MHGC Morgans Hotel Grp. Co.

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the Stockholders of Morgans Hotel Group Co.:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Morgans Hotel Group Co. will be held at Hudson hotel, 358 West 58th Street, New York, NY 10019, on September 14, 2016, at 2:00 p.m., Eastern Daylight Time, for the following purposes:

The holders of record of our common stock, par value $0.01 per share, which we refer to as common stock, and our Series A preferred securities, par value $0.01 per share, which we refer to as Series A preferred securities, at the close of business on August 2, 2016, are entitled to notice of and to vote, or give consent, at the special meeting or at any adjournment or postponement thereof. All holders of record of common stock and Series A preferred securities are cordially invited to attend the special meeting in person.

Your vote is important, regardless of the number of shares of common stock you own. The adoption of the merger agreement by the affirmative vote of the holders of a majority of the outstanding shares of common stock and consent of a majority of the outstanding Series A preferred securities is a condition to the consummation of the merger. The advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger, and the proposal to adjourn or postpone the special meeting for a period of no more than 30 days to solicit additional proxies, if necessary, to adopt the merger agreement require the affirmative vote of holders of a majority of the shares of common stock present in person or represented by proxy and entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return the enclosed proxy card or submit your proxy by telephone or via the Internet and thus ensure that your shares of common stock will be represented and voted at the special meeting if you are unable to attend. We have provided instructions on the proxy card for submitting a proxy by telephone or via the Internet.

If you submit a proxy card without indicating how you wish your shares of common stock to be voted, your shares of common stock will be voted in favor of the adoption of the merger agreement, the advisory (non-binding) proposal to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger, and the proposal to adjourn or postpone the special meeting for a period of no more than 30 days to solicit additional proxies, if necessary, in favor of the adoption of the merger agreement. If you fail to vote your shares of common stock, or if you fail to submit a proxy to cause your shares of common stock to be voted, the effect will be that your shares of common stock will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote against the adoption of the merger agreement. However, the failure to vote your shares of common stock or to submit a proxy to cause your shares of common stock to be voted will have no effect on the advisory vote to approve specified compensation that may become payable to the named executive officers of the Company in connection with the merger or the vote regarding the adjournment or postponement of the special meeting to solicit additional proxies, if necessary, in favor of the adoption of the merger agreement.

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Your proxy may be revoked at any time before the vote at the special meeting by following the procedures outlined in the accompanying proxy statement. If you are a stockholder of record, you may revoke your proxy by attending the special meeting and voting in person. Attendance at the special meeting, of itself, will not revoke a previously submitted proxy.

Dated August 4, 2016

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SUMMARY TERM SHEET

This Summary Term Sheet discusses the material information contained in this proxy statement, including with respect to the merger agreement, as defined below, the merger and the other agreements entered into in connection with the merger. We encourage you to read carefully this entire proxy statement, including its annexes and the documents referred to or incorporated by reference in this proxy statement, as this Summary Term Sheet may not contain all of the information that may be important to you. You may obtain the documents and information incorporated by reference in this proxy statement without charge by following the instructions under “ Where You Can Find Additional Information ,” beginning on page 125. The items in this Summary Term Sheet include page references directing you to a more complete description of that topic in this proxy statement.

The Parties to the Merger Agreement (Page 78)

Morgans Hotel Group Co.

Morgans Hotel Group Co., which we refer to as Morgans, the Company, we, our, or us, is a Delaware corporation. Morgans is a fully integrated hospitality company that operates, owns, licenses, and develops boutique hotels, primarily in gateway cities and select resort markets in the United States, Europe and other international locations. We conduct our operations through Morgans Group LLC, a Delaware limited liability company and our operating company, which we refer to as Morgans Group. See “ Important Information Regarding the Company—Company Background ,” beginning on page 105.

Morgans common stock is listed on the NASDAQ Global Select Market, which we refer to as NASDAQ, under the symbol “MHGC”.

Additional information about Morgans is contained in its public filings, which are incorporated by reference herein. See “ Where You Can Find Additional Information ,” beginning on page 125.

SBEEG Holdings, LLC

SBEEG Holdings, LLC, which we refer to as SBE, is a privately held Delaware limited liability company. SBE is a leading global lifestyle hospitality company that develops, manages and operates award-winning hotels, restaurants and nightclubs. Through exclusive partnerships with cultural visionaries, SBE is dedicated to delivering the best in design, culinary offerings and entertainment. Already a proven leader in the hospitality and real estate industries, SBE has more than 90 entertainment and food & beverage offerings currently operating or in development, and has expanded several of its flagship brands, including SLS Hotels, The Bazaar by José Andrés, Hyde Lounge and The Redbury, nationally and internationally. See “ The Parties to the Merger – SBEEG Holdings , LLC ,” beginning on page 78.

Purchaser

Prior to the effective time of the merger, the members of SBE will form a new entity, which we refer to as Purchaser, and will contribute all of their respective equity interests in SBE to Purchaser in exchange for new equity interests in Purchaser. Subject to the terms and conditions set forth in the rollover commitment letter, as further discussed below under “ Financing – Equity Financing – Rollover Financing, ” beginning on page 63, Yucaipa Hospitality Investments LLC, which we refer to as Yucaipa, will contribute to Purchaser all of the Series A preferred securities of the Company and all of Yucaipa’s warrants to purchase common stock in exchange for a combination of preferred equity and common equity of Purchaser, and leasehold interests in three restaurants at the Mandalay Las Vegas held by the Company which we refer to as the MBLV Restaurants. Prior to the closing of the merger, SBE will assign its rights under the merger agreement to Purchaser and Purchaser will assume SBE’s obligations under the merger agreement. Immediately following the effective time of the merger, the Company will be a direct or indirect wholly owned subsidiary of Purchaser. For purposes of this summary term sheet, (i) following the assignment of SBE’s rights under the merger agreement to

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Purchaser and the assumption of SBE’s obligations under the merger agreement by Purchaser, references to SBE in connection with SBE’s rights and obligations under the merger agreement will be deemed to refer to Purchaser and (ii) prior to the assignment of SBE’s rights under the merger agreement to Purchaser and the assumption of SBE’s obligations under the merger agreement by Purchaser, references to Purchaser in connection with Purchaser’s rights and obligations under the merger agreement will be deemed to refer to SBE. For the avoidance of doubt, any references to actions taken by SBE prior to the date of the merger agreement shall not be deemed to be references to Purchaser. See “ The Parties to the Merger – Purchaser ,” beginning on page 78.

Trousdale Acquisition Sub, Inc.

Trousdale Acquisition Sub, Inc., which we refer to as Merger Sub, is a Delaware corporation. Merger Sub is a wholly owned subsidiary of SBE and was formed for purposes of entering into the merger agreement and consummating the transactions contemplated by the merger agreement. See “ The Parties to the Merger – Trousdale Acquisition Sub , Inc. ,” beginning on page 78.

Conditions to the Merger (Page 98)

The Company’s obligation, on the one hand, and Purchaser’s and Merger Sub’s obligation, on the other hand, to effect the merger is subject to the satisfaction or waiver of the following conditions on or prior to the closing date:

The obligation of the Company to effect the merger is further subject to the satisfaction or (where permissible) waiver of the following conditions:

The obligation of Purchaser to effect the merger is further subject to the satisfaction or (where permissible) waiver of the following conditions:

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Neither the Company nor Purchaser may rely on the failure of any condition set forth above to be satisfied if such failure was caused by such party’s failure to perform its obligations under the merger agreement.

When the Merger Becomes Effective (Page 84)

We anticipate completing the merger in the third or fourth quarter of fiscal year 2016, subject to the adoption of the merger agreement by the Company’s stockholders as specified herein and the satisfaction of the other closing conditions.

Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger (Page 44)

The Board (excluding Bradford Nugent, who recused himself from the Board’s deliberations and Jason Kalisman, who was not present at the meeting of the Board at which the merger was approved) unanimously recommends that the stockholders of the Company vote “FOR” the proposal to adopt the merger agreement. For a description of the reasons considered by the Board, see “ Special Factors - Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger ,” beginning on page 44.

Opinion of Morgan Stanley (Page 50)

In connection with the merger, the Board received a written opinion, dated May 9, 2016, from the Company’s financial advisor, Morgan Stanley & Co. LLC, which we refer to as Morgan Stanley, that the merger consideration to be received by the holders of common stock (other than certain excluded shares as specified in the written opinion, which we refer to as the excluded shares) pursuant to the merger agreement was fair from a financial point of view to such holders of the shares of common stock. See “ Special Factors—Opinion of Morgan Stanley ,” beginning on page 50.

The full text of Morgan Stanley’s written opinion, dated May 9, 2016, which sets forth the assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement and is incorporated herein by reference. Stockholders are urged to read Morgan Stanley’s written opinion carefully and in its entirety. Morgan Stanley’s opinion was provided for the use and benefit of the Board (in its capacity as such) and addressed only the fairness, from a financial point of view, of the consideration to the holders of the common stock (other than the excluded shares) as of the date of the opinion and does not address the Company’s underlying business decision to effect the merger or the relative merits of the merger as compared to any alternative business strategies or transactions that might be available with respect to the Company. Morgan Stanley’s opinion does not constitute a recommendation to any stockholder of the Company as to how such stockholder should vote or act with respect to the merger or any other matter .

Certain Effects of the Merger (Page 59)

If the conditions to the closing of the merger are either satisfied or, to the extent permitted, waived, Merger Sub will be merged with and into the Company, the separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the merger, with all of its rights,

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privileges, immunities, powers and franchises continuing unaffected by the merger. Upon completion of the merger, shares of common stock, other than shares owned by the Company, Purchaser or any of their respective subsidiaries, which we refer to as cancelled shares, and any dissenting shares, will be automatically converted into the right to receive $2.25 per share in cash, without interest and less any applicable withholding taxes. Following the completion of the merger, the common stock will no longer be publicly traded, and holders of our common stock will cease to have any ownership interest in the Company and will not have any interest in Purchaser.

Treatment of Company Equity Awards (Page 85)

Company Stock Options. At the effective time of the merger, each Company stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger will be cancelled and converted into the right to receive an amount in cash equal to (a) the excess, if any, of (1) $2.25 over (2) the exercise price per share of common stock subject to such Company stock option, multiplied by (b) the number of shares of common stock subject to such Company stock option immediately prior to the effective time of the merger, less any applicable tax withholding. At the effective time of the merger, Company stock options with an exercise price per share immediately prior to the effective time of the merger that is greater than or equal to $2.25 will be cancelled for no payment or consideration. All Company stock options are vested and have an exercise price in excess of $2.25 per share, meaning that, at the effective time of the merger, all Company stock options will be cancelled for no payment or consideration.

Company RSU Awards. At the effective time of the merger, each Company RSU award that is outstanding immediately prior to the effective time of the merger will be cancelled and converted into the right to receive an amount in cash equal to (a) $2.25, multiplied by (b) the number of shares of common stock subject to such Company RSU award immediately prior to the effective time of the merger, less any applicable tax withholding.

Company LTIP Awards . Prior to the effective time of the merger, all of the outstanding Long Term Incentive Plan (LTIP) units of Morgans Group LLC will be converted into Non-Managing Member Units (each as defined in the Amended and Restated Limited Liability Company Agreement of Morgans Group LLC, effective February 17, 2006, as amended, which we refer to as the Morgans Group LLC Agreement, in accordance with the terms of the Morgans Group LLC Agreement). Those units will be converted into shares of common stock prior to the effective time of the merger and will be converted into the merger consideration at the effective time of the merger. All outstanding LTIP units are fully vested.

Interests of the Company’s Directors and Executive Officers in the Merger (Page 67)

In considering the recommendations of the Board (excluding Bradford Nugent, who recused himself from the Board’s deliberations and Jason Kalisman, who was not present at the meeting of the Board at which the merger was approved) with respect to the merger, the Company’s stockholders should be aware that the executive officers and directors of the Company have certain interests, including financial interests, in the transactions that may be different from, or in addition to, the interests of the Company’s stockholders generally.

Areas where the interests of the directors may differ from those of stockholders in general relate to (i) the vesting of unvested Company RSU awards granted to certain directors in May 2016, (ii) the discontinuance of the directors’ cash and equity compensation for their service on the Board, and (iii) the provision of indemnification and insurance arrangements pursuant to the merger agreement and the Company’s amended and restated certificate of incorporation, amended and restated bylaws and indemnification agreements, which reflect the fact that, as a result of their service on the Board, the directors may be subject to claims arising from such service.

With regard to the Company’s executive officers, because of their existing compensation arrangements, the differences in interests for such persons involve the possible receipt of the following types of payments and benefits that may be triggered by or otherwise relate to the merger:

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In addition, Yucaipa owns our Series A preferred securities as well as warrants exercisable for shares of our common stock. In connection with the merger agreement, Yucaipa entered into a rollover commitment letter, as further described below, pursuant to which Yucaipa will, immediately prior to the effective time and subject to the terms and conditions set forth therein, contribute all of such Series A preferred securities and warrants to Purchaser in exchange for common and preferred equity interests in Purchaser and leasehold interests in three restaurants. As a result of this contribution and exchange, following the effective time of the merger, Yucaipa will continue to own, indirectly, an interest in the Company, unlike holders of our common stock who will cease to have any ownership interest in the Company from and after the effective time of the merger.

Financing (Page 63)

The Company and Purchaser estimate that the total amount of funds required to complete the merger and related transactions and pay related fees and expenses will be approximately $100 million to $105 million. SBE expects this amount to be provided from the following sources, in addition to cash on hand of the Company and Purchaser:

Assuming the concurrent consummation of the rollover investment, the financing described above, when funded in accordance with the respective commitment letters, together with the available cash on hand at the Company and Purchaser at the time of the consummation of the merger, after payment of fees and expenses payable in connection with the transaction, will provide SBE the cash proceeds sufficient for the consummation of the merger. See “ Special Factors—Financing ,” beginning on page 63.

Limited Guaranty (Page 67)

SBC has agreed to guarantee the payment obligation of Cain Hoy under its equity commitment letter, subject to the satisfaction or waiver of the conditions set forth in the commitment letter.

Material U.S. Federal Income Tax Consequences of the Merger (Page 72)

For U.S. federal income tax purposes, the receipt of cash by a U.S. Holder (as defined under “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger—U.S. Holders ,” beginning on page 73) in exchange for such U.S. Holder’s shares of common stock in the merger generally will result in the recognition of gain or loss in an amount equal to the difference, if any, between the cash such U.S. Holder receives in the merger and such U.S. Holder’s adjusted tax basis in the shares of common stock surrendered in the merger. Stockholders (including Non-U.S. Holders (as defined under “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger—Non-U.S. Holders ,” beginning on page 73)) should consult their own tax advisors concerning the U.S. federal income tax consequences relating to the merger in light of their particular circumstances and any consequences arising under the laws of any U.S. state or local or non-U.S. taxing jurisdiction. A more complete description of the material U.S. federal income tax consequences of the merger is provided under “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger ,” beginning on page 72.

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Anticipated Accounting Treatment of the Merger (Page 75)

It is currently contemplated that the Purchaser will account for the merger as a business combination using the acquisition method of accounting for financial accounting purposes, whereby the estimated purchase price would be allocated to the assets and liabilities of the Company based on their fair values following FASB Accounting Standards Codification Topic 805, Business Combinations.

Rights of Appraisal (Page 117)

Under Delaware law, holders of common stock who do not vote in favor of the adoption of the merger agreement and approval of the merger, who properly demand appraisal of their shares of common stock and who otherwise strictly comply with the requirements of Section 262 of the General Corporation Law of the State of Delaware, which we refer to as the DGCL, will be entitled to seek appraisal for, and obtain payment in cash for the judicially determined fair value of, their shares of common stock in lieu of receiving the merger consideration if the merger is completed, but only if they comply with all applicable requirements of the DGCL. This judicially determined value could be more than, the same as, or less than the merger consideration. Any holder of common stock intending to exercise appraisal rights, among other things, must submit a written demand for appraisal to us prior to the vote on the proposal to adopt the merger agreement and must not vote in favor of adoption of the merger agreement and must otherwise strictly comply with all of the procedures required by the DGCL. The relevant provisions of the DGCL are included as Annex C to this proxy statement. You are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising the right to seek appraisal, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. Failure to strictly comply with these provisions will result in loss of the right of appraisal.

Non-Solicitation (Page 91)

Pursuant to the merger agreement, with certain specified exceptions, neither the Company nor its subsidiaries or representatives may:

If the Company receives, prior to receipt of the Company stockholder vote to adopt the merger agreement, an unsolicited takeover proposal that would reasonably be expected to lead to a superior proposal, that did not otherwise result from a breach of the Company’s non-solicitation obligations, and, if the Board determines in good faith after consultation with its outside legal counsel, that the failure to take the following actions would be inconsistent with the exercise of the Board’s fiduciary duties to the Company’s stockholders under applicable law, then the Company or any of its representatives may, as further described in the section entitled “ The Merger Agreement—Other Covenants and Agreements—Takeover Proposals ,” beginning on page 91, subject to certain limitations, furnish nonpublic information to the person making such takeover proposal if, prior to doing so, the Company has entered into an acceptable confidentiality agreement with such person, and engage in discussions or negotiations with the person making such takeover proposal.

The Board will not take any of the following actions, each of which we refer to as an adverse recommendation change:

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However, at any time prior to receipt of the Company stockholder vote to adopt the merger agreement, if the Company receives a superior proposal and the Board determines in good faith, after consultation with outside legal counsel, that it is necessary to do so in order to comply with its fiduciary obligations, the Board may (i) withdraw or modify its approval or recommendation of the merger and the merger agreement and, in connection therewith, approve or recommend a superior proposal or (ii) terminate the merger agreement to enter into a definitive agreement providing for a superior proposal (in each case, so long as the Company is not in breach of its non-solicitation obligations under the merger agreement) and concurrently pay to Purchaser the termination fee as described in “ The Merger Agreement—Termination Fees; Reimbursement of Expenses ,” beginning on page 101.

