection with the transfer of the Properties and/or the IP to Mortgage Borrowers and/or the transfer of the First Mezzanine Collateral or the Second Mezzanine Collateral to First Mezzanine Borrowers or Second Mezzanine Borrowers, as applicable, and/or the transfer of the Collateral to Borrowers have been paid as of the Closing Date. Borrowers and each of their Affiliates have filed or caused to be filed all reports relating to gaming taxes or fees to any Gaming Authority required to be filed by them on or prior to the date hereof. All mortgage, mortgage recording, stamp, intangible or other similar tax required to be paid by any Person under applicable Legal Requirements currently in

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effect in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Mortgage Loan Documents, including, without limitation, the Mortgage, or of any of the Loan Documents, including, without limitation, the Pledge Agreement and the related UCC Financing Statements, have been paid as of the Closing Date. The Pledge Agreement and the other Loan Documents are enforceable against Borrowers in accordance with their respective terms by Lender (or any subsequent holder thereof), subject to principles of equity and bankruptcy, insolvency and other laws generally applicable to creditors’ rights and the enforcement of debtors’ obligations.

          4.1.30 Special Purpose Entity/Separateness. (a) Until the Debt has been paid in full and the obligations under the Mortgage Loan Documents, the Loan Documents and the Mezzanine Loan Documents have been paid in full, each Borrower hereby represents, warrants and covenants that (i) such Borrower is, shall be and shall continue to be a Special Purpose Entity, (ii) each Mortgage Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Mortgage Loan Agreement as in effect on the date hereof), (iii) each First Mezzanine Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such term is defined in Section 1.1 of the First Mezzanine Loan Agreement as in effect on the date hereof), and (iv) each Second Mezzanine Borrower is, shall be and shall continue to be a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Second Mezzanine Loan Agreement as in effect on the date hereof).

               (b) The representations, warranties and covenants set forth in Section 4.1.30(a) hereof shall survive for so long as any amount remains payable to Lender under this Agreement or any other Loan Document.

               (c) All of the assumptions made in the Insolvency Opinion, including, but not limited to, any exhibits attached thereto, are true and correct in all respects. Each Borrower has complied and will comply with all of the assumptions made with respect to such Borrower in the Insolvency Opinion.

               (d) Each Borrower hereby covenants and agrees that (i) any assumptions made in any subsequent non-consolidation opinion required to be delivered in connection with the Loan Documents (an “Additional Insolvency Opinion”), including, but not limited to, any exhibits attached thereto, shall be true and correct in all respects, (ii) each Borrower will comply with all of the assumptions made with respect to each Borrower in any Additional Insolvency Opinion, and (iii) each Person other than any Borrower with respect to which an assumption shall be made in any Additional Insolvency Opinion will comply with all of the assumptions made with respect to it in any Additional Insolvency Opinion.

               (e) Mortgage Borrowers and Mezzanine Borrowers have complied, and each Borrower will cause Mortgage Borrowers and Mezzanine Borrowers, as applicable, to comply, with all of the assumptions made with respect to Mortgage Borrowers and Mezzanine Borrowers, as applicable, in the Insolvency Opinion and each Borrower will cause Mortgage Borrowers and Mezzanine Borrowers, as applicable, to comply with all of the assumptions made with respect to Mortgage Borrowers and Mezzanine Borrowers, as applicable, in any Additional Insolvency Opinion.

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          4.1.31 Management Agreements; Liquor Management Agreement.

               (a) Each of the Management Agreements is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder. Following the date hereof, there shall be no material default thereunder.

               (b) The Sub-Management Agreement is in full force and effect and there is no material default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a material default thereunder.

               (c) The Liquor Management Agreement is in full force and effect and there is no default thereunder by any party thereto and no event has occurred that, with the passage of time and/or the giving of notice would constitute a default thereunder.

          4.1.32 Illegal Activity. No portion of any Property, the IP or the Collateral has been or will be purchased by any Loan Party or any other Restricted Party with proceeds of any illegal activity.

          4.1.33 No Change in Facts or Circumstances; Disclosure. To each Borrower’s actual knowledge, all material information submitted by any Borrower or Mortgage Borrower to Lender and in all financial statements, rent rolls, reports, certificates and other documents submitted in connection with the Loan or in satisfaction of the terms thereof and all statements of fact made by any Borrower in this Agreement or in any other Loan Document, and, to the knowledge of each Borrower, all statements of fact made by Mortgage Borrowers in the Mortgage Loan Agreement or in any other Mortgage Loan Document, are accurate, complete and correct in all material respects. To each Borrower’s actual knowledge, there has been no material adverse change in any condition, fact, circumstance or event that would make any such information inaccurate, incomplete or otherwise misleading in any material respect or that otherwise materially and adversely impairs, or is reasonably likely to do so after the date hereof, the use or operation of the Properties, the IP or the Collateral or the business operations or the financial condition of any Loan Party. Each Borrower has disclosed to Lender all material facts actually known to such Borrower and has not failed to disclose any material fact actually known to such Borrower that could cause any Provided Information or representation or warranty made herein to be materially misleading.

          4.1.34 Investment Company Act. No Borrower is (a) an “investment company” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended; or (b) subject to any other federal or state law or regulation which purports to restrict or regulate its ability to borrow money.

          4.1.35 Embargoed Person. At all times throughout the term of the Loan, including after giving effect to any Transfers permitted pursuant to the Loan Documents, (a) none of the funds or other assets of any Loan Party, HRHI or any Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by, any Person subject to trade restrictions under United States law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. § 1701 et seq., The Trading with the Enemy Act, 50 U.S.C.

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App. 1 et seq., and any Executive Orders or regulations promulgated under any such United States laws (each, an “Embargoed Person”), with the result that the Loan made by Lender is or would be in violation of law; (b) no Embargoed Person shall have any interest of any nature whatsoever in any Loan Party, HRHI or any Guarantor, as applicable, with the result that the Loan is or would be in violation of law; and (c) none of the funds of any Loan Party, HRHI or any Guarantor, as applicable, shall be derived from any unlawful activity with the result that the Loan is or would be in violation of law; provided, however, that Borrowers’ representation in this clause (c) shall not extend to gaming revenues generated at the Hotel/Casino Property from the general public unless any Loan Party or any other Restricted Party has actual knowledge that such revenues are derived from any unlawful activity.

          4.1.36 Cash Management Account. (a) This Agreement, together with the other Loan Documents, creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of New York) in the Cash Management Account in favor of Lender, which security interest is prior to all other Liens and is enforceable as such against creditors of and purchasers from any Borrower. Other than in connection with the Loan Documents, no Borrower has sold or otherwise conveyed the Cash Management Account;

               (b) The Cash Management Account constitutes a “deposit account” within the meaning of the Uniform Commercial Code of the State of New York; and

               (c) The Cash Management Account is not in the name of any Person other than Borrowers, as pledgors, or Lender, as pledgee.

          4.1.37 Intellectual Property.

               (a) The Intellectual Property Security Agreement creates a valid and continuing security interest (as defined in the Uniform Commercial Code of the State of New York) in all of HRHI’s rights, title and interest in and to all of the following (collectively, the “IP”):

      (i) all trademarks, service marks, domain names, trademark registrations, service mark registrations, domain name registrations, applications for trademark registrations, applications for service mark registrations, applications for domain name registrations, trade names, brand names, product names and common law marks, and the renewals thereof owned or used by any Loan Party or any Affiliated IP Party in connection with the operation and/or use of one or more of the Properties, including for each such trademark, service mark or domain name the registration number or application number and country;

      (ii) all copyrights, and the renewals thereof, owned or used by any Loan Party or any Affiliated IP Party in connection with the operation and/or use of one or more of the Properties, including for each such copyright the registration number or application number and country;

      (iii) all trade secrets, discoveries, formulae, proprietary processes, improvements and inventions for which no patent applications are pending and all other industrial property rights presently owned, in whole or in part, or used, by

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any Loan Party or any Affiliated IP Party in connection with the ownership, operation and/or use of one or more of the Properties; and

     (iv) all trademark licenses, service mark licenses, copyright licenses, royalty agreements, assignments, grants and contracts with employees or others relating in whole or in part to any of the foregoing IP to which any Loan Party and/or any Affiliated IP Party is a party, which is related to the ownership, operation and/or use of one or more of the Properties (collectively, the “IP Agreements”).

               (b) Schedule VII attached hereto is a true, correct and complete list of all the Registered IP used by any Loan Party in connection with the ownership, operation and/or use of one or more of the Properties. Part I of said Schedule VII is a true, correct and complete list of all Registered IP owned by IP Borrower or any Affiliated IP Party, including Registered IP and that has been assigned to IP Borrower by Morton pursuant to that certain Trademark Assignment dated as of February 2, 2007 from Morton in favor of IP Borrower (the “Morton Assigned IP”; and all of the foregoing, collectively, the “Owned IP”). Part II of said Schedule VII is a true, correct and complete list of all Registered IP that is licensed from Rank Licensing, Inc. (“Rank”) to Morton pursuant to that certain Trademark License and Cooperation Agreement, dated June 7, 1996, between Rank and Morton and which has been assigned from Morton to IP Borrower pursuant to that certain Assignment and Assumption Agreement dated as of February 2, 2007 (the “Rank License”) from Morton in favor of IP Borrower (all such IP listed on Part II of said Schedule VII, the “Rank IP”). Part III of said Schedule VII is a true, correct and complete list of all Registered IP that is licensed from Morton to IP Borrower pursuant to that certain License Agreement, dated as of February 2, 2007 (the “Pink Taco License”) from Morton in favor of IP Borrower (all such IP listed on Part IV of said Schedule VII, the “Pink Taco IP”; and the Pink Taco IP, together with the Rank IP, the “Licensed IP”).

               (c) Intentionally Omitted.

               (d) Except as set forth on Part IV of Schedule VII, Mortgage Borrowers or an Affiliated IP Party owns or possesses licenses or other rights in or under all patents, trademarks, service marks, trade names, domain names, copyrights and any other IP, which is necessary for the use, ownership, management, promotion and operation of its Property and associated merchandising as currently so used, except where the failure to so own or possess such IP, licenses or other rights could not reasonably be expected to have a material adverse effect on such use, ownership or operations (a “IP Material Adverse Effect”).

               (e) Part V of said Schedule VII hereto sets forth:

     (i) any written communications from any Loan Party or any Affiliate thereof to one or more third parties, or from one or more third parties to any Loan Party or any Affiliate thereof, alleging infringement by any third party or any Loan Party or any Affiliate thereof, of any of the IP or alleging related acts of unfair competition or activities or actions of any anti-competitive nature, together with all responses to such communications and a description of the status of each such alleged infringement, in each case, which the failure to resolve such alleged

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infringement or competition could reasonably be expected to have a IP Material Adverse Effect; and

     (ii) a complete list of any goods and/or services sold by any Person other than any Loan Party and of whom any Loan Party has actual knowledge, which in the opinion of any Loan Party infringes upon any IP listed in said Schedule VII hereof.

               (f) Except as disclosed in said Schedule VII:

     (i) IP Borrower or an Affiliated IP Party owns the Owned IP, and IP Borrower has a valid and enforceable license to use the Licensed IP, in each case free and clear of any Liens other than the Permitted IP Encumbrances;

     (ii) no Loan Party or an Affiliated IP Party has granted nor is obligated to grant any other Person any rights (including, without limitation licenses) with respect to any of the IP other than the Permitted IP Encumbrances;

     (iii) to Borrowers’ actual knowledge, the trademarks, service marks, domain names and copyrights included in the Owned IP and in the Licensed IP are valid;

     (iv) to Borrowers’ actual knowledge, the trademark registrations, service mark registrations, domain name registrations and copyright registrations included in the Owned IP and Licensed IP have been duly issued and have not been canceled, abandoned or otherwise terminated;

     (v) to Borrowers’ actual knowledge, the trademark applications, service mark applications, domain name applications and copyright applications included in the Owned IP have been duly filed; and

     (vi) to Borrowers’ actual knowledge, all material IP Agreements are valid and binding in accordance with their terms (except as the enforceability thereof may be limited by any applicable bankruptcy, reorganization, insolvency or other laws affecting creditors’ rights generally or by general principles of equity) and are in full force and effect.

               (g) To Borrowers’ actual knowledge, no Loan Party or Affiliated IP Party is obligated to disclose any of the IP to any other Person.

               (h) To Borrowers’ actual knowledge, except for the Licensed IP, no Loan Party requires a license or right under or in respect of any intellectual property of any other Person (except another Loan Party) to conduct such Loan Party’s business as presently conducted and no substantial part of such business is carried on under the agreement or consent of any other Person nor is there any agreement to which any Loan Party is a party which significantly restricts the fields in which such business may be carried on.

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               (i) To Borrowers’ actual knowledge, there are and have been no proceedings, actions or claims and no proceedings, actions or claims are pending or threatened, impugning the title, validity or enforceability of any of the IP.

               (j) To Borrowers’ actual knowledge, none of the processes currently used by any Loan Party or any Affiliated IP Party or any of the properties or products currently sold by any Loan Party or any Affiliated IP Party, and none of the IP or Licensed IP, infringes the patent, industrial property, trademark, trade name, domain name, label, other mark, right or copyright or any other similar right of any other Person, except where such infringement could not reasonably be expected to have an IP Material Adverse Effect.

               (k) To Borrowers’ actual knowledge, no basis exists for any adverse claim by any third party with respect to any of the IP, and no act has been done or has been omitted to be done by any Loan Party or any Affiliate thereof to entitle any Person to make such a claim or to cancel, forfeit or modify any of the IP.

               (l) Except the Licensed IP, no Loan Party requires a license or right under or in respect of any intellectual property of any other Person (except another Loan Party) to conduct such Loan Party’s business as presently conducted and no substantial part of such business is carried on under the agreement or consent of any other Person nor is there any agreement to which any Loan Party is a party which significantly restricts the fields in which such business may be carried on.

               (m) To Borrowers’ actual knowledge, no disclosure has been made to any Person of the know-how or financial or trade secrets of any Loan Party, except properly and in the ordinary course of business and on condition that such disclosure is to be treated as being of a confidential nature and except where such disclosure would not reasonably be expected to have an IP Material Adverse Effect; and to Borrower’s actual knowledge, none of the IP is being infringed by any other Person, except where such infringement could not reasonably be expected to have an IP Material Adverse Effect.

          4.1.38 No Franchise Agreement. None of the Loan Parties or Managers or Sub-Manager has entered into, and none of the Properties are subject to, any franchise, trademark or license agreement with any Person with respect to the name and/or operation of any Property, other than the IP, the Rank License and the Pink Taco License.

          4.1.39 Merger Agreement. The Acquisition and the Other Transaction Closings (as such capitalized terms are defined in the Merger Agreement) were consummated in accordance with all of the material terms and conditions of the Merger Agreement and the Other Transaction Documents (as defined in the Merger Agreement), with only such amendments, supplements and/or modifications thereto, and waivers and extensions thereof, as Mortgage Lender has approved in writing, to the extent such approval is required under that certain Commitment Letter dated December 22, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking, Inc. and Mortgage Lender.

          4.1.40 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers have delivered, or caused Mortgage Borrowers to deliver, to Lender true, correct and

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complete copies of each of the Morton Indemnification and the PWR/RWB Escrow Agreement and all amendments thereto. Except for such amendments thereto as have been delivered to Lender, the Morton Indemnification and the PWR/RWB Escrow Agreement have not been amended or modified and are in full force and effect. No Loan Party nor any Affiliate thereof has (a) made any claim under the Morton Indemnification, or (b) requested any disbursement of funds under the PWR/RWB Escrow Agreement with respect to any claim under the Morton Indemnification or otherwise. No Loan Party nor any Affiliate thereof knows of any state of facts currently existing that would be reasonably likely to result in a claim under the Morton Indemnification.

          4.1.41 Gaming Licenses and Other Operating Permits.

               (a) HRHI possesses all Operating Permits (including, but not limited to, all liquor licenses) which are necessary for the execution, delivery and performance of the Liquor Management Agreement, the HRHI Lease and the Gaming Sublease. All of such Operating Permits are in and will be in full force and effect; the Loan Parties and each of their Affiliates, as applicable, including, without limitation, HRHI, are in compliance in all material respects with all such Operating Permits; and no event, including, without limitation, any violation of any Legal Requirement, has occurred which would be reasonably likely to lead to the suspension, revocation or termination of any such Operating Permit or the imposition of any restriction thereon.

               (b) To Borrowers’ actual knowledge, Gaming Operator possesses all Operating Permits (including, without limitation, all Gaming Licenses) which are material to the execution, delivery and performance of the Gaming Sublease and the use, occupation and operation of the Casino Component; to Borrowers’ actual knowledge, each such Operating Permit and Gaming License (or any replacement thereof) is and will be in full force and effect; and, to Borrowers’ actual knowledge, Gaming Operator is in compliance in all material respects with the Gaming Sublease, all Gaming Licenses and all other Operating Permits applicable to the operation of the Casino Component as contemplated herein. Further, Borrowers hereby represent and warrant as follows:

               (c) Borrowers have no reason to believe that Gaming Operator will not be able to maintain in effect all Gaming Licenses and other Operating Permits necessary for the lawful conduct of its business or operations as now conducted and as planned to be conducted at the Hotel/Casino Property, including the Gaming Sublease and operation of the Casino Component, pursuant to all applicable Legal Requirements.

               (d) To Borrowers’ actual knowledge, all Gaming Licenses are in full force and effect and have not been amended or otherwise modified in any material adverse respect or suspended, rescinded or revoked.

               (e) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator are in default in any material respect under, or in violation in any material respect of, any Gaming License or other Operating Permit, and no event has occurred, and no condition exists, which, with the giving of notice or passage of time or both, would constitute such a default thereunder or such a violation thereof, that has caused or would reasonably be

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expected to cause the loss, suspension, revocation, impairment, forfeiture, non-renewal or termination of any Gaming License or the imposition of any restriction thereon.

               (f) None of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator have received any notice of any violation of any Legal Requirement which has caused or would reasonably be expected to cause any Gaming License or other Operating Permit to be modified in any material adverse respect or suspended, rescinded or revoked.

               (g) The continuation, validity and effectiveness of all Gaming Licenses and other Operating Permits will not be adversely affected by the transactions contemplated by this Agreement.

               (h) The Gaming Sublease is in full force and effect, none of the Loan Parties nor, to Borrowers’ actual knowledge, Gaming Operator is in material default thereof and no event has occurred, and no condition exists, which, with the giving of notice or passage of time, or both, would constitute a material default thereunder or material violation thereof.

               (i) The execution, delivery or performance of any of the Loan Documents will not permit nor result in the imposition of any material penalty under, or the suspension, revocation or termination of, any Gaming License or other Operating Permit or any material impairment of the rights of the holder of any Gaming License.

               (j) There are no restrictions on transfer or agreements not to encumber the ownership interests of any Loan Party in any of the Loan Documents, the Mortgage Loan Documents or the Mezzanine Loan Documents, as applicable, that require the approval of the Gaming Authorities in order to become effective, except as set forth in Section 17 of the Pledge Agreement and the applicable Pledge Agreement affecting the First Mezzanine Collateral and the Second Mezzanine Collateral.

               (k) (i) Each of HRHI and Hotel/Casino Borrower meet the suitability standards for a landlord contemplated or set forth in the Gaming Laws; (ii) neither HRHI nor Hotel/Casino Borrower have or will take dominion over the Casino Component while such Casino Component continues to be used for gaming purposes without first obtaining the approvals required by the Gaming Laws; and (iii) HRHI and/or Hotel/Casino Borrower have obtained all necessary approvals to transfer the Gaming Assets to Golden HRC.

          4.1.42 Control of Mezzanine Borrowers and Mortgage Borrowers. Borrowers have the power and authority and the requisite ownership interests to Control the actions of Second Mezzanine Borrowers and, in turn, First Mezzanine Borrowers and, in turn, Mortgage Borrowers.

          4.1.43 Separate and Distinct Loans. The Loan, the Mortgage Loan and the Mezzanine Loans are entirely separate, distinct and independent obligations, made to separate and distinct borrowers, on separate and distinct terms and secured by separate and distinct collateral.

          4.1.44 Mortgage Loan Documents and Mezzanine Loan Documents. (a)There are no Mortgage Loan Documents, no First Mezzanine Loan Documents and no Second

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Mezzanine Loan Documents other than those set forth on Schedule XI, Schedule XII and Schedule XIII, respectively.

               (b) True and correct copies of all the Mortgage Loan Documents have been provided to Lender and none of the Mortgage Loan Documents have been modified or amended since the delivery thereof, except as forth on such Schedule XI.

               (c) True and correct copies of all the First Mezzanine Loan Documents and the Second Mezzanine Loan Documents have been provided to Lender and none of the First Mezzanine Loan Documents and the Second Mezzanine Loan Documents have been modified or amended since the delivery thereof.

          4.1.45 No Defaults. No Mortgage Default, Mortgage Event of Default, any Mezzanine Default or any Mezzanine Event of Default exists as of the Closing Date.

          4.1.46 Loan Party Representations and Warranties. (a) Borrowers have reviewed the representations and warranties made by, and covenants of, (i) Mortgage Borrowers to and for the benefit of Mortgage Lender contained in the Mortgage Loan Documents, (ii) First Mezzanine Borrowers to and for the benefit of First Mezzanine Lender contained in the First Mezzanine Loan Documents and (iii) Second Mezzanine Borrowers to and for the benefit of Second Mezzanine Lender contained in the Second Mezzanine Loan Documents and all such representations and warranties are true, correct and complete in all material respects.

               (b) All of the representations and warranties contained in the Mortgage Loan Documents are hereby incorporated into this Agreement and deemed made hereunder as and when made thereunder and shall remain incorporated without regard to any waiver, amendment or other modification thereof or to whether the related Mortgage Loan Document has been repaid or otherwise terminated, unless otherwise consented to in writing by Lender.

     Section 4.2 Survival of Representations. Borrowers agree that all of the representations and warranties of any Borrower set forth in Section 4.1 hereof and elsewhere in this Agreement and in the other Loan Documents shall survive for so long as any amount remains owing to Lender under this Agreement or any of the other Loan Documents by Borrowers. All representations, warranties, covenants and agreements made in this Agreement or in the other Loan Documents by any Borrower shall be deemed to have been relied upon by Lender notwithstanding any investigation heretofore or hereafter made by Lender or on its behalf.

     Section 4.3 Definition of Borrowers’ Knowledge. As used in this Agreement or any other Loan Document, the phrases “Borrowers’ knowledge”, “any Borrower’s knowledge”, “Borrowers’ actual knowledge”, “any Borrower’s actual knowledge”, “Borrowers’ best knowledge” or “any Borrower’s best knowledge” or words of similar import, shall mean the actual knowledge, after commercially reasonable due inquiry, of any of Edward Scheetz, Marc Gordon, David Smail, Matt Armstrong, Arthur Blee, Ana Nekhamkin, Ryan Sprott, Brian Zaumeyer and/or Bobby Kelly (the “Named Knowledge Parties”) and/or any additional individual or individuals who in the future are delegated or assume any of the responsibilities of

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any of the foregoing Named Knowledge Parties with respect to any of the Properties, and the knowledge of no other Person shall be imputed to any of the Named Knowledge Parties or any such other individuals, it being expressly represented and warranted to Lender by Borrowers that it would be unlikely that any material fact regarding any of the Properties or Borrowers or otherwise covered in the representations and warranties contained herein or in any other Loan Document would not come to the attention of one or more of the Named Knowledge Parties, after commercially reasonable due inquiry. Notwithstanding anything to the contrary contained in this Agreement or any other Loan Document, none of the Named Knowledge Parties shall have any personal liability hereunder.

ARTICLE V.
COVENANTS OF BORROWERS

     Section 5.1 Affirmative Covenants. From the date hereof and until payment and performance in full of all obligations of Borrowers under the Loan Documents or the earlier release of the Lien of the Pledge Agreement encumbering the Collateral (and all related obligations) in accordance with the terms of this Agreement and the other Loan Documents, Borrowers hereby jointly and severally covenant and agree with Lender that:

          5.1.1 Existence; Compliance with Legal Requirements. Each Borrower shall do or cause to be done all things necessary to preserve, renew and keep in full force and effect its existence, rights, licenses, permits and franchises necessary for the conduct of its business and comply, or cause each other Loan Party to comply, in all material respects with all Legal Requirements applicable to such Loan Party, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral, the Properties or the IP, including, without limitation, Prescribed Laws. There shall never be committed by any Borrower, and no Borrower shall, nor shall cause any other Loan Party to, knowingly permit any other Person in occupancy of or involved with the operation or use of any of the Properties to commit, any act or omission affording the federal government or any state or local government the right of forfeiture against the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral and/or any Property or any part thereof or any monies paid in performance of any Borrower’s obligations under any of the Loan Documents or paid in performance of Mezzanine Borrowers’ obligations under any of the Mezzanine Loan Documents or paid in performance of Mortgage Borrowers’ obligations under any of the Mortgage Loan Documents. Each Borrower hereby covenants and agrees not to commit, permit or suffer to exist any act or omission affording such right of forfeiture. Each Borrower shall, and shall cause each other Loan Party to, at all times maintain, preserve and protect in all material respects all franchises and trade names and preserve all the remainder of its property necessary for the conduct of its business as contemplated hereunder, and, subject to Mortgage Borrowers’ right to demolish the Improvements on the Adjacent Property subject to, and in accordance with, the provisions of Section 3.18 of the Mortgage Loan Agreement, shall keep the Properties in good working order and repair in all material respects, and from time to time make, or cause to be made, all reasonably necessary repairs, renewals, replacements, betterments and improvements thereto, all as more fully provided in the Mortgage. Borrowers shall cause Mortgage Borrowers to keep the Properties insured at all times by financially sound and reputable insurers, to such extent and against such risks, and maintain liability and such other insurance, as is more fully provided in the Mortgage Loan Agreement. Borrowers shall cause Mortgage Borrowers to operate the Properties in accordance with the

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terms and provisions of the O&M Agreements in all material respects. After prior notice to Lender, any Borrower, at its own expense, may contest, or may cause each other Loan Party to contest, by appropriate legal proceeding promptly initiated and conducted in good faith and with due diligence, the validity of any Legal Requirement, the applicability of any Legal Requirement to any Loan Party, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral or the Property or any alleged violation of any Legal Requirement, provided that (a) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and remains uncured; (b) such proceeding shall be permitted under and be conducted in accordance with the provisions of any instrument to which such Loan Party is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (c) neither any Property, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral or any part of any of the foregoing or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (d) such Borrower shall, and shall cause each other Loan Party to, promptly upon final determination thereof comply with any such Legal Requirement determined to be valid or applicable or cure any violation of any Legal Requirement; (e) such proceeding shall suspend the enforcement of the contested Legal Requirement against such Loan Party, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral or any Property; and (f) such Borrower shall furnish, or shall cause each other Loan Party to furnish, such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure compliance with such Legal Requirement, together with all interest and penalties payable in connection therewith. Following any non-compliance with such Legal Requirement as determined by a court of competent jurisdiction, Lender may apply any such security, as necessary to cause compliance with such Legal Requirement at any time when, in the reasonable judgment of Lender, the validity, applicability or violation of such Legal Requirement is finally established or the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral or any Property (or any part of any of the foregoing or interest therein) shall be in imminent danger of being sold, forfeited, terminated, cancelled or lost.

          5.1.2 Taxes and Other Charges. Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all Taxes and Other Charges now or hereafter levied or assessed or imposed against the Properties or any part thereof prior to the date upon which any interest or late charges shall begin to accrue thereon; provided, however, Mortgage Borrowers’ obligation to directly pay Taxes shall be suspended for so long as Mortgage Borrowers comply with the terms and provisions of Section 7.2 of the Mortgage Loan Agreement or Borrowers comply with the terms and provisions of Section 7.2 hereof, if applicable. Borrowers will deliver, or will cause Mortgage Borrowers to deliver, to Lender receipts for payment or other evidence satisfactory to Lender that the Taxes and Other Charges have been so paid or are not then delinquent. Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender receipts for the payment of the Taxes and the Other Charges prior to the date upon which any interest or late charges shall begin to accrue thereon; provided, however, Mortgage Borrowers shall not be required to furnish such receipts for payment of Taxes in the event that such Taxes have been paid by Mortgage Lender pursuant to Section 7.2 of the Mortgage Loan Agreement or by Lender pursuant to Section 7.2 hereof, if applicable. Borrowers shall not suffer, and shall not permit any other Loan Party to suffer, and shall promptly cause to be paid and discharged (or provide reasonable security for) any Lien or charge against any of the Properties, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral, and shall promptly pay, or shall

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cause Mortgage Borrowers to promptly pay, for all utility services provided to any of the Properties. After prior notice to Lender, any Borrower, at its own expense, may contest, or may cause each other Loan Party to contest, by appropriate legal proceeding, promptly initiated and conducted in good faith and with due diligence, the amount or validity or application in whole or in part of any Taxes or Other Charges, provided that (a) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default exists; (b) such proceeding shall be permitted under and be conducted in accordance with the provisions of any other instrument to which such Borrower or such other Loan Party is subject and shall not constitute a default thereunder and such proceeding shall be conducted in accordance with all applicable statutes, laws and ordinances; (c) neither any Property, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral nor any part of any of the foregoing or interest therein will be in imminent danger of being sold, forfeited, terminated, cancelled or lost; (d) such Borrower shall promptly upon final determination thereof pay, or shall cause such other Loan Party to pay, the amount of any such Taxes or Other Charges, together with all costs, interest and penalties which may be payable in connection therewith; (e) such proceeding shall suspend the collection of such contested Taxes or Other Charges from the applicable Property, the First Mezzanine Collateral, the Second Mezzanine Collateral and the Collateral; and (f) such Borrower shall furnish, or shall cause such other Loan Party to furnish, such security as may be required in the proceeding, or as may be reasonably requested by Lender, to insure the payment of any such Taxes or Other Charges, together with all interest and penalties thereon. Lender may pay over any such cash deposit or part thereof held by Lender to the claimant entitled thereto at any time when, in the reasonable judgment of Lender, the entitlement of such claimant is established or the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral or any Property (or any part of any of the foregoing or interest therein) shall be in danger of being sold, forfeited, terminated, cancelled or lost or there shall be any imminent danger of the Lien of the Pledge Agreement being primed by any related Lien.

          5.1.3 Litigation. Borrowers shall give prompt notice to Lender of any litigation or governmental proceedings pending or threatened in writing against any Loan Party, HRHI or any Guarantor which, if adversely determined, would have a material adverse effect on (a) the business operations, economic performance, assets, financial condition, equity, contingent liabilities, material agreements or results of operations of any Loan Party, HRHI, any Guarantor, any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral, (b) the enforceability or validity of any Loan Document, the perfection or priority of any Lien created under any Loan Document or the remedies of Lender under any Loan Document, (c) the ability of any Loan Party, HRHI or any Guarantor to perform, in all material respects, its respective obligations under each of the Mortgage Loan Documents, the Mezzanine Loan Documents or the Loan Documents, as applicable, or (d) the value of, or cash flow from, any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral or the Collateral.

          5.1.4 Access to the Properties. Borrowers shall cause Mortgage Borrowers to permit agents, representatives and employees of Lender to inspect the Properties or any part thereof at reasonable hours upon reasonable advance notice (which may be given verbally), subject to the rights of tenants under their Leases.

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          5.1.5 Special Distributions. On each date on which amounts are required to be disbursed to the Cash Management Account or otherwise to be paid to Borrowers or Lender pursuant to the terms of the Mortgage Loan Documents (including the Mortgage Loan Agreement and/or the Mortgage Cash Management Agreement), or are required to be paid to Lender under any of the Loan Documents, Borrowers shall exercise their rights to cause Second Mezzanine Borrowers and, in turn, Second Mezzanine Borrowers shall exercise their rights to cause First Mezzanine Borrowers and, in turn, First Mezzanine Borrowers shall exercise their rights to cause Mortgage Borrowers to make to Borrowers distributions in an aggregate amount such that Lender shall receive the amount required to be disbursed to Lender from the Cash Management Account or otherwise paid to Lender on such date.

          5.1.6 Cooperate in Legal Proceedings. Borrowers shall reasonably cooperate, and shall cause each other Loan Party to reasonably cooperate, fully with Lender with respect to any proceedings before any court, board or other Governmental Authority which in any way materially affects the rights of Lender hereunder or any rights obtained by Lender under any of the other Loan Documents and, in connection therewith, permit Lender, at its election, to participate in any such proceedings.

          5.1.7 Perform Loan Documents. Borrowers shall observe, perform and satisfy all the terms, provisions, covenants and conditions of, and shall pay when due all costs, fees and expenses to the extent required under the Loan Documents executed and delivered by, or applicable to, any Borrower. Payment of the costs and expenses associated with any of the foregoing shall be in accordance with the terms and provisions of this Agreement, including, without limitation, the provisions of Section 10.13 hereof.

          5.1.8 Award and Insurance Benefits. Subject to the terms of Article VI hereof, Borrowers shall reasonably, and shall cause Mortgage Borrowers to reasonably, cooperate with Lender in obtaining for Lender the benefits of any Awards or Insurance Proceeds to which Lender is entitled under the Loan Documents and which is lawfully or equitably payable in connection with any Property, and Lender shall be reimbursed for any actual, reasonable expenses incurred in connection therewith (including attorneys’ fees and disbursements, and the payment by Borrowers of the expense of an appraisal on behalf of Lender in case of Casualty or Condemnation affecting any Property or any part thereof) out of such Insurance Proceeds or Awards.

          5.1.9 Further Assurances. Borrowers shall, and shall cause each other Loan Party to, at Borrowers’ sole cost and expense (subject to the terms and conditions of this Agreement):

               (a) execute and deliver to Lender such documents, instruments, certificates, assignments and other writings, and do such other acts necessary or desirable, to evidence, preserve and/or protect the Collateral at any time securing or intended to secure the obligations of Borrowers under the Loan Documents, as Lender may reasonably require, including, without limitation, if permitted by applicable law, the execution and delivery of all such writings necessary to transfer any Operating Permits with respect to any Property into the name of Lender or its designee after the occurrence of an Event of Default; and

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               (b) do and execute all and such further lawful and reasonable acts, conveyances and assurances for the better and more effective carrying out of the intents and purposes of this Agreement and the other Loan Documents, as Lender shall reasonably require from time to time.

          5.1.10 Personal Property Taxes. Borrowers represent that as of the Closing Date Borrowers have paid all state, county and municipal recording and all other taxes imposed upon the execution and filing of the UCC Financing Statements.

          5.1.11 Financial Reporting. (a) Borrowers will keep and maintain or will cause to be kept and maintained on a Fiscal Year basis, in accordance with the Uniform System of Accounts and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of each Borrower and all items of income and expense in respect of the Collateral. Borrowers shall cause each other Loan Party to keep and maintain on a Fiscal Year basis, in accordance with the Uniform System of Accounts and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender), proper and accurate books, records and accounts reflecting all of the financial affairs of such Loan Party and all items of income and expense in connection with the operation of each Property. Lender shall have the right from time to time at all times during normal business hours upon reasonable notice (which may be verbal) to examine such books, records and accounts at the office of any Loan Party or any other Person maintaining such books, records and accounts and to make such copies or extracts thereof as Lender shall desire. After the occurrence and during the continuance of an Event of Default, Borrowers shall pay any actual costs and expenses incurred by Lender to examine Borrowers’ and each of the other Loan Parties’ accounting records with respect to the Properties, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral and the Collateral, as Lender shall reasonably determine to be necessary or appropriate in the protection of Lender’s interest.

               (b) Borrowers will furnish to Lender annually, within one hundred twenty (120) days following the end of each Fiscal Year of Borrowers, a complete copy of each Borrower’s, Mortgage Borrower’s, HRHI’s and each Guarantor’s annual financial statements audited by a “Big Four” accounting firm or other independent certified public accountant reasonably acceptable to Lender (it being hereby understood and agreed that BDO Seidman, LLP is acceptable to Lender) in accordance with the Uniform System of Accounts (or, in the case of Guarantors, GAAP) and reconciled each year in accordance with GAAP (or such other accounting basis acceptable to Lender) covering the Collateral and the Properties for such Fiscal Year and containing statements of profit and loss for Borrowers, Mortgage Borrowers, HRHI, each Guarantor, the Collateral and each Property and a balance sheet for Borrowers, Mortgage Borrowers, HRHI and each Guarantor; provided, however, that in the event that any Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by the Officer’s Certificate required under Section 5.1.11(b)(B) of the Mortgage Loan Agreement. Notwithstanding anything to the contrary set forth in this Agreement, the financial statements of Borrowers and Mortgage Borrowers may be consolidated with those of (1) HRHI for so long as (y) HRHI owns no other assets other than the ownership interests in one or more of the Loan

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Parties and/or other assets related to one or more of the Loan Parties, one or more of the Properties and/or the IP, and (z) engages in no other business other than those related to owning one or more of the Loan Parties and/or other assets related to one or more of the Loan Parties, one or more of the Properties and/or the IP, and (2) HR Holdings for so long as (x) the provisions of the foregoing clause (1) remain true, (y) HR Holdings owns no other assets other than the ownership interests in HRHI and/or one or more of the Loan Parties and/or other assets related to HRHI, one or more of the Loan Parties, one or more of the Properties and/or the IP, and (z) engages in no other business other than those related to owning HRHI and/or one or more of the Loan Parties and/or other assets related to HRHI, one or more of the Loan Parties, one or more of the Properties and/or the IP. Borrowers will furnish, or will cause each of the other Loan Parties to furnish, to Lender a copy of the financial statements and all other materials which such Loan Parties are required to provide to Mortgage Lender, First Mezzanine Lender or Second Mezzanine Lender under Section 5.1.11 of the Mortgage Loan Agreement, the First Mezzanine Loan Agreement or the Second Mezzanine Loan Agreement, respectively, within the time periods required under such Section.

               (c) For each Fiscal Year during the term of the Loan, Borrowers shall submit to Lender (and Borrowers shall cause Mortgage Borrowers to submit to Mortgage Lender) an Annual Budget not later than twenty (20) days prior to the commencement of such Fiscal Year in form reasonably satisfactory to Lender. The Annual Budget shall be subject to Lender’s and Mortgage Lender’s written reasonable approval (each such Annual Budget, as and when approved or deemed approved pursuant to this Section 5.1.11(c), the “Approved Annual Budget”). Lender’s approval of a proposed Annual Budget shall be deemed to have been given if (i) such proposed Annual Budget is submitted to Lender with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET AND IF LENDER DOES NOT RESPOND WITHIN TEN (10) BUSINESS DAYS, BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE” and Lender does not respond by approving such proposed Annual Budget or stating in reasonable detail its objections to such proposed Annual Budget within ten (10) Business Days of Lender’s receipt thereof, and (ii) after Lender’s failure to respond to the initial request for approval of such proposed Annual Budget within the time period set forth in the foregoing clause (i), Borrowers shall re-submit to Lender (and Borrowers shall cause Mortgage Borrowers to re-submit to Mortgage Lender) such proposed Annual Budget with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL OF AN ANNUAL BUDGET. APPROVAL WILL BE DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN THREE (3) BUSINESS DAYS” and Lender does not respond to such second submission of such proposed Annual Budget by approving such proposed Annual Budget or stating in reasonable detail its objection thereto within three (3) Business Days of Lender’s receipt of such second submission. In the event that Lender objects to a proposed Annual Budget submitted by any Borrower, Lender shall advise Borrowers of such objections within ten (10) Business Days after receipt thereof (and deliver to Borrowers a reasonably detailed description of such objections) and Borrowers shall promptly revise such Annual Budget and resubmit the same to Lender. Lender shall advise Borrowers of any objections to such revised Annual Budget within ten (10) days after receipt thereof (and deliver to Borrowers a reasonably detailed description of such objections) and Borrowers shall promptly revise (or cause the applicable Manager to revise) the same in accordance with the process described in this subsection until Lender approves each

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Annual Budget. Until such time that Lender approves a proposed Annual Budget (or is deemed to have approved such Annual Budget), the most recently Approved Annual Budget shall apply; provided, that such Approved Annual Budget shall be automatically adjusted (i) to reflect actual increases in Taxes and Insurance Premiums with respect to each Property, (ii) by three percent (3%) on all other items to account for inflation, and (iii) to reflect any expenses that must be incurred on an “emergency basis” in order to prevent the occurrence of any harm to any individuals on any Property or any Property itself or the operation thereof. Notwithstanding the foregoing, if seventy-five percent (75%) of the aggregate amount of costs set forth in a proposed Annual Budget have been approved by Lender, then until such time as Lender and Mortgage Lender approve the entirety of such proposed Annual Budget (or is deemed to have approved the entirety of such proposed Annual Budget in accordance with this Section 5.1.11(c)), (A) such approved portions of such proposed Annual Budget shall apply and shall constitute an “Approved Annual Budget” with respect only to such portions, (B) the remainder of such proposed Annual Budget shall be automatically adjusted as provided in the immediately preceding sentence, and (C) Borrowers and Lender shall diligently continue the process of agreeing to the remaining costs as set forth in this Section 5.1.11(c) for the approval of the Annual Budget as a whole.

               (d) In the event that any Mortgage Borrower must incur any non-recurring extraordinary Operating Expense or Capital Expenditure not set forth in the Approved Annual Budget then in effect (each, an “Extraordinary Expense”), then Borrowers shall promptly deliver to Lender (and Borrowers shall cause Mortgage Borrowers to promptly deliver to Mortgage Lender) a reasonably detailed explanation of such proposed Extraordinary Expense for Lender’s approval. Notwithstanding the foregoing, no prior approval by Lender shall be required for any Extraordinary Expense needed to be incurred immediately to prevent imminent injury to person or damage to property, provided that within three (3) Business Days thereafter Borrowers shall provide reasonably satisfactory evidence to Lender to demonstrate the imminent necessity and reasonableness of the Extraordinary Expense incurred.

               (e) If, at the time a Disclosure Document is being prepared for a Securitization, Lender expects that any or more Borrowers alone or any one or more Borrowers and one or more Affiliates of any Borrower collectively, or the Collateral or any one or more of the Properties alone or any one or more of the Properties and any one or more Related Properties collectively, will be a Significant Obligor, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender upon request (i) the selected financial data or, if applicable, Net Operating Income, required under Item 1112(b)(1) of Regulation AB, if Lender expects that the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed ten percent (10%) (but less than twenty percent (20%)) of the aggregate principal amount of all mezzanine loans included or expected to be included, as applicable, in the Securitization, or (ii) the financial statements required under Item 1112(b)(2) of Regulation AB, if Lender expects that the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization may, or if the principal amount of the Loan together with any Related Loans as of the cut-off date for such Securitization and at any time during which the Loan and any Related Loans are included in a Securitization does, equal or exceed twenty percent (20%) of the aggregate principal amount of

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all mezzanine loans included or expected to be included, as applicable, in the Securitization. Such financial data or financial statements shall be furnished to Lender (A) within fifteen (15) Business Days after notice from Lender in connection with the preparation of Disclosure Documents for the Securitization, (B) not later than forty-five (45) days after the end of each calendar quarter of Borrowers, and (C) not later than one hundred twenty (120) days after the end of each calendar year of Borrowers; provided, however, that Borrowers shall not be obligated to furnish financial data or financial statements pursuant to clauses (B) or (C) of this sentence with respect to any period for which a filing pursuant to the Exchange Act in connection with or relating to the Securitization (an “Exchange Act Filing”) is not required. If requested by Lender, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, to Lender financial data and/or financial statements for any tenant of any Property, but only to the extent such tenant is required to provide such financial data and/or financial statements under its Lease, if, in connection with a Securitization, Lender expects there to be, with respect to such tenant or group of Affiliated tenants, a concentration within all of the mezzanine loans included or expected to be included, as applicable, in the Securitization such that such tenant or group of affiliated tenants would constitute a Significant Obligor.

               (f) All financial data and financial statements provided by Borrowers pursuant to Section 5.1.11(e) hereof shall be prepared in accordance with GAAP and shall meet the requirements of Regulation AB and all other applicable Legal Requirements. All financial statements referred to in Section 5.1.11(e) hereof shall be audited by independent accountants of Borrowers or Mortgage Borrowers reasonably acceptable to Lender in accordance with Regulation AB and all other applicable Legal Requirements, shall be accompanied by the manually executed report of the independent accountants thereon, which report shall meet the requirements of Regulation AB and all other applicable Legal Requirements, and shall be further accompanied by a manually executed written consent of the independent accountants, in form and substance reasonably acceptable to Lender, to the inclusion of such financial statements in any Disclosure Document and any Exchange Act Filing and to the use of the name of such independent accountants and the reference to such independent accountants as “experts” in any Disclosure Document and Exchange Act Filing, all of which shall be provided at the same time as the related financial statements are required to be provided. All financial data and financial statements (audited or unaudited) provided by Borrowers or Mortgage Borrowers under Section 5.1.11(e) hereof shall be accompanied by an Officer’s Certificate of each Borrower, which certification shall state that such financial statements meet the requirements set forth in the first sentence of this Section 5.1.11(f).

               (g) If requested by Lender, Borrowers shall provide, or shall cause Mortgage Borrowers to provide, Lender, promptly upon request, with any other or additional financial statements, or financial, statistical or operating information, as Lender shall reasonably determine to be required pursuant to Regulation AB or any amendment, modification or replacement thereto or other Legal Requirements in connection with any Disclosure Document or any Exchange Act Filing or as shall otherwise be reasonably requested by Lender.

               (h) In the event Lender reasonably determines, in connection with a Securitization, that the financial data and financial statements required in order to comply with Regulation AB or any amendment, modification or replacement thereto or any other Legal Requirements are other than as provided herein, then notwithstanding the provisions of Sections

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5.1.11(e) and (f) hereof, Lender may request, and Borrowers shall promptly provide, or shall cause Mortgage Borrowers to provide, such other financial data and financial statements as Lender determines to be necessary or appropriate for such compliance.

               (i) Any reports, statements or other information required to be delivered under this Section 5.1.11 shall be delivered (i) in paper form, (ii) on a compact disk or DVD, and (iii) if requested by Lender and within the capabilities of Borrowers’ or Mortgage Borrowers’ data systems without change or modification thereto, in electronic form and prepared using Microsoft Word for Windows or WordPerfect for Windows files (which files may be prepared using a spreadsheet program and saved as word processing files). Borrowers agree that Lender may disclose information regarding the Properties, the Collateral and any Loan Party that is provided to Lender pursuant to this Section 5.1.11 in connection with any Securitization to such parties requesting such information in connection with such Securitization.

          5.1.12 Business and Operations. Borrowers will continue, and will cause each Loan Party to continue, to engage in the businesses presently conducted by it as and to the extent the same are necessary for the ownership, maintenance, management and operation of the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral, the Properties or the IP, as applicable. Each Borrower will qualify, and will cause each other Loan Party to qualify, to do business and will remain, and will cause each other Loan Party to remain, in good standing under the laws of each jurisdiction as and to the extent the same are required for the ownership, maintenance, management and operation of the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral, the Properties or the IP, as applicable.

          5.1.13 Title to the Collateral, the Properties and the IP. (a) Borrowers will warrant and defend (i) the title to the Collateral and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances) or under the Pledge Agreement, and (ii) the validity and priority of the Lien of the Pledge Agreement, subject only to Liens permitted hereunder (including Permitted Encumbrances), in each case against the claims of all Persons whomsoever.

               (b) Borrowers will cause Mortgage Borrowers to warrant and defend (i) the title to each Property, the Owned IP and any right in and under all IP Agreements with respect to Licensed IP, and every part thereof, subject only to Liens permitted hereunder (including Permitted Encumbrances, Permitted IP Encumbrances and the asset sales and releases permitted under this Agreement), and (ii) the validity and priority of the Liens of the Mortgage, the Assignment of Leases and the IP Assignments, subject only to Liens permitted hereunder (including Permitted Encumbrances and Permitted IP Encumbrances), in each case against the claims of all Persons whomsoever.

               (c) Borrowers shall reimburse Lender for any actual losses, actual costs, actual damages (excluding lost profits, diminution in value and other consequential damages) or reasonable expenses (including reasonable attorneys’ fees and court costs) incurred by Lender if an interest in the Collateral, any Property or the IP, other than as permitted hereunder, is claimed by another Person.

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          5.1.14 Costs of Enforcement. In the event (a) that the Pledge Agreement is foreclosed in whole or in part or that the Pledge Agreement is put into the hands of an attorney for collection, suit, action or foreclosure, or (b) of the bankruptcy, insolvency, rehabilitation or other similar proceeding in respect of any Borrower or any of its Constituent Members or an assignment by any Borrower or any of its Constituent Members for the benefit of its creditors, and Lender incurs costs in connection with any such proceeding as a direct or indirect result of the Loan, then, in any of the foregoing instances, each Borrower, on behalf of itself and its successors or assigns, shall be chargeable with and shall pay all actual out-of-pocket costs of collection and defense, including attorneys’ fees and costs, incurred by Lender or any Borrower in connection therewith and in connection with any appellate proceeding or post-judgment action involved therein.

          5.1.15 Estoppel Statement. (a) After request by Lender from time to time, but in no event more than two (2) times in any twelve (12) month period except in connection with a Securitization, Borrowers shall within ten (10) Business Days furnish Lender with a statement, duly acknowledged and certified, setting forth (i) the original principal amount of the Loan, (ii) the Outstanding Principal Balance, (iii) the Applicable Interest Rate of the Loan, (iv) the date an installment of interest was last paid, (v) any offsets or, to the best of each Borrower’s actual knowledge, defenses to the payment of the Debt, if any, and (vi) that the Note, this Agreement, the Pledge Agreement and the other Loan Documents are valid, legal and binding obligations of Borrowers and have not been modified or, if modified, giving particulars of such modification.

               (b) After request by Borrowers, but in no event more than two (2) times in any twelve (12) month period, Lender shall within ten (10) Business Days furnish Borrowers with a statement, duly acknowledged and certified, stating (i) the Outstanding Principal Balance, (ii) the Applicable Interest Rate, (iii) the date an installment of interest was last paid, and (iv) whether or not Lender has sent any notice of default under the Loan Documents which remains uncured in the opinion of Lender.

               (c) Borrowers shall use commercially reasonable efforts to deliver, or cause to be delivered, to Lender within thirty (30) days of receipt of written request, tenant estoppel certificates from each commercial tenant leasing space at any of the Properties, in form and substance reasonably satisfactory to Lender; provided that, except in connection with a Securitization, Borrowers shall not be required to deliver such certificates more frequently than once in any calendar year or less frequently if, and to the extent, so restricted by the terms of any Leases entered into prior to the Closing Date (other than the HRHI Lease).

               (d) Borrowers shall deliver, within ten (10) Business Days after request by Lender from time to time, estoppel certificates from each Mortgage Borrower and/or each Mezzanine Borrower, covering substantially the same matters as set forth in clause (a) above and any other matters reasonably requested by Lender.

          5.1.16 Loan Proceeds. Borrowers shall use the proceeds of the Loan received by them on the Closing Date only for the purposes set forth in Section 2.1.2 hereof.

          5.1.17 Performance by Borrowers. (a) Borrowers shall, in a timely manner and in all material respects, observe, perform and fulfill each and every covenant, term and provision

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of each Loan Document executed and delivered by, or applicable to, any Borrower, and shall not enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Loan Document executed and delivered by, or applicable to, any Borrower without the prior consent of Lender.

               (b) Except for changes to the Mortgage Loan Documents that Mortgage Borrowers are obligated to enter into pursuant to the terms of the Mortgage Loan Documents, Borrowers shall not cause or permit Mortgage Borrowers to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Mortgage Loan Document executed and delivered by, or applicable to, Mortgage Borrowers as of the Closing Date without the prior written consent of Lender which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers shall cause Mortgage Borrowers to provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the Mortgage Loan Documents within five (5) days after the execution thereof.

               (c) Borrowers shall not cause or permit First Mezzanine Borrowers to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any First Mezzanine Loan Document executed and delivered by, or applicable to, First Mezzanine Borrowers as of the Closing Date without the prior written consent of Lender which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers shall cause First Mezzanine Borrowers to provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the First Mezzanine Loan Documents within five (5) days after the execution thereof.

               (d) Borrowers shall not cause or permit Second Mezzanine Borrowers to enter into or otherwise suffer or permit any amendment, waiver, supplement, termination or other modification of any Second Mezzanine Loan Document executed and delivered by, or applicable to, Second Mezzanine Borrowers as of the Closing Date without the prior written consent of Lender which consent shall not be unreasonably withheld, conditioned or delayed. Borrowers shall cause Second Mezzanine Borrowers to provide Lender with a copy of any amendment, waiver, supplement, termination or other modification to the Second Mezzanine Loan Documents within five (5) days after the execution thereof.

               (e) Borrowers shall not, and shall not permit any other Loan Party to, (i) amend or modify the organizational documents of such Loan Party in any respect without Lender’s prior written consent, or (ii) take any action that would cause the membership interests of any other Loan Party to cease to constitute “certificated securities” (as defined in the Uniform Commercial Code of the States of New York and Delaware) without Lender’s prior written consent.

          5.1.18 Confirmation of Representations. Borrowers shall deliver, in connection with any Securitization, (a) one or more Officer’s Certificates certifying as to the accuracy of all representations made by Borrowers in the Loan Documents as of the date of the closing of such Securitization in all relevant jurisdictions (or if any such representations are no longer accurate, providing an explanation as to the reason for such inaccuracy), and (b) certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the

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good standing and qualification of each Borrower and each Mortgage Borrower as of the date of the Securitization.

          5.1.19 No Joint Assessment. Borrowers shall not suffer, permit or initiate, and shall cause Mortgage Borrowers not to suffer, permit or initiate, the joint assessment of any Property (a) with any other real property constituting a tax lot separate from such Property, and (b) which constitutes real property with any portion of such Property which may be deemed to constitute personal property, or any other procedure whereby the lien of any taxes which may be levied against such personal property shall be assessed or levied or charged to such real property portion of the Property.

          5.1.20 Leasing Matters. Any Major Leases with respect to any Property executed after the date hereof shall be subject to Lender’s approval, which approval shall not be unreasonably withheld, conditioned or delayed, provided, however, that renewals of any Major Lease by Mortgage Borrowers initially executed prior to the Closing Date shall not require the approval of Lender if the terms of any such Lease provided for renewals at a reasonably determinable rent. Upon request, Borrowers shall furnish, or shall cause Mortgage Borrowers to furnish, Lender with executed copies of all Leases. All proposed Major Leases shall be on commercially reasonable terms and no Lease shall contain any terms which would materially adversely affect Lender’s rights under the Loan Documents or Mortgage Lender’s rights under the Mortgage Loan Documents. All Leases executed after the Closing Date shall provide that they are subordinate to the Mortgage and that the lessee agrees to attorn to Mortgage Lender or any purchaser at a sale by foreclosure or power of sale, provided that, with respect to Major Leases and except with respect to the HRHI Lease, Mortgage Lender provides commercially reasonable non-disturbance language. Borrowers shall cause Mortgage Borrowers to (i) observe and perform the obligations imposed upon the lessor under the Leases in a commercially reasonable manner; (ii) enforce the terms, covenants and conditions contained in the Leases upon the part of the lessee thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair the value of any Property involved, except that no termination by any Mortgage Borrower or acceptance of surrender by a tenant of any Major Lease (including, without limitation, the HRHI Lease) will be permitted without the consent of Lender; (iii) not collect any of the rents more than one (1) month in advance (other than security deposits); (iv) not execute any other assignment of lessor’s interest in the Leases or the Rents (except as contemplated by the Mortgage Loan Documents); and (v) not alter, modify or change the terms of (A) the HRHI Lease other than any ministerial, non-monetary amendment or modification, or (B) any other Major Lease in any material manner, in each of the foregoing instances, without the prior written approval of Lender, not to be unreasonably withheld. To the extent Lender’s approval is required pursuant to this Section 5.1.20, Lender shall endeavor to respond to a request for Lender’s approval within ten (10) Business Days after Borrowers’ written request therefor, delivered together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed Major Lease, Major Lease amendment or Major Lease termination. If the correspondence from Borrowers requesting such approval contains the following statement at the top of the first page thereof in capitalized, boldfaced, 14 point type lettering: “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN TEN (10) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN”, and if Lender shall fail to respond to or to expressly deny such request for approval in writing (stating

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in reasonable detail the reason for such disapproval) within ten (10) Business Days after receipt of Borrowers’ written request therefor together with the documents and information required above and any other information reasonably requested by Lender in writing prior to the expiration of such ten (10) Business Day period in order to adequately review the same, then Borrowers shall re-submit such proposed Major Lease, Major Lease amendment or Major Lease termination and accompanying information to Lender with a request for approval containing the following statement at the top of the first page thereof in capitalized, boldfaced, 14 point type lettering: “IF YOU FAIL TO RESPOND TO OR TO EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, YOUR APPROVAL SHALL BE DEEMED GIVEN”, and if Lender does not respond to such second request by approving such proposed Major Lease, Major Lease amendment or Major Lease termination or stating its objection thereto within five (5) Business Days of Lender’s receipt of such second submission, Lender’s approval shall be deemed given. Notwithstanding anything to the contrary contained herein, Borrowers shall not permit or cause Mortgage Borrowers to enter into a lease of all or substantially all of any Property without Lender’s prior consent.

          5.1.21 Alterations. Other than the construction of the Project, which shall be governed by the provisions of Article III of the Mortgage Loan Agreement, Borrowers shall, or shall cause Mortgage Borrowers to, obtain Lender’s prior consent to any material alterations to any Improvements, which consent shall not be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, Lender’s consent shall not be required in connection with any alterations that will not have a material adverse effect on any Borrower’s or Mortgage Borrower’s financial condition, the value of the Collateral, the applicable Property or the Net Operating Income, provided that such alterations (a) are made in connection with tenant improvement work performed pursuant to the terms of any Lease, (b) do not materially adversely affect any structural component of any Improvements, any utility or HVAC system contained in any Improvements or the exterior of any building constituting a part of any Improvements and the aggregate cost thereof does not exceed the Alteration Threshold Amount, or (c) are performed in connection with the Restoration of a Property after the occurrence of a Casualty or Condemnation in accordance with the terms and provisions of the Mortgage Loan Agreement and this Agreement. To the extent Lender’s prior written approval is required pursuant to this Section 5.1.21, Lender shall have fifteen (15) Business Days from receipt of written request and any and all reasonably required information and documentation relating thereto in which to approve or disapprove such request and such written request shall state thereon in bold letters of 14 point font or larger that action is required by Lender. If Lender fails to approve or disapprove the request within such fifteen (15) Business Days, Lender’s approval shall be deemed given. Should Lender fail to approve any such request, Lender shall give Borrowers written notice setting forth in reasonable detail the basis for such disapproval. In no event shall Lender require any “consent fee” as a condition to any required approval. If the total unpaid amounts due and payable with respect to alterations to the Improvements at any Property (other than such amounts to be paid or reimbursed by tenants under the Leases) shall at any time exceed the Alteration Threshold Amount, Borrowers shall promptly deliver to Lender as security for the payment of such amounts and as additional security for Borrowers’ obligations under the Loan Documents any of the following: (A) cash, (B) U.S. Obligations, (C) other securities having a rating acceptable to Lender and that the applicable Rating Agencies have confirmed in writing will not, in and of itself, result in a downgrade, withdrawal or qualification of the then current ratings assigned to any Securities or any class thereof in connection with any Securitization, (D) a Letter

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of Credit, or (E) a completion and performance bond issued by an Approved Bank; provided, however, that (i) in the event (A) Mortgage Borrowers are required to and do deliver such security to Mortgage Lender under the Mortgage Loan Agreement, or (B) if the Mortgage Loan has been paid in full, First Mezzanine Borrowers are required to and do deliver such security to First Mezzanine Lender under the First Mezzanine Loan Agreement, or (C) if the Mortgage Loan and the First Mezzanine Loan have been paid in full, Second Mezzanine Borrowers are required to and do deliver such security to Second Mezzanine Lender under the Second Mezzanine Loan Agreement; and (ii) upon request, Lender receives evidence reasonably acceptable to it of the delivery of such security by Mortgage Borrowers to Mortgage Lender, or by First Mezzanine Borrowers to First Mezzanine Lender, or by Second Mezzanine Borrowers to Second Mezzanine Lender, as applicable, then Borrowers shall not be required to deliver any such security to Lender. Such security (if given as set forth above) shall be in an amount equal to the excess of the total unpaid amounts with respect to alterations to the Improvements on the applicable Property (other than such amounts to be paid or reimbursed by tenants under the Leases) over the Alteration Threshold Amount and during the continuance of an Event of Default, Lender may apply such security from time to time at the option of Lender to pay for such alterations.

          5.1.22 Operation of the Properties.

               (a) Borrowers shall cause Mortgage Borrowers to operate the Properties, in all material respects, in accordance with the applicable Management Agreement. In the event that any Management Agreement expires or is terminated (without limiting any obligation of Borrowers to obtain Lender’s consent to any termination or modification of any Management Agreement, if applicable, in accordance with the terms and provisions of this Agreement), Borrowers shall cause Mortgage Borrowers to promptly enter into a Replacement Management Agreement with the applicable Manager or another Qualified Manager, as applicable.

               (b) Borrowers shall cause each Mortgage Borrower to: (i) promptly perform and/or observe, in all material respects, all of the covenants and agreements required to be performed and observed by such Mortgage Borrower under the Management Agreement and/or the Sub-Management Agreement to which such Mortgage Borrower is a party and do all things necessary to preserve and to keep unimpaired such Mortgage Borrower’s material rights thereunder; (ii) promptly notify Lender of any material default under the Management Agreement and/or the Sub-Management Agreement of which such Mortgage Borrower or Borrower is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by such Mortgage Borrower under the Management Agreement; and/or the Sub-Management Agreement and (iv) enforce the performance and observance of all of the material covenants and agreements required to be performed and/or observed by the Manager under the Management Agreement and by Sub-Manager under the Sub-Management Agreement, in each of the foregoing instances, in a commercially reasonable manner.

               (c) Borrowers shall cause Hotel/Casino Borrower to, at all times, operate and maintain (or cause to be operated and maintained) the Hotel/Casino Property and the Casino Component as a hotel and casino resort in accordance with standards at least equivalent to the Comparable Hotel/Casinos. The theme of the Hotel/Casino Property and the Casino

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Component shall not be materially changed without the prior written consent of Lender, which consent shall not be unreasonably withheld. Borrowers shall cause Hotel/Casino Borrower to cause the Hotel/Casino Property to be at all times open for business as a hotel and the Casino Component to be open at all times for business as a casino, other than as provided under the Gaming Sublease, pursuant to Legal Requirements, temporary closures as a result of Casualty or other events outside the reasonable control of Borrowers and Mortgage Borrowers.

          5.1.23 Liquor Management at Hotel/Casino Property.

               (a) Unless and until Hotel/Casino Borrower has obtained all Governmental Approvals necessary to provide all alcoholic beverage services provided at the Hotel/Casino Property as of the Closing Date, Borrowers shall cause Hotel/Casino Borrower to cause all alcoholic beverage services at the Hotel/Casino Property to be managed by a Liquor Manager in accordance with a Liquor Management Agreement and Borrowers shall use, or shall cause Hotel/Casino Borrower to use, commercially reasonable best efforts to conduct and/or to cause to be conducted the alcoholic beverage services at the Hotel/Casino Property in such a manner so as to maximize Gross Income from Operations at the Properties in the aggregate. In the event that a Liquor Management Agreement expires or is terminated (without limiting any obligation of Hotel/Casino Borrower to obtain Lender’s consent to any termination or modification of any Liquor Management Agreement, if applicable, in accordance with the terms and provisions of this Agreement), Borrowers shall cause Hotel/Casino Borrower to promptly enter into a Replacement Liquor Management Agreement with the Liquor Manager or another Qualified Liquor Manager, as applicable.

               (b) Borrowers shall cause Hotel/Casino Borrower to: (i) promptly perform and/or observe, in all material respects, all of the covenants and agreements required to be performed and observed by it under the Liquor Management Agreement and do all things necessary to preserve and to keep unimpaired its material rights thereunder; (ii) promptly notify Lender of any material default under the Liquor Management Agreement of which it is aware; (iii) promptly deliver to Lender a copy of each financial statement, business plan, capital expenditures plan, notice, report and estimate received by it under the Liquor Management Agreement; and (iv) enforce the performance and observance of all of the material covenants and agreements required to be performed and/or observed by the Liquor Manager under the Liquor Management Agreement, in a commercially reasonable manner.

               (c) Upon the occurrence and during the continuance of an Event of Default, Borrowers shall, at the request of Lender, cause the Liquor Manager, if one of the Loan Parties or an Affiliate of any Loan Party, to continue to perform all obligations under the Liquor Management Agreement. Additionally, Borrowers shall, upon and after the foreclosure, deed in lieu of foreclosure or other similar transfer of the Hotel/Casino Property to Mortgage Lender, its designee or nominee (a “Mortgage Lender Successor Owner”), cause Mortgage Borrowers to comply with the provisions of Section 5.1.23 (c) of the Mortgage Loan Agreement.

          5.1.24 Gaming Operations at the Hotel/Casino Property.

               (a) All gaming operations conducted at the Hotel/Casino Property shall at all times be operated by a Qualified Gaming Operator and Borrowers shall cause

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Mortgage Borrowers to use commercially reasonable best efforts to conduct and/or to cause to be conducted the gaming operations in such a manner so as to maximize Gross Income from Operations at the Properties in the aggregate. Lender acknowledges and agrees that, as of the Closing Date, Golden HRC, LLC is a Qualified Gaming Operator.

               (b) Borrowers shall cause Hotel/Casino Borrower to comply with the provisions of Section 5.1.24(b) of the Mortgage Loan Agreement.

          5.1.25 Intellectual Property.

               (a) Each Borrower shall take, and shall cause Mortgage Borrowers to take, all actions reasonably necessary to protect the IP, subject to, and in compliance with, applicable IP Agreements, including, without limitation, (i) maintaining all registrations and applications with respect to any IP owned by any Loan Party, (ii) maintaining and complying with the terms of all licenses necessary for the use of any IP licensed to any Loan Party, (iii) expeditiously and diligently seeking to stop any acts of infringement or unfair competition with respect to the Owned IP that are brought to any Loan Party’s attention, and using commercially reasonable efforts to cause Rank or Morton, as the case may be, to diligently seek to stop any acts of infringement or unfair competition with respect to the Licensed IP that are brought to any Loan Party’s attention and (iii) refraining from any act or omission that might jeopardize any Loan Party’s ability to use any of the IP.

               (b) Borrowers shall cause Hotel/Casino Borrower to operate the Hotel/Casino Property as a “Hard Rock” hotel unless otherwise consented to in writing by Lender and shall cause Hotel/Casino Borrower to refrain from any act or omission, including, without limitation, any act contemplated under Section 5.1.26 hereof, that would result in, or would be reasonably likely to result in, the loss of its ability to so operate the Hotel/Casino Property as a “Hard Rock” hotel.

          5.1.26 Licensing and Sublicensing of the IP.

               (a) Except as set forth in Sections 5.1.26(b), (c) and (d) hereof, Borrowers shall not permit or cause Mortgage Borrowers to license any of the Owned IP or sublicense any of the Licensed IP (an “IP License”) without Lender’s consent in each instance.

               (b) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and without violating the Loan Documents, to license or sublicense, as applicable, the IP (or any portion thereof) (an “Adjacent Property IP License”) to any subsequent purchaser of all or any portion of the Adjacent Property and its successors and assigns, whether or not any such subsequent purchaser, successor or assign is an Affiliate of any Loan Party or any other Restricted Party; provided that all of the following conditions shall be satisfied with respect to any such Adjacent Property IP License:

     (i) IP Borrower shall have notified Lender of such Adjacent Property IP License at least ten (10) Business Days prior to the anticipated date of the execution and delivery thereof, which notice shall include (A) a copy of the Adjacent Property IP License, and (B) an Officer’s Certificate providing a

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certification that such Adjacent Property IP License (1) does not and will not adversely affect any Mortgage Borrower’s ownership and/or operation of, or any activities conducted on, its Property, (2) does not and will not materially diminish any Mortgage Borrower’s rights to use any of the Owned IP or Licensed IP that is reasonably necessary or desirable to operate its Property as then being operated and as then contemplated to be operated in the future, and (3) does not, and is not reasonably anticipated in the future to, materially diminish the value of any Owned IP or Licensed IP;

     (ii) Such Adjacent Property IP License shall be granted and used only in connection with the ownership, development and/or use of improvements and/or activities on the Adjacent Property or any portion thereof;

     (iii) Such Adjacent Property IP License may be granted (A) without consideration beyond that which is paid to Adjacent Borrower in connection with the sale of the applicable portion of the Adjacent Property and/or (B) on a royalty free basis; provided, however, that, notwithstanding the foregoing, any consideration and/or royalties that is/are paid to IP Borrower in connection with such Adjacent Property IP License shall constitute Gross Income from Operations for all purposes under this Agreement and the other Loan Documents and Borrowers shall cause IP Borrower to deposit the same directly into the Lockbox Account within one (1) Business Day following receipt by IP Borrower from time to time;

     (iv) Such Adjacent Property IP License shall not violate or result in a violation of Section 5.1.25(b) hereof; and

     (v) Such Adjacent Property IP License shall not adversely affect Lender’s Liens and security interests in the Owned IP and Licensed IP, all of which shall remain in full force and effect and, at Lender’s request in its sole discretion, Borrowers shall cause IP Borrower to collaterally assign to Lender such Adjacent Property IP License pursuant to a security agreement reasonably satisfactory to Lender and IP Borrower in form and substance.

               (c) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right, without the consent of Lender and without violating the Loan Documents, to license or sublicense, as applicable, the IP (or any portion thereof) to any bonafide third party who is not an Affiliate of any Loan Party or any other Restricted Party (a “Third Party IP License”); provided that all of the following conditions shall be satisfied with respect to any such Third Party IP License:

     (i) IP Borrower shall have notified Lender of such proposed Third Party IP License at least ten (10) Business Days prior to the anticipated date of the execution and delivery thereof, which notice shall include (A) a copy of the proposed Third Party IP License, and (B) an Officer’s Certificate providing a certification that (1) as of the date of such notice, no monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default,

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Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing, (2) the proposed licensee or sublicensee, as applicable, is a bonafide third party who is not an Affiliate of any Borrower or any other Restricted Party, (3) the total consideration paid and to be paid under such proposed Third Party IP License, (4) other than the proposed Third Party IP License, there are no other written or oral agreements between any Borrower or any other Restricted Party or any Affiliate of any thereof, on the one hand, and the proposed licensee or sublicensee, as applicable, on the other hand, relating to such proposed Third Party IP License or the IP covered thereunder, (5) the proposed Third Party IP License does not and will not adversely affect any Mortgage Borrower’s ownership and/or operation of, or any activities conducted on, its Property, (6) the proposed Third Party IP License does not and will not materially diminish any Mortgage Borrower’s rights to use any of the Owned IP or Licensed IP that is reasonably necessary or desirable to operate its Property as then being operated and as then contemplated to be operated in the future, and (7) the proposed Third Party IP License does not, and is not reasonably anticipated in the future to, materially diminish the value of any Owned IP or Licensed IP;

     (ii) Such proposed Third Party IP License shall, without limitation, (A) be on arm’s-length, market terms, (B) require cash consideration only, (C) prohibit any material amendment thereof without Lender’s prior reasonable approval, other than any amendment that does not violate any of the requirements of this Section 5.1.26(c)(ii), (D) prohibit the assignment or sub-licensing thereof without Lender’s prior reasonable approval, other than an assignment to a bonafide third party who is not an Affiliate of any Loan Party or any other Restricted Party, and (E) require the proposed licensee or sublicensee, as applicable, to deposit all consideration payable thereunder or otherwise in connection therewith from time to time directly into the Lockbox Account;

     (iii) All consideration and/or royalties that is/are paid under or otherwise in connection with such Third Party IP License shall constitute Gross Income from Operations for all purposes under this Agreement and the other Loan Documents and if, notwithstanding the provisions of the foregoing Section 5.1.26(c)(ii)(E) hereof, any Mortgage Borrower shall receive any such consideration and/or royalties, Borrowers shall cause such Mortgage Borrower to deposit the same directly in the Lockbox Account within one (1) Business Day following receipt by such Mortgage Borrower from time to time;

     (iv) Such Third Party IP License shall not violate or result in a violation of Section 5.1.25(b) hereof;

     (v) Without limiting the generality of the foregoing, such Third Party IP License shall in no event prohibit or limit in any manner the use of the “Hard Rock” name in connection with the operation of the Hotel/Casino Property or any other Property;

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     (vi) Such Third Party IP License shall not adversely affect Lender’s Liens and security interests in the Owned IP and Licensed IP, all of which shall remain in full force and effect and, at Lender’s request in its sole discretion, Borrowers shall cause IP Borrower to collaterally assign to Lender such Third Party IP License pursuant to a security agreement reasonably satisfactory to Lender and IP Borrower in form and substance; and

     (vii) On the date of the full execution and delivery of such Third Party IP License, no monetary Default, monetary Mortgage Default or any monetary Mezzanine Default, and no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default, shall have occurred and be continuing.

               (d) Notwithstanding the foregoing or anything else to the contrary set forth in this Agreement or the other Loan Documents, IP Borrower shall have the right to license or sublicense, as applicable, the IP (or any portion thereof) to an Affiliate of any Loan Party or any other Restricted Party (an “Affiliate IP License”); provided that (i) all of the conditions set forth in Section 5.1.26(c) hereof shall be satisfied with respect to any such Affiliate IP License, other than the condition set forth in Section 5.1.26(c)(i)(2) hereof, and (ii) such Affiliate IP License shall have been approved in writing by Lender, which approval shall not be unreasonably withheld.

               (e) With respect to any IP License, Adjacent Property IP License, Third Party IP License or Affiliate IP License permitted hereunder, upon satisfaction of such conditions as Lender shall impose with respect to its consent to any IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(b) hereof with respect to any Adjacent Property IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(c) hereof with respect to any Third Party IP License, or upon satisfaction of the conditions set forth in Section 5.1.26(d) hereof with respect to any Affiliate IP License, Lender, at the sole cost and expense of Borrowers, shall execute and deliver to Borrowers (for the benefit of the licensee or sublicensee, as applicable, under such IP License, Adjacent Property IP License, Third Party IP License or Affiliate IP License, as applicable), provided that Borrowers cause the applicable licensee or sublicensee, as applicable, to also execute and deliver, a customary and mutually acceptable non-disturbance and attornment agreement as reasonably requested by IP Borrower.

          5.1.27 Mortgage Reserve Funds. (a)  Borrowers shall cause Mortgage Borrowers to deposit and maintain each of the Mortgage Reserve Funds as required pursuant to the terms of the Mortgage Loan Agreement and to perform and comply with all the terms and provisions relating thereto.

