1342126--3/16/2009--Morgans_Hotel_Group

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{property, intellectual, protect}

{acquisition, growth, future}

{cost, contract, operation}

{debt, indebtedness, cash}

{competitive, industry, competition}

{operation, natural, condition}

{stock, price, operating}

{operation, international, foreign}

{tax, income, asset}

{loss, insurance, financial}

{stock, price, share}

{provision, law, control}

{loan, real, estate}

{cost, operation, labor}

{regulation, government, change}

{cost, regulation, environmental}

{personnel, key, retain}

{control, financial, internal}

{condition, economic, financial}

{investment, property, distribution}

{interest, director, officer}

We anticipate that we will need to 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. Our revolving credit facility and other debt instruments contain financial and other covenants that may limit our ability to borrow and restrict our operations, and if we fail to comply with such covenants, such failure could result in a default under one or more of our debt instruments. Disruptions in the financial markets could affect our ability to obtain financing for development of our properties and other purposes on reasonable terms. Boutique hotels are a highly competitive segment of the hospitality industry. If we are unable to compete effectively, our business and operations will be adversely affected by declines in our average daily room rates or occupancy, or both. Our success depends on the value of our name, image and brands, and if the 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. Any failure to protect our trademarks could have a negative impact on the value of our brand names and 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 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. 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 hurricane or earthquake. Our operations in Las Vegas, including the Hard Rock Hotel Casino and our possible development of a Delano Las Vegas and Mondrian Las Vegas, are subject to intense local competition that could impact our operations and adversely affect our business and 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. The threat of terrorism has adversely affected the hospitality industry generally and these adverse effects may continue or worsen. We are exposed to the risks of a global market, which could hinder our ability to maintain and expand our international operations. The hotel business is capital intensive and requires capital improvements to remain competitive; the failure to timely fund such capital improvements, the rising cost of such improvements and increasing operating expenses could negatively impact our ability to compete, reduce our cash flow and adversely affect our financial performance. 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. 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 may not be able to successfully compete for additional hotel properties. Integration of new hotels may be difficult and may adversely affect our business and operations. The use of joint ventures or other entities, over which we may not have full control, for hotel development projects or acquisitions could prevent us from achieving our objectives. 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. Our hedging strategies may not be successful in mitigating our risks associated with interest rates. 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. 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 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. We depend on Jeffrey Chodorow for the management of many of our restaurants and bars. 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. 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. Risks Related to the Hospitality Industry A number of factors, many of which are common to the lodging industry and beyond our control, could affect our business, including those described elsewhere in this section as well as the following: Seasonal variations in revenue at our hotels can be expected to cause quarterly fluctuations in our 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. 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. Uninsured and underinsured losses could adversely affect our financial condition and results of operations. 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 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. Risks Related to Our Organization and Corporate Structure Morgans Hotel Group Co. is a holding company with no operations. 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. We may experience conflicts of interest with certain of our directors and officers and significant stockholders as a result of their tax positions. 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. 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. Changes in market conditions or sales of our common stock could adversely affect the market price of our common stock. Transactions relating to our convertible note hedge and warrant transactions may affect the trading price of our common stock.

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1342126--3/16/2009--Morgans_Hotel_Group_Co.