The Board and the Company can take the foregoing actions only if (i) the Company provides Purchaser four (4) business days’ prior written notice of its intention to take such action, which notice shall include the identity of the party making a superior proposal and the material terms and conditions thereof, an unredacted copy of the superior proposal, and an unredacted copy of the then-current proposed draft definitive agreements (provided that the notice period shall be two (2) business days in the event that any material revision or amendment to a superior proposal is made); (ii) after providing such notice, the Company and its representatives negotiate with Purchaser in good faith to make adjustments to the merger agreement as would permit the Company not to withdraw or modify its approval or recommendation of the merger and the merger agreement or terminate the merger agreement; and (iii) the Board (after consulting with its financial advisor and outside legal counsel) considers in good faith any changes to the merger agreement offered by Purchaser.

Termination (Page 99)

The Company and Purchaser may terminate the merger agreement by mutual written consent at any time before the effective time of the merger, whether before or after receipt of the Company stockholders’ approval. In addition, either the Company or Purchaser may terminate the merger agreement if:

The Company may terminate the merger agreement if:

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Purchaser may terminate the merger agreement if:

Termination Fees; Reimbursement of Expenses (Page 101)

The Company will be required to pay to Purchaser a fee of $6.5 million if the merger agreement is terminated:

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Additionally, the Company has agreed to reimburse Purchaser within two (2) business days for all reasonable, documented and out-of-pocket costs, fees and expenses of Purchaser, up to an amount not to exceed $1 million (which will be credited against any termination fee) if the merger agreement is terminated:

Purchaser will be required to pay to the Company a fee of $6.5 million if the merger agreement is terminated (i) by the Company pursuant to the financing failure termination right, (ii) by the Company or Purchaser, pursuant to the outside date termination right, if, at the time of such termination, the Company would have been entitled to terminate the merger agreement pursuant to the financing failure termination right, or (iii) by the Company or Purchaser pursuant to the outside date termination right, if at the time of such termination all of the conditions to Purchaser’s obligation to close the merger have been met (with the exception of the closing condition with regard to assumption or refinancing of the Hudson/Delano mortgage debt agreements) and the Company is not in material breach of any of its obligations under the merger agreement with respect to the mortgage debt agreements.    

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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER

The following questions and answers address briefly some questions you may have regarding the special meeting, the merger agreement and the merger. These questions and answers may not address all questions that may be important to you as a holder of common stock of the Company. Please refer to the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

We believe the Company is likely to be a USRPHC (as defined in “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger—Non-U.S. Holders ,” beginning on page 73). As a result, if you are a Non-U.S. Holder (as defined in “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger—Non-U.S. Holders ”), you may be subject to United States federal income tax on any gain recognized by you upon the exchange of your shares of common stock pursuant to the merger, even if you are not engaged in a trade or business in the United States and are not an individual present in the United States for 183 days or more during the taxable year of the exchange. Whether or not a Non-U.S. Holder of a USRPHC will be subject to United States federal income tax depends on the number of shares of common stock such Non-U.S. Holder holds and whether the shares of common stock are considered to be “regularly traded” on an established securities market within the meaning of applicable Treasury Regulations issued by the Internal Revenue Service. See “ Special Factors—Material U.S. Federal Income Tax Consequences of the Merger ,” beginning on page 72.

You should consult your own tax advisors regarding the particular tax consequences to you of the exchange of shares of common stock for cash pursuant to the merger in light of your particular circumstances including the application and effect of any state, local or non-U.S. income and other tax laws.

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As of August 2, 2016, there were 34,874,923 shares of common stock outstanding.

In connection with the merger agreement, and as a condition of SBE’s willingness to proceed with the proposed transaction, SBE entered into voting agreements with each of OTK Associates, LLC, Pine River Capital Management, L.P. and Vector Group Ltd., dated as of May 9, 2016, pursuant to which OTK Associates, LLC, Pine River Capital Management, L.P. and Accommodations Acquisition Corp. (which together with certain of their affiliates collectively own approximately 29% of the shares of common stock outstanding as of the record date), have agreed to vote such shares in favor of adoption of the merger agreement. Also, SBE entered into a voting agreement with Yucaipa, pursuant to which Yucaipa has agreed to consent to the merger agreement. Each of the voting agreements entered into with SBE would terminate automatically at the earliest of the effective time of the merger, upon termination of the merger agreement, on November 9, 2016, if the merger agreement is amended in a manner that reduces the merger consideration or changes the form of the merger consideration, or in the event that the Company’s board of directors withdraws or modifies its approval or recommendation of the merger and/or the merger agreement in accordance with the merger agreement, and, in connection therewith, approves or recommends a superior proposal in accordance with the merger agreement.

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You should read “ Special Factors—Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger ,” beginning on page 44 for a discussion of the factors that the Board (excluding Mr. Nugent, who recused himself from the Board’s deliberations and Mr. Kalisman, who was not present at the meeting of the Board at which the Merger was approved) considered in deciding to recommend the approval of the merger agreement. See also “ Special Factors—Interests of the Company’s Directors and Executive Officers in the Merger ,” beginning on page 67.

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If you hold your shares of common stock in “street name” through a broker, bank or other nominee you should follow the directions provided by your broker, bank or other nominee regarding how to instruct your broker, bank or other nominee to vote your shares. Without those instructions, your shares will not be counted for purposes of a quorum or voted at the meeting, which will have the same effect as voting against the adoption of the merger agreement.

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Okapi Partners LLC

1212 Avenue of the Americas, 24 ^th Floor

New York, NY 10036

Banks and Brokerage Firms, Please Call: (212) 297-0720

Stockholders and All Others, Call Toll Free: (877) 796-5274

Email: info@okapipartners.com

If your broker, bank or other nominee holds your shares, you should also call your broker, bank or other nominee for additional information.

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SPECIAL FACTORS

Background of the Merger

The Board and senior management regularly evaluate the Company’s business and operations, trends in the hotel and lodging and real estate industries, and the macro-economic environment, all with a view toward creating and maximizing stockholder value. From time to time, this evaluation has included the review of potential strategic alternatives, including business combinations involving all or part of the Company.

On October 15, 2009, in an effort to address the Company’s liquidity needs, the Company entered into a Securities Purchase Agreement, which we refer to as the Securities Purchase Agreement, with Yucaipa American Alliance Fund II, L.P. and Yucaipa American Alliance (Parallel) Fund II, L.P., which we refer to, together with Yucaipa Hospitality LLC, as the Yucaipa investors. Under the Securities Purchase Agreement, the Company sold to the Yucaipa investors (1) 75,000 Series A preferred securities with a liquidation preference of $1,000 per share, and (2) warrants to purchase 12,500,000 shares of common stock at an exercise price of $6.00 per share.

The Series A preferred securities had a dividend rate of 8% for the first five years and then a dividend rate of 10% for years six and seven. The dividend rate will increase from 10% to 20% after October 15, 2016. The Company has the option to redeem any or all of the Series A preferred securities at par plus cumulative unpaid dividends at any time. The Series A preferred securities have consent rights as to the authorization of preferred stock ranking senior to the Series A preferred securities and amendments to the certificate of designation of the Series A preferred securities and amendments to the Company’s charter that adversely affect the Series A preferred securities. In addition, so long as the Yucaipa investors and their affiliates collectively hold at least a majority of the Series A preferred securities outstanding, in addition to any other vote or consent of stockholders required by law or by the Company’s charter, the prior approval of the holders of at least a majority of the outstanding Series A preferred securities is required for any transaction (x) involving the acquisition (including by merger, consolidation, other business combination, or acquisition of all or substantially all of the assets of the Company, other than an acquisition that is an acquisition of substantially all of the assets of the Company as the result of the disposition by the Company of real estate assets where the Company will continue to engage in the business of managing hotel properties and other real property assets) of the Company by any third party or (y) pursuant to which the Series A preferred securities are converted or reclassified into or exchanged for securities of another entity.

The warrants to purchase 12,500,000 shares of common stock at an exercise price of $6.00 per share have a 7-1/2 year term (expiring on April 15, 2017) and are exercisable utilizing a cashless exercise method only, resulting in a net share issuance. For so long as the Yucaipa investors collectively have the right to purchase through exercise of the warrants (whether or not any or all of such warrants are exercisable and assuming a cash exercise) an aggregate of at least 875,000 shares of common stock, the Company must use its reasonable best efforts to cause the Board to nominate and recommend to the Company’s stockholders the election of a person nominated by the Yucaipa investors as a director and use its reasonable best efforts to ensure that the Yucaipa nominee is elected to the Board at each meeting of stockholders. If that nominee is not elected by the Company’s stockholders, the Yucaipa investors have certain board observer rights and, in certain circumstances, the dividend rate on the Series A preferred securities increases by 4% during any time that a Yucaipa nominee is not a member of the Board. Effective October 15, 2009, Yucaipa nominated, and the Board elected, Michael Gross as a member of the Board.

Under the Securities Purchase Agreement, for so long as they collectively own or have the right to purchase through exercise of the warrants (whether or not any or all of such warrants are exercisable) an aggregate of at least 6,250,000 shares of common stock, the Yucaipa investors have consent rights with respect to:

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The Company has taken the position that, for purposes of calculating whether the Yucaipa investors collectively own or have the right to purchase through exercise of the warrants 6,250,000 shares of common stock, the shares purchasable upon exercise of the warrants should be calculated assuming a cashless exercise. The Yucaipa investors disagree and have asserted that they have consent rights with respect to the above items under the Securities Purchase Agreement in addition to their consent rights under the terms of the Series A preferred securities (as to which there is no disagreement).

On April 23, 2010, the Yucaipa investors purchased $78 million aggregate principal amount of the Company’s 2.375% Senior Subordinated Convertible Notes due 2014, which we refer to as the convertible notes. On July 21, 2010, the Yucaipa investors purchased an additional $10 million aggregate principal amount of the Company’s convertible notes.

Since 2009, the Company has been impacted by, among other things, high levels of leverage, the Company’s efforts to transition from a business model combining ownership of a significant number of hotels and a portfolio of managed hotel properties to an asset-light business model focused on management, licensing and development of properties not owned by the Company, changes in the management and Board (including successive proxy contests at the Company’s 2013 and 2014 annual meetings of stockholders), the Company’s various efforts to explore potential strategic alternatives, challenges in attracting and retaining key personnel, deteriorating business conditions commencing in 2015 that have resulted in a substantial decline in the value of the Company’s remaining owned hotels, and a diminishing cash balance.

On March 21, 2011, the Company announced a series of changes to its Board and senior management.

Beginning in 2011, the Company disposed of its interests in several owned hotels and announced plans for several new managed or licensed hotel properties. For example, between May and November 2011, the Company sold its equity interests in Mondrian Los Angeles hotel, Royalton and Morgans hotels in New York, and Sanderson and St Martins Lane hotels in London. The Company continues to operate each of the sold hotels under long-term management agreements. The Company used the net proceeds of the sales to repay indebtedness and provide working capital. Despite these asset sales and the associated debt repayment, the Company remained highly levered, with indebtedness and obligations in respect of the Series A preferred securities totaling in excess of $500 million at the end of 2011. The Company’s intention at that time was to focus primarily on developing its portfolio of managed and licensed hotels. Although the Company, working with a variety of developers and third-party investors, has initiated numerous projects since 2011, these projects have largely failed to generate material new revenue and the Company’s interests in several management projects have terminated for a variety of reasons.

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Other anticipated development projects have been abandoned (resulting in significant cash losses) or are taking longer than expected to commence (with no assurance of ultimate completion or success). The Company’s portfolio of hotels currently consists of three owned hotels (Hudson, Delano and Clift hotels); seven managed hotels (Royalton and Morgans hotels in New York, Shore Club in Miami, Mondrian Los Angeles and Sanderson, St Martins Lane and Mondrian hotels in London); two licensed hotels, Delano Las Vegas and Mondrian South Beach; and one franchised hotel, 10 Karakoy in Istanbul. The owners of Royalton, Morgans and Shore Club have announced that they intend to exercise their rights to terminate the existing management agreements, which would reduce the number of hotels managed by the Company to four.

On November 30, 2011, subsidiaries of the Company acquired 90% of the equity interests in a group of companies known as The Light Group, an operator of restaurants, nightclubs, bars and other food and beverage venues primarily under contracts with the MGM Las Vegas, for a purchase price of $28.5 million in cash and up to $18 million in notes convertible into shares of common stock of the Company. In connection with the acquisition, Andrew Sasson, a founder of The Light Group, joined the Board. In addition, The Light Group began running the food and beverage operations at Delano following the acquisition.

Beginning in the fall of 2011, management of the Company began to consider the possibility of restructuring the Yucaipa investors’ investment in the Company. As previously noted, at that time the Yucaipa investors held a combination of Series A preferred securities, warrants to purchase common stock, and convertible notes with a maturity date in October 2014. In December 2011, the Board formed a special committee consisting of Messrs. Kalisman, Michael Malone, Robert Friedman, Thomas Harrison and Edwin Knetzger to consider potential transactions with respect to the securities owned by Yucaipa. Between December 2011 and May 2012, the special committee continued to meet and, in May 2012, the committee engaged a financial advisor to assist with a broader review of potential strategic alternatives.

At the May 16, 2012 annual meeting of the Company’s stockholders, Messrs. Hamamoto, Gross, Burkle, Friedman, Gault, Harrison, Kalisman, Malone and Sasson were elected as directors of the Company.

In June 2012, the special committee instructed management to prepare for a $50 million rights offering and a possible sale of Delano. As of June 30, 2012, the Company had more than $525 million of outstanding debt and Series A preferred securities obligations. The objective of the transactions proposed by the special committee was to de-lever the Company’s balance sheet and increase the Company’s financial flexibility, and potentially create an alternative to a transaction with the Yucaipa investors.

On July 2, 2012, Yucaipa proposed a transaction whereby Yucaipa would acquire Delano, The Light Group and the Delano brand in exchange for all of its interests in the Company and the Company would retain the management contract for Delano. Subsequent to July 2, 2012, Yucaipa learned of the Company’s proposed rights offering and, on August 1, 2012, Yucaipa amended its proposal by offering to backstop a $100 million rights offering at $6.00 per share of common stock. At that time, the common stock was trading at approximately $4.75 per share.

During the period from August 2012 to March 2013, the special committee continued to engage in discussions with Yucaipa regarding a possible transaction.

On October 10, 2012, a party, whom we refer to as Bidder A, sent a letter to the Company proposing an acquisition of the Company at what Bidder A described as a meaningful premium to recent trading levels. The Board did not engage with Bidder A at that time because it was focusing on the discussions with Yucaipa and believed that a transaction with Yucaipa would likely not preclude a subsequent transaction with Bidder A.

Also around this time, the Company was soliciting bids on Delano. On October 25, 2012, three parties submitted bids on Delano at values ranging from $145 to $170 million.

On November 20, 2012, Mr. Hamamoto resigned from the Board and from his position as Executive Chairman to focus on his other business interests and commitments.

On November 26, 2012, Bidder A offered to purchase the Company at a price of $7.50 per share of common stock. On December 2, 2012, a third party offered to make a $100 million equity investment in the Company. The special committee and the Board declined to pursue these potential strategic alternatives in light of the special committee’s principal focus on pursuing a potential transaction with Yucaipa and the perceived benefits of that transaction. The Board and the special

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committee believed that with reduced leverage and elimination of the Yucaipa investors’ Series A preferred securities and warrants, the Company would have greater flexibility to pursue an asset-light strategy or other potential strategic opportunities and initiatives, including but not limited to the potential sale of the Company.

On March 15, 2013, OTK Associates, which at that time owned approximately 13.9% of the common stock, commenced a proxy contest to replace the Board (other than Mr. Kalisman) at the 2013 annual meeting.

On March 30, 2013, the special committee and the Board convened meetings. Mr. Kalisman objected to the adequacy of notice of the meeting of the special committee. Over Mr. Kalisman’s objection, the special committee resolved to form a sub-committee consisting of all the members of the special committee other than Mr. Kalisman. Immediately thereafter, the subcommittee met and, following presentations by the subcommittee’s legal and financial advisors, recommended to the Board the transactions with the Yucaipa investors described below. At a meeting of the Board on the same day, the Board, over the objection of Mr. Kalisman, approved the transactions with the Yucaipa investors. On the same day, the Company announced that it and certain of its subsidiaries had entered into various definitive agreements with the Yucaipa investors and their affiliates, pursuant to which:

On April 1, 2013, Mr. Kalisman filed a lawsuit in the Court of Chancery of the State of Delaware (the “Delaware Court”) seeking to, among other things, block the consummation of the Yucaipa transactions described above. OTK Associates later joined as a plaintiff in the suit and the litigation was captioned OTK Associates , LLC v. Friedman , et al. , C.A. No. 8447-VCL (Del. Ch.).

On May 14, 2013, the Delaware Court issued an injunction temporarily prohibiting the Company from consummating the Yucaipa transactions, finding, among other things, that the Board had deprived Mr. Kalisman of his right to participate in special committee and Board meetings and had impaired the ability of the Board to engage in a collective deliberative process.

At the Company’s June 14, 2013 annual meeting, stockholders elected the entire OTK Associates slate of nominees to the Board, which, in addition to Mr. Kalisman, consisted of John J. Dougherty, Mahmood Khimji, Jonathan Langer, Andrea L. Olshan, Michael E. Olshan and Parag Vora. Mr. Kalisman was subsequently elected Chairman of the Board. Following the 2013 annual meeting there was no nominee of the Yucaipa investors on the Board and, from July 1, 2013 until May 2014 the dividend rate on the Series A preferred securities increased by 4.0% under the terms of the Series A preferred securities.