               (b) Each Borrower grants to Lender a security interest in such Borrower’s interest in each of the Mortgage Reserve Funds, if any, subject to the prior rights of Mortgage Lender and any Mezzanine Lender, and any and all monies now or hereafter deposited in each Mortgage Loan Reserve Fund as additional security for payment of the Debt to the extent such Borrower has an interest in same. Subject to the qualifications regarding Borrowers’ interest in the Mortgage Reserve Funds, if any, until expended or applied in accordance with the Mortgage Loan Documents, the Mezzanine Loan Documents or the Loan Documents, Borrowers’ interest in the Mortgage Reserve Funds shall constitute additional security for the

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Debt and upon the occurrence of an Event of Default, Lender may, in addition to any and all other remedies available to Lender, but subject to the prior rights of Mortgage Lender and any Mezzanine Lender thereto, apply any sums then present in any or all of the Mortgage Reserve Funds to the payment of the Debt in any order in its sole discretion.

          5.1.28 Mortgage Loan and Mezzanine Loan Notices. (a)  Borrowers shall give notice, or cause notice to be given to Lender, promptly upon the occurrence and during the continuance of a Mortgage Event of Default or any Mezzanine Event of Default.

               (b) Borrowers shall cause each Loan Party to promptly notify Lender of all notices received by such Loan Party under or in connection with the Mortgage Loan or any Mezzanine Loan, including, without limitation, any notice by Mortgage Lender or any Mezzanine Lender to the applicable Loan Party of any default by such Loan Party in the performance or observance of any of the terms, covenants or conditions of the Mortgage Loan Documents or the Mezzanine Loan Documents on the part of such Loan Party to be performed or observed, and deliver to Lender a true copy of each such notice, together with any other consents, notices, requests or other written correspondence between the applicable Loan Party and Mortgage Lender or any Mezzanine Lender.

          5.1.29 Compliance with Mortgage Loan Documents and Mezzanine Loan Documents. (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms, covenants and conditions set forth in the Mortgage Loan Documents. Borrowers acknowledge that the obligation to comply with this covenant is separate from, and may be enforced independently from, the obligations of Mortgage Borrowers under the Mortgage Loan Documents.

               (b) Borrowers shall cause First Mezzanine Borrowers to comply with all of the terms, covenants and conditions set forth in the First Mezzanine Loan Documents. Borrowers acknowledge that the obligation to comply with this covenant is separate from, and may be enforced independently from, the obligations of First Mezzanine Borrowers under the First Mezzanine Loan Documents.

               (c) Borrowers shall cause Second Mezzanine Borrowers to comply with all of the terms, covenants and conditions set forth in the Second Mezzanine Loan Documents. Borrowers acknowledge that the obligation to comply with this covenant is separate from, and may be enforced independently from, the obligations of Second Mezzanine Borrowers under the Second Mezzanine Loan Documents.

          Section 5.2 Negative Covenants. From the date hereof until payment and performance in full of all obligations of Borrowers under the Loan Documents or the earlier release of the Lien of the Pledge Agreement in accordance with the terms of this Agreement and the other Loan Documents, each Borrower covenants and agrees with Lender that it will not do, directly or indirectly, any of the following:

          5.2.1 Operation of the Properties; Liquor Management.

               (a) Borrowers shall not, and shall cause Mortgage Borrowers not to, without Lender’s prior consent (which consent shall not be unreasonably withheld, conditioned

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or delayed): (i) subject to Section 9.5.1 hereof, surrender, terminate or cancel any Management Agreement; provided, that Borrowers may, without Lender’s consent, replace, or cause Mortgage Borrowers to replace, any Manager so long as the replacement manager is a Qualified Manager pursuant to a Replacement Management Agreement; (ii) reduce or consent to the reduction of the term of any Management Agreement; (iii) increase or consent to the increase of the amount of any charges or fees under any Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Management Agreement in any material respect. Notwithstanding the foregoing, Borrowers may terminate, or may cause Mortgage Borrowers to terminate, the Sub-Management Agreement without the consent of Lender so long as either (A) the Improvements on the Adjacent Property are and are intended to remain completely vacant or are demolished, or (B) a Manager under a Management Agreement is obligated to perform the duties that were delegated to Sub-Manager under the Sub-Management Agreement.

               (b) Following the occurrence and during the continuance of an Event of Default, Borrowers shall not, and shall cause Mortgage Borrowers not to, exercise any rights, make any decisions, grant any approvals or otherwise take any action under any Management Agreement or the Sub-Management Agreement without the prior consent of Lender, which consent may be withheld in Lender’s sole discretion.

               (c) Borrowers shall cause Hotel/Casino Borrower not to, without Lender’s prior consent (which consent shall not be unreasonably withheld, conditioned or delayed): (i) subject to Section 9.5.2 hereof, surrender, terminate or cancel any Liquor Management Agreement; provided, that Borrowers may replace, or may cause Hotel/Casino Borrower to replace, without Lender’s consent, the Liquor Manager so long as the replacement liquor manager is a Qualified Liquor Manager pursuant to a Replacement Liquor Management Agreement; (ii) reduce or consent to the reduction of the term of the Liquor Management Agreement; (iii) increase or consent to the increase of the amount of any charges or fees under the Liquor Management Agreement; or (iv) otherwise modify, change, supplement, alter or amend, or waive or release any of its rights and remedies under, any Liquor Management Agreement in any material respect.

               (d) Following the occurrence and during the continuance of an Event of Default, Borrowers shall cause Hotel/Casino Borrower not to exercise any rights, make any decisions, grant any approvals or otherwise take any action under the Liquor Management Agreement without the prior consent of Lender, which consent may be withheld in Lender’s sole discretion.

          5.2.2 Liens. (a) Borrowers shall not create, incur, assume or suffer to exist any Lien on (i) any portion of the Pledged Collateral except for the Lien created by the Pledge Agreement or (ii) any portion of the other Collateral, except for Permitted Encumbrances and Liens created by or permitted pursuant to the Loan Documents.

               (b) Borrowers shall not permit or cause any Loan Party to create, incur, assume or suffer to exist any Lien on any portion of any Property, the IP, the First Mezzanine Collateral or the Second Mezzanine Collateral or knowingly permit any such action to be taken, except: (i) Permitted Encumbrances and Permitted IP Encumbrances; (ii) Liens

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created by or permitted pursuant to the Mortgage Loan Documents and the Mezzanine Loan Documents, as applicable; and (iii) Liens for Taxes or Other Charges not yet delinquent.

          5.2.3 Dissolution. (a) No Borrower shall (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity; (ii) engage in any business activity not related to the ownership and operation of the Collateral; (iii) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the assets of such Borrower except to the extent permitted by the Loan Documents; or (iv) modify, amend, waive or terminate (A) its organizational documents in any material respect or in any respect with regard to the provisions concerning such Borrower’s status as a Special Purpose Entity, or (B) its qualification and good standing in any jurisdiction, in each case, without obtaining the prior consent of Lender.

               (b) Borrowers shall cause each other Loan Party not to (i) engage in any dissolution, liquidation or consolidation or merger with or into any other business entity, (ii) engage in any business activity not related to the ownership and operation of its Property, the IP, the First Mezzanine Collateral or the Second Mezzanine Collateral; (ii) transfer, lease or sell, in one transaction or any combination of transactions, the assets or all or substantially all of the properties or assets of such Loan Party except to the extent permitted by the Mortgage Loan Documents, the Mezzanine Loan Documents and the Loan Documents; or (iii) modify, amend, waive or terminate (A) its organizational documents in any material respect or in any respect with regard to the provisions concerning such Mortgage Borrower’s or such Mezzanine Borrower’s status as a “Special Purpose Entity” (as such term is defined in Section 1.1 of the Mortgage Loan Agreement or the applicable Mezzanine Loan Agreement, in each case as in effect on the date hereof), or (B) its qualification and good standing in any jurisdiction, in each case, without obtaining the prior consent of Lender.

          5.2.4 Change in Business. (a) No Borrower shall enter into any line of business other than the ownership and management of the Collateral, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in a material manner in activities other than the continuance of its present business.

               (b) No Borrower shall permit or cause any other Loan Party to enter into any line of business other than the ownership and operation of its Property, the IP, the First Mezzanine Collateral or the Second Mezzanine Collateral, or make any material change in the scope or nature of its business objectives, purposes or operations, or undertake or participate in a material manner in activities other than the continuance of its present business.

          5.2.5 Debt Cancellation. (a) No Borrower shall cancel or otherwise forgive or release any material claim or debt owed to such Borrower by any Person, except for adequate consideration and in the ordinary course of such Borrower’s business.

               (b) No Borrower shall permit or cause any other Loan Party to cancel or otherwise forgive or release any material claim or debt (other than termination of Leases by Mortgage Borrowers in accordance with the Mortgage Loan Agreement) owed to such Loan Party by any Person, except for adequate consideration and in the ordinary course of such Loan Party’s business.

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          5.2.6 Zoning. No Borrower shall cause or permit any Mortgage Borrower to initiate or consent to any zoning reclassification of any portion of any Property or seek any variance under any existing zoning ordinance or use or permit the use of any portion of any Property in any manner that could result in such use becoming a non-conforming use under any zoning ordinance or any other applicable land use law, rule or regulation, in each case, without the prior consent of Lender not to be unreasonably withheld.

          5.2.7 Removal of FF&E. Except in the ordinary course of business, no Borrower shall cause or permit any Mortgage Borrower to remove or transfer any material article of FF&E or other personal property owned by any Mortgage Borrower used in the operation of any Property unless the same is replaced with substantially similar FF&E or is obsolete, without the prior written consent of Lender in each instance, which consent shall not be unreasonably withheld, conditioned or delayed. To the extent Lender’s prior written approval is required pursuant to this Section 5.2.7, Lender shall endeavor to respond to a request for Lender’s approval within five (5) Business Days after Borrowers’ written request therefor, delivered together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed action or matter. Lender’s approval of any action or matter requiring Lender’s consent under this Section 5.2.7 shall be deemed to have been given if (i) a request for approval, together with any documents or information required to be provided by Borrowers hereunder in connection with Lender’s review of the proposed action or matter, is submitted to Lender with a request for approval set forth in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL AND IF LENDER DOES NOT RESPOND TO OR EXPRESSLY DENY THIS REQUEST FOR APPROVAL IN WRITING WITHIN FIVE (5) BUSINESS DAYS, BORROWERS MAY DELIVER A DEEMED APPROVAL NOTICE”, and Lender does not respond by approving such proposed action or matter or stating in reasonable detail its objections to such proposed action or matter within five (5) Business Days of Lender’s receipt thereof, and (ii) after Lender’s failure to respond to the initial request for approval of such proposed action or matter within the time period set forth in the foregoing clause (i), Borrowers shall re-submit such request to Lender in a written notice that states clearly (in 14-point type or larger): “THIS IS A REQUEST FOR APPROVAL. APPROVAL WILL BE DEEMED GIVEN IF LENDER DOES NOT RESPOND WITHIN FIVE (5) BUSINESS DAYS”, and Lender does not respond to such second submission by approving such proposed action or matter or stating in reasonable detail its objection thereto within five (5) Business Days of Lender’s receipt of such second submission.

          5.2.8 Principal Place of Business and Organization. No Borrower shall change its principal place of business set forth in the introductory paragraph of this Agreement without first giving Lender thirty (30) days prior notice. No Borrower shall change the place of its organization as set forth in Section 4.1.28 hereof without the consent of Lender, which consent shall not be unreasonably withheld. Upon Lender’s request, Borrowers shall execute and deliver additional financing statements, security agreements and other instruments which may be necessary to effectively evidence or perfect Lender’s security interest in the Collateral as a result of such change of principal place of business or place of organization.

          5.2.9 ERISA. (a) Assuming that Lender is not, and is not lending the assets of, an “employee benefit plan” as defined in Section 3(3) of ERISA, no Borrower shall engage in any transaction which would cause any obligation, or action taken or to be taken, hereunder (or

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the exercise by Lender of any of its rights under the Note, this Agreement or the other Loan Documents) to be a non-exempt (under a statutory or administrative class exemption) prohibited transaction under ERISA.

               (b) Each Borrower shall deliver to Lender such certifications or other evidence from time to time throughout the term of the Loan, as requested by Lender in its reasonable discretion, that (i) such Borrower is not an “employee benefit plan” as defined in Section 3(3) of ERISA, which is subject to Title I of ERISA, or a “governmental plan” within the meaning of Section 3(32) of ERISA; (ii) none of the assets of such Borrower constitute “plan assets” within the meaning of Section 3(3) of ERISA for purposes of any state law provisions regulating investments of, or fiduciary obligations with respect to, governmental plans; and (iii) one or more of the following circumstances is true:

     (A) Equity interests in such Borrower are publicly offered securities, within the meaning of 29 C.F.R. §2510.3 101(b)(2);

     (B) Less than twenty five percent (25%) of each outstanding class of equity interests in such Borrower is held by “benefit plan investors” within the meaning of 29 C.F.R. §2510.3 101(f)(2); or

     (C) Such Borrower qualifies as an “operating company”, a “venture capital operating company” or a “real estate operating company” within the meaning of 29 C.F.R. §2510.3 101(c), (d) or (e).

          5.2.10 Transfers. (a)  Borrowers acknowledge that Lender has examined and relied on the experience of Borrowers and their direct and indirect members in owning and operating the Collateral and Mortgage Borrowers in agreeing to make the Loan, and will continue to rely on Borrowers’ ownership of the Collateral as a means of maintaining the value of the Collateral as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Additionally, Borrowers acknowledge that Lender has examined and relied on the experience of Mortgage Borrowers and their general partners, members, principals and (if any Mortgage Borrower is a trust) beneficial owners, as applicable, in owning and operating properties such as the Properties and in owning intellectual property such as the IP, in agreeing to make the Loan, and will continue to rely on Mortgage Borrowers’ ownership of the Properties and the IP as a means of maintaining the value of the Properties and the IP and, therefore, indirectly the value of the Collateral, as security for repayment of the Debt and the performance of the obligations contained in the Loan Documents. Borrowers acknowledge that Lender has a valid interest in maintaining the value of the Collateral so as to ensure that, should Borrowers default in the repayment of the Debt or the performance of the obligations contained in the Loan Documents, Lender can recover the Debt by a sale of the Collateral.

               (b) Without the prior consent of Lender and except to the extent otherwise set forth in this Section 5.2.10, Borrowers shall not, and shall not permit any Transfer Restricted Party to, (i) sell, convey, mortgage, grant, bargain, encumber, pledge, assign, license, grant options with respect to, or otherwise transfer or dispose of (directly or indirectly, voluntarily or involuntarily, by operation of law or otherwise, and whether or not for

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consideration or of record) any Property or any part thereof or any legal or beneficial interest therein, or any IP or any part thereof or any legal or beneficial interest therein, or the Collateral or any part thereof or any legal or beneficial interest therein; or (ii) permit a Sale or Pledge of any interest in any Transfer Restricted Party (any of the actions in the foregoing clauses (i) or (ii), a “Transfer”), other than, notwithstanding anything to the contrary contained in this Section 5.2.10:

     (A) pursuant to Leases of space in the Improvements to tenants in accordance with the provisions of Section 5.1.20 hereof, including, without limitation, the HRHI Lease;

     (B) the pledge of the membership interests in each Mortgage Borrower as collateral for the First Mezzanine Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the First Mezzanine Loan Documents by First Mezzanine Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (C) the pledge of the membership interests in each First Mezzanine Borrower as collateral for the Second Mezzanine Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the Second Mezzanine Loan Documents by Second Mezzanine Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (D) the pledge of the membership interests in each Second Mezzanine Borrower as collateral for the Loan and, if applicable, the exercise of applicable remedies or a transfer in lieu of foreclosure under the Loan Documents by Lender, subject to the conditions and restrictions set forth in the Intercreditor Agreement;

     (E) any Release Parcel Sale, any Adjacent Parcel Sale or an IP Sale, in each instance in accordance with the applicable provisions of Section 2.5 of the Mortgage Loan Agreement;

     (F) a conveyance of the Deeded Adjacent Property as contemplated by Section 3.2(u) of the Mortgage Loan Agreement;

     (G) any IP License or Adjacent Property IP License granted in accordance with the provisions of Section 5.1.26 hereof;

     (H) the Permitted Encumbrances and Permitted IP Encumbrances; and

     (I) the issuance of new stock in, the merger or consolidation of, and/or the Sale or Pledge of the stock in, any Publicly Traded Entity who owns a direct or indirect ownership interest in any Transfer Restricted Party;

     (J) the transfer of indirect ownership interests in any Mortgage Borrower in order to create one or more new mezzanine borrowers for any New Mezzanine Loan as contemplated under the Mortgage Loan Agreement; and

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     (K) the transfer by deed of any applicable Partial Release Parcel and/or Partial Adjacent Parcel to a Subsidiary Transferee and the subsequent transfer of all of the membership interests held by Adjacent Borrower in such Subsidiary Transferee, in each instance in accordance with Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable;

          provided, however, that in the case of each of the foregoing clauses (A) – (K), such Transfer shall only be permitted hereunder if it does not violate any Legal Requirements, including specifically, but without limitation, any Gaming Laws.

               (c) A Transfer shall include, but not be limited to, (i) an installment sales agreement wherein any Borrower or Mortgage Borrower, as applicable, agrees to sell a Property or any part thereof, the IP, the Collateral or any part thereof for a price to be paid in installments; (ii) an agreement by any Mortgage Borrower leasing all or a substantial part of a Property for other than actual occupancy by a space tenant thereunder or a sale, assignment or other transfer of, or the grant of a security interest in, any Mortgage Borrower’s right, title and interest in and to any Leases or any Rents; (iii) if a Transfer Restricted Party is a corporation, any merger, consolidation or Sale or Pledge of such corporation’s stock or the creation or issuance of new stock; (iv) if a Transfer Restricted Party is a limited or general partnership or joint venture, any merger or consolidation or the change, removal, resignation, admission or addition of a general partner or the Sale or Pledge of the general partnership interest of any general partner or any profits or proceeds relating to such partnership interest, or the Sale or Pledge of limited partnership interests or any profits or proceeds relating to such limited partnership interest or the creation or issuance of new limited partnership interests; (v) if a Transfer Restricted Party is a limited liability company, any merger or consolidation or the change, removal, resignation, admission or addition of a managing member or non-member manager (or if no managing member, any member) or the Sale or Pledge of the membership interest of a managing member (or if no managing member, any member) or any profits or proceeds relating to such membership interest, or the Sale or Pledge of non-managing or managing membership interests or the creation or issuance of new non-managing or managing membership interests; (vi) if a Transfer Restricted Party is a trust or nominee trust, any merger, consolidation or the Sale or Pledge of the legal or beneficial interest in a Transfer Restricted Party or the creation or issuance of new legal or beneficial interests; (vii) the removal or the resignation of any Manager (including, without limitation, an Affiliated Manager) other than in accordance with the Mortgage Loan Agreement and Section 5.1.22 hereof; or (viii) any deed-in-lieu or consensual foreclosure relating to any Property with or for the benefit of Mortgage Lender or any Affiliate thereof.

               (d) Notwithstanding the provisions of this Section 5.2.10, so long as the following Transfers do not violate any Legal Requirements in any instance, including specifically, but without limitation, any Gaming Laws, or cause or otherwise result in the suspension, termination and/or revocation of any Gaming License, the HRHI Lease, the Gaming Sublease or the Casino Component Lease, as applicable, the following Transfers may occur without the consent of Lender or the payment of any transfer or other fee, excluding, however, any Transfer of (i) any direct interest in any Mortgage Borrower for so long as the Loan, the Mortgage Loan or any Mezzanine Loan is outstanding, and/or (ii) any direct interest in any Borrower for so long as the Loan or any Mezzanine Loan is outstanding:

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     (A) the Transfer of any direct or indirect interest in any Transfer Restricted Party, provided that (1) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and is continuing, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) Lender receives (y) at least ten (10) days prior written notice of any such voluntary Transfer and copies of the documents transferring such interest, or (z) written notice of any such involuntary Transfer and copies of the documents transferring such interest within thirty (30) days following such involuntary Transfer, (4) if after such Transfer any Person and its Affiliates collectively would own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received, prior to such Transfer, an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (5) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer;

     (B) the Transfer of any direct or indirect interest in any Transfer Restricted Party to any other Person who is, as of the Closing Date, a holder of any direct or indirect interest in any Transfer Restricted Party, provided that (1) no Event of Default, Mortgage Event of Default or any Mezzanine Event of Default has occurred and is continuing, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) Lender receives (y) at least ten (10) days prior written notice of any such voluntary Transfer and copies of the documents transferring such interest, or (z) written notice of any such involuntary Transfer and copies of the documents transferring such interest within thirty (30) days following such involuntary Transfer, and (4) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer;

     (C) the Transfer of any direct or indirect interest in any Transfer Restricted Party by inheritance, devise, bequest or operation of law upon the death of a natural person who owned such interest, provided that (1) such Transfer is to a non-minor member of the immediate family of the deceased holder of such interest or a trust established for the benefit of one or more

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members of the immediate family of the deceased holder of such interest, (2) (y) one or both Guarantors continue to Control, directly or indirectly, each Loan Party and HRHI, and (z) one or both Guarantors own, directly or indirectly, at least a fifty-one percent (51%) economic interest in each Loan Party and in HRHI, (3) such Transfer shall not result in a change of Control of the day-to-day operations of any of the Properties, (4) Lender receives written notice of such Transfer and copies of the documents transferring such interest not later than thirty (30) days following such Transfer, (5) the legal and financial structure of each Loan Party and the other Transfer Restricted Parties, and the single purpose nature and bankruptcy remoteness of each Loan Party and the other Transfer Restricted Parties, after such Transfer shall satisfy the applicable provisions of the Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents and/or the Second Mezzanine Loan Documents (including, without limitation, Section 4.1.30 hereof and/or Section 4.1.30 of the Mortgage Loan Agreement, the First Mezzanine Loan Agreement or the Second Mezzanine Loan Agreement, as applicable), (6) if after such Transfer any Person and its Affiliates would collectively own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (7) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Transfer; and

     (D) (1) the merger or consolidation of any Guarantor or any Constituent Member of any Guarantor with or into any other Person, (2) the sale of any Guarantor or substantially all of any Guarantor’s assets to any other Person, or (3) the issuance of new stock or limited partnership or membership interests in, and/or the Sale or Pledge of stock, limited partnership or membership interests in, any Guarantor or any Constituent Member thereof (any of the occurrences in the foregoing clauses (1), (2) or (3), a “Guarantor Transfer”); provided, that, in each of the foregoing instances, whether or not the applicable Guarantor or the applicable Constituent Member of a Guarantor is or is not a Publicly Traded Company, (I) after giving effect to such Guarantor Transfer, when viewed both individually and together with any prior Guarantor Transfers, (y) the Guarantors, collectively, shall continue to satisfy the Net Worth Requirements, and (z) at least one of the Guarantors shall be a Qualified Real Estate Guarantor, (II) except if the applicable Guarantor or the applicable Constituent Member of a Guarantor is a Publicly Traded Company, Lender receives at least ten (10) days prior written notice of any such Guarantor Transfer, (III) if after such Guarantor Transfer any Person and its Affiliates

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collectively would own more than forty-nine (49%) in the aggregate of the direct and/or indirect interests of any Loan Party and as of the Closing Date such Person and its Affiliates collectively owned forty-nine percent (49%) or less in the aggregate of the direct and/or indirect interests of any Loan Party, Lender shall have received, prior to such Guarantor Transfer, an Additional Insolvency Opinion reasonably satisfactory to Lender and the Rating Agencies and, if a Securitization has occurred, a confirmation in writing from the Rating Agencies to the effect that such Guarantor Transfer will not result in a re-qualification, reduction or withdrawal of the then current rating assigned to the Securities or any class thereof in any applicable Securitization, and (IV) Borrowers deliver, or cause Mortgage Borrowers to deliver, to Lender a copy of any consents or approvals required by any Governmental Authority, including specifically, but without limitation, any Gaming Authority, in connection with such Guarantor Transfer.

               (e) With respect to any Transfer permitted under this Section 5.2.10 or otherwise consented to by Lender, Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all fees and expenses incurred by Lender in connection with such Transfer, including, without limitation, the cost of any third party reports, reasonable legal fees and expenses, Rating Agency fees and expenses and required legal opinions.

               (f) Notwithstanding anything to the contrary set forth in this Agreement or in any of the other Loan Documents, Borrowers expressly acknowledge and agree, on behalf of themselves and the other Transfer Restricted Parties, that any Transfer or Guarantor Transfer stated to be permitted hereunder or thereunder shall only be permitted if it does not violate any Legal Requirements, including specifically, but without limitation, any Gaming Laws.

          5.2.11 Morton Indemnification and PWR/RWB Escrow Agreement. Borrowers shall not do, and Borrowers shall not permit any Mortgage Borrower or any Affiliate to do, any of the following, in each instance without the prior approval of Lender, which approval shall not be unreasonably withheld: (a) modify, amend, waive any right under, or terminate the Morton Indemnification or the PWR/RWB Escrow Agreement, other than any ministerial, non-monetary amendment or modification; (b) make any claim or otherwise exercise any rights or remedies under the Morton Indemnification or the PWR/RWB Escrow Agreement; or (c) other than the funds released on February 2, 2007 pursuant to the express terms of the PWR/RWB Escrow Agreement, cause any funds escrowed under the PWR/RWB Escrow Agreement to be used for any purpose other than the satisfaction of indemnification claims pursuant to the Morton Indemnification until such time as the Morton Indemnification shall expire by its terms. Borrowers shall cause Mortgage Borrowers to comply with the provisions of Section 5.2.11 of the Mortgage Loan Agreement.

          5.2.12 Distributions to Affiliates. Other than the fees and expense reimbursements payable to any Affiliated Manager pursuant to any Management Agreement reasonably approved by Lender, no Borrower shall, nor shall cause or permit any other Loan Party to, make any distributions to, or otherwise pay any dividends or make any payments to, any Restricted Party unless and until the Excess Cash Termination Conditions shall have

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occurred, and thereafter, only when no Event of Default, Mortgage Event of Default and/or any Mezzanine Event of Default shall have occurred and be continuing.

          5.2.13 Limitation on Securities Issuances.

               (a) Borrowers shall not cause any ownership interests in any other Loan Party to be issued other than those that have been issued as of the Closing Date nor shall Borrowers cause or permit any other Loan Party to enter into or grant any option, warrant or other agreement or right with respect to any ownership interest in such Loan Party or with respect to any income or profits of such Loan Party.

               (b) No Borrower shall issue any ownership interests or other securities other than those that have been issued as of the Closing Date nor shall any Borrower enter into or grant any option, warrant or other agreement or right with respect to any ownership interest in such Borrower.

          5.2.14 Distributions.

               (a) Any and all dividends, including capital dividends, stock or liquidating dividends, distributions of property, redemptions or other distributions made by any Mortgage Borrower on or in respect of any interests in such Mortgage Borrower, and any and all cash and other property received in payment of the principal of or in redemption of or in exchange for any such interests (collectively, the “Mortgage Distributions”), shall become part of the Collateral.

               (b) If any Mortgage Distributions shall be received by any Borrower or any Affiliate of any Borrower after the occurrence and during the continuance of an Event of Default, each Borrower shall hold, or shall cause the same to be held, in trust for the benefit of Lender. Any and all revenue derived from any Property paid directly by tenants, subtenants or occupants of such Property shall be held and applied in accordance with the terms and provisions of the Mortgage Loan Agreement.

          5.2.15 Refinancing or Prepayment of the Mortgage Loan or any Mezzanine Loan.

               (a) Borrowers or Mortgage Borrowers shall not be required to obtain the consent of Lender to refinance the Mortgage Loan, provided that the Loan shall have been (or shall simultaneously be) paid in full in accordance with the terms of this Agreement (including any Spread Maintenance Premiums and other amounts due and payable to Lender under the Loan Documents). Borrowers shall cause Mortgage Borrowers to obtain the prior written consent of Lender to enter into any other refinancing of the Mortgage Loan which consent shall not be unreasonably withheld, conditioned or delayed.

               (b) Borrowers or First Mezzanine Borrowers shall not be required to obtain the consent of Lender to refinance the First Mezzanine Loan, provided that the Loan shall have been (or shall simultaneously be) paid in full in accordance with the terms of this Agreement (including any Spread Maintenance Premiums and other amounts due and payable to Lender under the Loan Documents). Borrowers shall cause First Mezzanine Borrowers to obtain

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the prior written consent of Lender to enter into any other refinancing of the First Mezzanine Loan which consent shall not be unreasonably withheld, conditioned or delayed.

               (c) Borrowers or Second Mezzanine Borrowers shall not be required to obtain the consent of Lender to refinance the Second Mezzanine Loan, provided that the Loan shall have been (or shall simultaneously be) paid in full in accordance with the terms of this Agreement (including any Spread Maintenance Premiums and other amounts due and payable to Lender under the Loan Documents). Borrowers shall cause Second Mezzanine Borrowers to obtain the prior written consent of Lender to enter into any other refinancing of the Second Mezzanine Loan which consent shall not be unreasonably withheld, conditioned or delayed.

          5.2.16 Acquisition of the Mortgage Loan.

               (a) No Loan Party, Guarantor, or any Affiliate of any of them or any Person acting at any such Person’s request or direction, shall acquire or agree to acquire Mortgage Lender’s interest in the Mortgage Loan, or any portion thereof or any interest therein, or any direct or indirect ownership interest in the holder of the Mortgage Loan (other than any passive minority interest in the holder of the Mortgage Loan obtained by any Person), via purchase, transfer, exchange or otherwise, and any breach or attempted breach of this provision shall constitute an Event of Default hereunder. If, solely by operation of applicable subrogation law, Borrowers shall have failed to comply with the foregoing, then Borrowers: (i) shall immediately notify Lender of such failure; (ii) shall cause any and all such prohibited parties acquiring any interest in the Mortgage Loan Documents: (A) not to enforce the Mortgage Loan Documents; and (B) upon the request of Lender, to the extent any of such prohibited parties has or have the power or authority to do so, to promptly: (1) cancel the promissory note evidencing the Mortgage Loan, (2) reconvey and release the Lien securing the Mortgage Loan and any other collateral under the Mortgage Loan Documents, and (3) discontinue and terminate any enforcement proceeding(s) under the Mortgage Loan Documents.

               (b) Lender shall have the right at any time to acquire all or any portion of the Mortgage Loan or any interest in any holder of, or participant in, the Mortgage Loan without notice or consent of Borrowers or any other Loan Party, in which event Lender shall have and may exercise all rights of Mortgage Lender thereunder (to the extent of its interest), including the right (i) to declare that the Mortgage Loan is in default and (ii) to accelerate the Mortgage Loan indebtedness, in accordance with the terms thereof and (iii) to pursue all remedies against any obligor under the Mortgage Loan Documents.

          5.2.17 Other Limitations. Prior to the payment and performance in full of the Obligations, no Borrower shall, nor shall permit or cause any other Loan Party or any of its respective Affiliates to, without the prior written consent of Lender, which consent shall not be unreasonably withheld, give its consent or approval to any of the following actions or items:

               (a) any Mortgage Borrower, any First Mezzanine Borrower or any Second Mezzanine Borrower creating, incurring, assuming or suffering to exist any additional Liens on any portion of any Property, the First Mezzanine Collateral or the Second Mezzanine Collateral, as applicable, except for Permitted Encumbrances;

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               (b) any modification, amendment, consolidation, spreading, restatement, waiver or termination of any of the Mortgage Loan Documents or any of the Mezzanine Loan Documents;

               (c) any modification or amendment of any Approved Annual Budget;

               (d) any material change in the method of conduct of the business of any Borrower or any other Loan Party; or

               (e) the settlement of any claim against any Borrower or any other Loan Party, other than a fully insured third party.

ARTICLE VI.
INSURANCE; CASUALTY; CONDEMNATION; RESTORATION

     Section 6.1 Insurance. (a) Borrowers shall cause Mortgage Borrowers to obtain and maintain, or cause to be maintained, at all times during the term of the Loan the insurance required under Section 6.1 of the Mortgage Loan Agreement, including, without limitation, meeting all insurer requirements thereunder. In addition, Borrowers shall cause Mortgage Borrower to cause Lender to be named as an additional named insured under each of the insurance policies described in Section 6.1(a)(ii), (iii), (v), (vii), and (xii) of the Mortgage Loan Agreement, and Borrowers shall cause Mortgage Borrowers to cause Lender to be named as a named insured together with Mortgage Lender, as their interest may appear, under the insurance policies required under Section 6.1 (a)(i), (iv), (vi), (viii), (ix), (x) and (xi) of the Mortgage Loan Agreement. Borrowers shall cause Mortgage Borrowers to cause all insurance policies required under this Section 6.1 to provide for at least thirty (30) days prior notice to Lender in the event of policy cancellation or material changes. Not less than five (5) Business Days prior to the expiration dates of the Policies theretofore furnished to Lender pursuant to the terms hereof, certificates of insurance evidencing the Policies reasonably satisfactory to Lender and accompanied by evidence reasonably satisfactory to Lender of payment of the premiums due thereunder (the “Insurance Premiums”) shall be delivered by Borrowers to Lender; provided, however, that in the case of renewal Policies, Borrowers may furnish Lender with binders therefor to be followed by the original Policies when issued.

               (b) If at any time Lender is not in receipt of written evidence that all Policies are in full force and effect, Lender shall have the right, upon two (2) Business Days’ written notice to Borrowers, to take such reasonable action as Lender deems necessary to protect its interest in the Collateral, including, without limitation, the obtaining of such insurance coverage as Lender in its sole discretion deems appropriate. All premiums incurred by Lender in connection with such action or in obtaining such insurance and keeping it in effect shall be paid by Borrowers to Lender within ten (10) days after demand and, until paid, shall be secured by the Pledge Agreement and shall bear interest at the Default Rate from the date of demand.

               (c) Notwithstanding anything to the contrary set forth herein, proof of all property coverages required under Section 6.1(a) of the Mortgage Loan Agreement shall be on an Acord 28 Evidence of Property Form (2003/10 version) or on such other binding form as is then generally used or is otherwise reasonably acceptable to Lender.

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               (d) For purposes of this Agreement, Lender shall have the same approval rights over the insurance referred to above (including, without limitation, the insurers, deductibles and coverages thereunder, as well as the right to require other reasonable insurance pursuant to Section 6.1(a)(xii) of the Mortgage Loan Agreement) as are provided in favor of Mortgage Lender in the Mortgage Loan Agreement. All liability insurance provided for in the Mortgage Loan Agreement shall provide insurance with respect to the liabilities of each of the Loan Parties. The Policies delivered pursuant to the Mortgage Loan Agreement shall include endorsements of the type described in Section 6.1(e) of the Mortgage Loan Agreement, but pursuant to which Lender shall have the same rights as Mortgage Lender as referred to in such Section 6.1(e).

               (e) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, the provisions of Section 6.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety.

     Section 6.2 Casualty. If any Property shall be damaged or destroyed, in whole or in part, by fire or other casualty (a “Casualty”), Borrowers shall cause Mortgage Borrowers to give prompt notice of such damage to Lender and shall cause Mortgage Borrowers to promptly commence and diligently prosecute the completion of the Restoration so that such Property resembles, as nearly as possible, the condition such Property was in immediately prior to such Casualty, with such alterations as may be reasonably approved by Lender (to the extent such alterations are of a type that would require Lender’s approval under Section 5.1.21 hereof) and otherwise in accordance with Section 6.4 of the Mortgage Loan Agreement, provided, that if (A) Mortgage Lender is obligated to make Net Proceeds available to Mortgage Borrowers for purposes of Restoration in accordance with Section 6.4 of the Mortgage Loan Agreement, (B) Mortgage Lender has received such Net Proceeds, and (C) Mortgage Lender has not made such Net Proceeds available to Mortgage Borrowers, then Borrowers shall not be required to cause Mortgage Borrowers to repair and restore such Property unless and until such Net Proceeds are made available to Mortgage Borrowers. It is expressly understood, however, that Mortgage Borrowers shall not be obligated to restore such Property to the precise condition of such Property prior to such Casualty provided such Property is restored, to the extent practicable, to be of at least equal value and of substantially the same character as prior to the Casualty. Borrowers shall pay, or shall cause Mortgage Borrowers to pay, all costs of such Restoration whether or not such costs are covered by insurance. Lender may, but shall not be obligated to make proof of loss if not made promptly by any Borrower or any Mortgage Borrower. In addition, Lender may participate in any settlement discussions with any insurance companies (and shall approve any final settlement) with respect to any Casualty in which the Net Proceeds or the costs of completing the Restoration are equal to or greater than the Restoration Threshold and the applicable Borrower shall, or shall cause the applicable Mortgage Borrower to, deliver to Lender all instruments reasonably required by Lender to permit such participation. In the event of a Casualty in which the Net Proceeds and the costs of completing the Restoration are each less than the Restoration Threshold, Borrowers may settle and adjust such claim without Lender’s consent or participation.

     Section 6.3 Condemnation. Borrowers shall promptly give Lender notice of the actual or threatened commencement of any proceeding for the Condemnation of any Property

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or any part thereof and shall cause Mortgage Borrowers to deliver to Lender copies of any and all papers served in connection with such proceedings. Lender may participate in any such proceedings with respect to any Condemnation in which Borrowers’ reasonable estimate (based on any statement of value submitted to the condemning authority or any other reasonable evidence in Lender’s reasonable judgment) of the Net Proceeds or the costs of completing the Restoration are equal to or greater than the Restoration Threshold, and the applicable Borrower shall, or shall cause the applicable Mortgage Borrower to, from time to time deliver to Lender all instruments reasonably requested by it to permit such participation. Borrowers shall, or shall cause Mortgage Borrowers to, at their expense, diligently prosecute any such proceedings, and shall, to the extent required hereunder, consult with Lender, its attorneys and experts, and cooperate with them in the carrying on or defense of any such proceedings. Notwithstanding any taking by any public or quasi-public authority through Condemnation or otherwise (including, but not limited to, any transfer made in lieu of or in anticipation of the exercise of such taking), Borrowers shall continue to pay the Debt at the time and in the manner provided for its payment in the Note and in this Agreement and the Debt shall not be reduced until any Award shall have been actually received and applied by Lender, after the deduction of expenses of collection, to the reduction or discharge of the Debt. Lender shall not be limited to the interest paid on the Award by the condemning authority but shall be entitled to receive out of the Award interest at the rate or rates provided herein or in the Note. If any Property or any portion thereof is taken by a condemning authority, Borrowers shall, or shall cause Mortgage Borrowers to, promptly commence and diligently prosecute the Restoration of the applicable Property and otherwise comply with the provisions of Section 6.4 of the Mortgage Loan Agreement, provided, that if (A) Mortgage Lender is obligated to make Net Proceeds available to Mortgage Borrowers for purposes of Restoration in accordance with Section 6.4 of the Mortgage Loan Agreement, (B) Mortgage Lender has received such Net Proceeds, and (C) Mortgage Lender has not made such Net Proceeds available to Mortgage Borrowers, then Mortgage Borrowers shall not be obligated to repair and restore such Property unless and until such Net Proceeds are made available to Mortgage Borrowers. If such Property is sold, through foreclosure or otherwise, prior to the receipt by Lender of the Award, Lender shall have the right, whether or not a deficiency judgment on the Note shall have been sought, recovered or denied, to receive the Award, or a portion thereof sufficient to pay the Debt.

     Section 6.4 Restoration.

               (a) Borrowers shall, or shall cause Mortgage Borrowers to, deliver to Lender copies of all reports, plans, specifications, documents and other materials that are delivered to Mortgage Lender under Section 6.4 of the Mortgage Loan Agreement in connection with a Restoration of any Property after a Casualty or Condemnation. If any insurance proceeds or condemnation awards are to be disbursed by Mortgage Lender for Restoration, Borrowers shall deliver or cause to be delivered to Lender copies of all written correspondence delivered to and received from Mortgage Lender that relates to the restoration and release of the insurance proceeds or condemnation awards.

               (b) Notwithstanding any provision in this Agreement to the contrary, all insurance proceeds and condemnation awards will be made available to Mortgage Borrowers in accordance with the Mortgage Loan Agreement. In the event the Mortgage Loan has been

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paid in full and Lender receives any insurance proceeds or condemnation award, Lender shall either apply such proceeds to the Debt or for the Restoration of any Property in accordance with the same terms and conditions contained in Section 6.4 of the Mortgage Loan Agreement.

               (c) Upon repayment in full of the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan, if the Loan or any portion thereof is then outstanding, the provisions of Section 6.4 of the Mortgage Loan Agreement and all related definitions shall be incorporated into this Agreement in their entirety.

     Section 6.5 Rights of Lender. For purposes of this Article VI, Borrowers shall obtain the approval of Lender for each matter requiring the approval of Mortgage Lender under the provisions of Sections 6.4 of the Mortgage Loan Agreement, with each reference in any such provisions to the “Loan” to include the Mortgage Loan and the Loan, and the reference in any such provisions to the “Maturity Date” to mean the Maturity Date, as defined herein. If (a) Mortgage Lender does not require the deposit by Mortgage Borrowers of the “Net Proceeds Deficiency” pursuant to Section 6.4(c)(vi) of the Mortgage Loan Agreement, (b) First Mezzanine Lender does not require the deposit by First Mezzanine Borrowers of the “Net Proceeds Deficiency” pursuant to Section 6.5 of the First Mezzanine Loan Agreement, or (c) Second Mezzanine Lender does not require the deposit by Second Mezzanine Borrowers of the “Net Proceeds Deficiency” pursuant to Section 6.5 of the Second Mezzanine Loan Agreement, Lender shall have the right to demand that Borrowers make a deposit of said “Net Proceeds Deficiency” in accordance with the terms of such Section (as if each reference therein to “Borrowers” and “Lender” referred to Borrowers and Lender, respectively).

ARTICLE VII.
RESERVE FUNDS

     Section 7.1 Required Repair Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.1 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Required Repair Fund and the Required Repair Account pursuant to the terms of Section 7.1 of the Mortgage Loan Agreement, (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Required Repair Fund and the Required Repair Account pursuant to the terms of Section 7.1 of the First Mezzanine Loan Agreement and (C) Second Mezzanine Lender waives the requirements of Second Mezzanine Borrowers to maintain the Required Repair Fund and the Required Repair Account pursuant to the terms of Section 7.1 of the Second Mezzanine Loan Agreement; or (ii) the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Required Repair Fund and the Required Repair Account in Section 7.1 of the Mortgage Loan Agreement and the provisions of Section 7.1 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to

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“Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.2 Tax and Insurance Escrow Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.2 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the Mortgage Loan Agreement, (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the First Mezzanine Loan Agreement and (C) Second Mezzanine Lender waives the requirements of Second Mezzanine Borrowers to maintain the Tax and Insurance Escrow Fund pursuant to the terms of Section 7.2 of the Second Mezzanine Loan Agreement; or (ii) the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Tax and Insurance Escrow Fund in Section 7.2 of the Mortgage Loan Agreement and the provisions of Section 7.2 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.3 Replacement Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.3 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Replacement Reserve Fund and the Replacement Reserve Account pursuant to the terms of Section 7.3 of the Mortgage Loan Agreement, (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Replacement Reserve Fund and the Replacement Reserve Account pursuant to the terms of Section 7.3 of the First Mezzanine Loan Agreement and (C) Second Mezzanine Lender waives the requirements of Second Mezzanine Borrowers to maintain the Replacement Reserve Fund and the Replacement Reserve Account pursuant to the terms of Section 7.3 of the Second Mezzanine Loan Agreement; or (ii) the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Replacement Reserve Fund and the Replacement Reserve Account in Section 7.3 of the Mortgage Loan Agreement and the provisions of Section 7.3 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

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     Section 7.4 Interest Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.4 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Interest Reserve Fund pursuant to the terms of Section 7.4 of the Mortgage Loan Agreement, (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Interest Reserve Fund pursuant to the terms of Section 7.4 of the First Mezzanine Loan Agreement and (C) Second Mezzanine Lender waives the requirements of Second Mezzanine Borrowers to maintain the Interest Reserve Fund pursuant to the terms of Section 7.4 of the Second Mezzanine Loan Agreement; or (ii) the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Interest Reserve Fund in Section 7.4 of the Mortgage Loan Agreement and the provisions of Section 7.4 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.5 Initial Renovation Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.5 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account pursuant to the terms of Section 7.5 of the Mortgage Loan Agreement, (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account pursuant to the terms of Section 7.5 of the First Mezzanine Loan Agreement and (C) Second Mezzanine Lender waives the requirements of Second Mezzanine Borrowers to maintain the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account pursuant to the terms of Section 7.5 of the Second Mezzanine Loan Agreement; or (ii) the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Initial Renovation Reserve Fund and the Initial Renovation Reserve Account in Section 7.5 of the Mortgage Loan Agreement and the provisions of Section 7.5 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.6 General Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.6 of the Mortgage Loan Agreement.

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               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the General Reserve Fund and the General Reserve Account pursuant to the terms of Section 7.6 of the Mortgage Loan Agreement, (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the General Reserve Fund and the General Reserve Account pursuant to the terms of Section 7.6 of the First Mezzanine Loan Agreement and (C) Second Mezzanine Lender waives the requirements of Second Mezzanine Borrowers to maintain the General Reserve Fund and the General Reserve Account pursuant to the terms of Section 7.6 of the Second Mezzanine Loan Agreement; or (ii) the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the General Reserve Fund and the General Reserve Account in Section 7.6 of the Mortgage Loan Agreement and the provisions of Section 7.6 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.7 Construction Loan Reserve Fund.

               (a) Borrowers shall cause Mortgage Borrowers to comply with all of the terms and conditions set forth in Section 7.7 of the Mortgage Loan Agreement.

               (b) In the event (i)(A) Mortgage Lender waives the requirements of Mortgage Borrowers to maintain the Construction Loan Reserve Fund and the Construction Loan Reserve Account pursuant to the terms of Section 7.7 of the Mortgage Loan Agreement, (B) First Mezzanine Lender waives the requirements of First Mezzanine Borrowers to maintain the Construction Loan Reserve Fund and the Construction Loan Reserve Account pursuant to the terms of Section 7.7 of the First Mezzanine Loan Agreement and (C) Second Mezzanine Lender waives the requirements of Second Mezzanine Borrowers to maintain the Construction Loan Reserve Fund and the Construction Loan Reserve Account pursuant to the terms of Section 7.7 of the Second Mezzanine Loan Agreement; or (ii) the Mortgage Loan, the First Mezzanine Loan and the Second Mezzanine Loan have been repaid in full (without a prepayment of the Loan in full), Lender shall have the right to require Borrowers to establish and maintain an escrow that would operate in the same manner as the Construction Loan Reserve Fund and the Construction Loan Reserve Account in Section 7.7 of the Mortgage Loan Agreement and the provisions of Section 7.7 of the Mortgage Loan Agreement and all related definitions shall be incorporated herein by reference; provided, however, that all references to “Borrowers,” “Lender” and “Event of Default” therein shall be deemed references to Borrowers, Lender and Event of Default as defined herein.

     Section 7.8 Reserve Funds, Generally.

               (a) Borrowers hereby grant to Lender a first-priority perfected security interest in each of the Reserve Funds held by Lender and any and all monies now or hereafter deposited in each Reserve Fund as additional security for payment of the Debt. Until expended or applied in accordance herewith, the Reserve Funds shall constitute additional security for the Debt.

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               (b) Upon the occurrence and during the continuance of an Event of Default, Lender may, in addition to any and all other rights and remedies available to Lender, apply any sums then present in any or all of the Reserve Funds to the reduction of the Debt (in such order, proportion and priority as Lender may determine in its sole discretion), until the Debt is paid in full, with any amounts remaining being disbursed to Borrowers.

               (c) Any amount remaining in any of the Reserve Funds after the Obligations have been satisfied shall be released to Borrowers. The Reserve Funds shall not constitute trust funds and may be commingled with other monies held by Lender.

               (d) Except to the extent provided in the Mezzanine Loan Documents, Borrowers shall not, without obtaining the prior consent of Lender, further pledge, assign or grant any security interest in any Reserve Fund or the monies deposited therein or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto.

               (e) The Reserve Funds shall be held in an Eligible Account in Permitted Investments pursuant to the Cash Management Agreement. All interest or other earnings on a Reserve Fund (with the exception of the Tax and Insurance Escrow Fund) shall be added to and become a part of such Reserve Fund and shall be disbursed in the same manner as other monies deposited in such Reserve Fund, except that all interest or other earnings on the Tax and Insurance Escrow Fund shall be retained by Lender. Borrowers shall have the right to direct Lender to invest sums on deposit in the Eligible Account in Permitted Investments provided (i) such investments are then regularly offered by Lender for accounts of this size, category and type, (ii) such investments are permitted by applicable Legal Requirements, (iii) the maturity date of the Permitted Investment is not later than the date on which the applicable Reserve Fund is required for payment of an obligation for which such Reserve Fund was created, and (iv) no Event of Default shall have occurred and be continuing. Borrowers shall be responsible for payment of any federal, state or local income or other tax applicable to the interest or income earned on the Reserve Funds (with the exception of the Tax and Insurance Escrow Fund). No other investments of the sums on deposit in the Reserve Funds shall be permitted except as set forth in this Section 7.8. Borrowers shall bear all reasonable costs associated with the investment of the sums in the account in Permitted Investments. Such costs shall be deducted from the income or earnings on such investment, if any, and to the extent such income or earnings shall not be sufficient to pay such costs, such costs shall be paid by Borrowers promptly on demand by Lender. Lender shall have no liability for the rate of return earned or losses incurred on the investment of the sums in Permitted Investments.

               (f) Borrowers, jointly and severally, shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, third party claims, demands, liabilities, actual losses, actual damages (excluding lost profits, diminution in value and other consequential damages), obligations and reasonable costs and expenses (including litigation costs and reasonable attorneys’ fees and expenses) arising from or in any way connected with the Reserve Funds held by Lender or the performance of the obligations for which the Reserve Funds were established, excluding matters arising from Lender’s or its agents’ fraud, willful misconduct, illegal acts or gross negligence. Borrowers shall assign to Lender all rights and claims any Borrower may have against all Persons supplying labor, materials or other services

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which are to be paid from or secured by the Reserve Funds; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured.

     Section 7.9 Transfer of Mortgage Reserve Funds. If Mortgage Lender waives any reserves or escrow accounts required in accordance with the terms of the Mortgage Loan Agreement, which reserves or escrow accounts are also required in accordance with the terms of this Article VII, or if the Mortgage Loan is paid off in full (without a prepayment of the Loan in full), then Borrowers shall cause any amounts that had been, or would have been, deposited into any reserves or escrow accounts in accordance with the terms of the Mortgage Loan Agreement to be deposited or transferred to Lender in accordance with the terms of this Article VII (and Borrowers shall enter into a cash management and lockbox agreement for the benefit of Lender substantially similar to the arrangement entered into between Mortgage Borrowers and Mortgage Lender at the time of the closing of the Mortgage Loan).

ARTICLE VIII.
DEFAULTS

     Section 8.1 Event of Default. (a)  Each of the following events shall constitute an event of default hereunder (an “Event of Default”):

     (i) if (A) the Debt is not paid in full on the Maturity Date, (B) any Monthly Interest Payment or any required monthly deposit to any Reserve Fund is not paid in full on or before the related Payment Date, or (C) any other portion of the Debt is not paid within three (3) Business Days following notice to Borrowers that the same is due and payable;

     (ii) if any of the Taxes or Other Charges are not paid prior to the date upon which any interest or late charges shall begin to accrue thereon, subject to Section 7.2 of the Mortgage Loan Agreement or Section 7.2 hereof, as applicable;

     (iii) if the Policies are not kept in full force and effect;

     (iv) if any Borrower Transfers or otherwise encumbers any portion of the Collateral or any interest therein, or if any Mortgage Borrower Transfers or otherwise encumbers any portion of any Property or any interest therein or the IP or any portion thereof, or any direct or indirect interest in any Transfer Restricted Party is Transferred, in each instance, in violation of the provisions of this Agreement and not otherwise consented to by Lender;

     (v) if any representation or warranty made by any Borrower herein or in any other Loan Document, or in any report, certificate, financial statement or other instrument, agreement or document furnished to Lender by or on behalf of any Borrower or any Restricted Party shall have been false or misleading in any material respect as of the date the representation or warranty was made, provided, however, if such representation or warranty is susceptible of being cured, and Lender has not theretofore materially adversely relied thereon, Borrowers shall have the right to cure such representation or warranty within ten (10) Business Days of notice thereof;

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     (vi) if any Loan Party, HRHI or any Guarantor shall make an assignment for the benefit of any creditor (other than Lender);

     (vii) if a receiver, liquidator or trustee shall be appointed for any Loan Party, HRHI or any Guarantor, or if any Loan Party, HRHI or any Guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law, or any similar federal or state law, shall be filed by or against, consented to, or acquiesced in by, any Loan Party, HRHI or any Guarantor, or if any proceeding for the dissolution or liquidation of any Loan Party, HRHI or any Guarantor shall be instituted; provided, however, if such appointment, adjudication, petition or proceeding was involuntary and not consented to by any Loan Party, HRHI or any Guarantor, upon the same not being discharged, stayed or dismissed within ninety (90) days, and provided that such appointment was not initiated by Lender;

     (viii) if any Borrower attempts to assign its rights under this Agreement or any of the other Loan Documents or any interest herein or therein in contravention of the Loan Documents;

     (ix) if any Borrower breaches any of its respective negative covenants contained in Section 5.2 hereof or any covenant contained in Section 4.1.30 or Section 5.1.11 hereof, provided, however, that, unless otherwise addressed in any other clause of this Section 8.1(a), a breach of any covenant contained in Section 4.1.30, Section 5.1.11 or Section 5.2 hereof shall not constitute an Event of Default if (A) such breach is inadvertent and non-recurring, (B) if such breach is curable, Borrowers shall promptly cure such breach within thirty (30) days after notice thereof from Lender, and (C) with respect to a material breach of any material covenant contained in Section 4.1.30 hereof, within fifteen (15) Business Days of the request of Lender, Borrowers deliver to Lender an Additional Insolvency Opinion, or a modification of the Insolvency Opinion, to the effect that such breach shall not in any way impair, negate or amend the opinions rendered in the Insolvency Opinion, which opinion or modification and the counsel delivering such opinion or modification shall be acceptable to Lender in its reasonable discretion;

     (x) with respect to any term, covenant or provision set forth herein which specifically contains a notice requirement or grace period, if any Borrower shall be in default under such term, covenant or condition after the giving of such notice or the expiration of such grace period;

     (xi) if any of the assumptions contained in the Insolvency Opinion delivered to Lender in connection with the Loan, or in any Additional Insolvency Opinion delivered subsequent to the closing of the Loan, is or shall become untrue in any material respect;

     (xii) if a material default by any Mortgage Borrower has occurred and continues beyond any applicable cure period under any Management Agreement

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     (or any Replacement Management Agreement) and as a result of such default the Manager thereunder terminates or cancels such Management Agreement (or any Replacement Management Agreement);

     (xiii) if a material default by Hotel/Casino Borrower has occurred and continues beyond any applicable cure period under the Liquor Management Agreement (or any Replacement Liquor Management Agreement) and as a result of such default the Liquor Manager thereunder terminates or cancels such Liquor Management Agreement (or any Replacement Liquor Management Agreement);

     (xiv) if any Borrower or any other Loan Party fails to comply in any material respect with the covenants as to Prescribed Laws set forth in Section 5.1.1 hereof and such failure to comply continues after ten (10) Business Days notice thereof;

     (xv) except as otherwise contemplated by the Loan Documents, if Hotel/Casino Borrower ceases to do business as a hotel and casino at a standard at least equal to Comparable Hotel/Casinos, including, without limitation, comparable food and beverage outlets and other amenities, (other than temporary cessation in connection with any diligent Restoration of the Hotel/Casino Property following a Casualty or Condemnation) and such failure continues after thirty (30) days notice from Lender thereof; provided, however, that if any such failure is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and provided, further, that Borrowers shall have caused Mortgage Borrowers to commence to cure such failure within such thirty (30) day period and shall thereafter diligently and expeditiously proceed to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Mortgage Borrowers in the exercise of due diligence to cure such Default, such additional period not to exceed sixty (60) days, subject to Excusable Delay;

     (xvi) if (A) there shall occur any default by HRHI or Hotel/Casino Borrower under the HRHI Lease in the observance or performance of any term, covenant or condition on its part to be observed or performed and such failure shall continue beyond the expiration of all applicable notice and cure periods under the HRHI Lease, (B) if, without Lender’s prior written consent, the HRHI Lease shall be terminated, changed, modified or amended, other than ministerial non-monetary amendments or modifications, or (C) if, without Lender’s prior written consent, HRHI shall hold over at the expiration or earlier termination of the HRHI Lease;

     (xvii) if (A) there shall occur any default by HRHI under the Gaming Sublease in the observance or performance of any term, covenant or condition on the part of HRHI to be observed or performed and such failure shall continue beyond the expiration of all applicable notice and cure periods under the Gaming Sublease, (B) any event shall occur which would cause the Gaming Sublease to terminate without notice or action by the Gaming Operator or which would entitle the Gaming Operator to terminate the Gaming Sublease by giving notice to

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HRHI, (C) if HRHI shall waive, excuse, condone or in any way release or discharge the Gaming Operator of or from any of the Gaming Operator’s material obligations, covenants and/or conditions under the Gaming Sublease without the prior written consent of Lender, (D) if, without Lender’s prior written consent, HRHI shall terminate (or consent to or approve any such termination), change, modify or amend the Gaming Sublease, other than ministerial non-monetary amendments or modifications, (E) if HRHI shall fail to provide Gaming Employees as and to the extent required pursuant to Paragraph 7 of the HRHI Gaming Agreement, (F) if HRHI shall, without the consent of Mortgage Lender as provided in the HRHI Gaming Agreement, consent to or approve any matter requiring Mortgage Lender’s consent thereunder (other than a termination), in the event that either (1) Mortgage Lender has been materially damaged by such consent or approval or is reasonably likely to be materially damaged by such consent or approval with the further passage of time, or (2) HRHI is unable to rescind or void such consent or approval within thirty (30) days after notice from Mortgage Lender of its objection thereto, and/or (G) HRHI shall otherwise default under the Gaming Recognition Agreement or the HRHI Gaming Agreement and such default, if a monetary default, shall continue beyond the notice and cure period set forth in Section 8.1(a)(i)(C) hereof, or if a non-monetary default, shall continue beyond the notice and cure period set forth in Section 8.1(a)(xxiii) hereof;

     (xviii) if at any time during the term of the Loan, for any reason (including, without limitation, the revocation, suspension or surrender of any required Governmental Approval), (A) the Gaming Operating Condition is not satisfied, provided, however, that if the Gaming Operating Condition is not satisfied at any time on or after February 2, 2008 through and including May 9, 2008, so long as (I) Mortgage Borrowers are diligently pursuing the satisfaction of the Gaming Operating Condition, (II) all Debt Service is being satisfied as and when due, and (III) no other Event of Default has occurred and is continuing, the failure of the Gaming Operating Condition to be satisfied during such period shall not constitute an Event of Default unless the Gaming Operating Condition shall remain unsatisfied beyond May 9, 2008; or (B) any Gaming License or finding of suitability held by the Gaming Operator shall be materially adversely modified, denied, suspended, revoked or canceled or allowed to lapse or if a notice of a material violation is issued under any Gaming License by the issuing agency or other Governmental Authority having jurisdiction, or any proceeding is commenced by any Governmental Authority for the purpose of modifying in any materially adverse respect, suspending, revoking or canceling any Gaming License in any materially adverse respect, in each case, which is not stayed within sixty (60) days after commencement thereof and the result of which is reasonably likely to be Mortgage Borrowers’ inability to continue to conduct gaming operations at the Hotel/Casino Property; provided, however, that during the course of any of the foregoing, substantially the same gaming operations are permitted to continue to operate at the Hotel/Casino Property, or any Governmental Authority shall have appointed a conservator, supervisor or trustee with respect to the Casino Component or the Hotel/Casino Property;

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     (xix) if at any time during the term of the Loan, for any reason (including, without limitation, the revocation, suspension or surrender of any required Governmental Approval), the alcoholic beverage services at the Hotel/Casino Property (A) are not being managed by a Qualified Liquor Manager pursuant to the Liquor Management Agreement or a Replacement Liquor Management Agreement;

     (xx) if HRHI shall fail to provide liquor management services following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement;

     (xxi) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) hereof;

     (xxii) in the event that Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof shall ever become the Liquor Manager, if Gaming Borrower, such other Mortgage Borrower or such Affiliate thereof thereafter shall fail to provide liquor management services following an Event of Default or following the transfer of the Hotel/Casino Property to a Mortgage Lender Successor Owner as and to the extent required pursuant to Section 5.1.23(c) of the Mortgage Loan Agreement and Section 5.1.23(c) hereof;

     (xxiii) if any Borrower shall continue to be in Default under any of the other terms, covenants or conditions of this Agreement or any other Loan Document, in each instance, not specified in subsections (i) to (xxii) above, for ten (10) Business Days after notice to Borrowers from Lender, in the case of any Default which can be cured by the payment of a sum of money, or for thirty (30) days after notice from Lender in the case of any other Default; provided, however, that if any such non-monetary Default is susceptible of cure but cannot reasonably be cured within such thirty (30) day period, and provided further that Borrowers shall have commenced to cure such Default within such thirty (30) day period and thereafter diligently and expeditiously proceed to cure the same, such thirty (30) day period shall be extended for such time as is reasonably necessary for Borrowers in the exercise of due diligence to cure such Default, such additional period not to exceed ninety (90) days, subject to Excusable Delay;

     (xxiv) the occurrence of any event that is expressly specified to be an Event of Default in this Agreement or any other Loan Document;

     (xxv) if the Liens created pursuant to the Pledge Agreement or any other Loan Document shall cease to be a fully perfected enforceable first priority security interest effective under the Gaming Laws or if there shall be a default

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under the Pledge Agreement beyond any applicable notice and cure periods contained in the Pledge Agreement;

     (xxvi) if any other event shall occur or condition shall exist, if the effect of such event or condition is to accelerate the maturity of any portion of the Debt or to permit Lender to accelerate the maturity of all or any portion of the Debt;

     (xxvii) if a Mortgage Event of Default shall occur and be continuing;

     (xxviii) if a First Mezzanine Event of Default shall occur and be continuing; or

     (xxix) if a Second Mezzanine Event of Default shall occur and be continuing.

               (b) Upon the occurrence and during the continuance of an Event of Default (other than an Event of Default described in clauses (vi) or (vii) above) and at any time thereafter, in addition to any other rights or remedies available to it pursuant to this Agreement and the other Loan Documents or at law or in equity, to the extent permitted by applicable law, Lender may take such action, without notice or demand, that Lender deems advisable to protect and enforce its rights against Borrowers and in and to any Property and/or the IP and/or the Collateral, including, without limitation, declaring the Debt to be immediately due and payable, and Lender may enforce or avail itself of any or all rights or remedies provided in the Loan Documents against Borrowers, any Property and/or the IP and/or the Collateral, including, without limitation, all rights or remedies available at law or in equity; and upon any Event of Default described in clauses (vi) or (vii) above, the Debt and all Other Obligations of Borrowers hereunder and under the other Loan Documents shall, to the extent permitted by applicable law, immediately and automatically become due and payable, without notice or demand, and each Borrower hereby expressly waives any such notice or demand, anything contained herein or in any other Loan Document to the contrary notwithstanding.

     Section 8.2 Remedies.

               (a) Upon the occurrence and during the continuance of an Event of Default, subject to applicable Gaming Laws, all or any one or more of the rights, powers, privileges and other remedies available to Lender against Borrowers under this Agreement or any of the other Loan Documents executed and delivered by, or applicable to, Borrowers or at law or in equity may be exercised by Lender at any time and from time to time, whether or not all or any of the Debt shall be declared due and payable, and whether or not Lender shall have commenced any foreclosure proceeding or other action for the enforcement of its rights and remedies under any of the Loan Documents, in each case to the extent permitted by applicable law. Any such actions taken by Lender shall be cumulative and concurrent and may be pursued independently, singularly, successively, together or otherwise, at such time and in such order as Lender may determine in its sole discretion, to the fullest extent permitted by law, without impairing or otherwise affecting the other rights and remedies of Lender permitted by law, equity or contract or as set forth herein or in the other Loan Documents. Without limiting the generality of the foregoing, each Borrower agrees, to the extent permitted by applicable law, that if an

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Event of Default is continuing (i) Lender shall not be subject to any “one action” or “election of remedies” law or rule, and (ii) all liens and other rights, remedies or privileges provided to Lender shall remain in full force and effect until Lender has exhausted all of its remedies against the Collateral and the Pledge Agreement has been foreclosed, sold and/or otherwise realized upon in satisfaction of the Debt or the Debt has been paid in full.

               (b) During the continuance of an Event of Default, with respect to each Borrower and the Collateral, nothing contained herein or in any other Loan Document shall be construed as requiring Lender to resort to the Collateral or any particular portion of the Collateral for the satisfaction of any of the obligations in preference or priority to any other collateral, and Lender may seek satisfaction out of the Collateral or any part thereof, in its absolute discretion in respect of the Obligations. In addition, to the extent permitted by applicable law, Lender shall have the right from time to time to partially foreclose upon the Collateral under the Pledge Agreement in any manner and for any amounts secured by the Pledge Agreement then due and payable as determined by Lender in its sole discretion, including, without limitation, the following circumstances: (i) in the event Borrowers default beyond any applicable grace period in the payment of one or more scheduled payments of interest, Lender may foreclose upon the Collateral under the Pledge Agreement to recover such delinquent payments, and/or (ii) in the event Lender elects to accelerate less than the entire Outstanding Principal Balance, Lender may foreclose upon the Collateral under the Pledge Agreement to recover so much of the Outstanding Principal Balance as Lender may accelerate and such other sums secured by the Pledge Agreement as Lender may elect in its sole discretion. Notwithstanding one or more partial foreclosures, the Collateral and any other collateral shall remain subject to the Pledge Agreement to secure payment of sums secured by the Pledge Agreement and not previously recovered.

               (c) Subject to applicable Gaming Laws, Lender shall have the right, at Lender’s sole cost and expense except during the continuance of an Event of Default, in which event the same shall be at Borrowers’ sole cost and expense, from time to time to sever the Note and the other Loan Documents into one or more separate notes, pledges and other security documents (the “Severed Loan Documents”) in such denominations as Lender shall determine in its sole discretion for purposes of evidencing and enforcing its rights and remedies provided hereunder, provided that Borrowers’ liability or obligation shall not be increased by such severance. Borrowers shall execute and deliver to Lender from time to time, promptly after the request of Lender, a severance agreement and such other documents as Lender shall reasonably request in order to effect the severance described in the preceding sentence, all in form and substance reasonably satisfactory to Lender. Subject to applicable Gaming Laws, each Borrower hereby absolutely and irrevocably appoints Lender as its true and lawful attorney, coupled with an interest, in its name and stead to make and execute all documents necessary or desirable to effect the aforesaid severance, each Borrower ratifying all that its said attorney shall do by virtue thereof; provided, however, Lender shall not make or execute any such documents under such power until five (5) Business Days after notice has been given to Borrowers by Lender of Lender’s intent to exercise its rights under such power. Except as may be required in connection with a Securitization and expressly provided pursuant to Section 9.1 hereof, (i) Borrowers shall not be obligated to pay any costs or expenses incurred in connection with the preparation, execution, recording or filing of the Severed Loan Documents, and (ii) the Severed Loan Documents shall not contain any representations, warranties or covenants not contained in the

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Loan Documents (modified to reflect the current status of such representations and warranties) and any such representations and warranties contained in the Severed Loan Documents will be given by Borrowers only as of the Closing Date.

               (d) The rights, powers and remedies of Lender under this Agreement shall be cumulative and not exclusive of any other right, power or remedy which Lender may have against Borrowers pursuant to this Agreement or the other Loan Documents, or existing at law or in equity or otherwise. Lender’s rights, powers and remedies may be pursued singularly, concurrently or otherwise, at such time and in such order as Lender may determine in Lender’s sole discretion. No delay or omission to exercise any remedy, right or power accruing upon an Event of Default shall impair any such remedy, right or power or shall be construed as a waiver thereof, but any such remedy, right or power may be exercised from time to time and as often as may be deemed expedient. A waiver of one Default or Event of Default with respect to any Borrower shall not be construed to be a waiver of any subsequent Default or Event of Default by any Borrower or to impair any remedy, right or power consequent thereon.

               (e) To the extent permitted by applicable law, any amounts recovered from the Collateral or any other collateral for the Loan after an Event of Default may be applied by Lender toward the payment of any interest and/or principal of the Loan and/or any other amounts due under the Loan Documents in such order, priority and proportions as Lender in its sole discretion shall determine.

               (f) Upon the occurrence and during the continuance of an Event of Default, Lender may declare all unpaid principal of and accrued interest on the Note, together with all other sums payable under the Loan Documents, to be immediately due and payable, whereupon the same shall become and be immediately due and payable, anything in the Loan Documents to the contrary notwithstanding, and without presentation, protest or further demand or notice of any kind, all of which are expressly hereby waived by Borrowers to the extent permitted by applicable law.

     Section 8.3 Right to Cure Defaults. Upon the occurrence and during the continuance of any Event of Default, Lender may, but without any obligation to do so and without notice to or demand on Borrowers and without releasing Borrowers from any obligation hereunder, make any payment or do any act required of Borrowers hereunder in such manner and to such extent as Lender may deem necessary to protect the security hereof. Subject to the terms of the Mortgage Loan Agreement, Lender is authorized to enter upon any Property for such purposes, or appear in, defend, or bring any action or proceeding to protect its interest in the Properties for such purposes, and the cost and expense thereof (including reasonable attorneys’ fees to the extent permitted by law), with interest as provided in this Section 8.3, shall constitute a portion of the Debt and shall be due and payable to Lender upon demand. All such costs and expenses incurred by Lender in remedying such Event of Default or such failed payment or act or in appearing in, defending, or bringing any action or proceeding shall bear interest at the Default Rate, for the period after notice from Lender that such cost or expense was incurred to the date of payment to Lender. All such costs and expenses incurred by Lender together with interest thereon calculated at the Default Rate shall be deemed to constitute a portion of the Debt and shall be secured by the Pledge Agreement and enforced as a lien against the Collateral and shall be immediately due and payable upon demand by Lender therefor.

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ARTICLE IX.
SPECIAL PROVISIONS

     Section 9.1 Sale of Note and Securitization. (a) Borrowers acknowledge and agree that, at any time from and after the Closing Date, Lender may sell all or any portion of the Loan and the Loan Documents, or require Borrowers to restructure the Loan into multiple notes (which may include component notes and/or senior and junior notes) and/or issue one or more participations therein and/or syndicate the Loan, which restructuring may include the restructuring of a portion of the Loan to one or more of the foregoing or into one or more additional mezzanine loans to the direct and/or indirect owners of the equity interests in Borrowers as reasonably, mutually determined by Lender and Borrowers and that are direct or indirect subsidiaries of HR Holdings, secured by a pledge of such interests, or consummate one or more private or public securitizations of rated single- or multi-class securities (the “Securities”) secured by or evidencing ownership interests in all or any portion of the Loan and the Loan Documents or a pool of assets that include the Loan and the Loan Documents (such sales, participations and/or securitizations, collectively, a “Securitization”). At the request of Lender, and to the extent not already required to be provided by Borrowers under this Agreement, Borrowers shall use commercially reasonable good faith efforts to provide information not in the possession of Lender or which may be reasonably required by Lender in order to satisfy the market standards to which Lender customarily adheres or which may be reasonably required by prospective investors and/or the Rating Agencies in connection with any such Securitization, including, without limitation, to:

     (i) provide additional and/or updated Provided Information or other information with respect to the Properties, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral and/or the Collateral reasonably requested or reasonably required by Lender, prospective investors or the Rating Agencies, together with, if customary or if otherwise requested by any Rating Agency, appropriate verification and/or consents related to the Provided Information through letters of auditors or opinions of counsel of independent attorneys reasonably acceptable to Lender and the Rating Agencies;

     (ii) review descriptive materials for presentations to any or all of the Rating Agencies, and work with third-party service providers engaged to obtain, collect, and deliver information reasonably requested or reasonably required by Lender, prospective investors or the Rating Agencies;

     (iii) if required by any Rating Agency, (A) deliver updated opinions of counsel as to non-consolidation, due execution and enforceability with respect to the Properties, the IP, the Collateral, any Loan Party, HRHI, any Guarantor, any of their respective Affiliates and the Loan Documents, and (B) amend the Special Purpose Entity provisions of the organizational documents for each Loan Party, which counsel opinions and amendments to the organizational documents shall be reasonably satisfactory to Lender and the Rating Agencies;

     (iv) if required by any Rating Agency, use commercially reasonable efforts to deliver such additional tenant estoppel letters, subordination agreements and/or other

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agreements from parties to agreements that affect any of the Properties, the IP or the Collateral, which estoppel letters, subordination agreements and other agreements shall be reasonably satisfactory to Lender and the Rating Agencies;

     (v) provide, as of the closing date of the Securitization, updated representations and warranties made in the Loan Documents as may be reasonably requested by Lender or the Rating Agencies and consistent with the facts covered by such representations and warranties made in the Loan Documents to the extent they are true as of the closing of the Securitization;

     (vi) execute such amendments to the Loan Documents as may be reasonably requested by Lender or the Rating Agencies to effect such Securitization and/or deliver one or more new component notes to replace the original note or modify the original note to reflect multiple components of the Loan (and such new notes or modified note shall have the same initial weighted average coupon of the original note, but such new notes or modified note may change the interest rate of the Loan), and modify the Cash Management Agreement with respect to the newly created components such that the pricing and marketability of the Securities and the size of each class of Securities and the rating assigned to each such class by the Rating Agencies shall provide the most favorable rating levels and achieve the optimum rating levels for the Loan, provided, however, that (A) such new notes or modified note will not change the interest rate, the stated maturity or the amortization of principal set forth in the Note unless the varying interest rates shall have the same initial weighted average coupon of the original Note, (B) such amendments to the Loan Documents or the new notes or modified note will not modify or amend any other economic or material term of the Loan in a manner materially adverse to any Loan Party, HRHI or Guarantors or any of their respective Constituent Members, or (C) such amendments to the Loan Documents will not materially increase any Loan Party’s or Guarantors’ obligations and liabilities under the Loan Documents or materially decrease the rights of Borrowers under the Loan Documents;

     (vii) if requested by Lender, review any information regarding any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral, any Loan Party, any Mezzanine Borrower, HRHI, the Gaming Operator, any Manager, the Liquor Manager and/or the Loan which is contained in any preliminary or final private placement memorandum, prospectus, prospectus supplement (including any amendment or supplement to either thereof), or other disclosure document to be used by Lender or any affiliate thereof; and

     (viii) supply to Lender such documentation, financial statements and reports concerning any Loan Party, any Mezzanine Borrower, HRHI, any Guarantor, the Loan, any Property, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral and/or the Collateral in form and substance required in order to comply with any applicable securities laws.

               (b) Lender shall pay all reasonable third party costs and expenses (excluding fees and expenses of Borrower’s legal counsel) in excess of Twenty Thousand

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Dollars ($20,000) incurred by Borrowers in connection with Borrowers’ complying with requests made under this Section 9.1 and/or under Section 9.2 hereof, provided, however, the fees and expenses of Borrowers’ legal counsel and Borrowers’ administrative costs shall not be included in such amount and Borrowers shall remain at all times responsible for the fees and expenses of their legal counsel and their own administrative costs. In addition to the foregoing, Lender expressly acknowledges and agrees that Borrowers shall not be required to pay any Rating Agency surveillance charges.