On June 27, 2013, certain Yucaipa affiliates filed a lawsuit against the Company and Morgans Group LLC in the Supreme Court of the State of New York captioned Yucaipa American Alliance Fund II L.P. , et al. v. Morgans Hotel Group Co. , et al. ,

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Index No. 652294/2013 (NY Sup.). The plaintiffs alleged, among other things, that the Company and Morgans Group had refused to use commercially reasonable best efforts to close the various putative agreements comprising the Yucaipa transactions described above, and that the Board had effectively withdrawn or modified its approval of the Yucaipa transactions.

On July 1, 2013, Mr. Burkle filed a lawsuit in the U.S. District Court for the Southern District of New York against OTK Associates and the Board captioned Burkle v. OTK Associates , LLC , et al. , Case No. 13-CIV-4557 (S.D.N.Y.). Mr. Burkle alleged that OTK Associates and the Board used false and materially misleading proxy solicitation materials during the Company’s 2013 annual election of directors and, sought, among other things, an injunction requiring defendants to cause the Company to hold a new election of the Board.

On August 30, 2013, Mr. Gross resigned from the role of Chief Executive Officer of the Company. Mr. Kalisman was named Chief Executive Officer on an interim basis. On the same day, Mr. Burkle sent a letter to Mr. Kalisman expressing his frustration, among other things, with the circumstances surrounding Mr. Gross’ resignation and reiterating Yucaipa’s right to have an observer at all Board meetings.

On September 5, 2013, Kerrisdale Capital Management LLC made a filing with the SEC disclosing an intention to submit a competing slate of nominees for election to the Board at the Company’s 2014 annual meeting.

On October 4, 2013, certain Yucaipa affiliates filed a lawsuit against the Company in the Supreme Court of the State of New York captioned Yucaipa American Alliance Fund II L.P. , et al. v. Morgans Hotel Group Co. , Index No. 653455/2013 (NY Sup.). The Yucaipa affiliates asserted, among other things, that the Company breached the terms of the Securities Purchase Agreement by not properly providing the Yucaipa affiliates with observer rights at Board meetings.

On October 31, 2013, Yucaipa sent the Board a letter indicating that Yucaipa would like to speak with the Company regarding its potential interest in making a proposal to acquire the Company for $8.00 per share. The letter also encouraged the Company to seek alternative bids.

During the fall of 2013 and in early 2014, the Company’s liquidity resources were becoming increasingly scarce. By December 31, 2013, the Company had approximately $10.0 million in cash and cash equivalents with approximately $407.5 million of debt maturing in 2014. On February 6, 2014, the Company entered into a new mortgage financing secured by Hudson and Delano. Proceeds from that new mortgage financing were used to, among other things, repay outstanding debt on prior mortgage loans secured by Hudson, and subsequently to repurchase $88.0 million principal amount of convertible notes issued by the Company which were held by Yucaipa.

On January 18, 2014, at a regular meeting, the Board discussed, among other things, the benefits of creating a special transaction committee to explore potential strategic alternatives, in light of the fact that (i) the Company had received a proposal from Yucaipa to acquire the Company; and (ii) one of the Company’s directors was affiliated with a separate potential counterparty with whom the Company expected to have (and ultimately had) discussions concerning a potential business combination. The Board believed that it would be in the best interests of the Company’s stockholders, at that time, to explore potential strategic alternatives, in light of the expressions of interest previously received from Yucaipa and another third party. The Board resolved to create a special transaction committee (the “Special Transaction Committee”), comprised of disinterested directors, to avoid or mitigate any actual or perceived conflicts of interest relating to members of the Board. The Special Transaction Committee initially was composed of Mr. Kalisman, Mr. Dougherty, Mr. Langer, Ms. Olshan and Mr. Olshan, with Mr. Kalisman appointed as chairman. The Board resolved, among other things, that it would not approve a potential transaction or strategic alternative without the prior favorable recommendation of the Special Transaction Committee. The Special Transaction Committee subsequently engaged Morgan Stanley as its financial advisor, and Abrams & Bayliss LLP and another law firm as its legal counsel in the spring of 2014. The Special Transaction Committee’s review of potential strategic alternatives included capital raising, asset sales, strategic partnerships, a sale of the entire Company, a sale of component parts of the Company, acquisitions and other alternatives. From its inception through its dissolution in June 2015, the Special Transaction Committee met approximately 88 times.

On February 28, 2014, the Company, Yucaipa and OTK Associates entered into a binding memorandum of understanding and later a stipulation of settlement with respect to the Delaware action and the New York federal and state actions described above. The settlement provided for, among other things, a $3.0 million payment (which was previously escrowed) by the Company to certain Yucaipa affiliates for attorneys’ fees and expenses incurred by Mr. Burkle in his defense of the Delaware

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action, an application by Mr. Kalisman and OTK Associates to the Delaware Court for an award of payment from the Company of the reasonable and necessary fees and expenses incurred by their counsel in connection with the Delaware action (which application was subsequently granted), customary releases, and dismissal of the Delaware action and the New York federal and state actions with prejudice and on the merits, except as to certain directors of the Company who settled at a later date. On the same date, the Company repurchased from the Yucaipa investors $88.0 million of the Company’s convertible notes scheduled to mature in October 2014 at par plus accrued interest.

On March 12, 2014, Kerrisdale Capital and certain of its affiliates announced a proxy contest to replace the Board. Kerrisdale disclosed that it believed that the Company should fully explore strategic alternatives and seek to auction the Company to the highest bidder, and urged the Company to reengage immediately with parties that had previously expressed interest in the Company. On May 13, 2014, the Company disclosed that it had formed the Special Transaction Committee in January 2014, that the Special Transaction Committee had engaged Morgan Stanley as its financial advisor earlier in May, and that the Special Transaction Committee was exploring potential strategic alternatives.

On May 14, 2014, following a vote at the Company’s annual meeting, seven nominees of the Company, Mr. Dougherty, Martin Edelman, Mr. Kalisman, Mr. Khimji (who resigned from the Board later that summer), Mr. Langer, Michelle Russo and Derex Walker, the Yucaipa nominee, were elected as directors, along with two Kerrisdale nominees, John Brecker and Andrew Broad, who replaced Special Transaction Committee members Ms. Olshan and Mr. Olshan. As a result, until the new additions to the Special Transaction Committee described below, the Special Transaction Committee was comprised of Mr. Kalisman, Mr. Dougherty and Mr. Langer.

During the summer of 2014, the Special Transaction Committee and its advisors prepared to launch a formal outreach process to solicit potential expressions of interest from prospective counterparties. In connection with that process, the Company, with the assistance of Morgan Stanley, prepared a Confidential Information Memorandum and populated a data room for review by prospective counterparties willing to execute a non-disclosure agreement (“NDA”). During this period, the Special Transaction Committee worked with Morgan Stanley to assess the Company’s business prospects and headwinds, including company- and industry-specific challenges. None of the parties that executed NDAs with the Company in connection with the process to explore strategic alternatives nor any of the parties that executed NDAs with the Company in connection with the brokered hotel sale process commenced by the Company in November 2015 is subject to any contractual restriction with the Company which prevents that party from making a potential superior proposal or requesting a waiver from the Company for the purpose of submitting a potential superior proposal.

Also during this period, representatives of Morgan Stanley, at the Special Transaction Committee’s direction, met with representatives of Yucaipa to discuss Yucaipa’s views concerning the Company and the evaluation of strategic alternatives and potential willingness to submit a proposal for a transaction with the Company and/or execute a waiver of any consent rights. The Special Transaction Committee and Yucaipa discussed the possibility of Yucaipa (x) publicly announcing a price per share at or above which it would be a seller (in order to set a floor on acquisition bids), which the Special Transaction Committee suggested be set at $6.50 per share, and/or (y) issuing a public statement concerning Yucaipa’s willingness to waive any consent rights. The Special Transaction Committee also discussed internally and with its advisors the possibility of offering Yucaipa a partial right of first refusal in lieu of setting a floor price in any such public announcement. Yucaipa indicated, around this time, that it was no longer interested in purchasing the Company at $8.00 per share, and Yucaipa publicly stated that it intended to waive its consent rights and support a sale at a price of $8.00 per share or more, so long as the Company commenced a process to explore strategic alternatives by July 1, 2014.

On September 3, 2014, the Company publicly announced that the Special Transaction Committee of the Board had directed Morgan Stanley to reach out to possible counterparties regarding interest in a wide range of potential transactions that could provide the Company an opportunity to maximize value for its stockholders.

On September 11, 2014, Mr. Walker resigned from the Board.

During the period September 2014 through October 2014, at the Special Transaction Committee’s direction, Morgan Stanley reached out to approximately 180 prospective counterparties, including financial sponsors, potential strategic buyers, and private investors. Approximately 65 of the 180 prospective counterparties executed NDAs and received non-public evaluation materials, including the Confidential Information Memorandum and management projections, and a process letter. At the Special Transaction Committee’s direction, Morgan Stanley encouraged prospective counterparties to submit not only whole-Company bids, but also bids for other transaction structures, including bids for one or more of the Company’s owned hotel assets or other units of the business. The initial process letter invited prospective counterparties to submit detailed, non-binding indications of interest on or before October 22, 2014.

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At the Special Transaction Committee’s direction, in addition to the formal outreach process, Morgan Stanley also reached out to various prospective counterparties regarding a potential transaction involving the Company’s then-90% controlling interest in The Light Group. During this period, the Special Transaction Committee engaged with Yucaipa on various potential transactions involving The Light Group and Yucaipa, including but not limited to transactions involving The Light Group and three-way transactions involving the Company, Yucaipa, and certain third parties. On October 1, 2014, following discussions between the Company and Yucaipa, Mr. Burkle threatened to file a lawsuit if the Company sold its interest in The Light Group without Yucaipa’s consent.

On October 2, 2014, following a recommendation by the Special Transaction Committee, the Board added Mr. Broad to the Special Transaction Committee. Also on October 2, the Special Transaction Committee discussed Mr. Kalisman’s recommendation that, given the demands on his time, he resign as chairman of the Special Transaction Committee and that the Special Transaction Committee appoint Mr. Langer as chairman in his place, which the Special Transaction Committee did.

From October 23, 2014 through December 19, 2014, at the Special Transaction Committee’s direction, Morgan Stanley contacted three additional prospective counterparties, one of whom executed an NDA and received evaluation materials.

On October 31, 2014, Morgan Stanley reported to the Special Transaction Committee that several prospective counterparties had indicated that they did not believe The Light Group fit into their corporate strategies. The Special Transaction Committee discussed whether the disposition of the Company’s stake in The Light Group might potentially broaden the Company’s appeal to prospective counterparties. The Special Transaction Committee also discussed an indication from Mr. Burkle that Yucaipa would be willing to pay $35.6 million, subject to certain conditions and potential adjustments, for 100% of The Light Group, including the MBLV Restaurants. The parties subsequently exchanged non-binding drafts of an agreement regarding the potential sale of The Light Group. During the same period, the Special Transaction Committee engaged with another bidder, Hakkasan Group, regarding a potential transaction involving The Light Group.

As of November 3, 2014, on which date the Company’s common stock closed at $8.05 per share, the Company had received ten non-binding indications of interest consisting of:

During a regularly scheduled meeting on November 3, 2014, the Board discussed concerns raised by each of the parties that submitted bids for certain of the Company’s real estate assets, and other potential prospective counterparties, regarding uncertainty associated with ownership of the Company’s management business. The Board also discussed the possibility that concerns about the Company’s capital structure may have discouraged prospective counterparties from participating in the Company’s outreach process. The Board also discussed the possibility that the complexity of the Company and its alternatives had discouraged potential bidders.

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During the first week of November 2014, the Company received two additional non-binding indications of interest consisting of offers for Company-owned hotel assets from parties whom we refer to as Bidder K and Bidder L.

In November 2014, Morgan Stanley informed the Special Transaction Committee that each of the five prospective buyers of the Company’s owned-hotel assets (Bidder D, Bidder E, Bidder H, Bidder K and Bidder L) had expressed concern that the possible sale of the Company’s hotel management business had created uncertainty about the future manager of the Company’s owned-hotel assets. The Special Transaction Committee determined to defer its pursuit of those five prospective owned hotel asset buyers until the Company first resolved the uncertainty regarding the future manager of the Company’s owned-hotel assets. None of Bidder D, Bidder E, Bidder H, Bidder K and Bidder L subsequently submitted a revised proposal. The Special Transaction Committee also determined to defer further discussions with Bidder F because that party’s proposed corporate strategy did not align with the Company’s and Bidder F did not submit a subsequent proposal. The Special Transaction Committee instructed Morgan Stanley to invite six prospective bidders (Bidder A, Bidder B, Bidder C, Bidder G, Bidder I and Bidder J) to the second round of the outreach process, provide those parties access to the Company’s data room and grant them permission to contact potential equity partners. The second-round process letters requested that the parties submit revised offers on December 15, 2014. The Special Transaction Committee also asked Morgan Stanley to invite one party whom we refer to as Bidder M, which signed an NDA on November 30, 2014, to submit a non-binding indication of interest on or before December 15, 2014.

On December 9, 2014, Bidder B declined interest and withdrew from the outreach process.

On December 15, 2014, the requested deadline for submission of offers in the second round of the outreach process, only one party invited to the second round (Bidder G) submitted a proposal. That bidder did not increase or decrease its initial offer of $225 million for the Company’s hotel management business. The other bidders that were invited into the second round of the process but did not submit second round indications of interest cited various reasons, including financing issues, issues involving potential financing partners, and the desire for additional price guidance from the Special Transaction Committee or its advisors. On the same date, Bidder M submitted a preliminary, non-binding indication of interest stating its view that the value of the Company was “in excess of” $8.00 per share. On December 15, 2014, the common stock closed at $7.69 per share.

On December 16, 2014, following a recommendation by the Special Transaction Committee and approval by the Board, the Company entered into a definitive agreement to sell its 90% controlling interest in The Light Group to Hakkasan Group, for a total enterprise value of $36 million. The purchase price included the remaining 10% equity interest held by Mr. Sasson and Andy Masi, The Light Group’s co-founders. The transaction did not include the purchase of the MBLV Restaurants. Following the announcement of the transaction, Messrs. Burkle, Masi and Sasson expressed frustration with the Company’s decision to sell The Light Group to Hakkasan. Mr. Burkle indicated that he wanted (i) the Company to buy out Yucaipa’s interests in the Company, or (ii) Yucaipa to acquire the management contracts on the Light Nightclub and Daylight Beach Club held by The Light Group (together, the “Club Management Contracts”) and either the leaseholds associated with the MBLV Restaurants or the management contracts on the MBLV Restaurants. Mr. Burkle also threatened that he would seek to terminate the Club Management Contracts based on alleged breaches of those agreements if Hakkasan Group and the Company rejected a deal that would permit Yucaipa to manage the MBLV Restaurants. The Company agreed to provide Hakkasan Group with additional indemnification protection, and Hakkasan Group subsequently closed the transaction acquiring The Light Group in January 2015. As part of the transaction, the Company resumed control of the food and beverage operations at Delano.

On December 19, 2014, following discussions with Morgan Stanley, the Special Transaction Committee determined to continue to engage with Bidder A, Bidder C, Bidder G, Bidder I and Bidder M and schedule an in-person meeting with Bidder J to determine whether to pursue further discussions regarding a potential transaction. In addition, at the Special Transaction Committee’s direction, Morgan Stanley contacted four additional prospective counterparties and eight additional parties executed an NDA and received evaluation materials. Subsequently, Bidder G did not submit a revised proposal and Bidder M never formally submitted a proposal.

On December 22, 2014, Bidder A sent a letter to the Company in which Bidder A offered $200 million to acquire the Company’s management contracts and development pipeline.

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In late December 2014, the Special Transaction Committee discussed concerns about the status and potential outcomes of the Special Transaction Committee’s exploration of strategic alternatives. The Special Transaction Committee discussed the offers that the Company had received and expressed concern about the credibility of one offer (from Bidder C) because Bidder C had been unable to secure the equity required to finance the offer. The Special Transaction Committee and Morgan Stanley also discussed the merits and considerations of putting the outreach process on hold.

On January 13, 2015, the Special Transaction Committee was informed that Bidder C had not succeeded in identifying a potential equity partner and could not confirm its earlier offer.

On January 21, 2015, Sam Bakhshandehpour, then-Chief Executive Officer of SBE Entertainment Group (an affiliate of SBE), contacted Morgan Stanley to express interest in a potential reverse merger transaction involving SBE and the Company.

On January 22, 2015, the Special Transaction Committee met with its advisors at Morgan Stanley’s office in New York. The Special Transaction Committee and its advisors discussed the status of the outreach process and the type and size of the offers that the Company had received to date. The Special Transaction Committee discussed the fact that a sale of the Company’s hotel management business would leave the Company holding solely its owned hotels. The Special Transaction Committee and Morgan Stanley discussed whether the Company would be a viable acquisition target following the sale of the Company’s hotel management business as well as the likely market reaction and trading price of the common stock after such a transaction. On January 22, 2015, the common stock closed at $7.49 per share.

On February 2, 2015, Yucaipa sent (i) a letter to Mr. Kalisman, in which Yucaipa expressed frustration with the Company’s strategic alternatives process, and (ii) a letter to the Board, in which the Yucaipa investors designated Bradford Nugent as Yucaipa’s nominee for election to the Board.

In early February 2015, SBE signed an NDA with the Company, which contained a customary standstill provision.

On February 19, 2015, a party whom we refer to as Bidder N submitted an offer for $250 million for the Company’s hotel management business. The Company did not respond to Bidder N’s proposal at that time and Bidder N did not submit a revised proposal subsequently.

Throughout the spring of 2015, Morgan Stanley and the Special Transaction Committee continued to communicate with various prospective counterparties regarding potential transactions involving the Company.

On March 5, 2015, during a regularly scheduled meeting, the Board met with the Special Transaction Committee’s advisors to discuss the Special Transaction Committee’s outreach process. The Board discussed challenges associated with the ongoing process, including the scale of the business and the fact that the Company would require liquidity and cash flow in order to become a more attractive acquisition target. The Board discussed the possibility of a meeting with Yucaipa to determine Yucaipa’s support for particular transaction types at particular ranges of value. That meeting took place some weeks later, on April 28, 2015.