               (c) Notwithstanding anything to the contrary contained in this Agreement, in the event of a Securitization that involves a participation or restructuring into one or more additional mezzanine loans, Borrowers shall not be required to deliver Rating Agency confirmations in accordance with the terms and conditions of this Agreement at any time that rated Securities are not outstanding.

               (d) In the event that Lender shall sell all or any portion of the Loan or any participation therein as permitted pursuant to Section 9.1(a) above, Borrowers acknowledge and agree that such sale or participation may include some of or the entire obligation to fund the Construction Holdback (the “Future Funding Obligation”). In furtherance of the foregoing, Borrowers hereby agree that Lender and/or any such assignee or participant may assign, transfer or sell all or any portion of its Future Funding Obligation and shall thereafter be relieved of such Future Funding Obligation, provided that such assignee at the time of assignment assumes such Future Funding Obligation in writing in a manner directly enforceable by, and reasonably acceptable to, Borrowers and a copy of such assumption is delivered to Borrowers. At such time as Lender has so transferred the entire Future Funding Obligation pursuant to this Section 9.1(d), the named Lender hereunder shall have no Future Funding Obligation hereunder.

     Section 9.2 Re-Dating. In connection with a Securitization or other sale of all or a portion of the Loan, Lender shall have the right to modify all operative dates (including, but not limited to, payment dates, interest period start dates and end dates, etc.) under the Loan Documents, by up to ten (10) days (such action and all related action is a “Re-Dating”) so long as such modification shall not have a materially adverse effect on Borrowers. Borrowers shall cooperate with Lender to implement any Re-Dating. If any Borrower fails to cooperate with Lender within ten (10) Business Days of written request by Lender, Lender is hereby appointed as each Borrower’s attorney-in-fact to execute any and all documents necessary to accomplish the Re-Dating, the foregoing power of attorney being coupled with an interest.

     Section 9.3 Securitization Indemnification. (a) Each Borrower understands that information provided to Lender by Borrowers and their agents, counsel and representatives may be included in Disclosure Documents in connection with the Securitization and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the “Securities Act”), or the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), and may be made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to a Securitization. In the event that the Disclosure Document is required to be revised prior to the sale of all Securities, Borrowers will cooperate with the holder of the Note in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects.

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               (b) Upon Lender’s reasonable request, Borrowers shall provide in connection with each of (i) a preliminary and a final private placement memorandum or (ii) a preliminary and final prospectus or prospectus supplement, as applicable, an agreement (A) certifying that Borrowers have examined such Disclosure Documents specified by Lender and that to each Borrower’s actual knowledge, each such Disclosure Document, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors, HRHI, the Properties, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, does not contain any untrue statement of a material fact or omit to state a material fact in each Borrower’s actual knowledge necessary in order to make the statements made, in the light of the circumstances under which they were made, not materially misleading, (B) jointly and severally indemnifying Lender, Credit Suisse (whether or not it is Lender), any Affiliate of Lender or Credit Suisse that has filed any registration statement relating to the Securitization or has acted as the sponsor or depositor in connection with the Securitization, any Affiliate of Lender or Credit Suisse that acts as an underwriter, placement agent or initial purchaser of Securities issued in the Securitization, any other co-underwriters, co-placement agents or co-initial purchasers of Securities issued in the Securitization, and each of their respective officers, directors, partners, employees, representatives, agents and Affiliates and each Person or entity who controls any such Person within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (collectively, the “Indemnified Persons”), for any out-of-pocket losses, third party claims, actual damages (but not lost revenues, diminution in value and other consequential damages) or liabilities (collectively, the “Liabilities”) to which any such Indemnified Person may become subject insofar as the Liabilities arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any such Disclosure Document specified by Lender for Borrowers’ review, as it relates to any Loan Party, any Loan Party’s Affiliates, Guarantors, HRHI, the Properties, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, known by any Borrower to be untrue or arise out of or are based upon the omission or alleged omission to state therein a material fact in any Borrower’s actual knowledge, required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and (C) agreeing to reimburse each Indemnified Person for any reasonable legal or other reasonable expenses reasonably incurred by such Indemnified Person in connection with investigating or defending the Liabilities; provided, however, that Borrowers will be liable in any such case under clauses (B) or (C) above only to the extent that any such Liabilities arise out of or are based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by Borrowers in connection with the preparation of any Disclosure Document(s) or in connection with the underwriting or closing of the Loan or in the ordinary course of the Loan, including, without limitation, financial statements of any Loan Party, operating statements and rent rolls with respect to any of the Properties. This indemnity agreement will be in addition to any liability which any Borrower may otherwise have. Moreover, the indemnification provided for in clauses (B) and (C) above shall be effective whether or not a separate indemnification agreement is provided.

               (c) In connection with Exchange Act Filings, Borrowers, jointly and severally, shall (i) indemnify the Indemnified Persons for Liabilities to which any such Indemnified Persons may become subject insofar as the Liabilities arise out of or are based upon

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any untrue statement or alleged untrue statement of any material fact in any Disclosure Documents specified by Lender for Borrowers’ review, as it relates to the Loan Parties, the Loan Parties’ Affiliates, Guarantors, HRHI, the Properties, the IP, the First Mezzanine Collateral, the Second Mezzanine Collateral, the Collateral, the Managers, the Liquor Manager, the Gaming Operator and/or the Loan, or the omission or alleged omission to state in any such Disclosure Document a material fact in any Loan Party’s actual knowledge, required to be stated in such Disclosure Document in order to make the statements in such Disclosure Document, in light of the circumstances under which they were made, not misleading, and (ii) reimburse each Indemnified Person for any reasonable legal or other expenses reasonably incurred by such Indemnified Person in connection with defending or investigating the Liabilities; provided, however, that Borrowers will be liable in any such case under clauses (i) or (ii) above only to the extent that any such Liabilities arise out of or are based upon any such untrue statement or omission made therein in reliance upon and in conformity with information furnished to Lender by Borrowers in connection with the preparation of any Disclosure Document(s) or in connection with the underwriting or closing of the Loan or in the ordinary course of the Loan, including, without limitation, financial statements of any Loan Party, operating statements and rent rolls with respect to any of the Properties.

               (d) Promptly after receipt by an Indemnified Person under this Section 9.3 of notice of the commencement of any action, such Indemnified Person will, if a claim in respect thereof is to be made against Borrowers under this Section 9.3, notify Borrowers in writing of the commencement thereof, but the omission to so notify Borrowers will not relieve any Borrower from any liability which any Borrower may have to any Indemnified Person hereunder except to the extent that such failure to notify causes material prejudice to any Borrower. In the event that any action is brought against any Indemnified Person, and it notifies Borrowers of the commencement thereof, Borrowers will be entitled to participate therein and, to the extent that they may elect by written notice delivered to such Indemnified Person promptly after receiving the aforesaid notice from such Indemnified Person, to assume the defense thereof with counsel reasonably satisfactory to such Indemnified Person. After notice from Borrowers to such Indemnified Person under this Section 9.3, such Indemnified Person shall pay for any legal or other expenses subsequently incurred by such Indemnified Person in connection with the defense thereof other than reasonable costs of investigation; provided, however, if the defendants in any such action include both the Indemnified Person and any Borrower and the Indemnified Person shall have reasonably concluded that there are any legal defenses available to it and/or other Indemnified Persons that are different from or additional to those available to Borrowers, the Indemnified Person(s) shall have the right to select separate counsel to assert such legal defenses and to otherwise participate in the defense of such action on behalf of such Indemnified Person(s) at the cost of Borrowers. Borrowers shall not be liable for the expenses of more than one separate counsel unless any Indemnified Person shall have reasonably concluded that there may be legal defenses available to it that are different from or additional to those available to another Indemnified Person.

               (e) Without the prior consent of Credit Suisse or Lender, as applicable (which consent shall not be unreasonably withheld), no Borrower shall settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder (whether or not any Indemnified Person is an actual or potential party to such claim, action, suit or proceeding)

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unless Borrowers shall have given Credit Suisse or Lender, as applicable, reasonable prior notice thereof and shall have obtained an unconditional release of each Indemnified Person hereunder from all liability arising out of such claim, action, suit or proceeding. As long as Borrowers have complied with their obligations to defend and indemnify hereunder, Borrowers shall not be liable for any settlement made by any Indemnified Person without the consent of Borrowers (which consent shall not be unreasonably withheld).

               (f) Borrowers agree that if any indemnification or reimbursement sought pursuant to this Section 9.3 is finally judicially determined to be unavailable for any reason or is insufficient to hold any Indemnified Person harmless (with respect only to the Liabilities that are the subject of this Section 9.3), then Borrowers, on the one hand, and such Indemnified Person, on the other hand, shall contribute to the Liabilities for which such indemnification or reimbursement is held unavailable or is insufficient: (i) in such proportion as is appropriate to reflect the relative benefits to Borrowers, on the one hand, and such Indemnified Person, on the other hand, from the transactions to which such indemnification or reimbursement relates; or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) but also the relative faults of Borrowers, on the one hand, and all Indemnified Persons, on the other hand, as well as any other equitable considerations. In determining the amount of contribution to which the respective parties are entitled, the following factors shall be considered: (A) Lender’s and Borrowers’ relative knowledge and access to information concerning the matter with respect to which the claim was asserted; and (B) the opportunity to correct and prevent any statement or omission. Notwithstanding the provisions of this Section 9.3, no Person found liable for a fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any other Person who is not also found liable for such fraudulent misrepresentation.

               (g) Borrowers agree that the indemnification, contribution and reimbursement obligations set forth in this Section 9.3 shall apply whether or not any Indemnified Person is a formal party to any lawsuits, claims or other proceedings. Borrowers further agree that the Indemnified Persons are intended third party beneficiaries under this Section 9.3.

               (h) Subject to the provisions of Section 9.4(a) hereof, the liabilities and obligations of Borrowers and Lender under this Section 9.3 shall survive the termination of this Agreement and the satisfaction and discharge of the Debt.

     Section 9.4 Exculpation. (a)  Subject to the qualifications below, Lender shall not enforce the liability and obligation of Borrowers to perform and observe the obligations contained in the Note, this Agreement, the Pledge Agreement or the other Loan Documents by any action or proceeding wherein a money judgment shall be sought against any Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon its interest under the Note, this Agreement, the Pledge Agreement and the other Loan Documents, or in the Collateral given to Lender pursuant to the Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against any Borrower only to the extent of such Borrower’s interest in the Collateral, and Lender,

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by accepting the Note, this Agreement, the Pledge Agreement and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against any Borrower in any such action or proceeding under, or by reason of, or in connection with, the Note, this Agreement, the Pledge Agreement or the other Loan Documents. The provisions of this Section 9.4(a) shall not, however, (A) constitute a waiver, release or impairment of any obligation evidenced or secured by any of the Loan Documents; (B) impair the right of Lender to name any Borrower as a party defendant in any action or suit for foreclosure and sale under the Pledge Agreement; (C) affect the validity or enforceability of or any guaranty made in connection with the Loan, including, without limitation, the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty, the Construction Completion Guaranty and the HRHI Guaranty, or any of the rights and remedies of Lender thereunder; (D) impair the right of Lender to obtain the appointment of a receiver; (E) constitute a prohibition against Lender seeking a deficiency judgment against any Borrower in order to fully realize the security granted by the Pledge Agreement or commencing any other appropriate action or proceeding in order for Lender to exercise its remedies against the Collateral; or (F) constitute a waiver of the right of Lender to enforce the liability and obligation of any Borrower, by money judgment or otherwise, to the extent of any actual loss, damage (excluding any lost revenue, diminution of value and other consequential damages), reasonable cost, reasonable expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

     (i) fraud or intentional misrepresentation by any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees in connection with the Loan;

     (ii) physical waste to any Property arising from the intentional misconduct or gross negligence of any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees and/or any removal of any asset forming a part of any Property in violation of this Agreement or the other Loan Documents;

     (iii) Intentionally Omitted;

     (iv) the misappropriation or conversion by any Loan Party, by any Person Controlled by any Loan Party, including, without limitation, any Affiliated Manager, a Liquor Manager who is an Affiliate of any Loan Party or a Gaming Operator who is an Affiliate of any Loan Party, by any agent of any Loan Party, or by any other Person with whom any Loan Party shall collude or cooperate, of (A) any Insurance Proceeds paid by reason of any Casualty, to the extent so misappropriated or converted; (B) any Awards received in connection with a Condemnation, to the extent so misappropriated or converted; (C) any Rents or other Gross Income from Operations not delivered to Lender following and during the continuance of an Event of Default and not otherwise used to pay actual, customary Operating Expenses reflected on the Approved Annual Budget then in effect, including, without limitation, (I) any income, proceeds or other amounts received by any Loan Party under the Gaming Sublease, and/or (II) without duplication of the foregoing clause (I), any income, proceeds or revenue

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generated from gaming activities at any Property, in each of the foregoing instances, to the extent so misappropriated or converted; (D) any Rents paid more than one (1) month in advance in violation of this Agreement or the other Loan Documents, to the extent so misappropriated or converted; and/or (E) any security deposits, to the extent so misappropriated or converted;

     (v) the failure of any Loan Party to pay (or to deposit into the Mortgage Reserve Funds or the Reserve Funds, if applicable, amounts sufficient to pay) all Taxes and all other costs giving rise to any Lien on any portion of the Collateral or any Property or the IP with priority over or equal to the Lien of the Loan Documents in violation of this Agreement or the other Loan Documents, to the extent that there is sufficient Gross Income from Operations to make such payments (or deposits, as applicable);

     (vi) if any Loan Party fails to maintain its status as a Special Purpose Entity as required pursuant to the terms hereof;

     (vii) if any Loan Party fails to obtain Lender’s consent to any subordinate financing, mortgage or other voluntary Lien encumbering the Collateral, any Property or the IP other than Permitted Encumbrances and Permitted IP Encumbrances;

     (viii) the failure to maintain insurance coverage under blanket insurance policies to the extent permitted under this Agreement;

     (ix) if any of the events set forth in clauses (a), (b) or (c) of Section 5.2.11 hereof shall occur without the prior approval of Lender;

     (x) if any of the restrictions to Transfer set forth in Section 5.2.10 hereof or in any of the other Loan Documents are violated;

     (xi) if Lender or any Affiliate thereof shall succeed to the interest of HRHI under the Gaming Sublease following a foreclosure, deed in lieu of foreclosure or similar transfer, any actual loss, cost, damage or expense (including, without limitation, reasonable attorneys’ fees and expenses) suffered by Lender or such Affiliate as a result of: (A) any act, omission, neglect or default of HRHI under the Gaming Sublease, (B) any claim, defense, counterclaim or offset which the Gaming Operator may have under the Gaming Sublease against HRHI, (C) any obligation to make any payment to the Gaming Operator under the Gaming Sublease which was required to be made by or on behalf of HRHI prior to the time Lender or such Affiliate succeeded to HRHI’s interest under the Gaming Sublease, (D) any monies deposited with HRHI under the Gaming Sublease, except to the extent such monies are actually received by Lender or such Affiliate, (E) any obligation to complete or permit the construction of any improvements under the Gaming Sublease arising while HRHI was the sublandlord under the Gaming Sublease, and/or (F) any default by HRHI under the Gaming Lease beyond applicable notice and cure periods;

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     (xii) if HRHI or any Affiliate thereof shall send a notice to Gaming Operator under Section 6(a), (c) or (d) of the Gaming Recognition Agreement which conflicts with any notice theretofore sent by Lender to Gaming Operator under said Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement; provided, however, that the liability under this clause (xii) shall be limited to all fees and costs incurred by Gaming Operator in bringing and pursuing any interpleader action contemplated by said Section 6(a), (c) or (d), as applicable, and only to the extent that Gaming Operator seeks to recover and/or does recover such fees and expenses from Lender;

     (xiii) if HRHI shall fail to provide Gaming Employees for the operation of gaming activities at the Hotel/Casino Property as and to the extent required pursuant to Paragraph 7 of the HRHI Gaming Agreement;

     (xiv) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII hereof, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) hereof;

     (xv) in the event that HRHI, Gaming Borrower, any other Loan Party or any Affiliate thereof shall be the Liquor Manager, if HRHI, Gaming Borrower, such other Loan Party or such Affiliate thereof shall fail to provide liquor management services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required (A) as to HRHI, pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement, as applicable, and (B) as to Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof, pursuant to Section 5.1.23(c) hereof;

     (xvi) in connection with the $250,000.00 lease termination fee pursuant to Section 3.2(B) of that certain Lease by and between PM Realty, LLC and HRHI, as landlord, and Mr. Chow of Las Vegas, LLC, as tenant, dated December 24, 2004;

     (xvii) as a result of the imposition of any tax provided in NRS §§375.020 and 375.023 with respect to the merger transaction contemplated under the Merger Agreement and/or the subsequent conveyance of the Hotel/Casino Property (A) to HRHH Gaming Junior Mezz, LLC, and then (B) to Gaming Mezz Borrower, and then (iii) to Hotel/Casino Borrower, provided, however, that any liability under this clause (xvii) shall terminate upon the payment in full of the Debt;

     (xviii) as a result of Adjacent Borrower selling or attempting to sell any Partial Release Parcel or any Partial Adjacent Parcel in accordance with the procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable, rather than pursuant to a customary direct deed transfer, including, without limitation, (A) the imposition of any tax (including interest and

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penalties) provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action filed by or against any Subsidiary Transferee prior to or following the consummation of such sale, and/or (C) in connection with any delay in accomplishing any of the steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable; and/or

     (xix) any Interest Shortfall existing on any Payment Date (A) occurring after February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date.

     Notwithstanding anything to the contrary in this Agreement, the Note or any of the other Loan Documents, (A) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Debt secured by the Pledge Agreement or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, and (B) the Debt shall be fully recourse to Borrowers in the event of: (i) any Loan Party, HRHI or both Guarantors filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (ii) the filing of an involuntary petition against any Loan Party, HRHI or both Guarantors under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by or on behalf of any Person other than Lender, and such petition is not dismissed within ninety (90) days after filing, or any Loan Party, or any Affiliate of any of them who Controls any Loan Party, or HRHI or both Guarantors, solicit or cause to be solicited petitioning creditors for any involuntary petition against any Loan Party, HRHI or both Guarantors from any Person (other than if requested to do so by or on behalf of Lender); (iii) any Loan Party, HRHI or both Guarantors filing an answer consenting to, or any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, otherwise consenting to or acquiescing or joining in, any involuntary petition filed against any Loan Party, HRHI or both Guarantors, by any other Person (other than if filed by or on behalf of Lender) under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law; (iv) any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, consenting to or acquiescing or joining in an application for the appointment of a custodian, receiver, trustee or examiner for any Loan Party or any portion of any Property or any portion of the IP or the Collateral (other than any such appointment at the request or petition of Lender); (v) any Loan Party, HRHI or both Guarantors voluntarily making an assignment for the benefit of creditors (other than Lender), or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; and/or (vi) Gaming Mezz Borrower failing to comply, or cause compliance by the applicable Loan Party, with the requirements of the Gaming Laws to obtain the approval of the Gaming Authorities of the pledge of the Gaming Securities pursuant to Section 17(b) of the Pledge Agreement (it being understood and agreed that Borrowers shall have no liability under this clause (vi) to the extent arising from the failure of Lender to reasonably cooperate with the Gaming Authorities in connection with such Gaming Law requirements to the extent necessary); unless, in the case of any of the foregoing clauses (i), (ii), (iii), (iv), (v) or (vi) as it relates to or affects both Guarantors, one or more guarantors acceptable to Lender in its sole discretion remains or becomes a guarantor of the Loan.

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     Notwithstanding anything to the contrary in this Agreement or any other Loan Document, and except for (1) Guarantors’ obligations under the Non-Recourse Guaranty, the Non-Qualified Prepayment Guaranty, the Closing Completion Guaranty and the Construction Completion Guaranty, (2) HRHI’s obligations under the HRHI Guaranty, and (3) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, no present or future Constituent Member in any Borrower, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Borrower or of or in any Person that is or becomes a Constituent Member in any Borrower, shall have any personal liability, directly or indirectly, under or in connection with this Agreement or any of the Loan Documents, or any amendment or amendments to any of the foregoing made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability. In addition, Lender, for itself and its successors and assigns, acknowledges and agrees that neither Borrowers, nor any Constituent Member, nor any other party, is assuming any personal liability, directly or indirectly, under or in connection with any agreement, lease, instrument, claim or right constituting a part of any Property, the IP or the Collateral or to which any Property, the IP or the Collateral is now or hereafter subject, except as may be expressly set forth therein.

     For purposes of this Agreement and each of the other Loan Documents, neither the negative capital account of any Constituent Member in any Borrower nor any obligation of any Constituent Member in any Borrower to restore a negative capital account or to contribute or loan capital to any Borrower or to any other Constituent Member in any Borrower shall at any time be deemed to be the property or an asset of such Borrower (or any such other Constituent Member) and neither Lender nor any of its successors or assigns shall have any right to collect, enforce or proceed against any Constituent Member with respect to any such negative capital account or obligation to restore, contribute or loan.

               (b) Notwithstanding anything to the contrary contained herein, Borrowers agree that they will not have any claims or causes of action against any disclosed or undisclosed officer, director, employee, trustee, shareholder, partner, or principal of any Indemnified Person arising out of or in connection with this Agreement or the transactions contemplated hereby.

     Section 9.5 Matters Concerning Managers and Liquor Manager.

          9.5.1 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender, Morgans Parent ceases to Control any Manager, unless following such change of Control, each affected Manager still constitutes a Qualified Manager, (c) any Manager shall become bankrupt or insolvent, or (d) any Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to any Mortgage Borrower and/or any Property and/or the IP or any material default otherwise occurs under any Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of Lender, terminate the applicable Management Agreement and replace the Manager thereunder with a Qualified Manager pursuant to a

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Replacement Management Agreement, it being understood and agreed that the management fee for such Qualified Manager shall not exceed then prevailing market rates. If (i) an Event of Default occurs and is continuing, (ii) Sub-Manager shall become bankrupt or insolvent, or (iii) Sub-Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to any Mortgage Borrower and/or any Property or any material default otherwise occurs under the Sub-Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause the applicable Mortgage Borrower to, at the request of Lender, terminate the Sub-Management Agreement and amend an existing Management Agreement to include the duties previously delegated under the Sub-Management Agreement (if not already included therein).

          9.5.2 If (a) an Event of Default occurs and is continuing, (b) without the consent of Lender, HR Holdings ceases to Control the Liquor Manager, unless following such change of Control, the Liquor Manager still constitutes a Qualified Liquor Manager, (c) the Liquor Manager shall become bankrupt or insolvent, or (d) the Liquor Manager commits fraud, gross negligence, willful misconduct or misappropriation of funds with respect to Hotel/Casino Borrower and/or the Hotel/Casino Property or any material default otherwise occurs under the Liquor Management Agreement beyond any applicable grace and cure periods, Borrowers shall cause Hotel/Casino Borrower to, at the request of Lender, terminate the Liquor Management Agreement and replace the Liquor Manager thereunder with a Qualified Liquor Manager pursuant to a Replacement Liquor Management Agreement, it being understood and agreed that the management fee for such Qualified Liquor Manager shall not exceed then prevailing market rates; provided, however, that in no event shall Hotel/Casino Borrower be required to terminate such Liquor Manager if such immediate termination would require cessation of liquor-related activities at any of the Properties and, in such event, (i) such termination shall occur immediately upon the ability of Hotel/Casino Borrower to transfer such liquor operations to a Qualified Liquor Manager as required herein, and (ii) Borrowers shall cause Hotel/Casino Borrower to, at its sole cost and expense, diligently pursue the engagement and licensing of a replacement Qualified Liquor Manager.

     Section 9.6 Matters Concerning Gaming Operator. If (a) the Gaming Operator commits fraud, gross negligence or willful misconduct with respect to the Hotel/Casino Property or any material default otherwise occurs under the Gaming Sublease beyond any applicable grace and cure periods, or (b) the Gaming Operator (i) has its gaming license suspended or revoked, (ii) allows its gaming license to lapse, or (iii) may not lawfully operate gaming at the Hotel/Casino Property pursuant to any Legal Requirements or the order of any Governmental Authority, Borrowers shall cause Hotel/Casino Borrower to, at the request of Lender and to the extent permitted by applicable Legal Requirements and the requirements of any Gaming Authorities, cause HRHI to terminate the Gaming Sublease and replace the Gaming Operator with a Qualified Gaming Operator pursuant to a new gaming sublease or similar agreement and a new recognition agreement, in each instance reasonably acceptable to Lender; provided, however, that in no event shall Hotel/Casino Borrower be required to terminate such Gaming Operator if such immediate termination would require cessation of gaming-related activities at the Hotel/Casino Property and, in such event, (A) such termination shall occur immediately upon the ability of Hotel/Casino Borrower to transfer such gaming operations to a Qualified Gaming Operator as required herein, and (B) Borrowers shall cause Hotel/Casino Borrower to, at its sole

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cost and expense, diligently pursue the engagement and licensing of a replacement Qualified Gaming Operator.

     Section 9.7 Servicer. (a) At the option of Lender, the Loan may be serviced by a servicer/trustee (the “Servicer”) selected by Lender and Lender may delegate all or any portion of its responsibilities under this Agreement and the other Loan Documents to the Servicer pursuant to a servicing agreement (the “Servicing Agreement”) between Lender and Servicer. Borrowers shall not be responsible for any set up fees or any other initial costs relating to or arising under the Servicing Agreement nor shall Borrowers be responsible for payment of the monthly servicing fee due to the Servicer under the Servicing Agreement.

               (b) Lender shall endeavor in good faith (without liability for failure to do so) to provide Borrowers with notification of any change in the Person servicing the Loan; provided that it is expressly acknowledged and agreed by Lender that it shall not constitute a Default or Event of Default hereunder if due to such failure to provide notification Borrowers send any payments required to be made hereunder to Lender or any predecessor Person servicing the Loan.

ARTICLE X.
MISCELLANEOUS

     Section 10.1 Survival. This Agreement and all covenants, agreements, representations and warranties made herein and in the certificates delivered pursuant hereto shall survive the making by Lender of the Loan and the execution and delivery to Lender of the Note, and shall continue in full force and effect so long as all or any of the Debt is outstanding and unpaid unless a longer period is expressly set forth herein or in the other Loan Documents. Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the legal representatives, successors and assigns of such party. All covenants, promises and agreements in this Agreement, by or on behalf of any Borrower, shall inure to the benefit of the legal representatives, successors and assigns of Lender.

     Section 10.2 Lender’s Discretion. Whenever pursuant to this Agreement, Lender exercises any right given to it to approve or disapprove, or any arrangement or term is to be satisfactory to Lender, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory shall (except as is otherwise specifically herein provided) be in the sole discretion of Lender and shall be final and conclusive. Whenever this Agreement expressly provides that Lender may not unreasonably withhold its consent or its approval of an arrangement or term, such provisions shall also be deemed to prohibit Lender from unreasonably delaying or conditioning such consent or approval. Prior to a Securitization, whenever pursuant to this Agreement the Rating Agencies are given any right to approve or disapprove, or any arrangement or term is to be satisfactory to the Rating Agencies, the decision of Lender to approve or disapprove or to decide whether arrangements or terms are satisfactory or not satisfactory, based upon Lender’s determination of Rating Agency criteria, shall be substituted therefor.

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     Section 10.3 Governing Law.

               (a) THIS AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, THE LOAN WAS MADE BY LENDER AND ACCEPTED BY BORROWERS IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THE LOAN DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS ARISING HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS IN ANY REAL PROPERTY INTEREST CREATED PURSUANT HERETO AND PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE APPLICABLE REAL PROPERTY IS LOCATED, IT BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE, THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE CONSTRUCTION, VALIDITY AND ENFORCEABILITY OF ALL LOAN DOCUMENTS AND ALL OF THE OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS, AND THIS AGREEMENT, THE NOTE AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

               (b) NOTWITHSTANDING THE FOREGOING, THIS AGREEMENT IS SUBJECT TO THE GAMING LAWS. LENDER EXPRESSLY ACKNOWLEDGES AND AGREES THAT ALL RIGHTS, REMEDIES, POWERS AND OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT MAY BE EXERCISED ONLY TO THE EXTENT THAT THE EXERCISE THEREOF DOES NOT VIOLATE ANY APPLICABLE PROVISIONS OF THE GAMING LAWS AND ONLY TO THE EXTENT THAT ANY APPLICABLE REQUIRED APPROVAL OF ANY GAMING AUTHORITY (INCLUDING PRIOR APPROVALS) IS OBTAINED. NOTWITHSTANDING THE FOREGOING, BORROWERS EXPRESSLY ACKNOWLEDGE AND AGREE THAT THE FACT THAT ANY GAMING LAW OR THE LACK OF APPROVAL FROM ANY GAMING AUTHORITY MAY PREVENT ANY BORROWER OR ANY OTHER PERSON FROM TAKING ANY ACTION OR FULFILLING ANY OBLIGATION HEREUNDER OR UNDER ANY OTHER LOAN DOCUMENT WHICH RESULTS IN THE OCCURRENCE OF AN

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EVENT OF DEFAULT AND/OR A CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY UNDER SECTION 9.4(a) HEREOF, SHALL NOT, IN ANY MANNER, LIMIT OR VITIATE OR BE DEEMED TO LIMIT OR VITIATE SUCH EVENT OF DEFAULT OR SUCH CIRCUMSTANCE GIVING RISE TO RECOURSE LIABILITY IN ANY MANNER WHATSOEVER.

               (c) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR ANY BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS SHALL, AT LENDER’S OPTION, BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW AND, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND EACH BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. EACH BORROWER DOES HEREBY DESIGNATE AND APPOINT:

CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NEW YORK 10011

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND NOTICE OF SAID SERVICE MAILED OR DELIVERED TO SUCH BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON SUCH BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. EACH BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

     Section 10.4 Modification, Waiver in Writing. No modification, amendment, extension, discharge, termination or waiver of any provision of this Agreement, or of the Note, or of any other Loan Document, nor consent to any departure by any Borrower therefrom, shall in any event be effective unless the same shall be in a writing signed by the party against whom enforcement is sought, and then such waiver or consent shall be effective only in the specific instance, and for the purpose, for which given. Except as otherwise expressly provided herein,

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no notice to, or demand on any Borrower, shall entitle such Borrower or any other Borrower to any other or future notice or demand in the same, similar or other circumstances.

     Section 10.5 Delay Not a Waiver. Neither any failure nor any delay on the part of Lender in insisting upon strict performance of any term, condition, covenant or agreement, or exercising any right, power, remedy or privilege hereunder, or under the Note or under any other Loan Document, or under any other instrument given as security therefor, shall operate as or constitute a waiver thereof, nor shall a single or partial exercise thereof preclude any other future exercise, or the exercise of any other right, power, remedy or privilege. In particular, and not by way of limitation, by accepting payment after the due date of any amount payable under this Agreement, the Note or any other Loan Document, Lender shall not be deemed to have waived any right either to require prompt payment when due of all other amounts due under this Agreement, the Note or the other Loan Documents, or to declare a default for failure to effect prompt payment of any such other amount.

     Section 10.6 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 10.6):

If to Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock/Rand Peppas
If to Borrowers:	HRHH Gaming Junior Mezz Two, LLC

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	and
	HRHH JV Junior Mezz Two, LLC
	c/o Morgans Hotel Group Co.
	475 Tenth Avenue
	New York, New York 10018
	Re: Hard Rock
	Attention: Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4201
With a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
With a copy to:	DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
With a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
With a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b)or (c) of this Section 10.6. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 10.6, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or

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under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer. Any Notice sent to one Borrower shall constitute and shall be deemed to constitute such Notice to all Borrowers.

     Section 10.7 Trial by Jury. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND LENDER EACH HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH BORROWER AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY THE OTHER.

     Section 10.8 Headings. The Article and/or Section headings and the Table of Contents in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose.

     Section 10.9 Severability. Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

     Section 10.10 Preferences. Lender shall have the continuing and exclusive right to apply or reverse and reapply any and all payments by Borrowers to any portion of the Obligations of Borrowers hereunder. To the extent Borrowers make a payment or payments to Lender, which payment or proceeds or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or proceeds received, the Obligations hereunder or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment or proceeds had not been received by Lender.

     Section 10.11 Waiver of Notice. Each Borrower hereby expressly waives, and shall not be entitled to, any notices of any nature whatsoever from Lender except with respect to matters for which this Agreement or the other Loan Documents specifically and expressly provide for the giving of notice by Lender to Borrowers and except with respect to matters for which Borrowers are not, pursuant to applicable Legal Requirements, permitted to waive the giving of notice.

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     Section 10.12 Remedies of Borrowers. In the event that a claim or adjudication is made that Lender or its agents have acted unreasonably or unreasonably delayed acting in any case where by law or under this Agreement or the other Loan Documents, Lender or such agent, as the case may be, has an obligation to act reasonably or promptly, each Borrower agrees that neither Lender nor its agents shall be liable for any monetary damages, and Borrowers’ sole remedies shall be limited to commencing an action seeking injunctive relief or declaratory judgment. The parties hereto agree that any action or proceeding to determine whether Lender has acted reasonably shall be determined by an action seeking declaratory judgment.

     Section 10.13 Expenses; Indemnity. (a) Borrowers jointly and severally covenant and agree to pay or, if Borrowers fail to pay, to reimburse, Lender, within ten (10) days of receipt of notice from Lender, for all reasonable costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in connection with (i) Borrowers’ ongoing performance of and compliance with Borrowers’ respective agreements and covenants contained in this Agreement and the other Loan Documents on their part to be performed or complied with after the Closing Date, including, without limitation, confirming compliance with environmental, gaming and insurance requirements; (ii) the negotiation, preparation, execution, delivery and administration of any consents, amendments, waivers or other modifications to this Agreement and the other Loan Documents and any other documents or matters requested by or benefiting any Borrower; (iii) securing Borrowers’ compliance with their obligations pursuant to the provisions of this Agreement and the other Loan Documents; (iv) the filing and recording fees and expenses, title insurance and reasonable fees and expenses of counsel for providing to Lender all required legal opinions, and other similar expenses incurred in creating and perfecting the Liens in favor of Lender pursuant to this Agreement and the other Loan Documents; (v) all fees payable hereunder; (vi) dealing with any Letter of Credit delivered to Lender hereunder; (vii) subject to the terms hereof, enforcing or preserving any rights, either in response to third party claims or in prosecuting or defending any action or proceeding or other litigation, in each case against, under or affecting any Borrower, this Agreement, the other Loan Documents, any Property, the IP, the Collateral or any other security given for the Loan; and (viii) enforcing any obligations of or collecting any payments due from any Borrower under this Agreement or the other Loan Documents or with respect to any Property, the IP or the Collateral or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a “work-out” or of any insolvency or bankruptcy proceedings; provided, however, that Borrowers shall not be liable for the payment of any such costs and expenses to the extent the same arise by reason of the gross negligence, illegal acts, fraud or willful misconduct of Lender. Notwithstanding the provisions set forth in this Section 10.13(a) or in any other provision of this Agreement or the other Loan Documents, in the event that (A) Lender employs counsel to collect the Debt, protect or foreclose the Pledge Agreement or as otherwise permitted in this Agreement and the other Loan Documents and (B) Lender has sold or transferred any interests in the Note, then Borrowers shall only be responsible for the attorneys’ fees and expenses of the counsel of one Lender.

               (b) Borrowers shall, jointly and severally, indemnify, defend and hold harmless Lender from and against any and all other liabilities, obligations, out-of-pocket losses, actual damages (but not lost revenues, diminution in value and other consequential damages), penalties, actions, judgments, third party suits, third party claims, reasonable costs, reasonable expenses and disbursements of any kind or nature whatsoever (including, without limitation, the

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reasonable fees and disbursements of counsel for Lender in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not Lender shall be designated a party thereto), that may be imposed on, incurred by, or asserted against Lender in any manner relating to or arising out of (i) any breach by any Borrower of its obligations under, or any material misrepresentation by any Borrower contained in, this Agreement or the other Loan Documents, or (ii) the use or intended use of the proceeds of the Loan (collectively, the “Indemnified Liabilities”); provided, however, that Borrowers shall not have any obligation to Lender hereunder to the extent that such Indemnified Liabilities arise from the gross negligence, illegal acts, fraud or willful misconduct of Lender. To the extent that the undertaking to indemnify, defend and hold harmless set forth in the preceding sentence may be unenforceable because it violates any law or public policy, Borrowers shall pay the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Lender.

               (c) Borrowers, jointly and severally, covenant and agree to pay for or, if Borrowers fail to pay, to reimburse Lender for, any fees and expenses incurred by any Rating Agency in connection with any consent, approval, waiver or confirmation obtained from such Rating Agency and required pursuant to the terms and conditions of this Agreement or any other Loan Document in connection with any request or approval sought by Borrowers, and Lender shall be entitled to require payment of such fees and expenses as a condition precedent to the obtaining of any such consent, approval, waiver or confirmation; provided, however, that Lender expressly acknowledges and agrees that Borrowers shall not be required to pay any Rating Agency surveillance charges.

     Section 10.14 Schedules and Exhibits Incorporated. The Schedules and Exhibits annexed hereto are hereby incorporated herein as a part of this Agreement with the same effect as if set forth in the body hereof.

     Section 10.15 Offsets, Counterclaims and Defenses. Any assignee of Lender’s interest in and to this Agreement, the Note and the other Loan Documents shall take the same free and clear of all offsets, counterclaims or defenses which are unrelated to such documents which Borrowers may otherwise have against any assignor of such documents, and no such unrelated counterclaim or defense shall be interposed or asserted by any Borrower in any action or proceeding brought by any such assignee upon such documents and any such right to interpose or assert any such unrelated offset, counterclaim or defense in any such action or proceeding is hereby expressly waived by each Borrower to the extent permitted by applicable law.

     Section 10.16 No Joint Venture or Partnership; No Third Party Beneficiaries.

               (a) Borrowers and Lender intend that the relationships created hereunder and under the other Loan Documents be solely that of borrower and lender. Nothing herein or therein is intended to create a joint venture, partnership, tenancy-in-common, or joint tenancy relationship between any Borrower and Lender nor to grant Lender any interest in the Collateral other than that of secured party, pledgee or lender.

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               (b) This Agreement and the other Loan Documents are solely for the benefit of Lender and Borrowers and nothing contained in this Agreement or the other Loan Documents shall be deemed to confer upon anyone other than Lender and Borrowers any right to insist upon or to enforce the performance or observance of any of the obligations contained herein or therein. All conditions to the obligations of Lender to make the Loan hereunder and/or to disbursements from the Reserve Funds are imposed solely and exclusively for the benefit of Lender and no other Person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Lender will refuse to make the Loan and/or will refuse to make any disbursement from any Reserve Fund in the absence of strict compliance with any or all thereof and no other Person shall under any circumstances be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Lender if, in Lender’s sole discretion, Lender deems it advisable or desirable to do so.

               (c) Without limiting the generality of Section 10.16(a) hereof, Borrowers expressly acknowledge and agree that: (i) DLJ Merchant Banking, Inc. is an affiliate of Lender and various of its indirect subsidiaries and/or affiliates own indirect ownership interests in each Borrower (the “DLJ Entities”), and (ii) neither the Lender named herein nor any successor or assign thereof shall have any liability to Borrower as a result of such relationship between Lender and the DLJ Entities, including, without limitation, under any theory of lender liability.

               (d) The benefits of this Agreement shall not inure to any third party, nor shall this Agreement be construed to make or render Lender liable to any Trade Contractors including any Major Contractors or others for goods and materials supplied or work and labor furnished in connection with the construction or rehabilitation of the Project or for debts or claims accruing to any such Persons against Mortgage Borrowers or Borrowers. Notwithstanding anything contained in the Loan Documents, or any conduct or course of conduct by the parties hereto, before or after signing the Loan Documents, this Agreement shall not be construed as creating any rights, claims or causes of action against Lender, or any of its officers, directors, agents or employees, in favor of any Major Contractor or other Trade Contractor, or any of their respective creditors, or any other Person.

               (e) Observation, inspection and approvals, if applicable, by Lender of the Plans and Specifications, the construction of the Project and/or the workmanship and materials used therein shall impose no responsibility or liability of any nature whatsoever on Lender and no Borrower, Mortgage Borrower, Trade Contractor or other interested Person, under any circumstances, shall be entitled to rely upon such inspections and approvals by Lender for any reason. Approvals granted by Lender for any matters covered under this Agreement shall be narrowly construed to cover only the parties and facts identified in any such approval.

     Section 10.17 Publicity. All news releases, publicity or advertising by any Borrower or their Affiliates through any media intended to reach the general public which refers to the Loan Documents or the financing evidenced by the Loan Documents or to Lender, Credit Suisse or any of their Affiliates shall be subject to the prior approval of Lender not to be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, disclosure required by applicable state or federal securities laws, rules or regulations or other applicable Legal

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Requirements, or as customarily and reasonably requested by any Gaming Authorities, shall not be subject to Lender’s prior written approval.

     Section 10.18 Waiver of Marshalling of Assets. To the fullest extent permitted by law, each Borrower, for itself and its successors and assigns, waives all rights to a marshalling of the assets of any Borrower, any Borrower’s partners and others with interests in any Borrower, and of the Collateral, or to a sale in inverse order of alienation in the event of foreclosure of the Pledge Agreement, and agrees not to assert any right under any laws pertaining to the marshalling of assets, the sale in inverse order of alienation, homestead exemption, the administration of estates of decedents, or any other matters whatsoever to defeat, reduce or affect the right of Lender under the Loan Documents to a sale of the Collateral for the collection of the Debt without any prior or different resort for collection or of the right of Lender to the payment of the Debt out of the net proceeds of the Collateral in preference to every other claimant whatsoever.

     Section 10.19 Waiver of Counterclaim. To the fullest extent permitted by law, each Borrower hereby waives the right to assert a counterclaim, other than a compulsory counterclaim, in any action or proceeding brought against it by Lender or its agents or otherwise to offset any Obligations under the Loan Documents. No failure by Lender to perform any of its obligations hereunder shall be a valid defense to, or result in any offset against, any payments which any Borrower is obligated to make under any of the Loan Documents.

     Section 10.20 Conflict; Construction of Documents; Reliance. In the event of any conflict between the provisions of this Agreement and any of the other Loan Documents, the provisions of this Agreement shall control. The parties hereto acknowledge that they were represented by competent counsel in connection with the negotiation, drafting and execution of the Loan Documents and that such Loan Documents shall not be subject to the principle of construing their meaning against the party which drafted same. Each Borrower acknowledges that, with respect to the Loan, such Borrower shall rely solely on its own judgment and advisors in entering into the Loan without relying in any manner on any statements, representations or recommendations of Lender or any parent, subsidiary or Affiliate of Lender. Lender shall not be subject to any limitation whatsoever in the exercise of any rights or remedies available to it under any of the Loan Documents or any other agreements or instruments which govern the Loan by virtue of the ownership by it or any parent, subsidiary or Affiliate of Lender of any equity interest any of them may acquire in any Borrower, and each Borrower hereby irrevocably waives the right to raise any defense or take any action on the basis of the foregoing with respect to Lender’s exercise of any such rights or remedies. Each Borrower acknowledges that Lender engages in the business of real estate financings and other real estate transactions and investments which may be viewed as adverse to or competitive with the businesses of Borrowers or their Affiliates.

     Section 10.21 Brokers and Financial Advisors.

               (a) Each Borrower hereby represents that neither it nor any of its Affiliates has dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Each Borrower hereby agrees to indemnify, defend and hold Lender harmless from and against any and all third-

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party claims, liabilities, out-of-pocket costs and reasonable expenses of any kind (including Lender’s reasonable attorneys’ fees and expenses (but only for one (1) set of attorneys)) in any way relating to or arising from a claim by any Person that such Person acted on behalf of any Borrower or an Affiliate of any Borrower in connection with the transactions contemplated herein. The provisions of this Section 10.21(a) shall survive the expiration and termination of this Agreement and the payment of the Debt.

          (b) Lender hereby represents that neither it nor any of its Affiliates has dealt with any financial advisors, brokers, underwriters, placement agents, agents or finders in connection with the transactions contemplated by this Agreement. Lender hereby agrees to indemnify, defend and hold Borrowers harmless from and against any and all third-party claims, liabilities, out-of-pocket costs and reasonable expenses of any kind (including Borrowers’ reasonable attorneys’ fees and expenses (but only for one (1) set of attorneys)) in any way relating to or arising from a claim by any Person that such Person acted on behalf of Lender or an Affiliate of Lender in connection with the transactions contemplated herein. The provisions of this Section 10.21(b) shall survive the expiration and termination of this Agreement and the payment of the Debt.

     Section 10.22 Prior Agreements. This Agreement and the other Loan Documents contain the entire agreement of the parties hereto and thereto in respect of the transactions contemplated hereby and thereby, and all prior agreements among or between such parties, whether oral or written, including, without limitation, (i) the Commitment Letter dated May 11, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp and Lender, and (ii) the Commitment Letter dated December 22, 2006 between Morgans Hotel Group Co., MHG HR Acquisition Corp, DLJ Merchant Banking, Inc. and Lender, are superseded by the terms of this Agreement and the other Loan Documents.

     Section 10.23 Joint and Several Liability. The representations, covenants, warranties and obligations of Borrowers hereunder are joint and several.

     Section 10.24 Certain Additional Rights of Lender (VCOC). Notwithstanding anything to the contrary contained in this Agreement, Lender shall have:

          (a) subject to applicable Gaming Laws, the right to routinely consult with and advise each Borrower’s management regarding the significant business activities and business and financial developments of each Borrower; provided, however, that such consultations shall not include discussions of environmental compliance programs or disposal of hazardous substances. Consultation meetings should occur on a regular basis (no less frequently than quarterly) with Lender having the right to call special meetings at any reasonable times and upon reasonable advance notice;

          (b) the right, in accordance with the terms of this Agreement, to examine the books and records of each Borrower at any reasonable times upon reasonable notice;

          (c) the right, in accordance with the terms of this Agreement, including, without limitation, Section 5.1.11 hereof, to receive monthly, quarterly and year-end

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financial reports, including balance sheets, statements of income, shareholder’s equity and cash flow, a management report and schedules of outstanding indebtedness; and

          (d) the right, without restricting any other rights of Lender under this Agreement (including any similar right), to approve any acquisition by any Borrower of any other significant property (other than (i) personal property required for the day to day operation of any Property and (ii) to the extent any such acquisition is contemplated in the Approved Annual Budget then in effect).

  The rights described above in this Section 10.24 may be exercised by any entity which owns and Controls, directly or indirectly, substantially all of the interests in Lender.

ARTICLE XI.
MORTGAGE LOAN AND MEZZANINE LOANS

     Section 11.1 Mortgage Loan and Mezzanine Loan Deliveries.

          (a) Promptly after receipt, Borrowers shall deliver (or cause Mortgage Borrowers, First Mezzanine Borrowers or Second Mezzanine Borrowers, as applicable, to deliver) to Lender a true, correct and complete copy of all material notices, demands, requests or material correspondence (including electronically transmitted items) received from (i) Mortgage Lender by any Mortgage Borrower or any guarantor under the Mortgage Loan Documents, (ii) First Mezzanine Lender by any First Mezzanine Borrower or any guarantor under the First Mezzanine Loan Documents, or (iii) Second Mezzanine Lender by any Second Mezzanine Borrower or any guarantor under the Second Mezzanine Loan Documents.

          (b) Unless otherwise delivered to Lender pursuant to the provisions of Section 5.1.11 hereof, Borrowers shall deliver (or cause Mortgage Borrowers, First Mezzanine Borrowers or Second Mezzanine Borrowers, as applicable, to deliver) to Lender all of the financial statements, reports, material certificates and related items delivered or required to be delivered by (i) Mortgage Borrowers to Mortgage Lender under the Mortgage Loan Documents as and when due under the Mortgage Loan Documents, (ii) First Mezzanine Borrowers to First Mezzanine Lender under the First Mezzanine Loan Documents as and when due under the First Mezzanine Loan Documents, and (iii) Second Mezzanine Borrowers to Second Mezzanine Lender under the Second Mezzanine Loan Documents as and when due under the Second Mezzanine Loan Documents.

     Section 11.2 Mortgage Loan and Mezzanine Loan Estoppels.

          (a) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause Mortgage Borrowers to) from time to time, use reasonable efforts to obtain from Mortgage Lender such estoppel certificates with respect to the status of the Mortgage Loan and compliance by Mortgage Borrowers with the terms of the Mortgage Loan Documents as may reasonably be requested by Lender. In the event or to the extent that Mortgage Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and

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Mortgage Borrowers expressly representing to Lender the information requested by Lender regarding the status of the Mortgage Loan and the compliance by Mortgage Borrowers with the terms of the Mortgage Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the Mortgage Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and Mortgage Borrowers.

          (b) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause First Mezzanine Borrowers to) from time to time, use reasonable efforts to obtain from First Mezzanine Lender such estoppel certificates with respect to the status of the First Mezzanine Loan and compliance by First Mezzanine Borrowers with the terms of the First Mezzanine Loan Documents as may reasonably be requested by Lender. In the event or to the extent that First Mezzanine Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and First Mezzanine Borrowers expressly representing to Lender the information requested by Lender regarding the status of the First Mezzanine Loan and the compliance by First Mezzanine Borrowers with the terms of the First Mezzanine Loan Documents. Borrowers hereby jointly and severally indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the First Mezzanine Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and First Mezzanine Borrowers.

          (c) After written request by Lender but in no event more than two (2) times in any twelve (12) month period, Borrowers shall (or shall cause Second Mezzanine Borrowers to) from time to time, use reasonable efforts to obtain from Second Mezzanine Lender such estoppel certificates with respect to the status of the Second Mezzanine Loan and compliance by Second Mezzanine Borrowers with the terms of the Second Mezzanine Loan Documents as may reasonably be requested by Lender. In the event or to the extent that Second Mezzanine Lender is not legally obligated to deliver such estoppel certificates and is unwilling to deliver the same, or is legally obligated to deliver such estoppel certificates but breaches such obligation, then Borrowers shall not be in breach of this provision so long as Borrowers furnish to Lender estoppels executed by Borrowers and Second Mezzanine Borrowers expressly representing to Lender the information requested by Lender regarding the status of the Second Mezzanine Loan and the compliance by Second Mezzanine Borrowers with the terms of the Second Mezzanine Loan Documents. Borrowers hereby jointly and severally indemnify Lender

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from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including reasonable attorneys’ and other professional fees, whether or not suit is brought and settlement costs) and reasonable disbursements of any kind or nature whatsoever which may be imposed on, actually incurred by, or asserted against Lender based in whole or in part upon any fact, event, condition or circumstance relating to the Second Mezzanine Loan which was misrepresented in any material respect by Borrowers in, or which warrants disclosure and was omitted from, such estoppel executed by Borrowers and Second Mezzanine Borrowers.

     Section 11.3 Mortgage Loan and Mezzanine Loan Defaults.

          (a) Without limiting the generality of the other provisions of this Agreement, and without waiving or releasing Borrowers from any of their obligations hereunder, if there shall occur any Mortgage Event of Default or any Mezzanine Event of Default, Borrowers hereby expressly agree that Lender shall have the immediate right, without notice to or demand on any of the applicable Loan Parties, but shall be under no obligation: (i) to pay all or any part of the Mortgage Loan and/or any Mezzanine Loan, as applicable, and any other sums, that are then due and payable and to perform any act or take any action on behalf of the applicable Loan Parties, as may be appropriate, to cause all of the terms, covenants and conditions of the Mortgage Loan Documents or the applicable Mezzanine Loan Documents on the part of such Loan Parties to be performed or observed thereunder to be promptly performed or observed; and (ii) to pay any other amounts and take any other action as Lender, in its sole and absolute discretion, shall deem advisable to protect or preserve the rights and interests of Lender in the Loan and/or the Collateral. Lender shall have no obligation to complete any cure or attempted cure undertaken or commenced by Lender. All sums so paid and the costs and expenses incurred by Lender in exercising rights under this Section 11.3 (including, without limitation, reasonable attorneys’ and other professional fees), with interest at the Default Rate, for the period from the date of demand by Lender to Borrowers for such payments to the date of payment to Lender, shall constitute a portion of the Debt, shall be secured by the Pledge Agreement and shall be due and payable to Lender upon demand therefor.

          (b) Subject to the rights of tenants and the Mortgage Loan Agreement, Borrowers hereby grant, and shall cause Mortgage Borrowers to grant, Lender and any Person designated by Lender the right to enter upon any Property at any time for the purpose of carrying out the rights granted to Lender under this Section 11.3.

          (c) Borrowers shall not, and shall not cause or permit any of the Loan Parties or any other Person to, impede, interfere with, hinder or delay, any effort or action on the part of Lender to cure any default or asserted default under the Mortgage Loan or any Mezzanine Loan, as applicable, or to otherwise protect or preserve Lender’s interests in the Loan and the Collateral (including the Properties) following a default or asserted default under the Mortgage Loan or any Mezzanine Loan, as applicable, in accordance with the provisions of this Agreement and the other Loan Documents.

          (d) Borrowers hereby indemnify Lender from and against all liabilities, obligations, losses, damages, penalties, assessments, actions, or causes of action, judgments, suits, claims, demands, costs, expenses (including, without limitation, reasonable

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attorneys’ and other professional fees, whether or not suit is brought, and settlement costs), and disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Lender as a result of the foregoing actions described in Section 11.3(a). Lender shall have no obligation to any Loan Party or any other party to make any such payment or performance.

          (e) If Lender shall receive a copy of any notice of default under the Mortgage Loan Documents or any Mezzanine Loan Documents, such notice shall constitute full protection to Lender for any action taken or omitted to be taken by Lender, in good faith, in reliance thereon. As a material inducement to Lender in making the Loan, Borrowers hereby absolutely and unconditionally release and waive all claims against Lender arising out of Lender’s exercise of its rights and remedies provided in this Section 11.3 other than claims arising out of the fraud, illegal acts, gross negligence or willful misconduct of Lender.

          (f) In the event that Lender cures any Mortgage Event of Default or any Mezzanine Event of Default, any such cure by Lender shall not waive or be deemed to have cured such Mortgage Event of Default or such Mezzanine Event of Default and shall constitute an immediate Event of Default under this Agreement without any notice, grace or cure period otherwise applicable under this Agreement.

          (g) In the event that Lender makes any payment in respect of the Mortgage Loan and/or any Mezzanine Loan, Lender shall be subrogated to (i) all of the rights of Mortgage Lender under the Mortgage Loan Documents against the Properties and Mortgage Borrowers, and/or (ii) all of the rights of the applicable Mezzanine Lender under the applicable Mezzanine Loan Documents against the applicable Mezzanine Collateral and applicable Mezzanine Borrowers, in each case in addition to all other rights which Lender may have under the Loan Documents or applicable law (including, without limitation, reasonable attorneys’ and other professional fees), and any such payments made by Lender together with interest at the Default Rate, for the period from the date of demand by Lender to Borrowers for such payments to the date of payment to Lender, (A) shall constitute a portion of the Debt, (B) shall be secured by the Pledge Agreement and (C) shall be due and payable to Lender upon demand therefor.

     Section 11.4 Discussions with Mortgage Lender and Mezzanine Lenders. In connection with the exercise of its rights set forth in the Loan Documents, Lender shall have the right at any time to discuss the Properties, the Mortgage Loan, the Mezzanine Loans, the Loan or any other matter directly with Mortgage Lender and/or any Mezzanine Lender or its respective consultants, agents or representatives without notice to or permission from any Borrower or any other Loan Party, nor shall Lender have any obligation to disclose such discussions or the contents thereof with any Borrower or any other Loan Party.

     Section 11.5 Independent Approval Rights.

          (a) If any action, proposed action or other decision is consented to or approved by Mortgage Lender or any Mezzanine Lender, such consent or approval shall not be binding or controlling on Lender; provided, however, that, notwithstanding anything to the contrary which may be contained in this Agreement, and as between Lender and Borrowers only, Lender shall be deemed to have approved or waived any document delivered or action taken, or

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required to be delivered or taken, by Mortgage Borrowers to Mortgage Lender under the Mortgage Loan Agreement related to the construction of the Project which is approved or waived in writing by Mortgage Lender under the Mortgage Loan Documents.

          (b) Borrowers hereby acknowledge and agree that (i) the risks of Mortgage Lender in making the Mortgage Loan, and the risks of each Mezzanine Lender in making its Mezzanine Loan, are different from the risks of Lender in making the Loan, (ii) in determining whether to grant, deny, withhold or condition any requested consent or approval, Mortgage Lender, each Mezzanine Lender and Lender may reasonably reach different conclusions, and (iii) Lender has an absolute independent right to grant, deny, withhold or condition any requested consent or approval based on its own point of view. Further, the denial by Lender of a requested consent or approval shall not create any liability or other obligation of Lender if the denial of such consent or approval results directly or indirectly in a default under the Mortgage Loan and/or any Mezzanine Loan, and Borrowers hereby waive any claim of liability against Lender arising from any such denial.

     Section 11.6 Intercreditor Agreement.

          (a) Borrowers hereby acknowledge and agree that (i) the Intercreditor Agreement entered into by and among Lender, Mortgage Lender, First Mezzanine Lender and Second Mezzanine Lender will be solely for the benefit of Lender, Mortgage Lender, First Mezzanine Lender and Second Mezzanine Lender; (ii) none of Borrowers, Mortgage Borrowers, First Mezzanine Borrowers or Second Mezzanine Borrowers shall be intended third-party beneficiaries of any of the provisions therein; and (iii) none Borrowers, Mortgage Borrowers, First Mezzanine Borrowers or Second Mezzanine Borrowers shall have any rights thereunder or shall be entitled to rely on any of the provisions contained therein. None of Lender, Mortgage Lender, First Mezzanine Lender or Second Mezzanine Lender shall have any obligation to disclose to Borrowers the contents of the Intercreditor Agreement. Borrowers’ obligations hereunder are and will be independent of the Intercreditor Agreement and shall remain unmodified by the terms and provisions thereof.

          (b) In the event that Lender, pursuant to the terms of the Intercreditor Agreement, is required to pay over to Mortgage Lender or any Mezzanine Lender any payment or distribution of assets, whether in cash, property or securities which otherwise would have been applied to the Debt, including, without limitation, any proceeds of any property previously received by Lender on account of the Loan or any payments under the Guaranties, pursuant to voluntary payment or judgment or otherwise, then Borrowers agree to indemnify Lender for any amounts so paid, and any amount so paid shall continue to be owing pursuant to the Loan Documents as part of the Debt notwithstanding the prior receipt of such payment by Lender.

ARTICLE XII.
GAMING PROVISIONS

     Section 12.1 Operation of Casino Component.

          (a) Borrowers shall (i) cause HRHI to observe and perform the obligations imposed upon the lessor under the Gaming Sublease in a commercially reasonable

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manner; (ii) cause HRHI to enforce the terms, covenants and conditions contained in the Gaming Sublease and the Gaming Recognition Agreement upon the part of the Gaming Operator thereunder to be observed or performed in a commercially reasonable manner and in a manner not to impair the value of the Casino Component or the Hotel/Casino Property; (iii) not allow any amendment to or termination or modification of the Gaming Sublease without the consent of Lender, which consent shall not be unreasonably withheld, other than modifications of a ministerial and non-monetary nature; (iv) not permit HRHI to collect any of the rents or other payments due under the Gaming Sublease more than one (1) month in advance; and (v) not permit HRHI to execute any assignment of its interest in the Gaming Sublease.

          (b) As soon as practicable after the date hereof, Borrowers shall submit or cause to be submitted any and all applications, filings and other submissions required by the Gaming Authorities or pursuant to any Gaming Laws to obtain the Gaming Licenses necessary to permit the operation of the Casino Component by Gaming Borrower as contemplated herein. Borrowers shall, or shall cause Mortgage Borrowers to, timely pay all application fees, investigative fees and other costs or fees required by the Gaming Authorities with respect to said approvals and licenses or arising in connection with the diligent prosecution of such applications. Borrowers shall, or shall cause Mortgage Borrowers to, diligently and comprehensively respond to any inquiries and requests from the Gaming Authorities and promptly file or cause to be filed any additional information required in connection with such applications or filings as soon as practicable after receipt of requests therefor.

          (c) Provided that (i) no Event of Default has occurred and is continuing, (ii) Gaming Borrower is, pursuant to Gaming Laws, the holder of all Gaming Licenses and all other Operating Permits and Governmental Approvals necessary for the operation of the Casino Component as a casino and the performance of the Casino Component Lease, (iii) the Casino Component Lease is in full force and effect and no material default beyond applicable notice and/or cure periods has occurred thereunder, (iv) the Gaming Sublease has either expired by its own terms or has been properly terminated pursuant to the terms thereof, and (v) Borrowers have given Lender thirty (30) days prior written notice, Borrowers shall cause Gaming Borrower to operate the Casino Component pursuant to the Casino Component Lease and in accordance with all Gaming Laws and all other applicable Legal Requirements. Borrowers shall cause Mortgage Borrowers to thereafter maintain all Gaming Licenses, Operating Permits and Governmental Approvals necessary for the lawful operation of the Casino Component as a casino consistent with Comparable Hotel/Casinos and use its commercially reasonable efforts to operate the Casino Component in a manner designed to maximize revenues from the Properties in the aggregate. No Loan Party shall take, permit or omit any action that would adversely affect the status or good standing of Gaming Borrower under such Operating Permits, Gaming Licenses or Governmental Approvals.

          (d) Borrowers hereby acknowledge and agree that the Casino Component Lease and any and all rights and interests (whether choate or inchoate and including, without limitation, all mechanic’s and materialmen’s liens under applicable law) owned, claimed or held, by Gaming Borrower thereunder or otherwise in and to the Casino Component, shall be in all respects subordinate and inferior to the liens and security interests created, or to be created, for the benefit of Lender under the Loan Documents, and securing the repayment of the Note and

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the performance of the Obligations, and all renewals, extensions, increases, supplements, amendments, modifications or replacements thereof.

          (e) Borrowers hereby agree that, at any time after the date the Casino Component Lease becomes effective, if ever, (i) upon the occurrence and during the continuance of an Event of Default and at the request of Lender, Borrowers shall cause Gaming Borrower to continue to perform all of its obligations under the terms of the Casino Component Lease with respect to the Casino Component, (ii) upon and after foreclosure, deed in lieu of foreclosure or other similar transfer of the Casino Component to a Mortgage Lender Successor Owner, Borrowers shall cause Gaming Borrower to (A) recognize such Mortgage Lender Successor Owner as the lessor under the Casino Component Lease, (B) not exercise any right to terminate the Casino Component Lease, and (C) at the request of such Mortgage Lender Successor Owner, continue to operate and manage the Casino Component and maintain all applicable Gaming Licenses with respect to the Casino Component for a period not to exceed fifteen (15) months after the effective date of such transfer to such Mortgage Lender Successor Owner (which period shall in all events terminate upon Mortgage Lender Successor Owner’s appointment of a new gaming operator possessing all Gaming Licenses and other Governmental Approvals necessary to conduct all gaming operations at the Hotel/Casino Property, subject to Gaming Borrower’s obligation to transfer its responsibilities under the Casino Component Lease to such new gaming operator and to reasonably cooperate with the transition of the gaming operations from Gaming Borrower to such new gaming operator), in accordance with the terms of the Casino Component Lease; provided that such Mortgage Lender Successor Owner shall be obligated to pay a then market rate casino management fee which is reasonable and customary for similar casinos in Las Vegas, Nevada, and (iii) at any time after foreclosure, deed in lieu of foreclosure or other similar transfer of the Casino Component to a Mortgage Lender Successor Owner, at the option of such Mortgage Lender Successor Owner exercised by written notice to Gaming Borrower, such Mortgage Lender Successor Owner shall have the right to terminate the Casino Component Lease without penalty or termination fee.

          (f) Upon the occurrence and during the continuance of an Event of Default, Lender may elect, upon written notice, to require Borrowers to cause Gaming Borrower or any other Loan Party to surrender or relinquish one or more or all of the Gaming Licenses held by such Person(s). If Gaming Borrower or such other Loan Party fails or refuses to so relinquish such Gaming License(s) within five (5) Business Days after receipt of such written notice, then Lender is hereby appointed (which appointment is coupled with an interest) as each Loan Party’s attorney in fact with full authority to surrender or relinquish each such Gaming License on each such Loan Party’s behalf, the foregoing power being irrevocable and coupled with an interest.

          (g) Borrowers agree to cause Gaming Borrower to (i) execute such affidavits and certificates as Lender shall reasonably require to further evidence the agreements herein contained, (ii) on request from Lender, furnish Lender with copies of such information as Hotel/Casino Borrower is entitled to receive under the Casino Component Lease, and (iii) cooperate with Lender’s representative in any inspection of all or any portion of the Casino Component from time to time at reasonable times during business hours.

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          (h) Lender agrees to cooperate with all Gaming Authorities in connection with the administration of its regulatory jurisdiction over the Gaming Operator, Gaming Borrower and any other Person licensed by or registered with the Gaming Authorities, including the provision of such documents or other information as may be requested by the Gaming Authorities relating to the Gaming Sublease, the Casino Component Lease or the Loan Documents. Additionally, Lender acknowledges and understands that (a) it is subject to being called forward by the Gaming Authorities, in their discretion, for licensing or a finding of suitability, (b) all rights, remedies and powers provided in this Agreement may be exercised only to the extent the exercise thereof does not violate any applicable Gaming Laws, and (c) to the extent prior approval of the Gaming Authorities is required pursuant to applicable Gaming Laws for the exercise, operation and effectiveness of any remedy hereunder or under any other Loan Document, or the taking of any action that may be taken by Lender hereunder or under any other Loan Document, such remedy or action shall be subject to such prior approval of the Gaming Authorities, but the foregoing acknowledgements shall not be read or construed, in any manner or at any time, to qualify or limit any representation, warranty, covenant, agreement or obligation of any Loan Party herein, including, without limitation, any of the same relating to the due authorization, execution, delivery, performance and/or enforceability of any Loan Document, or any assignment, issuance, granting or remedy evidenced, created or effected thereby. Notwithstanding the foregoing, Borrowers expressly acknowledge and agree that Lender shall not be liable to any Loan Party or any other Person for any loss, cost, damage, fine or other expense suffered by any Loan Party or any other Person resulting from Lender’s cooperation with, appearance before, or provision of information or documents to, any Gaming Authority as contemplated in this Sections 12.1(h), except for Lender’s gross negligence, willful misconduct or fraud.

     Section 12.2 Gaming Liquidity Requirements. From and after the date, if ever, upon which Gaming Borrower becomes the Gaming Operator in accordance with the terms of the Mortgage Loan Agreement and this Agreement, Borrowers shall furnish, or shall cause Gaming Borrower to furnish, to Lender, within five (5) Business Days following the end of each calendar month, an Officer’s Certificate certifying as to the amount of the Gaming Liquidity Requirement (including a calculation of the determination thereof) and the Gaming Operating Reserve with respect to such month, including any changes to the foregoing during such month, the foregoing to be in form and substance reasonably acceptable to Lender (the “Monthly Gaming Requirement Certificate”).

ARTICLE XIII.
RIGHT OF FIRST OFFER

     Section 13.1 Right of First Offer. Prior to seeking any Refinancing Loan and/or any commitment for a Refinancing Loan, Borrowers shall first notify Credit Suisse in writing (the “Right of First Offer Notice”) of its intention to obtain any such Refinancing Loan, which Right of First Offer Notice shall (a) contain the Material Economic Terms which Borrowers would, in good faith, expect to receive in the market for loans similar in type to the Refinancing Loan being sought, and (b) offer (in each case, a “Right of First Offer”) to Credit Suisse the opportunity to consider whether or not Credit Suisse (or an Affiliate thereof) will provide the Refinancing Loan on Material Economic Terms substantially similar to the Material Economic Terms contained in the Right of First Offer Notice. For the purposes of this Article XIII,

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“Material Economic Terms” shall mean, collectively, the term of the facility, the approximate amount of the facility, the type of facility (i.e., fixed rate v. floating rate; interest only v. amortization), interest rate, points and other fees, guarantors and types of guaranty agreements, use of deposits/reserves, required equity, and net worth and liquidity requirements. For purposes only of (i) this Article XIII, and (ii) the definition of Applicable Exit Fee Percentage set forth in Section 1.1 of the Mortgage Loan Agreement, the term “Credit Suisse” shall also include any Affiliate of Credit Suisse.

     Section 13.2 Right of First Offer Procedure. The Right of First Offer shall be subject to the procedure set forth below.

          (a) As and when Borrowers determine that they will seek to obtain a Refinancing Loan, Borrowers shall promptly send to Credit Suisse the Right of First Offer Notice.

          (b) Upon receipt of the Right of First Offer Notice, Credit Suisse shall have the right to request all information and materials relating to Borrowers, their direct and indirect principals, the Collateral and the Properties that Credit Suisse shall reasonably require in order to evaluate whether or not it will seek to obtain the requisite internal approvals (the “Internal Approvals”) to extend a Refinancing Loan (collectively, the “Right of First Offer Information and Materials”) and Borrowers hereby agree to cooperate with Credit Suisse in all reasonable respects in connection with providing the Right of First Offer Information and Materials. Such request for the Right of First Offer Information and Materials shall be made within five (5) Business Days of Credit Suisse’s receipt of the Right of First Offer Notice.

          (c) If Credit Suisse is not willing to consider the Refinancing Loan, Credit Suisse shall, prior to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the Right of First Offer Information and Materials, deliver to Borrowers a written notice to such effect (“Lender’s Rejection Notice”). Upon receipt of Lender’s Rejection Notice, Borrowers shall then have the right to solicit Third Party Lenders to provide a Refinancing Loan.

          (d) If Credit Suisse is willing to consider the Refinancing Loan, Credit Suisse shall, prior to the expiration of the period ending thirty (30) days after Credit Suisse’s receipt of the Right of First Offer Information and Materials, deliver to Borrowers a term sheet containing Material Economic Terms substantially similar to the Material Economic Terms contained in the Right of First Offer Notice upon which Credit Suisse is prepared to seek the Internal Approvals to extend the Refinancing Loan (the “ROFO Term Sheet”), it being understood that such ROFO Term Sheet shall not be binding upon Credit Suisse and shall in no event be deemed a commitment by Credit Suisse to lend. If Credit Suisse does not deliver a ROFO Term Sheet within such thirty (30) day period, Credit Suisse shall be deemed to be unwilling to provide the Refinancing Loan on the Material Economic Terms contained in the Right of First Offer Notice and the terms and conditions of clause (c) above shall be applicable.

          (e) Credit Suisse shall not be liable in any manner whatsoever for (i) failure to deliver any notice or documents specified herein or (ii) its failure to continue to consider whether or not it will commit to extend the Refinancing Loan.

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     Section 13.3 Application to Credit Suisse. Borrowers expressly acknowledge and agree that Borrowers shall afford the rights under this Article XIII to Credit Suisse whether or not Credit Suisse or any Affiliate thereof is then “Lender” under this Agreement and the other Loan Documents.

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     IN WITNESS WHEREOF, the parties hereto have caused this Third Mezzanine Loan Agreement to be duly executed by their duly authorized representatives, all as of the day and year first above written.

HRHH GAMING JUNIOR MEZZ TWO, LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Vice President, Secretary and Treasurer
HRHH JV JUNIOR MEZZ TWO, LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Vice President

COLUMN FINANCIAL, INC., a Delaware corporation
By:	/s/ HEATHER C. JONES
	Name:	Heather C. Jones
	Title:	Vice President

SCHEDULE I-A

LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY

SCHEDULE I-B

LEGAL DESCRIPTION OF CAFE PROPERTY

SCHEDULE I-C

LEGAL DESCRIPTION OF ADJACENT PROPERTY

SCHEDULE II

DESCRIPTION OF PROJECT

SCHEDULE III

DESCRIPTION OF PLEDGED INTERESTS

		Class of	Percentage of
		Membership	Membership
Issuer	Owner	Interest	Interests
HRHH JV Junior	HRHH JV Junior Mezz	Regular		100	%
Mezz, LLC	Two, LLC
HRHH Gaming Junior	HRHH Gaming Junior	Regular		100	%
Mezz, LLC	Mezz Two, LLC

SCHEDULE IV

ALLOCATED LOAN AMOUNTS

SCHEDULE V

NET WORTH REQUIREMENTS

     1. Guarantors Net Worth Requirements. At all times following any Guarantor Transfer, and thereafter throughout the term of the Loan, (i) the aggregate Net Worth of all Guarantors shall equal $400,000,000 or more, and the aggregate Effective Liquidity of all Guarantors shall equal $200,000,000 or more, and (ii) each Guarantor shall maintain (x) Net Worth of not less than $200,000,000, or, in the event that the Morgans Guarantor or any transferee (including an Affiliate of such transferee) of the Morgans Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings, and (y) Effective Liquidity of not less than $100,000,000, or, in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings. Upon request, and at such times as Borrowers are required to deliver to Lender any financial statements or information with regard to Guarantor required by Section 5.1.11 of the Loan Agreement, Borrowers shall deliver or cause to be delivered to Lender a certificate of each Guarantor setting forth in reasonable detail such Guarantor’s Net Worth as of the end of the prior calendar year or quarter, as the case may be, and then Effective Liquidity, and certifying that such calculations and accompanying financial statements are true, correct, accurate and complete in all material respects.

     2. Additional Definitions. As used in this Schedule V, the following terms shall have the following meanings:

     “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by any Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request confirming the foregoing, subject to the requirements of any existing Guaranty insofar as

relates to the Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of the Obligations.

     “Effective Liquidity” means, (A) with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of Morgans Guarantor, so long as Morgans Guarantor remains a guarantor of any of the Obligations, the Distributable Cash of Morgans Gurantor’s direct or indirect wholly-owned subsidiaries, membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor (so long as the DLJ Guarantor remains guarantor of any of the Obligations), any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities, and (B) with respect to DLJ Guarantor, so long as the DLJ Guarantor remains a guarantor of any of the Obligations, as of a given date, the sum of all of the foregoing with respect to the DLJ Guarantor and, without duplication, each of the DLJMB Parties. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (1) Co-Investments LP’s Available Capital, or (2), if greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or DLJMB Parties to pay and perform any obligations guaranteed with respect to the Loan.

     “Net Worth” shall mean, (A) with respect to the Morgans Guarantor only, so long as Morgans Guarantor remains a guarantor of the Obligations, as of a given date, an amount equal to the aggregate fair market value of Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld,

delayed, or conditioned) at Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero, and (B) with respect to any other Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP, provided that, so long as DLJ Guarantor remains a guarantor of any of the Obligations, the Net Worth of the DLJ Guarantor shall equal, as of a given date, the sum of the Net Worth (determined as provided in the preceding clause (B)) of the DLJ Guarantor and, without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided further, that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm (x) the Net Worth of the limited partners of Co-Investments LP, and (y) that such limited partners of Co-Investments LP are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or DLJMB Parties to pay and perform any obligations guaranteed with respect to the Loan.

SCHEDULE VI

ORGANIZATIONAL STRUCTURE

SCHEDULE VII

IP

SCHEDULE VIII

LITIGATION

SCHEDULE IX

OPERATING PERMITS

SCHEDULE X

RENT ROLL

SCHEDULE XI

LIST OF MORTGAGE LOAN DOCUMENTS

1. Amended and Restated Loan Agreement, dated as of November 6, 2007, among Mortgage Borrowers and Mortgage Lender.

2. Replacement Reduced Acquisition Loan Promissory Note, dated November 6, 2007, in the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000), made by Mortgage Borrowers in favor of Mortgage Lender.

3. Replacement Construction Loan Promissory Note, dated November 6, 2007, in the principal amount of Six Hundred Twenty Million and No/100 Dollars ($620,000,000), made by Mortgage Borrowers in favor of Mortgage Lender.

4. Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007, from Mortgage Borrowers to First American Title Insurance Company, as Trustee for the benefit of Mortgage Lender.

5. Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents, dated as of November 6, 2007, by and among Mortgage Borrowers and Mortgage Lender.

6. Amended and Restated Cash Management Agreement, dated as of November 6, 2007, by and among Mortgage Borrowers, Mortgage Lender and Manager.

7. Environmental Indemnity Agreement, dated as of February 2, 2007, by Mortgage Borrowers in favor of Mortgage Lender.

8. Guaranty Agreement, dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.

9. Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.

10. Closing Guaranty of Completion, dated as of February 2, 2007, by Guarantors in favor of Mortgage Lender.

11. Modification and Ratification of Guaranties, dated as of November 6, 2007, by and among Guarantors and Mortgage Lender.

12. HRHI Guaranty Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.

13. Modification of HRHI Loan Documents and Ratification of HRHI Guaranty, dated as of November 6, 2007, by and between HRHI and Mortgage Lender.

14. HRHI Security Agreement, dated as of February 2, 2007, by HRHI in favor of Mortgage Lender.

15. Intellectual Property Security Agreement, dated as of February 2, 2007, by IP Borrower and HRHI in favor of Mortgage Lender.

16. HRHI Gaming Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower and HRHI in connection with the Gaming Sublease and the gaming operations at the Hotel/Casino Property.

17. Recognition Agreement, dated as of February 2, 2007, executed by Mortgage Lender, Hotel/Casino Borrower, HRHI and Golden HRC, LLC in connection with the Gaming Sublease.

18. Agreement, dated as of October 31, 2007, by and among Navegante HR, LLC, Morgans Parent, HRHI, Mortgage Lender and Navegante Gaming, LLC.

19. Operations and Maintenance Agreement, dated as of February 2, 2007, by and among each of Hotel/Casino Borrower and Mortgage Lender and Adjacent Borrower and Mortgage Lender.

20. Collateral Assignment and Acknowledgment (Morton Indemnification), dated as of February 2, 2007, made by PM Realty, LLC, Red, White and Blue Pictures, Inc., Peter A. Morton, 510 Development Corporation, Morgans Hotel Group Co., Morgans Group LLC and Chicago Title Agency of Nevada, Inc. in favor of Mortgage Lender.

21. Assignment of Contracts, Operating Permits and Construction Permits, dated as of February 2, 2007, from Mortgage Borrowers to Mortgage Lender.

22. Assignment of Leases and Rents, dated as of February 2, 2007, from Hotel/Casino Borrower, Café Borrower, Adjacent Borrower and Gaming Borrower, as assignors, to Mortgage Lender, as assignee.

23. Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of February 2, 2007, by Café Borrower, Hotel/Casino Borrower and Adjacent Borrower to Mortgage Lender, and consented and agreed to by the Affiliated Manager of such Properties.

24. Assignment of Management Agreement (Adjacent Property), dated as of February 2, 2007, by Adjacent Borrower to Mortgage Lender, and consented and agreed to by Sub-Manager.

25. Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of February 2, 2007, by Hotel/Casino Borrower to Mortgage Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager.

26. Assignment of Restaurant Management Agreement, dated as of February 2, 2007, by Hotel/Casino Borrower to Mortgage Lender.

27. Collateral Assignment of Interest Rate Cap Agreement (Acquisition Mortgage Loan), dated as of November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:

     (a) Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.

     (b) Interest Rate Cap Confirmation and ISDA Master Agreement.

28. Collateral Assignment of Interest Rate Cap Agreement (Construction Mortgage Loan), dated as of November 6, 2007, by Mortgage Borrowers in favor of Mortgage Lender, together with:

     (a) Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.

     (b) Interest Rate Cap Confirmation and ISDA Master Agreement.

29. Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage Lender, First Mezzanine Lender, Second Mezzanine Lender and Lender.

SCHEDULE XII

LIST OF FIRST MEZZANINE LOAN DOCUMENTS

1. First Mezzanine Loan Agreement, dated as of November 6, 2007, among First Mezzanine Borrowers and First Mezzanine Lender.

2. First Mezzanine Promissory Note, dated November 6, 2007, in the principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), made by First Mezzanine Borrowers in favor of First Mezzanine Lender.

3. First Mezzanine Pledge and Security Agreement, dated as of November 6, 2007, by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, together with:

(a)	Assignment of Membership Interest in: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(b)	Acknowledgment and Consent of Pledge by: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(c)	Instruction to Register Pledge from the applicable First Mezzanine Borrower to: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(d)	Confirmation Statement and Instruction Agreement from: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.
(e)	Original Membership Certificate in each Mortgage Borrower with Transfer Endorsed in Blank: (i) HRHH Cafe, LLC, (ii) HRHH Development, LLC, (iii) HRHH Hotel/Casino, LLC, (iv) HRHH IP, LLC, (v) HRHH Gaming, LLC, and (vi) HRHH Gaming Member, LLC.

4. Cash Management Agreement (First Mezzanine Loan), dated as of November 6, 2007, by and among First Mezzanine Borrowers, Mortgage Borrowers and First Mezzanine Lender.

5. First Mezzanine Environmental Indemnity Agreement, dated as of November 6, 2007, by First Mezzanine Borrowers in favor of First Mezzanine Lender.

6. First Mezzanine Guaranty Agreement, dated as of November 6, 2007, by Guarantors in favor of First Mezzanine Lender.

7. First Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of November 6, 2007, by Guarantors in favor of First Mezzanine Lender.

8. First Mezzanine Closing Guaranty of Completion, dated as of November 6, 2007, by Guarantors in favor of First Mezzanine Lender.

9. First Mezzanine HRHI Guaranty Agreement, dated as of November 6, 2007, by HRHI in favor of First Mezzanine Lender.

10. First Mezzanine HRHI Security Agreement, dated as of November 6, 2007, by HRHI in favor of First Mezzanine Lender.

11. First Mezzanine Intellectual Property Security Agreement, dated as of November 6, 2007, by HRHI in favor of First Mezzanine Lender.

12. First Mezzanine Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of November 6, 2007, by First Mezzanine Borrowers, as assignors, Café Borrower, Hotel/Casino Borrower and Adjacent Borrower, to First Mezzanine Lender, and consented and agreed to by the Affiliated Manager of such Properties.

13. First Mezzanine Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of November 6, 2007, by First Mezzanine Borrowers, as assignors, and Hotel/Casino Borrower, to First Mezzanine Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager.

14. Collateral Assignment of Interest Rate Cap Agreement (First Mezzanine Loan), dated as of November 6, 2007, by First Mezzanine Borrowers in favor of First Mezzanine Lender, together with:

(a)	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
(b)	Interest Rate Cap Confirmation and ISDA Master Agreement.

15. Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage Lender, First Mezzanine Lender, Second Mezzanine Lender and Lender.

SCHEDULE XIII

LIST OF SECOND MEZZANINE LOAN DOCUMENTS

1. Second Mezzanine Loan Agreement, dated as of November 6, 2007, among Second Mezzanine Borrowers and Second Mezzanine Lender.

2. Second Mezzanine Promissory Note, dated November 6, 2007, in the principal amount of One Hundred Million and No/100 Dollars ($100,000,000), made by Second Mezzanine Borrowers in favor of Second Mezzanine Lender.

3. Second Mezzanine Pledge and Security Agreement, dated as of November 6, 2007, by Second Mezzanine Borrowers, as pledgors, in favor of Second Mezzanine Lender, together with:

(a)	Assignment of Membership Interest in: (i) HRHH Gaming Senior Mezz, LLC, and (ii) HRHH JV Senior Mezz, LLC.
(b)	Acknowledgment and Consent of Pledge by: (i) HRHH Gaming Senior Mezz, LLC, and (ii) HRHH JV Senior Mezz, LLC.
(c)	Instruction to Register Pledge from the applicable Second Mezzanine Borrower to: (i) HRHH Gaming Senior Mezz, LLC, and (ii) HRHH JV Senior Mezz, LLC.
(d)	Confirmation Statement and Instruction Agreement from: (i) HRHH Gaming Senior Mezz, LLC, and (ii) HRHH JV Senior Mezz, LLC.
(e)	Original Membership Certificate in each First Mezzanine Borrower with Transfer Endorsed in Blank: (i) HRHH Gaming Senior Mezz, LLC, and (ii) HRHH JV Senior Mezz, LLC.

4. Cash Management Agreement (Second Mezzanine Loan), dated as of November 6, 2007, by and among Second Mezzanine Borrowers, Mortgage Borrowers and Second Mezzanine Lender.

5. Second Mezzanine Environmental Indemnity Agreement, dated as of November 6, 2007, by Second Mezzanine Borrowers in favor of Second Mezzanine Lender.

6. Second Mezzanine Guaranty Agreement, dated as of November 6, 2007, by Guarantors in favor of Second Mezzanine Lender.

7. Second Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of November 6, 2007, by Guarantors in favor of Second Mezzanine Lender.

8. Second Mezzanine Closing Guaranty of Completion, dated as of November 6, 2007, by Guarantors in favor of Second Mezzanine Lender.

9. Second Mezzanine HRHI Guaranty Agreement, dated as of November 6, 2007, by HRHI in favor of Second Mezzanine Lender.

10. Second Mezzanine HRHI Security Agreement, dated as of November 6, 2007, by HRHI in favor of Second Mezzanine Lender.

11. Second Mezzanine Intellectual Property Security Agreement, dated as of November 6, 2007, by HRHI in favor of Second Mezzanine Lender.

12. Second Mezzanine Assignment of Management Agreement and Subordination of Management Fees (All Properties), dated as of November 6, 2007, by Second Mezzanine Borrowers, as assignors, Café Borrower, Hotel/Casino Borrower and Adjacent Borrower, to Second Mezzanine Lender, and consented and agreed to by the Affiliated Manager of such Properties.

13. Second Mezzanine Assignment of Liquor Management and Employee Services Agreement and Subordination of Management Fees, dated as of November 6, 2007, by Second Mezzanine Borrowers, as assignors, and Hotel/Casino Borrower, to Second Mezzanine Lender, and consented and agreed to by HRHI, in its capacity as the Liquor Manager.

14. Collateral Assignment of Interest Rate Cap Agreement (Second Mezzanine Loan), dated as of November 6, 2007, by Second Mezzanine Borrowers in favor of Second Mezzanine Lender, together with:

(a)	Acknowledgement of Pledge of Interest Rate Cap Agreement by Counterparty.
(b)	Interest Rate Cap Confirmation and ISDA Master Agreement.

15. Commitment Letter of the DLJMB Parties, dated as of February 2, 2007, addressed to the DLJ Guarantor, as modified by that certain Modification and Ratification of DLJMB Commitment Letter and Consent, dated as of November 6, 2007, by the DLJMB Parties in favor of Mortgage Lender, First Mezzanine Lender, Second Mezzanine Lender and Lender.

EXHIBIT A

FORM OF THIRD MEZZANINE
CONSTRUCTION COMPLETION GUARANTY

EX-10.29

Exhibit 10.29

EXECUTION COPY

MODIFICATION AND RATIFICATION OF GUARANTIES

     THIS MODIFICATION AND RATIFICATION of GUARANTIES (this “Modification”) is made as of the 6th day of November 2007, by and among MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each, individually, a “Guarantor”, and collectively, “Guarantors”), and COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Loan Agreement dated as of February 2, 2007 by and among HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC and HRHH Gaming, LLC (collectively, “Borrowers”) and Lender (the “Original Loan Agreement”), Lender made a loan (the “Loan”) to Borrowers in the original principal sum of up to One Billion Three Hundred Sixty Million and 00/100 Dollars ($1,360,000,000.00).

     B. The Loan is evidenced by that certain Promissory Note dated as of February 2, 2007 made by Borrowers in favor of Lender (the “Original Note”), and is secured by, among other things (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) dated as of February 2, 2007 made by Borrowers, as grantors, to First American Title Insurance Company, as trustee, for the benefit of Lender, as beneficiary (the “Security Instrument”), encumbering the properties located in Clark County, Nevada more particularly described therein (collectively, the “Properties”), and (ii) that certain Assignment of Leases and Rents dated as of February 2, 2007 made by Borrowers in favor of Lender and encumbering the Properties (the “Assignment of Leases”).

     C. In connection with the making of the Loan to Borrowers, Guarantors executed and delivered to Lender the following documents: (i) that certain Closing Guaranty of Completion dated as of February 2, 2007 made by Guarantors in favor of Lender (as the same is being amended hereby and as the same hereafter may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Completion Guaranty”), (ii) that certain Guaranty Agreement (Non-Qualified Mandatory Prepayment) dated as of February 2, 2007 made by Guarantors in favor of Lender (as the same is being amended hereby and as the same hereafter may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Non-Qualified Prepayment Guaranty”), and (iii) that certain Guaranty Agreement dated as of February 2, 2007 made by Guarantors in favor of Lender (as the same is being amended hereby and as the same hereafter may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Non-Recourse Guaranty”; and collectively with the Completion Guaranty and the Non-Qualified Prepayment Guaranty, the “Guaranties”).

     D. On the date hereof, (i) Borrowers are prepaying $350,000,000.00 of the Loan with the proceeds of three (3) mezzanine loans made to the direct and/or indirect owners of equity interests in Borrowers (collectively, the “Mezzanine Prepayments”), and (ii) Lender is increasing the maximum amount that may be funded in the future under the Construction Loan (as defined in the Original Loan Agreement) by $20,000,000.00 (the “Construction Loan Increase”).

     E In connection with the Mezzanine Prepayments and the Construction Loan Increase, Borrowers and Lender have agreed to modify certain terms of the Loan and, in connection therewith, are today executing and delivering (i) that certain Amended and Restated Loan Agreement dated of even date herewith (as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Loan Agreement”), (ii) that certain Replacement Reduced Acquisition Loan Promissory Note of even date herewith in the principal amount of Four Hundred Ten Million and No/100 Dollars ($410,000,000.00) made by Borrowers in favor of Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Reduced Acquisition Loan Note”), (iii) that certain Replacement Construction Loan Promissory Note of even date herewith in the principal amount of up to Six Hundred Twenty Million and No/100 Dollars ($620,000,000.00) made by Borrowers in favor of Lender (as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time, the “Construction Loan Note”; and collectively with the Reduced Acquisition Loan Note, the “Notes”), and (iv) that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents between Borrowers and Lender (the “Loan Document Modification Agreement”). Other than the $20,000,000.00 Construction Loan Increase, which is created and evidenced as a part of the Construction Loan Note, the Notes do not create any new or additional indebtedness, but merely each evidence a portion of the same indebtedness evidenced by the Original Note.

     F. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

     G. In connection with the modification of the Loan as hereinabove described, including, without limitation, the Construction Loan Increase, (i) Lender and Guarantors desire to modify the Guaranties, and (ii) Lender has requested that Guarantors ratify the terms and conditions of the Guaranties as hereinafter set forth.

     NOW, THEREFORE, for good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Borrowers and Lender hereby agree as follows:

1. Modifications to Definitions Generally. Guarantors and Lender hereby agree that all references to the following defined terms contained in any of the Guaranties are hereby modified as follows:

     (a) Note. All references to “the Note” shall be deemed to refer to the Notes as defined herein; provided, however, that any such deemed reference to the Notes as defined herein shall be deemed to refer to the Notes collectively or to either or both of the Notes, as the context shall reasonably require.

     (b) Loan Agreement. All references to “the Loan Agreement” shall mean the Loan Agreement as defined herein.

     (c) Cash Management Agreement. All references to “the Cash Management Agreement” shall mean that certain Amended and Restated Cash Management Agreement of even date herewith by and among Borrowers, HRHI and Lender and acknowledged and agreed to by Manager, as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

     (d) HRHI Loan Documents. All references to any Loan Document to which HRHI is a party shall mean such Loan Document as modified by the Loan Document Modification Agreement and by that certain Modification of HRHI Loan Documents and Ratification of HRHI Guaranty of even date herewith by and between HRHI and Lender, and as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

     (e) Individual Loan Documents. All references to any other Loan Document not specifically referred to above, shall mean such Loan Document as modified by the Loan Document Modification Agreement, and as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

     (f) Loan Documents. All references to “the Loan Documents” shall mean the Loan Documents as modified by the Loan Document Modification Agreement and, if applicable, as modified by any other modification documents referred to in this Modification, and as the same may hereafter be amended, restated, replaced, supplemented or otherwise modified from time to time.

2. Specific Modifications to Non-Qualified Prepayment Guaranty. Without limiting the general modifications to the Loan Documents referred to above, Lender and Guarantors hereby agree to the following additional modifications:

     (a) Section 1.1(i) of the Non-Qualified Prepayment Guaranty is hereby deleted in its entirety and replaced with the following:

     “(i) Definition of Guaranteed Obligation. As used herein, the term “Guaranteed Obligation” means the obligation of Borrowers to pay to Lender the Non-Qualified Mandatory Prepayment; provided, however, that in no event shall the aggregate liability of Guarantors under this Guaranty and the Mezzanine Non-Qualified Prepayment Guaranties exceed the Non-Qualified Mandatory Prepayment, which shall be applied to the Debt, the First Mezzanine Debt, the Second Mezzanine Debt and the Third Mezzanine Debt in accordance with the provisions of Section 2.4.3(b) of the Loan Agreement.”

     (b) Exhibit A to the Non-Qualified Prepayment Guaranty is hereby deleted in its entirety and replaced with Exhibit A attached hereto and made a part hereof.

3. Specific Modifications to Non-Recourse Guaranty. Without limiting the general modifications to the Loan Documents referred to above, Lender and Guarantors hereby agree to the following additional modifications:

     (a) The following new clause (xviii) is hereby added to Section 1.2(a) of the Non-Recourse Guaranty:

     “(xviii) as a result of Adjacent Borrower selling or attempting to sell any Partial Release Parcel or any Partial Adjacent Parcel in accordance with the procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Loan Agreement, as applicable, rather than pursuant to a customary direct deed transfer, including, without limitation, (A) the imposition of any tax (including interest and penalties) provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action filed by or against any Subsidiary Transferee prior to or following the consummation of such sale, and/or (C) in connection with any delay in accomplishing any of the steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Loan Agreement, as applicable.”

     (b) The following new Section 1.2(c) is hereby added to the Non-Recourse Guaranty:

     “(c) the payment of the following amounts as and when due under the Loan Agreement if and to the extent that any of the same are not paid in full by Borrowers as and when due under the Loan Agreement: (i) any Interest Shortfall existing on any Payment Date (A) occurring after February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date; and (ii) all amounts necessary to obtain and maintain the Gaming Letter of Credit in accordance with Section 12.3 of the Loan Agreement, including, without limitation, the reimbursement obligation to the counterparty issuing the Gaming Letter of Credit in the full principal amount thereof in the event that Lender draws on the same in accordance with its rights under the Loan Agreement; provided, however, that it is expressly understood, agreed and acknowledged by Lender and Guarantors that, notwithstanding anything to the contrary set forth in this Guaranty or in any other Loan Document, the Guaranteed Obligations set forth in this Section 1.2(c) shall be and remain the sole and exclusive liability of the DLJ Guarantor and, under no circumstances, shall the Morgans Guarantor ever have any liability with respect thereto.”

     (c) After each reference to the phrase “joint and several” or “jointly and severally” set forth in the Non-Recourse Guaranty, there is hereby added the following: “(except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof)”.

     (d) Exhibit A to the Non-Recourse Guaranty is hereby deleted in its entirety and replaced with Exhibit A attached hereto and made a part hereof.

4. Specific Modifications to Completion Guaranty. Without limiting the general modifications to the Loan Documents referred to above, Lender and Guarantors hereby agree to the following additional modifications:

     (a) The lead-in sentence of Section 1.1(b) of the Completion Guaranty is hereby deleted in its entirety and replaced with the following:

“Each Guarantor hereby jointly and severally, irrevocably, absolutely and unconditionally guarantees to Lender the full, complete and punctual payment, performance and satisfaction of all of the obligations, duties, covenants and agreements of Borrowers under (i) Section 3.17.6 of the Loan Agreement relating to restoration of the Properties in the event that Borrowers have delivered a Relinquishment Notice to Lender or a Deemed Relinquishment has occurred, or (ii) Section 3.22 of the Loan Agreement relating to restoration of the Properties in the event that Borrowers have delivered a Stop Notice to Lender, in each instance, substantially in compliance with all applicable Legal Requirements and to the reasonable satisfaction of the Construction Consultant, including, without limitation:”

     (b) The last paragraph of Section 1.1 of the Completion Guaranty is hereby deleted in its entirety and replaced with the following:

“The obligations and liabilities set forth in the foregoing Sections 1.1(a) and 1.1(b) are collectively referred to herein as the “Guaranteed Obligations”; provided, however, that in no event shall the aggregate obligations and liabilities of Guarantors under this Guaranty and the Mezzanine Closing Completion Guaranties exceed the Guaranteed Obligations; and the completion obligations with respect to completion of any Initial Renovations Project or restoration from any Pre-Construction Work shall be referred herein as the “Guaranteed Work”. Each Guarantor hereby acknowledges having received, reviewed and approved a true and complete copy of the Loan Agreement. Each Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor and not merely as a surety.”

     (c) Exhibits A-1 and A-2 to the Completion Guaranty are hereby deleted in their entirety and replaced with Schedule 1 attached hereto and made a part hereof.

     (d) Exhibit B to the Completion Guaranty is hereby deleted in its entirety and replaced with Exhibit B attached hereto and made a part hereof.

5. Ratification of Guaranties. Each Guarantor hereby (a) ratifies the terms and conditions of each of the Guaranties, as modified by this Modification, and its obligations thereunder, and (b)

represents, warrants and covenants to Lender that it has no offset, counterclaim or defense with respect to its obligations under any of the Guaranties, as modified by this Modification.

6. Miscellaneous.

     (a) Recitals. The Recitals at the beginning of this Modification are hereby incorporated into, and made a part of, the substantive provisions of this Modification.

     (b) Governing Law. This Modification, including all matters of construction, validity and performance, shall in all respects be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts made in such State and to be performed entirely within such State, without giving effect to principles relating to conflicts of law.

     (c) Successors and Assigns. The covenants, conditions and agreements contained in this Modification shall be binding upon, and shall inure to the benefit of, Lender and Guarantors and their respective successors and assigns; provided, however, that no Guarantor shall assign this Modification except as expressly permitted under the Guaranties and the Loan Agreement, and any assignment made otherwise shall be void.

     (d) Construction. Guarantors agree that they and their counsel have had ample opportunity to review this Modification and that the normal rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Modification.

     (e) Severability. In the event that any one or more of the provisions of this Modification shall be determined to be void or unenforceable by a court of competent jurisdiction or by law, such determination will not render this Modification invalid or unenforceable, and the remaining provisions hereof shall remain in full force and effect.

     (f) Section Headings. The section headings in this Modification are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties.

     (g) Amendments; Waivers. This Modification may not be amended or modified, and no provision of this Modification may be waived, except, in each instance, pursuant to a written instrument signed by Lender and Guarantors.

     (h) Full Force and Effect. Except as and to the extent modified by this Modification, the Guaranties remain unmodified and in full force and effect.

[NO FURTHER TEXT ON THIS PAGE; SIGNATURE PAGE FOLLOWS]

     IN WITNESS WHEREOF, this Modification and Ratification of Guaranties has been executed by Lender and Guarantors as of the date first above written.

MORGANS GUARANTOR:
MORGANS GROUP LLC,
a Delaware limited liability company
By:	/s/ Richard Szymanski
	Name: Richard Szymanski
	Title: Chief Financial Officer and Secretary
DLJ GUARANTOR:
DLJ MB IV HRH, LLC,
a Delaware limited liability company
By:	/s/ Kenneth J. Lohsen
	Name: Kenneth J. Lohsen
	Title: Authorized Signatory
LENDER:
COLUMN FINANCIAL, INC.,
a Delaware corporation
By:	/s/ Priscilla Horning
Name: Priscilla Horning
Title: Vice President

EXHIBIT A

EXHIBIT B

SCHEDULE 1

Hotel Parcel:

That portion of Lot 1 of the merger and resubdivision of final map of the Hard Rock Hotel/Casino, as shown by Map thereof on file in Book 138 of Plats, Page 49 in the office of the County recorder of Clark County, Nevada, being described as follows:

A parcel of land being a portion of the Northeast quarter (NE1/4) of Section 21 and a portion of the Southwest quarter (SW1/4) of the Northwest quarter (NW1/4) of Section 22, township 21 South, range 61 East M.D.M. Clark County, Nevada, described as follows:

Commencing at the Southeast corner of the Northeast quarter (NE1/4) of said Section 21; thence along the East line thereof, North 00º05’49” East, 40.01 feet to the point of beginning and the Northerly right of way North 89º59’40” West, 449.99 feet to the Southwest corner of Lot 1 as shown in Book 138 if Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence departing said right of way, along the boundary of said Lot 1 North 00º06’00” East, 473.48 feet; thence departing said Lot 1 North 45º35’41” East, 440.21 feet; thence North 04º54’29” East 98.89 feet; thence North 85º07’37” West, 31.65 feet; thence North 04º54’29” East, 137.63 feet; thence South 85º07’27” East, 31.65 feet; thence North 04º54’29” East, 178.05 feet to the North line of the Southeast quarter (SE1/4) of the Northeast quarter (NE1/4) of said Section 21; thence along said North Line South 89º04’19” East, 101.23 feet to the North sixteenth common to Section 21 and 22, also being a point on the North boundary of Lot 1 as shown in Book 138 of Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence along the boundary of said Lot 1 the following twenty-one (21) courses:

1) South 88º56’51” East, 506.21 feet;
2) South 14º05’09” east, 49.76 feet;
3) South 07º35’35” East, 110.67 feet;
4) South 14º05’09” East, 137.26 feet;
5) South 89º14’55” East, 5.25 feet to the beginning of a curve, concave to the Southwest having a radius of 10.00 feet;
6) Southeasterly along said curve, through a central angle of 75º09’46”, an arc length of 13.12 feet;
7) South 14º05’09” East, 46.62 feet;
8) South 02º45’28” East, 61.06 feet;
9) South 14º04’51” East, 65.43 feet;
10) South 32º31’15” East, 37.95 feet;
11) South 14º05’09” East, 437.44 feet;
12) South 75º34’42” West, 195.01 feet;
13) South 14º05’18” East, 115.31 feet;
14) South 06º31’30” East, 110.02 feet;
15) North 88º57’40” West, 91.40 feet;
16) North 01º02’20” East 5.10 feet;
17) North 77º39’04” West, 60.69 feet;
18) North 88º57’40” West, 246.50 feet;

19) South 01º02’20” West, 7.00 feet to the beginning of a curve, concave to the Northwest, having a radius of 10.00 feet
20) Southwesterly along said curve, through a central angle of 90º00’00” , an arc length of 15.71 feet
21) North 88º57’40” West, 184.56 feet to the point of beginning.

Also being described as parcel 2 of that certain record of survey recorded October 23, 2007 in File 169 as Page 0015.

Development Parcel I:

That portion of Lot 1 of the merger and resubdivision of final Map of the Hard Rock Hotel/Casino, as shown by map thereof on file in Book 138 of Plats, Page 49 in the Office of the County recorder of Clark County, Nevada, being described as follows:

A parcel of land being a portion of the Northeast quarter (NE 1/4) of Section 21 Township 21 South, range 61 East M.D.M., Clark County, Nevada, described as follows:

Commencing at the Southeast corner of the Northeast quarter (NE¹/4) of said Section 21; thence along the East line thereof, North 00º05’49” East, 40.01 feet to the Northerly right of way of Harmon Avenue; thence along the said Northerly right of way, North 89º59’40” West, 449.99 feet to the Southwest corner of Lot 1 as shown in Book 138 of Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence departing said right of way, along the boundary of said Lot 1 North 00º06’00” East, 473.48 feet to the point of beginning; thence continuing along the boundary of said Lot 1 the following five (5) courses:

1) North 00º06’00” East, 726.73 feet

2) North 89º04’19” West, 444.02 feet to the beginning of a non-tangent curve, concave to the Northeast, having a radius of 650.00 feet, from which beginning the radius bears North 48º20’31” east;

3) Northerly, through a central angle of 40º36’38”, an arc length of 460.71 feet to which a radial line bears North 88º57’09” West;

4) South 89º54’00” East, 1,058.87 feet;

5) South 00º05’49” West, 432.79 feet to the North sixteenth common to section 21 and 22, thence along the North line of the Southeast quarter (SE1/4) of the Northeast quarter (NE1/4) of said section 21, North 89º04’49” East, 101.23 feet; thence South 04º54’29” West, 178.05 feet; thence North 85º07’27” West, 31.65 feet; thence South 04º54’29” West 137.63 feet; thence South 85º07’37” East, 31.65 feet; thence South 04º54’29” West, 98.89 feet; thence South 45º35’41” West, 440.21 feet to the point of beginning.

Also being described as parcel 1 of that certain record of Survey recorded October 23, 2007 in File 169 as Page 0015.

Development Parcel II:

That portion of the Northwest Quarter (NW 1/4) of the Northwest Quarter (NW 1/4) of Section 22 Township 21 South, Range 61 East, M.D.B. & M., Clark County, Nevada, described as follows:

Parcel One (1) as shown by Map thereof in file 52 of Parcel Maps, Page 41 in the Office of the County Recorder, Clark County, Nevada, and amended by Certificate of Amendment recorded May 26, 1987 in Book 870526 as Document No. 00396.

Development Parcel III:

A perpetual non-exclusive easement for drainage and incidental purposes over, under, across and upon the South 25 feet (measured at right angles to the South line) of Parcel Two (2) as delineated on that certain Parcel Map on file in file 52 of Parcel maps, Page 41 in the Office of the County Recorder of Clark County, Nevada. Said easement being recorded on July 9, 1987 in Book 870709 as Document No. 00322.

Development Parcel IV:

A perpetual easement for the encroachment of a Masonry Wall as created by the certain document entitled “Perpetual Easement” recorded February 2, 1992 on Book 920211 as Document No. 00134 of Official Records, Clark County, Nevada.

Cafe Parcel One:

That portion of the Northwest Quarter (NW 1/4) of Section 22, Township 21 South, Range 61 East, M.D.B. & M., More particularly described as follows:

Parcel Two (2) as shown by map thereof of file 61 of Parcel Maps, Page 52 in the Office of the County Recorded, Clark County, Nevada.

Cafe Parcel Two:

A non-exclusive parking easement as granted to Red, White and Blue Pictures, Inc, recorded July 31, 1989 in Book 890731 as Instrument No. 00365 and as Instrument No. 00366 of Official Records. 

EX-10.30

Exhibit 10.30

EXECUTION COPY

FIRST MEZZANINE GUARANTY AGREEMENT

     THIS FIRST MEZZANINE GUARANTY AGREEMENT (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each, individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in the City of Las Vegas, County of Clark, State of Nevada, as more particularly described in the Mortgage (the “Property”); (ii) that certain Guaranty Agreement dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Non-Recourse Guaranty”), made by Guarantors in favor of Mortgage Lender); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with the Mortgage Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Non-Recourse Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH JV SENIOR MEZZ, LLC, a Delaware limited liability company (“JV Borrower”) and HRHH GAMING SENIOR MEZZ, LLC, a Delaware limited liability company (“Gaming Mezz Borrower”; and each of JV Borrower and Gaming Mezz Borrower being referred to herein individually as a “Borrower” and collectively as “Borrowers”), and payable to the order of Lender in the original principal amount of Two Hundred Million and 00/100 Dollars ($200,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement, collectively, the “Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC and HRHH JV Junior Mezz, LLC (collectively, the “Second Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as second mezzanine lender (together with its successors and assigns, the “Second Mezzanine Lender”), in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Second Mezzanine Note”), Second Mezzanine Borrowers have become indebted to Second Mezzanine Lender with respect to a loan (the “Second Mezzanine Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Borrowers and Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Loan Agreement”), which Second Mezzanine Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Second Mezzanine Borrowers, as pledgors, in favor of Second Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Pledge Agreement”); (ii) that certain Second Mezzanine Guaranty Agreement, dated as of the date hereof, made by Guarantors in favor of Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Non-Recourse Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Second Mezzanine Loan (together with the Second Mezzanine Note, the Second Mezzanine Loan Agreement, the Second Mezzanine Pledge Agreement and the Second Mezzanine Non-Recourse Guaranty, collectively, the “Second Mezzanine Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC and HRHH JV Junior Mezz Two, LLC (collectively, the “Third Mezzanine Borrowers”), and payable to the order of Column

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Financial, Inc., in its capacity as third mezzanine lender (together with its successors and assigns, the “Third Mezzanine Lender”), in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Third Mezzanine Note”), Third Mezzanine Borrowers have become indebted to Third Mezzanine Lender with respect to a loan (the “Third Mezzanine Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Borrowers and Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Loan Agreement”), which Third Mezzanine Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Third Mezzanine Borrowers, as pledgors, in favor of Third Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Pledge Agreement”); (ii) that certain Third Mezzanine Guaranty Agreement, dated as of the date hereof, made by Guarantors in favor of Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Non-Recourse Guaranty”, and together with the Mortgage Non-Recourse Guaranty and the Second Mezzanine Non-Recourse Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Third Mezzanine Loan (together with the Third Mezzanine Note, the Third Mezzanine Loan Agreement, the Third Mezzanine Pledge Agreement and the Third Mezzanine Non-Recourse Guaranty, collectively, the “Third Mezzanine Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     G. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranty of Obligation. Each Guarantor hereby jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Each Guarantor hereby

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jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor.

     1.2 Definition of Guaranteed Obligations. As used herein, the term “Guaranteed Obligations” means:

     (a) the obligations and liabilities of each Borrower to Lender for any actual loss, damage (excluding any lost revenue, diminution of value and consequential damages), reasonable cost, reasonable expense, liability, claim and any other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

     (i) fraud or intentional misrepresentation by any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees in connection with the Loan;

     (ii) physical waste to any Property arising from the intentional misconduct or gross negligence of any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees and/or any removal of any asset forming a part of any Property in violation of the Loan Agreement or the other Loan Documents;

     (iii) intentionally omitted;

     (iv) the misappropriation or conversion by any Loan Party, by any Person Controlled by any Loan Party (including, without limitation, any Affiliated Manager, Liquor Manager who is an Affiliate of any Loan Party or Gaming Operator who is an Affiliate of any Loan Party), by any agent of any Loan Party, or by any other Person with whom any Loan Party shall collude or cooperate, of (A) any Insurance Proceeds paid by reason of any Casualty, to the extent so misappropriated or converted; (B) any Awards received in connection with a Condemnation, to the extent so misappropriated or converted; (C) any Rents or other Gross Income from Operations not delivered to Lender following and during the continuance of an Event of Default and not otherwise used to pay actual, customary Operating Expenses reflected on the Approved Annual Budget then in effect, including, without limitation, (I) any income, proceeds or other amounts received by any Loan Party under the Gaming Sublease, and/or (II) without duplication of the foregoing clause (I), any income, proceeds or revenue generated from gaming activities at any Property, in each of the foregoing instances, to the extent so misappropriated or converted; (D) any Rents paid more than one (1) month in advance in violation of the Loan Agreement or the other Loan Documents, to the extent so misappropriated or converted; and/or (E) any security deposits, to the extent so misappropriated or converted;

     (v) the failure of any Loan Party to pay (or to deposit into the Mortgage Reserve Funds or the Reserve Funds, if applicable, amounts sufficient

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to pay) all Taxes and all other costs giving rise to any Lien on any portion of the Collateral or any Property or the IP with priority over or equal to the Lien of the Loan Documents in violation of the Loan Agreement or the other Loan Documents, to the extent that there is sufficient Gross Income from Operations to make such payments (or deposits, as applicable);

     (vi) if any Loan Party fails to maintain its status as a Special Purpose Entity as required pursuant to the terms of the Loan Agreement;

     (vii) if any Loan Party fails to obtain Lender’s consent to any subordinate financing, deed of trust, mortgage or other voluntary lien encumbering the Collateral, any Property or the IP other than Permitted Encumbrances and Permitted IP Encumbrances;

     (viii) the failure to maintain insurance coverage under blanket insurance policies to the extent permitted under the Loan Agreement;

     (ix) if any of the events set forth in clauses (a), (b) or (c) of Section 5.2.11 of the Loan Agreement shall occur without the prior approval of Lender;

     (x) if any of the restrictions to Transfer set forth in Section 5.2.10 of the Loan Agreement or in any of the other Loan Documents are violated;

     (xi) if Lender or any Affiliate thereof shall succeed to the interest of HRHI under the Gaming Sublease following a foreclosure, deed in lieu of foreclosure or similar transfer, any actual loss, cost, damage or expense (including, without limitation, reasonable attorneys’ fees expenses) suffered by Lender or such Affiliate as a result of: (A) any act, omission, neglect or default of HRHI under the Gaming Sublease, (B) any claim, defense, counterclaim or offset which the Gaming Operator may have under the Gaming Sublease against HRHI, (C) any obligation to make any payment to the Gaming Operator under the Gaming Sublease which was required to be made by or on behalf of HRHI prior to the time Lender or such Affiliate succeeded to HRHI’s interest under the Gaming Sublease, (D) any monies deposited with HRHI under the Gaming Sublease, except to the extent such monies are actually received by Lender or such Affiliate, (E) any obligation to complete or permit the construction of any improvements under the Gaming Sublease arising while HRHI was the sublandlord under the Gaming Sublease, and/or (F) any default by HRHI under the Gaming Lease beyond applicable notice and cure periods;

     (xii) if HRHI or any Affiliate thereof shall send a notice to Gaming Operator under Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement which conflicts with any notice theretofore sent by Lender to Gaming Operator under said Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement; provided, however, that the liability under this clause (xii) shall be limited to all fees and costs incurred by Gaming Operator in bringing and pursuing any interpleader action contemplated by said Section 6(a), (c) or (d),

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as applicable, and only to the extent that Gaming Operator seeks to recover and/or does recover such fees and expenses from Lender;

     (xiii) if HRHI shall fail to provide Gaming Employees for the operation of gaming activities at the Hotel/Casino Property as and to the extent required pursuant to Paragraph 7of the HRHI Gaming Agreement;

     (xiv) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII of the Loan Agreement, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) of the Loan Agreement;

     (xv) in the event that HRHI, Gaming Borrower, any other Loan Party or any Affiliate thereof shall be the Liquor Manager, if HRHI, Gaming Borrower, such other Loan Party or such Affiliate thereof shall fail to provide liquor management services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required (A) as to HRHI, pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement, as applicable, and (B) as to Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof, pursuant to Section 5.1.23(c) of the Loan Agreement;

     (xvi) in connection with the $250,000 lease termination fee pursuant to Section 3.2(B) of that certain Lease by and between PM Realty, LLC and HRHI, as landlord, and Mr. Chow of Las Vegas, LLC, as tenant, dated December 24, 2004;

     (xvii) as a result of the imposition of any tax provided in NRS §§375.020 and 375.023 with respect to the merger transaction contemplated under the Merger Agreement and/or the subsequent conveyance of the Hotel/Casino Property (A) to HRHH Gaming Junior Mezz, LLC, and then (B) to Gaming Mezz Borrower, and then (iii) to Hotel/Casino Borrower, provided, however, that any liability under this clause (xvii) shall terminate upon the payment in full of the Debt; and/or

     (xviii) as a result of Adjacent Borrower selling or attempting to sell any Partial Release Parcel or any Partial Adjacent Parcel in accordance with the procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable, rather than pursuant to a customary direct deed transfer, including, without limitation, (A) the imposition of any tax (including interest and penalties) provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action filed by or against any Subsidiary Transferee prior to or following the consummation of such sale, and/or (C) in connection with any delay in accomplishing any of the steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable.

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     (b) the entire amount of the Debt in the event of:

     (i) any Loan Party, HRHI or both Guarantors filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

     (ii) the filing of an involuntary petition against any Loan Party, HRHI or both Guarantors under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by or on behalf of any Person other than Lender, and such petition is not dismissed within ninety (90) days after filing, or any Loan Party, or any Affiliate of any of them who Controls any Loan Party, or HRHI or both Guarantors, solicit or cause to be solicited petitioning creditors for any involuntary petition against any Loan Party, HRHI or both Guarantors from any Person (other than if requested to do so by or on behalf of Lender);

     (iii) any Loan Party, HRHI or both Guarantors filing an answer consenting to, or any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, otherwise consenting to or acquiescing or joining in, any involuntary petition filed against any Loan Party, HRHI or both Guarantors, by any other Person (other than if filed by or on behalf of Lender) under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

     (iv) any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, consenting to or acquiescing or joining in an application for the appointment of a custodian, receiver, trustee or examiner for any Loan Party or any portion of any Property or any portion of the IP or the Collateral (other than any such appointment at the request or petition of Lender);

     (v) any Loan Party, HRHI or both Guarantors voluntarily making an assignment for the benefit of creditors (other than Lender), or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; and/or

     (vi) Gaming Mezz Borrower failing to comply, or cause compliance by the applicable Mortgage Borrower, with the requirements of the Gaming Laws to obtain the approval of the Gaming Authorities of the pledge of the Gaming Securities pursuant to Section 17(b) of the Pledge Agreement (it being understood and agreed that Guarantors shall have no liability under this clause (vi) to the extent arising from the failure of Lender to reasonably cooperate with the Gaming Authorities in connection with such Gaming Law requirements to the extent necessary);

unless, in the case of any of the foregoing clauses (i), (ii), (iii), (iv), (v) or (vi) as it relates to or affects both Guarantors, one or more guarantors acceptable to Lender in its sole discretion remains or becomes a guarantor of the Loan.

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     (c) the payment of the following amounts as and when due under the Loan Agreement if and to the extent that any of the same are not paid in full by Borrowers as and when due under the Loan Agreement:

     (i) any Interest Shortfall existing on any Payment Date (A) occurring after February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date; and

     (ii) all amounts necessary to obtain and maintain the Gaming Letter of Credit in accordance with Section 12.3 of the Mortgage Loan Agreement, including, without limitation, the reimbursement obligation to the counterparty issuing the Gaming Letter of Credit in the full principal amount thereof in the event that Mortgage Lender draws on the same in accordance with its rights under the Mortgage Loan Agreement (provided, that in no event shall the aggregate obligations and liabilities of Guarantors under this Section 1.2(c)(ii) and under Section 1.2(c)(ii) of the Other Guarantees exceed the amount of the Gaming Letter of Credit);

provided, however, that it is expressly understood, agreed and acknowledged by Lender and Guarantors that, notwithstanding anything to the contrary set forth in this Guaranty or in any other Loan Document, the Guaranteed Obligations set forth in this Section 1.2(c) shall be and remain the sole and exclusive liability of the DLJ Guarantor and, under no circumstances, shall the Morgans Guarantor ever have any liability with respect thereto.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, joint and several (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of any Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

     1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Borrower (except for the defense of the payment of the Guaranteed Obligations), or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

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     1.5 Payment By Guarantors. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantors shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever (except as otherwise provided herein), pay (and each agrees jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) to pay) in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

     1.6 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of any Guarantor hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligations or any other person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (d) join any Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

     1.7 Waivers. Each Guarantor agrees to the provisions of the Loan Documents, and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to any Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Borrower or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and/or the obligations hereby guaranteed.

     1.8 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) agree to pay to Lender and shall promptly upon written demand by Lender, pay Lender all reasonable costs and expenses (including court costs and attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the

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event that (A) Lender employs counsel to enforce the provisions of this Guaranty and (B) Lender has sold or transferred any interests in the Note, then Guarantors shall only be responsible for the attorney’s fees and expenses of the counsel of only one Lender. The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligations.

     1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of each Borrower and each Guarantor that none of Guarantors’ obligations hereunder shall be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights such Guarantor may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating such Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by any Guarantor under or in connection with this Guaranty or otherwise.

     1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company, joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following even if any of the following is materially prejudicial to any or all Guarantors:

     2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of them) and Mortgage Lender, or any other

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parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify any Guarantor of any such action.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower or by Mortgage Lender to any Mortgage Borrower, or any Guarantor or any other Person, as applicable.

     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Borrower, any Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of any Borrower or any Guarantor, or any sale, lease or transfer of any or all of the assets of any Borrower or any Guarantor, or any changes in the shareholders, partners or members of any Borrower or any Guarantor; or any reorganization of any Borrower or any Guarantor.

     2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligations, or any part thereof, exceed the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Pledge Agreement, the Loan Agreement or the other Loan Documents or the Mortgage Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) any Borrower has valid defenses (other than the payment of the Guaranteed Obligations), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from any Borrower, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement, any of the other Loan Documents or the Mortgage Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) liable hereon regardless of whether any Borrower, any other Guarantor or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any other Person (including any other Guarantor) will be liable to pay or perform the Guaranteed Obligations, or that Lender will look

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to any other Person (including any other Guarantor) to pay or perform the Guaranteed Obligations.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

     2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except that of payment of the Guaranteed Obligations) of any Borrower against Lender, or of any Mortgage Borrower against Mortgage Lender or any other Person, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     2.11 Merger. The reorganization, merger or consolidation of any Borrower into or with any Person.

     2.12 Preference. Any payment by any Borrower to Lender or by any Mortgage Borrower to Mortgage Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender or Mortgage Lender is required to refund such payment or pay such amount to such Borrower, Mortgage Borrower or someone else.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral

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therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an Affiliate of each Borrower, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrowers and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce such Guarantor to execute this Guaranty.

     3.4 Financial Representations, Warranties and Covenants. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit A attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

     3.5 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.6 Survival. All representations and warranties made by each Guarantor herein shall survive the execution hereof.

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ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of any Guarantor’s payment of all or a portion of the Guaranteed Obligations. Upon the occurrence and during the continuance of an Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party or any other party any amount upon any Guarantor Claim.

     4.2 Claims in Bankruptcy. In the event of any receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between any Borrower and any Guarantor, shall constitute a credit against the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     4.3 Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay such funds, payments, claims and/or distributions promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     4.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Borrower’s assets securing payment of any Guarantor Claim shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of such

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Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Borrower held by any Guarantor.

ARTICLE 5

MISCELLANEOUS

     5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) §40.495(2), each Guarantor hereby waives the provisions of NRS §40.430.

     5.2 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 5.2):

Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864

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with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763
Guarantor:	Morgans Group LLC
	475 Tenth Avenue
	New York, New York 10018
	Attention:  Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock / Rand Peppas

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice

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shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 5.2. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 5.2, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer.

     5.3 Governing Law. This Guaranty shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement.

     5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement.

     5.7 Fully Recourse. (a) The Guaranteed Obligations are joint and several (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) recourse obligations of Guarantors and not restricted by any limitation on personal liability.

     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

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     5.8 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     5.9 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     5.10 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     5.11 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against any such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THIS GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     5.13 Waiver of Right To Trial By Jury. EACH GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT,

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OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 5.13 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR.

     5.14 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall reasonably cooperate with Lender at Lender’s cost and expense in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall provide such information and documents relating to such Guarantor, Borrowers, Mortgage Borrowers, the Properties and any tenants of the Improvements as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information with the investment banking firms, Rating Agencies, accounting firms, law firms and other third party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and that various investors may also see some or all of the information. Lender and all of the aforesaid third party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction, or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer (having at least ten (10) years experience servicing loans) for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested covenant, representation, warranty, indemnity or certification or otherwise. Without limitation on the foregoing, in no event shall Guarantors have liability (by way of certification, indemnity or otherwise) for information or statements contained in third party reports used in connection with the secondary

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marketing transaction; provided, however Guarantor shall remain liable under Section 1.2 to the extent any material misstatements or omissions are contained in such third party reports as a result of conduct by Borrower that is otherwise subject to the exclusions from exculpation provided under Section 1.2.

     5.15 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     5.16 Usage of Terms. As used in this Guaranty, the phrase “any Borrower” shall mean “any one or more Borrowers, including all of the Borrowers” and the phrase “any Guarantor” shall mean “any one or more Guarantors, including all of the Guarantors”.

[NO FURTHER TEXT ON THIS PAGE]

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     EXECUTED as of the day and year first above written.

GUARANTORS:
MORGANS GROUP LLC,
a Delaware limited liability company
By:	Morgans Hotel Group Co.,
	a Delaware corporation
	as Managing Member
	By:	/s/ RICHARD SZYMANSKI Name: Richard Szymanski
		Title: Chief Financial Officer and Secretary
DLJ MB IV HRH, LLC,
a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN
	Name: Kenneth J. Lohsen
	Title: Authorized Signatory

First Mezzanine Guaranty Agreement

Exhibit A

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

First Mezzanine Guaranty Agreement

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

               “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

               “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

First Mezzanine Guaranty Agreement

greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

          “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

First Mezzanine Guaranty Agreement

          “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

First Mezzanine Guaranty Agreement

Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit A with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit A shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit A is expressly incorporated by reference therein, including by Section 3.4 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

First Mezzanine Guaranty Agreement

EX-10.31

Exhibit 10.31

FIRST MEZZANINE CLOSING GUARANTY OF COMPLETION

     THIS FIRST MEZZANINE CLOSING GUARANTY OF COMPLETION (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in Las Vegas, Nevada and more particularly described on Exhibit A-1 (the “Hotel/Casino Property”) and Exhibit A-2 (the “Adjacent Property”; and the Hotel/Casino Property and the Adjacent Property, individually, a “Property”, and collectively, the “Properties”); (ii) that certain Closing Guaranty of Completion dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Closing Completion Guaranty”), made by Guarantors in favor of Mortgage Lender; and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with

First Mezzanine Guaranty Agreement

the Mortgage Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Closing Completion Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Senior Mezz, LLC, a Delaware limited liability company and HRHH JV Senior Mezz, LLC, a Delaware limited liability company (collectively, the “Borrowers”), and payable to the order of Lender in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”); and (ii) further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement, collectively, the “Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC and HRHH JV Junior Mezz, LLC (collectively, the “Second Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as second mezzanine lender (together with its successors and assigns, the “Second Mezzanine Lender”), in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Second Mezzanine Note”), Second Mezzanine Borrowers have become indebted to Second Mezzanine Lender with respect to a loan (the “Second Mezzanine Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Borrowers and Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Loan Agreement”), which Second Mezzanine Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Second Mezzanine Borrowers, as pledgors, in favor of Second Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Pledge Agreement”); (ii) that certain Second Mezzanine Closing Guaranty of Completion, dated as of the date hereof, made by Guarantors in favor of Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Closing Completion Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Second Mezzanine Loan (together with the Second Mezzanine Note, the Second Mezzanine Loan Agreement, the Second Mezzanine Pledge Agreement and the Second Mezzanine Closing Completion Guaranty, collectively, the “Second Mezzanine Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC and HRHH JV Junior Mezz Two,

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LLC (collectively, the “Third Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as third mezzanine lender (together with its successors and assigns, the “Third Mezzanine Lender”), in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Third Mezzanine Note”), Third Mezzanine Borrowers have become indebted to Third Mezzanine Lender with respect to a loan (the “Third Mezzanine Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Borrowers and Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Loan Agreement”), which Third Mezzanine Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Third Mezzanine Borrowers, as pledgors, in favor of Third Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Pledge Agreement”); (ii) that certain Third Mezzanine Closing Guaranty of Completion, dated as of the date hereof, made by Guarantors in favor of Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Closing Completion Guaranty”, and together with the Mortgage Closing Completion Guaranty and the Second Mezzanine Closing Completion Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Third Mezzanine Loan (together with the Third Mezzanine Note, the Third Mezzanine Loan Agreement, the Third Mezzanine Pledge Agreement and the Third Mezzanine Closing Completion Guaranty, collectively, the “Third Mezzanine Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     G. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE I

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranteed Obligations.

          (a) Each Guarantor hereby jointly and severally, irrevocably, absolutely and unconditionally guarantees to Lender the full, complete and punctual payment, performance

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and satisfaction of all of the obligations, duties, covenants and agreements of Mortgage Borrowers under the Mortgage Loan Agreement relating to each project contemplated by the Initial Renovations, as shown on Schedule XIII to the Mortgage Loan Agreement, as the same may be modified with the reasonable consent of Mortgage Lender, if and when Mortgage Borrowers shall begin physical construction thereof (each such project, as and when Borrowers have elected to commence, and have commenced, physical construction thereof, an “Initial Renovations Project”), substantially in compliance with the applicable plans and specifications, the applicable portions of the Initial Renovations Loan Budget (as such term is defined in the Mortgage Loan Agreement), the applicable construction progress schedule and all applicable Legal Requirements, including, without limitation:

               (i) to diligently commence, perform and complete (or cause to be commenced, performed and completed) the construction of each Initial Renovations Project in accordance with the terms of the Mortgage Loan Agreement and the Loan Agreement;

               (ii) to pay all costs associated with each Initial Renovations Project, including, without limitation, all hard costs, soft costs and other obligations, liabilities, costs and expenses incurred in connection with the completion of each Initial Renovations Project, as the same may become due and payable;

               (iii) to keep the Properties free and clear of all Liens or claims of Liens arising or incurred in connection with the completion of each Initial Renovations Project, other than Permitted Encumbrances and any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, and if any Liens should be filed, or should attach, with respect to any Property by reason of the carrying out of each Initial Renovations Project, within fifteen (15) Business Days after obtaining notice thereof (but in any event prior to the date on which such Property or any part thereof or interest therein may be in imminent danger of being sold, forfeited, foreclosed, terminated, cancelled or lost), other than any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, to either (A) cause the removal of such Liens or (B) post security against the consequences of their possible foreclosure and procure an endorsement to the Title Insurance Policy (as such term is defined in the Mortgage Loan Agreement) insuring Mortgage Lender against the consequences of the foreclosure or enforcement of such Liens;

               (iv) to pay the premiums for all policies of insurance required to be furnished by Borrowers pursuant to the Loan Agreement, or Mortgage Borrowers pursuant to the Mortgage Loan Agreement, during the performance of each Initial Renovations Project if such premiums are not paid by Borrowers or Mortgage Borrowers;

               (v) if Lender (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents) exercises its rights to complete any Initial Renovations Project pursuant to this Guaranty or any of the other Loan Documents, to pay or reimburse Lender for any and all costs and expenses incurred by Lender in completing such Initial Renovations Project;

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               (vi) to pay all claims relating to the foregoing before they become delinquent;

               (vii) to correct or cause to be corrected any material defect in any Initial Renovations Project, as reasonably determined by the applicable architect and the Construction Consultant (as such term is defined in the Mortgage Loan Agreement), or, if the applicable architect and the Construction Consultant cannot reasonably agree, then as determined pursuant to the most expedited form of arbitration available for such disagreement under the rules of the American Arbitration Association, such arbitration to be held in New York, New York; and

               (viii) to pay any and all costs, expenses, liabilities, claims and amounts required to be paid by Guarantors pursuant to Section 1.7 or any other provision hereof (the “Enforcement Costs”).

          (b) Each Guarantor hereby jointly and severally, irrevocably, absolutely and unconditionally guarantees to Lender the full, complete and punctual payment, performance and satisfaction of all of the obligations, duties, covenants and agreements of Mortgage Borrowers under Section 3.18 of the Mortgage Loan Agreement relating to restoration of the Properties in the event that any of (i) the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, (ii) Mortgage Borrowers have delivered the Relinquishment Notice (as such term is defined in the Mortgage Loan Agreement) to Mortgage Lender, or (iii) Mortgage Borrowers have delivered a Stop Notice (as such term is defined in the Mortgage Loan Agreement) to Mortgage Lender, substantially in compliance with all applicable Legal Requirements and to the reasonable satisfaction of the Construction Consultant, including, without limitation:

               (i) to diligently commence, perform and complete (or cause to be commenced, performed and completed) the restoration of the Properties to the extent required under, and in accordance with the terms of, the Mortgage Loan Agreement;

               (ii) to pay all costs associated with such restoration, including, without limitation, all hard costs, soft costs and other obligations, liabilities, costs and expenses incurred in connection with the completion of such restoration, as the same may become due and payable;

               (iii) to keep the Properties free and clear of all Liens or claims of Liens arising or incurred in connection with such restoration, other than Permitted Encumbrances and any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, and if any Liens should be filed, or should attach, with respect to any Property by reason of the carrying out of such restoration, within fifteen (15) Business Days after obtaining notice thereof (but in any event prior to the date on which such Property or any part thereof or interest therein may be in imminent danger of being sold, forfeited, foreclosed, terminated, cancelled or lost), other than any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, to either (A) cause the removal of such Liens or (B) post security against the consequences of their possible foreclosure and procure an endorsement to the Title Insurance Policy

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insuring Mortgage Lender against the consequences of the foreclosure or enforcement of such Liens;

               (iv) to pay the premiums for all policies of insurance required to be furnished by Borrowers pursuant to the Loan Agreement, or Mortgage Borrowers pursuant to the Mortgage Loan Agreement, during the performance of the restorations if such premiums are not paid by Borrowers or Mortgage Borrowers;

               (v) if Lender (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents) exercises its rights to complete any of the restoration pursuant this Guaranty or any of the other Loan Documents, to pay or reimburse Lender for any and all costs and expenses incurred by Lender in completing the restoration; and

               (vi) to pay all claims relating to the foregoing before they become delinquent.

The obligations and liabilities set forth in the foregoing Sections 1.1(a) and 1.1(b) are collectively referred to herein as the “Guaranteed Obligations”; provided, however, that in no event shall the aggregate obligations and liabilities of Guarantors under this Guaranty and the Other Guarantees exceed the Guaranteed Obligations; and the completion obligations with respect to completion of any Initial Renovations Project or restoration from any Pre-Construction Work shall be referred herein as the “Guaranteed Work”. Each Guarantor hereby acknowledges having received, reviewed and approved a true and complete copy of the Loan Agreement and the Mortgage Loan Agreement. Each Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor and not merely as a surety.

     1.2 Payment and Performance by Guarantors.

          (a) If Mortgage Borrowers shall fail to diligently proceed with any Guaranteed Work, and the completion thereof in accordance with the provisions of the Mortgage Loan Agreement, subject to Excusable Delay, or if Mortgage Borrowers shall otherwise fail to perform their obligations under the Mortgage Loan Agreement relating to any Guaranteed Work, or if any of the other Guaranteed Obligations shall not be paid and performed when due, then Guarantors, within ten (10) days after a written demand for payment or performance has been given to Guarantors by Lender in accordance with the notice provisions hereof, shall pay or perform the same, it being expressly acknowledged and agreed by Guarantors that Mortgage Lender shall have no obligation to, and shall not, continue to disburse any portion of the Construction Loan (as such term is defined in the Mortgage Loan Agreement) or the Initial Renovations Reserve Fund. Guarantors’ obligations hereunder shall continue in full force and effect, notwithstanding any default by any Loan Party under any other covenants, terms or conditions set forth in the Loan Documents and/or the Mortgage Loan Documents, as applicable, commencement and/or completion of foreclosure proceedings or acquisition by Lender or Mortgage Lender of all or any portion of any Property or the Collateral, as applicable, through foreclosure or deed in lieu of foreclosure and, in that regard, all of the covenants, terms or conditions set forth in the Loan Documents and/or the Mortgage Loan Documents, as applicable, relating in any way to the Guaranteed Obligations shall survive any such foreclosure or deed in

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lieu of foreclosure and remain binding obligations of Borrowers and/or Mortgage Borrowers, as applicable, guaranteed by each Guarantor hereunder until the complete payment and performance of all of the Guaranteed Obligations.

          (b) Intentionally Omitted.

          (c) If any Guarantor shall, within fifteen (15) days after written demand from Lender, fail to diligently undertake the performance of the Guaranteed Obligations, then Lender shall have the right, at its option, either before, during or after commencing foreclosure or sale proceedings against all or any portion of the Collateral, as the case may be, and before, during or after pursuing any other right or remedy against Borrowers or Guarantor, to perform any and all of the Guaranteed Work by or through any agent, contractor or subcontractor of its selection, and pursuant to contracts or subcontracts relating thereto, all as Lender in its sole discretion deems proper subject to the terms of the Mortgage Loan Documents. Furthermore, Lender shall have no obligation to protect or insure any collateral for the Loan, nor shall Lender have any obligation to perfect its security interest in any collateral for the Loan. During the course of any of the Guaranteed Work undertaken by Lender or any other party on behalf of Lender, Guarantors shall pay on demand any amounts due to contractors, subcontractors and material suppliers and for permits and licenses necessary or desirable in connection therewith. Guarantors’ obligations in connection with any of the Guaranteed Work undertaken by Lender or any other party on behalf of Lender shall not be affected by any errors or omissions of Mortgage Borrowers’ general contractor or architect, Lender’s consulting architect, or any subcontractor or agent or employee of any of the foregoing in the design, supervision and/or performance of the work, it being understood that such risk is assumed by Guarantors.

          (d) Satisfaction by Guarantors of any liability hereunder at any one time with respect to any default by any Loan Party shall not discharge Guarantors with respect to any other default by any Loan Party at any other time, it being the intent hereof that this Guaranty and the obligations of Guarantors hereunder shall be continuing and may be enforced by Lender to the end that the Guaranteed Work shall be timely completed, lien free, without loss, cost, expense, injury or liability of any kind to Lender, subject to the express terms hereof. To the extent permitted by applicable law, all of the remedies set forth herein and/or provided for in any of the Loan Documents or at law or equity shall be equally available to Lender, and the choice by Lender of one such alternative over another shall not be subject to question or challenge by Guarantor or any other Person, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by Lender to recover or seeking any other remedy under this Guaranty, nor shall such choice preclude Lender from subsequently electing to exercise a different remedy. The parties have agreed to the alternative remedies provided herein in part because they recognize that the choice of remedies in the event of a default hereunder will necessarily be and should properly be a matter of good faith business judgment, which the passage of time and events may or may not prove to have been the best choice to maximize recovery by Lender at the lowest cost to Borrowers and/or Guarantors. It is the intention of the parties that such good faith choice by Lender be given conclusive effect regardless of such subsequent developments. No Guarantor shall have any right of recourse against Lender by reason of any action Lender may take or omit to take under the provisions of this Guaranty or under the provisions of any of the other Loan Documents, except to the extent of Lender’s gross negligence, willful misconduct or fraud.

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     1.3 Nature of Guaranty. This Guaranty is an irrevocable, unconditional, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any of Guarantors and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of any of Guarantors to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. This Guaranty shall terminate upon the earlier to occur of (i) payment in full of the Debt, or (ii) complete payment and performance of all of the Guaranteed Work, or (iii) Final Completion (as such term is defined in the Mortgage Loan Agreement) of the Project; provided, however, that if, at the time any of the events set forth in the foregoing clauses (i), (ii) or (iii), as applicable, shall occur, Guarantors are then in the process of completing any of the Guaranteed Work, Guarantors shall (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents), at Lender’s reasonable expense, reasonably cooperate to transition such completion to Lender or its designee, including, without limitation, assigning to Lender or its designee any construction-related contracts not previously assigned to Lender, making Guarantors’ employees available to Lender or its designee for construction status briefings and to answer questions regarding construction of such Guaranteed Work, and turning over to Lender copies of Guarantors’ books, records and files relating to the construction and completion of such Guaranteed Work.

     1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Loan Party (except the defense of the payment of the Guaranteed Obligations) or any other party against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     1.5 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of Guarantors hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligations or any other Person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantor(s) of the Guaranteed Obligations, (d) join any Loan Party or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, or (e) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

     1.6 Waivers. Each Guarantor agrees to the provisions of the Loan Documents and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to Borrowers, (b) acceptance of this Guaranty, (c) any amendment or extension

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of the Note, the Loan Agreement, the Pledge Agreement, or any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Loan Party or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.

     1.7 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors shall, immediately upon written demand by Lender, pay Lender all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees, court costs, filing fees, recording costs, title insurance premiums, survey costs and expenses of foreclosure) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the event that (i) Lender employs counsel to enforce the provisions of this Guaranty and (ii) Lender has sold or transferred any interests in the Note, then Guarantors shall only be responsible for the attorneys’ fees and expenses of the counsel of only one Lender with respect to the Loan.

     1.8 Payment by Guarantors. If any amount due on the Guaranteed Obligations is not paid to Lender within ten (10) Business Days after written demand by Lender, the same shall bear interest at the Default Rate from the date of demand until the date such amount has been paid in full (which interest shall be included within the meaning of Guaranteed Obligations).

     1.9 Effect of Bankruptcy. In the event that pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or decision thereunder, Lender must rescind or restore any payment or any part thereof received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect and this Guaranty and the Guaranteed Obligations shall remain in full force and effect. It is the intention of Borrowers and Guarantors that Guarantors’ obligations hereunder shall not be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating any Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made

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by any Guarantor under or in connection with this Guaranty or otherwise until such time as the Guaranteed Obligations have been paid and performed in full.

     1.11 Borrower. The term “Borrower” or “Borrowers” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE II

EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following:

     2.1 Modifications; Sales.

          (a) Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Loan Agreement, the Pledge Agreement, the other Loan Documents, the Mortgage Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of them) and Mortgage Lender, or any other parties pertaining to the Guaranteed Obligations, or any sale, assignment or foreclosure of the Note, the Loan Agreement, the Pledge Agreement, any of the other Loan Documents, or the Mortgage Loan Documents, or any sale or transfer of all or any portion of any Property or the Collateral, or any failure of Lender or Mortgage Lender to notify any Guarantor of any such action.

          (b) Any amendment, modification or Change Order (as such term is defined in the Mortgage Loan Agreement) to the Plans and Specifications and/or the Loan Budget made in accordance with the terms of the Mortgage Loan Agreement.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower or by Mortgage Lender to any Mortgage Borrower, as applicable, or any Guarantor or any other party liable for payment of any or all of the Guaranteed Obligations.

     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Loan Party, any Guarantor or any other party at any time liable for the payment or performance of all or part of the Guaranteed Obligations; or any dissolution of any Loan Party or any

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Guarantor or any sale, lease or transfer of any or all of the assets of any Loan Party or any Guarantor or any changes in the direct or indirect shareholders, partners or members of any Loan Party or any Guarantor; or any reorganization of any Loan Party or any Guarantor.

     2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations or any document or agreement executed in connection with the Guaranteed Obligations for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligations or any part thereof exceed the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Loan Agreement, the Pledge Agreement, the other Loan Documents or the Mortgage Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) any Loan Party has valid defenses (other than the payment of the Guaranteed Obligations), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from such Loan Party, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Loan Agreement, the Pledge Agreement, any of the other Loan Documents or the Mortgage Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain liable hereon regardless of whether any Loan Party or any other Person, including any other Guarantor, be found not liable on the Guaranteed Obligations or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Loan Party on the Guaranteed Obligations or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling

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or treatment of all or any part of any collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender or any other party (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations, or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

     2.10 Representations. The accuracy or inaccuracy of the representations and warranties made by any Guarantor herein or by any Loan Party in any of the Loan Documents and/or the Mortgage Loan Documents, as applicable.

     2.11 Offset. The Note, the Loan Agreement, the Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except that of payment of the Guaranteed Obligations) of any Borrower against Lender or any other Person, or against payment of the Guaranteed Obligations, or of any Mortgage Borrower against Mortgage Lender or any other Person, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     2.12 Merger. The reorganization, merger or consolidation of any Loan Party into or with any other Person.

     2.13 Preference. Any payment by any Borrower to Lender or by any Mortgage Borrower to Mortgage Lender, as applicable, is held to constitute a preference under bankruptcy laws or for any reason Lender or Mortgage Lender is required to refund such payment or pay such amount to any Borrower or any Mortgage Borrower, or to any other Person, as applicable.

     2.14 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Mortgage Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

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     2.15 Satisfaction of Mortgage Loan. Any satisfaction in full of the Mortgage Loan unless (i) the Loan is also satisfied in full, or (ii) the Guaranteed Obligations have been fully and finally paid and performed at the time of such satisfaction.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an affiliate of Borrowers, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of each Loan Party and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or the Guaranteed Obligations; however, such Guarantor is not relying on such financial condition or collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce said Guarantor to execute this Guaranty.

     3.4 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not and will not contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.5 Litigation. There is no action, suit, proceeding or investigation pending or, to such Guarantor’s knowledge, threatened in writing against such Guarantor in any court or by or before any other Governmental Authority, or labor controversy affecting such Guarantor or any of such Guarantor’s properties, businesses, assets or revenues, which would reasonably be expected to materially and adversely affect the performance of such Guarantor’s obligations and duties under this Guaranty or impair such Guarantor’s ability to fully fulfill and perform such Guarantor’s obligations under this Guaranty and the other Loan Documents to which such Guarantor is a party.

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     3.6 Offset. The Loan Documents and the Mortgage Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by such Guarantor, including the defense of usury, and such Guarantor has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto.

     3.7 Embargoed Person. At all times throughout the term of the Loan, including after giving effect to any Transfer permitted pursuant to the Loan Documents, (a) none of the funds or other assets of such Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder (each an “Embargoed Person”) with the result that the Loan made by Lender is or would be in violation of law; (b) no Embargoed Person shall have any interest of any nature whatsoever in such Guarantor, with the result that the Loan is or would be in violation of law; and (c) none of the funds of such Guarantor shall be derived from any unlawful activity with the result that the Loan is or would be in violation of law.

     3.8 Survival. All representations and warranties made by such Guarantor herein shall survive the execution hereof.

ARTICLE IV

COVENANTS

     4.1 Corporate Existence. Each Guarantor shall maintain and preserve such Guarantor’s corporate existence and qualification as a corporation or limited liability company (as applicable) pursuant to the laws of such Guarantor’s State of formation.

     4.2 Dissolution. Subject to Transfers permitted pursuant to the Loan Agreement, no Guarantor shall liquidate, wind-up or dissolve (or suffer any liquidation or dissolution).

     4.3 Litigation. Each Guarantor shall give prompt notice to Lender of any litigation or governmental proceedings pending or threatened in writing against such Guarantor of which such Guarantor has notice and which would reasonably be expected to materially adversely affect such Guarantor’s ability to perform its obligations hereunder.

     4.4 Notice of Default. Each Guarantor shall promptly advise Lender of any material adverse change in such Guarantor’s condition, financial or otherwise, of which such Guarantor has knowledge and which would reasonably be expected to materially adversely affect such Guarantor’s ability to perform its obligations hereunder.

     4.5 Certification. Each Guarantor at any time and from time to time, within ten (10) Business Days following the request by Lender, shall execute and deliver to Lender a statement certifying that this Guaranty is unmodified and in full force and effect (or if modified, that the same is in full force and effect as modified and stating such modifications) or, if applicable, that this Guaranty is no longer in full force and effect.

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ARTICLE V

SUBORDINATION OF CERTAIN INDEBTEDNESS

     5.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include, without limitation, all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of such Guarantor’s payment of all or a portion of the Guaranteed Obligations. After the occurrence and during the continuance of a monetary Default or any Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party any amount upon the Guarantor Claims.

     5.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any dividend or payment which is otherwise payable to any Guarantor and which, as between any Borrower and such Guarantor, shall constitute a credit against the Guarantor Claims, then, upon payment to Lender in full and performance of the Guaranteed Obligations, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     5.3 Payments Held in Trust. In the event that, notwithstanding anything to the contrary contained in this Guaranty, any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     5.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Loan Party’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Loan Party’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of any Guarantor or Lender presently exist or are hereafter created or attach. Without the prior

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written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Loan Party, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Loan Party held by any Guarantor.

ARTICLE VI

MISCELLANEOUS

     6.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) Section 40.495(2), Each Guarantor hereby waives the provisions of NRS Section 40.430.

     6.2 Notices. All notices, consents, approvals and requests required or permitted hereunder (each, a “Notice”) shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested, (b) a reputable overnight courier for next Business Day delivery, or (c) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 6.2):

Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864

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with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763
Guarantor:	Morgans Hotel Group Co.
	475 Tenth Avenue
	New York, New York 10018
	Attention:  Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock / Rand Peppas

A Notice shall be deemed to have been given in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission after advice by telephone to recipient that a telecopy Notice is forthcoming.

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provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 6.2.

     6.3 Governing Law; Submission to Jurisdiction. This Guaranty shall be governed, enforced and construed in accordance with the laws of the State of New York (without giving effect to New York’s principles of conflicts of law).

     6.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     6.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     6.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement. The obligations, liabilities, representations, covenants and agreements of Guarantors hereunder are joint and several.

     6.7 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     6.8 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     6.9 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     6.10 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against such

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Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     6.11 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND/OR ANY BORROWER AND LENDER AND/OR ANY MORTGAGE BORROWER AND MORTGAGE LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     6.12 Waiver of Right To Trial By Jury. EACH GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 6.12 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR AND LENDER.

     6.13 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and the other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and the other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall, at no cost to such Guarantor other than for such Guarantor’s legal and accounting fees, reasonably cooperate with Lender in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements

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imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall, at no cost to such Guarantor other than for such Guarantor’s legal and accounting fees, provide such information and documents relating to such Guarantor, any Borrower, any Mortgage Borrower, the Collateral, any Property and any tenants thereof or the Improvements, to the extent in such Guarantor’s possession or able to be obtained by such Guarantor from any Borrower or otherwise using reasonable efforts, as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information or information previously provided by any Guarantor with the investment banking firms, Rating Agencies, accounting firms, law firms and other third-party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and thus various investors may also see some or all of the information. Lender and all of the aforesaid third-party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested additional covenant, representation, warranty, indemnity or certification or otherwise.

     6.14 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Borrower or otherwise, the Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     6.15 USA Patriot Act Notice. Lender hereby notifies Guarantors that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies each Guarantor, which information includes the name and address of each Guarantor and other information that will allow Lender to identify each Guarantor in accordance with the Patriot Act.

     6.16 Fully Recourse. (a) The Guaranteed Obligations are joint and several recourse obligations of Guarantors and not restricted by any limitation on personal liability.

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     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

ARTICLE VII

FINANCIAL REPRESENTATION, WARRANTIES AND COVENANTS

     7.1 Agreement of Guarantors. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit B attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

[No Further Text on This Page]

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     IN WITNESS WHEREOF, each Guarantor has executed and delivered this First Mezzanine Closing Guaranty of Completion as of the date first set forth above.