On March 13, 2015, Morgan Stanley participated on a call with Sam Nazarian, founder, Chairman and Chief Executive Officer of SBE, which previously had expressed interest in a potential reverse merger transaction involving the Company. Mr. Nazarian indicated that Cain Hoy would serve as the capital source for any potential transaction involving the Company and SBE.

On March 16, 2015, the Board appointed Howard Lorber, the Chief Executive Officer of Vector Group, which, through Accommodations Acquisition Corp., owned approximately 7% of the common stock, and Kenneth Cruse to fill two vacancies on the Board.

On April 3, 2015, at the Yucaipa investors’ request, the Board increased its size by one member and appointed Mr. Nugent to the Board.

On April 21, 2015, SBE sent a preliminary, non-binding letter of intent to the Company that included a transaction proposal and a request that the Company enter into a 60-day period of exclusivity to understand and analyze the Company’s financial projections and attempt to reach an agreement. The proposal contemplated a stock-for-stock combination whereby SBE would reverse merge into the Company, the Company’s existing stockholders would own 45% to 55% of the combined

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entity, and Mr. Nazarian would serve as the combined entity’s CEO and Chairman. The Company did not enter into an exclusivity agreement with SBE at this time, but the Special Transaction Committee and its advisors continued to engage with SBE.

On April 24, 2015, the Special Transaction Committee and its advisors discussed the letter of intent, SBE’s anticipated acquisitions and the projected value of the combined entity following a potential transaction. The Special Transaction Committee also discussed various potential strategic options available to the Company, including a sale of Hudson, retention of a new CEO and the repurchase of Yucaipa’s warrants to purchase common stock.

Also on April 24, 2015, the Special Transaction Committee discussed Mr. Langer’s activities at the Company and potential compensation as chairman of the Special Transaction Committee. Following the discussion, the Special Transaction Committee recommended a one-time payment of $150,000 for Mr. Langer for his services as chairman of the Special Transaction Committee.

On April 27, 2015, during a regularly scheduled meeting of the Board, Morgan Stanley provided an overview of the Special Transaction Committee’s process, a preliminary financial analysis of the Company, Hudson and Delano based on financial information at that time, and the state of proposals to acquire the whole Company, to acquire the Company’s hotel management business and to engage in a reverse merger with the Company. The preliminary financial analysis used substantially the same sources and methodologies as described under the caption “ Opinion of Morgan Stanley .” The Board discussed the near term process for completing a potential transaction, including which alternatives were most attractive to stockholders, the sequencing of the strategic alternatives process and Yucaipa’s views.

On April 28, 2015, after weighing the expected merits and considerations of doing so, the Special Transaction Committee agreed to disclose to Yucaipa the names of the prospective counterparties that had expressed interest in a potential transaction with the Company. The Special Transaction Committee subsequently disclosed the names of those prospective counterparties to Yucaipa.

On May 4, 2015, the Board invited Mr. Burkle to present Yucaipa’s views regarding potential strategic transactions. Mr. Burkle stated, among other things, that (i) Yucaipa’s preference was to be bought out; (ii) Yucaipa was dissatisfied with the sale process run by the Special Transaction Committee, (iii) Yucaipa was willing to speak with potential bidders to facilitate such a transaction; (iv) Yucaipa would support a sale or similar transaction at a value of $8.00 per share; and (v) although Yucaipa preferred that all of its interests in the Company be acquired, it might consider leaving its warrants outstanding under certain circumstances.

During the May 4, 2015 meeting, the Board discussed the status of the evaluation of potential strategic alternatives. Following the discussion, the Board instructed Morgan Stanley to market the Company to parties potentially interested in acquiring the entire Company for approximately one month to determine whether any party would be willing to offer a price that would be in the best interests of the Company’s stockholders. Simultaneously, the Board asked Morgan Stanley to provide diligence access to prospective reverse merger partners in order to facilitate bids by those parties. The Board also requested that the Special Transaction Committee engage a hotel broker to explore the potential sale of Hudson and/or Delano. During the May 4, 2015 meeting, following a recommendation by the Special Transaction Committee, the Board also determined to appoint Mr. Edelman as a member of the Special Transaction Committee. On May 4, 2015, the common stock closed at $6.59 per share.

In early May 2015, Bidder I and SBE informed the Special Transaction Committee that they would not reengage with the Company unless provided exclusivity.

On May 7, 2015, Mr. Langer resigned from the Board and Special Transaction Committee and entered into a consulting agreement with the Company. The amounts payable under Mr. Langer’s consulting agreement superseded the Special Transaction Committee’s recommended one-time payment to Mr. Langer for his services as Chairman of the Special Transaction Committee.

On May 8, 2015, the Special Transaction Committee determined to proceed with pitch meetings arranged with potential hotel brokers but to defer retaining a hotel broker until after the Company obtained updated proposals from prospective counterparties participating in the Company’s strategic process. The Special Transaction Committee discussed the fact that if the Company did not receive any proposals that the Special Transaction Committee deemed to be adequate, then the Special

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Transaction Committee could retain a broker and aggressively pursue the potential sale of Hudson. Also on May 8, 2015, the Special Transaction Committee determined to appoint Mr. Edelman as its chairman, which appointment was subsequently confirmed.

At the Special Transaction Committee’s direction, Morgan Stanley requested that each of the prospective counterparties that remained in the outreach process submit final round offers by May 28, 2015.

At the May 13, 2015 annual meeting of the Company’s stockholders, Mr. Brecker, Mr. Broad, Mr. Cruse, Mr. Dougherty, Mr. Edelman, Mr. Kalisman, Mr. Lorber, Mr. Nugent and Ms. Russo were elected as directors of the Company.

On May 18, 2015, the Board elected Mr. Lorber as Chairman, replacing Mr. Kalisman, who resigned as Interim Chief Executive Officer of the Company later that same day. Mr. Kalisman remained a member of the Board and the Special Transaction Committee. The next day the Board discussed a variety of options to fill the CEO position on an interim basis in light of the Company’s ongoing strategic review process. The Board recognized the consulting arrangement with Mr. Langer that was in effect at that time and determined that Richard Szymanski, the Company’s Chief Financial Officer, would assume the duties of the principal executive officer for securities law reporting purposes.

On May 21, 2015, Morgan Stanley met with SBE’s CFO and president of its hotel business and discussed SBE’s strategic vision for a potential combined entity. The Special Transaction Committee determined to conduct reverse due diligence on SBE.

On May 27, 2015, the Special Transaction Committee discussed the fact that the Special Transaction Committee had operated independently from the Board for a multitude of reasons that were no longer applicable, and the Special Transaction Committee’s decision to share certain information regarding the Company’s strategic process with Yucaipa, the changed composition of the Special Transaction Committee and the Board and the fact that other members of the Board had substantial experience and expertise that would be helpful in connection with the Company’s strategic process. Following a discussion, the Special Transaction Committee agreed to provide more frequent status updates to the Board going forward.

As of May 28, 2015, the deadline for final round offers in the outreach process, only two prospective counterparties had submitted offers: Bidder A and SBE. Bidder A offered $200 million for Delano and $200 million for the Company’s hotel management business, excluding the Company’s management agreements for Hudson and Clift, the Company’s management contract for Mondrian South Beach, four contracts related to assets not yet constructed, the Delano Las Vegas contract and the MBLV Restaurants (the “Excluded Assets”). SBE proposed a reverse merger transaction whereby the Company’s existing stockholders would own 45-55% in the combined entity and Mr. Nazarian would serve as the combined entity’s CEO and Chairman.

Other prospective counterparties declined to submit an offer on May 28, 2015, citing concerns regarding the Company’s recent financial performance and doubts concerning the Company’s ability to execute its strategic plan.

On June 4, 2015, representatives of the Company and Morgan Stanley met in New York with senior management of SBE and representatives of SBE’s financial advisor, Houlihan Lokey Capital, Inc. (“Houlihan Lokey”) to discuss the Company’s hotel management contracts and financial projections and the framework for a potential merger transaction. During the meeting, SBE proposed (a) that Yucaipa would exchange its Series A preferred securities for Delano and a 50% interest in Hudson; (b) the post-merger SBE/Morgans entity would operate Delano and Hudson; and (c) a two-year renovation of Hudson that could include the construction of residential or timeshare units. SBE expressed interest in closing a transaction by September 2015 in a way that would allow SBE to refinance its debt obligations. Under SBE’s proposal, SBE would own 50-55% of the combined entity.

On June 7, 2015, the Special Transaction Committee discussed the proposals submitted by Bidder A and SBE. The Special Transaction Committee discussed the fact that, at the Special Transaction Committee’s direction, Morgan Stanley had requested a proposal from SBE that did not include any conditions related to Yucaipa, but that SBE had elected not to submit such a proposal to the Company. The Special Transaction Committee also discussed whether it was in the best interests of the Company’s stockholders to provide limited waivers of SBE’s and Yucaipa’s NDAs with the Company to enable those parties to communicate directly with one another in connection with a potential transaction involving the Company. The Special Transaction Committee noted the merits and considerations of permitting communication between SBE and Yucaipa without the participation of Company representatives. Among other things, the Special Transaction Committee considered

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the fact that Yucaipa’s support for any transaction was critical because of Yucaipa’s ability to impose uncertainty on any potential transaction given its consent rights under the Securities Purchase Agreement and the Series A preferred securities. The Special Transaction Committee also considered the fact that both SBE and Yucaipa were subject to standstill provisions that would prevent them from entering into a lock-up agreement or similar arrangement.

On June 9, 2015, the Company obtained access to SBE’s data room containing information on SBE’s business, contracts, development pipeline and capital structure. Also on June 9, Mr. Broad resigned from the Special Transaction Committee to mitigate any actual or potential conflicts of interest arising out of his role and the role of personnel at Hotel Assets Group, LLC, a real estate brokerage firm of which Mr. Broad was Co-President, in facilitating a potential bid for the Company’s real estate assets.

On June 11, 2015, following further discussions, the Special Transaction Committee granted SBE a limited waiver of its NDA to enable SBE to communicate with Yucaipa regarding SBE’s proposed transaction involving the Company.

On June 12, 2015, at a meeting of the Board and the Special Transaction Committee’s advisors, the Board discussed the proposals submitted by Bidder A and SBE, including the values implied by each proposal, the execution risks associated with each proposal and challenges associated with comparing the two proposals. For the Bidder A proposal, the Board discussed the execution risk associated with the complexities of operating and winding down the business in a tax efficient manner after the consummation of a potential asset sale to Bidder A. The Board noted that Bidder A had not expressed interest in acquiring the whole Company or purchasing Hudson. The Board discussed the value that the Company could be expected to receive for Hudson in a potential sale transaction and the expected timing and process of marketing and selling Hudson. For the SBE proposal, the Board discussed the risk that SBE failed to reach an acceptable agreement with Yucaipa, the risk that SBE would fail to obtain the necessary financing, the risk that SBE would not retain certain of its existing hotel management contracts, and the risk that SBE’s expected pipeline of new hotel management contracts would fail to materialize. The Board also discussed the fact that SBE appeared to have attributed value to itself that exceeded the value implied by Cain Hoy’s investment in SBE.

The Board discussed the possibility of recruiting a new CEO and operating the Company as a standalone entity after repurchasing Yucaipa’s stake in the Company. The Board also discussed the merits and considerations of putting the exploration of strategic alternatives on hold, given the execution risks associated with each of the proposals received. Following the discussion, the Board determined that Morgan Stanley should provide information to Yucaipa so that Yucaipa could better understand the Company’s concerns about the proposed transaction with SBE.

On June 19, 2015, at a meeting of the Board, the Board discussed a revised proposal submitted by Bidder A of $250 million for Delano and $200 million for the Company’s hotel management business, excluding the Excluded Assets. The Board also discussed reports that (1) SBE might be willing to make concessions on real estate value, but SBE insisted on obtaining a 50-55% ownership interest in the post-transaction combined entity; (2) SBE was willing to compromise on its request that Mr. Nazarian become the CEO and Chairman of a post-transaction combined entity, provided that SBE could request Mr. Burkle become the Chairman; and (3) SBE was prepared to accept the Company’s estimates of the values for Hudson and Delano. The Board discussed the fact that Yucaipa had proposed to acquire Hudson and Delano from the post-transaction combined entity as part of the transaction for $620 million, subject to 25-year management contracts in favor of the post-transaction combined entity. Further, the Board discussed SBE’s ability to refinance its debt obligations without consummating a strategic transaction, the performance of the SLS Las Vegas hotel and casino owned by Stockbridge Capital Partners, including the potential restructuring of the SLS Las Vegas capital structure which was being contemplated at the time, and SBE’s relationship with Stockbridge Capital Partners, its then partner in the SLS Las Vegas. The Board also discussed the merits and considerations of entering into an exclusivity arrangement with SBE, including the risk that Bidder A could withdraw its offer and no longer negotiate with the Company if the Company entered into an exclusivity arrangement with SBE. The Board also discussed Yucaipa’s willingness to support a transaction with SBE.

On June 23, 2015, the Special Transaction Committee met and resumed its previous discussion concerning the function of the Special Transaction Committee in light of the status of the Company’s strategic process, the Special Transaction Committee’s decision to share certain information regarding the Company’s strategic process with Yucaipa, and the power and ability of certain directors to recuse themselves to mitigate any actual or potential conflicts of interest. The Special Transaction Committee also discussed the composition of the Special Transaction Committee and the Board and the fact that other members of the Board had substantial experience and expertise that would be helpful in connection with the Company’s strategic process. The Special Transaction Committee recommended that the Board dissolve the Special Transaction Committee and assume all of the powers and authority previously delegated to the Special Transaction Committee. On June 26, 2015, the Board dissolved the Special Transaction Committee.

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In late June 2015, the Company also received an offer from a party whom we refer to as Bidder O for a transaction structured as a reverse triangular merger, in which Bidder O would have refinanced the Series A preferred securities; however, Bidder O did not provide details with respect to its financing sources and the Bidder O proposal lapsed.

At the June 26, 2015 meeting, the Board considered a revised, written proposal that the Company had received from Bidder A comprised of $200 million for the Company’s hotel management business and $240 million for Delano. Morgan Stanley informed the Board that Bidder A might be willing to increase the proposal to a total of $450 million, if the Company offered Bidder A a period of exclusivity during which the Company and Bidder A would negotiate a deal. Morgan Stanley stated that Bidder A was unwilling to engage in discussions for the acquisition of the entire Company due to concerns about certain Company brand assets not being a strategic fit for Bidder A. In addition, the Board considered a proposal from SBE to enter into a twenty-one day exclusivity period, during which the Company would negotiate certain types of strategic transactions exclusively with SBE. The Board weighed the merits and consideration of each request for exclusivity and concluded that it was in the best interests of the Company’s stockholders to enter into the twenty-one day exclusivity period with SBE, due to concerns that SBE would withdraw from negotiations absent such an agreement and the Board’s belief that there was minimal risk that Bidder A would lose interest, if the exclusivity period with SBE were reasonable in duration.

On June 26, 2015, the Company entered into an exclusivity agreement with SBE. Between June 26 and July 17, 2015, negotiations took place between the Company, SBE and their respective advisors concerning a proposed term sheet for a transaction and the parties conducted mutual due diligence.

On July 17, 2015, the Board met to review the status of the ongoing discussions with SBE regarding a potential transaction. Mr. Nugent participated at the beginning of the meeting to express general support for the transaction contemplated by the SBE term sheet, and then he recused himself. Following Mr. Nugent’s recusal, Morgan Stanley discussed SBE’s proposed terms for a strategic transaction (which contemplated an all-stock merger of equals transaction, with specified governance arrangements to be implemented at closing (which would have given legacy SBE stockholders effective control of the post-transaction combined entity), and a separate arrangement with Yucaipa with respect to management of Hudson and Delano). We refer to this proposed transaction herein as the “SBE Proposed MOE Transaction”. In response to questions from members of the Board, Morgan Stanley noted that it was continuing to receive information from SBE regarding the transaction. Having reviewed this information with its legal and financial advisors, and given its view of the progress of negotiations, the Board authorized the Company to extend SBE’s exclusivity agreement through July 30, 2015.

On July 30, 2015, the Board met to review the status of ongoing discussions regarding the SBE Proposed MOE Transaction. Morgan Stanley discussed recent developments in the strategic alternatives review process, including an overview of the SBE Proposed MOE Transaction, preliminary financial analyses of Hudson and Delano based on financial information at that time, and potential structures for transferring those two hotels. At this meeting, Morgan Stanley also provided a process update to the Board summarizing the third-party solicitation process prior to SBE’s exclusivity. Following discussion, and given its view of the progress of negotiations, the Board determined that it was in the best interests of the Company’s stockholders to extend SBE’s exclusivity from July 31, 2015 through September 9, 2015.

Throughout the remainder of July and August of 2015, the Company, SBE, Yucaipa, and their respective advisors conducted mutual diligence and the Board’s outside legal advisor and O’Melveny & Myers LLP (“O’Melveny”), SBE’s legal advisor, negotiated the terms of a definitive merger agreement for the SBE Proposed MOE Transaction. The Company’s and SBE’s respective advisors met several times, including with representatives of Yucaipa, in an effort to come to terms on a definitive agreement for the SBE Proposed MOE Transaction, as well as the proposed, related asset exchange with Yucaipa which would enable the combined company to retire a significant portion of Yucaipa’s Series A preferred securities. However, the Company continued to face deteriorating performance through the summer of 2015. During the month of August, the common stock price declined from approximately $6.00 to approximately $4.60 per share. The Company’s second quarter results, announced August 5, 2015, reflected declines in adjusted EBITDA and revenue per available room, or RevPAR, relative to the comparable quarter in 2014.

On that same day, the Company announced that Mr. Langer, who had been serving as a consultant to the Company since May 7, 2015, and had been a candidate for the vacant Chief Executive Officer position, was leaving the Company to take a new position. Ultimately, the Company paid Mr. Langer approximately $1.4 million (half in cash, half in stock) for services rendered under the consulting agreement, including services to the Special Transaction Committee and the Board.

On August 14, 2015, the Company received a letter from Rambleside Holdings, LLC, one of the Company’s significant stockholders at the time. Rambleside’s letter indicated that Rambleside believed it was likely that the Company was in active

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negotiations regarding a strategic transaction with one or more parties and that Rambleside had interest in engaging in discussions with the Company regarding a transaction that would value the Company at a “meaningful premium” over the then-current trading price. However, given the vague nature of Rambleside’s indication of interest – which contained no details regarding specific valuation or transaction structure – and the Board’s obligations under the SBE exclusivity agreement, the Board determined that it was unable to respond to Rambleside’s letter.

On August 26, 2015, a party whom we refer to as Bidder P sent a letter to the Company proposing to acquire 51% of the common stock at an unspecified premium to the trading price of the common stock. Because of the Company’s exclusivity agreement with SBE, it did not respond to this proposal at that time.

Also, on August 26, 2015, the Board met with its legal and financial advisors to discuss updates on the proposed transaction with SBE. Morgan Stanley noted that, in discussions earlier that day, Mr. Nazarian, on behalf of SBE, had indicated that SBE would be willing, subject to certain conditions, to proceed with a transaction that would result in a 50/50 equity split between the stockholders of the Company and equityholders of SBE. Morgan Stanley reviewed with the Board a revised proposal from affiliates of Yucaipa in which the Company would transfer to Yucaipa 100% of the interest in Delano and 80% of the interest in Hudson in exchange for the cancellation of Yucaipa’s Series A preferred securities and warrants. Morgan Stanley stated that Yucaipa’s proposal included waiving its consent rights in connection with the SBE Proposed MOE Transaction. Following discussions of these terms, the Board instructed its advisors to continue discussions with SBE and Yucaipa in connection with the proposed transaction.

On September 8, 2015, Pine River Capital delivered a letter to the Board regarding the asset sale process for Hudson and Delano and press reports of the potential SBE Proposed MOE Transaction. Pine River Capital expressed its view that the only way to achieve maximum value for Hudson and Delano would be for the Board to promptly hire an asset level broker to engage a wide range of asset level real estate buyers and Pine River Capital urged the Board to engage such a broker. In addition, Pine River Capital stated that any combination with SBE would be a strategic mistake, as it would likely result in an undersized public entity with low liquidity, negatively impacting stockholder value. Pine River Capital also requested the opportunity to further discuss the contents of the letter with the Board and the Company’s senior management.

On September 9, 2015, the exclusivity agreement between the Company and SBE lapsed, although the parties continued to engage in discussions and negotiations.

On September 10 and 11, 2015, representatives of the Company, SBE and Yucaipa, including representatives of the Board’s outside legal advisor, O’Melveny, Houlihan Lokey and Morgan Stanley held in-person meetings to continue negotiations of the terms of the SBE Proposed MOE Transaction. The Company, SBE, Yucaipa, and their respective advisors continued negotiations and due diligence throughout September and October 2015. During this period, the Company’s stock price continued to decline. On October 1, 2015, the common stock closed at $3.22 per share.

On September 14, 2015, Rambleside delivered a letter to the Board alleging that the Board had mismanaged the strategic transaction process. Rambleside proposed that the Board immediately cease discussions with respect to an entire company transaction and undertake a two-pronged sales approach pursuant to which the Company would sell Hudson and Delano, together or separately, without management contracts and would also seek to sell the Company’s management business. Rambleside indicated that it would be interested in acquiring Hudson and Delano in a transaction valuing the hotels at $313 million and $194 million, respectively, in each case unencumbered by their management contracts.

On September 16, 2015, the Board met with its legal and financial advisors to review the status of discussions with SBE and Yucaipa. The Board’s outside legal advisor provided an overview of the key terms and outstanding issues in the draft merger agreement and governance documents, as well as other draft transaction documents. In addition, the Board’s outside legal advisor provided an overview of a non-binding term sheet that Cain Hoy, SBE’s financing source, had provided to the Company, relating to the refinancing of SBE’s then-current debt and the Company’s trust preferred notes. Following discussion, the Board instructed Company management and its advisors to continue to engage with SBE in an effort to obtain binding commitment papers with respect to SBE’s financing. In light of the recent pressure from the Company’s stockholders, Morgan Stanley also discussed a preliminary analysis of the Company as a standalone going concern, on a pro forma basis, assuming the sale of Hudson and Delano. At the meeting, Morgan Stanley also presented to the Board, a historical stock trading analysis and a selected comparable companies analysis that used substantially the same sources and methodologies as described under the caption “ Opinion of Morgan Stanley .” Morgan Stanley noted that if the Company were to pursue those sales at the projected value ranges, the net proceeds might not be sufficient to pay off the mortgages on the hotels, retire the trust preferred notes and redeem the Series A preferred securities in their entirety, and provide surplus cash for the Company’s operating requirements. Morgan Stanley noted that if the Company determined to fund any such deficiency with a new capital raise, it might be difficult given the

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Company’s ongoing search for a Chief Executive Officer and questions as to the viability of the Company’s go-forward business model. Finally, the Board and Morgan Stanley discussed the proposal outlined in Rambleside’s September 14 ^th letter, which the Board ultimately determined likely was not attractive given the terms of the SBE transaction and Yucaipa’s proposal to acquire Hudson and Delano. However, the Board authorized Mr. Broad to contact Bidder P, with respect to their August 26, 2015 proposal to discuss their potential interest. Bidder P did not revive its proposal to the Company.

During October 2015, Ken Cruse and Morgan Stanley spoke with certain of the Company’s significant stockholders, including Rambleside and Pine River Capital, in an effort to discuss any concerns regarding the strategic review process. Mr. Kalisman and Mr. Szymanski also participated in some of these discussions.

On October 12, 2015, the Board met with its legal and financial advisors to review the status of negotiations concerning the SBE Proposed MOE Transaction. The Board’s outside legal advisor reviewed summaries of the key terms of certain transaction agreements, including the contribution agreement between the Company and Yucaipa, for the transfer of 100% of Delano and 80% of Hudson in exchange for the cancellation of Yucaipa’s Series A preferred securities, amendment of its warrants and termination of its consent rights. The Board’s outside legal advisor also reviewed the key terms of a draft employment agreement for Mr. Nazarian to serve as Chief Executive Officer of the combined company that would be entered into in connection with the proposed transaction. In addition, the Board discussed the proposed governance rights which, at that time, included a proposal that would have given SBE’s shareholders effective control of the Board, the appointment or removal of the CEO and any material sale or merger transaction. The Board suggested that Mr. Edelman should propose a 25% reduction to the base salary and bonus included in that draft agreement. Morgan Stanley then provided an updated, preliminary financial analysis of the Company, that included a historical stock trading analysis and a selected comparable companies analysis, that used substantially the same sources and methodologies as described under the caption “ Opinion of Morgan Stanley .”

On October 14, 2015, OTK Associates sent a letter to the Board expressing, among other things, concerns about the SBE Proposed MOE Transaction and advocating a broker-marketed sale of Hudson and Delano. Representatives of Pine River Capital continued to express a similar view.

Later that day, the Board met to discuss the views expressed by OTK Associates and Pine River Capital. Following discussion, and weighing the merits and considerations of the approach recommended by OTK Associates and Pine River Capital, the Board determined to seek to negotiate a form of “go-shop” with SBE and Yucaipa, in order to permit the Company to commence a broker marketed sale process for Hudson and Delano, even after the SBE Proposed MOE Transaction was announced.

Over the course of the next week, the Company, SBE, Yucaipa, and their respective advisors, continued to negotiate the SBE Proposed MOE Transaction, including a potential “go-shop” provision that would provide the flexibility that the Board was seeking and was consistent with the views expressed by certain of the Company’s significant stockholders; however, the terms of the potential “go-shop” were never agreed upon.

On October 29, 2015, at a regular meeting, the Board met with its legal and financial advisors to review the status of negotiations on the SBE Proposed MOE Transaction. The Board discussed the views of certain significant stockholders, including OTK Associates and Pine River Capital (which had expressed opposition to the SBE Proposed MOE Transaction and believed that the Company should continue to pursue a broker-marketed sale process for the sale of Hudson and Delano) and Yucaipa (which had expressed its support for the SBE Proposed MOE Transaction). At that meeting, the Board discussed the fact that there was some softening in the New York City and Miami markets due to increased room supply. Mr. Nugent informed the other Board members that, given the feedback from certain common stockholders, unless there were unanimous support for the SBE Proposed MOE Transaction from the members of the Board, despite Yucaipa’s support for the SBE Proposed MOE Transaction, Yucaipa would cease all discussions concerning that transaction. Mr. Nugent also raised Yucaipa’s views concerning its consent rights over the transaction pursuant to the terms of the Securities Purchase Agreement and the Series A preferred securities and then recused himself from the meeting. The Board discussed with its legal and financial advisors the lack of stockholder support (including OTK Associates, Pine River Capital and Rambleside) for the SBE Proposed MOE Transaction, the uncertainty this lack of support created with respect to the likelihood of completion of a transaction, and the importance of presenting a transaction (if any) to the market that had a high degree of certainty of execution. Following discussion among the Board and its legal and financial advisors regarding the views of the various stockholders, the Board determined that the best course of action was to cease discussions with SBE given the strong opposition from certain stockholders and the resulting uncertainty that a transaction could be completed. Mr. Szymanski then led the Board through a presentation concerning, among other things, the continued deterioration of the Company’s performance. Also at this meeting, Mr. Edelman resigned his position as a member of the Board.

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On November 3, 2015, in order to fill the vacancy created as a result of Mr. Edelman’s resignation, the Board appointed Mr. Olshan (who had been approached by the Board and conditionally approved as Mr. Edelman’s successor on October 29, 2015) as a member of the Board, effective immediately, with a term expiring at the Company’s 2016 annual meeting of stockholders.

On November 4, 2015, Mr. Brecker notified the Board that he was resigning from the Board. On that same day, the Board appointed Adam Stein of Pine River Capital as a member of the Board, effective immediately, with a term expiring at the Company’s 2016 annual meeting of stockholders, to fill the vacancy created by Mr. Brecker’s resignation.

Also on November 4, 2015, the Board announced a plan pursuant to which the Company initiated a broker-marketed process for the sale of Hudson and Delano, and renewed efforts to hire a permanent Chief Executive Officer. The Board’s view was that selling Hudson and Delano would further focus the Company’s business on an asset-light, brand-centered model with lower leverage and would be the most viable strategic alternative given the views expressed by the Company’s significant stockholders concerning their unwillingness to support certain other potential strategic alternatives.

On November 5, 2015, the Board received a letter from Rambleside which made several suggestions with respect to strategic solutions, including a proposal to add board members nominated by Rambleside.

On November 6, 2015, the Board received a letter from Yucaipa again asserting Yucaipa’s consent rights to transactions, specifically an alleged right of Yucaipa to approve any potential sale of Hudson or Delano.

On November 10, 2015, the Board met with its legal and financial advisors to discuss the letters that it had received from Yucaipa and Rambleside as well as the potential sale process with respect to Hudson and Delano. Mr. Nugent discussed Yucaipa’s view of its contractual consent rights and then recused himself from the meeting. The Board discussed the risks of litigation with Yucaipa, notably in light of Yucaipa’s consent rights with respect to a contemplated sale of Hudson and/or Delano pursuant to the terms of the Securities Purchase Agreement and the Series A preferred securities. The Board also discussed letters sent to the Board by Rambleside, which proposed adding new board members. Following discussion, the Board concluded not to add additional board members.

On November 17, 2015, the Board met to discuss the potential engagement of a broker and an update on the marketing process relating to Hudson and Delano. The Board approved the engagement of Hodges Ward Elliot to market Hudson and Delano.

On December 10, 2015, the Board received a letter from a party whom we refer to as Bidder Q outlining an offer to purchase the Company for $6.00 per share of common stock and assumption of all debt and liabilities, which Bidder Q estimated at $650 million. The letter did not include specifics with respect to Bidder Q’s financial capacity and acquisitions track record. The letter attached photocopies of biographies of an outside lawyer and of members of Bidder Q’s team. The Board and the Company’s financial advisor had significant doubts concerning Bidder Q’s financial wherewithal and ability to complete a transaction.

On December 18, 2015, the Board met with its legal and financial advisors to discuss the ongoing marketing process by Hodges Ward Elliot on Hudson and Delano. Mr. Szymanski informed the Board that the Company expected that the mortgage prepayment that would be required in respect of the Hudson and Delano mortgage debt in February 2016 to extend the maturity date of the loan for another year would be approximately $27 million to $28 million. In addition, the Board discussed the ongoing search process for a permanent Chief Executive Officer, including two leading candidates.

Shortly thereafter, at the Board’s instruction, the Board’s outside legal advisor contacted the legal advisor Bidder Q had identified in its letter. However, that lawyer indicated that she had not been engaged by Bidder Q to date and indeed had not run a conflicts check with respect to a potential engagement by Bidder Q. The Company’s legal advisor requested that the lawyer follow up after obtaining additional information from Bidder Q, but no such follow up took place at that time.

The Company’s operating results had continued to decline throughout 2015. From the beginning of July through year-end, the price of the common stock had dropped by approximately 50%, to around $3.00 per share. Given pressures in the New York and Miami lodging markets, the Company’s debt and Series A preferred securities obligations (which totaled more than

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$730 million at December 31, 2015), the impending increase in the dividend rate on the Series A preferred securities from 10% to 20% in October 2016 and the Company’s short term liquidity position (which totaled $45.9 million at December 31, 2015 prior to an estimated $28.2 million mortgage prepayment due in February 2016 and a $1.4 million payment to settle an interest cap payment obligation), the Board’s view remained that the Company would continue to face significant challenges as an independent, public company.

Between December 2015 and January 2016, Mr. Burkle and Mr. Olshan spoke on two occasions regarding the possibility that Yucaipa would waive any consent rights that it had pursuant to the terms of the Securities Purchase Agreement and the Series A preferred securities in connection with a sale or refinancing of Hudson and/or Delano in exchange for, among other things, an agreement by the Company to apply the cash proceeds of a sale or refinancing to pay down the accumulated unpaid dividends on the Series A preferred securities and the liquidation preference of the Series A preferred securities and a commitment to seek additional financing to repay the balance, if any, of the liquidation preference of the Series A preferred securities. On January 19, 2016, the Company sent a term sheet to Yucaipa for a potential agreement between the parties; however, the Company and Yucaipa never reached a definitive agreement on such terms.

On February 25, 2016, at the request of Mr. Burkle, the Board met with Mr. Burkle. Mr. Burkle presented Yucaipa’s view of potential strategic transactions involving the Company. Mr. Burkle stated that Yucaipa strongly supported a transaction involving the Company and SBE, which, in his view, represented the best available option for all stockholders, and he urged the Board to re-engage in discussions with SBE. Mr. Burkle expressed frustration that the Board’s exploration of strategic alternatives had not, to date, resulted in any binding agreement and that the common stock price had declined substantially in recent months. Mr. Burkle recommended that the Board promptly re-engage in discussions with SBE regarding a potential transaction and indicated that he would pursue all legal options if the Company sought to effect a sale of Hudson or Delano without Yucaipa’s consent. Following Mr. Burkle’s remarks, the Board discussed potential strategic transactions and the ongoing marketing and sales process with respect to Hudson and Delano. Following discussion, the Board decided to consider a dual-tracked process—continuing to pursue the potential sales of Hudson and Delano, as well as reaching out to SBE and other third parties who might be interested in pursuing a strategic transaction with the Company.

Also on February 25, 2016, the Board received a letter from Rambleside suggesting that, in Rambleside’s view, the only potential option left for the Company was to pursue a sale of the Company to SBE for cash.

On March 2, 2016, the Company received a proposal from SBE offering to acquire the Company at a price of $2.25 in cash per share of common stock, subject to confirmatory due diligence and execution of definitive documentation. The letter requested a formal response from the Board and a signed exclusivity agreement no later than March 9, 2016, and indicated that SBE would move on to other opportunities if it did not receive a response and signed exclusivity agreement by that date. On March 2, 2016, the common stock closed at $1.52 per share.

On March 3, 2016, the Company received an offer from a party whom we refer to as Bidder R which was provided in an attempt to preempt the Hudson and Delano sale process. Bidder R proposed to purchase Hudson and Delano, with management agreements in place, for $540 million in cash, and proposed that the Company enter into new management agreements at properties owned or to be acquired by Bidder R. Bidder R also proposed that, as part of the transaction, the Company issue to Bidder R warrants to purchase 18 million shares of common stock at $1.25 per share.

On March 4, 2016, at a regular meeting, the Board discussed the Company’s performance generally, as well as the status of the sale process for Hudson and Delano and offers delivered by SBE and Bidder R. At that meeting, the Board concluded that it should explore both a sale of Hudson and Delano and a sale of the Company as a whole, and engage a financial advisor. Given that Morgan Stanley’s prior engagement had expired in accordance with its terms, the Board directed Ms. Deutsch and Mr. Szymanski to reach out to potential financial advisors, including Morgan Stanley, and begin discussions of potentially engaging or, in the case of Morgan Stanley, re-engaging a financial advisor. The Board decided for the time being not to advance the search for a new chief executive officer. Also at this meeting, Mr. Szymanski presented a five-year standalone business plan to the Board.

On March 11, 2016, the Board met to discuss the potential engagement of a financial advisor in connection with the dual-tracked process described above. The Board, together with Company management, reviewed the status of the Company’s negotiations with Morgan Stanley, including Morgan Stanley’s disclosures that it had not, in the prior two years, been engaged to provide any investment banking services to, or received any compensation for such services from, SBE, Yucaipa

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or their respective affiliates (other than the Company). In addition, Ms. Deutsch provided a summary of a proposal received from another potential financial advisor. In light of Morgan Stanley’s role in the Company’s prior strategic process, familiarity with the Company and third parties who would potentially be interested in a strategic transaction and the fact that the Board believed Morgan Stanley would move more quickly than a new advisor, the Board directed management to finalize the engagement of Morgan Stanley as financial advisor, and, once finalized, to ask Morgan Stanley to contact SBE, Bidder A and other potential interested parties, regarding a potential transaction involving the sale of the Company as a whole.