MORGAN GUARANTOR: MORGANS GROUP LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

DLJ GUARANTOR: DLJ MB IV HRH, LLC, a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN
	Name:	Kenneth J. Lohsen
	Title:	Authorized Signatory

EXHIBIT A-1

LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY

EXHIBIT A-2

LEGAL DESCRIPTION OF ADJACENT PROPERTY

EXHIBIT B

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

     “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

     “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

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greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

     “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

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     “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

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Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit B with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit B shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit B is expressly incorporated by reference therein, including by Section 7.1 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

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EX-10.32

Exhibit 10.32

EXECUTION COPY

FIRST MEZZANINE GUARANTY AGREEMENT
(NON-QUALIFIED MANDATORY PREPAYMENT)

     THIS FIRST MEZZANINE GUARANTY AGREEMENT (NON-QUALIFIED MANDATORY PREPAYMENT) (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each, individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in the City of Las Vegas, County of Clark, State of Nevada, as more particularly described in the Mortgage (the “Property”); (ii) that certain Guaranty Agreement (Non-Qualified Mandatory Prepayment) dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Non-Qualified Prepayment Guaranty”), made by Guarantors in favor of Mortgage Lender); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with the Mortgage

Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Non-Qualified Prepayment Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Senior Mezz, LLC, a Delaware limited liability company and HRHH JV Senior Mezz, LLC, a Delaware limited liability company (collectively, the “Borrowers”), and payable to the order of Lender in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”); and (ii) further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement, collectively, the “Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC and HRHH JV Junior Mezz, LLC (collectively, the “Second Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as second mezzanine lender (together with its successors and assigns, the “Second Mezzanine Lender”), in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Second Mezzanine Note”), Second Mezzanine Borrowers have become indebted to Second Mezzanine Lender with respect to a loan (the “Second Mezzanine Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Borrowers and Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Loan Agreement”), which Second Mezzanine Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Second Mezzanine Borrowers, as pledgors, in favor of Second Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Pledge Agreement”); (ii) that certain Second Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, made by Guarantors in favor of Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Non-Qualified Prepayment Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Second Mezzanine Loan (together with the Second Mezzanine Note, the Second Mezzanine Loan Agreement, the Second Mezzanine Pledge Agreement and the Second Mezzanine Non-Qualified Prepayment Guaranty, collectively, the “Second Mezzanine Loan Documents”).

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     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC and HRHH JV Junior Mezz Two, LLC (collectively, the “Third Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as third mezzanine lender (together with its successors and assigns, the “Third Mezzanine Lender”), in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Third Mezzanine Note”), Third Mezzanine Borrowers have become indebted to Third Mezzanine Lender with respect to a loan (the “Third Mezzanine Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Borrowers and Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Loan Agreement”), which Third Mezzanine Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Third Mezzanine Borrowers, as pledgors, in favor of Third Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Pledge Agreement”); (ii) that certain Third Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, made by Guarantors in favor of Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Non-Qualified Prepayment Guaranty”, and together with the Mortgage Non-Qualified Prepayment Guaranty and the Second Mezzanine Non-Qualified Prepayment Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Third Mezzanine Loan (together with the Third Mezzanine Note, the Third Mezzanine Loan Agreement, the Third Mezzanine Pledge Agreement and the Third Mezzanine Non-Qualified Prepayment Guaranty, collectively, the “Third Mezzanine Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligation (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranty of Obligation. Each Guarantor hereby jointly and severally, irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligation as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Each Guarantor hereby

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jointly and severally, irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligation as a primary obligor.

     1.2 Definitions. The following terms shall have the respective meanings set forth below. All other capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

          “Guaranteed Obligation” means the obligation of Borrowers to pay, or cause Mortgage Borrowers to pay, to Lender the Non-Qualified Mandatory Prepayment; provided, however, that in no event shall the aggregate liability of Guarantors under this Guaranty and the Other Guarantees exceed the Non-Qualified Mandatory Prepayment, which shall be applied to the Mortgage Debt, the Debt, the Second Mezzanine Debt and the Third Mezzanine Debt in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) of the Loan Agreement.

          “Other Guarantees” has the meaning ascribed to such term in the Recitals.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, joint and several, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Obligation arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligation may be increased or reduced shall not release or discharge the obligation of any Guarantor to Lender with respect to the Guaranteed Obligation. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

     1.4 Guaranteed Obligation Not Reduced by Offset. The Guaranteed Obligation and the liabilities and obligations of Guarantors to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Borrower (except for the defense of the payment of the Guaranteed Obligation), or any other party, against Lender or against payment of the Guaranteed Obligation, whether such offset, claim or defense arises in connection with the Guaranteed Obligation (or the transactions creating the Guaranteed Obligation) or otherwise.

     1.5 Payment By Guarantors. If all or any part of the Guaranteed Obligation shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantors shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever (except as otherwise provided herein), pay (and each agrees jointly and severally to pay) in lawful money of the United States of America, the amount due on the Guaranteed Obligation to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligation, and may be made from time to time with

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respect to the same or different items of Guaranteed Obligation. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

     1.6 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of any Guarantor hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligation or any other person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantors of the Guaranteed Obligation, (d) join any Borrower or any others liable on the Guaranteed Obligation in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligation. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligation.

     1.7 Waivers. Each Guarantor agrees to the provisions of the Loan Documents, and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to any Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Borrower or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligation, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligation, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to the Guaranteed Obligation and/or the obligations hereby guaranteed.

     1.8 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors jointly and severally agree to pay to Lender and shall promptly upon written demand by Lender, pay Lender all reasonable costs and expenses (including court costs and attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the event that (A) Lender employs counsel to enforce the provisions of this Guaranty and (B) Lender has sold or transferred any interests in the Note, then Guarantor shall only be responsible for the attorney’s fees and expenses of the counsel of only one Lender. The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligation.

     1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligation, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of each Borrower and each

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Guarantor that none of Guarantors’ obligations hereunder shall be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights such Guarantor may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating such Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligation for any payment made by any Guarantor under or in connection with this Guaranty or otherwise.

     1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company, joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following, even if any of the following is materially prejudicial to any Guarantor:

     2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligation, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of them) and Mortgage Lender, or any other parties, pertaining to the Guaranteed Obligation or any failure of Lender or Mortgage Lender to notify any Guarantor of any such action.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower or by Mortgage Lender to any Mortgage Borrower or any Guarantor or any other Person, as applicable.

     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Borrower, any Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligation; or any dissolution of any Borrower or any Guarantor, or any sale, lease

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or transfer of any or all of the assets of any Borrower or any Guarantor, or any changes in the shareholders, partners or members of any Borrower or any Guarantor; or any reorganization of any Borrower or any Guarantor.

     2.4 Invalidity of Guaranteed Obligation. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligation, or any document or agreement executed in connection with the Guaranteed Obligation, for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligation, or any part thereof, exceeds the amount permitted by law, (b) the act of creating the Guaranteed Obligation or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents or the Mortgage Loan Documents or otherwise creating the Guaranteed Obligation acted in excess of their authority, (d) the Guaranteed Obligation violates applicable usury laws, (e) any Borrower has valid defenses (other than the payment of the Guaranteed Obligation), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligation wholly or partially uncollectible from any Borrower, (f) the creation, performance or repayment of the Guaranteed Obligation (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligation or executed in connection with the Guaranteed Obligation, or given to secure the repayment of the Guaranteed Obligation) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement, any of the other Loan Documents, the Mortgage Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain jointly and severally liable hereon regardless of whether any Borrower, any other Guarantor or any other Person be found not liable on the Guaranteed Obligation or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Loan Party on the Guaranteed Obligation, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligation, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligation in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any other Person (including any other Guarantor) will be liable to pay or perform the Guaranteed Obligation, or that Lender will look to any other Person (including any other Guarantor) to pay or perform the Guaranteed Obligation.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligation.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligation.

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     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligation or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligation.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligation, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligation.

     2.10 Offset. The Note, the Guaranteed Obligation and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except for the defense of payment of the Guaranteed Obligation) of any Borrower against Lender, or any other Person, or against payment of the Guaranteed Obligation, or of any Mortgage Borrower against Mortgage Lender, or any othe Person, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligation (or the transactions creating the Guaranteed Obligation) or otherwise.

     2.11 Merger. The reorganization, merger or consolidation of any Borrower into or with any Person.

     2.12 Preference. Any payment by any Borrower to Lender or by any Mortgage Borrower to Mortgage Lender, as applicable, is held to constitute a preference under bankruptcy laws, or for any reason Lender or Mortgage Lender is required to refund such payment or pay such amount to such Borrower or Mortgage Borrower, or someone else, as applicable.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Mortgage Loan Documents, the Guaranteed Obligation, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligation pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligation when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligation.

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an Affiliate of each Borrower, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligation.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrowers and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligation; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce such Guarantor to execute this Guaranty.

     3.4 Financial Representations, Warranties and Covenants. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit A attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

     3.5 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.6 Survival. All representations and warranties made by each Guarantor herein shall survive the execution hereof.

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or

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otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of any Guarantor’s payment of all or a portion of the Guaranteed Obligation. Upon the occurrence and during the continuance of an Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party or any other party any amount upon any Guarantor Claim.

     4.2 Claims in Bankruptcy. In the event of any receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligation, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between any Borrower and any Guarantor, shall constitute a credit against the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligation, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligation, and such subrogation shall be with respect to that proportion of the Guaranteed Obligation which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     4.3 Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay such funds, payments, claims and/or distributions promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     4.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Loan Party’s assets securing payment of any Guarantor Claim shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Loan Party’s assets securing payment of the Guaranteed Obligation, regardless of whether such encumbrances in favor of such Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Loan Party, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Loan Party held by any Guarantor.

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ARTICLE 5

MISCELLANEOUS

     5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) Section 40.495(2), each Guarantor hereby waives the provisions of NRS Section 40.430.

     5.2 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 5.2):

Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763

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Guarantor:	Morgans Group LLC
	475 Tenth Avenue
	New York, New York 10018
	Attention:  Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock / Rand Peppas

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 5.2. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 5.2, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer.

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     5.3 Governing Law. This Guaranty shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement.

     5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement.

     5.7 Fully Recourse. (a) The Guaranteed Obligation is a joint and several recourse obligation of Guarantors and is not restricted by any limitation on personal liability.

     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

     5.8 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     5.9 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     5.10 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or

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on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     5.11 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against any such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATION AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THIS GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     5.13 Waiver of Right To Trial By Jury. EACH GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 5.13 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR.

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     5.14 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall reasonably cooperate with Lender at Lender’s cost and expense in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall provide such information and documents relating to such Guarantor, Borrowers, Mortgage Borrowers, the Properties and any tenants of the Improvements as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information with the investment banking firms, Rating Agencies, accounting firms, law firms and other third party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and that various investors may also see some or all of the information. Lender and all of the aforesaid third party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction, or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer (having at least ten (10) years experience servicing loans) for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested covenant, representation, warranty, indemnity or certification or otherwise. Without limitation on the foregoing, in no event shall Guarantors have liability (by way of certification, indemnity or otherwise) for information or statements contained in third party reports used in connection with the secondary marketing transaction.

     5.15 Termination. Subject to Section 5.16 hereof, this Guaranty shall terminate upon the payment of the Debt in full.  Alternatively, subject to Section 5.16 hereof, this Guaranty shall terminate upon the earliest to occur of (i) Borrowers’ satisfaction of the Qualification Conditions on or before the Construction Qualification Date, (ii) Borrowers’ payment of the Non-Qualified Mandatory Prepayment, or (iii) Borrowers’ delivery of a Non-Qualified Prepayment Letter of Credit (or a combination of the foregoing clauses (ii) and (iii)). Upon any such termination of this Guaranty, Lender shall, at Borrowers’ reasonable expense (including Lender’s reasonable

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attorneys’ fees), promptly execute and deliver such documents as may be reasonably requested by Borrowers or Guarantors to evidence release of this Guaranty.

     5.16 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     5.17 Usage of Terms. As used in this Guaranty, the phrase “any Borrower” shall mean “any one or more Borrowers, including all of the Borrowers” and the phrase “any Guarantor” shall mean “any one or more Guarantors, including all of the Guarantors”.

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     EXECUTED as of the day and year first above written.

GUARANTORS: MORGANS GROUP LLC, a Delaware limited liability company
By:	Morgans Hotel Group Co.,
	a Delaware corporation
	as Managing Member

By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

DLJ MB IV HRH, LLC a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN
	Name:	Kenneth J. Lohsen
	Title:	Authorized Signatory

Guaranty Agreement

Exhibit A

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

Guaranty Agreement

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

          “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

          “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

Guaranty Agreement

greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

          “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

Guaranty Agreement

          “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

Guaranty Agreement

Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit A with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit A shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit A is expressly incorporated by reference therein, including by Section 3.4 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

Guaranty Agreement

EX-10.33

Exhibit 10.33

EXECUTION COPY

SECOND MEZZANINE GUARANTY AGREEMENT

     THIS SECOND MEZZANINE GUARANTY AGREEMENT (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each, individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in the City of Las Vegas, County of Clark, State of Nevada, as more particularly described in the Mortgage (the “Property”); (ii) that certain Guaranty Agreement dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Non-Recourse Guaranty”), made by Guarantors in favor of Mortgage Lender); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with the Mortgage Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Non-Recourse Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH JV Senior Mezz, LLC and HRHH Gaming Senior Mezz, LLC (collectively, the “First Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as First mezzanine lender (together with its successors and assigns, the “First Mezzanine Lender”), in the original principal amount of Two Hundred Million and 00/100 Dollars ($200,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “First Mezzanine Note”), First Mezzanine Borrowers have become indebted to First Mezzanine Lender with respect to a loan (the “First Mezzanine Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Borrowers and First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Loan Agreement”), which First Mezzanine Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Pledge Agreement”); (ii) that certain First Mezzanine Guaranty Agreement, dated as of the date hereof, made by Guarantors in favor of First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Non-Recourse Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the First Mezzanine Loan (together with the First Mezzanine Note, the First Mezzanine Loan Agreement, the First Mezzanine Pledge Agreement and the First Mezzanine Non-Recourse Guaranty, collectively, the “First Mezzanine Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH JV JUNIOR MEZZ, LLC, a Delaware limited liability company (“JV Borrower”) and HRHH GAMING JUNIOR MEZZ, LLC, a Delaware limited liability company (“Gaming Mezz Borrower”; and each of JV Borrower and Gaming Mezz Borrower being referred to herein individually as a “Borrower” and collectively as “Borrowers”), and payable to the order of Lender in the original principal amount of One Hundred Million and 00/100 Dollars ($100,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement, collectively, the “Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC and HRHH JV Junior Mezz Two, LLC (collectively, the “Third Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as third mezzanine lender (together with its successors and assigns,

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the “Third Mezzanine Lender”), in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Third Mezzanine Note”), Third Mezzanine Borrowers have become indebted to Third Mezzanine Lender with respect to a loan (the “Third Mezzanine Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Borrowers and Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Loan Agreement”), which Third Mezzanine Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Third Mezzanine Borrowers, as pledgors, in favor of Third Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Pledge Agreement”); (ii) that certain Third Mezzanine Guaranty Agreement, dated as of the date hereof, made by Guarantors in favor of Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Non-Recourse Guaranty”, and together with the Mortgage Non-Recourse Guaranty and the First Mezzanine Non-Recourse Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Third Mezzanine Loan (together with the Third Mezzanine Note, the Third Mezzanine Loan Agreement, the Third Mezzanine Pledge Agreement and the Third Mezzanine Non-Recourse Guaranty, collectively, the “Third Mezzanine Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     G. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranty of Obligation. Each Guarantor hereby jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Each Guarantor hereby jointly and severally (except as otherwise expressly provided in the proviso at the end of Section

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1.2(c) hereof), irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor.

     1.2 Definition of Guaranteed Obligations. As used herein, the term “Guaranteed Obligations” means:

     (a) the obligations and liabilities of each Borrower to Lender for any actual loss, damage (excluding any lost revenue, diminution of value and consequential damages), reasonable cost, reasonable expense, liability, claim and any other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

     (i) fraud or intentional misrepresentation by any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees in connection with the Loan;

     (ii) physical waste to any Property arising from the intentional misconduct or gross negligence of any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees and/or any removal of any asset forming a part of any Property in violation of the Loan Agreement or the other Loan Documents;

     (iii) intentionally omitted;

     (iv) the misappropriation or conversion by any Loan Party, by any Person Controlled by any Loan Party (including, without limitation, any Affiliated Manager, Liquor Manager who is an Affiliate of any Loan Party or Gaming Operator who is an Affiliate of any Loan Party), by any agent of any Loan Party, or by any other Person with whom any Loan Party shall collude or cooperate, of (A) any Insurance Proceeds paid by reason of any Casualty, to the extent so misappropriated or converted; (B) any Awards received in connection with a Condemnation, to the extent so misappropriated or converted; (C) any Rents or other Gross Income from Operations not delivered to Lender following and during the continuance of an Event of Default and not otherwise used to pay actual, customary Operating Expenses reflected on the Approved Annual Budget then in effect, including, without limitation, (I) any income, proceeds or other amounts received by any Loan Party under the Gaming Sublease, and/or (II) without duplication of the foregoing clause (I), any income, proceeds or revenue generated from gaming activities at any Property, in each of the foregoing instances, to the extent so misappropriated or converted; (D) any Rents paid more than one (1) month in advance in violation of the Loan Agreement or the other Loan Documents, to the extent so misappropriated or converted; and/or (E) any security deposits, to the extent so misappropriated or converted;

     (v) the failure of any Loan Party to pay (or to deposit into the Mortgage Reserve Funds or the Reserve Funds, if applicable, amounts sufficient to pay) all Taxes and all other costs giving rise to any Lien on any portion of the

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Collateral or any Property or the IP with priority over or equal to the Lien of the Loan Documents in violation of the Loan Agreement or the other Loan Documents, to the extent that there is sufficient Gross Income from Operations to make such payments (or deposits, as applicable);

     (vi) if any Loan Party fails to maintain its status as a Special Purpose Entity as required pursuant to the terms of the Loan Agreement;

     (vii) if any Loan Party fails to obtain Lender’s consent to any subordinate financing, deed of trust, mortgage or other voluntary lien encumbering the Collateral, any Property or the IP, other than Permitted Encumbrances and Permitted IP Encumbrances;

     (viii) the failure to maintain insurance coverage under blanket insurance policies to the extent permitted under the Loan Agreement;

     (ix) if any of the events set forth in clauses (a), (b) or (c) of Section 5.2.11 of the Loan Agreement shall occur without the prior approval of Lender;

     (x) if any of the restrictions to Transfer set forth in Section 5.2.10 of the Loan Agreement or in any of the other Loan Documents are violated;

     (xi) if Lender or any Affiliate thereof shall succeed to the interest of HRHI under the Gaming Sublease following a foreclosure, deed in lieu of foreclosure or similar transfer, any actual loss, cost, damage or expense (including, without limitation, reasonable attorneys’ fees expenses) suffered by Lender or such Affiliate as a result of: (A) any act, omission, neglect or default of HRHI under the Gaming Sublease, (B) any claim, defense, counterclaim or offset which the Gaming Operator may have under the Gaming Sublease against HRHI, (C) any obligation to make any payment to the Gaming Operator under the Gaming Sublease which was required to be made by or on behalf of HRHI prior to the time Lender or such Affiliate succeeded to HRHI’s interest under the Gaming Sublease, (D) any monies deposited with HRHI under the Gaming Sublease, except to the extent such monies are actually received by Lender or such Affiliate, (E) any obligation to complete or permit the construction of any improvements under the Gaming Sublease arising while HRHI was the sublandlord under the Gaming Sublease, and/or (F) any default by HRHI under the Gaming Lease beyond applicable notice and cure periods;

     (xii) if HRHI or any Affiliate thereof shall send a notice to Gaming Operator under Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement which conflicts with any notice theretofore sent by Lender to Gaming Operator under said Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement; provided, however, that the liability under this clause (xii) shall be limited to all fees and costs incurred by Gaming Operator in bringing and pursuing any interpleader action contemplated by said Section 6(a), (c) or (d),

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as applicable, and only to the extent that Gaming Operator seeks to recover and/or does recover such fees and expenses from Lender;

     (xiii) if HRHI shall fail to provide Gaming Employees for the operation of gaming activities at the Hotel/Casino Property as and to the extent required pursuant to Paragraph 7of the HRHI Gaming Agreement;

     (xiv) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII of the Loan Agreement, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) of the Loan Agreement;

     (xv) in the event that HRHI, Gaming Borrower, any other Loan Party or any Affiliate thereof shall be the Liquor Manager, if HRHI, Gaming Borrower, such other Loan Party or such Affiliate thereof shall fail to provide liquor management services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required (A) as to HRHI, pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement, as applicable, and (B) as to Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof, pursuant to Section 5.1.23(c) of the Loan Agreement;

     (xvi) in connection with the $250,000 lease termination fee pursuant to Section 3.2(B) of that certain Lease by and between PM Realty, LLC and HRHI, as landlord, and Mr. Chow of Las Vegas, LLC, as tenant, dated December 24, 2004;

     (xvii) as a result of the imposition of any tax provided in NRS §§375.020 and 375.023 with respect to the merger transaction contemplated under the Merger Agreement and/or the subsequent conveyance of the Hotel/Casino Property (A) to HRHH Gaming Junior Mezz, LLC, and then (B) to Gaming Mezz Borrower, and then (iii) to Hotel/Casino Borrower, provided, however, that any liability under this clause (xvii) shall terminate upon the payment in full of the Debt; and/or

     (xviii) as a result of Adjacent Borrower selling or attempting to sell any Partial Release Parcel or any Partial Adjacent Parcel in accordance with the procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable, rather than pursuant to a customary direct deed transfer, including, without limitation, (A) the imposition of any tax (including interest and penalties) provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action filed by or against any Subsidiary Transferee prior to or following the consummation of such sale, and/or (C) in connection with any delay in accomplishing any of the steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable.

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     (b) the entire amount of the Debt in the event of:

     (i) any Loan Party, HRHI or both Guarantors filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

     (ii) the filing of an involuntary petition against any Loan Party, HRHI or both Guarantors under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by or on behalf of any Person other than Lender, and such petition is not dismissed within ninety (90) days after filing, or any Loan Party, or any Affiliate of any of them who Controls any Loan Party, or HRHI or both Guarantors, solicit or cause to be solicited petitioning creditors for any involuntary petition against any Loan Party, HRHI or both Guarantors from any Person (other than if requested to do so by or on behalf of Lender);

     (iii) any Loan Party, HRHI or both Guarantors filing an answer consenting to, or any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, otherwise consenting to or acquiescing or joining in, any involuntary petition filed against any Loan Party, HRHI or both Guarantors, by any other Person (other than if filed by or on behalf of Lender) under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

     (iv) any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, consenting to or acquiescing or joining in an application for the appointment of a custodian, receiver, trustee or examiner for any Loan Party or any portion of any Property or any portion of the IP or the Collateral (other than any such appointment at the request or petition of Lender);

     (v) any Loan Party, HRHI or both Guarantors voluntarily making an assignment for the benefit of creditors (other than Lender), or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; and/or

     (vi) Gaming Mezz Borrower failing to comply, or cause compliance by the applicable Loan Party, with the requirements of the Gaming Laws to obtain the approval of the Gaming Authorities of the pledge of the Gaming Securities pursuant to Section 17(b) of the Pledge Agreement (it being understood and agreed that Guarantors shall have no liability under this clause (vi) to the extent arising from the failure of Lender to reasonably cooperate with the Gaming Authorities in connection with such Gaming Law requirements to the extent necessary);

unless, in the case of any of the foregoing clauses (i), (ii), (iii), (iv), (v) or (vi) as it relates to or affects both Guarantors, one or more guarantors acceptable to Lender in its sole discretion remains or becomes a guarantor of the Loan.

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     (c) the payment of the following amounts as and when due under the Loan Agreement if and to the extent that any of the same are not paid in full by Borrowers as and when due under the Loan Agreement:

     (i) any Interest Shortfall existing on any Payment Date (A) occurring after February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date; and

     (ii) all amounts necessary to obtain and maintain the Gaming Letter of Credit in accordance with Section 12.3 of the Mortgage Loan Agreement, including, without limitation, the reimbursement obligation to the counterparty issuing the Gaming Letter of Credit in the full principal amount thereof in the event that Mortgage Lender draws on the same in accordance with its rights under the Mortgage Loan Agreement (provided, that in no event shall the aggregate obligations and liabilities of Guarantors under this Section 1.2(c)(ii) and under Section 1.2(c)(ii) of the Other Guarantees exceed the amount of the Gaming Letter of Credit);

provided, however, that it is expressly understood, agreed and acknowledged by Lender and Guarantors that, notwithstanding anything to the contrary set forth in this Guaranty or in any other Loan Document, the Guaranteed Obligations set forth in this Section 1.2(c) shall be and remain the sole and exclusive liability of the DLJ Guarantor and, under no circumstances, shall the Morgans Guarantor ever have any liability with respect thereto.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, joint and several (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of any Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

     1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Borrower (except for the defense of the payment of the Guaranteed Obligations), or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

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     1.5 Payment By Guarantors. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantors shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever (except as otherwise provided herein), pay (and each agrees jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) to pay) in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

     1.6 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of any Guarantor hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligations or any other person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (d) join any Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

     1.7 Waivers. Each Guarantor agrees to the provisions of the Loan Documents, and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to any Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Borrower or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and/or the obligations hereby guaranteed.

     1.8 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) agree to pay to Lender and shall promptly upon written demand by Lender, pay Lender all reasonable costs and expenses (including court costs and attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the

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event that (A) Lender employs counsel to enforce the provisions of this Guaranty and (B) Lender has sold or transferred any interests in the Note, then Guarantors shall only be responsible for the attorney’s fees and expenses of the counsel of only one Lender. The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligations.

     1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of each Borrower and each Guarantor that none of Guarantors’ obligations hereunder shall be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights such Guarantor may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating such Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by any Guarantor under or in connection with this Guaranty or otherwise.

     1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company, joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following even if any of the following is materially prejudicial to any or all Guarantors:

     2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of

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them) and Mortgage Lender, or between First Mezzanine Borrowers (or any of them) and First Mezzanine Lender or any other parties, pertaining to the Guaranteed Obligations or any failure of any of Lender, Mortgage Lender or First Mezzanine Lender to notify any Guarantor of any such action.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower or by Mortgage Lender to any Mortgage Borrower, or by First Mezzanine Lender to any First Mezzanine Borrower, or any Guarantor or any other Person.

     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Loan Party, any Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of any Loan Party or any Guarantor, or any sale, lease or transfer of any or all of the assets of any Loan Party or any Guarantor, or any changes in the shareholders, partners or members of any Loan Party or any Guarantor; or any reorganization of any Loan Party or any Guarantor.

     2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligations, or any part thereof, exceed the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) any Borrower has valid defenses (other than the payment of the Guaranteed Obligations), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from any Borrower, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement, any of the other Loan Documents, the Mortgage Loan Documents or the First Mezzanine Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) liable hereon regardless of whether any Borrower, any other Guarantor or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor

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may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any other Person (including any other Guarantor) will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to any other Person (including any other Guarantor) to pay or perform the Guaranteed Obligations.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

     2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except that of payment of the Guaranteed Obligations) of any Borrower against Lender or any other Person, or of any Mortgage Borrower against Mortgage Lender or any other Person, or of any First Mezzanine Borrower against First Mezzanine Lender or any other Person or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     2.11 Merger. The reorganization, merger or consolidation of any Borrower into or with any Person.

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     2.12 Preference. Any payment by any Borrower to Lender, or by any Mortgage Borrower to Mortgage Lender, or by any First Mezzanine Borrower to First Mezzanine Lender, as applicable, is held to constitute a preference under bankruptcy laws, or for any reason Lender, Mortgage Lender or First Mezzanine Lender is required to refund such payment or pay such amount to such Borrower, Mortgage Borrower or First Mezzanine Borrower or to someone else, as applicable.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an Affiliate of each Borrower, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrowers and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce such Guarantor to execute this Guaranty.

     3.4 Financial Representations, Warranties and Covenants. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit A attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

     3.5 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both

13

would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.6 Survival. All representations and warranties made by each Guarantor herein shall survive the execution hereof.

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of any Guarantor’s payment of all or a portion of the Guaranteed Obligations. Upon the occurrence and during the continuance of an Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party or any other party any amount upon any Guarantor Claim.

     4.2 Claims in Bankruptcy. In the event of any receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between any Borrower and any Guarantor, shall constitute a credit against the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     4.3 Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds,

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payments, claims or distributions so received except to pay such funds, payments, claims and/or distributions promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     4.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Borrower’s assets securing payment of any Guarantor Claim shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of such Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Borrower held by any Guarantor.

ARTICLE 5

MISCELLANEOUS

     5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) §40.495(2), each Guarantor hereby waives the provisions of NRS §40.430.

     5.2 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 5.2):

Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue

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	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763
Guarantor:	Morgans Group LLC
	475 Tenth Avenue
	New York, New York 10018
	Attention:  Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022

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Attention: Jeffrey B. Steiner, Esq.

Facsimile No.: (212) 603-2001

Hard Rock / Rand Peppas

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 5.2. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 5.2, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer.

     5.3 Governing Law. This Guaranty shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement.

     5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement.

     5.7 Fully Recourse. (a) The Guaranteed Obligations are joint and several (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) recourse obligations of Guarantors and not restricted by any limitation on personal liability.

     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a

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Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

     5.8 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     5.9 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     5.10 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     5.11 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against any such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THIS GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR,

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CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     5.13 Waiver of Right To Trial By Jury. EACH GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 5.13 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR.

     5.14 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall reasonably cooperate with Lender at Lender’s cost and expense in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall provide such information and documents relating to such Guarantor, Borrowers, Mortgage Borrowers, First Mezzanine Borrowers, the Properties and any tenants of the Improvements as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information with the investment banking firms, Rating Agencies, accounting firms, law firms and other third party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and that various investors may also see some or all of the information. Lender and all of the aforesaid third party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction, or otherwise as part of its business development. Notwithstanding anything to the

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contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer (having at least ten (10) years experience servicing loans) for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested covenant, representation, warranty, indemnity or certification or otherwise. Without limitation on the foregoing, in no event shall Guarantors have liability (by way of certification, indemnity or otherwise) for information or statements contained in third party reports used in connection with the secondary marketing transaction; provided, however Guarantor shall remain liable under Section 1.2 to the extent any material misstatements or omissions are contained in such third party reports as a result of conduct by Borrower that is otherwise subject to the exclusions from exculpation provided under Section 1.2.

     5.15 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     5.16 Usage of Terms. As used in this Guaranty, the phrase “any Borrower” shall mean “any one or more Borrowers, including all of the Borrowers” and the phrase “any Guarantor” shall mean “any one or more Guarantors, including all of the Guarantors”.

[NO FURTHER TEXT ON THIS PAGE]

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     EXECUTED as of the day and year first above written.

GUARANTORS:
MORGANS GROUP LLC,
a Delaware limited liability company
By:	Morgans Hotel Group Co.,
	a Delaware corporation
	as Managing Member
	By:	/s/ RICHARD SZYMANSKI
		Name: Richard Szymanski
		Title: Chief Financial Officer and Secretary
DLJ MB IV HRH, LLC,
a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN
	Name: Kenneth J. Lohsen
	Title: Authorized Signatory

Second Mezzanine Guaranty Agreement

Exhibit A

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

Second Mezzanine Guaranty Agreement

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

     “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

     “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

Second Mezzanine Guaranty Agreement

greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

     “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

Second Mezzanine Guaranty Agreement

     “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

Second Mezzanine Guaranty Agreement

Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit A with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit A shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit A is expressly incorporated by reference therein, including by Section 3.4 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

Second Mezzanine Guaranty Agreement

EX-10.34

Exhibit 10.34

EXECUTION COPY

SECOND MEZZANINE CLOSING GUARANTY OF COMPLETION

     THIS SECOND MEZZANINE CLOSING GUARANTY OF COMPLETION (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in Las Vegas, Nevada and more particularly described on Exhibit A-1 (the “Hotel/Casino Property”) and Exhibit A-2 (the “Adjacent Property”; and the Hotel/Casino Property and the Adjacent Property, individually, a “Property”, and collectively, the “Properties”); (ii) that certain Closing Guaranty of Completion dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Closing Completion Guaranty”), made by Guarantors in favor of Mortgage Lender; and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with

the Mortgage Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Closing Completion Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Senior Mezz, LLC and HRHH JV Senior Mezz, LLC (collectively, the “First Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as first mezzanine lender (together with its successors and assigns, the “First Mezzanine Lender”), in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “First Mezzanine Note”), First Mezzanine Borrowers have become indebted to First Mezzanine Lender with respect to a loan (the “First Mezzanine Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Borrowers and First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Loan Agreement”), which First Mezzanine Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Pledge Agreement”); (ii) that certain First Mezzanine Closing Guaranty of Completion, dated as of the date hereof, made by Guarantors in favor of First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Closing Completion Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the First Mezzanine Loan (together with the First Mezzanine Note, the First Mezzanine Loan Agreement, the First Mezzanine Pledge Agreement and the First Mezzanine Closing Completion Guaranty, collectively, the “First Mezzanine Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC, a Delaware limited liability company and HRHH JV Junior Mezz, LLC, a Delaware limited liability company (collectively, the “Borrowers”), and payable to the order of Lender in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”); and (ii) further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement, and the Pledge Agreement , collectively, the “Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC and HRHH JV Junior Mezz Two, LLC (collectively, the “Third Mezzanine Borrowers”), and payable to the order of Column

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Financial, Inc., in its capacity as third mezzanine lender (together with its successors and assigns, the “Third Mezzanine Lender”), in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Third Mezzanine Note”), Third Mezzanine Borrowers have become indebted to Third Mezzanine Lender with respect to a loan (the “Third Mezzanine Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Borrowers and Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Loan Agreement”), which Third Mezzanine Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Third Mezzanine Borrowers, as pledgors, in favor of Third Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Pledge Agreement”); (ii) that certain Third Mezzanine Closing Guaranty of Completion, dated as of the date hereof, made by Guarantors in favor of Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Closing Completion Guaranty”, and together with the Mortgage Closing Completion Guaranty and the First Mezzanine Closing Completion Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Third Mezzanine Loan (together with the Third Mezzanine Note, the Third Mezzanine Loan Agreement, the Third Mezzanine Pledge Agreement and the Third Mezzanine Closing Completion Guaranty, collectively, the “Third Mezzanine Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     G. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE I

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranteed Obligations.

          (a) Each Guarantor hereby jointly and severally, irrevocably, absolutely and unconditionally guarantees to Lender the full, complete and punctual payment, performance and satisfaction of all of the obligations, duties, covenants and agreements of Mortgage

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Borrowers under the Mortgage Loan Agreement relating to each project contemplated by the Initial Renovations, as shown on Schedule XIII to the Mortgage Loan Agreement, as the same may be modified with the reasonable consent of Mortgage Lender, if and when Mortgage Borrowers shall begin physical construction thereof (each such project, as and when Borrowers have elected to commence, and have commenced, physical construction thereof, an “Initial Renovations Project”), substantially in compliance with the applicable plans and specifications, the applicable portions of the Initial Renovations Loan Budget (as such term is defined in the Mortgage Loan Agreement), the applicable construction progress schedule and all applicable Legal Requirements, including, without limitation:

          (i) to diligently commence, perform and complete (or cause to be commenced, performed and completed) the construction of each Initial Renovations Project in accordance with the terms of the Mortgage Loan Agreement and the Loan Agreement;

          (ii) to pay all costs associated with each Initial Renovations Project, including, without limitation, all hard costs, soft costs and other obligations, liabilities, costs and expenses incurred in connection with the completion of each Initial Renovations Project, as the same may become due and payable;

          (iii) to keep the Properties free and clear of all Liens or claims of Liens arising or incurred in connection with the completion of each Initial Renovations Project, other than Permitted Encumbrances and any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, and if any Liens should be filed, or should attach, with respect to any Property by reason of the carrying out of each Initial Renovations Project, within fifteen (15) Business Days after obtaining notice thereof (but in any event prior to the date on which such Property or any part thereof or interest therein may be in imminent danger of being sold, forfeited, foreclosed, terminated, cancelled or lost), other than any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, to either (A) cause the removal of such Liens or (B) post security against the consequences of their possible foreclosure and procure an endorsement to the Title Insurance Policy (as such term is defined in the Mortgage Loan Agreement) insuring Mortgage Lender against the consequences of the foreclosure or enforcement of such Liens;

          (iv) to pay the premiums for all policies of insurance required to be furnished by Borrowers pursuant to the Loan Agreement, or Mortgage Borrowers pursuant to the Mortgage Loan Agreement, during the performance of each Initial Renovations Project if such premiums are not paid by Borrowers or Mortgage Borrowers;

          (v) if Lender (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents) exercises its rights to complete any Initial Renovations Project pursuant to this Guaranty or any of the other Loan Documents, to pay or reimburse Lender for any and all costs and expenses incurred by Lender in completing such Initial Renovations Project;

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          (vi) to pay all claims relating to the foregoing before they become delinquent;

          (vii) to correct or cause to be corrected any material defect in any Initial Renovations Project, as reasonably determined by the applicable architect and the Construction Consultant (as such term is defined in the Mortgage Loan Agreement), or, if the applicable architect and the Construction Consultant cannot reasonably agree, then as determined pursuant to the most expedited form of arbitration available for such disagreement under the rules of the American Arbitration Association, such arbitration to be held in New York, New York; and

          (viii) to pay any and all costs, expenses, liabilities, claims and amounts required to be paid by Guarantors pursuant to Section 1.7 or any other provision hereof (the “Enforcement Costs”).

          (b) Each Guarantor hereby jointly and severally, irrevocably, absolutely and unconditionally guarantees to Lender the full, complete and punctual payment, performance and satisfaction of all of the obligations, duties, covenants and agreements of Mortgage Borrowers under Section 3.18 of the Mortgage Loan Agreement relating to restoration of the Properties in the event that any of (i) the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, (ii) Mortgage Borrowers have delivered the Relinquishment Notice (as such term is defined in the Mortgage Loan Agreement) to Mortgage Lender, or (iii) Mortgage Borrowers have delivered a Stop Notice (as such term is defined in the Mortgage Loan Agreement) to Mortgage Lender, substantially in compliance with all applicable Legal Requirements and to the reasonable satisfaction of the Construction Consultant, including, without limitation:

          (i) to diligently commence, perform and complete (or cause to be commenced, performed and completed) the restoration of the Properties to the extent required under, and in accordance with the terms of, the Mortgage Loan Agreement;

          (ii) to pay all costs associated with such restoration, including, without limitation, all hard costs, soft costs and other obligations, liabilities, costs and expenses incurred in connection with the completion of such restoration, as the same may become due and payable;

          (iii) to keep the Properties free and clear of all Liens or claims of Liens arising or incurred in connection with such restoration, other than Permitted Encumbrances and any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, and if any Liens should be filed, or should attach, with respect to any Property by reason of the carrying out of such restoration, within fifteen (15) Business Days after obtaining notice thereof (but in any event prior to the date on which such Property or any part thereof or interest therein may be in imminent danger of being sold, forfeited, foreclosed, terminated, cancelled or lost), other than any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, to either (A) cause the removal of such Liens or (B) post security against the consequences of their possible foreclosure and procure an endorsement to the Title Insurance Policy

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insuring Mortgage Lender against the consequences of the foreclosure or enforcement of such Liens;

          (iv) to pay the premiums for all policies of insurance required to be furnished by Borrowers pursuant to the Loan Agreement, or Mortgage Borrowers pursuant to the Mortgage Loan Agreement, during the performance of the restorations if such premiums are not paid by Borrowers or Mortgage Borrowers;

          (v) if Lender (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents) exercises its rights to complete any of the restoration pursuant this Guaranty or any of the other Loan Documents, to pay or reimburse Lender for any and all costs and expenses incurred by Lender in completing the restoration; and

          (vi) to pay all claims relating to the foregoing before they become delinquent.

The obligations and liabilities set forth in the foregoing Sections 1.1(a) and 1.1(b) are collectively referred to herein as the “Guaranteed Obligations”; provided, however, that in no event shall the aggregate obligations and liabilities of Guarantors under this Guaranty and the Other Guarantees exceed the Guaranteed Obligations; and the completion obligations with respect to completion of any Initial Renovations Project or restoration from any Pre-Construction Work shall be referred herein as the “Guaranteed Work”. Each Guarantor hereby acknowledges having received, reviewed and approved a true and complete copy of the Loan Agreement and the Mortgage Loan Agreement. Each Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor and not merely as a surety.

     1.2 Payment and Performance by Guarantors.

          (a) If Mortgage Borrowers shall fail to diligently proceed with any Guaranteed Work, and the completion thereof in accordance with the provisions of the Mortgage Loan Agreement, subject to Excusable Delay, or if Mortgage Borrowers shall otherwise fail to perform their obligations under the Mortgage Loan Agreement relating to any Guaranteed Work, or if any of the other Guaranteed Obligations shall not be paid and performed when due, then Guarantors, within ten (10) days after a written demand for payment or performance has been given to Guarantors by Lender in accordance with the notice provisions hereof, shall pay or perform the same, it being expressly acknowledged and agreed by Guarantors that Mortgage Lender shall have no obligation to, and shall not, continue to disburse any portion of the Construction Loan (as such term is defined in the Mortgage Loan Agreement) or the Initial Renovations Reserve Fund. Guarantors’ obligations hereunder shall continue in full force and effect, notwithstanding any default by any Loan Party under any other covenants, terms or conditions set forth in the Loan Documents and/or the Mortgage Loan Documents, as applicable, commencement and/or completion of foreclosure proceedings or acquisition by Lender or Mortgage Lender of all or any portion of any Property or the Collateral, as applicable, through foreclosure or deed in lieu of foreclosure and, in that regard, all of the covenants, terms or conditions set forth in the Loan Documents and/or the Mortgage Loan Documents, as applicable, relating in any way to the Guaranteed Obligations shall survive any such foreclosure or deed in

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lieu of foreclosure and remain binding obligations of Borrowers and/or Mortgage Borrowers, as applicable, guaranteed by each Guarantor hereunder until the complete payment and performance of all of the Guaranteed Obligations.

          (b) Intentionally Omitted.

          (c) If any Guarantor shall, within fifteen (15) days after written demand from Lender, fail to diligently undertake the performance of the Guaranteed Obligations, then Lender shall have the right, at its option, either before, during or after commencing foreclosure or sale proceedings against all or any portion of the Collateral, as the case may be, and before, during or after pursuing any other right or remedy against Borrowers or Guarantor, to perform any and all of the Guaranteed Work by or through any agent, contractor or subcontractor of its selection, and pursuant to contracts or subcontracts relating thereto, all as Lender in its sole discretion deems proper subject to the terms of the Mortgage Loan Documents. Furthermore, Lender shall have no obligation to protect or insure any collateral for the Loan, nor shall Lender have any obligation to perfect its security interest in any collateral for the Loan. During the course of any of the Guaranteed Work undertaken by Lender or any other party on behalf of Lender, Guarantors shall pay on demand any amounts due to contractors, subcontractors and material suppliers and for permits and licenses necessary or desirable in connection therewith. Guarantors’ obligations in connection with any of the Guaranteed Work undertaken by Lender or any other party on behalf of Lender shall not be affected by any errors or omissions of Mortgage Borrowers’ general contractor or architect, Lender’s consulting architect, or any subcontractor or agent or employee of any of the foregoing in the design, supervision and/or performance of the work, it being understood that such risk is assumed by Guarantors.

          (d) Satisfaction by Guarantors of any liability hereunder at any one time with respect to any default by any Loan Party shall not discharge Guarantors with respect to any other default by any Loan Party at any other time, it being the intent hereof that this Guaranty and the obligations of Guarantors hereunder shall be continuing and may be enforced by Lender to the end that the Guaranteed Work shall be timely completed, lien free, without loss, cost, expense, injury or liability of any kind to Lender, subject to the express terms hereof. To the extent permitted by applicable law, all of the remedies set forth herein and/or provided for in any of the Loan Documents or at law or equity shall be equally available to Lender, and the choice by Lender of one such alternative over another shall not be subject to question or challenge by Guarantor or any other Person, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by Lender to recover or seeking any other remedy under this Guaranty, nor shall such choice preclude Lender from subsequently electing to exercise a different remedy. The parties have agreed to the alternative remedies provided herein in part because they recognize that the choice of remedies in the event of a default hereunder will necessarily be and should properly be a matter of good faith business judgment, which the passage of time and events may or may not prove to have been the best choice to maximize recovery by Lender at the lowest cost to Borrowers and/or Guarantors. It is the intention of the parties that such good faith choice by Lender be given conclusive effect regardless of such subsequent developments. No Guarantor shall have any right of recourse against Lender by reason of any action Lender may take or omit to take under the provisions of this Guaranty or under the provisions of any of the other Loan Documents, except to the extent of Lender’s gross negligence, willful misconduct or fraud.

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     1.3 Nature of Guaranty. This Guaranty is an irrevocable, unconditional, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any of Guarantors and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of any of Guarantors to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. This Guaranty shall terminate upon the earlier to occur of (i) payment in full of the Debt, or (ii) complete payment and performance of all of the Guaranteed Work, or (iii) Final Completion (as such term is defined in the Mortgage Loan Agreement) of the Project; provided, however, that if, at the time any of the events set forth in the foregoing clauses (i), (ii) or (iii), as applicable, shall occur, Guarantors are then in the process of completing any of the Guaranteed Work, Guarantors shall (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents), at Lender’s reasonable expense, reasonably cooperate to transition such completion to Lender or its designee, including, without limitation, assigning to Lender or its designee any construction-related contracts not previously assigned to Lender, making Guarantors’ employees available to Lender or its designee for construction status briefings and to answer questions regarding construction of such Guaranteed Work, and turning over to Lender copies of Guarantors’ books, records and files relating to the construction and completion of such Guaranteed Work.

     1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Loan Party (except the defense of the payment of the Guaranteed Obligations) or any other party against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     1.5 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of Guarantors hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligations or any other Person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantor(s) of the Guaranteed Obligations, (d) join any Loan Party or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, or (e) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

     1.6 Waivers. Each Guarantor agrees to the provisions of the Loan Documents and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to Borrowers, (b) acceptance of this Guaranty, (c) any amendment or extension

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of the Note, the Loan Agreement, the Pledge Agreement, or any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Loan Party or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.

     1.7 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors shall, immediately upon written demand by Lender, pay Lender all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees, court costs, filing fees, recording costs, title insurance premiums, survey costs and expenses of foreclosure) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the event that (i) Lender employs counsel to enforce the provisions of this Guaranty and (ii) Lender has sold or transferred any interests in the Note, then Guarantors shall only be responsible for the attorneys’ fees and expenses of the counsel of only one Lender with respect to the Loan.

     1.8 Payment by Guarantors. If any amount due on the Guaranteed Obligations is not paid to Lender within ten (10) Business Days after written demand by Lender, the same shall bear interest at the Default Rate from the date of demand until the date such amount has been paid in full (which interest shall be included within the meaning of Guaranteed Obligations).

     1.9 Effect of Bankruptcy. In the event that pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or decision thereunder, Lender must rescind or restore any payment or any part thereof received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect and this Guaranty and the Guaranteed Obligations shall remain in full force and effect. It is the intention of Borrowers and Guarantors that Guarantors’ obligations hereunder shall not be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating any Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made

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by any Guarantor under or in connection with this Guaranty or otherwise until such time as the Guaranteed Obligations have been paid and performed in full.

     1.11 Borrower. The term “Borrower” or “Borrowers” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE II

EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following:

     2.1 Modifications; Sales.

          (a) Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Loan Agreement, the Pledge Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of them) and Mortgage Lender, or between First Mezzanine Borrowers (or any of them) and First Mezzanine Lender or any other parties, pertaining to the Guaranteed Obligations, or any sale, assignment or foreclosure of the Note, the Loan Agreement, the Pledge Agreement, any of the other Loan Documents, the Mortgage Loan Documents or the First Mezzanine Loan Documents, or any sale or transfer of all or any portion of any Property or the Collateral, or any failure of Lender, Mortgage Lender or First Mezzanine Lender to notify any Guarantor of any such action.

          (b) Any amendment, modification or Change Order (as such term is defined in the Mortgage Loan Agreement) to the Plans and Specifications and/or the Loan Budget made in accordance with the terms of the Mortgage Loan Agreement.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower, or by Mortgage Lender to any Mortgage Borrower, or by First Mezzanine Lender to any First Mezzanine Borrower, as applicable, or any Guarantor or any other party liable for payment of any or all of the Guaranteed Obligations.

     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Loan Party, any Guarantor or any other party at any time liable for the payment or performance

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of all or part of the Guaranteed Obligations; or any dissolution of any Loan Party or any Guarantor or any sale, lease or transfer of any or all of the assets of any Loan Party or any Guarantor or any changes in the direct or indirect shareholders, partners or members of any Loan Party or any Guarantor; or any reorganization of any Loan Party or any Guarantor.

     2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations or any document or agreement executed in connection with the Guaranteed Obligations for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligations or any part thereof exceed the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Loan Agreement, the Pledge Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) any Loan Party has valid defenses (other than the payment of the Guaranteed Obligations), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from such Loan Party, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Loan Agreement, the Pledge Agreement, any of the other Loan Documents, the Mortgage Loan Documents or the First Mezzanine Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain liable hereon regardless of whether any Loan Party or any other Person, including any other Guarantor, be found not liable on the Guaranteed Obligations or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Loan Party on the Guaranteed Obligations or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

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     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of any collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender or any other party (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations, or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

     2.10 Representations. The accuracy or inaccuracy of the representations and warranties made by any Guarantor herein or by any Loan Party in any of the Loan Documents and/or the Mortgage Loan Documents and/or the First Mezzanine Loan Documents, as applicable.

     2.11 Offset. The Note, the Loan Agreement, the Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except that of payment of the Guaranteed Obligations) of any Borrower against Lender or any other Person, or against payment of the Guaranteed Obligations, or of any Mortgage Borrower against Mortgage Lender, or any other Person, or of any First Mezzanine Borrower against First Mezzanine Lender or any other Person, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     2.12 Merger. The reorganization, merger or consolidation of any Loan Party into or with any other Person.

     2.13 Preference. Any payment by any Borrower to Lender, or by any Mortgage Borrower to Mortgage Lender, or by any First Mezzanine Borrower to First Mezzanine Lender, as applicable, is held to constitute a preference under bankruptcy laws or for any reason Lender, Mortgage Lender or First Mezzanine Lender is required to refund such payment or pay such amount to any Borrower, any Mortgage Borrower or any First Mezzanine Borrower, or to any other Person, as applicable.

     2.14 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any

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Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

     2.15 Satisfaction of Mortgage Loan and/or First Mezzanine Loan. Any satisfaction in full of the Mortgage Loan and/or the First Mezzanine Loan unless (i) the Loan is also satisfied in full, or (ii) the Guaranteed Obligations have been fully and finally paid and performed at the time of such satisfaction.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an affiliate of Borrowers, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of each Loan Party and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or the Guaranteed Obligations; however, such Guarantor is not relying on such financial condition or collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce said Guarantor to execute this Guaranty.

     3.4 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not and will not contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.5 Litigation. There is no action, suit, proceeding or investigation pending or, to such Guarantor’s knowledge, threatened in writing against such Guarantor in any court or by or before any other Governmental Authority, or labor controversy affecting such Guarantor or any

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of such Guarantor’s properties, businesses, assets or revenues, which would reasonably be expected to materially and adversely affect the performance of such Guarantor’s obligations and duties under this Guaranty or impair such Guarantor’s ability to fully fulfill and perform such Guarantor’s obligations under this Guaranty and the other Loan Documents to which such Guarantor is a party.

     3.6 Offset. The Loan Documents, the Mortgage Loan Documents and the First Mezzanine Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by such Guarantor, including the defense of usury, and such Guarantor has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto.

     3.7 Embargoed Person. At all times throughout the term of the Loan, including after giving effect to any Transfer permitted pursuant to the Loan Documents, (a) none of the funds or other assets of such Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder (each an “Embargoed Person”) with the result that the Loan made by Lender is or would be in violation of law; (b) no Embargoed Person shall have any interest of any nature whatsoever in such Guarantor, with the result that the Loan is or would be in violation of law; and (c) none of the funds of such Guarantor shall be derived from any unlawful activity with the result that the Loan is or would be in violation of law.

     3.8 Survival. All representations and warranties made by such Guarantor herein shall survive the execution hereof.

ARTICLE IV

COVENANTS

     4.1 Corporate Existence. Each Guarantor shall maintain and preserve such Guarantor’s corporate existence and qualification as a corporation or limited liability company (as applicable) pursuant to the laws of such Guarantor’s State of formation.

     4.2 Dissolution. Subject to Transfers permitted pursuant to the Loan Agreement, no Guarantor shall liquidate, wind-up or dissolve (or suffer any liquidation or dissolution).

     4.3 Litigation. Each Guarantor shall give prompt notice to Lender of any litigation or governmental proceedings pending or threatened in writing against such Guarantor of which such Guarantor has notice and which would reasonably be expected to materially adversely affect such Guarantor’s ability to perform its obligations hereunder.

     4.4 Notice of Default. Each Guarantor shall promptly advise Lender of any material adverse change in such Guarantor’s condition, financial or otherwise, of which such

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Guarantor has knowledge and which would reasonably be expected to materially adversely affect such Guarantor’s ability to perform its obligations hereunder.

     4.5 Certification. Each Guarantor at any time and from time to time, within ten (10) Business Days following the request by Lender, shall execute and deliver to Lender a statement certifying that this Guaranty is unmodified and in full force and effect (or if modified, that the same is in full force and effect as modified and stating such modifications) or, if applicable, that this Guaranty is no longer in full force and effect.

ARTICLE V

SUBORDINATION OF CERTAIN INDEBTEDNESS

     5.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include, without limitation, all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of such Guarantor’s payment of all or a portion of the Guaranteed Obligations. After the occurrence and during the continuance of a monetary Default or any Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party any amount upon the Guarantor Claims.

     5.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any dividend or payment which is otherwise payable to any Guarantor and which, as between any Borrower and such Guarantor, shall constitute a credit against the Guarantor Claims, then, upon payment to Lender in full and performance of the Guaranteed Obligations, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     5.3 Payments Held in Trust. In the event that, notwithstanding anything to the contrary contained in this Guaranty, any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds,

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payments, claims or distributions so received except to pay them promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     5.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Loan Party’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Loan Party’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of any Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Loan Party, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Loan Party held by any Guarantor.

ARTICLE VI

MISCELLANEOUS

     6.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) Section 40.495(2), Each Guarantor hereby waives the provisions of NRS Section 40.430.

     6.2 Notices. All notices, consents, approvals and requests required or permitted hereunder (each, a “Notice”) shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested, (b) a reputable overnight courier for next Business Day delivery, or (c) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 6.2):

Guarantor:	DLJ MB IV HRH, LLC c/o DLJ Merchant Banking Partners 11 Madison Avenue New York, New York 10010  Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667

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with a copy to:	Latham & Watkins LLP 885 Third Avenue Suite 1000 New York, New York 10022 Attention: Michelle Kelban, Esq. Facsimile No.: (212) 751-4864
with a copy to:	Latham & Watkins LLP 633 West Fifth Street Suite 4000 Los Angeles, California 90071 Attention: Paul Fuhrman, Esq. Facsimile No.: (213) 891-8763
Guarantor:	Morgans Hotel Group Co. 475 Tenth Avenue New York, New York 10018 Attention:  Marc Gordon, Chief Investment Officer Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz 51 West 52nd Street 29th Floor New York, New York 10019 Attention: Stephen Gellman, Esq. Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc. 11 Madison Avenue New York, New York 10010 Attention: Edmund Taylor Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc. One Madison Avenue New York, New York 10019 Legal and Compliance Department Attention: Casey McCutcheon, Esq. Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP 875 Third Avenue New York, New York 10022 Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001 Hard Rock / Rand Peppas

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A Notice shall be deemed to have been given in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission after advice by telephone to recipient that a telecopy Notice is forthcoming. provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 6.2.

     6.3 Governing Law; Submission to Jurisdiction. This Guaranty shall be governed, enforced and construed in accordance with the laws of the State of New York (without giving effect to New York’s principles of conflicts of law).

     6.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     6.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     6.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement. The obligations, liabilities, representations, covenants and agreements of Guarantors hereunder are joint and several.

     6.7 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     6.8 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     6.9 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a

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single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     6.10 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     6.11 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND/OR ANY BORROWER AND LENDER AND/OR ANY MORTGAGE BORROWER AND MORTGAGE LENDER, AND/OR ANY FIRST MEZZANINE BORROWER AND FIRST MEZZANINE LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     6.12 Waiver of Right To Trial By Jury. EACH GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 6.12 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR AND LENDER.

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     6.13 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and the other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and the other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall, at no cost to such Guarantor other than for such Guarantor’s legal and accounting fees, reasonably cooperate with Lender in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall, at no cost to such Guarantor other than for such Guarantor’s legal and accounting fees, provide such information and documents relating to such Guarantor, any Borrower, any Mortgage Borrower, any First Mezzanine Borrower, the Collateral, any Property and any tenants thereof or the Improvements, to the extent in such Guarantor’s possession or able to be obtained by such Guarantor from any Borrower or otherwise using reasonable efforts, as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information or information previously provided by any Guarantor with the investment banking firms, Rating Agencies, accounting firms, law firms and other third-party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and thus various investors may also see some or all of the information. Lender and all of the aforesaid third-party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested additional covenant, representation, warranty, indemnity or certification or otherwise.

     6.14 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Borrower or otherwise, the Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

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     6.15 USA Patriot Act Notice. Lender hereby notifies Guarantors that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies each Guarantor, which information includes the name and address of each Guarantor and other information that will allow Lender to identify each Guarantor in accordance with the Patriot Act.

     6.16 Fully Recourse. (a) The Guaranteed Obligations are joint and several recourse obligations of Guarantors and not restricted by any limitation on personal liability.

     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

ARTICLE VII

FINANCIAL REPRESENTATION, WARRANTIES AND COVENANTS

     7.1 Agreement of Guarantors. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit B attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

[No Further Text on This Page]

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     IN WITNESS WHEREOF, each Guarantor has executed and delivered this Second Mezzanine Closing Guaranty of Completion as of the date first set forth above.

MORGAN GUARANTOR: MORGANS GROUP LLC, a Delaware limited liability company
By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

DLJ GUARANTOR: DLJ MB IV HRH, LLC, a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN
	Name:	Kenneth J. Lohsen
	Title:	Authorized Signatory

STATE OF	)
	)	ss:
COUNTY OF	)

     On the ___ day of                     , in the year 2007, before me, the undersigned, a notary public in and for said state, personally appeared                     , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

STATE OF	)
	)	ss:
COUNTY OF	)

     On the ___ day of                     , in the year 2007, before me, the undersigned, a notary public in and for said state, personally appeared                     , personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

EXHIBIT A-1

LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY

Hotel Parcel:

That portion of Lot 1 of the merger and resubdivision of final map of the Hard Rock Hotel/Casino, as shown by Map thereof on file in Book 138 of Plats, Page 49 in the office of the County recorder of Clark County, Nevada, being described as follows:

A parcel of land being a portion of the Northeast quarter (NE1/4) of Section 21 and a portion of the Southwest quarter (SW1/4) of the Northwest quarter (NW1/4) of Section 22, township 21 South, range 61 East M.D.M. Clark County, Nevada, described as follows:

Commencing at the Southeast corner of the Northeast quarter (NE1/4) of said Section 21; thence along the East line thereof, North 00º05’49” East, 40.01 feet to the point of beginning and the Northerly right of way North 89º59’40” West, 449.99 feet to the Southwest corner of Lot 1 as shown in Book 138 if Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence departing said right of way, along the boundary of said Lot 1 North 00º06’00” East, 473.48 feet; thence departing said Lot 1 North 45º35’41” East, 440.21 feet; thence North 04º54’29” East 98.89 feet; thence North 85º07’37” West, 31.65 feet; thence North 04º54’29” East, 137.63 feet; thence South 85º07’27” East, 31.65 feet; thence North 04º54’29” East, 178.05 feet to the North line of the Southeast quarter (SE1/4) of the Northeast quarter (NE1/4) of said Section 21; thence along said North Line South 89º04’19” East, 101.23 feet to the North sixteenth common to Section 21 and 22, also being a point on the North boundary of Lot 1 as shown in Book 138 of Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence along the boundary of said Lot 1 the following twenty-one (21) courses:

1) South 88º56’51” East, 506.21 feet;
2) South 14º05’09” east, 49.76 feet;
3) South 07º35’35” East, 110.67 feet;
4) South 14º05’09” East, 137.26 feet;
5) South 89º14’55” East, 5.25 feet to the beginning of a curve, concave to the Southwest having a radius of 10.00 feet;
6) Southeasterly along said curve, through a central angle of 75º09’46”, an arc length of 13.12 feet;
7) South 14º05’09” East, 46.62 feet;
8) South 02º45’28” East, 61.06 feet;
9) South 14º04’51” East, 65.43 feet;
10) South 32º31’15” East, 37.95 feet;
11) South 14º05’09” East, 437.44 feet;
12) South 75º34’42” West, 195.01 feet;
13) South 14º05’18” East, 115.31 feet;
14) South 06º31’30” East, 110.02 feet;
15) North 88º57’40” West, 91.40 feet;
16) North 01º02’20” East 5.10 feet;

17) North 77º39’04” West, 60.69 feet;
18) North 88º57’40” West, 246.50 feet;
19) South 01º02’20” West, 7.00 feet to the beginning of a curve, concave to the Northwest, having a radius of 10.00 feet
20) Southwesterly along said curve, through a central angle of 90º00’00” , an arc length of 15.71 feet
21) North 88º57’40” West, 184.56 feet to the point of beginning.

     Also being described as parcel 2 of that certain record of survey recorded October 23, 2007 in File 169 as Page 0015.

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EXHIBIT A-2

LEGAL DESCRIPTION OF ADJACENT PROPERTY

Development Parcel I:

That portion of Lot 1 of the merger and resubdivision of final Map of the Hard Rock Hotel/Casino, as shown by map thereof on file in Book 138 of Plats, Page 49 in the Office of the County recorder of Clark County, Nevada, being described as follows:

A parcel of land being a portion of the Northeast quarter (NE 1/4) of Section 21 Township 21 South, range 61 East M.D.M., Clark County, Nevada, described as follows:

Commencing at the Southeast corner of the Northeast quarter (NE¹/4) of said Section 21; thence along the East line thereof, North 00º05’49” East, 40.01 feet to the Northerly right of way of Harmon Avenue; thence along the said Northerly right of way, North 89º59’40” West, 449.99 feet to the Southwest corner of Lot 1 as shown in Book 138 of Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence departing said right of way, along the boundary of said Lot 1 North 00º06’00” East, 473.48 feet to the point of beginning; thence continuing along the boundary of said Lot 1 the following five (5) courses:

1) North 00º06’00” East, 726.73 feet
2) North 89º04’19” West, 444.02 feet to the beginning of a non-tangent curve, concave to the Northeast, having a radius of 650.00 feet, from which beginning the radius bears North 48º20’31” east;
3) Northerly, through a central angle of 40º36’38”, an arc length of 460.71 feet to which a radial line bears North 88º57’09” West;
4) South 89º54’00” East, 1,058.87 feet;
5) South 00º05’49” West, 432.79 feet to the North sixteenth common to section 21 and 22, thence along the North line of the Southeast quarter (SE1/4) of the Northeast quarter (NE1/4) of said section 21, North 89º04’49” East, 101.23 feet; thence South 04º54’29” West, 178.05 feet; thence North 85º07’27” West, 31.65 feet; thence South 04º54’29” West 137.63 feet; thence South 85º07’37” East, 31.65 feet; thence South 04º54’29” West, 98.89 feet; thence South 45º35’41” West, 440.21 feet to the point of beginning.

Also being described as parcel 1 of that certain record of Survey recorded October 23, 2007 in File 169 as Page 0015.

Development Parcel II:

That portion of the Northwest Quarter (NW 1/4) of the Northwest Quarter (NW 1/4) of Section 22 Township 21 South, Range 61 East, M.D.B. & M., Clark County, Nevada, described as follows:

Parcel One (1) as shown by Map thereof in file 52 of Parcel Maps, Page 41 in the Office of the County Recorder, Clark County, Nevada, and amended by Certificate of Amendment recorded

May 26, 1987 in Book 870526 as Document No. 00396.

Development Parcel III:

A perpetual non-exclusive easement for drainage and incidental purposes over, under, across and upon the South 25 feet (measured at right angles to the South line) of Parcel Two (2) as delineated on that certain Parcel Map on file in file 52 of Parcel maps, Page 41 in the Office of the County Recorder of Clark County, Nevada. Said easement being recorded on July 9, 1987 in Book 870709 as Document No. 00322.

Development Parcel IV:

A perpetual easement for the encroachment of a Masonry Wall as created by the certain document entitled “Perpetual Easement” recorded February 2, 1992 on Book 920211 as Document No. 00134 of Official Records, Clark County, Nevada.

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EXHIBIT B

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

          “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

          “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

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greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

          “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

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          “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

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Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit B with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit B shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit B is expressly incorporated by reference therein, including by Section 7.1 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

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EX-10.35

Exhibit 10.35

EXECUTION COPY

SECOND MEZZANINE GUARANTY AGREEMENT
(NON-QUALIFIED MANDATORY PREPAYMENT)

     THIS SECOND MEZZANINE GUARANTY AGREEMENT (NON-QUALIFIED MANDATORY PREPAYMENT) (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each, individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in the City of Las Vegas, County of Clark, State of Nevada, as more particularly described in the Mortgage (the “Property”); (ii) that certain Guaranty Agreement (Non-Qualified Mandatory Prepayment) dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Non-Qualified Prepayment Guaranty”), made by Guarantors in favor of Mortgage Lender); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with the Mortgage

Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Non-Qualified Prepayment Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Senior Mezz, LLC and HRHH JV Senior Mezz, LLC (collectively, the “First Mezzanine Borrowers”), and payable to the order of Column Financial, Inc, in its capacity as first mezzanine lender (together with its successors and assigns, “First Mezzanine Lender”), in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “First Mezzanine Note”), First Mezzanine Borrowers have become indebted to First Mezzanine Lender with respect to a loan (the “First Mezzanine Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Borrowers and First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Loan Agreement”), which First Mezzanine Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Pledge Agreement”); (ii) that certain First Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, made by Guarantors in favor of First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Non-Qualified Prepayment Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the First Mezzanine Loan (together with the First Mezzanine Note, the First Mezzanine Loan Agreement, the First Mezzanine Pledge Agreement and the First Mezzanine Non-Qualifed Prepayment Guaranty, collectively, the “First Mezzanine Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC, a Delaware limited liability company and HRHH JV Junior Mezz, LLC, a Delaware limited liability company (collectively, the “Borrowers”), and payable to the order of Lender in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”); and (ii) further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement, and the Pledge Agreement, collectively, the “Second Mezzanine Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC and HRHH JV Junior Mezz Two,

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LLC (collectively, the “Third Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as third mezzanine lender (together with its successors and assigns, the “Third Mezzanine Lender”), in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Third Mezzanine Note”), Third Mezzanine Borrowers have become indebted to Third Mezzanine Lender with respect to a loan (the “Third Mezzanine Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Third Mezzanine Borrowers and Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Loan Agreement”), which Third Mezzanine Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Third Mezzanine Borrowers, as pledgors, in favor of Third Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Pledge Agreement”); (ii) that certain Third Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, made by Guarantors in favor of Third Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Third Mezzanine Non-Qualified Prepayment Guaranty”, and together with the Mortgage Non-Qualified Prepayment Guaranty and the First Mezzanine Non-Qualified Prepayment Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Third Mezzanine Loan (together with the Third Mezzanine Note, the Third Mezzanine Loan Agreement, the Third Mezzanine Pledge Agreement and the Third Mezzanine Non-Qualified Prepayment Guaranty, collectively, the “Third Mezzanine Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligation (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranty of Obligation. Each Guarantor hereby jointly and severally, irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligation as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Each Guarantor hereby jointly and severally, irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligation as a primary obligor.

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     1.2 Definitions. The following terms shall have the respective meanings set forth below. All other capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

          “Guaranteed Obligation” means the obligation of Borrowers to pay, or cause Mortgage Borrowers to pay, to Lender the Non-Qualified Mandatory Prepayment; provided, however, that in no event shall the aggregate liability of Guarantors under this Guaranty and the Other Guarantees exceed the Non-Qualified Mandatory Prepayment, which shall be applied to the Mortgage Debt, the First Mezzanine Debt, the Debt and the Third Mezzanine Debt in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) of the Loan Agreement.

          “Other Guarantees” has the meaning ascribed to such term in the Recitals.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, joint and several, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Obligation arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligation may be increased or reduced shall not release or discharge the obligation of any Guarantor to Lender with respect to the Guaranteed Obligation. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

     1.4 Guaranteed Obligation Not Reduced by Offset. The Guaranteed Obligation and the liabilities and obligations of Guarantors to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Borrower (except for the defense of the payment of the Guaranteed Obligation), or any other party, against Lender or against payment of the Guaranteed Obligation, whether such offset, claim or defense arises in connection with the Guaranteed Obligation (or the transactions creating the Guaranteed Obligation) or otherwise.

     1.5 Payment By Guarantors. If all or any part of the Guaranteed Obligation shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantors shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever (except as otherwise provided herein), pay (and each agrees jointly and severally to pay) in lawful money of the United States of America, the amount due on the Guaranteed Obligation to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligation, and may be made from time to time with respect to the same or different items of Guaranteed Obligation. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

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     1.6 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of any Guarantor hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligation or any other person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantors of the Guaranteed Obligation, (d) join any Borrower or any others liable on the Guaranteed Obligation in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligation. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligation.

     1.7 Waivers. Each Guarantor agrees to the provisions of the Loan Documents, and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to any Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Borrower or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligation, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligation, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to the Guaranteed Obligation and/or the obligations hereby guaranteed.

     1.8 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors jointly and severally agree to pay to Lender and shall promptly upon written demand by Lender, pay Lender all reasonable costs and expenses (including court costs and attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the event that (A) Lender employs counsel to enforce the provisions of this Guaranty and (B) Lender has sold or transferred any interests in the Note, then Guarantor shall only be responsible for the attorney’s fees and expenses of the counsel of only one Lender. The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligation.

     1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligation, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of each Borrower and each Guarantor that none of Guarantors’ obligations hereunder shall be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

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     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights such Guarantor may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating such Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligation for any payment made by any Guarantor under or in connection with this Guaranty or otherwise.

     1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company, joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following, even if any of the following is materially prejudicial to any Guarantor:

     2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligation, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of them) and Mortgage Lender, or between First Mezzanine Borrowers (or any of them) and First Mezzanine Lender or any other parties, pertaining to the Guaranteed Obligation or any failure of Lender, Mortgage Lender or First Mezzanine Lender to notify any Guarantor of any such action.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower, or by Mortgage Lender to any Mortgage Borrower, or by First Mezzanine Lender to any First Mezzanine Borrower, or any Guarantor or any other Person, as applicable.

     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Loan Party, any Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligation; or any dissolution of any Loan Party or any Guarantor, or any sale, lease or transfer of any or all of the assets of any Loan Party or any Guarantor, or any changes in

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the shareholders, partners or members of any Loan Party or any Guarantor; or any reorganization of any Loan Party or any Guarantor.

     2.4 Invalidity of Guaranteed Obligation. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligation, or any document or agreement executed in connection with the Guaranteed Obligation, for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligation, or any part thereof, exceeds the amount permitted by law, (b) the act of creating the Guaranteed Obligation or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents or otherwise creating the Guaranteed Obligation acted in excess of their authority, (d) the Guaranteed Obligation violates applicable usury laws, (e) any Borrower has valid defenses (other than the payment of the Guaranteed Obligation), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligation wholly or partially uncollectible from any Borrower, (f) the creation, performance or repayment of the Guaranteed Obligation (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligation or executed in connection with the Guaranteed Obligation, or given to secure the repayment of the Guaranteed Obligation) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement, any of the other Loan Documents, the Mortgage Loan Documents or the First Mezzanine Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain jointly and severally liable hereon regardless of whether any Borrower, any other Guarantor or any other Person be found not liable on the Guaranteed Obligation or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Loan Party on the Guaranteed Obligation, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligation, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligation in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any other Person (including any other Guarantor) will be liable to pay or perform the Guaranteed Obligation, or that Lender will look to any other Person (including any other Guarantor) to pay or perform the Guaranteed Obligation.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligation.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligation.

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     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligation or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligation.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligation, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligation.

     2.10 Offset. The Note, the Guaranteed Obligation and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except for the defense of payment of the Guaranteed Obligation) of any Borrower against Lender or any other Person, or against payment of the Guaranteed Obligation, or of any Mortgage Borrower against Mortgage Lender or any other Person, or of any First Mezzanine Borrower against First Mezzanine Lender or any other Person, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligation (or the transactions creating the Guaranteed Obligation) or otherwise.

     2.11 Merger. The reorganization, merger or consolidation of any Borrower into or with any Person.

     2.12 Preference. Any payment by any Borrower to Lender, or by any Mortgage Borrower to Mortgage Lender, or by any First Mezzanine Borrower to First Mezzanine Lender, as applicable, is held to constitute a preference under bankruptcy laws, or for any reason Lender, Mortgage Lender or First Mezzanine Lender is required to refund such payment or pay such amount to such Borrower, Mortgage Borrower or First Mezzanine Borrower or to someone else, as applicable.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Guaranteed Obligation, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligation pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligation when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligation.

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ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an Affiliate of each Borrower, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligation.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrowers and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligation; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce such Guarantor to execute this Guaranty.

     3.4 Financial Representations, Warranties and Covenants. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit A attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

     3.5 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.6 Survival. All representations and warranties made by each Guarantor herein shall survive the execution hereof.

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or

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otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of any Guarantor’s payment of all or a portion of the Guaranteed Obligation. Upon the occurrence and during the continuance of an Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party or any other party any amount upon any Guarantor Claim.

     4.2 Claims in Bankruptcy. In the event of any receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligation, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between any Borrower and any Guarantor, shall constitute a credit against the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligation, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligation, and such subrogation shall be with respect to that proportion of the Guaranteed Obligation which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     4.3 Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay such funds, payments, claims and/or distributions promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     4.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Loan Party’s assets securing payment of any Guarantor Claim shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Borrower’s assets securing payment of the Guaranteed Obligation, regardless of whether such encumbrances in favor of such Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Loan Party held by any Guarantor.

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ARTICLE 5

MISCELLANEOUS

     5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) Section 40.495(2), each Guarantor hereby waives the provisions of NRS Section 40.430.

     5.2 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 5.2):

Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763

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Guarantor:	Morgans Group LLC
	475 Tenth Avenue
	New York, New York 10018
	Attention:  Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock / Rand Peppas

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 5.2. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 5.2, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer.

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     5.3 Governing Law. This Guaranty shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement.

     5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement.

     5.7 Fully Recourse. (a) The Guaranteed Obligation is a joint and several recourse obligation of Guarantors and is not restricted by any limitation on personal liability.

     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

     5.8 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     5.9 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     5.10 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or

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on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     5.11 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against any such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATION AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THIS GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     5.13 Waiver of Right To Trial By Jury. EACH GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 5.13 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR.