On March 14, 2016, the Board met with Morgan Stanley to review the Company’s current performance, and potential strategic transactions. Morgan Stanley reviewed with the Board the decline in the Company’s stock price and business fundamentals since mid-2015. Morgan Stanley then summarized a number of key issues facing the Company including (i) the Company’s small size relative to its peers, (ii) the Company’s cash position and limited capital available to build a pipeline and operate the business, (iii) instability of the Company’s management team, (iv) the Company’s high leverage relative to its peers, (v) market confusion regarding the Company’s short and long term strategy and (vi) negative press surrounding the Company. Morgan Stanley also discussed a preliminary cash flow analysis for the Company with the Board, noting that if the Company did not sell Hudson or Delano, the Company’s cash balance would likely be negative by the end of the first quarter of 2017. Morgan Stanley reviewed its discussions with Bidder A. Bidder A had indicated that it would need a few weeks of due diligence before it could make an offer, though that offer would likely be for the acquisition of Delano and the Company’s management business.

Also on March 14, 2016, Rambleside sent a letter to the Board expressing its continued dissatisfaction with the Company’s performance and strategy.

On the same day, the Company engaged Fried, Frank, Harris, Shriver & Jacobson LLP (“Fried Frank”) as its legal advisor in connection with the Board’s review of potential strategic transactions.

On March 16, 2016, Yucaipa sent a letter to the Board, which, among other things, (a) expressed concerns regarding the current and future financial health of the Company as an independent public company; (b) expressed Yucaipa’s belief that the SBE proposal was the clearest (and perhaps only) path to maximize stockholder value; and (c) reiterated that Yucaipa had the right to, and was preserving its right to, block the sale of Company assets and reserved all legal options in connection with the Company’s actions.

On March 18, 2016, in light of continued pressure from SBE for exclusivity, the Board met with Fried Frank and Morgan Stanley to discuss the latest proposal from SBE. Mr. Burkle was present at the commencement of the meeting and reiterated Yucaipa’s view, communicated in the March 16 letter, that the Board should immediately engage with SBE. Mr. Burkle then left the meeting. Fried Frank provided the Board with an overview of its fiduciary duties with respect to considering a potential sale of the Company for cash and the request for exclusivity proposed by SBE. Morgan Stanley then provided an overview of SBE’s latest proposal. Mr. Nugent noted for the other members of the Board that Yucaipa would support the proposed transaction with SBE, which Mr. Nugent noted could include the Series A preferred securities held by the Yucaipa investors being rolled over into the acquiring entity. The Board and its legal advisors then discussed the circumstances in which the directors might conclude that one or more directors should be recused from further discussions with respect to the SBE transaction or other strategic alternatives. Representatives of Morgan Stanley then reviewed the status of discussions with other third parties with respect to a potential strategic transaction, including Bidder A, and two other parties that had previously expressed interest in the Company, Bidder J and Bidder O.

Between March 18, 2016 and March 21, 2016, Morgan Stanley and Fried Frank engaged in discussions with SBE, Houlihan Lokey and O’Melveny regarding the potential terms on which the Company might be prepared to enter into exclusivity with SBE. In the course of these discussions, SBE raised its proposed offer price from $2.25 per share of common stock to $2.35 per share and subsequently to $2.40 per share. The parties also negotiated certain proposed provisions to be included in the term sheet and exclusivity agreement, including expense reimbursement to SBE if the Company failed to enter into a merger agreement with SBE at the end of the exclusivity period, and potential termination and reverse termination fees, and related trigger events to be included in a definitive merger agreement. SBE’s initial request was for termination fees and trigger events mirroring the merger agreement that had been negotiated in connection with the SBE Proposed MOE Transaction, which had contemplated a termination fee of $11 million. The Company’s advisors countered with a proposed termination fee of $5.625 million and a reverse termination fee of an amount to be determined in the event of a failure by SBE to close.

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On March 21, 2016, the Board met with Morgan Stanley and Fried Frank to discuss the status of discussions with SBE, Bidder A, Bidder J and Bidder O, as well as other potential strategic counterparties. Morgan Stanley provided an overview of the discussions it had had with SBE, including the revised offer price of $2.40 per share in cash that SBE had indicated was the highest and best price it was willing to propose. Morgan Stanley noted that Bidder A had not been responsive to Morgan Stanley’s invitations for discussion. Bidder O had provided an indication that it would be willing to consider making an offer to acquire the Company at a price per share of common stock in the range of $2.50 in cash, but that Bidder O did not want to own real estate long term. Bidder O also stated that it would need additional time for diligence before it was prepared to make an offer. Bidder J had provided feedback to Morgan Stanley similar to the feedback from Bidder O, in that Bidder J would be willing to consider an offer to acquire the Company at a price per share of common stock in the range of $2.50 in cash, but Bidder J needed additional time to perform diligence before making an offer. The Board then directed Fried Frank and Morgan Stanley to continue negotiations with SBE, in an effort to improve price and other terms. In light of the fact that discussions with SBE were significantly more advanced than with other bidders, that SBE had conducted due diligence on the Company as recently as October 2015 and that SBE had requested a prompt grant of exclusivity, the Board instructed Morgan Stanley to contact Bidder J and Bidder O to determine if either of those parties would be willing to make a more concrete proposal, offer a price that exceeded the price proposed by SBE and engage expeditiously in substantive negotiations concerning a potential transaction. In weighing whether or not to enter into exclusivity with SBE, the Board considered, among other things, the execution risks associated with the various transactions (including Yucaipa’s previously expressed support of a transaction with SBE), the risk of SBE walking away from negotiations absent exclusivity, and directors’ general view that SBE’s offer was less contingent on diligence and closer to a binding agreement than the proposals from Bidder J and Bidder O. The Board determined not to grant exclusivity to SBE at this time but to revisit the determination as negotiations continued.

From March 22 through March 29, 2016, the Board met with Morgan Stanley and Fried Frank three times to discuss the status of discussions with SBE, information as to SBE’s financing sources, and the status of discussions with Bidder J and Bidder O. The Board requested that the Company’s advisors engage in discussions with SBE’s proposed financing source for a transaction to understand SBE’s financing plan. In addition, Morgan Stanley and Fried Frank, on behalf of the Company, and Houlihan Lokey and OMM, on behalf of SBE, held further discussions regarding the provisions of a potential term sheet for the proposed transaction and a potential exclusivity agreement, including expense reimbursement of up to $2.0 million if the Company failed to enter into a merger agreement with SBE at the end of the exclusivity period, and the potential termination and reverse termination fees, expense reimbursement and related trigger events to be included in a definitive merger agreement. SBE ultimately agreed to reduce its proposed termination fee to $6.5 million, with trigger events mirroring the merger agreement that had been negotiated in connection with the SBE Proposed MOE Transaction, and a reverse termination fee in the event of a failure by SBE to close due to lack of financing in the amount of $6.5 million; provided that the reverse termination fee would not apply if SBE were unable to close due to an inability to assume or refinance the Hudson/Delano mortgage loans. The parties also discussed the duration of the proposed exclusivity period, with SBE insisting on a four-week period and the Company countering with a two-week period.

In addition, SBE insisted, and the Company agreed, that it would be a condition to the signing of a merger agreement that OTK Associates, Pine River Capital, Vector Group and Yucaipa sign voting agreements in favor of the transaction and that the Company would use reasonable best efforts to obtain voting agreements from Rambleside and Mr. Hamamoto. Further, the Company successfully negotiated a carve-out from the proposed exclusivity agreement to permit the Company to call for bids on, and to receive proposals in respect of, Hudson and Delano, as well as to provide a 90-day grace period for reimbursement of SBE’s expenses (with interest at 7% per annum) in the event that the Company failed to sign a definitive merger agreement in circumstances triggering the Company’s expense reimbursement obligation. The Company also negotiated for a provision in the proposed exclusivity agreement that the Company would not be obligated to reimburse expenses of SBE if the Company declined to sign a definitive merger agreement due to the failure of SBE to provide reasonable assurances to the Company that SBE would be able to assume or refinance the Hudson/Delano mortgage debt.

Between March 26 and March 29, 2016, Bidder J indicated to Morgan Stanley that Bidder J did not have committed financing to enable it to make an offer for the Company and Bidder O had stopped engaging with Morgan Stanley. During that period, the Company also received an expression of interest from a party whom we refer to as Bidder S, but when Morgan Stanley reached out to Bidder S to get additional information with respect to its interest, Bidder S indicated that it would require several weeks of diligence before it could confirm its bid.

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On March 28, 2016, Morgan Stanley, Fried Frank, Houlihan Lokey and O’Melveny participated in a call with a representative of Cain Hoy. The representative provided an overview of the financial capability of Cain Hoy and its affiliates and Security Benefit Corporation, and expressed Cain Hoy’s support for the proposed transaction and willingness to provide equity and debt financing.

On March 29, 2016, the Board met with its legal and financial advisors to discuss the status of negotiations with SBE and discussions with other potential counterparties. Fried Frank and Morgan Stanley provided an update on the terms proposed by SBE and reported on the discussions with Cain Hoy. Morgan Stanley noted that SBE was unwilling to continue negotiations with the Company unless the Company entered into an exclusivity agreement, including the reimbursement of up to $2.0 million of expenses in the event that SBE and the Company could not reach a definitive agreement, subject to the financing exception described above. The Board renewed its discussion of the merits and considerations of entering into an exclusivity agreement, including the potential impact an exclusivity agreement could have on the ongoing bid process for Hudson and Delano. The Board discussed the fact that the Company had negotiated a carve-out from the exclusivity agreement for bids on, and to receive proposals in respect of, Hudson and Delano. The Board discussed its view, based in part on its discussions with Morgan Stanley, that an asset sale transaction was unlikely to deliver value to holders of common stock superior to the SBE proposal and that no other actionable proposals had been received with respect to an acquisition of the Company. The Board also considered that it retained the flexibility to reassess SBE’s offer in the event that any unsolicited, whole-company proposals were received between the signing of exclusivity and the expiration of the exclusivity period, and would have the ability, if it were to enter into a merger agreement with SBE at the end of the exclusivity period, to evaluate competing proposals. Following discussion, the directors present at the meeting unanimously approved entering into an exclusivity agreement with SBE.

On March 29, 2016, the Company and SBE entered into an exclusivity agreement and non-binding term sheet (at a price of $2.40 per share), providing for a period of exclusivity through April 26, 2016. In connection with the exclusivity agreement, the standstill provision of the NDA executed by SBE in February 2015 was reinstituted for an additional one-year term. Between March 29 and April 1, 2016, Fried Frank, Morgan Stanley and management of the Company worked together to update an online data room with information regarding the Company, in preparation of providing access to SBE. On April 1, 2016, O’Melveny sent an initial draft merger agreement to Fried Frank. The key open issues for negotiation in the draft merger agreement included (i) the inclusion by O’Melveny in the draft merger agreement of a provision for payment of a $6.5 million termination fee due to the Company’s stockholders failing to approve the transaction, (ii) language establishing a 60-day limit on discussions and negotiations by the Company with any party submitting an acquisition proposal after the execution of the merger agreement and (iii) certain provisions relating to the financing for the merger. The Company, SBE and their advisors engaged in negotiations on the draft merger agreement over the course of the next two weeks. On April 4, 2016, O’Melveny furnished to Fried Frank a proposed form of voting agreement with key stockholders of the Company. The draft voting agreement provided, among other things, that the voting agreement would survive a termination of the merger agreement for 12 months. Fried Frank forwarded the voting agreement to each of OTK Associates, Pine River Capital and Vector Group, but noted that this so-called “tail” provision would likely not be acceptable to the Company or the stockholders.

On April 2, 2016, the Company received four preliminary, non-binding indications of interest in Hudson ranging from $280 million to approximately $340 million. The bids were either silent regarding management rights or conditioned on the release of management rights. Because of its exclusivity agreement with SBE, the Company did not respond to these bids.

On April 7, 2016, the Company received a request from Houlihan Lokey to provide data room access to Yucaipa and its legal counsel. The Company granted this request.

On April 14, 2016, the Company received two non-binding offers for Delano – one for $210 million from a party whom we refer to as Bidder T, with management rights released, and the other for $240 million from Bidder R, with a new management agreement to be negotiated. Due to the Company’s exclusivity agreements with SBE, it was not permitted to, and did not, respond to these offers.

Also on April 14, 2016, Morgan Stanley received an inbound communication from a representative of Bidder S attaching a draft form of power of attorney which purported to authorize the representative of Bidder S to enter into discussions for an acquisition of the Company by Bidder S at a price of up to $90 million. Bidder S provided no additional details and, due to the Company’s exclusivity agreement with SBE, Morgan Stanley responded that it was unable to provide comments to Bidder S at that time. Due to the Company’s exclusivity agreements with SBE, it did not respond to these offers.

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On April 15, 2016, the Board met to discuss the status of negotiations concerning the potential transaction with SBE. Company management reported on the offers received for Delano, and Morgan Stanley reported on the draft power of attorney from Bidder S.

On April 20, 2016, SBE, the Company and their respective advisors held initial discussions with the Hudson/Delano mortgage lenders.

Through April 25, 2016, negotiations between the Company, SBE and their respective advisors continued. However, as of April 25, SBE had not provided draft financing commitment papers to the Company. On April 25, 2016, the Board met with its legal and financial advisors to review the current status of negotiations. Fried Frank provided an update on the status of the negotiations on the draft merger agreement in connection with the proposed transaction. Fried Frank noted that, at the Company’s insistence, SBE had dropped its requests for (i) any termination fee to be triggered as a result of the Company’s stockholders failing to approve the transaction and (ii) the 60-day limit on discussions and negotiations by the Company with any party submitting an acquisition proposal after execution of the merger agreement. Mr. Nugent informed the Board that Yucaipa was expecting to participate in SBE’s acquisition vehicle, by agreeing to roll its Series A preferred securities and warrants into a portion of the common equity in SBE’s acquisition vehicle, as well as a newly issued preferred equity. Mr. Nugent recused himself from the remainder of the meeting as well as subsequent meetings of the Board for the duration of the negotiation process with SBE. Though negotiations were proceeding, SBE had earlier that day communicated to the Company that SBE would require an extension of its exclusivity period. The Board and its advisors discussed the Company’s upcoming earnings call, scheduled for May 9, 2016, and the desirability of being in a position to announce a transaction with SBE (were the Board to conclude that such a transaction was in the best interests of the Company’s stockholders) before that call. The Board then authorized an extension of exclusivity through May 3, 2016.

On April 26, 2016, the parties signed a letter agreement extending the exclusivity period through May 3, 2016.

On April 28, 2016, the Company received a revised proposal from Bidder R with respect to an acquisition of Hudson and Delano, consisting of $305 million in cash for Hudson and including an asset management fee of 0.25% of gross revenue for five years, and $260 million for Delano, with the Company being entitled to 20% of the equity (assuming $200 million of the purchase price would be debt financed) after Bidder R earned an 8% return on its invested equity. In accordance with the terms of the exclusivity agreement, the Company did not respond to this proposal.

At a regularly scheduled meeting of the Board on April 29, 2016, the Company’s advisors provided an update to the Board on the status of discussions with SBE and progress on the transaction documents. Mr. Nugent recused himself from this portion of the meeting. At this meeting, management updated the Board on the Company’s first quarter results and liquidity position. The Company’s results had continued to deteriorate during the quarter; RevPAR at System-Wide Comparable Hotels (which included all Morgans Hotel Group branded hotels operated by the Company, except for hotels added or under major renovation during the current period or the prior year period, development projects and hotels no longer managed by the Company) decreased by 4.2% in the first quarter of 2016 as compared to the same period in 2015. As of March 31, 2016, the Company had approximately $11.9 million in cash and cash equivalents.

Between April 26 and May 6, 2016, negotiations between the Company, SBE and their respective advisors continued, and negotiations also took place with SBE, Yucaipa and Cain Hoy related to their respective investments in the acquiring company. The Company and its advisors continued to focus on obtaining commitment papers for the equity financing and debt financing for the transaction.

On May 3, 2016, further discussions also took place between representatives of the Company and SBE and the mortgage lenders under the Hudson/Delano mortgage loans and counsel to the lenders. Although SBE furnished certain additional financial information to the mortgage lenders, the lenders indicated that they would require additional information to assess SBE’s eligibility to assume the loans. Later that day, counsel to the lenders indicated to Fried Frank that, due to Yucaipa’s investment in the acquiring entity, SBE might be entitled to take into account Yucaipa’s assets for purposes of determining the acquiring entity’s eligibility to assume the mortgage loans.

On May 4, 2016, SBE furnished to the Company drafts of the financing commitment papers and a form of agreement between SBE and Yucaipa relating to the treatment of Yucaipa’s Series A preferred securities and warrants in the merger and the related term sheet among SBE, Yucaipa and Cain Hoy setting forth the proposed economic and governance terms of SBE’s and Yucaipa’s respective investments in the holding company to be formed for purposes of acquiring the Company.

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At a meeting of the Board on the evening of May 4, 2016, Fried Frank updated the Board on the status of the transaction, the financing commitments and the proposed Yucaipa rollover. Fried Frank noted that the terms of the rollover contemplated the transfer to Yucaipa after the closing of the merger of the leasehold interests held by the Company in three MBLV Restaurants, in addition to preferred and common equity interests in the acquiring entity. At that meeting, the Board authorized an extension of exclusivity through May 6, 2016, and authorized a further extension through May 8, 2016, should a transaction not be finalized by May 6.