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     5.14 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall reasonably cooperate with Lender at Lender’s cost and expense in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall provide such information and documents relating to such Guarantor, Borrowers, First Mezzanine Borrowers, Mortgage Borrowers, the Properties and any tenants of the Improvements as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information with the investment banking firms, Rating Agencies, accounting firms, law firms and other third party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and that various investors may also see some or all of the information. Lender and all of the aforesaid third party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction, or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer (having at least ten (10) years experience servicing loans) for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested covenant, representation, warranty, indemnity or certification or otherwise. Without limitation on the foregoing, in no event shall Guarantors have liability (by way of certification, indemnity or otherwise) for information or statements contained in third party reports used in connection with the secondary marketing transaction.

     5.15 Termination. Subject to Section 5.16 hereof, this Guaranty shall terminate upon the payment of the Debt in full.  Alternatively, subject to Section 5.16 hereof, this Guaranty shall terminate upon the earliest to occur of (i) Borrowers’ satisfaction of the Qualification Conditions on or before the Construction Qualification Date, (ii) Borrowers’ payment of the Non-Qualified Mandatory Prepayment, or (iii) Borrowers’ delivery of a Non-Qualified Prepayment Letter of Credit (or a combination of the foregoing clauses (ii) and (iii)). Upon any such termination of this Guaranty, Lender shall, at Borrowers’ reasonable expense (including Lender’s reasonable

15

attorneys’ fees), promptly execute and deliver such documents as may be reasonably requested by Borrowers or Guarantors to evidence release of this Guaranty.

     5.16 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     5.17 Usage of Terms. As used in this Guaranty, the phrase “any Borrower” shall mean “any one or more Borrowers, including all of the Borrowers” and the phrase “any Guarantor” shall mean “any one or more Guarantors, including all of the Guarantors”.

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     EXECUTED as of the day and year first above written.

GUARANTORS:
MORGANS GROUP LLC, a Delaware limited liability company
By:	Morgans Hotel Group Co., a Delaware corporation as Managing Member
	By:	/s/ RICHARD SZYMANSKI
		Name: Richard Szymanski
		Title: Chief Financial Officer and Secretary
DLJ MB IV HRH, LLC
a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN
	Name: Kenneth J. Lohsen
	Title: Authorized Signatory

Guaranty Agreement

Exhibit A

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

Guaranty Agreement

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

          “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

          “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

Guaranty Agreement

greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

          “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

Guaranty Agreement

          “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

Guaranty Agreement

Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit A with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit A shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit A is expressly incorporated by reference therein, including by Section 3.4 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

Guaranty Agreement

EX-10.36

Exhibit 10.36

EXECUTION COPY

THIRD MEZZANINE GUARANTY AGREEMENT

     THIS THIRD MEZZANINE GUARANTY AGREEMENT (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each, individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in the City of Las Vegas, County of Clark, State of Nevada, as more particularly described in the Mortgage (the “Property”); (ii) that certain Guaranty Agreement dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Non-Recourse Guaranty”), made by Guarantors in favor of Mortgage Lender); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with the Mortgage Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Non-Recourse Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH JV Senior Mezz, LLC and HRHH GAMING Senior Mezz, LLC (collectively, the “First Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as First mezzanine lender (together with its successors and assigns, the “First Mezzanine Lender”), in the original principal amount of Two Hundred Million and 00/100 Dollars ($200,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “First Mezzanine Note”), First Mezzanine Borrowers have become indebted to First Mezzanine Lender with respect to a loan (the “First Mezzanine Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Borrowers and First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Loan Agreement”), which First Mezzanine Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Pledge Agreement”); (ii) that certain First Mezzanine Guaranty Agreement, dated as of the date hereof, made by Guarantors in favor of First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Non-Recourse Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the First Mezzanine Loan (together with the First Mezzanine Note, the First Mezzanine Loan Agreement, the First Mezzanine Pledge Agreement and the First Mezzanine Non-Recourse Guaranty, collectively, the “First Mezzanine Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC and HRHH JV Junior Mezz, LLC (collectively, the “Second Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as second mezzanine lender (together with its successors and assigns, the “Second Mezzanine Lender”), in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Second Mezzanine Note”), Second Mezzanine Borrowers have become indebted to Second Mezzanine Lender with respect to a loan (the “Second Mezzanine Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Borrowers and Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Loan Agreement”), which Second Mezzanine Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Second Mezzanine Borrowers, as pledgors, in favor of Second Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Pledge Agreement”); (ii) that certain Second Mezzanine Guaranty Agreement, dated as of the date hereof, made by Guarantors in favor of Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Non-Recourse Guaranty”, and together with the Mortgage Non-Recourse Guaranty and the First Mezzanine Non-Recourse Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Second Mezzanine Loan (together with the Second

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Mezzanine Note, the Second Mezzanine Loan Agreement, the Second Mezzanine Pledge Agreement and the Second Mezzanine Non-Recourse Guaranty, collectively, the “Second Mezzanine Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH JV JUNIOR MEZZ TWO, LLC, a Delaware limited liability company (“JV Borrower”) and HRHH GAMING JUNIOR MEZZ TWO, LLC, a Delaware limited liability company (“Gaming Mezz Borrower”; and each of JV Borrower and Gaming Mezz Borrower being referred to herein individually as a “Borrower” and collectively as “Borrowers”), and payable to the order of Lender in the original principal amount of Sixty Five Million and 00/100 Dollars ($65,000,000.00), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”), and further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement, collectively, the “Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined).

     F Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     G. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranty of Obligation. Each Guarantor hereby jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Each Guarantor hereby

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jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor.

     1.2 Definition of Guaranteed Obligations. As used herein, the term “Guaranteed Obligations” means:

     (a) the obligations and liabilities of each Borrower to Lender for any actual loss, damage (excluding any lost revenue, diminution of value and consequential damages), reasonable cost, reasonable expense, liability, claim and any other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

     (i) fraud or intentional misrepresentation by any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees in connection with the Loan;

     (ii) physical waste to any Property arising from the intentional misconduct or gross negligence of any Loan Party, HRHI, any Guarantor or any of their respective principals, officers, agents or employees and/or any removal of any asset forming a part of any Property in violation of the Loan Agreement or the other Loan Documents;

     (iii) intentionally omitted;

     (iv) the misappropriation or conversion by any Loan Party, by any Person Controlled by any Loan Party (including, without limitation, any Affiliated Manager, Liquor Manager who is an Affiliate of any Loan Party or Gaming Operator who is an Affiliate of any Loan Party), by any agent of any Loan Party, or by any other Person with whom any Loan Party shall collude or cooperate, of (A) any Insurance Proceeds paid by reason of any Casualty, to the extent so misappropriated or converted; (B) any Awards received in connection with a Condemnation, to the extent so misappropriated or converted; (C) any Rents or other Gross Income from Operations not delivered to Lender following and during the continuance of an Event of Default and not otherwise used to pay actual, customary Operating Expenses reflected on the Approved Annual Budget then in effect, including, without limitation, (I) any income, proceeds or other amounts received by any Loan Party under the Gaming Sublease, and/or (II) without duplication of the foregoing clause (I), any income, proceeds or revenue generated from gaming activities at any Property, in each of the foregoing instances, to the extent so misappropriated or converted; (D) any Rents paid more than one (1) month in advance in violation of the Loan Agreement or the other Loan Documents, to the extent so misappropriated or converted; and/or (E) any security deposits, to the extent so misappropriated or converted;

     (v) the failure of any Loan Party to pay (or to deposit into the Mortgage Reserve Funds or the Reserve Funds, if applicable, amounts sufficient

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to pay) all Taxes and all other costs giving rise to any Lien on any portion of the Collateral or any Property or the IP with priority over or equal to the Lien of the Loan Documents in violation of the Loan Agreement or the other Loan Documents, to the extent that there is sufficient Gross Income from Operations to make such payments (or deposits, as applicable);

     (vi) if any Loan Party fails to maintain its status as a Special Purpose Entity as required pursuant to the terms of the Loan Agreement;

     (vii) if any Loan Party fails to obtain Lender’s consent to any subordinate financing, deed of trust, mortgage or other voluntary lien encumbering the Collateral, any Property or the IP, other than Permitted Encumbrances and Permitted IP Encumbrances;

     (viii) the failure to maintain insurance coverage under blanket insurance policies to the extent permitted under the Loan Agreement;

     (ix) if any of the events set forth in clauses (a), (b) or (c) of Section 5.2.11 of the Loan Agreement shall occur without the prior approval of Lender;

     (x) if any of the restrictions to Transfer set forth in Section 5.2.10 of the Loan Agreement or in any of the other Loan Documents are violated;

     (xi) if Lender or any Affiliate thereof shall succeed to the interest of HRHI under the Gaming Sublease following a foreclosure, deed in lieu of foreclosure or similar transfer, any actual loss, cost, damage or expense (including, without limitation, reasonable attorneys’ fees expenses) suffered by Lender or such Affiliate as a result of: (A) any act, omission, neglect or default of HRHI under the Gaming Sublease, (B) any claim, defense, counterclaim or offset which the Gaming Operator may have under the Gaming Sublease against HRHI, (C) any obligation to make any payment to the Gaming Operator under the Gaming Sublease which was required to be made by or on behalf of HRHI prior to the time Lender or such Affiliate succeeded to HRHI’s interest under the Gaming Sublease, (D) any monies deposited with HRHI under the Gaming Sublease, except to the extent such monies are actually received by Lender or such Affiliate, (E) any obligation to complete or permit the construction of any improvements under the Gaming Sublease arising while HRHI was the sublandlord under the Gaming Sublease, and/or (F) any default by HRHI under the Gaming Lease beyond applicable notice and cure periods;

     (xii) if HRHI or any Affiliate thereof shall send a notice to Gaming Operator under Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement which conflicts with any notice theretofore sent by Lender to Gaming Operator under said Section 6(a), (c) or (d), as applicable, of the Gaming Recognition Agreement; provided, however, that the liability under this clause (xii) shall be limited to all fees and costs incurred by Gaming Operator in bringing and pursuing any interpleader action contemplated by said Section 6(a), (c) or (d),

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as applicable, and only to the extent that Gaming Operator seeks to recover and/or does recover such fees and expenses from Lender;

     (xiii) if HRHI shall fail to provide Gaming Employees for the operation of gaming activities at the Hotel/Casino Property as and to the extent required pursuant to Paragraph 7of the HRHI Gaming Agreement;

     (xiv) in the event that Gaming Borrower shall ever become the Gaming Operator pursuant to Article XII of the Loan Agreement, if Gaming Borrower thereafter shall fail to provide gaming operation services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required pursuant to Section 12.1(e) of the Loan Agreement;

     (xv) in the event that HRHI, Gaming Borrower, any other Loan Party or any Affiliate thereof shall be the Liquor Manager, if HRHI, Gaming Borrower, such other Loan Party or such Affiliate thereof shall fail to provide liquor management services for the Hotel/Casino Property following an Event of Default or a foreclosure of the Mortgage as and to the extent required (A) as to HRHI, pursuant to Sections 5(a) or 5(b) of the Assignment of Liquor Management Agreement, as applicable, and (B) as to Gaming Borrower, any other Mortgage Borrower or any Affiliate thereof, pursuant to Section 5.1.23(c) of the Loan Agreement;

     (xvi) in connection with the $250,000 lease termination fee pursuant to Section 3.2(B) of that certain Lease by and between PM Realty, LLC and HRHI, as landlord, and Mr. Chow of Las Vegas, LLC, as tenant, dated December 24, 2004;

     (xvii) as a result of the imposition of any tax provided in NRS §§375.020 and 375.023 with respect to the merger transaction contemplated under the Merger Agreement and/or the subsequent conveyance of the Hotel/Casino Property (A) to HRHH Gaming Junior Mezz, LLC, and then (B) to Gaming Mezz Borrower, and then (iii) to Hotel/Casino Borrower, provided, however, that any liability under this clause (xvii) shall terminate upon the payment in full of the Debt; and/or

     (xviii) as a result of Adjacent Borrower selling or attempting to sell any Partial Release Parcel or any Partial Adjacent Parcel in accordance with the procedures set forth in Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable, rather than pursuant to a customary direct deed transfer, including, without limitation, (A) the imposition of any tax (including interest and penalties) provided in NRS §§375.020 and 375.023, (B) in connection with any Bankruptcy Action filed by or against any Subsidiary Transferee prior to or following the consummation of such sale, and/or (C) in connection with any delay in accomplishing any of the steps identified in said Section 2.5.1(f) or 2.5.2(f) of the Mortgage Loan Agreement, as applicable.

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     (b) the entire amount of the Debt in the event of:

     (i) any Loan Party, HRHI or both Guarantors filing a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

     (ii) the filing of an involuntary petition against any Loan Party, HRHI or both Guarantors under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by or on behalf of any Person other than Lender, and such petition is not dismissed within ninety (90) days after filing, or any Loan Party, or any Affiliate of any of them who Controls any Loan Party, or HRHI or both Guarantors, solicit or cause to be solicited petitioning creditors for any involuntary petition against any Loan Party, HRHI or both Guarantors from any Person (other than if requested to do so by or on behalf of Lender);

     (iii) any Loan Party, HRHI or both Guarantors filing an answer consenting to, or any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, otherwise consenting to or acquiescing or joining in, any involuntary petition filed against any Loan Party, HRHI or both Guarantors, by any other Person (other than if filed by or on behalf of Lender) under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

     (iv) any Loan Party, HRHI or both Guarantors, or any Affiliate of any of them who Controls any Loan Party, consenting to or acquiescing or joining in an application for the appointment of a custodian, receiver, trustee or examiner for any Loan Party or any portion of any Property or any portion of the IP or the Collateral (other than any such appointment at the request or petition of Lender);

     (v) any Loan Party, HRHI or both Guarantors voluntarily making an assignment for the benefit of creditors (other than Lender), or admitting, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due; and/or

     (vi) Gaming Mezz Borrower failing to comply, or cause compliance by the applicable Loan Party, with the requirements of the Gaming Laws to obtain the approval of the Gaming Authorities of the pledge of the Gaming Securities pursuant to Section 17(b) of the Pledge Agreement (it being understood and agreed that Guarantors shall have no liability under this clause (vi) to the extent arising from the failure of Lender to reasonably cooperate with the Gaming Authorities in connection with such Gaming Law requirements to the extent necessary);

     unless, in the case of any of the foregoing clauses (i), (ii), (iii), (iv), (v) or (vi) as it relates to or affects both Guarantors, one or more guarantors acceptable to Lender in its sole discretion remains or becomes a guarantor of the Loan.

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     (c) the payment of the following amounts as and when due under the Loan Agreement if and to the extent that any of the same are not paid in full by Borrowers as and when due under the Loan Agreement:

     (i) any Interest Shortfall existing on any Payment Date (A) occurring after February 2, 2008, if on or after February 2, 2008 the Gaming Operating Condition is not satisfied, and (B) ending with (and including) the May 9, 2008 Payment Date; and

     (ii) all amounts necessary to obtain and maintain the Gaming Letter of Credit in accordance with Section 12.3 of the Mortgage Loan Agreement, including, without limitation, the reimbursement obligation to the counterparty issuing the Gaming Letter of Credit in the full principal amount thereof in the event that Mortgage Lender draws on the same in accordance with its rights under the Mortgage Loan Agreement (provided, that in no event shall the aggregate obligations and liabilities of Guarantors under this Section 1.2(c)(ii) and under Section 1.2(c)(ii) of the Other Guarantees exceed the amount of the Gaming Letter of Credit);

provided, however, that it is expressly understood, agreed and acknowledged by Lender and Guarantors that, notwithstanding anything to the contrary set forth in this Guaranty or in any other Loan Document, the Guaranteed Obligations set forth in this Section 1.2(c) shall be and remain the sole and exclusive liability of the DLJ Guarantor and, under no circumstances, shall the Morgans Guarantor ever have any liability with respect thereto.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, joint and several (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of any Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

     1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Borrower (except for the defense of the payment of the Guaranteed Obligations), or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

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     1.5 Payment By Guarantors. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantors shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever (except as otherwise provided herein), pay (and each agrees jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) to pay) in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

     1.6 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of any Guarantor hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligations or any other person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (d) join any Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

     1.7 Waivers. Each Guarantor agrees to the provisions of the Loan Documents, and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to any Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Borrower or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and/or the obligations hereby guaranteed.

     1.8 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) agree to pay to Lender and shall promptly upon written demand by Lender, pay Lender all reasonable costs and expenses (including court costs and attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the

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event that (A) Lender employs counsel to enforce the provisions of this Guaranty and (B) Lender has sold or transferred any interests in the Note, then Guarantors shall only be responsible for the attorney’s fees and expenses of the counsel of only one Lender. The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligations.

     1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of each Borrower and each Guarantor that none of Guarantors’ obligations hereunder shall be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights such Guarantor may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating such Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by any Guarantor under or in connection with this Guaranty or otherwise.

     1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company, joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following even if any of the following is materially prejudicial to any or all Guarantors:

     2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or

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between Mortgage Borrowers (or any of them) and Mortgage Lender, or between First Mezzanine Borrowers (or any of them) and First Mezzanine Lender, or between Second Mezzanine Borrowers (or any of them) and Second Mezzanine Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify any Guarantor of any such action.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower or by Mortgage Lender to any Mortgage Borrower, or by First Mezzanine Lender to any First Mezzanine Borrower or by Second Mezzanine Lender to any Second Mezzanine Borrower or any Guarantor or any other Person.

     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Loan Party, any Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of any Loan Party or any Guarantor, or any sale, lease or transfer of any or all of the assets of any Loan Party or any Guarantor, or any changes in the shareholders, partners or members of any Loan Party or any Guarantor; or any reorganization of any Loan Party or any Guarantor.

     2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligations, or any part thereof, exceed the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents, or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) any Borrower has valid defenses (other than the payment of the Guaranteed Obligations), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from any Borrower, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement, any of the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents or the Second Mezzanine Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) liable hereon regardless of whether any Borrower, any other Guarantor or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof), to

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pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any other Person (including any other Guarantor) will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to any other Person (including any other Guarantor) to pay or perform the Guaranteed Obligations.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

     2.10 Offset. The Note, the Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except that of payment of the Guaranteed Obligations) of any Borrower against Lender, or of any Mortgage Borrower against Mortgage Lender, or any other Person or of any First Mezzanine Borrower against First Mezzanine Lender, or of any Second Mezzanine Borrower against Second Mezzanine Lender, or any other Person or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

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     2.11 Merger. The reorganization, merger or consolidation of any Borrower into or with any Person.

     2.12 Preference. Any payment by any Borrower to Lender, or by any Mortgage Borrower to Mortgage Lender, or by any First Mezzanine Borrower to First Mezzanine Lender, or by any Second Mezzanine Borrower to Second Mezzanine Lender, as applicable, is held to constitute a preference under bankruptcy laws, or for any reason Lender, Mortgage Lender, First Mezzanine Lender or Second Mezzanine Lender is required to refund such payment or pay such amount to such Borrower, Mortgage Borrower, First Mezzanine Borrower or Second Mezzanine Borrower or to someone else, as applicable.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an Affiliate of each Borrower, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrowers and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce such Guarantor to execute this Guaranty.

     3.4 Financial Representations, Warranties and Covenants. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit A attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

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     3.5 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.6 Survival. All representations and warranties made by each Guarantor herein shall survive the execution hereof.

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of any Guarantor’s payment of all or a portion of the Guaranteed Obligations. Upon the occurrence and during the continuance of an Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party or any other party any amount upon any Guarantor Claim.

     4.2 Claims in Bankruptcy. In the event of any receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between any Borrower and any Guarantor, shall constitute a credit against the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

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     4.3 Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay such funds, payments, claims and/or distributions promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     4.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Borrower’s assets securing payment of any Guarantor Claim shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of such Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Borrower, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Borrower held by any Guarantor.

ARTICLE 5

MISCELLANEOUS

     5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) §40.495(2), each Guarantor hereby waives the provisions of NRS §40.430.

     5.2 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 5.2):

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Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763
Guarantor:	Morgans Group LLC
	475 Tenth Avenue
	New York, New York 10018
	Attention:  Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106

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with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock / Rand Peppas

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 5.2. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 5.2, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer.

     5.3 Governing Law. This Guaranty shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement.

     5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives;

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provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement.

     5.7 Fully Recourse. (a) The Guaranteed Obligations are joint and several (except as otherwise expressly provided in the proviso at the end of Section 1.2(c) hereof) recourse obligations of Guarantors and not restricted by any limitation on personal liability.

     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

     5.8 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     5.9 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     5.10 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     5.11 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against any such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

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     5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THIS GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     5.13 Waiver of Right To Trial By Jury. EACH GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 5.13 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR.

     5.14 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall reasonably cooperate with Lender at Lender’s cost and expense in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall provide such information and documents relating to such Guarantor, Borrowers, Mortgage Borrowers, the Properties and any tenants of the Improvements as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information with the investment

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banking firms, Rating Agencies, accounting firms, law firms and other third party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and that various investors may also see some or all of the information. Lender and all of the aforesaid third party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction, or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer (having at least ten (10) years experience servicing loans) for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested covenant, representation, warranty, indemnity or certification or otherwise. Without limitation on the foregoing, in no event shall Guarantors have liability (by way of certification, indemnity or otherwise) for information or statements contained in third party reports used in connection with the secondary marketing transaction; provided, however Guarantor shall remain liable under Section 1.2 to the extent any material misstatements or omissions are contained in such third party reports as a result of conduct by Borrower that is otherwise subject to the exclusions from exculpation provided under Section 1.2.

     5.15 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     5.16 Exculpation. Notwithstanding anything to the contrary contained herein, Guarantors agree that they will not have any claims or causes of action against any disclosed or undisclosed officer, director, employee, trustee, shareholder, partner, or principal of Lender arising out of or in connection with this Guaranty or the transactions contemplated hereby.

     5.17 Usage of Terms. As used in this Guaranty, the phrase “any Borrower” shall mean “any one or more Borrowers, including all of the Borrowers” and the phrase “any Guarantor” shall mean “any one or more Guarantors, including all of the Guarantors”.

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     EXECUTED as of the day and year first above written.

GUARANTORS:
MORGANS GROUP LLC, a Delaware limited liability company
By:	Morgans Hotel Group Co., a Delaware corporation as Managing Member

By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

DLJ MB IV HRH, LLC, a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN Name: Kenneth J. Lohsen
	Title: Authorized Signatory

Exhibit A

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

     “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

     “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

     “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

     “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit A with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit A shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit A is expressly incorporated by reference therein, including by Section 3.4 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

EX-10.37

Exhibit 10.37

EXECUTION COPY

THIRD MEZZANINE CLOSING GUARANTY OF COMPLETION

     THIS THIRD MEZZANINE CLOSING GUARANTY OF COMPLETION (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in Las Vegas, Nevada and more particularly described on Exhibit A-1 (the “Hotel/Casino Property”) and Exhibit A-2 (the “Adjacent Property”; and the Hotel/Casino Property and the Adjacent Property, individually, a “Property”, and collectively, the “Properties”); (ii) that certain Closing Guaranty of Completion dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Closing Completion Guaranty”), made by Guarantors in favor of Mortgage Lender; and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with

the Mortgage Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Closing Completion Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Senior Mezz, LLC and HRHH JV Senior Mezz, LLC (collectively, the “First Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as first mezzanine lender (together with its successors and assigns, the “First Mezzanine Lender”), in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “First Mezzanine Note”), First Mezzanine Borrowers have become indebted to First Mezzanine Lender with respect to a loan (the “First Mezzanine Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Borrowers and First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Loan Agreement”), which First Mezzanine Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Pledge Agreement”); (ii) that certain First Mezzanine Closing Guaranty of Completion, dated as of the date hereof, made by Guarantors in favor of First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Closing Completion Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the First Mezzanine Loan (together with the First Mezzanine Note, the First Mezzanine Loan Agreement, the First Mezzanine Pledge Agreement and the First Mezzanine Closing Completion Guaranty, collectively, the “First Mezzanine Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC and HRHH JV Junior Mezz, LLC (collectively, the “Second Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as second mezzanine lender (together with its successors and assigns, the “Second Mezzanine Lender”), in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Second Mezzanine Note”), Second Mezzanine Borrowers have become indebted to Second Mezzanine Lender with respect to a loan (the “Second Mezzanine Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Borrowers and Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Loan Agreement”), which Second Mezzanine Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Second Mezzanine Borrowers, as pledgors, in favor of Second Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Pledge Agreement”); (ii) that certain Second Mezzanine Closing Guaranty of Completion, dated as of the date hereof, made by Guarantors in favor of Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Closing Completion Guaranty”, and together with

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the Mortgage Closing Completion Guaranty and the First Mezzanine Closing Completion Guaranty, collectively, the “Other Guaranties”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Second Mezzanine Loan (together with the Second Mezzanine Note, the Second Mezzanine Loan Agreement, the Second Mezzanine Pledge Agreement and the Second Mezzanine Closing Completion Guaranty, collectively, the “Second Mezzanine Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC, a Delaware limited liability company and HRHH JV Junior Mezz Two, LLC, a Delaware limited liability company (collectively, the “Borrowers”), and payable to the order of Lender in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”); and (ii) further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement , collectively, the “Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     G. All capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE I

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranteed Obligations.

          (a) Each Guarantor hereby jointly and severally, irrevocably, absolutely and unconditionally guarantees to Lender the full, complete and punctual payment, performance

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and satisfaction of all of the obligations, duties, covenants and agreements of Mortgage Borrowers under the Mortgage Loan Agreement relating to each project contemplated by the Initial Renovations, as shown on Schedule XIII to the Mortgage Loan Agreement, as the same may be modified with the reasonable consent of Mortgage Lender, if and when Mortgage Borrowers shall begin physical construction thereof (each such project, as and when Borrowers have elected to commence, and have commenced, physical construction thereof, an “Initial Renovations Project”), substantially in compliance with the applicable plans and specifications, the applicable portions of the Initial Renovations Loan Budget (as such term is defined in the Mortgage Loan Agreement), the applicable construction progress schedule and all applicable Legal Requirements, including, without limitation:

     (i) to diligently commence, perform and complete (or cause to be commenced, performed and completed) the construction of each Initial Renovations Project in accordance with the terms of the Mortgage Loan Agreement and the Loan Agreement;

     (ii) to pay all costs associated with each Initial Renovations Project, including, without limitation, all hard costs, soft costs and other obligations, liabilities, costs and expenses incurred in connection with the completion of each Initial Renovations Project, as the same may become due and payable;

     (iii) to keep the Properties free and clear of all Liens or claims of Liens arising or incurred in connection with the completion of each Initial Renovations Project, other than Permitted Encumbrances and any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, and if any Liens should be filed, or should attach, with respect to any Property by reason of the carrying out of each Initial Renovations Project, within fifteen (15) Business Days after obtaining notice thereof (but in any event prior to the date on which such Property or any part thereof or interest therein may be in imminent danger of being sold, forfeited, foreclosed, terminated, cancelled or lost), other than any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, to either (A) cause the removal of such Liens or (B) post security against the consequences of their possible foreclosure and procure an endorsement to the Title Insurance Policy (as such term is defined in the Mortgage Loan Agreement) insuring Mortgage Lender against the consequences of the foreclosure or enforcement of such Liens;

     (iv) to pay the premiums for all policies of insurance required to be furnished by Borrowers pursuant to the Loan Agreement, or Mortgage Borrowers pursuant to the Mortgage Loan Agreement, during the performance of each Initial Renovations Project if such premiums are not paid by Borrowers or Mortgage Borrowers;

     (v) if Lender (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents) exercises its rights to complete any Initial Renovations Project pursuant to this Guaranty or any of the other Loan Documents, to pay or reimburse Lender for any and all costs and expenses incurred by Lender in completing such Initial Renovations Project;

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     (vi) to pay all claims relating to the foregoing before they become delinquent;

     (vii) to correct or cause to be corrected any material defect in any Initial Renovations Project, as reasonably determined by the applicable architect and the Construction Consultant (as such term is defined in the Mortgage Loan Agreement), or, if the applicable architect and the Construction Consultant cannot reasonably agree, then as determined pursuant to the most expedited form of arbitration available for such disagreement under the rules of the American Arbitration Association, such arbitration to be held in New York, New York; and

     (viii) to pay any and all costs, expenses, liabilities, claims and amounts required to be paid by Guarantors pursuant to Section 1.7 or any other provision hereof (the “Enforcement Costs”).

          (b) Each Guarantor hereby jointly and severally, irrevocably, absolutely and unconditionally guarantees to Lender the full, complete and punctual payment, performance and satisfaction of all of the obligations, duties, covenants and agreements of Mortgage Borrowers under Section 3.18 of the Mortgage Loan Agreement relating to restoration of the Properties in the event that any of (i) the Qualification Conditions have not been satisfied on or prior to the Construction Qualification Date, (ii) Mortgage Borrowers have delivered the Relinquishment Notice (as such term is defined in the Mortgage Loan Agreement) to Mortgage Lender, or (iii) Mortgage Borrowers have delivered a Stop Notice (as such term is defined in the Mortgage Loan Agreement) to Mortgage Lender, substantially in compliance with all applicable Legal Requirements and to the reasonable satisfaction of the Construction Consultant, including, without limitation:

     (i) to diligently commence, perform and complete (or cause to be commenced, performed and completed) the restoration of the Properties to the extent required under, and in accordance with the terms of, the Mortgage Loan Agreement;

     (ii) to pay all costs associated with such restoration, including, without limitation, all hard costs, soft costs and other obligations, liabilities, costs and expenses incurred in connection with the completion of such restoration, as the same may become due and payable;

     (iii) to keep the Properties free and clear of all Liens or claims of Liens arising or incurred in connection with such restoration, other than Permitted Encumbrances and any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, and if any Liens should be filed, or should attach, with respect to any Property by reason of the carrying out of such restoration, within fifteen (15) Business Days after obtaining notice thereof (but in any event prior to the date on which such Property or any part thereof or interest therein may be in imminent danger of being sold, forfeited, foreclosed, terminated, cancelled or lost), other than any such Liens being contested pursuant to, and in accordance with, Section 3.6(b) of the Mortgage, to either (A) cause the removal of such Liens or (B) post security against the consequences of their possible foreclosure and procure an endorsement to the Title Insurance Policy

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insuring Mortgage Lender against the consequences of the foreclosure or enforcement of such Liens;

     (iv) to pay the premiums for all policies of insurance required to be furnished by Borrowers pursuant to the Loan Agreement, or Mortgage Borrowers pursuant to the Mortgage Loan Agreement, during the performance of the restorations if such premiums are not paid by Borrowers or Mortgage Borrowers;

     (v) if Lender (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents) exercises its rights to complete any of the restoration pursuant this Guaranty or any of the other Loan Documents, to pay or reimburse Lender for any and all costs and expenses incurred by Lender in completing the restoration; and

     (vi) to pay all claims relating to the foregoing before they become delinquent.

The obligations and liabilities set forth in the foregoing Sections 1.1(a) and 1.1(b) are collectively referred to herein as the “Guaranteed Obligations”; provided, however, that in no event shall the aggregate obligations and liabilities of Guarantors under this Guaranty and the Other Guarantees exceed the Guaranteed Obligations; and the completion obligations with respect to completion of any Initial Renovations Project or restoration from any Pre-Construction Work shall be referred herein as the “Guaranteed Work”. Each Guarantor hereby acknowledges having received, reviewed and approved a true and complete copy of the Loan Agreement and the Mortgage Loan Agreement. Each Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor and not merely as a surety.

     1.2 Payment and Performance by Guarantors.

          (a) If Mortgage Borrowers shall fail to diligently proceed with any Guaranteed Work, and the completion thereof in accordance with the provisions of the Mortgage Loan Agreement, subject to Excusable Delay, or if Mortgage Borrowers shall otherwise fail to perform their obligations under the Mortgage Loan Agreement relating to any Guaranteed Work, or if any of the other Guaranteed Obligations shall not be paid and performed when due, then Guarantors, within ten (10) days after a written demand for payment or performance has been given to Guarantors by Lender in accordance with the notice provisions hereof, shall pay or perform the same, it being expressly acknowledged and agreed by Guarantors that Mortgage Lender shall have no obligation to, and shall not, continue to disburse any portion of the Construction Loan (as such term is defined in the Mortgage Loan Agreement) or the Initial Renovations Reserve Fund. Guarantors’ obligations hereunder shall continue in full force and effect, notwithstanding any default by any Loan Party under any other covenants, terms or conditions set forth in the Loan Documents and/or the Mortgage Loan Documents, as applicable, commencement and/or completion of foreclosure proceedings or acquisition by Lender or Mortgage Lender of all or any portion of any Property or the Collateral, as applicable, through foreclosure or deed in lieu of foreclosure and, in that regard, all of the covenants, terms or conditions set forth in the Loan Documents and/or the Mortgage Loan Documents, as applicable, relating in any way to the Guaranteed Obligations shall survive any such foreclosure or deed in

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lieu of foreclosure and remain binding obligations of Borrowers and/or Mortgage Borrowers, as applicable, guaranteed by each Guarantor hereunder until the complete payment and performance of all of the Guaranteed Obligations.

          (b) Intentionally Omitted.

          (c) If any Guarantor shall, within fifteen (15) days after written demand from Lender, fail to diligently undertake the performance of the Guaranteed Obligations, then Lender shall have the right, at its option, either before, during or after commencing foreclosure or sale proceedings against all or any portion of the Collateral, as the case may be, and before, during or after pursuing any other right or remedy against Borrowers or Guarantor, to perform any and all of the Guaranteed Work by or through any agent, contractor or subcontractor of its selection, and pursuant to contracts or subcontracts relating thereto, all as Lender in its sole discretion deems proper subject to the terms of the Mortgage Loan Documents. Furthermore, Lender shall have no obligation to protect or insure any collateral for the Loan, nor shall Lender have any obligation to perfect its security interest in any collateral for the Loan. During the course of any of the Guaranteed Work undertaken by Lender or any other party on behalf of Lender, Guarantors shall pay on demand any amounts due to contractors, subcontractors and material suppliers and for permits and licenses necessary or desirable in connection therewith. Guarantors’ obligations in connection with any of the Guaranteed Work undertaken by Lender or any other party on behalf of Lender shall not be affected by any errors or omissions of Mortgage Borrowers’ general contractor or architect, Lender’s consulting architect, or any subcontractor or agent or employee of any of the foregoing in the design, supervision and/or performance of the work, it being understood that such risk is assumed by Guarantors.

          (d) Satisfaction by Guarantors of any liability hereunder at any one time with respect to any default by any Loan Party shall not discharge Guarantors with respect to any other default by any Loan Party at any other time, it being the intent hereof that this Guaranty and the obligations of Guarantors hereunder shall be continuing and may be enforced by Lender to the end that the Guaranteed Work shall be timely completed, lien free, without loss, cost, expense, injury or liability of any kind to Lender, subject to the express terms hereof. To the extent permitted by applicable law, all of the remedies set forth herein and/or provided for in any of the Loan Documents or at law or equity shall be equally available to Lender, and the choice by Lender of one such alternative over another shall not be subject to question or challenge by Guarantor or any other Person, nor shall any such choice be asserted as a defense, setoff, or failure to mitigate damages in any action, proceeding, or counteraction by Lender to recover or seeking any other remedy under this Guaranty, nor shall such choice preclude Lender from subsequently electing to exercise a different remedy. The parties have agreed to the alternative remedies provided herein in part because they recognize that the choice of remedies in the event of a default hereunder will necessarily be and should properly be a matter of good faith business judgment, which the passage of time and events may or may not prove to have been the best choice to maximize recovery by Lender at the lowest cost to Borrowers and/or Guarantors. It is the intention of the parties that such good faith choice by Lender be given conclusive effect regardless of such subsequent developments. No Guarantor shall have any right of recourse against Lender by reason of any action Lender may take or omit to take under the provisions of this Guaranty or under the provisions of any of the other Loan Documents, except to the extent of Lender’s gross negligence, willful misconduct or fraud.

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     1.3 Nature of Guaranty. This Guaranty is an irrevocable, unconditional, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any of Guarantors and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of any of Guarantors to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note. This Guaranty shall terminate upon the earlier to occur of (i) payment in full of the Debt, or (ii) complete payment and performance of all of the Guaranteed Work, or (iii) Final Completion (as such term is defined in the Mortgage Loan Agreement) of the Project; provided, however, that if, at the time any of the events set forth in the foregoing clauses (i), (ii) or (iii), as applicable, shall occur, Guarantors are then in the process of completing any of the Guaranteed Work, Guarantors shall (subject to the prior rights of Mortgage Lender under the Mortgage Loan Documents), at Lender’s reasonable expense, reasonably cooperate to transition such completion to Lender or its designee, including, without limitation, assigning to Lender or its designee any construction-related contracts not previously assigned to Lender, making Guarantors’ employees available to Lender or its designee for construction status briefings and to answer questions regarding construction of such Guaranteed Work, and turning over to Lender copies of Guarantors’ books, records and files relating to the construction and completion of such Guaranteed Work.

     1.4 Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Loan Party (except the defense of the payment of the Guaranteed Obligations) or any other party against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     1.5 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of Guarantors hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligations or any other Person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantor(s) of the Guaranteed Obligations, (d) join any Loan Party or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, or (e) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

     1.6 Waivers. Each Guarantor agrees to the provisions of the Loan Documents and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to Borrowers, (b) acceptance of this Guaranty, (c) any amendment or extension

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of the Note, the Loan Agreement, the Pledge Agreement, or any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Loan Party or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.

     1.7 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors shall, immediately upon written demand by Lender, pay Lender all reasonable costs and expenses (including, without limitation, reasonable attorneys’ fees, court costs, filing fees, recording costs, title insurance premiums, survey costs and expenses of foreclosure) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the event that (i) Lender employs counsel to enforce the provisions of this Guaranty and (ii) Lender has sold or transferred any interests in the Note, then Guarantors shall only be responsible for the attorneys’ fees and expenses of the counsel of only one Lender with respect to the Loan.

     1.8 Payment by Guarantors. If any amount due on the Guaranteed Obligations is not paid to Lender within ten (10) Business Days after written demand by Lender, the same shall bear interest at the Default Rate from the date of demand until the date such amount has been paid in full (which interest shall be included within the meaning of Guaranteed Obligations).

     1.9 Effect of Bankruptcy. In the event that pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or decision thereunder, Lender must rescind or restore any payment or any part thereof received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect and this Guaranty and the Guaranteed Obligations shall remain in full force and effect. It is the intention of Borrowers and Guarantors that Guarantors’ obligations hereunder shall not be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating any Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made

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by any Guarantor under or in connection with this Guaranty or otherwise until such time as the Guaranteed Obligations have been paid and performed in full.

     1.11 Borrower. The term “Borrower” or “Borrowers” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE II

EVENTS AND CIRCUMSTANCES NOT REDUCING
OR DISCHARGING GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following:

     2.1 Modifications; Sales.

          (a) Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Loan Agreement, the Pledge Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of them) and Mortgage Lender, or between First Mezzanine Borrowers (or any of them) and First Mezzanine Lender, or between Second Mezzanine Borrowers (or any of them) and Second Mezzanine Lender, or any other parties, pertaining to the Guaranteed Obligations, or any sale, assignment or foreclosure of the Note, the Loan Agreement, the Pledge Agreement, any of the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents or the Second Mezzanine Loan Documents, or any sale or transfer of all or any portion of any Property or the Collateral, or any failure of Lender, Mortgage Lender, First Mezzanine Lender or Second Mezzanine Lender to notify any Guarantor of any such action.

          (b) Any amendment, modification or Change Order (as such term is defined in the Mortgage Loan Agreement) to the Plans and Specifications and/or the Loan Budget made in accordance with the terms of the Mortgage Loan Agreement.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower, or by Mortgage Lender to any Mortgage Borrower, or by First Mezzanine Lender to any First Mezzanine Borrower, or by Second Mezzanine Lender to any Second Mezzanine Borrower, as applicable, or any Guarantor or any other party liable for payment of any or all of the Guaranteed Obligations.

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     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Loan Party, any Guarantor or any other party at any time liable for the payment or performance of all or part of the Guaranteed Obligations; or any dissolution of any Loan Party or any Guarantor or any sale, lease or transfer of any or all of the assets of any Loan Party or any Guarantor or any changes in the direct or indirect shareholders, partners or members of any Loan Party or any Guarantor; or any reorganization of any Loan Party or any Guarantor.

     2.4 Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations or any document or agreement executed in connection with the Guaranteed Obligations for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligations or any part thereof exceed the amount permitted by law, (b) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Loan Agreement, the Pledge Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (d) the Guaranteed Obligations violate applicable usury laws, (e) any Loan Party has valid defenses (other than the payment of the Guaranteed Obligations), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from such Loan Party, (f) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (g) the Note, the Loan Agreement, the Pledge Agreement, any of the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents or the Second Mezzanine Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain liable hereon regardless of whether any Loan Party or any other Person, including any other Guarantor, be found not liable on the Guaranteed Obligations or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Loan Party on the Guaranteed Obligations or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful,

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unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of any collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender or any other party (a) to take or prosecute any action for the collection of any of the Guaranteed Obligations, or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

     2.10 Representations. The accuracy or inaccuracy of the representations and warranties made by any Guarantor herein or by any Loan Party in any of the Loan Documents and/or the Mortgage Loan Documents and/or the First Mezzanine Loan Documents and/or the Second Mezzanine Loan Documents, as applicable.

     2.11 Offset. The Note, the Loan Agreement, the Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except that of payment of the Guaranteed Obligations) of any Borrower against Lender or any other Person, or against payment of the Guaranteed Obligations, or of any Mortgage Borrower against Mortgage Lender, or any other Person, or of any First Mezzanine Borrower against First Mezzanine Lender, or any other Person, or of any Second Mezzanine Borrower against Second Mezzanine Lender or any other Person, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

     2.12 Merger. The reorganization, merger or consolidation of any Loan Party into or with any other Person.

     2.13 Preference. Any payment by any Borrower to Lender, or by any Mortgage Borrower to Mortgage Lender, or by any First Mezzanine Borrower to First Mezzanine Lender, or by any Second Mezzanine Borrower to Second Mezzanine Lender, as applicable, is held to constitute a preference under bankruptcy laws or for any reason Lender, Mortgage Lender, First Mezzanine Lender or Second Mezzanine Lender is required to refund such payment or pay such

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amount to any Borrower, any Mortgage Borrower, any First Mezzanine Borrower or any Second Mezzanine Borrower, or to any other Person, as applicable.

     2.14 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

     2.15 Satisfaction of Mortgage Loan and/or First Mezzanine Loan and/or Second Mezzanine Loan. Any satisfaction in full of the Mortgage Loan and/or the First Mezzanine Loan and/or the Second Mezzanine Loan unless (i) the Loan is also satisfied in full, or (ii) the Guaranteed Obligations have been fully and finally paid and performed at the time of such satisfaction.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an affiliate of Borrowers, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of each Loan Party and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or the Guaranteed Obligations; however, such Guarantor is not relying on such financial condition or collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce said Guarantor to execute this Guaranty.

     3.4 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not and will not contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage,

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deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

     3.5 Litigation. There is no action, suit, proceeding or investigation pending or, to such Guarantor’s knowledge, threatened in writing against such Guarantor in any court or by or before any other Governmental Authority, or labor controversy affecting such Guarantor or any of such Guarantor’s properties, businesses, assets or revenues, which would reasonably be expected to materially and adversely affect the performance of such Guarantor’s obligations and duties under this Guaranty or impair such Guarantor’s ability to fully fulfill and perform such Guarantor’s obligations under this Guaranty and the other Loan Documents to which such Guarantor is a party.

     3.6 Offset. The Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents and the Second Mezzanine Loan Documents are not subject to any right of rescission, set-off, counterclaim or defense by such Guarantor, including the defense of usury, and such Guarantor has not asserted any right of rescission, set-off, counterclaim or defense with respect thereto.

     3.7 Embargoed Person. At all times throughout the term of the Loan, including after giving effect to any Transfer permitted pursuant to the Loan Documents, (a) none of the funds or other assets of such Guarantor shall constitute property of, or shall be beneficially owned, directly or indirectly, by any person, entity or government subject to trade restrictions under U.S. law, including, but not limited to, the International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, 50 U.S.C. App. 1 et seq., and any Executive Orders or regulations promulgated thereunder (each an “Embargoed Person”) with the result that the Loan made by Lender is or would be in violation of law; (b) no Embargoed Person shall have any interest of any nature whatsoever in such Guarantor, with the result that the Loan is or would be in violation of law; and (c) none of the funds of such Guarantor shall be derived from any unlawful activity with the result that the Loan is or would be in violation of law.

     3.8 Survival. All representations and warranties made by such Guarantor herein shall survive the execution hereof.

ARTICLE IV

COVENANTS

     4.1 Corporate Existence. Each Guarantor shall maintain and preserve such Guarantor’s corporate existence and qualification as a corporation or limited liability company (as applicable) pursuant to the laws of such Guarantor’s State of formation.

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     4.2 Dissolution. Subject to Transfers permitted pursuant to the Loan Agreement, no Guarantor shall liquidate, wind-up or dissolve (or suffer any liquidation or dissolution).

     4.3 Litigation. Each Guarantor shall give prompt notice to Lender of any litigation or governmental proceedings pending or threatened in writing against such Guarantor of which such Guarantor has notice and which would reasonably be expected to materially adversely affect such Guarantor’s ability to perform its obligations hereunder.

     4.4 Notice of Default. Each Guarantor shall promptly advise Lender of any material adverse change in such Guarantor’s condition, financial or otherwise, of which such Guarantor has knowledge and which would reasonably be expected to materially adversely affect such Guarantor’s ability to perform its obligations hereunder.

     4.5 Certification. Each Guarantor at any time and from time to time, within ten (10) Business Days following the request by Lender, shall execute and deliver to Lender a statement certifying that this Guaranty is unmodified and in full force and effect (or if modified, that the same is in full force and effect as modified and stating such modifications) or, if applicable, that this Guaranty is no longer in full force and effect.

ARTICLE V

SUBORDINATION OF CERTAIN INDEBTEDNESS

     5.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include, without limitation, all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of such Guarantor’s payment of all or a portion of the Guaranteed Obligations. After the occurrence and during the continuance of a monetary Default or any Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party any amount upon the Guarantor Claims.

     5.2 Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any dividend or payment which is otherwise payable to any Guarantor and which, as between any Borrower and such Guarantor, shall constitute a credit against the Guarantor Claims, then, upon payment to Lender in full and performance of the Guaranteed Obligations, such Guarantor shall become subrogated to the

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rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     5.3 Payments Held in Trust. In the event that, notwithstanding anything to the contrary contained in this Guaranty, any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     5.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Loan Party’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Loan Party’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of any Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Loan Party, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Loan Party held by any Guarantor.

ARTICLE VI

MISCELLANEOUS

     6.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) Section 40.495(2), Each Guarantor hereby waives the provisions of NRS Section 40.430.

     6.2 Notices. All notices, consents, approvals and requests required or permitted hereunder (each, a “Notice”) shall be given in writing and shall be effective for all purposes if hand delivered or sent by (a) certified or registered United States mail, postage prepaid, return receipt requested, (b) a reputable overnight courier for next Business Day delivery, or (c) expedited prepaid delivery service, either commercial or United States Postal Service, with

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proof of attempted delivery, and by telecopier (with answer back acknowledged), addressed as follows (or at such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 6.2):

Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue
	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763
Guarantor:	Morgans Hotel Group Co.
	475 Tenth Avenue
	New York, New York 10018
	Attention: Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106

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with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock / Rand Peppas

A Notice shall be deemed to have been given in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail, when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission after advice by telephone to recipient that a telecopy Notice is forthcoming. provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 6.2.

     6.3 Governing Law; Submission to Jurisdiction. This Guaranty shall be governed, enforced and construed in accordance with the laws of the State of New York (without giving effect to New York’s principles of conflicts of law).

     6.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     6.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     6.6 Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns, heirs and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement. The obligations, liabilities, representations, covenants and agreements of Guarantors hereunder are joint and several.

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     6.7 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     6.8 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     6.9 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     6.10 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     6.11 Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND/OR ANY BORROWER AND LENDER AND/OR ANY MORTGAGE BORROWER AND MORTGAGE LENDER, AND/OR ANY FIRST MEZZANINE BORROWER AND FIRST MEZZANINE LENDER, AND/OR ANY SECOND MEZZANINE BORROWER AND SECOND MEZZANINE LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY AGREEMENT. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

     6.12 Waiver of Right To Trial By Jury. EACH GUARANTOR AND LENDER HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY

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APPLICABLE LAW, WAIVE ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR AND LENDER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 6.12 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR AND LENDER.

     6.13 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and the other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and the other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall, at no cost to such Guarantor other than for such Guarantor’s legal and accounting fees, reasonably cooperate with Lender in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall, at no cost to such Guarantor other than for such Guarantor’s legal and accounting fees, provide such information and documents relating to such Guarantor, any Borrower, any Mortgage Borrower, any First Mezzanine Borrower, any Second Mezzanine Borrower, the Collateral, any Property and any tenants thereof or the Improvements, to the extent in such Guarantor’s possession or able to be obtained by such Guarantor from any Borrower or otherwise using reasonable efforts, as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information or information previously provided by any Guarantor with the investment banking firms, Rating Agencies, accounting firms, law firms and other third-party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and thus various investors may also see some or all of the information. Lender and all of the aforesaid third-party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those

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that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including, without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested additional covenant, representation, warranty, indemnity or certification or otherwise.

     6.14 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Borrower or otherwise, the Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     6.15 USA Patriot Act Notice. Lender hereby notifies Guarantors that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Patriot Act”), it is required to obtain, verify and record information that identifies each Guarantor, which information includes the name and address of each Guarantor and other information that will allow Lender to identify each Guarantor in accordance with the Patriot Act.

     6.16 Fully Recourse. (a) The Guaranteed Obligations are joint and several recourse obligations of Guarantors and not restricted by any limitation on personal liability.

          (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

     6.17 Exculpation. Notwithstanding anything to the contrary contained herein, Guarantors agree that they will not have any claims or causes of action against any disclosed or undisclosed officer, director, employee, trustee, shareholder, partner, or principal of Lender arising out of or in connection with this Guaranty or the transactions contemplated hereby.

ARTICLE VII

FINANCIAL REPRESENTATION, WARRANTIES AND COVENANTS

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     7.1 Agreement of Guarantors. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit B attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

[No Further Text on This Page]

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     IN WITNESS WHEREOF, each Guarantor has executed and delivered this Third Mezzanine Closing Guaranty of Completion as of the date first set forth above.

MORGAN GUARANTOR:

MORGANS GROUP LLC,
a Delaware limited liability company
 

By:	/s/ RICHARD SZYMANSKI
	Name:	Richard Szymanski
	Title:	Chief Financial Officer and Secretary

DLJ GUARANTOR:


DLJ MB IV HRH, LLC,
a Delaware limited liability company

By:	/s/ KENNETH J. LOHSEN
	Name:	Kenneth J. Lohsen
	Title:	Authorized Signatory

STATE OF _______	)
	)	ss:
COUNTY OF ________	)

     On the ___day of ___, in the year 2007, before me, the undersigned, a notary public in and for said state, personally appeared ___, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

STATE OF _______	)
	)	ss:
COUNTY OF ________	)

     On the ___day of ___, in the year 2007, before me, the undersigned, a notary public in and for said state, personally appeared ___, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

EXHIBIT A-1

LEGAL DESCRIPTION OF HOTEL/CASINO PROPERTY

Hotel Parcel:

That portion of Lot 1 of the merger and resubdivision of final map of the Hard Rock Hotel/Casino, as shown by Map thereof on file in Book 138 of Plats, Page 49 in the office of the County recorder of Clark County, Nevada, being described as follows:

A parcel of land being a portion of the Northeast quarter (NE1/4) of Section 21 and a portion of the Southwest quarter (SW1/4) of the Northwest quarter (NW1/4) of Section 22, township 21 South, range 61 East M.D.M. Clark County, Nevada, described as follows:

Commencing at the Southeast corner of the Northeast quarter (NE1/4) of said Section 21; thence along the East line thereof, North 00º05’49” East, 40.01 feet to the point of beginning and the Northerly right of way North 89º59’40” West, 449.99 feet to the Southwest corner of Lot 1 as shown in Book 138 if Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence departing said right of way, along the boundary of said Lot 1 North 00º06’00” East, 473.48 feet; thence departing said Lot 1 North 45º35’41” East, 440.21 feet; thence North 04º54’29” East 98.89 feet; thence North 85º07’37” West, 31.65 feet; thence North 04º54’29” East, 137.63 feet; thence South 85º07’27” East, 31.65 feet; thence North 04º54’29” East, 178.05 feet to the North line of the Southeast quarter (SE1/4) of the Northeast quarter (NE1/4) of said Section 21; thence along said North Line South 89º04’19” East, 101.23 feet to the North sixteenth common to Section 21 and 22, also being a point on the North boundary of Lot 1 as shown in Book 138 of Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence along the boundary of said Lot 1 the following twenty-one (21) courses:

1) South 88º56’51” East, 506.21 feet;

2) South 14º05’09” east, 49.76 feet;

3) South 07º35’35” East, 110.67 feet;

4) South 14º05’09” East, 137.26 feet;

5) South 89º14’55” East, 5.25 feet to the beginning of a curve, concave to the Southwest having a radius of 10.00 feet;

6) Southeasterly along said curve, through a central angle of 75º09’46”, an arc length of 13.12 feet;

7) South 14º05’09” East, 46.62 feet;

8) South 02º45’28” East, 61.06 feet;

9) South 14º04’51” East, 65.43 feet;

10) South 32º31’15” East, 37.95 feet;

11) South 14º05’09” East, 437.44 feet;

12) South 75º34’42” West, 195.01 feet;

13) South 14º05’18” East, 115.31 feet; 14) South 06º31’30” East, 110.02 feet;

15) North 88º57’40” West, 91.40 feet;

16) North 01º02’20” East 5.10 feet;

17) North 77º39’04” West, 60.69 feet;

18) North 88º57’40” West, 246.50 feet;

19) South 01º02’20” West, 7.00 feet to the beginning of a curve, concave to the Northwest, having a radius of 10.00 feet

20) Southwesterly along said curve, through a central angle of 90º00’00” , an arc length of 15.71 feet

21) North 88º57’40” West, 184.56 feet to the point of beginning.

Also being described as parcel 2 of that certain record of survey recorded October 23, 2007 in File 169 as Page 0015.

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EXHIBIT A-2

LEGAL DESCRIPTION OF ADJACENT PROPERTY

Development Parcel I:

That portion of Lot 1 of the merger and resubdivision of final Map of the Hard Rock Hotel/Casino, as shown by map thereof on file in Book 138 of Plats, Page 49 in the Office of the County recorder of Clark County, Nevada, being described as follows:

A parcel of land being a portion of the Northeast quarter (NE 1/4) of Section 21 Township 21 South, range 61 East M.D.M., Clark County, Nevada, described as follows:

Commencing at the Southeast corner of the Northeast quarter (NE¹/4) of said Section 21; thence along the East line thereof, North 00º05’49” East, 40.01 feet to the Northerly right of way of Harmon Avenue; thence along the said Northerly right of way, North 89º59’40” West, 449.99 feet to the Southwest corner of Lot 1 as shown in Book 138 of Plats, Page 49, in the Office of the County recorder, Clark County, Nevada; thence departing said right of way, along the boundary of said Lot 1 North 00º06’00” East, 473.48 feet to the point of beginning; thence continuing along the boundary of said Lot 1 the following five (5) courses:

1) North 00º06’00” East, 726.73 feet

2) North 89º04’19” West, 444.02 feet to the beginning of a non-tangent curve, concave to the Northeast, having a radius of 650.00 feet, from which beginning the radius bears North 48º20’31” east;

3) Northerly, through a central angle of 40º36’38”, an arc length of 460.71 feet to which a radial line bears North 88º57’09” West;

4) South 89º54’00” East, 1,058.87 feet;

5) South 00º05’49” West, 432.79 feet to the North sixteenth common to section 21 and 22, thence along the North line of the Southeast quarter (SE1/4) of the Northeast quarter (NE1/4) of said section 21, North 89º04’49” East, 101.23 feet; thence South 04º54’29” West, 178.05 feet; thence North 85º07’27” West, 31.65 feet; thence South 04º54’29” West 137.63 feet; thence South 85º07’37” East, 31.65 feet; thence South 04º54’29” West, 98.89 feet; thence South 45º35’41” West, 440.21 feet to the point of beginning.

Also being described as parcel 1 of that certain record of Survey recorded October 23, 2007 in File 169 as Page 0015.

Development Parcel II:

That portion of the Northwest Quarter (NW 1/4) of the Northwest Quarter (NW 1/4) of Section 22 Township 21 South, Range 61 East, M.D.B. & M., Clark County, Nevada, described as follows:

Parcel One (1) as shown by Map thereof in file 52 of Parcel Maps, Page 41 in the Office of the

County Recorder, Clark County, Nevada, and amended by Certificate of Amendment recorded May 26, 1987 in Book 870526 as Document No. 00396.

Development Parcel III:

A perpetual non-exclusive easement for drainage and incidental purposes over, under, across and upon the South 25 feet (measured at right angles to the South line) of Parcel Two (2) as delineated on that certain Parcel Map on file in file 52 of Parcel maps, Page 41 in the Office of the County Recorder of Clark County, Nevada. Said easement being recorded on July 9, 1987 in Book 870709 as Document No. 00322.

Development Parcel IV:

A perpetual easement for the encroachment of a Masonry Wall as created by the certain document entitled “Perpetual Easement” recorded February 2, 1992 on Book 920211 as Document No. 00134 of Official Records, Clark County, Nevada.

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EXHIBIT B

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section

     1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

     “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

     “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available

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Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

     “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

     “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

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     “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute

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Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit B with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit B shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit B is expressly incorporated by reference therein, including by Section 7.1 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

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EX-10.38

Exhibit 10.38

EXECUTION COPY

THIRD MEZZANINE GUARANTY AGREEMENT
(NON-QUALIFIED MANDATORY PREPAYMENT)

     THIS THIRD MEZZANINE GUARANTY AGREEMENT (NON-QUALIFIED MANDATORY PREPAYMENT) (this “Guaranty”) is executed as of November 6, 2007, by MORGANS GROUP LLC, a Delaware limited liability company, having an address at 475 Tenth Avenue, New York, New York 10018, Attention: Marc Gordon, Chief Investment Officer (“Morgans Guarantor”), and by DLJ MB IV HRH, LLC, a Delaware limited liability company, having an address c/o DLJ Merchant Banking Partners, 11 Madison Avenue, New York, New York 10010, Attention: Ryan Sprott (“DLJ Guarantor”; and collectively with Morgans Guarantor, each, individually, a “Guarantor”, and collectively, “Guarantors”), jointly and severally, for the benefit of COLUMN FINANCIAL, INC., a Delaware corporation, having an address at 11 Madison Avenue, New York, New York 10010 (together with its successors and assigns, “Lender”).

RECITALS:

     A. Pursuant to that certain Replacement Reduced Acquisition Loan Promissory Note and Replacement Construction Loan Promissory Note, each dated of even date herewith and executed by HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, and HRHH Gaming, LLC (collectively, the “Mortgage Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as mortgage lender (together with its successors and assigns, the “Mortgage Lender”), in the original principal amount of One Billion Thirty Million and No/100 Dollars ($1,030,000,000) (as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, collectively, the “Mortgage Notes”), Mortgage Borrowers have become indebted, and may from time to time be further indebted, to Mortgage Lender with respect to a loan (the “Mortgage Loan”) made pursuant to that certain Amended and Restated Loan Agreement, dated as of the date hereof, among Mortgage Borrowers and Mortgage Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Loan Agreement”), which Mortgage Loan is secured by, among other things, (i) that certain Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing), dated as of February 2, 2007 (as amended by that certain Modification of Construction Deed of Trust, Assignment of Leases and Rents, Security Agreement and Financing Statement (Fixture Filing) and Other Loan Documents dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented or otherwise modified from time to time, the “Mortgage”), made by Mortgage Borrowers for the benefit of Mortgage Lender, encumbering, among other properties, certain real property and the improvements thereon located in the City of Las Vegas, County of Clark, State of Nevada, as more particularly described in the Mortgage (the “Property”); (ii) that certain Guaranty Agreement (Non-Qualified Mandatory Prepayment) dated as of February 2, 2007 (as amended by that certain Modification and Ratification of Guaranties dated as of the date hereof, and as the same may be further amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Mortgage Non-Qualified Prepayment Guaranty”), made by Guarantors in favor of Mortgage Lender); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Mortgage Loan (together with the Mortgage

Notes, the Mortgage Loan Agreement, the Mortgage and the Mortgage Non-Qualified Prepayment Guaranty, collectively, the “Mortgage Loan Documents”).

     B. Pursuant to that certain First Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Senior Mezz, LLC and HRHH JV Senior Mezz, LLC (collectively, the “First Mezzanine Borrowers”), and payable to the order of Column Financial, Inc, in its capacity as first mezzanine lender (together with its successors and assigns, “First Mezzanine Lender”), in the original principal amount of Two Hundred Million and No/100 Dollars ($200,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “First Mezzanine Note”), First Mezzanine Borrowers have become indebted to First Mezzanine Lender with respect to a loan (the “First Mezzanine Loan”) made pursuant to that certain First Mezzanine Loan Agreement, dated as of the date hereof, among First Mezzanine Borrowers and First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Loan Agreement”), which First Mezzanine Loan is secured by, among other things, (i) that certain First Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by First Mezzanine Borrowers, as pledgors, in favor of First Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Pledge Agreement”); (ii) that certain First Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, made by Guarantors in favor of First Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “First Mezzanine Non-Qualified Prepayment Guaranty”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the First Mezzanine Loan (together with the First Mezzanine Note, the First Mezzanine Loan Agreement, the First Mezzanine Pledge Agreement and the First Mezzanine Non-Qualifed Prepayment Guaranty, collectively, the “First Mezzanine Loan Documents”).

     C. Pursuant to that certain Second Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz, LLC and HRHH JV Junior Mezz, LLC (collectively, the “Second Mezzanine Borrowers”), and payable to the order of Column Financial, Inc., in its capacity as second mezzanine lender (together with its successors and assigns, the “Second Mezzanine Lender”), in the original principal amount of One Hundred Million and No/100 Dollars ($100,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Second Mezzanine Note”), Second Mezzanine Borrowers have become indebted to Second Mezzanine Lender with respect to a loan (the “Second Mezzanine Loan”) made pursuant to that certain Second Mezzanine Loan Agreement, dated as of the date hereof, among Second Mezzanine Borrowers and Second Mezzanine Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Loan Agreement”), which Second Mezzanine Loan is secured by, among other things, (i) that certain Second Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Second Mezzanine Borrowers, as pledgors, in favor of Second Mezzanine Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Second Mezzanine Pledge Agreement”); (ii) that certain Second Mezzanine Guaranty Agreement (Non-Qualified Mandatory Prepayment), dated as of the date hereof, made by Guarantors in favor of Second Mezzanine Lender (as the same may be amended, restated, replaced,

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supplemented, or otherwise modified from time to time, the “Second Mezzanine Non-Qualified Prepayment Guaranty”, and together with the Mortgage Non-Qualifed Prepayment Guaranty and the First Mezzanine Non-Qualified Prepayment Guaranty, collectively, the “Other Guarantees”); and (iii) further evidenced, secured or governed by other instruments and documents executed in connection with the Second Mezzanine Loan (together with the Second Mezzanine Note, the Second Mezzanine Loan Agreement, the Second Mezzanine Pledge Agreement and the Second Mezzanine Non-Qualified Prepayment Guaranty, collectively, the “Second Mezzanine Loan Documents”).

     D. Pursuant to that certain Third Mezzanine Promissory Note, dated of even date herewith, executed by HRHH Gaming Junior Mezz Two, LLC, a Delaware limited liability company and HRHH JV Junior Mezz Two, LLC, a Delaware limited liability company (collectively, the “Borrowers”), and payable to the order of Lender in the original principal amount of Sixty Five Million and No/100 Dollars ($65,000,000), as the same may be amended, restated, replaced, supplemented or otherwise modified from time to time (the “Note”), Borrowers have become indebted to Lender with respect to a loan (the “Loan”) made pursuant to that certain Third Mezzanine Loan Agreement, dated as of the date hereof, among Borrowers and Lender (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Loan Agreement”), which Loan is secured by, among other things, (i) that certain Third Mezzanine Pledge and Security Agreement, dated as of the date hereof, made by Borrowers, as pledgors, in favor of Lender, as pledgee (as the same may be amended, restated, replaced, supplemented, or otherwise modified from time to time, the “Pledge Agreement”); and (ii) further evidenced, secured or governed by other instruments and documents executed in connection with the Loan (together with the Note, the Loan Agreement and the Pledge Agreement , collectively, the “Loan Documents”).

     E. Lender is not willing to make the Loan, or otherwise extend credit, to Borrowers unless each Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligation (as herein defined).

     F. Each Guarantor is the owner of a direct or indirect interest in each Borrower, and each Guarantor will directly benefit from Lender’s making the Loan to Borrowers.

     NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrowers, and to extend such additional credit as Lender may from time to time extend under the Loan Documents, and for $10.00 and other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

ARTICLE 1

NATURE AND SCOPE OF GUARANTY

     1.1 Guaranty of Obligation. Each Guarantor hereby jointly and severally, irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligation as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Each Guarantor hereby

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jointly and severally, irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligation as a primary obligor.

     1.2 Definitions. The following terms shall have the respective meanings set forth below. All other capitalized terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement.

          “Guaranteed Obligation” means the obligation of Borrowers to pay, or cause Mortgage Borrowers to pay, to Lender the Non-Qualified Mandatory Prepayment; provided, however, that in no event shall the aggregate liability of Guarantors under this Guaranty and the Other Guarantees exceed the Non-Qualified Mandatory Prepayment, which shall be applied to the Mortgage Debt, the First Mezzanine Debt, the Second Mezzanine Debt and the Debt in accordance with the provisions of Section 2.4.3(b) of the Mortgage Loan Agreement and Section 2.4.4(b) of the Loan Agreement.

          “Other Guarantees” has the meaning ascribed to such term in the Recitals.

     1.3 Nature of Guaranty. This Guaranty is an irrevocable, absolute, joint and several, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by any Guarantor and shall continue to be effective with respect to any Guaranteed Obligation arising or created after any attempted revocation by any Guarantor and after (if such Guarantor is a natural person) such Guarantor’s death (in which event this Guaranty shall be binding upon such Guarantor’s estate and such Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligation may be increased or reduced shall not release or discharge the obligation of any Guarantor to Lender with respect to the Guaranteed Obligation. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

     1.4 Guaranteed Obligation Not Reduced by Offset. The Guaranteed Obligation and the liabilities and obligations of Guarantors to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of any Borrower (except for the defense of the payment of the Guaranteed Obligation), or any other party, against Lender or against payment of the Guaranteed Obligation, whether such offset, claim or defense arises in connection with the Guaranteed Obligation (or the transactions creating the Guaranteed Obligation) or otherwise.

     1.5 Payment By Guarantors. If all or any part of the Guaranteed Obligation shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantors shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever (except as otherwise provided herein), pay (and each agrees jointly and severally to pay) in lawful money of the United States of America, the amount due on the Guaranteed Obligation to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligation, and may be made from time to time with

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respect to the same or different items of Guaranteed Obligation. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

     1.6 No Duty To Pursue Others. To the extent permitted by applicable law, it shall not be necessary for Lender (and each Guarantor hereby waives any rights which such Guarantor may have to require Lender), in order to enforce the obligations of any Guarantor hereunder, first to (a) institute suit or exhaust its remedies against any Loan Party or others liable on the Loan or the Guaranteed Obligation or any other person, (b) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (c) enforce Lender’s rights against any other guarantors of the Guaranteed Obligation, (d) join any Borrower or any others liable on the Guaranteed Obligation in any action seeking to enforce this Guaranty, (e) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (f) resort to any other means of obtaining payment of the Guaranteed Obligation. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligation.

     1.7 Waivers. Each Guarantor agrees to the provisions of the Loan Documents, and, to the extent permitted by applicable law, hereby waives notice of (a) any loans or advances made by Lender to any Borrower, (b) acceptance of this Guaranty, (c) any amendment or extension of the Note, the Loan Agreement or of any other Loan Documents, (d) the execution and delivery by any Borrower and Lender of any other loan or credit agreement or of any Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Collateral, (e) the occurrence of any breach by any Borrower or an Event of Default, (f) Lender’s transfer or disposition of the Guaranteed Obligation, or any part thereof, (g) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligation, (h) protest, proof of non-payment or default by any Loan Party, and (i) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to the Guaranteed Obligation and/or the obligations hereby guaranteed.

     1.8 Payment of Expenses. In the event that any Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantors jointly and severally agree to pay to Lender and shall promptly upon written demand by Lender, pay Lender all reasonable costs and expenses (including court costs and attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. Notwithstanding the foregoing, in the event that (A) Lender employs counsel to enforce the provisions of this Guaranty and (B) Lender has sold or transferred any interests in the Note, then Guarantor shall only be responsible for the attorney’s fees and expenses of the counsel of only one Lender. The covenant contained in this Section 1.8 shall survive the payment and performance of the Guaranteed Obligation.

     1.9 Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligation, as set forth herein, any prior release or discharge from the terms of this Guaranty given to any Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of each Borrower and each

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Guarantor that none of Guarantors’ obligations hereunder shall be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

     1.10 Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, as long as the Debt remains outstanding and to the extent permitted by applicable law, each Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights such Guarantor may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating such Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from any Loan Party or any other party liable for payment of any or all of the Guaranteed Obligation for any payment made by any Guarantor under or in connection with this Guaranty or otherwise.

     1.11 Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company, joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of any Borrower or any interest in any Borrower.

ARTICLE 2

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING
GUARANTORS’ OBLIGATIONS

     Each Guarantor hereby consents and agrees to each of the following, and agrees that such Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and, to the extent permitted by applicable law, waives any common law, equitable, statutory or other rights (including, without limitation, rights to notice) which such Guarantor might otherwise have as a result of or in connection with any of the following, even if any of the following is materially prejudicial to any Guarantor:

     2.1 Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligation, the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents, or any other document, instrument, contract or understanding between Borrowers (or any of them) and Lender, or between Mortgage Borrowers (or any of them) and Mortgage Lender, or between First Mezzanine Borrowers (or any of them) and First Mezzanine Lender, or between Second Mezzanine Borrowers (or any of them) and Second Mezzanine Lender, or any other parties, pertaining to the Guaranteed Obligation or any failure of Lender, First Mezzanine Lender or Second Mezzanine Lender to notify any Guarantor of any such action.

     2.2 Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to any Borrower, or by Mortgage Lender to any Mortgage Borrower, or by First Mezzanine Lender to any First Mezzanine Borrower, or by Second Mezzanine Lender to any Second Mezzanine Borrower, or any Guarantor or any other Person, as applicable.

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     2.3 Condition of Borrowers or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Loan Party, any Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligation; or any dissolution of any Loan Party or any Guarantor, or any sale, lease or transfer of any or all of the assets of any Loan Party or any Guarantor, or any changes in the shareholders, partners or members of any Loan Party or any Guarantor; or any reorganization of any Loan Party or any Guarantor.

     2.4 Invalidity of Guaranteed Obligation. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligation, or any document or agreement executed in connection with the Guaranteed Obligation, for any reason whatsoever, including, without limitation, the fact that (a) the Guaranteed Obligation, or any part thereof, exceeds the amount permitted by law, (b) the act of creating the Guaranteed Obligation or any part thereof is ultra vires, (c) the officers or representatives executing the Note, the Pledge Agreement, the Loan Agreement, the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents, the Second Mezzanine Loan Documents or otherwise creating the Guaranteed Obligation acted in excess of their authority, (d) the Guaranteed Obligation violates applicable usury laws, (e) any Borrower has valid defenses (other than the payment of the Guaranteed Obligation), claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligation wholly or partially uncollectible from any Borrower, (f) the creation, performance or repayment of the Guaranteed Obligation (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligation or executed in connection with the Guaranteed Obligation, or given to secure the repayment of the Guaranteed Obligation) is illegal, uncollectible or unenforceable, or (g) the Note, the Pledge Agreement, the Loan Agreement, any of the other Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan Documents or the Second Mezzanine Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that each Guarantor shall remain jointly and severally liable hereon regardless of whether any Borrower, any other Guarantor or any other Person be found not liable on the Guaranteed Obligation or any part thereof for any reason.

     2.5 Release of Obligors. Any full or partial release of the liability of any Loan Party on the Guaranteed Obligation, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligation, or any part thereof, it being recognized, acknowledged and agreed by each Guarantor that such Guarantor may be required to pay the Guaranteed Obligation in full without assistance or support of any other party, and such Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that any other Person (including any other Guarantor) will be liable to pay or perform the Guaranteed Obligation, or that Lender will look to any other Person (including any other Guarantor) to pay or perform the Guaranteed Obligation.

     2.6 Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligation.

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     2.7 Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligation.

     2.8 Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of such collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender (a) to take or prosecute any action for the collection of any of the Guaranteed Obligation or (b) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (c) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligation.

     2.9 Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligation, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by each Guarantor that such Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligation.

     2.10 Offset. The Note, the Guaranteed Obligation and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released by reason of any existing or future right of offset, claim or defense (except as may be expressly provided in the Loan Agreement and except for the defense of payment of the Guaranteed Obligation) of any Borrower against Lender or any other Person, or against payment of the Guaranteed Obligation, or of any Mortgage Borrower against Mortgage Lender, or any other Person, or of any First Mezzanine Borrower against First Mezzanine Lender, or any other Person, or of any Second Mezzanine Borrower against Second Mezzanine Lender or any other Person, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligation (or the transactions creating the Guaranteed Obligation) or otherwise.

     2.11 Merger. The reorganization, merger or consolidation of any Borrower into or with any Person.

     2.12 Preference. Any payment by any Borrower to Lender, or by any Mortgage Borrower to Mortgage Lender, or by any First Mezzanine Borrower to First Mezzanine Lender, or by any Second Mezzanine Borrower to Second Mezzanine Lender, as applicable, is held to constitute a preference under bankruptcy laws, or for any reason Lender, Mortgage Lender, First Mezzanine Lender or Second Mezzanine Lender is required to refund such payment or pay such amount to such Borrower, Mortgage Borrower, First Mezzanine Borrower or Second Mezzanine Borrower or to someone else, as applicable.

     2.13 Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Mortgage Loan Documents, the First Mezzanine Loan

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Documents, the Second Mezzanine Loan Documents, the Guaranteed Obligation, or the security and collateral therefor, whether or not such action or omission prejudices any Guarantor or increases the likelihood that any Guarantor will be required to pay the Guaranteed Obligation pursuant to the terms hereof, it being the unambiguous and unequivocal intention of each Guarantor that such Guarantor shall be obligated to pay the Guaranteed Obligation when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligation.

ARTICLE 3

REPRESENTATIONS AND WARRANTIES

     To induce Lender to enter into the Loan Documents and extend credit to Borrowers, each Guarantor represents and warrants to Lender as follows:

     3.1 Benefit. Such Guarantor is an Affiliate of each Borrower, is the owner of a direct or indirect interest in each Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligation.

     3.2 Familiarity and Reliance. Such Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrowers and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligation; however, such Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

     3.3 No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to such Guarantor in order to induce such Guarantor to execute this Guaranty.

     3.4 Financial Representations, Warranties and Covenants. Each Guarantor hereby makes the representations, warranties and covenants set forth on Exhibit A attached hereto and made a part hereof, which representations, warranties and covenants are intended to and shall form a part of this Guaranty for all purposes.