On May 5, 2016, Fried Frank provided comments on the Yucaipa rollover commitment letter and discussions took place between Fried Frank, O’Melveny and Sidley Austin LLP, or Sidley, counsel to Yucaipa, regarding the terms of the rollover commitment letter and certain changes to the merger agreement requested by Sidley. Among other things, Yucaipa insisted that the assumption or refinancing of the Hudson/Delano mortgage debt must be a condition of closing of the merger. In addition, Yucaipa requested certain changes to the specific performance provisions of the merger agreement. Fried Frank advised O’Melveny and Sidley that the inclusion of the mortgage condition was inconsistent with the parties’ prior discussions, and that the Board would likely require that the $6.5 million reverse termination fee apply to a failure by SBE to satisfy the mortgage condition.

On May 6, 2016, Mr. Nazarian called Morgan Stanley and indicated that, in light of, among other things, the continued declining performance of Hudson and Delano in April 2016, and resulting lowered forecast for the 2016 year (which would require an estimated $54.0 million prepayment in February 2017 under the Hudson and Delano mortgages), as well as certain increased costs relating to required improvements to Hudson’s façade, SBE was lowering its proposed purchase price from $2.40 to $2.10 per share of common stock. As a result of this proposed change, the Company did not provide a signed extension of exclusivity to SBE on May 6. Also on May 6, 2016, O’Melveny provided to Fried Frank a revised draft merger agreement reflecting comments from O’Melveny and Sidley. These comments included changes to the definition of “Monroe Material Adverse Effect”, the insertion of an additional closing condition relating to regulatory matters, changes to the closing condition that there be no Monroe Material Adverse Effect that moved the measurement date for testing this condition from the date of signing of the merger agreement to January 1, 2016, and deletion of provisions giving each party the right to sue for willful and material breaches of the merger agreement by the other party. After discussions, these comments were withdrawn. In addition, in order to address the Company’s concerns with respect to the mortgage condition, SBE proposed language undertaking to assume certain potential costs associated with obtaining an assumption of the Hudson/Delano mortgage debt.

On May 7, 2016, the Board and its advisors met and discussed SBE’s proposed price reduction and reviewed the items cited by SBE as rationale for the proposed price reduction. The Board instructed its advisors to continue to work to finalize the non-economic terms of the transaction, and to revert to SBE on price when progress had been made on other open items. At that time, the key remaining issues included certain conditions to the debt financing commitment and the need for information from Cain Hoy confirming Cain Hoy’s financial capacity to fund the equity commitment. In addition, the Company requested that, in lieu of a commitment to bear costs of obtaining an assumption of the Hudson/Delano mortgage debt, SBE agree to the same $6.5 million reverse termination fee applicable to a failure to close due to the unavailability of SBE’s financing commitments.

On May 7 and 8, 2016, discussions continued between representatives of the Company, SBE and their respective advisors. During these discussions, the parties continued to negotiate terms for the transactions, including negotiating terms for the debt financing to be provided by Cain Hoy. By late afternoon on May 8, 2016, the Company’s and SBE’s respective advisors had resolved most of the material terms of the transaction except for price. Morgan Stanley and Houlihan Lokey, on behalf of the Company and SBE, engaged in discussions on price, with Morgan Stanley expressing the Board’s view that $2.10 per share was not acceptable. Following discussions between SBE and Houlihan Lokey, Houlihan Lokey informed Morgan Stanley that $2.25 per share represented SBE’s “best and final” offer.

On May 8, 2016, the Board met with Fried Frank and Morgan Stanley to review the terms currently proposed by SBE. Fried Frank provided an overview of the Board’s fiduciary duties. Fried Frank then provided an overview of the terms of the proposed transaction, including (i) Yucaipa’s interest in the transaction, given its agreement to roll its Series A preferred securities and warrants into an investment in preferred equity and common equity of the acquiring entity and certain

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restaurant leases, (ii) the limitations on the Company’s ability to engage in discussions with respect to any alternative transaction, and the related provisions permitting the Company to respond to certain alternative proposals, to negotiate and, subject to certain “match rights” of SBE, to terminate the merger agreement in the event of a superior proposal, (iii) the conditions to closing, (iv) the potential obligation to pay a $6.5 million termination fee, in the event that the merger agreement is terminated in certain circumstances, (v) the Company’s remedies in the event of a failure by SBE to close, including the right of specific performance in certain circumstances and the potential right to receive a reverse termination fee of $6.5 million, and (vi) the terms of the debt and equity financing commitments. Morgan Stanley then provided an overview of the Company, the Company’s financial performance, and the risks and challenges facing the Company on a standalone basis. Morgan Stanley reviewed with the Board its financial analysis with respect to the proposed merger. Morgan Stanley then delivered its oral opinion, which was subsequently confirmed in writing, that the consideration of $2.25 per share of common stock to be paid pursuant to the merger was fair, from a financial point of view, to the holders of common stock other than SBE, Yucaipa and their respective affiliates. Following discussion, the Board unanimously (except for Mr. Nugent who recused himself and Mr. Kalisman, who was not present at the meeting) authorized the Company to finalize and execute the merger agreement and related documents at the proposed price of $2.25 per share of common stock, subject to certain final changes.

Following the Board meeting, Fried Frank and Morgan Stanley spoke with SBE and its representatives. They advised SBE and its representatives that the Board had authorized the Company to proceed to finalize the merger agreement, subject to (i) confirmation of the price of $2.25 per share of common stock in cash, (ii) elimination of language in Cain Hoy’s equity commitment that appeared to give rise to a right of termination in the event of stockholder litigation with respect to the transaction and (iii) delivery of evidence satisfactory to the Company of Cain Hoy’s financing capacity.

On May 9, 2016, the Company’s and SBE’s respective advisors worked to finalize the merger agreement and the debt and equity commitment letters, as well as the voting agreements, in each case as described further in “ The Merger Agreement ,” beginning on page 84, “ Special Factors—Financing ,” beginning on page 63, and “ Agreements Involving Common Stock and Series A Preferred Securities—Voting Agreements ,” beginning on page 103. In addition, Security Benefit Corporation delivered to the Company an executed guarantee guaranteeing the obligations of Cain Hoy under the equity commitment letter. Later on May 9, the Company, SBE and Merger Sub executed the merger agreement, and the Company delivered a press release announcing the transaction shortly after markets closed that day. SBE entered into voting agreements with OTK Associates, Pine River Capital, an affiliate of Vector Group and Yucaipa.

On May 11, 2016, the Board received a letter from Bidder Q, setting forth a non-binding, preliminary proposal to acquire all of the Company’s outstanding common stock for a purchase price of $3.00 per share together with an assumption of all current debt of the Company. The letter did not include information concerning the proposed transaction structure, sources of financing or proposed treatment of the Series A preferred securities. After discussing questions with the Company’s advisors regarding Bidder Q’s known business interests and financial capacity, the Board determined to take no action with respect to Bidder Q’s proposal. Since May 11, representatives of Bidder Q have reached out to the Company on several additional occasions by phone. Because the Board has not determined that Bidder Q’s proposal would reasonably be expected to result in a superior proposal in accordance with the merger agreement, the Company has not responded to those communications.

On May 17, 2016, the Board received a joint letter from two parties whom we refer to as a Bidder U, one of whom had previously reviewed information with respect to Hudson and Delano and had submitted a non-binding indication of interest on Hudson on April 2 of $325 million, setting forth an unsolicited, non-binding proposal to acquire all of the common stock for a purchase price of $2.40 per share. Howard Lorber, the Chairman of the Board, is a director of an affiliate of one of the parties comprising Bidder U. For this reason, and even though Mr. Lorber indicated that he had no interest or role in that party or in Bidder U other than the foregoing board affiliation with a related entity, Mr. Lorber recused himself from further discussions by the Board with respect to Bidder U’s proposal or the merger. Although the Board believed that Bidder U likely had the financial capacity to execute a transaction, the letter did not provide details with respect to the proposed transaction structure or treatment of the Company’s debt or preferred securities. After discussion with the Company’s advisors, the Board determined to defer any determination with respect to Bidder U’s proposal until after the submission of the Company’s preliminary proxy statement to the SEC. The Board agreed that the Company should advise Bidder U to review the merger agreement and the Company’s proxy statement, when publicly filed. A letter to this effect was delivered to Bidder U on May 20, and a similar letter was delivered to Bidder Q on the same date.

On May 20, 2016, the Board received another unsolicited letter from Bidder U stating that Bidder U had completed its review of all publicly available information regarding the Company, confirming that its offer price of $2.40 per share of common stock assumed prior payment of the termination fee under the merger agreement with SBE and stating that Bidder U had the

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financial wherewithal to complete the proposed acquisition. Bidder U urged the Company to begin discussions with it regarding a potential transaction. The May 20 letter provided no other clarifications to Bidder U’s prior proposal letter, and the Board continued to defer any determination with respect to the May 20 letter for the time being.

On May 25, 2016, the Board received a third unsolicited letter from Bidder U reiterating Bidder U’s proposal to acquire all of the common stock for a purchase price of $2.40 per share. Bidder U requested that the Company commence discussions with Bidder U no later than the close of business on May 27, 2016, and failing that, reserved the right to bring its proposal directly to the holders of common stock.

On May 26, 2016, representatives of the Company engaged in discussions with SBE and its advisors to request a waiver of the requirement under Section 5.02(a) of the merger agreement that the Board make a determination whether Bidder U’s proposal would reasonably be expected to result in a “Superior Monroe Proposal” prior to engaging in discussions with Bidder U. SBE declined to grant a waiver. At a meeting of the Board during the evening of May 26, 2016, after discussions with its legal and financial advisors, the Board (excluding Messrs. Lorber and Nugent, who recused themselves) determined that the Bidder U proposal would reasonably be expected to lead to a “Superior Monroe Proposal” within the meaning of the merger agreement, and that, consistent with its fiduciary duties, it should engage in discussions with Bidder U, subject to and in compliance with the requirements of the merger agreement.

In the morning of May 27, 2016, O’Melveny sent a letter to Fried Frank, confirming that SBE would not grant a waiver under Section 5.02(a) of the merger agreement and asserting SBE’s contention, based on the information provided, that the Board cannot make a determination in good faith that its fiduciary duties require it to take actions under Section 5.02(a) of the merger agreement. Later that day, consistent with the Board’s direction at the meeting the prior evening, Fried Frank sent to counsel to Bidder U a non-disclosure agreement in the form required by the merger agreement. Later that day, counsel to Bidder U sent a markup of the non-disclosure agreement to Fried Frank. The markup did not conform to the requirements of the merger agreement (insofar as it sought, among other things, to limit the standstill provisions to a 30-day period), and later that day Fried Frank communicated to counsel to Bidder U that the Company could not execute the non-disclosure agreement in the form requested by Bidder U in light of the provisions of the merger agreement. Counsel to Bidder U then requested that the Company request a waiver of the requirement that a potential bidder execute a non-disclosure agreement in the required form from SBE, and late that evening SBE’s counsel confirmed to Fried Frank that SBE would not grant a waiver. Fried Frank communicated SBE’s position to counsel to Bidder U on May 31, 2016.

On June 27, 2016, counsel for Bidder U contacted Fried Frank, stating that Bidder U was interested in executing a non-disclosure agreement that conformed to the requirements of the merger agreement. On June 29, 2016, the Company and Bidder U entered into a non-disclosure agreement, which conforms to the requirements of the merger agreement and permits Bidder U to request a waiver of the standstill provisions of the non-disclosure agreement for the purpose of submitting a private proposal for a transaction involving the acquisition of more than 50% of the aggregate voting power of the capital stock of the Company or more than 50% of the assets of the Company and its subsidiaries taken as a whole. The Company is furnishing non-public information to Bidder U, and may engage in further discussions with Bidder U, subject to the provisions of the merger agreement and the non-disclosure agreement with Bidder U.

On July 18, 2016, the Company received an unsolicited written proposal from a party we refer to as Bidder V. The proposal proposed an acquisition of the Company’s common stock at an all cash purchase price of $2.75 per share, and stated that Bidder V anticipated redeeming the Company’s Series A preferred securities at their liquidation value plus accrued distributions and was committed to work to assume or refinance the Company’s mortgage debt. Bidder V stated that it intended to finance the acquisition entirely with equity, and enclosed a non-binding letter of intent from a financial institution expressing an agreement in principle to provide up to $250 million in equity financing to support Bidder V’s proposed transaction.

On July 19, 2016, the Board (excluding Bradford Nugent and Howard Lorber, who recused themselves) met to consider the proposal from Bidder V. After consulting with its legal and financial advisors, the Board determined that the Bidder V proposal would reasonably be expected to lead to a “Superior Monroe Proposal” within the meaning of the merger agreement, and that, consistent with its fiduciary duties, it should engage in discussions with Bidder V, subject to and in compliance with the requirements of the merger agreement. Later that day, Fried Frank furnished a form of non-disclosure agreement conforming to the requirements of the merger agreement to counsel to Bidder V. Fried Frank and counsel to Bidder V are in the process of finalizing a non-disclosure agreement.

Also on July 19, 2016, Bidder U requested a waiver from the Company of certain restrictions under its non-disclosure agreement for the purpose of engaging in discussions with the Board, Yucaipa and OTK Associates with respect to Bidder U’s proposal. On July 21, 2016, the Board (excluding Bradford Nugent and Howard Lorber, who recused themselves) met to consider the request from Bidder U. After consulting with its legal and financial advisors, the Board determined in accordance with the provisions of the merger agreement to grant Bidder U the requested waivers. Each of Yucaipa and OTK Associates is subject to agreements with SBE that limit the ability of such parties to engage in discussions with third parties, and the granting of waivers by the Board under the non-disclosure agreement with Bidder U is not intended to, and does not, affect the obligations of Yucaipa and OTK Associates under their agreements with SBE.

Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger

The Board (excluding Bradford Nugent, who recused himself from the Board’s deliberations and Jason Kalisman, who was not present at the meeting of the Board at which the merger was approved) recommends that you vote “FOR” approval of the proposal to adopt the merger agreement and the merger.

The Board (which, unless otherwise noted, for purposes of this section “ Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger ” excludes Mr. Nugent, who recused himself from the Board’s deliberations, but includes a majority of the independent, non-employee directors of the Company), at a meeting held on May 8, 2016, determined that the merger agreement and the transactions contemplated by the merger agreement (including the merger) are fair to, and in the best interests of, the Company and its stockholders and approved and declared advisable the merger agreement and the transactions contemplated by the merger agreement (including the merger), and resolved that the merger agreement be submitted for consideration by the stockholders of the Company at a special meeting of stockholders, and recommended that the stockholders of the Company vote to adopt the merger agreement and the merger. The Board consulted with the Company’s outside financial and legal advisors and Company senior management at various times and considered a number of factors, including the following principal factors (not in any order of relative importance) that the Board believes support its decision and the fairness of the transactions contemplated by the merger agreement (including the merger):

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Factors Related to the Company’s Business, Financial Performance, Liquidity, and Financial Viability as an Independent Company

Lodging Industry Trends

Historical Financial Performance; Liquidity; and Future Prospects

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Management and Business Strategy

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Factors Related to the Sale Process and Evaluation of Potential Strategic Alternatives

Valuation

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Transaction Terms, Conditions and Certainty

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Certain Rights of Yucaipa

Interests of Certain Persons in the Merger; Rollover of Yucaipa’s Series A Preferred Securities

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The Board also considered a variety of risk factors in its deliberations concerning the merger agreement and the merger, which are described below.

Risks Concerning the Merger Agreement

The merger agreement contains provisions that restrict the Company’s ability to respond to a third-party proposal (if any) to acquire the Company. These provisions include the general prohibition on our soliciting or engaging in discussions or negotiations regarding any alternative acquisition proposal, subject to certain exceptions, and the requirement that we pay a termination fee of $6.5 million (equivalent to approximately $0.18 per share of common stock) if the merger agreement is terminated in specified circumstances. These provisions in the merger agreement might discourage an otherwise-interested third party from considering or proposing to acquire the Company, even one that may be deemed of greater value than the proposed acquisition by SBE to our common stockholders. Furthermore, even if a third party elects to propose an acquisition, the concept of a termination fee may result in that third party offering a lower value to our common stockholders than such third party might otherwise have offered. However, the Board believed, after consultation with its legal and financial advisors, that these restrictions and the termination fee of $6.5 million would likely not inhibit a third party with the strategic interest and financial capability from submitting an alternative proposal for the Company. See “ Merger Agreement—Other Covenants and Agreements—Non-Solicitation ,” beginning on page 91 and “ Merger Agreement—Termination Fees; Reimbursement of Expenses ,” beginning on page 101.

The Board’s consideration of the factors described above reflects its assessment of the fairness of the merger agreement and the transactions contemplated by the merger agreement (including the merger) to the Company and its stockholders, including, but not limited to, the Company’s unaffiliated stockholders. In reaching its conclusion as to fairness, the Board did not consider the following to be material and/or relevant: (i) historical market prices; (ii) net book value; (iii) liquidation value; or (iv) purchase prices paid in previous purchases of common stock in the past two years.

The Board did not consider historical market prices of the common stock to be relevant to its determination of fairness given the deterioration in the Company’s results of operations and prospects in 2015 and the acceleration of that trend in late 2015 and 2016 to date. The Board did not consider recent purchases of its common stock as the Company had not repurchased shares of its common stock during the preceding two years. The Board considered that the merger consideration of $2.25 per share compared favorably to the values realizable in a liquidation of the Company given that the Company’s principal assets were its ownership interests in Hudson and Delano and given the offers received for Hudson and Delano in connection with the calls for bids on those assets. Moreover, any sale of material assets of the Company would be subject to any applicable consent rights of Yucaipa and the Board recognized that there was no assurance that a liquidation of the Company could be consummated.

The Board did not consider net book value, which is an accounting concept, as a factor in its evaluation of the merger because the Company’s business is not of a nature that is traditionally valued on the basis of book value, as the Company’s value is derived from real estate values and from cash flows generated by continuing operations, and the Board believes that net book value is not a material indicator of the value of the Company as a going concern but rather is indicative of historical costs.