     3.5 Legality. The execution, delivery and performance by such Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which such Guarantor is subject or constitute a material default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the material breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which such Guarantor is a party or which may be applicable to such Guarantor. This Guaranty is a legal and binding obligation of such Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

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     3.6 Survival. All representations and warranties made by each Guarantor herein shall survive the execution hereof.

ARTICLE 4

SUBORDINATION OF CERTAIN INDEBTEDNESS

     4.1 Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of any Loan Party to any Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of such Loan Party thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by any Guarantor. The Guarantor Claims shall include without limitation all rights and claims of any Guarantor against any Loan Party (arising as a result of subrogation or otherwise) as a result of any Guarantor’s payment of all or a portion of the Guaranteed Obligation. Upon the occurrence and during the continuance of an Event of Default, no Guarantor shall receive or collect, directly or indirectly, from any Loan Party or any other party any amount upon any Guarantor Claim.

     4.2 Claims in Bankruptcy. In the event of any receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving any Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Each Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligation, any such dividend or payment which is otherwise payable to any Guarantor, and which, as between any Borrower and any Guarantor, shall constitute a credit against the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligation, such Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligation, and such subrogation shall be with respect to that proportion of the Guaranteed Obligation which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

     4.3 Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that any Guarantor shall receive any funds, payments, claims or distributions which are prohibited by this Guaranty, such Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay such funds, payments, claims and/or distributions promptly to Lender, and such Guarantor covenants promptly to pay the same to Lender.

     4.4 Liens Subordinate. Each Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon any Loan Party’s assets securing payment

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of any Guarantor Claim shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon such Loan Party’s assets securing payment of the Guaranteed Obligation, regardless of whether such encumbrances in favor of such Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender as long as the Debt is outstanding, no Guarantor shall (a) exercise or enforce any creditor’s right it may have against any Loan Party, or (b) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including, without limitation, the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of any Loan Party held by any Guarantor.

ARTICLE 5

MISCELLANEOUS

     5.1 Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand. Pursuant to Nevada Revised Statutes (“NRS”) Section 40.495(2), each Guarantor hereby waives the provisions of NRS Section 40.430.

     5.2 Notices. Except as otherwise required by applicable law, all notices, consents, approvals and requests required or permitted hereunder or under any other Loan Document (each, a “Notice”) shall be given in writing and shall be effective for all purposes if (a) hand delivered, (b) sent by reputable overnight courier, (c) sent by (i) certified or registered United States mail, postage prepaid, return receipt requested or (ii) expedited prepaid delivery service, either commercial or United States Postal Service, with proof of attempted delivery, or (d) sent by telecopier (with answer back acknowledged and followed by a hard copy via one of the other methods described above), addressed as follows (or to such other address and Person as shall be designated from time to time by any party hereto, as the case may be, in a Notice to the other parties hereto in the manner provided for in this Section 5.2):

Guarantor:	DLJ MB IV HRH, LLC
	c/o DLJ Merchant Banking Partners
	11 Madison Avenue
	New York, New York 10010
	Attention: Ryan Sprott
	Facsimile No.: (212) 743-1667
with a copy to:	Latham & Watkins LLP
	885 Third Avenue

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	Suite 1000
	New York, New York 10022
	Attention: Michelle Kelban, Esq.
	Facsimile No.: (212) 751-4864
with a copy to:	Latham & Watkins LLP
	633 West Fifth Street
	Suite 4000
	Los Angeles, California 90071
	Attention: Paul Fuhrman, Esq.
	Facsimile No.: (213) 891-8763
Guarantor:	Morgans Group LLC
	475 Tenth Avenue
	New York, New York 10018
	Attention:  Marc Gordon, Chief Investment Officer
	Facsimile No.: (212) 277-4270
with a copy to:	Wachtell, Lipton, Rosen & Katz
	51 West 52nd Street
	29th Floor
	New York, New York 10019
	Attention: Stephen Gellman, Esq.
	Facsimile No.: (212) 403-2000
Lender:	Column Financial, Inc.
	11 Madison Avenue
	New York, New York 10010
	Attention: Edmund Taylor
	Facsimile No.: (212) 352-8106
with a copy to:	Column Financial, Inc.
	One Madison Avenue
	New York, New York 10019
	Legal and Compliance Department
	Attention: Casey McCutcheon, Esq.
	Facsimile No.: (917) 326-8433
with a copy to:	Thelen Reid Brown Raysman & Steiner, LLP
	875 Third Avenue
	New York, New York 10022
	Attention: Jeffrey B. Steiner, Esq.
	Facsimile No.: (212) 603-2001
	Hard Rock / Rand Peppas

A Notice shall be deemed to have been given: in the case of hand delivery or delivery by a reputable overnight courier, at the time of delivery; in the case of registered or certified mail,

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when delivered or the first attempted delivery on a Business Day; in the case of expedited prepaid delivery and telecopy, upon the first attempted delivery on a Business Day; or in the case of telecopy, upon sender’s receipt of a machine-generated confirmation of successful transmission on a Business Day after advice by telephone to recipient that a telecopy Notice is forthcoming; provided, that within three (3) Business Days thereafter, a hard copy of such Notice shall have been delivered pursuant to the provisions of clause (a), (b) or (c) of this Section 5.2. Any failure to deliver a Notice by reason of a change of address not given in accordance with this Section 5.2, or any refusal to accept a Notice, shall be deemed to have been given when delivery was attempted. Any Notice required or permitted to be given by any party hereunder or under any other Loan Document may be given by its respective counsel. Additionally, any Notice required or permitted to be given by Lender hereunder or under any other Loan Document may also be given by the Servicer.

     5.3 Governing Law. This Guaranty shall be governed in accordance with the terms and provisions of Section 10.3 of the Loan Agreement.

     5.4 Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

     5.5 Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

     5.6 Parties Bound; Assignment. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that no Guarantor may, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder except as may otherwise be permitted under the Loan Agreement.

     5.7 Fully Recourse. (a) The Guaranteed Obligation is a joint and several recourse obligation of Guarantors and is not restricted by any limitation on personal liability.

     (b) Notwithstanding anything to the contrary in this Guaranty, in the Loan Agreement or in any other Loan Document, no present or future Constituent Member other than (i) a Guarantor, and (ii) with respect to the DLJ Guarantor, DLJ Merchant Banking Partners IV, L.P., MBP IV Plan Investors, L.P., DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., and DLJ Merchant Banking Partners IV (Pacific), L.P. (such limited partnerships, collectively, the “DLJMB Parties”) as provided in the DLJMB Commitment Letter, nor any present or future shareholder, officer, director, employee, trustee, beneficiary, advisor, member, partner, principal, participant or agent of or in any Guarantor or of or in any Person that is or becomes a Constituent Member, other than Guarantors and such DLJMB Parties, shall have any

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personal liability, directly or indirectly, under or in connection with this Guaranty, or any amendment or amendments hereto made at any time or times, heretofore or hereafter, and Lender on behalf of itself and its successors and assigns, hereby waives any and all such personal liability.

     5.8 Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

     5.9 Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

     5.10 Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all Persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

     5.11 Rights and Remedies. If any Guarantor becomes liable for any indebtedness owing by any Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against any such Guarantor. To the extent permitted by applicable law, the exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

     5.12 Entirety. THIS GUARANTY EMBODIES THE FINAL AND ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATION AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THIS GUARANTY, AND NO COURSE OF DEALING BETWEEN ANY GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN ANY GUARANTOR AND LENDER.

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     5.13 Waiver of Right To Trial By Jury. EACH GUARANTOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND TO THE EXTENT PERMITTED BY APPLICABLE LAW, WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE LOAN AGREEMENT, THE PLEDGE AGREEMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH GUARANTOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION 5.13 IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY EACH GUARANTOR.

     5.14 Cooperation. Each Guarantor acknowledges that Lender and its successors and assigns may (a) sell this Guaranty, the Note and other Loan Documents to one or more investors as a whole loan, (b) participate the Loan secured by this Guaranty to one or more investors, (c) deposit this Guaranty, the Note and other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (d) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (a) through (d) are hereinafter each referred to as “Secondary Market Transactions”). Each Guarantor shall reasonably cooperate with Lender at Lender’s cost and expense in effecting any such Secondary Market Transaction and shall reasonably cooperate to implement all requirements imposed by any Rating Agency involved in any Secondary Market Transaction. Each Guarantor shall provide such information and documents relating to such Guarantor, Borrowers, Mortgage Borrowers, First Mezzanine Borrowers, Second Mezzanine Borrowers, the Properties and any tenants of the Improvements as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, each Guarantor shall make available to Lender all information concerning its business and operations that Lender may reasonably request in connection with such Secondary Market Transaction. Lender shall be permitted to share all such information with the investment banking firms, Rating Agencies, accounting firms, law firms and other third party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided such parties are held to customary confidentiality standards. It is understood that the information provided by any Guarantor to Lender may ultimately be incorporated into the offering documents for the Secondary Market Transaction and that various investors may also see some or all of the information. Lender and all of the aforesaid third party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of, any Guarantor in the form as provided by such Guarantor. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction, or otherwise as part of its business development. Notwithstanding anything to the contrary contained in this Guaranty, in the event of a Secondary Market Transaction, Guarantors shall be entitled to deal with and rely upon only one Servicer (having at least ten (10) years experience servicing loans) for all owners of interest in the Loan in connection with all matters relating to the Loan and shall not incur any costs greater than those that would be incurred if the lead lender were the only Lender (including enforcement costs). Any such transaction shall be at Lender’s sole cost and expense, including,

15

without limitation, the cost of any reports, certifications or opinions required of Guarantors in connection with any such transaction. No such transaction shall result in a material increase in the obligations or potential liability of Guarantors under this Guaranty and the Loan Documents by reason of any requested covenant, representation, warranty, indemnity or certification or otherwise. Without limitation on the foregoing, in no event shall Guarantors have liability (by way of certification, indemnity or otherwise) for information or statements contained in third party reports used in connection with the secondary marketing transaction.

     5.15 Termination. Subject to Section 5.16 hereof, this Guaranty shall terminate upon the payment of the Debt in full.  Alternatively, subject to Section 5.16 hereof, this Guaranty shall terminate upon the earliest to occur of (i) Borrowers’ satisfaction of the Qualification Conditions on or before the Construction Qualification Date, (ii) Borrowers’ payment of the Non-Qualified Mandatory Prepayment, or (iii) Borrowers’ delivery of a Non-Qualified Prepayment Letter of Credit (or a combination of the foregoing clauses (ii) and (iii)). Upon any such termination of this Guaranty, Lender shall, at Borrowers’ reasonable expense (including Lender’s reasonable attorneys’ fees), promptly execute and deliver such documents as may be reasonably requested by Borrowers or Guarantors to evidence release of this Guaranty.

     5.16 Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by any Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of any Borrower or otherwise, Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

     5.17 Exculpation. Notwithstanding anything to the contrary contained herein, Guarantors agree that they will not have any claims or causes of action against any disclosed or undisclosed officer, director, employee, trustee, shareholder, partner, or principal of Lender arising out of or in connection with this Guaranty or the transactions contemplated hereby.

     5.18 Usage of Terms. As used in this Guaranty, the phrase “any Borrower” shall mean “any one or more Borrowers, including all of the Borrowers” and the phrase “any Guarantor” shall mean “any one or more Guarantors, including all of the Guarantors”.

[NO FURTHER TEXT ON THIS PAGE]

16

     EXECUTED as of the day and year first above written.

GUARANTORS:
MORGANS GROUP LLC, a Delaware limited liability company
By:	Morgans Hotel Group Co.,
	a Delaware corporation
	as Managing Member

By:	/s/ RICHARD SZYMANSKI Name: Richard Szymanski
	Title: Chief Financial Officer and Secretary

DLJ MB IV HRH, LLC
a Delaware limited liability company
By:	/s/ KENNETH J. LOHSEN Name: Kenneth J. Lohsen
	Title: Authorized Signatory

Guaranty Agreement

Exhibit A

FINANCIAL REPRESENTATIONS, WARRANTIES AND COVENANTS

     1. Guarantor’s Financial Condition. (a) As of the date hereof after giving effect to this Guaranty and, in the case of the DLJ Guarantor, the equity and other commitments of the DLJMB Parties insofar as they relate to the DLJ Guarantor, and throughout the term of the Loan, such Guarantor is and will be solvent and has and will have (i) assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities as determined in accordance with GAAP) and debts, and (ii) property and assets sufficient to satisfy and repay its obligations and liabilities.

     (b) At all times throughout the term of this Guaranty, the Guarantors shall maintain (i) Guarantors Net Worth in excess of $400,000,000.00 in the aggregate, and (ii) a minimum amount of Guarantors Effective Liquidity in excess of $200,000,000.00 in the aggregate. Within one-hundred twenty (120) days following the end of each calendar year, and, upon Lender’s written request, within sixty (60) days following the end of any calendar quarter, each Guarantor shall deliver or cause to be delivered to Lender a complete copy of such Guarantor’s and, in the case of the DLJ Guarantor, the DLJMB Parties’ annual, and, if requested, quarterly financial statements audited by a “Big Four” accounting firm, BDO Seidman LLP, or other independent certified public accountant reasonably acceptable to Lender prepared in accordance with GAAP, including in each case statements of profit and loss and a balance sheet for such Guarantor and the DLJMB Parties, as the case may be, together with a certificate of each Guarantor (which certificate in the case of the Morgans Guarantor shall pertain only to the Morgans Guarantor, and in the case of the DLJ Guarantor shall pertain only to the DLJ Guarantor and the DLJMB Parties) (i) setting forth in reasonable detail such Guarantor’s and each DLJMB Parties’ Net Worth as of the end of the prior calendar year or quarter, as the case may be, based thereon, and then Effective Liquidity, and (ii) certifying that such financial statements are true, correct, accurate and complete in all material respects and fairly present the financial condition and results of the operations of such Guarantor, and, in the case of the DLJ Guarantor, the DLJMB Parties, provided, however, that in the event the DLJ Guarantor, any DLJMB Party or the Morgans Guarantor is not otherwise required to, and does not, cause to be prepared such audited financial statements in the ordinary course of its business, it may deliver the unaudited statements which are delivered to its investors or otherwise prepared in the ordinary course of its business, accompanied by such certification.

     (c) Such Guarantors shall not, and the DLJ Guarantor shall not cause or permit and further represents and covenants that the DLJMB Parties shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing beyond any applicable grace period or following any notice thereof, (i) enter into or effectuate any transaction with any Affiliate of such Guarantors or any of the DLJMB Parties, as the case may be, which would reduce such Guarantors’ or DLJMB Party’s then Net Worth or Effective Liquidity, or (ii) sell, pledge, mortgage or otherwise Transfer to any other Person (including any of its Affiliates) any assets or any interest therein, other than (in the case of either clauses (i) or (ii) of this Section 1(c)) (x) if in the ordinary course of business, consistent with past practice and for reasonably equivalent value, or (y) for reasonably equivalent value.

Guaranty Agreement

     (d) As used in this Section 1 and Section 4 below, the following terms shall have the following meanings:

          “Distributable Cash” means, with respect to any Person, and subject to the following proviso, the amount of all capital surplus, retained earnings or net profits of such Person held in the form of cash or cash equivalents (including cash reserves established from undistributed net profits from any prior fiscal period), then freely and lawfully distributable to the holders of all equity interests of such Person as dividends or distributions or in redemption of such equity interests in accordance with all laws and operative agreements, documents or instruments governing the formation and capitalization of such Person, the receipt of which by the holders of such equity interests, if so paid, will not give rise to any liability of the recipient to return or to repay such amounts to such Person, and the payment or distribution of which by such Person to such equity holders (i) will not violate any term or condition of any agreement or instrument to which such Person is subject or by which its properties or assets is bound, and (ii) has been consented to or approved by all other Persons not controlled by the Morgans Guarantor whose consent to or approval of such payment or distribution is required under any of such operative, governing or other agreements, documents or instruments; provided that Lender is given, from time to time, such information as it may reasonably request (including income statements and balance sheets of any such Person that satisfy the requirements for financial statements set forth in Section 1(c) above, together with a certificate of the chief financial officer of the Morgans Guarantor confirming that, to the best of his or her knowledge, the foregoing calculations and financial statements are accurate in all material respects) confirming the foregoing.

          “Effective Liquidity” means, with respect to any Person, as of a given date, the sum of (i) all unrestricted cash and cash equivalents held by such Person and, in the case of the Morgans Guarantor, the Distributable Cash of its direct or indirect wholly-owned subsidiaries, the membership or other equity interests which are not pledged to or otherwise encumbered by any lien, charge or other encumbrance in favor of any Person other than the Morgans Guarantor or Lender; (ii) the aggregate amount of available borrowing of such Person under credit facilities and other lines of credit; and (iii) except as provided in the following sentence, the aggregate maximum amount, if any, of all committed and undrawn or uncalled capital available to such Person (as to any Person its “Available Capital”) under the terms of any partnership, limited liability, statutory business trust, or similar agreement of such Person from any Constituent Member (other than (x) any Constituent Member of another Constituent Member that is publicly traded, and (y) in the case of the DLJ Guarantor, any limited partner of DLJMB HRH Co-Investments, L.P., a DLJMB Party (“Co-Investments LP”)), less, (iv) the aggregate amount of any accrued but unpaid liabilities or obligations of such Person under the facilities or agreements described in the preceding clauses (ii) and (iii), other than (for purposes of this clause (iv)) the principal amount of Indebtedness under any such facilities. In addition, and notwithstanding anything herein to the contrary, the Available Capital of Co-Investments LP for purposes of determining its Effective Liquidity shall equal, as of a given date, either (A) Co-Investments LP’s Available Capital, or (B), if

Guaranty Agreement

greater, and subject to the following proviso, an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Available Capital of the other DLJMB Parties, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (y)) to confirm that the limited partners of Co-Investments LP (x) are financially capable of funding such amount, and (y) are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Guarantors Effective Liquidity” means, with respect to the Guarantors, as of a given date, the sum of the Effective Liquidity of (i) the DLJ Guarantor and, without duplication, each of the DLJMB Parties, and (ii) the Morgans Guarantor.

          “Guarantors Net Worth” means, with respect to the Guarantors, as of a given date, the sum of (i) the Net Assets of the Morgans Guarantor, and (ii) the Net Worth of (x) the DLJ Guarantor and (y), without duplication, each of the DLJMB Parties, including for purposes of this computation, and subject to the following proviso, the Net Worth of any limited partner of Co-Investments LP that shall have entered into an equity commitment letter satisfactory to Lender, for the express benefit of Lender, pursuant to which such limited partner of Co-Investments LP agrees to, and recognizes the rights of Lender in place and instead of the general partner or manager of Co-Investments LP to require such limited partner of Co-Investments LP to, make contributions to Co-Investments LP directly to Lender, in an aggregate amount not exceeding one hundred fifty (150%) percent of the aggregate Net Worth of the DLJMB Parties other than Co-Investments LP, provided that Lender is given, from time to time, such information as it may reasonably request (including an opinion of counsel to Co-Investments LP in respect of the following clause (B)) to confirm (A) the Net Worth of the limited partners of Co-Investments LP, and (B) that they are and remain obligated to make capital contributions to Co-Investments LP in such aggregate amounts in order to cause the DLJ Guarantor or the DLJMB Parties to pay and perform the Guaranteed Obligations.

          “Net Assets” means, with respect to the Morgans Guarantor only, as of a given date, an amount equal to the aggregate fair market value of the Morgans Guarantor’s assets and properties (i) as reasonably determined by Lender in good faith applying such customary and reasonable market factors as Lender shall then apply to similar assets and properties, or (ii) at the election of the Morgans Guarantor, as determined by appraisals prepared by an independent MAI real estate “state certified general appraiser” (as defined under regulations or guidelines issued pursuant the Financial Institutions Reform Recovery Enforcement Act of 1989, 12 U.S.C. 1811 et. Seq., as amended) selected by the Morgans Guarantor and approved by Lender (which approval shall not be unreasonably withheld, delayed, or conditioned) at the Morgans Guarantor’s sole cost and expense and not more than ninety (90) days prior to such date, minus the amount of all Indebtedness of the Morgans Guarantor and its consolidated subsidiaries as of such date, but in no event shall such amount be less than zero.

Guaranty Agreement

          “Net Worth” shall mean, with respect to any Person as of a given date, (i) such Person’s total assets as of such date, less (ii) such Person’s total liabilities as of such date, in each case, as they would be reflected in a balance sheet prepared in accordance with GAAP.

     2. Financial and Other Information; Dividends and Distributions. Each Guarantor with respect to (i) itself, severally and not jointly, and (ii) in the case of the DLJ Guarantor, the DLJMB Parties, represents, warrants and covenants to Lender during the term of the Loan that:

     (a) all financial data and other financial information that, as of any applicable date, has been delivered to Lender with respect to such Guarantor, and in the case of the DLJ Guarantor, the DLJMB Parties (i) is true, complete and correct in all material respects as of the dates of such reports, (ii) accurately represent, in all material respects, the financial condition of such Guarantor and the DLJMB Parties as of the date of such reports, and (iii) has been prepared in accordance with GAAP throughout the periods covered, except as disclosed therein; and

     (b) except for the payment of employee salaries and benefits and other administrative expenses and dividends or other distributions in the ordinary course of business consistent with past practice, or with Lender’s prior written consent exercised in its sole discretion, it shall not sell, pledge, mortgage or otherwise transfer any of its material assets, or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction for fair consideration, or, with respect to any such transactions between or among the DLJMB Parties and any of their respective affiliates, on terms materially less favorable to such DLJMB Parties than would be obtained in comparable transactions with Persons who are not affiliates.

     3. Confidentiality; Cooperation. Lender agrees to treat all financial statements and other financial information of any Guarantor and the DLJMB Parties that are not publicly available, confidentially, provided that, each Guarantor recognizes that Lender shall, and hereby authorizes Lender to, include such financial information or extracts therefrom in any Disclosure Documents or similar disclosure with respect to any syndication of the Loan, so long as in each case the affected Guarantor shall have the right, prior to their dissemination, to review and approve any such Disclosure Documents or similar documents (such approval not to be unreasonably withheld, delayed or conditioned) and the recipients of any such Disclosure Documents are subject to customary obligations to preserve the confidentiality of such information, to the extent applicable to such syndication. In connection therewith and with respect to all such financial information, each Guarantor shall cooperate with and indemnify and hold harmless Lender to the same extent provided in Section 9.3 of the Loan Agreement as if it were a party thereto and each reference to “Borrowers” therein were instead a reference to such Guarantor.

     4. Substitute Guarantors. If at any time, subject to all of the terms and conditions of the Loan Agreement and all of the other Loan Documents,  a Guarantor shall seek to be released from its obligations under this Guaranty and substitute any replacement guarantor for the Guaranteed Obligations following any Transfer of an interest (direct or indirect) in HR Holdings, any Guarantor Transfer or otherwise (any such replacement guarantor permitted under the Loan Documents or otherwise consented to by Lender, being referred to herein as a “Substitute Guarantor”), then, so long as (a) the aggregate Net Worth (determined, in the case of

Guaranty Agreement

Guarantors, as provided in the definition of “Guarantors Net Worth” above) of all Persons providing this Guaranty, including any Substitute Guarantor, shall equal $400,000,000.00 or more, and the aggregate Effective Liquidity (determined, in the case of Guarantors, as provided in the definitions of “Effective Liquidity” and “Guarantors Effective Liquidity” above) of all such Persons shall equal $200,000,000.00 or more, and (b) at least one of the Persons providing this Guaranty is a Qualified Real Estate Guarantor, (i) the requirements of the first sentence of Section 1(b) above shall be modified such that, as to each Person providing this Guaranty pursuant to the Loan Agreement, including any Substitute Guarantor, at all times that such Guaranty shall be required to be outstanding in accordance with the Loan Agreement, (x) such Person’s Net Worth (or in the event that the Morgans Guarantor shall remain a guarantor hereunder at such time, as to the Morgans Guarantor only, its Net Assets, and in the event that the DLJ Guarantor shall remain a guarantor hereunder at such time, the Net Worth of the DLJ Guarantor and the DLJMB Parties calculated in accordance with clause (ii) of the definition of “Guarantors Net Worth” above) shall equal $200,000,000.00 or more (or in the event that the Morgans Guarantor or any transferee, including an Affiliate of such transferee of the Morgan Guarantor’s interests in HR Holdings (collectively, a “Morgans Transferee”) shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgans Transferee only, the product of $400,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (y) such Person’s Effective Liquidity shall equal $100,000,000.00 or more (or in the event that the Morgans Guarantor or any Morgans Transferee shall remain or become a guarantor of the Loan at such time, as to the Morgans Guarantor and any Morgan Transferee only, the product of $200,000,000.00 and such Person’s then percentage interest (directly or indirectly) in all profits and losses of HR Holdings), and (ii) the provisions of this Exhibit A with respect to financial reporting, financial condition, transactions, dividends and distributions, confidentiality and cooperation shall apply to all such Persons.

     5. Conflicts. Nothing in this Exhibit A shall be read in any manner or construed or deemed to alter, modify, amend or waive any term or condition of any Loan Document, except to the extent this Exhibit A is expressly incorporated by reference therein, including by Section 3.4 of this Guaranty. In the event of any conflicts between the terms and conditions hereof and the terms and conditions of any other Loan Document, the terms and conditions of the other Loan Documents shall control and be binding in all respects.

Guaranty Agreement

EX-21.1

Exhibit 21.1

List of Subsidiaries of Morgans Hotel Group Co.
(as of December 31, 2007)

	Jurisdiction of
	Incorporation
Subsidiary	or Organization
Morgans Hotel Group Co.	Delaware
Morgans Group LLC	Delaware
Morgans Hotel Group Management LLC	New York
Morgans Holdings LLC	Delaware
Morgans/Delano Pledgor LLC	Delaware
Madison Bar Company LLC	Delaware
SC Morgans/Delano LLC	Delaware
SC Madison LLC	Delaware
SC Collins LLC	Delaware
Beach Hotel Associates LLC	Delaware
Royalton Pledgor LLC	Delaware
43rd Restaurant LLC	Delaware
Royalton LLC	Delaware
Hudson Pledgor LLC	Delaware
SC 58th Street LLC	Delaware
58th Street Bar Company LLC	Delaware
Mondrian Pledgor LLC	Delaware
8440 LLC	Delaware
Sunset Restaurant LLC	Delaware
Mondrian Holdings LLC	Delaware
Mondrian Senior Mezz LLC	Delaware
Henry Hudson Holdings LLC	Delaware
Hudson Leaseco LLC	New York
Hudson Managing Member LLC	Delaware
Henry Hudson Senior Mezz LLC	Delaware
Shore Club Holdings LLC	Delaware
Philips South Beach LLC	Illinois
SC Restaurant Company LLC	Delaware
Clift Holdings LLC	Delaware
SC Geary LLC	Delaware
495 Geary LLC	Delaware
495 ABC License LLC	Delaware
Morgans/LV Investment LLC	Delaware
Morgans/LV Management LLC	Delaware
Morgans Las Vegas LLC	Delaware
MHG Scottsdale Holdings LLC	Delaware
Mondrian Scottsdale Mezz Holding Company LLC	Delaware
Collins Hotel Associates LLC	Delaware
Mondrian Miami Investment LLC	Delaware
1100 West Holdings, LLC	Delaware
1100 West Properties, LLC	Delaware

	Jurisdiction of
	Incorporation
Subsidiary	or Organization
MHG North State Street Investment LLC	Delaware
Cedar Hotel Holdings LLC	Delaware
Cedar Hotel LLC	Delaware
MHG 150 Lafayette Investment LLC	Delaware
Cape SoHo Hotel, LLC	New York
Sochin Realty Managers, LLC	Delaware
Sochin Downtown Realty, LLC	New York
Hard Rock Hotel Holdings, LLC	Delaware
HRHH JV Junior Mezz Two, LLC	Delaware
HRHH JV Junior Mezz, LLC	Delaware
HRHH JV Senior Mezz, LLC	Delaware
HRHH Café, LLC	Delaware
HRHH Development, LLC	Delaware
Hard Rock Hotel Inc.	Nevada
HRHH Gaming Junior Mezz Two, LLC	Delaware
HRHH Gaming Junior Mezz, LLC	Delaware
HRHH Gaming Senior Mezz, LLC	Delaware
HRHH Hotel/Casino, LLC	Delaware
HRHH Gaming Member, LLC	Delaware
HRHH Gaming, LLC	Delaware
HRHH IP, LLC	Delaware

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

To the Board of Directors

Morgans Hotel Group Co.

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-131834) and on Form S-3 (No. 333-149249) of Morgans Hotel Group Co. of our report dated March 17, 2008, relating to the financial statements of Morgans Hotel Group Co. and our report dated March 13, 2008, relating to the financial statements of 1100 West Properties LLC, included in this annual report on Form 10-K for the year ended December 31, 2007.

/s/  BDO Seidman, LLP

BDO Seidman, LLP

New York, New York

March 17, 2008

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

To the Board of Directors

Morgans Hotel Group Co.

We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No. 333-131834) and on Form S-3 (No. 333-149249) of Morgans Hotel Group Co. of our report dated March 12, 2008, relating to the financial statements of Morgans Hotel Group Europe Limited and our report dated March 12, 2008 relating to the financial statements of SC London Limited, included in this annual report on Form 10-K for the year ended December 31, 2007.

/s/  BDO Stoy Hayward LLP

BDO Stoy Hayward LLP

London, UK

March 17, 2008

EX-31.1

Exhibit 31.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Fred J. Kleisner, certify that:

1. I have reviewed this annual report on Form 10-K of Morgans Hotel Group Co. for the fiscal year ended December 31, 2007;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Fred J. Kleisner

Fred J. Kleisner
President and Chief Executive Officer

Date: March 17, 2008

EX-31.2

Exhibit 31.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
17 CFR 240.13a-14(a)/15(d)-14(a),
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard Szymanski, certify that:

1. I have reviewed this annual report on Form 10-K of Morgans Hotel Group Co. for the fiscal year ended December 31, 2007;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/  Richard Szymanski

Richard Szymanski
Chief Financial Officer

Date: March 17, 2008

EX-32.1

Exhibit 32.1

CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Morgans Hotel Group Co. (the “Company”) for the year ended December 31, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Fred J. Kleisner, as Chief Executive Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

/s/  Fred J. Kleisner

Fred J. Kleisner
Chief Executive Officer

Date: March 17, 2008

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO
RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934
AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of Morgans Hotel Group Co. (the “Company”) for the year ended December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard Szymanski, as Chief Financial Officer of the Company hereby certifies, pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material aspects, the financial condition and results of operations of the Company.

/s/  Richard Szymanski

Richard Szymanski
Chief Financial Officer

Date: March 17, 2008

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-99.1

Exhibit 99.1

Registered No. 3203996

Morgans Hotel Group Europe Limited

Annual report

For the year ended 31 December 2007

Morgans Hotel Group Europe Limited

Annual report
for the year ended 31 December 2007

	Pages
Directors and advisers		1
Independent auditors’ report		2
Consolidated Profit and loss account		3
Consolidated Balance sheet		4 - 5
Consolidated Cash flow Statement		6
Notes to the financial statements		7 - 19

Morgans Hotel Group Europe Limited

Directors and advisers

Directors
R Bloom
J Quicksilver
F Kleisner
D Smail

Secretary and registered office
Bibi Ali
MacFarlanes
10 Norwich Street
London EC4A 1BD

Solicitors
MacFarlanes
10 Norwich Street
London EC4A 1BD

Registered auditors
BDO Stoy Hayward LLP
55 Baker Street
London W1U 7EU

Bankers
National Westminster Bank PLC
135 Bishopsgate
London EC2M 3UR

1

Independent auditors’ report to the members of Morgans Hotel Group Europe Limited

Report of the Independent Registered Public Accounting Firm To the Board of Directors of Morgans Hotel Group Europe Limited

We have audited the financial statements of Morgans Hotel Group Europe Limited which comprise the consolidated balance sheet as of December 31, 2007 and December 31, 2006 and the related consolidated profit and loss account, cash flow statement and related notes for the year ended December 31, 2007 and December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Morgans Hotel Group Europe Limited as at December 31, 2007 and December 31, 2006, and the results of its operations and its cash flows for the year ended December 31, 2007 and December 31, 2006 in conformity with generally accepted accounting principles in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 24 to the financial statements.

BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
London, UK

March 12, 2008

2

Morgans Hotel Group Europe Limited

Consolidated profit and loss account
for the year ended 31 December 2007

									(Unaudited)
	Notes		2007			2006			2005
			£000			£000			£000
Turnover				31,967			30,118			26,206
Cost of sales				(7,909	)		(7,560	)		(7,084	)
Gross profit				24,058			22,558			19,122
Administrative expenses				(13,240	)		(13,988	)		(14,441	)
Operating profit		3		10,818			8,570			4,681
Interest receivable				705			397			218
Interest payable and similar charges		4		7,043			6,721			(7,932	)
Exceptional Interest Charge		5		—			—			(3,357	)
Net interest payable				(6,338	)		(6,324	)		(11,071	)
Profit on ordinary activities before taxation				4,480			2,246			(6,390	)
Tax on profit on ordinary activities		6		(412	)		—			—
Profit for the financial year				4,068			2,246			(6,390	)

All income and expenditure arises from continuing operations.

The group has no recognised gains or losses other than the profit for the year.

The historical cost profit and reported profit are the same.

3

Morgans Hotel Group Europe Limited

Consolidated balance sheet
At 31 December 2007

	Notes		2007			2007			2006			2006
			£000			£000			£000			£000
Fixed assets
Tangible assets		8					102,898						101,828
Current assets
Stock		9		222						209
Debtors		11		2,254						2,769
Cash at bank and in hand				15,019						12,265
				17,495						15,243
Creditors: amounts falling due within one year		12		(5,793	)					(4,795	)
Net current assets							11,702						10,448
Total assets less current liabilities							114,600						112,276
Creditors: amounts falling due after more than one year		13					(101,636	)					(103,380	)
Net assets							12,964						8,896
Capital and reserves
Called up share capital		15					5,000						5,000
Share premium account		16					10,000						10,000
Other capital reserve		16					9,460						9,460
Profit and loss account		16					(11,496	)					(15,564	)
Shareholders funds		18					12,964						8,896

The financial statements on pages 6 to 22 were approved by the board of directors and authorised for issue on March 12, 2008.

F Kleisner
Director

4

Morgans Hotel Group Europe Limited

Company balance sheet
At 31 December 2007

	Notes		2007			2007			2006			2006
			£000			£000			£000			£000
Fixed assets
Investment in subsidiary		10					35,000						35,000
Current assets
Debtors		11		400						400
Cash at bank and in hand				5						5
				405						405
Creditors: amounts falling due within one year		12		(12,634	)					(12,634	)
Net current liabilities							(12,229	)					(12,229	)
Net assets							22,771						22,771
Capital and reserves
Called up share capital		15					5,000						5,000
Share premium account		17					10,000						10,000
Other capital reserve		17					9,460						9,460
Profit and loss account		17					(1,689	)					(1,689	)
Shareholders funds		18					22,771						22,771

5

Morgans Hotel Group Europe Limited

Consolidated cash flow statement
for the year ended 31 December 2007

									(Unaudited)
	Notes		2007			2006			2005
			£000			£000			£000
Net cash inflow from operating activities		21		14,198			12,067			7,036
Returns on investments and servicing of finance		22		(6,338	)		(6,324	)		(11,514	)
Capital expenditure		22		(3,507	)		(671	)		(1,536	)
Net Cash inflow before taxation and financing				4,353			5,072			(6,014	)
Taxation				(99	)		—			-
Management of liquid resources				—			—			4,230
Financing		22		(1,500	)		(1,250	)		9,829
Increase in cash and cash equivalents				2,754			3,822			8,045

Reconciliation of net debt
for the year ended 31 December 2007

									(Unaudited)
	Notes		2007			2006			2005
			£000			£000			£000
Increase in cash in the year				2,754			3,822			8,045
Net cash outflow/(inflow) from decrease / (increase) in debt		23		1,500			1,242			(9,829	)
Non cash movements		23		(339	)		(339	)		518
Movements in net debt in the year				3,915			4,725			(1,266	)
Net debt at the start of the year				(92,615	)		(97,340	)		(96,074	)
Net debt at the end of the year		23		(88,700	)		(92,615	)		(97,340	)

6

Morgans Hotel Group Europe Limited

Notes to the financial statements
for the year ended 31 December 2007

1. Principal accounting policies

The consolidated financial statements have been prepared under the historical cost convention and in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important accounting policies is set out below.

Basis of consolidation

The consolidated financial statements include financial statements of the company and its subsidiary undertaking made up to 31 December 2007.

Investments

Investments are stated at cost or cost less provision where there is a permanent diminution in value.

Fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation and any provision for impairment. Assets are depreciated to their residual values on a straight line basis over their estimated useful lives as follows:

Freehold buildings	50 years
(Included in Freehold Buildings are assets for building surface finishes which are depreciated over 25-38 years)
Building surface finishes	25-38 years
Plant and machinery	15 years
Fixtures, fittings and equipment	5-10 years

No depreciation is provided on freehold land. No residual values are ascribed to building surface finishes.

Interest paid on fixed assets purchases is capitalised up until the time the asset is available for use.

Foreign currency transactions

Translations into sterling are made at the average of rates ruling throughout the period for profit and loss items and at the rate ruling at 31 December 2007 for assets and liabilities. Exchange differences arising in the ordinary course of trading are included in the profit and loss account.

Deferred taxation

Deferred taxation is provided in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events have occurred which result in an obligation to pay more or less tax in the future.

Deferred tax is measured at the average tax rates which apply in the period in which the timing differences are expected to reverse. Deferred tax is measured on a non-discounted basis.

Deferred tax assets are regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it is more likely than not that there will be adequate future taxable profits against which to recover carried forward tax losses.

7

Morgans Hotel Group Europe Limited

Finance costs

Finance costs are included within the carrying value of the loan and are amortised over the term of the loan.

Stocks

Stocks are stated at the lower of cost and net realisable value.

Turnover

Turnover represents the amounts (excluding value added tax) derived from the provision of goods and services to customers. Turnover arises wholly in the United Kingdom.

Pension scheme

The group operates a defined contribution pension scheme. Contributions are charged to the profit and loss account in the period in which they are incurred.

2. Staff numbers and costs

					(Unaudited)
	2007		2006		2005
	Number		Number		Number
The average number of employees in the year was:
Hotel operating staff		151		141		150
Management/administration		33		31		30
Sales and marketing		14		11		12
Maintenance		18		20		21
Total		216		203		213

The aggregate payroll costs for these persons were as follows:

					(Unaudited)
	2007		2006		2005
	£000		£000		£000
Wages and salaries		6,303		5,730		5,476
Social security costs		497		444		407
Pension costs		70		44		47
		6,870		6,218		5,930

None of the directors received any remuneration during the year (2006: Nil).

Funded defined contribution scheme for employees (group scheme)

Pension costs of £70,000 (2006: £44,000) were charged to the profit and loss account of which £nil (2006: nil) was outstanding at the balance sheet date.

The pension scheme is held with Standard Life and is administered by Origen.

8

Morgans Hotel Group Europe Limited

3. Operating profit

This is arrived at after charging:

					(Unaudited)
	2007		2006		2005
	£000		£000		£'000
Auditors remuneration:
Group		54		50		63
Company		10		10		13
Non audit Group (Tax compliance)		—		—		182
Depreciation of tangible fixed assets		2,437		2,778		3,267
Loss on disposal of fixed assets		—		274		—

4. Interest payable and similar charges

					(Unaudited)
	2007		2006		2005
	£000		£000		£'000
Amounts payable on bank loans and overdrafts		6,658		6,721		7,220
Finance charges		385		—		712
		7,043		6,721		7,932

5. Exceptional Interest Charge

During 2005 Morgans Hotel Group Europe undertook a review of their debt structure. In November 2005 Management took advantage of the improvement in the Company’s business performance and a favourable capital market and secured new financing at more competitive rates providing a strong, stable financial base from which to operate in the future. Costs of £3,357,000 were incurred in cancelling the previous loan financing in the 2005 financial statements.

9

Morgans Hotel Group Europe Limited

6. Taxation

(a) Analysis of charge in the year

					(Unaudited)
	2007		2006		2005
	£000		£000		£000
United Kingdom corporation tax at 30%		200		—		—
Adjustments in respect of prior years		212		—		—
Total tax charge (note 6 (b))		412		—		—
Deferred taxation (note 14)		—		—		—
Tax on profit on ordinary activities		412		—		—

There is no movement on the deferred tax asset from 2006.

(b) Factors affecting tax charge for the year

							(Unaudited)
	2007			2006			2005
	£000			£000			£'000
Profit on ordinary activities before tax		4,480			2,246			(6,390	)
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2006 : 30%)		1,343			674			(1,917	)
Effects of:
Expenses not deductible for tax purposes		62			171			194
Capital allowances in excess of depreciation		(552	)		695			739
Tax losses		(653	)		(1,540	)		984
Adjustment in respect of prior years		212			—			—
Tax charge for the period		412			—			—

7. Profit for the financial year

The company has taken advantage of the exemption allowed under section 230 of the Companies Act 1985 and has not presented it’s own profit & loss account, in these financial statements. The profit for the year is £Nil (2006:Profit £Nil, 2005:Loss £712,000)

10

Morgans Hotel Group Europe Limited

8. Fixed assets — Group

					Fixtures,
	Land and		Plant and		fittings and
	buildings		machinery		equipment		Total
	£000		£000		£000		£000
Cost
At 1 January 2007		100,584		8,290		11,607		120,481
Additions		1,434		136		1,937		3,507
Disposal		—		—		—		—
At 31 December 2007		102,018		8,426		13,544		123,988
Depreciation
At 1 January 2007		6,899		3,711		8,043		18,653
Charge for the year		923		575		939		2,437
Disposals		—		—		—		—
At 31 December 2007		7,822		4,286		8,982		21,090
Net book value
At 31 December 2007		94,196		4,140		4,562		102,898
At 31 December 2006		93,685		4,579		3,564		101,828

Included in total net book value of land and buildings is £41,091,000 (2006: £41,955,000) of long leasehold property and £4,193,000 (2006: £4,219,000) of capitalised interest (net of accumulated depreciation).

All tangible fixed assets of the group are held by the subsidiary undertaking, Morgans Hotel Group London Limited.

11

Morgans Hotel Group Europe Limited

9. Stock

	Group		Group
	2007		2006
	£000		£000
Consumables		222		209

10. Investment in subsidiary company

	Company		Company
	£000		£000
At 1 January 2007 and 31 December 2007		35,000		35,000

The company owns 100% of the ordinary shares of Morgans Hotel Group London Limited, a company incorporated in England and Wales, whose principal activity is the operation of two Morgans Hotel Group hotels in London.

11. Debtors: amounts due within one year

	Group		Company		Group		Company
	2007		2007		2006		2006
	£000		£000		£000		£000
Trade debtors		1,072		—		1,471		—
Amounts due from related parties		418		400		857		400
Prepayments and accrued income		764		—		441		—
		2,254		400		2,769		400

12. Creditors: amounts falling within one year

	Group		Company		Group		Company
	2007		2007		2006		2006
	£000		£000		£000		£000
Bank loans		2,083		—		1,500		—
Trade creditors		596		—		356		—
Amounts due to group undertakings and related parties		605		12,634		520		12,634
Taxation and social security		559		—		675		—
Accruals and deferred income		1,638		—		1,744		—
Corporation Tax		312		—		—		—
		5,793		12,634		4,795		12,634

13. Creditors: amount falling due after more than one year

	Group		Group
	2007		2006
	£000		£000
Bank loans net of unamortised costs		101,636		103,380
		101,636		103,380

12

Morgans Hotel Group Europe Limited

Bank loans are repayable as follows:

	2007		2006
	£000		£000
In one year or less, or on demand		2,083		1,500
In more than one year, but not more than two years		2,200		2,083
In more than two years, but not more than five years		99,436		101,297
		103,719		104,880

Bank loans are as follows:

	2007		2006
	£000		£000
Sterling bank loans: 6.280%		103,719		104,880
		103,719		104,880

Bank loans are repayable in monthly instalments, are denominated in sterling and bear interest at a fixed rate as noted above.

The bank loan is secured by way of a first ranking legal charge over the properties including fixtures, fittings and property management agreements, and an assignment over all revenues due from operation of the properties.

14. Deferred taxation

	2007			2006
	£000			£000
Accelerated capital allowances		(6,182	)		—
Short term timing differences		19			107
Losses		6,163			3,005
Valuation allowance		—			(3,112	)
Total deferred tax asset		—			—

In 2007 a retrospective capital allowances claim was agreed with the HMRC, this has resulted in a reduction in the tax written down value of the assets and therefore a provision for accelerated capital allowances has been recognised in the 2007 Financial Statements.

13

Morgans Hotel Group Europe Limited

15. Called up share capital

	31 December		31 December
	2007		2006
	£000		£000
Authorised
1,000 ordinary shares of £1 each		1		1
2,499,999 A ordinary shares of £1 each		2,500		2,500
2,499,999 B ordinary shares of £1 each		2,500		2,500
2 preferred non-voting ordinary shares of £1 each		—		—
		5,001		5,001
Allotted, called up and fully paid
2 ordinary shares of £1 each		—		—
2,499,999 A ordinary shares of £1 each		2,500		2,500
2,499,999 B ordinary shares of £1 each		2,500		2,500
1 preferred non-voting ordinary shares of £1 each		—		—
		5,000		5,000

Both the A and B ordinary shares carry equal voting rights, equal rights to dividends and equal rights on winding up and rank pari passu with each other. The preferred ordinary shares carry non-voting rights and rank pari passu with the A and B ordinary shares.

16. Reserves — group

	Share		Other capital		Profit and
	premium		Reserve		loss account
	£000		£000		£000
At 1 January 2007		10,000		9,460		(15,564	)
Profit for the financial year		—		—		4,068
At 31 December 2007		10,000		9,460		(11,496	)

17. Reserves — company

	Share		Other capital		Profit and
	Premium		Reserve		loss account
	£000		£000		£000
At 1 January 2007		10,000		9,460		(1,689	)
Profit for the financial year		—		—		—
At 31 December 2007		10,000		9,460		(1,689	)

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Morgans Hotel Group Europe Limited

18. Reconciliation of movements in shareholders’ funds

	Group		Company		Group		Company
	2007		2007		2006		2006
	£000		£000		£000		£000
Profit for the financial year		4,068		—		2,246		-
Net movement in shareholders’ funds		4,068		—		2,246		-
Opening shareholders funds		8,896		22,771		6,650		22,771
Closing shareholders funds		12,964		22,771		8,896		22,771

19. Immediate and ultimate controlling parties

Up until 16^th February 2007 Morgans Hotel Group Europe Limited was owned 50% by Burford Hotels Limited, whose ultimate holding company is Lehman Brothers Holdings Inc., a company incorporated in the state of Delaware in the USA.

The consolidated accounts of Lehman Brothers Holdings Inc are available to the public from 399, Park Avenue, New York, USA and from One Broadgate, London.

From the 16^th February 2007 Morgans Hotel Group Europe Limited is owned 50% by Walton MG Hotels Investors V, LLC, an affiliate of Walton Street Capital LLC., a company incorporated in the state of Delaware in the USA.

The other 50% is owned by Royalton Europe Holdings LLC, a wholly owned subsidiary of Morgans Hotel Group Co, a company incorporated in the USA, whose principal place of business is 475 10^th Avenue New York, NY 10018 USA.

20. Related party transactions

Morgans Hotel Group UK Management Limited

Morgans Hotel Group UK Management Limited is 100% owned by Morgans Hotel Group Co.

Morgans Hotel Group UK Management Limited charge Morgans Hotel Group Europe Limited a management fee and staff costs relating to hotel management, which totalled £3,242,000 (2006: £2,865,000).

SC London Limited

SC London Limited is indirectly owned 50% by Morgans Hotel Group Co and 50% by Chodorow Ventures LLC.

SC London Limited pays rent and recharged expenditure to Morgans Hotel Group Europe Limited, which totalled £3,699,000 (2006: £3,729,000).

15

Morgans Hotel Group Europe Limited

Related party balances and transactions	2007		2006
	£000		£000
Debtors: amounts falling within one year
SC London Limited		—		345
Morgans Hotel Group Co		400		400
Other Morgans Hotel Group Co companies		18		112
		418		857

	2007		2006
	£000		£000
Creditors: amounts falling due within one year
Morgans Hotel Group UK Management Limited		306		318
SC London Limited		215		97
Other Morgans Hotel Group Co companies		84		105
		605		520

The directors confirm that there were no related party transactions other than those disclosed in these financial statements and that all transactions were undertaken on an arms length basis.

21. Reconciliation of operating profit to net cash inflow from operating activities

							(Unaudited)
	2007			2006			2005
	£000			£000			£000
Operating profit		10,818			8,570			4,681
Depreciation and Amortisation		2,804			2,778			3,267
Loss on disposal of assets		—			274			—
(Increase) / Decrease in stock		(14	)		(62	)		62
(Increase) / Decrease in debtors		515			(431	)		105
Increase / (Decrease) in creditors		75			938			(1,079	)
Net cash inflow from operating activities		14,198			12,067			7,036

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Morgans Hotel Group Europe Limited

22. Analysis of cash flows

							Unaudited
	2007			2006			2005
	£000			£000			£000
Return on Investment and servicing of finance
Interest received		705			397			218
Interest on bank loan		(6,658	)		(6,721	)		(11,732	)
Finance charges		(385	)		—			—
		(6,338	)		(6,324	)		(11,514	)
Capital expenditure
Purchase of tangible fixed assets		(3,507	)		(671	)		(1,536	)
Management of liquid resources
Decrease/(Increase) in restricted cash		—			—			4,230
Financing
Repayment of bank loan		(1,500	)		(1,250	)		(92,750	)
Drawn down of loan (see note 12)		—			—			107,456
Repayment of inter-company debt		—			—			(4,877	)
		(1,500	)		(1,250	)		9,829

23. Analysis of changes in net debt

						Other			At 31
	At 1 January					non-cash			December
	2007			Cash flows		movements			2007
	£000			£000		£000			£000
Cash at bank and in hand		12,265			2,754		—			15,019
Debt due within one year		(1,500	)		1,500		(2,083	)		(2,083	)
Debt due after more than one year		(104,706	)		—		2,083			(102,623	)
Deferred finance costs		1,326					(339	)		987
Net debt		(92,615	)		4,254		(339	)		(88,700	)

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Morgans Hotel Group Europe Limited

24. Summary of differences between United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and United States Generally Accepted Accounting Principles (“US GAAP”)

The following table contains a summary of the material adjustments to profit for the financial year between UK GAAP and US GAAP:

									(Unaudited)
			Year Ended			Year Ended			Year Ended
			31 December			31 December			31 December
	Note		2007			2006			2005
			£000			£000			£000
Profit for the financial year as reported under UK GAAP				4,068			2,246			(6,390	)
US GAAP adjustments:
Depreciation of tangible fixed assets		a		(864	)		(988	)		(988	)
Financial instruments		b		(1,341	)		2,454			—
Total US GAAP adjustments				(2,205	)		1,466			(988	)
Net income as reported under US GAAP				1,863			3,712			(7,378	)

The following table contains a summary of the material adjustments to shareholders’ funds between UK GAAP and US GAAP:

									(Unaudited)
			Year Ended			Year Ended			Year Ended
			31 December			31 December			31 December
	Note		2007			2006			2005
			£000			£000			£000
Total shareholders’ funds as reported under UK GAAP				12,964			8,896			6,650
US GAAP adjustments
Depreciation of tangible fixed assets		a		(7,913	)		(7,157	)		(6,169	)
Financial instruments		b		1,113			2,454			—
Total US GAAP adjustments				(6,800	)		(4,703	)		(6,169	)
Shareholders’ funds under US GAAP				6,164			4,193			481

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Morgans Hotel Group Europe Limited

A summary of the principal differences between United Kingdom Generally Accepted Accounting Practice and United States Generally Accepted Accounting Principles is set out below:

(a) Depreciation of tangible fixed assets

Under UK GAAP, the freehold buildings are depreciated on a straight line basis over 50 years to their residual values. Under US GAAP, the freehold building are depreciated on a straight line basis over 40 years and there is considered to be no residual value. The result of this is an accelerated depreciation charge under US GAAP.

(b) Financial instruments

Under US GAAP an entity recognises all of its derivative instruments as either assets or liabilities depending on the rights or obligations under the contracts. All derivative instruments are measured at fair value in accordance with Financial Accounting Standards Board Statement No. 133 “Accounting for Derivative Instruments and Hedging Contracts”. The equivalent UK GAAP is not required to be applied by the Company for the periods under audit. This adjustment reflects the impact of revaluing all the Company derivative financial instruments.

(c) Financial statement presentation

The balance sheet prepared in accordance with UK GAAP differs in certain respects from US GAAP. Under UK GAAP, current assets are netted against current liabilities in the balance sheet whereas US GAAP requires the separate presentation of total assets and total liabilities. UK GAAP requires assets to be presented in ascending order of their liquidity, whereas under US GAAP assets are presented in descending order of liquidity.

(d) Cash flow statement

The cash flow statement presented under UK GAAP has been presented in accordance with FRS1 (revised). “cash flow statements”. There are certain differences from UK GAAP to US GAAP with regard to the classification of items within the cash flow statement and with regard to the definition of cash and cash equivalents. In accordance with FRS1, cash flows are prepared separately for operating activities, returns on investment and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid, management of liquid resources and financing.

US GAAP, however, requires only three categories of cash flow activity to be reported. Under SFAS No. 95, “Statement of Cash Flows”, cash flows are classified under operating activities (including cash flows from taxation and returns on investment and servicing of finance), investing activities and financing activities.

A summary of the Company’s operating, investing and financing activities classified in accordance with US GAAP is presented below:

							(Unaudited)
	2007			2006			2005
	£000			£000			£000
Net cash provided by (used in) operating activities		7,761			5,743			(4,478	)
Net cash (used in) investing activities		(3,507	)		(671	)		(1,536	)
Net cash (used in) provided by financing activities		(1,500	)		(1,250	)		14,059
Net increase in cash and cash equivalents		2,754			3,822			8,045
Cash and cash equivalents at beginning of period		12,265			8,443			398
Cash and cash equivalents at end of period		15,019			12,265			8,443

19 EX-99.2 23 y51336exv99w2.htm EX-99.2: CONSOLIDATED FINANCIAL STATEMENTS OF SC LONDON LIMITED

Exhibit 99.2

Registered No. 3811362

SC London Limited

Annual report

For the year ended 31 December 2007

SC London Limited

Annual report
for the year ended 31 December 2007

	Pages
Directors and advisers	1
Independent auditors’ report	2
Profit and loss account	3
Balance sheet	4
Cash flow statement	5
Reconciliation of net cash flow to movement in net funds	5
Notes to the financial statements	7 - 14

SC London Limited

Directors and advisers

Directors
F Kleisner
J Chodorow

Secretary and registered office
Bibi Ali
MacFarlanes
10 Norwich Street
London
EC4A 1BD

Solicitors
MacFarlanes
10 Norwich Street
London
EC4A 1BD

Registered auditors
BDO Stoy Hayward LLP
55 Baker Street
London
W1U 7EU

Bankers
National Westminster Bank PLC
135 Bishopsgate
London
EC2M 3UR

1

SC London Limited

Report of the Independent Registered Public Accounting Firm To the Board of Directors
of SC London Limited

We have audited the financial statements of SC London Limited which comprise the balance sheet as of December 31, 2007 and December 31, 2006 and the related profit and loss account, cash flow statement and related notes for the year ended December 31, 2007 and December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SC London Limited as at December 31, 2007 and December 31, 2006, and the results of its operations and its cash flows for the year ended December 31, 2007 and December 31, 2006 in conformity with generally accepted accounting principles in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 19 to the financial statements.

BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
London, UK

March 12, 2008

2

SC London Limited

Profit and loss account
for the year ended 31 December 2007

	Notes								Unaudited
			2007			2006			2005
			£000			£000			£000
Turnover				15,375			15,793			14,458
Cost of sales				(3,768	)		(3,825	)		(3,731	)
Gross profit		3		11,607			11,968			10,727
Administrative expenses				(11,689	)		(11,135	)		(10,675	)
Operating (loss) / profit		4		(82	)		833			52
Interest receivable				47			62			59
(Loss) / profit on ordinary activities before taxation				(35	)		895			111
Tax on (loss) / profit on ordinary activities		5		(222	)		(275	)		(21	)
(Loss) / Profit for the financial year		13		(257	)		620			90

All profits arise from continuing operations.

The company has no recognised gains or losses other than the loss for the period.

There is no difference between the historical cost (loss) / profit and that stated above.

3

SC London Limited

Balance sheet
At 31 December 2007

	Notes		2007			2006
			£000			£000
Tangible fixed assets		7		950			385
Current assets
Stock		8		232			276
Debtors		9		1,748			2,068
Cash at bank and in hand				1,375			3,300
				3,355			5,644
Creditors: amounts falling due within one year		10		(2,039	)		(2,676	)
Net current assets				1,316			2,968
Net assets				2,266			3,353
Capital and reserves
Called up share capital		12		—			—
Capital redemption reserve		13		2,521			2,521
Profit and loss account		13		(255	)		832
Shareholders’ funds		14		2,266			3,353

The financial statements on pages 5 to 16 were approved by the board of directors and authorised for issue on March 12, 2008.

F Kleisner
Director

4

SC London Limited

Cash flow statement
for the year ended 31 December 2007

	Notes								Unaudited
			2007			2006			2005
			£000			£000			£000
Net cash (outflow)/inflow from operating activities		17		(65	)		1,310			132
Returns on investments and servicing of finance		18		47			62			59
Taxation				(294	)		(206	)		—
Capital expenditure		18		(783	)		(219	)		(75	)
Equity Dividend paid to shareholders				(830	)		—			—
(Decrease)/Increase in cash				(1,925	)		947			116

Reconciliation of net cash flow to movement in
net funds for the year ended 31 December 2007

	Notes							Unaudited
			2007			2006		2005
			£000			£000		£000
(Decrease)/Increase in cash in the year				(1,925	)		947		116
Movements in net funds in the year				(1,925	)		947		116
Net funds at the start of the year				3,300			2,353		2,237
Net funds at the end of the year		19		1,375			3,300		2,353

5

SC London Limited

Notes to the financial statements
for the year ended 31 December 2007

1 Principal accounting policies

The financial statements have been prepared under the historical cost convention and in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important accounting policies are set out below.

Turnover

Turnover represents food and beverage sales, stated net of value added tax. Turnover is wholly generated in the United Kingdom.

Fixed assets

Tangible fixed assets are stated at cost less depreciation and any provision for impairment. Assets are depreciated to their residual values on a straight line basis over their estimated useful lives as follows:

Fixtures, fittings and equipment 5 - 10 years

Stocks

Stocks are stated at the lower of cost and net realisable value.

Deferred taxation

Deferred taxation is provided in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events have occurred which result in an obligation to pay more or less tax in the future.

Deferred tax is measured at the average tax rates which apply in the period in which the timing differences are expected to reverse. Deferred tax is measured on a non-discounted basis.

Deferred tax assets are regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it is more likely than not that there will be adequate future taxable profits against which to recover carried forward tax losses.

Pension scheme

The company operates a defined contribution pension scheme. Contributions are charged to the profit and loss account in the period in which they are incurred.

Foreign currency transactions

Translations into sterling are made at the average of rates ruling throughout the period for profit and loss items and at the rate ruling at 31 December 2007 for assets and liabilities. Exchange differences arising in the ordinary course of trading are reflected in the profit and loss account.

6

SC London Limited

Dividends

Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.

2 Staff costs and employees

None of the directors received any remuneration in the year.

	Unaudited
	2007		2006		2005
	£000		£000		£000
Wages and salaries		4,184		3,853		3,774
Social security costs		347		308		285
Pension costs		32		22		26
		4,563		4,183		4,085

	Unaudited
	2007		2006		2005
The average number of employees in the year was:
Operating staff		310		303		317
Management/administration		13		10		10
		323		313		327

Funded defined contribution scheme for employees (group scheme)

Pension costs of £32,000 (2006: £22,000) were charged to the profit and loss account of which £nil (2006: £nil) was outstanding at the balance sheet date.

The pension scheme is held with Standard Life and is administered by Origen.

3 Gross profit

	Unaudited
	2007		2006		2005
	£000		£000		£000
Gross profit is stated after charging:
Exceptional cost of sales		—		—		321

Included within profit on ordinary activities before taxation is an exceptional cost of sales of £321,000, which related to a settlement with Her Majesty’s Revenue and Customs for National Insurance Contributions on certain staff for the period from April 1999 to April 2007. Applicable to this exceptional item is a tax credit of 30% of the charge.

7

SC London Limited

4 Operating profit

	Unaudited
	2007		2006		2005
	£000		£000		£000
This is arrived at after charging:
Depreciation of tangible fixed assets		104		226		277
Loss on Disposal of Fixed Assets		114		—		—
Auditors’ remuneration:
Audit		10		8		12

5 Tax on profit on ordinary activities

(a) Analysis of charge in the year

	Unaudited
	2007		2006		2005
	£000		£000		£000
United Kingdom corporation tax at 30%		5		264		44
Adjustments in respect of prior years		169		7		(14	)
Total tax charge (note 5 (b))		174		271		30
Deferred taxation (note 11)		48		4		(9	)
Tax on profit on ordinary activities		222		275		21

(b) Factors affecting tax charge for the year

	Unaudited
	2007			2006			2005
	£000			£000			£000
Profit on ordinary activities before tax		(35	)		895			111
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2006: 30%)		(5	)		268			33
Effects of:
Expenses not deductible for tax purposes		57			—			2
Capital allowances (in excess of)/less than depreciation		(14	)		(4	)		9
Utilisation of tax losses		(33	)		—			—
Adjustments in respect of prior years		169			7			(14	)
Tax charge for the period (note 5(a))		174			271			30

(c) Factors affecting future tax charges

No significant differences are envisaged for future periods.

8

SC London Limited

6 Dividends

	Unaudited
	2007		2006		2005
	£000		£000		£000
Amounts recognised as distributions to equity holders during the year
The dividend payment recognised during 2007 was for the final dividend declared in respect of the period ended 31 December 2006 of £830,000		830		—		—

7 Fixed assets

	Fixtures,
	fittings and
	equipment
	£000
Cost
At 1 January 2007		1,862
Additions		783
Disposals		(203	)
At 31 December 2007		2,442
Depreciation
At 1 January 2007		1,477
Charge for the year		104
Disposals		(89	)
At 31 December 2007		1,492
Net book value
At 31 December 2007		950
At 31 December 2006		385

8 Stocks

	2007		2006
	£000		£000
Consumables		232		276

9

SC London Limited

9 Debtors: amounts falling due within one year

	2007		2006
	£000		£000
Trade debtors		234		328
Amounts due from related party undertaking (note 15)		1,421		1,587
Other debtors		9		18
Prepayments and accrued income		31		34
Deferred taxation (note 11)		53		101
		1,748		2,068

The above amounts are due within one year with the exception of deferred tax.

10 Creditors: amounts falling due within one year

	2007		2006
	£000		£000
Trade creditors		386		616
Amounts due to related party undertakings (note 15)		—		232
Taxation and social security		618		644
Accruals and deferred income		891		920
Corporation tax		144		264
		2,039		2,676

11 Deferred taxation

	2007			2006
	£000			£000
Depreciation in excess of capital allowances
Balance at 1 January		101			105
Charged to the profit and loss account		(48	)		(4	)
Balance at 31 December		53			101

12 Called up share capital

	2007		2006
	£000		£000
Authorised
100,000 ordinary shares of £1 each		100		100
Allotted, called up and fully paid
1 ordinary shares of £1 each		—		—

10

SC London Limited

13 Reserves

	Capital
	redemption		Profit and loss
	reserve		account			Total
	£000		£000			£000
Balance at 1 January 2007		2,521		832			3,353
Loss for the financial year		—		(257	)		(257	)
Dividend Distribution		—		(830	)		(830	)
Balance at 31 December 2007		2,521		(255	)		2,266

14 Reconciliation of movements in shareholders’ funds

	2007			2006
	£000			£000
(Loss)/Profit for the financial year		(257	)		620
Dividend Distribution		(830	)		—
Opening shareholders’ funds		3,353			2,733
Closing shareholders’ funds		2,266			3,353

15 Related party transactions

Morgans Hotel Group London Limited

Morgans Hotel Group London Limited is a wholly owned subsidiary of Morgans Hotel Group Europe Limited, which is 50% owned by Morgans Hotel Group Co. SC London pays rent and recharged expenditure to Morgans Hotel Group London Limited, which totalled £3,699,000 (2006: £3,729,000).

Chodorow Ventures LLC

SC London pays a management fee to Euro Management Group Inc., an affiliate of Chodorow Ventures LLC, a company in which one of the directors has an interest. Amounts paid in the period totalled £463,000 (2006: £478,000).

The directors confirm that there were no related party transactions other than those disclosed in these financial statements and that all transactions were undertaken on an arms length basis.

11

SC London Limited

	2007		2006
	£000		£000
Debtors
Clift Holdings LLC		1		3
SC London LLC		1,105		1,474
Morgans Hotel Group London Limited		215		—
Morgans Hotel Group Co		50		54
Chodorow Ventures LLC		50		56
		1,421		1,587

The debtor balance with SC London LLC, the company’s immediate parent undertaking, relates to an unsecured loan with interest charged at a notional rate totalling £1,105,000 (2006: £1,474,000). The amount is repayable on demand.

The debtor balances with Morgans Hotel Group Co and Chodorow Ventures LLC both relate to $100,000 unsecured loans with interest charged at a notional rate. This amounts to £50,000 translated into sterling at the year end exchange rate (2006: £54,000). The loans are repayable on demand. In 2006 there was an additional £2,000 trading debtor with Chodorow Ventures LLC, this has now been repaid.

	2007		2006
	£000		£000
Creditors: amounts falling within one year
Morgans Hotel Group London Limited		—		231
Henry Hudson Holdings LLC		—		1
		—		232

16 Ultimate parent company

The company is a subsidiary of SC London LLC. Morgans Hotel Group Co owns 50% of SC London LLC, the remaining 50% being owned by Chodorow Ventures LLC. All the above companies are registered in the U.S.A. The principle place of business of Morgans Hotel Group Co is 475 10^th Avenue, New York, NY 10018, USA. The principle place of business of Chodorow Ventures LLC is 16400 NW Second Avenue, Suite 200, Miami, FL 33169, USA.

12

SC London Limited

17 Reconciliation of operating profit to net cash (outflow)/inflow from operating activities

	Unaudited
	2007			2006			2005
	£000			£000			£000
Operating (loss)/profit		(82	)		833			52
Depreciation and loss on disposal		218			226			277
(Increase) / decrease in stock		44			(77	)		24
(Increase) / decrease in debtors		272			(125	)		(104	)
Increase / (decrease) in creditors		(517	)		453			(117	)
Net cash (outflow)/inflow from operating activities		(65	)		1,310			132

18 Analysis of cash flows

	Unaudited
	2007			2006			2005
	£000			£000			£000
Return on investment and servicing of finance
Interest received		47			62			59
Capital expenditure
Purchase of tangible fixed assets		(783	)		(219	)		(75	)

19 Analysis of changes in net debt

	At 1 January					At 31
	2007		Cash flows			December 2007
	£000		£000			£000
Cash at bank and in hand		3,300		(1,925	)		1,375
Net funds		3,300		(1,925	)		1,375

13

SC London Limited

20 Summary of differences between United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and United States Generally Accepted Accounting Principles (“US GAAP”)

There are no material differences between profit for the financial year as reported under UK GAAP and that reported under US GAAP. In addition there are no material differences between shareholders’ funds at either 31 December 2007 or 31 December 2006 as reported under UK GAAP and that reported under US GAAP.

Financial statement presentation

The balance sheet prepared in accordance with UK GAAP differs in certain respects from US GAAP. Under UK GAAP, current assets are netted against current liabilities in the balance sheet whereas US GAAP requires the separate presentation of total assets and total liabilities. UK GAAP requires assets to be presented in ascending order of their liquidity, whereas under US GAAP assets are presented in descending order of liquidity.

Cash flow statement

The cash flow statement presented under UK GAAP has been prepared in accordance with FRS 1 (revised), “Cash Flow Statements”. There are certain differences from UK GAAP to US GAAP with regard to the classification of items within the cash flow statement and with regard to the definition of cash and cash equivalents. In accordance with FRS 1, cash flows are prepared separately for operating activities, returns on investment and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid, management of liquid resources and financing.

US GAAP, however, requires only three categories of cash flow activity to be reported. Under SFAS No. 95, “Statement of Cash Flows”, cash flows are classified under operating activities (including cash flows from taxation and returns on investment and servicing of finance), investing activities and financing activities.

A summary of the Company’s operating, investing and financing activities classified in accordance with US GAAP is presented below:

	Unaudited
	2007			2006			2005
	£000			£000			£000
Net cash provided by operating activities		(312	)		1,166			191
Net cash used in investing activities		(1,613	)		(219	)		(75	)
Net increase/(decrease) in cash		(1,925	)		947			116
Cash and cash equivalents at beginning of period		3,300			2,353			2,237
Cash and cash equivalents at end of period		1,375			3,300			2,353

14 EX-99.3 24 y51336exv99w3.htm EX-99.3: CONSOLIDATED FINANCIAL STATEMENTS OF 1100 WEST PROPERTIES LLC

Exhibit 99.3

Financial Statements

1100 West Properties LLC

For the year ended December 31, 2007 and the period from August 8, 2006 (commencement of operations) to December 31, 2006
and Report of Independent Registered Public Accounting Firm

1100 West Properties LLC

Financial Statements

Contents

Report of Independent Registered Public Accounting Firm	1
Financial statements
Balance sheets	2
Statements of operations	3
Statements of changes in members’ equity	4
Statements of cash flows	5
Notes to financial statements	6

Report of Independent Registered Public Accounting Firm

To the Members of 1100 West Properties LLC:

We have audited the accompanying balance sheets of 1100 West Properties as of December 31, 2007 and 2006 and the related statements of operations, changes in members’ equity and cash flows for the year ended December 31, 2007 and the period from August 8, 2006 (commencement of operations) to December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 1100 West Properties LLC at December 31, 2007 and 2006, and the results of its operations and its cash flows for year ended December 31, 2007 and the period from August 8, 2006 (commencement of operations) to December 31, 2006 in conformity with accounting principles generally accepted in the United States of America.

March 13, 2008

1

1100 West Properties LLC
Balance Sheets
(in thousands)

	As of December 31,
	2007		2006
Assets
Real estate, net	$	153,679	$	112,374
Cash and cash equivalents		184		1,667
Restricted cash		6,380		33,468
Customer escrows and tenant deposits		11,035		1,134
Accounts receivable, net		—		44
Deferred financing costs, net of		1,539		2,512
accumulated amortization of $1,378 and $405
Prepaid expenses and other assets		1,868		323
Total assets	$	174,685	$	151,522
Liabilities and Members’ Equity
Liabilities:
Mortgage loan	$	100,986	$	124,000
Customer and tenant deposits		9,755		1,134
Accounts payable and accrued liabilities		5,884		648
Deferred income		30,868		—
Total liabilities		147,493		125,782
Commitments and Contingencies
Members’ equity		27,192		25,740
Total liabilities and members’ equity	$	174,685	$	151,522

See accompanying notes to financial statements.

2

1100 West Properties LLC
Statements of Operations
(In Thousands)

				Period from August 8, 2006
	Year ending			(commencement of operations) to
	December 31, 2007			December 31, 2006
Revenues:
Rental	$	350		$	1,113
Total revenues		350			1,113
Operating Costs and Expenses:
Salaries and benefits		58			58
Repairs and maintenance		44			86
Utilities		286			270
General and administrative		606			448
Advertising expenses		4,193			777
Real taxes and insurance		104			454
Depreciation		189			952
Total operating costs and expenses		5,480			3,045
Operating loss		(5,130	)		(1,932	)
Interest expense, net		338			3,328
Net loss	$	(5,468	)	$	(5,260	)

See accompanying notes to financial statements.

3

1100 West Properties LLC

Statements of Changes in Members’ Equity

For the period from August 8, 2006(commencement of
operations) to December 31, 2006	(In Thousands)
Contributions from members	$	31,000
Net loss		(5,260	)
Balance, December 31, 2006	$	25,740
Contributions from members		6,920
Net loss		(5,468	)
Balance, December 31, 2007	$	27,192

See accompanying notes to financial statements.

4

Exhibit 99.3

1100 West Properties LLC
Statements of Cash Flows
(In Thousands)

				Period from August 8, 2006
	Year ending			(commencement of operations) to
	December 31, 2007			December 31, 2006
Cash flows from operating activities:
Net loss	$	(5,468	)	$	(5,260	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		189			952
Amortization of deferred financing costs		81			405
Changes in assets and liabilities:
Accounts receivable		44			(44	)
Restricted cash		438			(6,088	)
Prepaid expenses and other assets		(1,545	)		(323)
Accounts payable and accrued liabilities		5,236			648
Customer escrows and tenant deposits		(1,357	)		—
Deferred income		30,868			—
Net cash provided by (used in) operating activities		28,486			(9,710	)
Cash flows from investing activities:
Payment for assets acquired		—			(110,212	)
Additions to real estate		(40,604	)		(749	)
Restricted cash		26,650			(29,745	)
Net cash used in investing activities		(13,954	)		(140,706	)
Cash flows from financing activities:
Proceeds from mortgage loan		—			124,000
Repayment of mortgage loans		(23,014	)		—
Customer and tenant deposits		79			—
Payments for deferred financing costs		—			(2,917	)
Contributions from members		6,920			31,000
Net cash (used in) provided by financing activities		(16,015	)		152,083
Net (decrease) increase in cash and cash equivalents	$	(1,483	)	$	1,667
Cash and cash equivalents, beginning of year		1,667			—
Cash and cash equivalents, end of year	$	184		$	1,667
Supplemental disclosure of cash flow information
Cash paid for interest, of which $8,082 relates to capitalized interest	$	8,723		$	2,951
Capitalized amortization of deferred financing costs	$	892		$	—

See accompanying notes to financial statements.

5

1100 West Properties LLC

Notes to Financial Statements

1. Organization and Business

1100 West Properties LLC, (the “Company) a Delaware limited liability company, was formed in August 2006 and is owned 50% by Sanctuary West Holdings LLC (“SWH”) and 50% by Morgans Group LLC (“MHG”).

The Company was formed to purchase, renovate and convert an existing apartment building on Biscayne Bay in South Beach Miami into a condo hotel operated under MHG’s Mondrian brand. The new luxury hotel will be operated by MHG under a long-term incentive management contract. The hotel will have approximately 340 units comprised of studios, one and two bedroom units, and four penthouse suites. As of December 31, 2007, the Company has sold 49 units.

The Company acquired the existing land and building for a gross purchase price of approximately $110 million and plans to spend approximately $60 million on renovations. The initial equity investment of $30 million was funded equally from both SWH and MHG.

The Company plans on pursuing the sale of some or all of the new luxury units as condominiums, subject to market conditions. The Company anticipates that unit buyers will have the opportunity to place their units into a rental program.

Under the limited liability agreement of the Company, income and loss is allocated in proportion to the Members’ percentage interest in the Company. Net cash from Operations, as defined, and Capital Transaction Proceeds, as defined, are distributed monthly to the Members in accordance with their percentage interests.

In 2007, the Company obtained approval from the state of Florida to complete the process for the sale and lease of its units.

6

1100 West Properties LLC

Notes to Financial Statements

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and cash equivalents include operating cash accounts and highly liquid investments, with original maturities of three months or less from the date of purchase.

Concentration of Credit Risk

The Company places its temporary cash investments in high credit financial institutions. However, a portion of temporary cash investments may exceed FDIC insured levels from time to time.

Restricted Cash

Restricted cash consists of reserves for real estate taxes, insurance, interest reserve, project reserve and a development reserve as provided for in the mortgage note.

Fair Value of Financial Instruments

The financial instruments include cash and cash equivalents, accounts receivable, restricted cash, accounts payable and accrued expenses, and mortgage loan. The Company’s mortgage loan accrues interest at a floating rate, which re-prices frequently. Management believes the carrying amounts of the aforementioned financial instruments are a reasonable estimate of fair value at December 31 2007 and 2006, due to the short-term maturity of these items or variable interest rate.

7

1100 West Properties LLC

Notes to Financial Statements

Revenue Recognition

Rental income is recognized on a straight —line basis over the term of the respective leases.

Sales of Real Estate

Sales of real estate are generally accounted for under the full accrual method. Under this method, the gain is not recognized until the collectiblity of the sales price is reasonably assured and the earnings process is virtually complete. When a sale does not meet the requirements for income recognition, gain is deferred until those requirements are met. Due to uncertainties with respect to allocation and estimation of costs attributable to units sold and the inability of the Company to deliver the unit to the buyer resulting from on going construction, the Company is accounting for sales under the deposit method and has accordingly not recognized any revenue from units sold. The proceeds received from the sale of 49 condomimum units are reflected as deferred income in the accompanying balance sheet.

Deferred Financing Costs

Costs incurred in connection with the mortgage loan are amortized over the term of the loan using the straight-line method which approximates the effective yield method. Amortization of deferred financing costs is included in interest expense in the accompanying financial statements.

Advertising

Advertising and promotion costs are charged to expense when incurred.

Real Estate

In August 2006, the Company acquired the building and land parcel for a total purchase price of $109.3 million.

Statement of Financial Accounting Standards No. 141, “Business Combinations” requires that the total purchase price be allocated to the assets acquired and liabilities assumed based on, but are not limited to, quoted market prices, expected future cash flows, current placement costs, market rate assumptions and appropriate discount and growth rates.

8

1100 West Properties LLC

Notes to Financial Statements

The Company allocated the purchase price in accordance with Statement of Financial Accounting Standards No. 141 as reflected below:

	Fair Value
	(in thousands)
Land	$	21,188
Building		89,024
Liabilities		(863	)
Total	$	109,349

The Company plans to renovate and convert the existing apartment building into a condominium hotel.

Beginning February 1, 2007, the real estate is accounted for as a development project in accordance with SFAS No. 67.

Real estate is carried at cost, net of adjustment for impairment, if any. Development costs, including land and building, direct costs of construction, indirect costs and interest, real estate taxes and other costs incurred during the development and construction period are capitalized.

Certain construction-in-progress costs are currently paid out of the development reserve, which was set up at the closing of the loan.

In accordance with Statement of Financial Accounting Standards (“SFAS”) Statement No. 144, “Accounting for the Impairment of Disposal of Long lived Assets,” long-lived assets currently in use are reviewed whenever events or changes in circumstances indicate the carrying value of a long-lived asset may not be recoverable and will be written down to fair value if considered impaired. Long-lived assets to be disposed of are written down to the lower of cost or fair value less the estimated cost to sell. The Company has reviewed its long-lived assets for impairment. There were no impairment write-downs during the year ending December 31, 2007 or the period from August 8, 2006 to December 31, 2006

Income Taxes

The Company is a limited liability company, which is treated similarly to partnerships for tax purposes. Accordingly, Federal, state and local income taxes have not been provided for in the accompanying financial statements, as the members are responsible for reporting their allocable

9

1100 West Properties LLC

Notes to Financial Statements

share of the Company’s income, gains, deductions, losses and credits on their respective income tax returns.

3. Real Estate

Real estate consists of the following as (000’s omitted):

	As of December		As of December 31,
	31, 2007		2006
Land	$	21,188	$	21,188
Building		87,887		89,025
Construction-in-progress		44,604		3,052
Furniture, fixtures and equipment		—		61
Total		153,679		113,326
Less- accumulated depreciation		—		(952	)
Property and equipment, net	$	153,679	$	112,374

4. Mortgage Loan

The Company financed the purchase of the property with a mortgage loan in the amount of $124 million. The loan consists of two tranches, an A Note ($82 million) and a B Note ($42 million). Both the A and B Note require interest payments only and bear interest at a rate of LIBOR (5.3% at December 31, 2006) plus 300 basis points and mature in August 2009. The interest payments are currently being paid out of the interest reserve which was set up at the closing of the loan. The average interest rate on the loan for the year ended December 31, 2007 was 8.23% and from the period August 8, 2006 to December 31, 2006 was approximately 8.4%.

At the closing of the loan, $9 million and $29.7 million were placed in escrow to fund an interest reserve and a development reserve as required by the loan agreement.

The Company is required to deposit the first $6.9 million of net sales cash flow, as defined, into a project escrow account. So long as no event of default exits, the Company can use the fund for exterior and common area improvements, marketing, administrative and other project costs (other than corporate overhead costs) pursuant to the construction budget. Once the project escrow account is funded, the loan requires partial principal payments based upon the net sales proceeds of the condominium units. During 2007, approximately $23 million was paid down on the loan balance out of the net sales proceeds from the condominium units.

10

1100 West Properties LLC

Notes to Financial Statements

5. Related Party Transactions

The Company has entered into a project management agreement with Sanctuary West Management, LLC (“SWM”), an affiliate of SWH. The agreements specify that SWM is to receive a developer fee equal to 1% of the hard costs of the project, which shall be paid at $21,100 per month for a period of 18 months. The monthly payment due to SWM shall be adjusted following the twelfth monthly payment, as defined, for any change in the construction cost budget. The developer fee payment shall not exceed 1% of the actual construction costs. Developer fees were approximately $232,000 for the year ended December 31, 2007 and $84,000 for the period ended December 31, 2006 and have been capitalized as costs of the project.

An affiliate of SWH provides asset management services to the Company for a monthly fee of $30,000. For year ended December 31, 2007 and the period ended December 31, 2006, these fees amounted to $360,000 and $150,000, respectively, and have been capitalized as costs of the project.

Each Member receives monthly compensation for overhead of $62,500, as provided for in the construction budget. For the year ended December 31, 2007 and for the period ended December 31, 2006, these fees amounted to $1,500,000 and $500,000, respectively, and are being capitalized as costs of the renovation and conversion project.

Included in accounts payable and accrued liabilities at December 31, 2007 in the accompanying balance sheet is $251,000 relating to the services described above.

Included in accounts payable and accrued liabilities at December 31, 2006 in the accompanying balance sheet is $8,200 due to a related party in connection with the acquisition of the property.

The Company is a part of a Master Condominium Association to which it pays annual dues. Members of both SWH and MHG serve on the Board of the Master Association. For the year ended December 31, 2007 and 2006 the Company incurred costs of approximately $763,000 ($696,000 of that total was capitalized to the project) and $320,000, respectively, for these dues.

6. Commitments and Contingencies

The Company has entered into 163 condomimum purchase and sale contracts and has closed on 49 condomimum units as of December 31, 2007. Total deposits held in escrow by the Company’s broker pursuant to the contracts amounted to approximately $9.7 million (excluding interest) as of December 31, 2007.

11

1100 West Properties LLC

Notes to Financial Statements

The Company is involved in various lawsuits and administrative actions in the normal course of business. In management’s opinion, disposition of these lawsuits is not expected to have a material adverse effect on the Company’s financial position or results of operations.

12

EX-99.2

EX-99.2

EX-99.3

EX-99.3

EX-99.4

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Financial Statements for Hard Rock Hotel Holdings, LLC
Report of Independent Registered Public Accounting Firm	F-2
Balance Sheet as of December 31, 2007	F-3
Statement of Operations for the period from February 2, 2007 to December 31, 2007	F-4
Statement of Member’s Equity for the period from February 2, 2007 to December 31, 2007	F-5
Statement of Cash Flows for the period from February 2, 2007 to December 31, 2007	F-6
Notes to Consolidated Financial Statements	F-7

F-1

\

Report of Independent Registered Public Accounting Firm

The Board of Directors and Members of
Hard Rock Hotel Holdings, LLC
Las Vegas, Nevada

We have audited the accompanying consolidated balance sheet of Hard Rock Hotel Holdings, LLC as of December 31, 2007 and the related consolidated statements of operations and comprehensive loss, members’ equity, and cash flows for the period from February 2, 2007 to December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hard Rock Hotel Holdings, LLC at December 31, 2007, and the results of its operations and its cash flows for the period from February 2, 2007 to December 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

BOD Seidmen, LLP
Las Vegas, Nevada
March 14, 2008

F-2

HARD ROCK HOTEL HOLDINGS, LLC

BALANCE SHEET
(in thousands)

	December 31,
	2007
ASSETS
Current assets:
Cash and cash equivalents	$	14,157
Accounts receivable, net		8,475
Inventories		2,911
Prepaid expenses and other current assets		3,641
Asset held for sale		95,160
Related party receivable		562
Total current assets		124,906
Restricted cash		55,813
Property and equipment, net of accumulated depreciation and amortization		515,923
Goodwill		139,108
Other intangible assets, net		71,300
Deferred financing costs, net		35,501
Other assets, net		11
TOTAL ASSETS	$	942,562
LIABILITIES AND MEMBERS’ EQUITY
Current liabilities:
Accounts payable	$	4,203
Related party payables		542
Accrued expenses		12,040
Interest payable		4,572
Current portion of long-term debt		110,000
Total current liabilities		131,357
Deferred tax liability		15,266
Long Term Debt		683,452
Total long-term liabilities		698,718
Total liabilities		830,075
Commitments and Contingencies (see Note 10)
Members’ equity:
Paid-in capital		181,127
Accumulated other comprehensive loss		(26	)
Accumulated deficit		(68,614	)
Total members’ equity		112,487
TOTAL LIABILITIES AND MEMBERS’ EQUITY	$	942,562

The accompanying notes are an integral part of these audited consolidated financial statements.

F-3

HARD ROCK HOTEL HOLDINGS, LLC

STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands)

	Period from
	February 2, 2007
	to
	December 31,
	2007
Revenues:
Casino	$	51,501
Lodging		42,220
Food and beverage		70,202
Retail		6,358
Other income		17,896
Gross revenues		188,177
Less: promotional allowances		(14,739	)
Net revenues		173,438
Costs and expenses:
Casino		33,671
Lodging		8,903
Food and beverage		35,897
Retail		3,092
Other		15,236
Marketing		5,032
Management fee—related party		7,837
General and administrative		26,743
Depreciation and amortization		17,413
Loss on disposal of assets		1,725
Pre-opening		1,167
Acquisition and transition related costs		2,358
Total costs and expenses		159,074
Income from operations		14,364
Other income (expense):
Interest income		698
Interest expense, net		(85,953	)
Other expenses, net		(85,255	)
Loss before income tax benefit		(70,891	)
Income tax benefit		(2,277	)
Net loss		(68,614	)
Other comprehensive loss:
Unrealized (loss) on cash flow hedges, net of tax		(26	)
Comprehensive loss	$	(68,640	)

The accompanying notes are an integral part of these audited consolidated financial statements.

F-4

HARD ROCK HOTEL HOLDINGS, LLC

STATEMENTS OF MEMBERS EQUITY
(in thousands)

						Other			Total
	Paid-in		Accumulated			Comprehensive			Members’
	Capital		Deficit			Loss			Equity
Balances at February 2, 2007		—		—			—			—
Contributions	$	181,127		—			—		$	181,127
Net loss		—		(68,614	)		—			(68,614	)
Unrealized (loss) on cash flow hedges, net of tax		—		—			(26	)		(26	)
Balances at December 31, 2007	$	181,127	$	(68,614	)	$	(26	)	$	112,487

The accompanying notes are an integral part of these consolidated financial statements.

F-5

HARD ROCK HOTEL HOLDINGS, LLC

STATEMENT OF CASH FLOWS
(in thousands)

	Period
	February 2, 2007
	to
	December 31,
	2007
Cash flows from operating activities:
Net loss	$	(68,614	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		11,313
Provision for losses on accounts receivable		(137	)
Amortization of loan fees and costs		14,678
Amortization of intangibles		6,100
Change in value of interest rate caps included in net loss		1,420
Loss on sale of assets		1,724
Increase in deferred income taxes		(2,277	)
(Increase) decrease in assets:
Accounts receivable		(4,443	)
Inventories		66
Prepaid expenses		(349	)
Related party receivable		(562	)
(Increase) decrease in liabilities:
Accounts payable		(538	)
Related party payable		542
Accrued interest payable		4,572
Other accrued liabilities		(8,459	)
Net cash used in operating activities		(44,964	)
Cash flow from investing activities:
Purchases of property and equipment		(31,227	)
Purchase of the Hard Rock Hotel & Casino, net of cash acquired		(719,546	)
Proceeds from sale of operating assets		4
Restricted cash		(55,813	)
Other assets		(518	)
Net cash used in investing activities		(807,100	)
Cash flows from financing activities:
Net proceeds from borrowings		33,452
Proceeds from initial loan on purchase		760,000
Capital investment		122,949
Financing costs on debt		(50,180	)
Net cash provided by financing activities		866,221
Net increase in cash and cash equivalents		14,157
Cash and cash equivalents, beginning of period		—
Cash and cash equivalents, end of period	$	14,157
Supplemental cash flow information:
Cash paid during the period for interest	$	66,945
Cash paid during the period for income taxes	$	—
Supplemental schedule of non-cash investing and financing activities:
Fair value of assets acquired	$	832,883
Purchase price contributed by members		(58,178	)
Cash paid		(730,521	)
Liabilities assumed	$	44,184

The accompanying notes are an integral part of these audited consolidated financial statements.

F-6

HARD ROCK HOTEL HOLDINGS, LLC AND SUBSIDIARY NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS

1. COMPANY STRUCTURE AND SIGNIFICANT ACCOUNTING POLICIES

     Basis Of Presentation and Nature of Business

     Hard Rock Hotel Holdings, LLC (the “Company”) is a Delaware limited liability company that was formed on January 16, 2007 by DLJ Merchant Banking Partners (“DLJMBP”) and Morgans Hotel Group Co. (“Morgans”) to acquire Hard Rock Hotel, Inc. (“HRHI” or the “Predecessor”), a Nevada corporation incorporated on August 30, 1993, and certain related assets. The Predecessor owns the Hard Rock Hotel & Casino in Las Vegas (the “Hard Rock”).

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

     Financial Accounting Standards Board (“FASB”) Interpretation No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin No. 51, as amended (“FIN 46R”), requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Pursuant to FIN 46R, the Company consolidates the gaming operations in the Company’s financial statements.

     Prior to March 1, 2008, Golden HRC, LLC was the third-party operator of all gaming operations at the Hard Rock. The Company did not own any legal interest in Golden HRC, LLC. The Company determined that Golden HRC, LLC was a variable interest entity and that the Company was the primary beneficiary of the gaming operations because the Company was ultimately responsible for a majority of the operations’ losses and was entitled to a majority of the operations’ residual returns. As a result, the gaming operations are consolidated in the Company’s financial statements. On March 1, 2008, the Company assumed the gaming operations at the Hard Rock as it had satisfied the conditions necessary to obtain its gaming license, and Golden HRC, LLC ceased to be the operator of gaming operations on such date.

     The Company’s operations are conducted in the destination resort segment, which includes casino, lodging, food and beverage, retail and other related operations. Because of the integrated nature of these operations, the Company is considered to have one operating segment.

     The Acquisition

     On May 11, 2006, Morgans, MHG HR Acquisition Corp. (“Merger Sub”), the Predecessor and Peter A. Morton entered into an Agreement and Plan of Merger (as amended in January 2007, the “Merger Agreement”) pursuant to which Morgans would acquire the Hard Rock through the merger of Merger Sub with and into the Predecessor (the “Merger”). Additionally, Morgans Group LLC, an affiliate of Morgans (“Morgans LLC”), entered into three purchase and sale agreements (the “Purchase and Sale Agreements”) with affiliates of Mr. Morton to acquire an approximately 23-acre parcel of land adjacent to the Hard Rock, the parcel of land on which the Hard Rock Cafe restaurant in Las Vegas is situated and plans, specifications and other documents related to a former proposal for a condominium development on the property adjacent to the Hard Rock. The transactions contemplated by the Merger Agreement and the Purchase and Sale Agreements are collectively referred to as the “Acquisition” and the agreements are collectively referred to as the “Acquisition Agreements.”

     The aggregate purchase price for the Acquisition was approximately $770 million. In addition, the Company incurred approximately $81 million in costs and expenses associated with the Acquisition.

F-7

     On November 7, 2006, Morgans and an affiliate of DLJMBP entered into a Contribution Agreement (which was amended and restated in December 2006) under which they agreed to form a joint venture in connection with the Acquisition and the further development of the Hard Rock. Pursuant to the Contribution Agreement, Morgans and the affiliate of DLJMBP agreed to invest one-third and two-thirds, respectively, of the equity capital required to finance the Acquisition.

     Prior to the closing of the Acquisition, Morgans and its affiliates assigned the Merger Agreement to the Company and the Purchase and Sale Agreements to certain of its subsidiaries. Morgans also contributed the equity of Merger Sub to the Company.

     The closing of the Acquisition occurred on February 2, 2007, which the Company refers to as the “Closing Date.” On the Closing Date, pursuant to the terms of the Acquisition Agreements:

• Merger Sub merged with and into the Predecessor, with the Predecessor continuing as the surviving corporation after the Merger. As a result of the Merger, the Predecessor became the Company’s wholly owned subsidiary. Each share of common stock of the Predecessor issued and outstanding immediately prior to the effective time of the Merger was canceled and converted into the right to receive a pro rata amount of approximately $150 million, subject to post-closing working capital and cage cash adjustments. In December 2007, Morgans, the Company, HRHI and Lily Pond Investments, Inc., the shareholder representative under the Merger Agreement, agreed upon the final working capital and cage cash adjustments under the Merger Agreement. Pursuant to the final adjustments, HRHI has received $2.3 million out of the escrow established under the Merger Agreement for such adjustments. On the Closing Date, Morgans also deposited $15 million into an indemnification escrow fund to be disbursed in accordance with the Merger Agreement and the applicable escrow agreement, with the remaining funds from the indemnification escrow fund to be released on the one-year anniversary of the Closing Date. Pursuant to the Merger Agreement, Mr. Morton also sold certain intellectual property rights to one of the Company’s indirect, wholly owned subsidiaries for approximately $69 million, including the exclusive, royalty-free and perpetual right to use and exploit the “Hard Rock Hotel” and the “Hard Rock Casino” registered trademarks in connection with the Company’s operations in Las Vegas, and in connection with hotel/casino operations and casino operations in certain other locations.

• One of the Company’s subsidiaries acquired for $259 million the approximately 23-acre parcel of land adjacent to the Hard Rock. At the time of the execution of the Acquisition Agreements, Morgans LLC deposited $18.5 million into an escrow account. On the Closing Date, $3.5 million of the deposit was released and credited towards the purchase price and the remaining $15 million of the deposit was retained as part of an indemnification escrow fund to be disbursed in accordance with the applicable Purchase and Sale Agreement and escrow agreement, with the remaining funds from the indemnification escrow fund to be released on the 18-month anniversary of the Closing Date.

• One of the Company’s subsidiaries acquired for $20 million the parcel of land on which the Hard Rock Cafe restaurant in Las Vegas is situated. In connection with the transaction, the Company also acquired the lease with the operator of the Hard Rock Cafe. At the time of the execution of the Acquisition Agreements, Morgans LLC deposited $1.5 million in an escrow account, which was released to the seller on the Closing Date.

• One of the Company’s subsidiaries acquired for $1 million plans, specifications and other documents related to the proposal for a condominium development on the real property adjacent to the Hard Rock.

     On the Closing Date, pursuant to the Contribution Agreement, Morgans and Morgans LLC were deemed to have contributed to the Company one-third of the equity, or approximately $57.5 million, to fund a portion of the purchase price for the Acquisition by virtue of the application of the escrow deposits under the Acquisition Agreements to the purchase price for the Acquisition and by virtue of the credit given for the expenses Morgans LLC incurred in connection with the Acquisition. Affiliates of DLJMBP contributed to the Company two-thirds

F-8

of the equity, or approximately $115 million, to fund the remaining amount of the equity contribution for the Acquisition. In consideration for these contributions, the Company issued Class A Membership Interests and Class B Membership Interests to the affiliates of DLJMBP and Morgans and Morgans LLC.

     The remainder of the approximately $770 million purchase price and $81 million in costs and expenses associated with the Acquisition, was financed with mortgage financing under a real estate financing facility (the “CMBS Facility”) entered into by the Company’s subsidiaries. Subject to the satisfaction of certain conditions, the CMBS facility also provides funds to be used for future project expansion and construction of the Hard Rock, with the total amount available under the CMBS facility not to exceed $1.395 billion (including the $35 million referenced below). In November 2007, certain of the Company’s subsidiaries refinanced $350 million of the amount borrowed under the financing from the proceeds of three mezzanine loans made to the Company’s mezzanine subsidiaries, and the lender increased the maximum amount of the loan that may be funded in the future by $35 million.

     Also on the Closing Date, DLJ MB IV HRH, LLC (“DLJMB IV HRH”), DLJ Merchant Banking Partners IV, L.P. (“DLJMB Partners”), DLJMB HRH VoteCo, LLC (“DLJMB VoteCo”), Morgans and Morgans LLC entered into an Amended and Restated Limited Liability Company Agreement (the “JV Agreement”), which governs their relationship as members of the Company. DLJMB IV HRH, DLJMB Partners and DLJMB VoteCo are referred to as the “DLJMB Parties” and Morgans and Morgans LLC are referred to as the “Morgans Parties.”

The purchase price consists of the following (in thousands):

Hard Rock Hotel & Casino	$	419,431
Development parcel		258,730
Cafe parcel		19,976
Plans, specifications and other documents related to a proposal for a condominium development project		1,000
Trademark license		69,000
Merger costs		20,562
Total purchase price	$	788,699

     The table below lists the estimated fair values of the assets acquired and liabilities assumed. In addition, the Company recorded an estimate for the deferred tax liability arising from the Acquisition due to the difference between the fair value and the tax basis of the net assets acquired. This deferred tax liability estimate of approximately $25 million increased the estimated amount of goodwill recorded in the Acquisition. As the deferred tax liability is an estimate, it is subject to change as the Company finalizes the valuations and its tax analyses. Changes to this estimate, if any, will also affect goodwill and will not have a material impact on the Company’s statement of operations.

	February 2,
	2007
	(in thousands)
Current assets, including $11.0 million of cash	$	23,479
Property, plant and equipment		592,896
Intangible assets		77,400
Goodwill		139,108
Total assets acquired	$	832,883
Total liabilities assumed		(44,184	)
Net assets acquired	$	788,699

     The intangible assets that the Company acquired are comprised of Hard Rock licensing rights estimated at approximately $44.9 million, trademarks estimated at approximately $4.5 million, customer lists estimated at

F-9

approximately $21.1 million and host non-compete agreements estimated at approximately $4.9 million. The licensing rights are not subject to amortization as they have an indefinite useful life. The trademarks, customer lists and host non-compete agreements are being ratably amortized over a two to ten year period. The $140 million estimated goodwill balance arising from the transaction is not subject to amortization. As the acquisition of the Company is treated as a tax-free purchase, the estimated goodwill balance and the other intangible assets described above are not expected to be amortized for tax purposes.

     The pro forma consolidated results of operations, as if the Acquisition had occurred on January 1, 2007, are as follows (in thousands):

	Year
	Ended
	December 31,
	2007
Pro Forma
Net revenues	$	186,456
Net loss		(71,573	)

     The Company reported $2.4 million of indirect, general and incremental expenses related to the Acquisition. These expenses are included in merger, acquisition and transition related expenses on the accompanying consolidated statements of operations for the period from February 2, 2007 to December 31, 2007.

     Also on the Closing Date, DLJ MB IV HRH, LLC, DLJ Merchant Banking Partners IV, L.P., DLJMB HRH VoteCo, LLC, Morgans and Morgans LLC entered into an Amended and Restated Limited Liability Company Agreement, which governs their relationship as members of the Company.

     Cash and Cash Equivalents

     Cash and cash equivalents consist of cash on hand and in banks and interest-bearing deposits with maturities at the date of purchase of three months or less. Cash equivalents are carried at cost which approximates market.

     Restricted Cash

     The Company is obligated to maintain reserve funds for property taxes, insurance and capital expenditures at the Hard Rock as determined pursuant to the CMBS facility. These capital expenditures relate primarily to initial renovations at the Hard Rock and the periodic replacement or refurbishment of furniture, fixtures and equipment. On the Closing Date, the Company deposited $35 million into an initial renovation reserve fund to be held as additional collateral for the CMBS loan for the payment of initial renovations to the Hard Rock. The CMBS lenders will make disbursements from the initial renovation reserve fund for initial renovation costs incurred by us upon our satisfaction of conditions to disbursement under the CMBS facility. In addition, the CMBS facility requires the Company to deposit funds into a replacements and refurbishments reserve fund at amounts equal to three percent of the Hard Rock’s gross revenues and requires that the funds to be set aside in restricted cash. As of December 31, 2007, an aggregate of $37.7 million and $1.2 million were available in restricted cash reserves for future capital expenditures in the initial renovation reserve fund and replacements and refurbishments reserve fund, respectively. Additionally, $0.8 million and $67,460 were available in the insurance and property tax reserve funds, respectively.

     In addition, the Company also is obligated to maintain a reserve fund for interest expense as determined pursuant to the CMBS facility. On the Closing Date, we deposited $45 million into an interest reserve fund to be held as additional collateral under the CMBS facility for the payment of interest expense shortfalls. The CMBS lenders will make disbursements from the interest reserve fund upon the Company’s satisfaction of conditions to disbursement under the CMBS facility. As of December 31, 2007, $16.1 million was available in restricted cash reserves in the interest reserve fund.

F-10

     Pursuant to the CMBS facility, the unfunded portion of the construction loan as of the second anniversary of the Closing Date may be advanced and deposited with lender in an account which shall be referred to as the “Construction Loan Reserve Account.” Additionally, portions of the construction loan may be advanced as quarterly deficiency advances from time to time, which quarterly deficiency advances shall be deposited with lender in the Construction Loan Reserve Account. Additionally, on November 9, 2007, the third mezzanine construction funds were deposited with lender in the Construction Loan Reserve Account. The funds in the Construction Loan Reserve Account shall be disbursed as the Company is entitled to a construction loan advance from the construction loan. The Company may elect, at its option, to receive a disbursement from the Construction Loan Reserve Account in lieu thereof, to the extent funds are available. As of December 31, 2007, $5.9 million was available in restricted cash reserves in the Construction Loan Reserve Account.

     Concentrations of Credit Risk

     Substantially all of the Company’s accounts receivable are unsecured and are due primarily from the Company’s casino and hotel patrons and convention functions. Non-performance by these parties would result in losses up to the recorded amount of the related receivables. Management does not anticipate significant non-performance and believes that they have adequately provided for uncollectible receivables in the Company’s allowance for doubtful accounts.

     Accounts Receivable and Credit Risk

     Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of casino accounts receivable. The Company issues credit in the form of “markers” to approved casino customers following investigations of creditworthiness. Business or economic conditions or other significant events could affect the collectability of such receivables.

     Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the Company’s receivables to their carrying amount, which approximates fair value. The allowance is estimated based on specific review of customer accounts as well as management’s experience with collection trends in the casino industry and current economic and business conditions.

     Inventories

     Inventories are stated at the lower of cost (determined using the first-in, first-out method), or market.

     Assets Held for Sale

     The Company intends to sell approximately 15 acres of the adjacent land and has entered into an exclusive authorization-to-sell agreement with a national broker. The Company has also entered into a letter of intent with respect to a proposed sale of a portion of the 15 acres of adjacent land for $100 million and is working with a prospective purchaser to complete due diligence on the land and to prepare definitive documentation. The Company has reflected the asset at a value of $95.2 million, which represents the fair value of $100 million less the estimated sale costs of $4.8 million.

F-11

     Depreciation and Amortization

     Land improvements, buildings and improvements, equipment, furniture and fixtures, and memorabilia are recorded at cost. The Company capitalizes interest on funds dispersed during construction. Depreciation and amortization are computed using the straight-line method over the estimated useful lives for financial reporting purposes and accelerated methods for income tax purposes. Estimated useful lives for financial reporting purposes are as follows:

Land improvements	12-15 years
Building improvements	15 years
Buildings	40-45 years
Equipment, furniture and fixtures	3-10 years
Memorabilia	40 years

     Gains or losses arising from dispositions are included in cost and expenses in the accompanying statements of operations. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred.

     Substantially all property and equipment is pledged as collateral for long-term debt.

     Business Combinations

     The Company account for business combinations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, Accounting for Business Combinations (“SFAS No. 141”) and Statement of Financial Accounting Standards No. 142, Accounting for Goodwill and Other Intangible Assets (“SFAS No. 142”), and related interpretations. SFAS No. 141 requires that the Company record the net assets of acquired businesses at fair market value, and the Company must make estimates and assumptions to determine the fair market value of these acquired assets and assumed liabilities.

     The determination of the fair value of acquired assets and assumed liabilities in the Hard Rock acquisition requires the Company to make certain fair value estimates, primarily related to land, property and equipment and intangible assets. These estimates require significant judgments and include a variety of assumptions in determining the fair value of acquired assets and assumed liabilities, including market data, estimated future cash flows, growth rates, current replacement cost for similar capacity for certain fixed assets, market rate assumptions for contractual obligations and settlement plans for contingencies and liabilities.

     Goodwill

     Goodwill represents the excess purchase price over the fair value of net assets attributable to business acquisitions. In accordance with the provisions of SFAS No. 142, the Company will test for impairment at least annually. The Company will test for impairment more frequently if events or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying amount. In accordance with SFAS No. 142, the Company identifies potential impairments by comparing the fair value of the reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds the carrying amount, including goodwill, the asset is not impaired. Any excess of carrying value over the implied fair value of goodwill would be recognized as an impairment loss in continuing operations.

     The Company utilizes the discounted cash flow method to perform its fair value impairment test.

     The Company performs its annual impairment test for goodwill and indefinite-lived intangible assets in the fourth quarter of each fiscal year. No impairments were indicated as a result of the annual impairment reviews for goodwill and indefinite-lived intangible assets in 2007.

F-12

     Other Intangible Assets

     The Company accounts for its other intangible assets in accordance with SFAS No. 142. In accordance with SFAS No. 142, the Company considers its licensing rights as indefinite-life intangible assets that do not require amortization. Rather, these intangible assets are tested for impairment at least annually by comparing the fair value of the recorded assets to their carrying amount. If the carrying amounts of the licensing rights exceed their fair value, an impairment loss is recognized. Once an impairment of an indefinite-life intangible asset has been recorded, it cannot be reversed.

     Intangible assets that have a definite life, such as trade names and certain non-compete agreements, are amortized on a straight-line basis over their estimated useful lives or related contract. “Player” relationships are amortized on an accelerated basis over a nine-year period consistent with the expected timing of the Company’s realization of the economic benefits of such relationships. The Company reviews the carrying value of its intangible assets that have a definite-life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. If the carrying amount of the intangible assets that have a definite-life exceed their fair value, an impairment loss is recognized.

     Impairment of Long-Lived Assets

     The Company has a significant investment in long-lived property and equipment. The Company reviews the carrying value of property and equipment to be held and used for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future undiscounted cash flows of the asset. If an indicator of impairment exists, the Company compares the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model. For assets to be disposed of, the Company recognizes the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model.

     Capitalized Interest

     The Company capitalizes interest costs associated with major construction projects as part of the cost of the constructed assets. When no debt is incurred specifically for a project, interest is capitalized on amounts expended for the project using a weighted average cost of borrowing. Capitalization of interest ceases when the project or discernible portions of the project are complete. The Company amortizes capitalized interest over the estimated useful life of the related asset.

     Deferred Financing Costs

     Deferred financing costs incurred in connection with the issuance of long-term debt are capitalized and amortized to interest expense over the expected terms of the related debt agreements. As of December 31, 2007, total deferred financing costs net of accumulated amortization of $14.7 million were $35.5 million. Amortization of deferred financing costs included in interest expense was $14.7 million for the period from February 2, 2007 to December 31, 2007.

     Advertising Costs

     The Company expenses the costs of all advertising campaigns and promotions as they are incurred. Total advertising expenses (exclusive of pre-opening) for the period from February 2, 2007 to December 31, 2007 amounted to approximately $2.4 million. These expenses are included in marketing expenses in the accompanying statement of operations.

F-13

     Income Taxes

     The Company is a limited liability company and, as such, does not pay taxes on an entity level but passes its earnings and losses through to its members. The Company does, however, own all of the stock of HRHI, a Sub-Chapter C corporation, which is a tax paying entity. Income taxes of the Company’s subsidiaries were computed using the subsidiaries effective tax rate. The Company’s members are responsible for reporting their allocable share of the Company’s income, gains, deductions, losses and credits on their individual income tax returns.

     The Company accounts for income taxes using the asset and liability approach required by SFAS 109. The asset and liability approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of the Company’s assets and liabilities. Future tax benefits attributable to temporary differences are recognized to the extent that realization of such benefits is more likely than not. These future tax benefits are measured by applying currently enacted tax rates. Additionally, deferred income tax assets and liabilities are separated into current and non-current amounts based on the classification of the related assets and liabilities for financial reporting purposes.

     The Company accounts for certain tax positions under the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). The Company does not believe it will have any material changes in its unrecognized tax positions over the next 12 months. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits.

     Revenues and Complimentaries

     Casino revenues are derived from patrons wagering on table games, slot machines, sporting events and races. Table games generally include Blackjack or Twenty One, Craps, Baccarat and Roulette. Casino revenue is defined as the win from gaming activities, computed as the difference between gaming wins and losses, not the total amounts wagered. Casino revenue is recognized at the end of each gaming day.

     Lodging revenues are derived from rooms and suites rented to guests and include related revenues for telephones, movies, etc. Room revenue is recognized at the time the room or service is provided to the guest.

     Food and beverage revenues are derived from food and beverage sales in the food outlets of the Company’s hotel casino, including restaurants, room service, banquets and nightclub. Food and beverage revenue is recognized at the time the food and/or beverage is provided to the guest.

     Retail and other revenues include retail sales, spa income, commissions, estimated income for gaming chips and tokens not expected to be redeemed and other miscellaneous income at the Company’s hotel casino. Retail and other revenues are recognized at the point in time the retail sale occurs or when services are provided to the guest.

     The Company is party to a lease with the operator of the Hard Rock Cafe, pursuant to which the Company is entitled to (a) minimum ground rent in an amount equal to $15,000 per month and (b) additional rent, if any, equal to the amount by which six percent of the annual Gross Income (as defined in the lease) of the operator exceeds the minimum ground rent for the year. The Company received $0.7 million in rent from the Hard Rock Cafe, which consisted of $0.2 million in base rent and $0.5 million in percentage rent for the period from February 2, 2007 to December 31, 2007. The current term of the lease expires on June 30, 2010. Under the lease, the operator has two five-year options to extend the lease, so long as it is not in default at the time of the extension.

F-14

     Revenues in the accompanying statements of operations include the retail value of rooms, food and beverage, and other complimentaries provided to customers without charge, which are then subtracted as promotional allowances to arrive at net revenues. The estimated costs of providing such complimentaries have been classified as casino operating expenses through interdepartmental allocations as follows (in thousands):

	Period
	February 2, 2007
	to
	December 31,
	2007
Food and beverage	$	4,456
Lodging		1,307
Other		819
Total costs allocated to casino operating costs	$	6,582

     Revenues are recognized net of certain sales incentives in accordance with the Emerging Issues Task Force (“EITF”) consensus on Issue 01-9, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products). EITF 01-9 requires that sales incentives be recorded as a reduction of revenue; consequently, the Company’s casino revenues are reduced by points earned in customer loyalty programs, such as the player’s club loyalty program. Casino revenues are net of cash incentives earned in the Company’s “Rock Star” slot club. For the period from February 2, 2007 to December 31, 2007 these incentives were $0.1 million.

     Derivative Instruments and Hedging Activities

     SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended and interpreted (“SFAS No. 133”), establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by SFAS No. 133, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation. Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

     For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship under the hypothetical derivative method, which means that the Company compares the cumulative change in fair value of the actual cap to the cumulative change in fair value of a hypothetical cap having terms that exactly match the critical terms of the hedged transaction. For derivatives that do not qualify for hedge accounting or when hedge accounting is discontinued, the changes in fair value of the derivative instrument is recognized directly in earnings.

     The Company’s objective in using derivatives is to add stability to interest expense and to manage its exposure to interest rate movements or other identified risks. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts in exchange for fixed-rate payments over the life of the agreements without exchange of the underlying principal amount. During 2007, interest rate caps were used to hedge the variable cash flows associated with existing variable-rate debt.

F-15

     In connection with the Acquisition, we entered into an interest rate cap agreement with an aggregate notional amount of $805.0 million with a LIBOR cap of 5.50%. We determined that this cap did not qualify for hedge accounting. In connection with the Refinancing in November 2007, we terminated our hedging instrument and replaced it with five new interest rate caps with an aggregate notional amount of $885.0 million and a LIBOR cap of 5.50% which expire February 9, 2009. We determined that two of the caps did not qualify for hedge accounting. Three of the caps were designated as cash flow hedges.

     The Company held five interest rate caps at December 31, 2007 as follows (amounts in thousands):

Notional Amount	Type of Instrument	Maturity Date	Strike Rate
$410,000	Interest Cap	February 9, 2009	5.50%
$110,000	Interest Cap	February 9, 2009	5.50%
$200,000	Interest Cap	February 9, 2009	5.50%
$100,000	Interest Cap	February 9, 2009	5.50%
$ 65,000	Interest Cap	February 9, 2009	5.50%

     Three of the derivatives ($200,000, $100,000 and $65,000) have been designated as hedges according to SFAS No. 133 and, accordingly, the effective portion of the change in fair value of these instruments will be recognized in other comprehensive income.

     For the period from February 2, 2007 to December 31, 2007, the total fair value of derivative instruments included in other assets was $11,191. The change in fair value of derivatives qualifying for hedge accounting included in comprehensive income was $26,000, net of premium amortization. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s variable-rate debt. The Company reflects the change in fair value of all hedging instruments in cash flows from operating activities. The net gain or loss recognized in earnings during the reporting period representing the amount of the hedges’ ineffectiveness is insignificant. The Company expensed $1.42 million to interest expense attributable to the three derivatives that did not qualify for hedge accounting according to SFAS No. 133.

     Fair Value of Financial Instruments

     The fair value of the Company’s long-term debt was approximately $793.5 million at December 31, 2007.

     Recently Issued And Adopted Accounting Pronouncements

     In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS No. 157”), which defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the FASB having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact that the adoption of SFAS No. 157 will have on its consolidated financial statements.

     In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159 permits companies to choose to measure many financial

F-16

instruments and certain other items at fair value. The objective is to improve financial reporting by providing companies with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The fair value option established by SFAS No. 159 permits all companies to choose to measure eligible items at fair value at specified election dates. At each subsequent reporting date a company shall report in earnings any unrealized gains and losses on items for which the fair value option has been elected. SFAS No. 159 is effective as of the beginning of a company’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the company also elects to apply the provisions of SFAS No. 157. The Company is currently evaluating whether to adopt the fair value option under SFAS No. 159 and evaluating the impact the adoption would have on the its consolidated financial statements.

2. ACCOUNTS RECEIVABLE

     Components of receivables, net are as follows (in thousands):

	December 31,
	2007
Casino	$	4,870
Hotel		702
Other		3,491
		9,063
Less: allowance for doubtful accounts		(588	)
	$	8,475

3. INVENTORIES

     Inventories consist of the following (in thousands):

	December 31,
	2007
Retail merchandise	$	1,334
Restaurants and bars		1,422
Other inventory and operating supplies		155
Total Inventories	$	2,911

4. PROPERTY AND EQUIPMENT

     Property and equipment consists of the following (in thousands):

	December 31,
	2007
Land	$	364,810
Buildings and improvements		107,727
Furniture, fixtures and equipment		26,416
Memorabilia		4,006
Subtotal		502,959
Less accumulated depreciation and amortization		(11,313	)
Construction in process		24,277
Total property and equipment, net	$	515,923

F-17

     Depreciation and amortization relating to property and equipment was $11.3 million for the period from February 2, 2007 to December 31, 2007.

5. INTANGIBLE ASSETS

     Other intangible assets, net consists of the following (in thousands):

	December 31, 2007							Remaining
	Intangible		Accumulated			Net Intangible		Life
	Assets		Amortization			Assets		(Years)
Intangible assets
Hard Rock licensing rights	$	44,900	$	—		$	44,900	Indefinite
Rehab trade name		2,400		(220	)		2,180		10
Body English trade name		700		(214	)		486		3
Pink Taco trade name		700		(128	)		572		5
Love Jones trade name		100		(18	)		82		5
Mr. Lucky’s trade name		600		(110	)		490		5
“Player” relationships		23,100		(3,164	)		19,936		9
Host non-compete agreements		4,900		(2,246	)		2,654		2
Total intangibles net of accumulated amortization	$	77,400	$	(6,100	)	$	71,300

     The Company acquired intangible assets that are comprised of the Hard Rock licensing rights estimated at approximately $44.9 million, trademarks estimated at approximately $4.5 million, customer lists estimated at approximately $23.1 million and host non-compete agreements estimated at approximately $4.9 million. The licensing rights are not subject to amortization as they have an indefinite useful life. The trade name and host non-compete agreements are being ratably amortized on a straight-line basis over a two to five-year period. Player relationships are amortized on an accelerated basis consistent with the expected timing of the Company’s realization of the economic benefits of such relationships.

     For the period from February 2, 2007 to December 31, 2007, amortization expense for the above amortizable intangible assets was $6,100. The estimated aggregate amortization expense for the above amortizable intangible assets for each of the five succeeding fiscal years ending December 31, 2012 is $7.4 million, $4.8 million, $3.7 million, $3.1 million, and $2.3 million, respectively.

6. ACCRUED EXPENSES

     Accrued expenses consist of the following (in thousands):

	December 31,
	2007
Accrued salaries, payroll taxes and other employee benefits	$	2,895
Advance room, convention and customer deposits		3,656
Other accrued liabilities		1,262
Outstanding gaming chips and tokens		1,955
Accrued miscellaneous taxes		802
Accrued progressive jackpot and slot club payouts and other liabilities		1,141
Reserve for legal liability claims		177
Advance entertainment sales		152
Total accrued expenses	$	12,040

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7. AGREEMENTS WITH RELATED PARTIES

     Management Agreement

     Engagement of Morgans Management. On February 2, 2007, the Company’s subsidiaries, HRHH Hotel/ Casino, LLC, HRHH Development, LLC and HRHH Cafe, LLC, and Morgans Hotel Group Management LLC (“Morgans Management”), entered into a Property Management Agreement (the “Management Agreement”), pursuant to which the Company has engaged Morgans Management as (i) the exclusive operator and manager of the Hard Rock (excluding operation of the gaming facilities that are operated in accordance with a casino lease and the Casino Sublease (described below)) and (ii) the asset manager of the 23-acre parcel adjacent to the Hard Rock (which parcel was also subject to a separate property management agreement with ConAm Management Corporation that terminated on October 31, 2007) and the land on which the Hard Rock Cafe restaurant is situated (which is subject to a lease between the Company’s subsidiary, HRHH Cafe, LLC, as landlord, and Hard Rock Cafe International (USA), Inc., as tenant).

     Term; Termination Fee. The Management Agreement commenced on February 2, 2007 and expires after a 20-year initial term. This term may be extended at the Company’s election for two additional ten-year periods. The Management Agreement provides certain termination rights for the Company and Morgans Management. Morgans Management may be entitled to a termination fee if such a termination occurs in connection with a sale of the Company or the Hard Rock Hotel.

     Base Fee, Chain Service Expense Reimbursement and Annual Incentive Fee. As compensation for its services, Morgans Management receives a management fee equal to 4% of defined non-gaming revenues including casino rents and all other rental income and a chain service expense reimbursement, which reimbursement is subject to a cap of 1.5% of defined non-gaming revenues including casino rents and all other income. Morgans Management is also entitled to receive an annual incentive fee of 10.0% of the “Hotel EBITDA” (as defined in the Management Agreement) in excess of certain threshold amount, which increases for each subsequent calendar year. Following completion of the expansion and renovation of the Hard Rock, the amount of such annual incentive fee will be equal to 10% of annual “Hotel EBITDA” in excess of 90% of annual projected post-expansion “EBITDA” of the Hard Rock, the property on which the Hard Rock Cafe restaurant is situated and the adjacent property (excluding any portion of the adjacent property not being used for the expansion). For purposes of the Management Agreement, “EBITDA” generally is defined as earnings before interest, taxes, depreciation and amortization in accordance with generally accepted accounting principles applicable to the operation of hotels and the uniform system of accounts used in the lodging industry, but excluding income, gain, expenses or loss that is extraordinary, unusual, non-recurring or non-operating. “Hotel EBITDA” generally is defined as EBITDA of the Hard Rock Hotel (excluding its gaming facilities), the property on which the Hard Rock Cafe restaurant is situated and the adjacent property (excluding any portion of the adjacent property not being used for the expansion). The Company paid a base management fee of $5.7 million to Morgans Management and reimbursed them for $2.1 million of chain services expenses for the period from February 2, 2007 to December 31, 2007.

     Joint Venture Agreement Consulting Fee

     Under the JV Agreement, subject to certain conditions, the Company is required to pay DLJMB VoteCo (or its designee) a consulting fee of $250,000 each quarter in advance. In the event the Company is not permitted to pay the consulting fee when required (pursuant to the terms of any financing or other agreement approved by our board of directors), then the payment of such fee will be deferred until such time as it may be permitted under such agreement.

     Technical Services Agreement

     On February 2, 2007, a subsidiary of the Company, HRHH Hotel/Casino, and Morgans Management entered into a Technical Services Agreement pursuant to which the Company has engaged Morgans Management

F-19

to provide technical services for our expansion project prior to its opening. Under the Technical Services Agreement, the Company is required to reimburse Morgans Management for certain expenses it incurs in accordance with the terms and conditions of the agreement. For the period from February 2, 2007 through December 31, 2007, the Company reimbursed Morgans Management an aggregate amount equal to approximately $0.6 million under the Technical Services Agreement.

     CMBS Facility

     Prior to November 2007, Column Financial, Inc. (“Column”) was the administrative agent under the CMBS facility. Column is an indirect subsidiary of Credit Suisse, which is an affiliate of DLJMB. In connection with the Acquisition, Morgans paid Column commitment fees in an aggregate amount equal to $11.6 million, which were deemed to be an equity contribution by Morgans to the Company at the closing of the Acquisition. At the closing of the Acquisition, the Company paid Column an origination fee equal to $30.6 million. Subsequently, on November 6, 2007, the Company paid Column an additional origination fee equal to $0.8 million for the $35 million increase in the maximum amount of the CMBS facility that occurred in connection with the Refinancing. Under the CMBS facility, for the period from February 2, 2007 to December 31, 2007, the Company paid Column an annual administrative agents fee and an unused advance fee equal to $0.2 million and approximately $1.0 million, respectively. In November 2007, Column ceased to be the administrative agent under the CMBS facility and TriMont Real Estate Advisors, Inc. was appointed as servicer of the loans under the facility.

8. LONG-TERM DEBT

     The long-term debt outstanding as of December 31, 2007 consisted of the following (in thousands):

		December 31,
Project Name / Lender	Interest Rate	2007
HRH Acquisition / Vegas HR Private Limited	LIBOR + 2.35%	$	410,000
HRHC Construction / Vegas HR Private Limited	LIBOR + 4.25%		18,452
HRHC Sr Mezz / Brookfield Financial, LLC—Series B	LIBOR + 5.20%		200,000
HRHC Jr Mezz 1 / NRFC WA Holdings, LLC	LIBOR + 7.20%		100,000
HRHC Jr Mezz 2 / Hard Rock Mezz Holdings LLC	LIBOR + 8.75%		65,000
Total debt	LIBOR + 4.25%		793,452
Current portion of long-term debt			(110,000	)
Total long-term debt		$	683,452

     If the Company qualifies for the construction loan under the CMBS facility, the initial maturity date of the loans thereunder will be February 9, 2010, with two one-year options to extend the maturity date provided that the Company satisfies certain conditions, including meeting a specified debt-yield percentage. Should the Company not qualify for the construction loan, the initial maturity date will be February 9, 2009, with two similarly conditional one-year options to extend the maturity date. Monthly interest payments are due on the ninth of each month.

     Acquisition Financing

     The remaining financing needed to consummate the Acquisition was a borrowing of $760 million under the CMBS facility, which is secured by the Company’s assets. The Company has additional borrowing availability under the facility which it is permitted to use for its planned expansion and renovation of the Hard Rock, with the total amount available under the financing not to exceed $1.395 billion as of December 31, 2007.

     The loan agreements under the CMBS facility include customary affirmative and negative covenants for similar financings, including, among others, restrictive covenants regarding incurrence of liens, sales or assets,

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distributions to affiliates, changes in business, cancellation of indebtedness, dissolutions, mergers and consolidations, as well as limitations on security issuances, transfers of any of the Company’s real property and removal of any material article of furniture, fixture or equipment from the Company’s real property.

     The subsidiaries that serve as mortgage borrowers under the financing are HRHH Hotel/Casino, LLC (owner of the Hard Rock), HRHH Development, LLC (owner of the parcel of land adjacent to the Hard Rock that may be used for expansion purposes), HRHH Cafe, LLC (owner of the parcel of land on which the Hard Rock Cafe is situated), HRHH IP, LLC (owner of certain intellectual property used in connection with the Hard Rock, among other things) and HRHH Gaming, LLC (an entity formed solely for the purpose of holding the gaming licenses and conducting gaming operations at the Hard Rock upon receiving the required licenses).

     The financing incurs interest payable through a funded interest reserve initially, then through cash, at a rate (blended among the debt secured by assets and the junior and senior mezzanine debt, if applicable) of LIBOR plus 4.25%, subject to adjustment upwards in certain circumstances (i.e., failure to achieve substantial completion of the construction projects in a timely manner and extension of the term of the financing).

     Estimated interest payments on long-term debt are based on average principal amounts outstanding under the Company’s CMBS facility as of December 31, 2007 and anticipated additional borrowings thereunder required to complete the Company’s expansion project. As of December 31, 2007, the interest rate was LIBOR at 4.60% plus the 4.25% spread (8.85% total). Subject to an interest rate cap, as of December 31, 2007, an increase in market rates of interest of 0.125% would have increased the Company’s interest expense by $1.0 million and a decrease in market interest rates of 0.125% would have decreased the Company’s interest expense by $1.0 million. Interest payments are due monthly on the ninth day of the month.

     Pursuant to the terms of our CMBS facility and certain waivers thereto, the Company was required to make an amortization payment or post a letter of credit to the lenders in an amount equal to $110.0 million on February 14, 2008. On February 14, 2008, the DLJMB Parties, posted a letter of credit in favor of the lenders in the amount of $110.0 million to postpone the amortization payment to August 2, 2008. In the event that the proceeds from any sales of the 15-acre parcel of excess land adjacent to the Hard Rock prior to August 2, 2008 are less than $40.0 million, the Company will be required to make an amortization payment to the lenders of $110.0 million on such date. If the proceeds received from any such prior sales of the excess land are greater than $40.0 million, then the Company will be required to make an amortization payment equal to $110.0 million less the amount of any proceeds received from such sales. The Company has entered into a letter of intent with respect to a proposed sale of a portion of the excess land and is working with the prospective purchaser to complete due diligence on the land and to prepare definitive documentation.

     Maturities of the Company’s long-term debt are as follows (in thousands):

2008	$	110,000
2009		—
2010		—
2011		—
2012		683,452
Total	$	793,452

     CMBS Loan Restructuring

     In November 2007, certain of the Company’s subsidiaries refinanced $350 million of the amount borrowed under the CMBS facility from the proceeds of three mezzanine loans made to the Company’s mezzanine subsidiaries, and the lender increased the maximum amount of the loan that may be funded in the future by $35 million (the “Refinancing”). As part of the Refinancing, the subordinated junior mezzanine lender provided for

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an additional $15 million under the third mezzanine loan for use in connection with construction on the expansion and renovation project. If the Company qualifies for the construction loan under the CMBS facility, the initial maturity date of the loans thereunder will be February 9, 2010, with two one-year options to extend the maturity date provided that the Company satisfies certain conditions, including meeting a specified debt-yield percentage. Should the Company not qualify for the construction loan, the initial maturity date will be February 9, 2009, with two similarly conditional one-year options to extend the maturity date.

     In connection with the restructuring of the loans discussed above, the lender exercised its right to split the CMBS facility into debt secured directly by the assets owned by the mortgage borrowers and senior, junior and subordinated junior mezzanine debt secured by pledges of equity interests in the mortgage borrowers, and certain of the Company’s other subsidiaries, which are the senior mezzanine borrowers and the junior mezzanine borrowers, respectively, under the CMBS facility. This resulted in the separation of a portion of the financing into:

• a first mezzanine loan in the principal amount of $200 million made to the senior mezzanine borrowers, HRHH Gaming Senior Mezz, LLC and HRHH JV Senior Mezz, LLC, secured by pledges of the senior mezzanine borrowers’ equity interests in the mortgage borrowers;

• a second mezzanine loan in the principal amount of $100 million made to the junior mezzanine borrowers, HRHH Gaming Junior Mezz, LLC and HRHH JV Junior Mezz, LLC, secured by pledges of the junior mezzanine borrowers’ equity interests in the senior mezzanine borrowers; and

• a third mezzanine loan in the principal amount of $65 million made to the subordinated junior mezzanine borrowers, HRHH Gaming Junior Mezz Two, LLC and HRHH JV Junior Mezz Two, LLC, secured by pledges of the subordinated junior mezzanine borrowers’ equity interests in the junior mezzanine borrowers.

     The Refinancing incurs interest payable through a funded interest reserve initially, then through cash, at a rate (blended among the debt secured by assets and the subordinated junior, junior and senior mezzanine debt, if applicable) of LIBOR plus 4.25%, subject to adjustment upwards in certain circumstances (i.e., failure to achieve substantial completion of the construction projects in a timely manner and extension of the term of the financing).

     Sale of CMBS Loans

     As contemplated by the Refinancing, each of the first mezzanine, second mezzanine and third mezzanine loans were sold by its lender on November 6, 2007 and the mortgage loan was sold by its lender on November 9, 2007, to the following entities:

• mortgage loan: Vegas HR Private Limited;

• first mezzanine loan: Brookfield Financial, LLC—Series B;

• second mezzanine loan: NRFC WA Holdings, LLC; and

• third mezzanine loan: Hard Rock Mezz Holdings LLC.

     In November 2007, Column Financial, Inc. ceased to be the administrative agent for each of the loans and TriMont Real Estate Advisors, Inc. was appointed as servicer of the loans under the facility.

     Workers’ Compensation Letter of Credit

     The Company has a $0.3 million irrevocable standby letter of credit for the benefit of the State of Nevada related to the self-insured portion of the Predecessor’s workers’ compensation insurance.

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9. INCOME TAXES

     The following table provides an analysis of the Company’s income tax benefit (in thousands):

	December 31,
	2007
Current	$	—
Deferred (federal)		(2,277	)
Income tax benefit	$	(2,277	)

     Income taxes differ from the amount computed at the federal income tax statutory rate as a result of the following:

	December 31,
	2007
Income tax benefit at the statutory rate		(34.0	)%
Valuation allowance		31.2
Tax credits		(0.2	)
Effective tax rate		(3.0	)%

     As a result of the purchase allocation, the Company had net deferred tax liabilities of $17,543,000, which was $2,277,064 in excess of deferred tax liabilities on indefinite life intangible assets. Subsequent to the Closing Date, deferred tax liabilities of $2,277,064 were utilized against deferred tax assets recognized as a result of post acquisition net operating losses. During the period from February 1, 2007 to December 31, 2007, the Company established a full valuation allowance on its net deferred tax assets (not including deferred tax liabilities of $15,266,000 relating to indefinite lived intangibles) because it could not determine that it is more likely than not that future taxable income will be realized to recognize deferred tax assets.

     The significant components of the deferred income tax assets and liabilities included in the accompanying balance sheet are as follows (in thousands):

	December 31,
	2007
Deferred tax assets:
Accrued expenses	$	767
Depreciation and amortization		1,553
Net operating loss and contributions carryforwards		30,663
Tax credits		2,807
Total deferred tax assets		35,790
Deferred tax liabilities:
Intangibles and improvements purchase accounting	$	(26,679	)
Accrued expenses		(992	)
Total deferred tax liabilities		(27,671	)
Preliminary net deferred tax asset		8,119
Less: valuation allowance for deferred tax asset		(23,385	)
Net deferred tax liability	$	(15,266	)

     As of December 31, 2007, deferred tax assets are composed primarily of credits and net operating losses. The general business tax credit carryforward, valued at approximately $2,114,000, may be carried forward for 20

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years as a credit against regular tax and will begin to expire between 2014 and 2027. The AMT tax credit carryforwards valued at approximately $693,000 may be carried forward indefinitely as a credit against regular tax. The net operating loss carryforwards, valued at approximately $90,187,000, will begin to expire between 2016 and 2027.

     The Company accounts for certain tax positions under the provisions of FIN 48. The Company does not believe it will have any material changes in its unrecognized tax positions over the next 12 months. The Company does not have any accrued interest or penalties associated with any unrecognized tax benefits.

10. COMMITMENTS AND CONTINGENCIES

     Casino Sublease

     Prior to March 1, 2008, gaming operations at the Hard Rock were operated by Golden HRC, LLC (“ Casino Operator”) pursuant to a Casino Sublease (as amended on January 9, 2007 and as modified by a Recognition Agreement, dated as of February 2, 2007, among Column Financial, Inc., HRHH Hotel/Casino, LLC, HRHI and the Casino Operator), effective as of February 2, 2007 (the “Casino Sublease”). On January 24, 2008, the Company received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, and on March 1, 2008, the Company assumed the gaming operations at the Hard Rock and the Casino Sublease was terminated.

     During the term of the Casino Sublease, as compensation for the general management services of Golden Gaming, Inc., the Casino Operator withheld, as an expense, from the revenue arising from gaming operations at the Hard Rock, a sum in the amount of $275,000 per month, which sum was paid to Golden Gaming, Inc. or its designee for general management services provided to the Casino Operator. The Casino Operator withheld and paid to Golden Gaming, Inc. $3.0 million for general management services that the Casino Operator received from Golden Gaming, Inc. during the period from February 2, 2007 to December 31, 2007.

     Cafe Lease

     The Company is party to a lease with the operator of the Hard Rock Cafe, pursuant to which the Company is entitled to (a) minimum ground rent in an amount equal to $15,000 per month and (b) additional rent, if any, equal to the amount by which six percent of the annual Gross Income (as defined in the lease) of the operator exceeds the minimum ground rent for the year. The current term of the lease expires on June 30, 2010. Under the lease, the operator has two five-year options to extend the lease, so long as it is not in default at the time of the extension.

     Employment Agreement

     Under Mr. Kwasniewski’s offer letter, if Morgans Management terminates his employment without cause (as defined in his offer letter) prior to October 9, 2008, he will be entitled to receive the lesser of 18-months base salary or one month’s salary for every month remaining until October 9, 2009. If Morgans Management terminates his employment without cause on or after October 9, 2008, he will be entitled to receive one year’s base salary. In addition, if Morgans Management terminates his employment without cause during 2007, he will be entitled to receive a bonus of $280,000 in addition to any other payments due to him under the offer letter. If Morgans Management terminates his employment without cause after 2007, he will be entitled to receive a bonus equal to the number of months he worked during the year prior to his termination multiplied by the monthly equivalent of the actual bonus he received in the prior year, with a minimum payment of one-half of his prior year’s bonus and a maximum payment of $280,000.

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     Construction Commitments

     The Company has signed construction commitments for an aggregate of approximately $60.1 million, which consists of commitments to the general contractor and for other items related to the expansion and renovation of the Hard Rock.

     Liquor Management Agreement

     Liquor Management Agreement; Term. On February 2, 2007, the Company’s subsidiaries, HRHH Hotel/ Casino, LLC and HRHI, entered into a Liquor Management and Employee Services Agreement (the ” Liquor Management Agreement”), relating to non-gaming operations at the Hard Rock. The term of the Liquor Management Agreement commenced February 2, 2007 and will expire on the earlier of (i) 20 years from the commencement date or (ii) a date mutually agreed upon by the parties, subject to reasonable requirements of unaffiliated third party lenders to HRHH Hotel/Casino, LLC. However, the Liquor Management Agreement shall not terminate unless and until (a) HRHH Hotel/Casino, LLC obtains a replacement liquor operator and employee service provider (or hires all the employees necessary to operate the Hard Rock) or (b) HRHH Hotel/Casino, LLC or an affiliate thereof obtains all necessary approvals to conduct the liquor operations and hires all the employees necessary to operate the Hard Rock.

     Engagement of HRHI. Pursuant to the Liquor Management Agreement, HRHH Hotel/Casino, LLC has engaged HRHI as operator and manager of the bars, bar personnel and liquor sales at the Hard Rock. HRHI holds the requisite licenses and approvals from the Clark County Department of Business License and the Clark County Liquor and Gaming Licensing Board to conduct liquor operations at the Hard Rock. In addition, the Liquor Management Agreement allows HRHH Hotel/Casino, LLC to engage certain employees of HRHI to provide services in connection with the day-to-day operations of the Hard Rock (excluding operations of the gaming- and casino-related facilities). HRHI would retain control of such employees and remain solely responsible for all compensation and benefits to be paid to them, subject to reimbursement as provided in the Liquor Management Agreement.

     Self-Insurance

     The Company is self-insured for workers’ compensation claims for an annual stop-loss of up to $350,000 per claim. Management has established reserves it considers adequate to cover estimated future payments on existing claims incurred and claims incurred but not reported.

     The Company has a partial self-insurance plan for general liability claims for an annual stop-loss of up to $100,000 per claim.

     Legal and Regulatory Proceeding

     Between March 2006 and February 2007, four lawsuits were filed in Nevada state courts, and one in federal district court in Nevada, by brokers, investors, and prospective purchasers associated with the formerly proposed condominium development on the real property adjacent to the hotel casino. Of the five lawsuits, one names the Company as a defendant, and four name subsidiaries of the Company as defendants. The plaintiffs in the suit brought by the prospective purchasers decided to dismiss their action (without prejudice) after the Company successfully compelled them to participate in an arbitration. The allegations in these five lawsuits are primarily, though not entirely, directed towards Mr. Morton and entities under his ownership or control, not the Company or its affiliates. Mr. Morton has agreed to indemnify the Company and its affiliates against all costs associated with these lawsuits, including both legal and defense fees and any ultimate judgment against the Company or its affiliates, under the terms set forth in the contract under which the Company purchased the hotel casino.

     The Company is a defendant in various other lawsuits relating to routine matters incidental to the Company’s business.

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     Management provides an accrual for estimated losses that may occur and does not believe that the outcome of any pending claims or litigation, individually or in the aggregate, will have a material adverse effect on the Company’s financial position, results of operations or liquidity beyond the amounts recorded in the accompanying balance sheet as of December 31, 2007.

     Indemnification

     The JV Agreement provides that neither the Company’s members nor the affiliates, agents, officers, partners, employees, representatives, directors, members or shareholders of any member, affiliate or the Company (collectively, “Indemnitees”) will be liable to the Company or any of its members for any act or omission if: (a) the act or omission was in good faith, within the scope of such Indemnitee’s authority and in a manner it reasonably believed to be in the best interest of the Company, and (b) the conduct of such person did not constitute fraud, willful misconduct, gross negligence or a material breach of, or default under, the JV Agreement.

     Subject to certain limitations, the Company will indemnify and hold harmless any Indemnitee to the greatest extent permitted by law against any liability or loss as a result of any claim or legal proceeding by any person relating to the performance or nonperformance of any act concerning the activities of the Company if: (a) the act or failure to act of such Indemnitee was in good faith, within the scope of such Indemnitee’s authority and in a manner it reasonably believed to be in the best interest of the Company, and (b) the conduct of such person did not constitute fraud, willful misconduct, gross negligence or a material breach of, or default under, the JV Agreement. The JV Agreement provides that the Company will, in the case of its members and their affiliates, and may, in the discretion of the members with respect to other Indemnitees advance such attorneys’ fees and other expenses prior to the final disposition of such claims or proceedings upon receipt by the Company of an undertaking by or on behalf of such Indemnitee to repay such amounts if it is determined that such Indemnitee is not entitled to be indemnified.

     Any indemnification provided under the JV Agreement will be satisfied first out of assets of the Company as an expense of the Company. In the event the assets of the Company are insufficient to satisfy the Company’s indemnification obligations, the members will, for indemnification of the members or their affiliates, and may (in their sole discretion), for indemnification of other indemnitees, require the members to make further capital contributions to satisfy all or any portion of the indemnification obligations of the Company pursuant to the JV Agreement.

11. EMPLOYEE BENEFIT PLANS

     The Company pays discretionary cash incentive bonuses to eligible employees based upon individual and company-wide goals that are established by management and the board of directors of the Company on an annual basis.

     The Company maintains a 401(k) profit sharing plan whereby substantially all employees over the age of 21 who have completed six months of continuous employment and 1,000 hours of service are eligible for the plan. Such employees joining the plan may contribute, through salary deductions, no less than 1% nor greater than 50% of their annual compensation. The Company, at its discretion, will match 50% of the first 6% of compensation contributed by employees. During the period from February 2, 2007 to December 31, 2007 the Company recorded approximately $568,000 for its portion of plan contributions, which are included in the accompanying statements of operations.

     Directors, officers and employees of the Company and its subsidiaries are eligible to participate in the Morgans Hotel Group Co. 2006 Omnibus Stock Incentive Plan (the “Stock Incentive Plan”). The Stock Incentive Plan provides for the issuance of stock-based incentive awards, including incentive stock options, non-qualified stock options, stock appreciation rights, shares of common stock of Morgans, including restricted stock, and

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other equity-based awards, including membership units which are structured as profits interests (“LTIP Units”) or any combination of the foregoing. The Company recognizes the expense and records a related-party payable when billed by Morgans.

     In the period from February 2, 2007 to December 31, 2007, the Company recognized $0.2 million of stock-based compensation expense related to the above described restricted common stock, LTIP Units and options.

12. JV AGREEMENT AND MEMBERSHIP INTERESTS

     Classes of Membership Interests

     The Company has two classes of membership interests: Class A Membership Interests and Class B Membership Interests. Holders of Class A Membership Interests are entitled to vote on any matter to be voted upon by the Company’s members. Except as provided by law, the holders of Class B Membership Interests do not have any right to vote.

     Initial Capital Contributions

     On the Closing Date, pursuant to the Contribution Agreement, Morgans and Morgans LLC were deemed to have contributed to the Company one-third of the equity, or approximately $57.5 million, to fund a portion of the purchase price for the Acquisition by virtue of the application of the escrow deposits under the Acquisition Agreements to the purchase price for the Acquisition and by virtue of the credit given for the expenses Morgans LLC incurred in connection with the Acquisition. Affiliates of DLJMBP contributed to the Company two-thirds of the equity, or approximately $115 million, to fund the remaining amount of the equity contribution for the Acquisition. In consideration for these contributions, the Company issued Class A Membership Interests and Class B Membership Interests to the affiliates of DLJMBP, Morgans and Morgans LLC.

     Additional Capital Contributions

     The JV Agreement provides that DLJMB will request that the Company’s members make additional capital contributions to the Company to fund the expansion of the Hard Rock pursuant to a budget approved by the Company’s board of directors. In the event of such a request, each of the Company’s members will fund its pro rata portion of the capital contribution in accordance with its percentage interest. The JV Agreement provides that under certain circumstances a member may fund its portion of the expansion capital by posting (or causing an affiliate to post) a letter of credit in accordance with the terms of the CMBS facility. The Morgans Parties may elect not to participate in an expansion capital call, in which case, subject to the JV Agreement, the DLJMB Parties will fund the Morgans Parties’ share of the capital contribution, subject to a cap of $150 million on the DLJMB Parties’ aggregate capital contributions to the Company for the expansion project. The JV Agreement also provides that in certain cases DLJMB IV HRH may request that the Company’s members make necessary capital contributions contemplated by the operating plans and budgets approved by the Company’s board of directors, or in the event of an unexpected shortfall in capital.

     Distribution of Cash Available for Distribution

     To the extent not prohibited by the terms of any financing or applicable law, the Company’s board of directors may cause the Company to distribute cash available for distribution to its members. Under the JV Agreement, the DLJMB Parties receive a preferred return of capital in an amount based on a percentage of the fees paid by the Company to Morgans Management under the Management Agreement. Cash available for distribution is then distributed among the members pro rata in proportion to their percentage interests (as adjusted to disregard the effect of any prior adjustments to the percentage interests made as a result of the posting of letters of credit). If at such time the DLJMB Parties have received a return of all of their capital contributions, then the cash available for distribution will be distributed to the Morgans Parties until they have received a return

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of all of their capital contributions. Thereafter, all remaining amounts will be distributed between the Morgans Parties and the DLJMB Parties pro rata in proportion to their percentage interests as of the date of such distribution.

     Restrictions on Transfer

     The Company’s members generally are prohibited from transferring or encumbering the Company’s membership interests without the prior written consent of the Company’s Class A members. Transfers of interests by a Morgans Party or a DLJ Fund (described below) in any intermediate subsidiary that indirectly holds interests in the Company will be considered a transfer of such person’s indirect interest in the Company. The “DLJ Funds” include DLJMB Partners, DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., DLJ Merchant Banking Partners IV (Pacific), L.P. and MBP IV Plan Investors, L.P. and are all parties which indirectly hold interest in the Company. Exceptions to the transfer prohibition apply to (a) transfers to subsidiaries of a DLJ Fund or Morgans, (b) transfers of the equity interests of a Morgans Party or a DLJ Fund (including pursuant to a change in control of those entities), and (c) after the earlier of February 2, 2011 and the termination date of the Management Agreement, in accordance with the right of first offer in favor of the other members under the JV Agreement. If the DLJMB Parties propose to transfer more than 51% of the membership interests in the Company to a third party and the right of first offer is not exercised, the DLJMB Parties will be able to require the Morgans Parties to sell the same ratable share of their membership interests in the Company to the third party on the same terms and conditions. If the drag-along right is not exercised, then the Morgans Parties may exercise a tag-along right to sell their interests to the third-party transferee on the same terms and conditions as under the sale by the DLJMB Parties. Notwithstanding these exceptions, no transfer may be made unless certain general conditions are met, including that the transfer complies with applicable gaming regulations.

     Events of Default

     The following constitute events of default under the JV Agreement (subject in certain cases to applicable cure periods): (a) any transfer in violation of the JV Agreement, (b) a material breach of the JV Agreement or a related fee agreement entered into by the members, (c) a determination by the gaming authorities that one of the Company’s members is an unsuitable person, (d) the failure to make a required capital contribution, (e) a material breach under the contribution agreement Morgans and DLJMB IV HRH entered into with respect to their initial capital contributions, (f) the incapacity of a member, (g) the attachment, execution or other judicial seizure of substantial assets of member or its interest in the Company or (h) the perpetration of fraud or willful misconduct. Upon the occurrence of any event of default (and after the expiration of any applicable cure period) by a member, a non-affiliated member may (i) elect to dissolve the Company, (ii) purchase the entire interest of the defaulting member for 85.0% of the defaulting member’s “existing equity” in the Company (as defined in the JV Agreement), (iii) adjust the defaulting member’s capital account to equal such purchase price or (iv) revoke the defaulting member’s voting rights, right to participate in profits or distributions or right to receive information (subject to certain exceptions).

     Distributions upon Liquidation

     The Company may be dissolved upon certain events, including at the election of its members. In the event of a dissolution, the cash proceeds from the liquidation, after payment of the Company’s liabilities, will be distributed to its members in accordance with their respective positive capital account balances as calculated under the JV Agreement.

     No Sinking Fund Provisions or Rights to Redemption or Conversion

     Holders of Class A Membership Interests or Class B Membership Interests have no redemption rights or conversion rights and do not benefit from any sinking fund.

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13. SUBSEQUENT EVENTS

     Deferral of CMBS Amortization Payment

     Pursuant to the terms of our CMBS facility and certain waivers thereto, the Company was required to make an amortization payment or post a letter of credit to the lenders in an amount equal to $110.0 million on February 14, 2008. On February 14, 2008, the DLJMB Parties, posted a letter of credit in favor of the lenders in the amount of $110.0 million to postpone the amortization payment to August 2, 2008. In the event that the proceeds from any sales of the 15-acre parcel of excess land adjacent to the Hard Rock prior to August 2, 2008 are less than $40.0 million, the Company will be required to make an amortization payment to the lenders of $110.0 million on such date. If the proceeds received from any such prior sales of the excess land are greater than $40.0 million, then the Company will be required to make an amortization payment equal to $110.0 million less the amount of any proceeds received from such sales. The Company has entered into a letter of intent with respect to a proposed sale of a portion of the excess land and is working with the prospective purchaser to complete due diligence on the land and to prepare definitive documentation.

     Gaming Operations

     In January 2008, the Company reached an agreement to extend the Casino Sublease and also received approval for its gaming license. On January 24, 2008, the Company received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock, and on March 1, 2008, the Company assumed the gaming operations at the Hard Rock and the Casino Sublease was terminated. See Note 10.

14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

     The tables below reflect the Company’s selected quarterly information for the Company and the Predecessor for the years ended December 31, 2007 and 2006 (in thousands):

	Three Months Ended
	December 31,			September 30,			June 30,			March 31,
	2007			2007			2007			2007(1)
Total revenues	$	36,175		$	53,366		$	54,780		$	42,132
Loss before income tax expense		(29,448	)		(14,968	)		(13,238	)		(17,692	)
Net loss		(29,448	)		(14,968	)		(13,238	)		(13,893	)

	Predecessor
	Three Months Ended
	December 31,			September 30,		June 30,		March 31,
	2006			2006		2006		2006
Total revenues	$	38,730		$	51,325	$	48,618	$	43,295
(Loss) income before income tax expense		(5,051	)		5,392		3,904		61
Net income (loss)		(3,171	)		3,347		2,431		34

(1) In order to present quarterly information for the quarter ended March 31, 2007, the Company has combined the Predecessor’s results for the period from January 1, 2007 to February 1, 2007 with the results of operations of the Company for the period from February 2, 2007 to March 31, 2007.

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