The Board considered the Company’s going concern value to be relevant to its determination of fairness. In this regard, the Board considered, among other things, the Company’s financial projections and the risks and uncertainties associated with these projections, the valuation analyses of Morgan Stanley, and the Company’s deteriorating financial position, which could adversely impact the going concern value of the Company and its future liquidity and financial performance.

The Board determined that the merger is procedurally fair to the Company’s stockholders, including, but not limited to, the Company’s unaffiliated security holders, despite the fact that the Board did not retain an unaffiliated representative to act solely on behalf of the Company’s unaffiliated security holders for purposes of negotiating the terms of the merger. In making this determination, the Board (excluding Mr. Nugent, who recused himself from the Board’s deliberations as previously described) included a majority of the independent, non-employee directors of the Company, and the Board engaged financial and legal advisors to act on its behalf and was actively involved in deliberations and negotiations regarding the merger on behalf of the Company’s unaffiliated security holders.

With the exception of 22,367 shares of common stock owned by Mr. Burkle, none of SBE, Yucaipa or their affiliates owns any shares of common stock. Consequently, the Board believed that a separate vote of unaffiliated holders of common stock was not required in connection with the approval of the merger.

Opinion of Morgan Stanley

The Company retained Morgan Stanley to provide it with financial advisory services in connection with the proposed merger. The Company selected Morgan Stanley to act as its financial advisor based on Morgan Stanley’s qualifications, expertise and reputation and Morgan Stanley’s knowledge of the business and affairs of the Company. Morgan Stanley rendered to the

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Board at its meeting on May 8, 2016 Morgan Stanley’s oral opinion, which was subsequently confirmed by delivery of a written opinion dated May 9, 2016, that, as of such date, and based upon and subject to the various assumptions, considerations, qualifications and limitations set forth therein, the merger consideration to be received by the holders of common stock (other than shares (i) owned or held by the Company, Purchaser or any of their wholly owned subsidiaries or (ii) as to which dissenters’ rights have been perfected, which we refer to as Excluded Shares) pursuant to the merger agreement was fair from a financial point of view to such holders of the shares of common stock.

The full text of the written opinion of Morgan Stanley, dated May 9, 2016, is attached as Annex B and incorporated by reference into this proxy statement. The opinion sets forth, among other things, the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. Stockholders are urged to, and should, read the opinion carefully and in its entirety. Morgan Stanley’s opinion is directed to the Board and addressed only the fairness, from a financial point of view, to the holders of shares of common stock (other than the Excluded Shares) of the merger consideration to be received by such holders pursuant to the merger agreement as of the date of the opinion. Morgan Stanley’s opinion did not address any other term or aspect of the merger agreement or merger and did not address the relative merits of the Merger as compared to any other alternative business transactions, or other alternatives, or whether or not such alternatives could be achieved or are available, nor did it address the underlying business decision of the Company to enter into the merger agreement. Morgan Stanley expressed no opinion or recommendation to the stockholders of the Company as to how to vote at the special meeting held in connection with the merger. The summary of Morgan Stanley’s opinion set forth in this proxy statement is qualified in its entirety by reference to the full text of Morgan Stanley’s opinion.

For purposes of rendering its opinion, Morgan Stanley, among other things:

In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to it by the Company, and formed a substantial basis for its opinion. With respect to the financial projections, Morgan Stanley assumed that such financial projections had been reasonably prepared on bases reflecting the currently available estimates and judgments of the management of the Company of the future financial performance of the Company. In addition, Morgan Stanley assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions and that the definitive merger agreement would not differ in any material respect from the drafts thereof furnished to Morgan Stanley. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required for the proposed merger, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed merger. Morgan Stanley is not a legal, tax, or regulatory advisor. Morgan Stanley is a financial advisor only and has relied upon, without independent verification, the assessment of the Company and SBE and

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their legal, tax or regulatory advisors with respect to legal, tax, or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the merger consideration to be received by the holders of shares of common stock in the merger. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company, nor was it furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to it, as of May 9, 2016. Events occurring after such date may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.

Summary of Financial Analyses of Morgan Stanley

The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion rendered to the Board at its meeting on May 8, 2016 and the preparation of its written opinion letter dated May 9, 2016. The various financial analyses summarized below were based on the closing price for the shares of common stock as of May 5, 2016, the second to last full trading day preceding the day of the meeting of the Board to consider, approve, adopt and authorize the merger agreement. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Furthermore, mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using the data referred to below.

Historical Stock Trading Analysis

Morgan Stanley reviewed the historical trading prices and volumes for the common stock for the last forty-one months ending on May 5, 2016. Morgan Stanley noted that from January 1, 2016 to May 5, 2016, the closing share price of the common stock ranged from $0.86 to $3.16, with a closing price on May 5, 2016 of $1.33.

Sum-of-the-Parts Analysis

Morgan Stanley performed a sum-of-the-parts analysis which is designed to imply a value of a company based on the separate valuation of the company’s business and owned assets. Morgan Stanley calculated ranges of values for the Company’s real estate assets based on a combination of bids received and discounted cash flows based on discount rates ranging from 7.0% to 9.0%. Morgan Stanley added these amounts and subtracted the Clift ground lease obligation to calculate a range of gross real estate values of $472 million to $582 million. Based on the analysis of the relevant metrics for the companies, Morgan Stanley selected ranges of multiples of 9.6x to 12.5x for 2016 EBITDA and applied these ranges of multiples to the management company EBITDA less public company general and administrative costs to derive a range of net management company values of $51 million to $67 million. Morgan Stanley added to these gross real estate values and net management company values a range of present value of net operating losses from $0 to $50 million and other assets, and subtracted debt and preferred stock, including accrued dividends, and other liabilities to calculate a range of equity values. Based on this analysis, Morgan Stanley calculated a range of potential values of $(1.58) to $3.28 per share of common stock.

Selected Comparable Companies Analysis

Morgan Stanley performed a comparable companies analysis, which is designed to provide an implied trading value of a company by comparing it to selected companies with similar characteristics to the company. Morgan Stanley compared certain financial information of the Company with publicly available information for the selected companies. The selected companies were chosen based on Morgan Stanley’s knowledge of the industry and because the selected companies have businesses that may be considered similar to the Company. Although none of the selected companies are identical or directly comparable to the Company, financial information based on publicly available information for the following selected companies were considered:

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The information Morgan Stanley presented included EBITDA multiples for 2016 and 2017 for each of the selected companies. Based on the EBITDA multiples for the selected companies, Morgan Stanley derived average, minimum and maximum values of EBITDA multiples for the Tier 1 and Tier 2 selected companies and an average EBITDA multiple for the combined Tier 1 and Tier 2 selected companies, respectively. Multiples for Starwood Hotels and Resorts Worldwide, Inc. were excluded from such average, maximum and minimum values of EBITDA multiples due to its pending merger with Marriott International, Inc.

Based on the analysis of the relevant metrics for the selected companies, Morgan Stanley selected ranges of multiples of 9.6x to 12.5x for 2016 EBITDA which represent the minimum and maximum values of 2016 EBITDA multiples for Tier 1 selected companies, based on Morgan Stanley’s judgment that Tier 1 selected companies were more comparable to the Company, and applied these ranges of multiples to the relevant financial statistics for the Company. Morgan Stanley added these amounts to a range of present value of net operating losses of $0 to $50 million, the present value of lost contracts and cash to calculate a range of gross values of $378 million to $536 million, and subtracted debt and preferred stock, including accrued dividends, and other liabilities to derive a range of implied equity values. Based on this analysis, Morgan Stanley derived a range of potential values of $(6.47) to $(2.11) per share of common stock.

No company in the selected comparable companies analysis is identical to the Company. In evaluating the selected companies listed above, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of the Company, such as the impact of competition on the business of the Company or the industry generally, industry growth and the absence of any material adverse change in the financial condition and prospects of the Company or the industry or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable companies data.

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Discounted Cash Flow Analysis

Morgan Stanley performed discounted cash flow analyses to determine ranges of potential values per share of common stock, using the financial projections provided by the Company’s management. Morgan Stanley calculated ranges of implied prices per share of common stock based on the sum of the discounted net present values of (i) annual unlevered and levered free cash flows that the Company is estimated to generate for the fiscal years ending December 31, 2016 through December 31, 2019, and (ii) projected enterprise and equity terminal values of the Company as of December 31, 2019.

Morgan Stanley discounted the unlevered free cash flows at discount rates ranging from 7.1% to 8.4%, which were calculated based on the Company’s weighted average cost of capital derived using the capital asset pricing model and the Company’s capital structure and the cost of preferred equity and debt as of March 31, 2016. Morgan Stanley also calculated terminal values using multiples of 11.5x to 13.5x for 2020 EBITDA based on long term sector averages and assuming no transaction costs. These values were then discounted at 8.7%, which was calculated based on Tier 1 comparable company weighted average cost of capital derived using the capital asset pricing model and a more typical going-concern capital structure. Morgan Stanley added the present values of the unlevered cash flows and terminal values to calculate a range of gross values of $539 million to $617 million. Morgan Stanley added these gross values, cash and a range of $9 million to $30 million, representing 25% to 75% of the present value of future net operating losses, and subtracted debt and preferred stock, including accrued dividends and other liabilities to calculate a range of implied equity values. Based on this analysis, Morgan Stanley calculated a range of potential values of $(1.36) to $1.35 per share of common stock.

Morgan Stanley discounted the levered free cash flows at discount rates of 12.2% to 15%, which were calculated based on an estimate of the Company’s cost of equity using the capital asset pricing model. Morgan Stanley also calculated terminal values using multiples of 11.5x to 13.5x for 2020 EBITDA based on long term sector averages and assuming no transaction costs. Morgan Stanley added these amounts to a range of $12 million to $40 million representing 25% to 75% of the future value of net operating losses as of December 31, 2019 to calculate a range of gross values of $607 million to $738 million. Morgan Stanley subtracted from these gross values, debt and preferred stock including accrued dividends, cash and other liabilities to calculate a range of terminal equity values. Morgan Stanley multiplied the terminal equity values by a present value factor of 69%, which reflected an equity discount rate of 9.8% assuming a more typical going concern capital structure based on Tier 1 comparable company weighted average cost of capital, derived using the capital asset pricing model, and added the present value of levered cash flows. Based on this analysis, Morgan Stanley calculated a range of potential values of $(2.53) to $0.52 per share of common stock.

General

In connection with the review of the merger by the Board, Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of its analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the common stock. In performing its analyses, Morgan Stanley made numerous assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters which are beyond the control of the Company. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.

Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness, from a financial point of view, to the holders of shares of common stock (other than the Excluded Shares) of the merger consideration to be received by such holders of shares of common stock pursuant to the merger agreement, and in connection with the delivery of its oral opinion, which was subsequently confirmed in writing, to the Board. These analyses do not purport to be appraisals or to reflect the prices at which shares of common stock might actually trade.

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The merger consideration was determined through arm’s-length negotiations between the Company and SBE and was approved by the Board. Morgan Stanley provided advice to the Company during these negotiations but did not, however, recommend any specific merger consideration to the Company, or that any specific merger consideration constituted the only appropriate merger consideration for the merger.

Morgan Stanley’s opinion and its presentation to the Board was one of many factors taken into consideration by the Board in deciding to approve, adopt and authorize the merger agreement. Consequently, the analyses as described above should not be viewed as determinative of the opinion of the Board with respect to the merger consideration or of whether the Board would have been willing to agree to different merger consideration. Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice.

The Board retained Morgan Stanley based upon Morgan Stanley’s qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for their own account or the accounts of its customers, in debt or equity securities or loans of the Company, SBE or any other company, or any currency or commodity, that may be involved in this transaction, or any related derivative instrument. In the two years prior to the issuance of Morgan Stanley’s fairness opinion, Morgan Stanley has not been engaged to provide investment banking services to, and has not received any investment banking compensation from, SBE, Yucaipa or their respective affiliates (other than the Company).

As compensation for its services relating to the merger, the Company has agreed to pay Morgan Stanley a fee of approximately $8.0 million in the aggregate, which is contingent upon the consummation of the merger, and $250,000 of which was earned as a quarterly advisory fee. The Company has also agreed to reimburse Morgan Stanley for its actual and documented expenses incurred in performing its services. In addition, the Company has agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and each person, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley’s engagement. Morgan Stanley may also seek to provide financial advisory and financing services to the Company or SBE in the future and would expect to receive fees for the rendering of those services.

Position of SBE, Merger Sub and Purchaser as to Fairness of the Merger

Under the SEC rules governing “going-private” transactions, each of SBE, Merger Sub and, upon its formation and assumption of SBE’s rights under the merger agreement, Purchaser (which we refer to, collectively, as the SBE parties) may be deemed to be affiliates of the Company, and, therefore, they are required to express their beliefs as to the fairness of the merger to the Company’s “unaffiliated security holders,” as defined under Rule 13e-3 of the Exchange Act. The SBE parties are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. The views of the SBE parties should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote on the proposal to adopt the merger agreement.

SBE and Merger Sub attempted to negotiate with the Board the terms of a transaction that would be most favorable to the SBE parties and not necessarily to the Company’s unaffiliated stockholders, and, accordingly, did not negotiate the merger agreement with a goal of obtaining terms that were fair to such unaffiliated stockholders. Bradford Nugent recused himself from the determination of the Board referred to above in “ —Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger ,” beginning on page 44, and did not participate in the related Board vote.

None of the SBE parties participated in the deliberations of the Board regarding, or received advice from the Company’s legal advisors or financial advisors as to, the substantive or procedural fairness of the merger to the Company’s unaffiliated stockholders. None the SBE parties has performed, or engaged a financial advisor to perform, any valuation or other analysis for the purposes of assessing the fairness of the merger to the Company’s unaffiliated stockholders. Based on the knowledge and analysis by SBE and Merger Sub of available information regarding the Company, as well as discussions with the

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Company regarding its business and the factors considered by, and the analysis and resulting conclusions of, the Board discussed in this proxy statement in “ —Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger ,” beginning on page 44 (which analysis and resulting conclusions the SBE parties adopt), SBE and Merger Sub believe that the merger is substantively and procedurally fair to the Company’s unaffiliated stockholders and have adopted the analyses, discussions, determination and recommendation of the Board of directors of the Company regarding the fairness of the merger agreement and the transactions contemplated thereby, including the merger. In particular, SBE and Merger Sub believe that the merger is both procedurally and substantively fair to the unaffiliated stockholders based on their consideration of the following factors, among others:

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In their consideration of the fairness of the merger, SBE and Merger Sub did not find it practicable to, and did not, appraise the assets of the Company to determine the liquidation value for the Company’s unaffiliated stockholders because (i) of their belief that liquidation sales generally result in proceeds substantially less than the sales of a going concern, (ii) of the impracticability of determining a liquidation value given (a) the fact that a significant portion of the Company’s assets are not freely transferrable and (b) the significant execution risk involved in any breakup, (iii) they considered the Company to be a viable going concern and (iv) the Company will continue to operate its business following the merger in combination with the business of SBE. SBE and Merger Sub did not consider net book value, which is an accounting concept, for purposes of determining the fairness of the merger consideration to the Company’s unaffiliated stockholders because, in their view, net book value is not indicative of the Company’s market value but rather is an indicator of historical costs. SBE and Merger Sub note, however, that the merger consideration of $2.25 per share of common stock is higher than the net book value of the Company of $(8.39) per share of common stock as of March 31, 2016. SBE and Merger Sub did not seek to establish a pre-merger going concern value for the common stock to determine the fairness of the merger consideration to the Company’s unaffiliated stockholders because following the merger the Company will have a significantly different capital structure. However, to the extent the pre-merger going concern value was reflected in the price of the common stock immediately prior to the announcement of the merger, the merger consideration of $2.25 per share of common stock represented a premium to the going concern value of the Company as reflected in the trading price of its common stock.

The foregoing discussion of the information and factors considered by each of SBE and Merger Sub in connection with their evaluation of the fairness of the merger to the unaffiliated stockholders is not intended to be exhaustive but is believed to include all material factors considered. SBE and Merger Sub found it impracticable to assign, and did not assign, quantify or otherwise attach relative weights to the individual factors considered in reaching their conclusions as to fairness. Rather, SBE and Merger Sub made their fairness determination after considering all of the foregoing factors as a whole. SBE and Merger Sub believe that these factors provide a reasonable basis for their belief that the merger is fair to the Company’s unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any Company stockholder in favor of the proposal to adopt the merger agreement. None of the SBE parties make any recommendation as to how stockholders of the Company should vote their shares of common stock on the proposal to adopt the merger agreement.

Position of Yucaipa as to Fairness of the Merger

Under the SEC rules governing “going-private” transactions, Yucaipa may be deemed to be an affiliate of the Company and required to express its belief as to the fairness of the merger to the Company’s “unaffiliated security holders” as defined under Rule 13e-3 of the Exchange Act. Yucaipa is making the statements included in this section solely for purposes of complying with the requirements of Rule 13e-3 and related rules under the Exchange Act. The view of Yucaipa should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote on the proposal to adopt the merger agreement. As described below, Yucaipa believes that the merger is fair to the Company’s unaffiliated stockholders on the basis of the factors described under “ —Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger ,” beginning on page 44,” —Opinion of Morgan Stanley ,” beginning on page 50, “—Position of SBE , Merger Sub and Purchaser as to the Fairness of the Merger ,” beginning on page 55, “ —Purposes and Reasons of SBE , Merger Sub and Purchaser for the Merger ,” beginning on page 58, and “ —Purposes and Reasons of Yucaipa for the Merger ,” beginning on page 58 and have adopted the analyses, discussions, determination and recommendation of the Board of directors of the Company regarding the fairness of the merger agreement and the transactions contemplated thereby, including the merger.

As disclosed under “ Special Factors—Purposes and Reasons of Yucaipa for the Merger ,” beginning on page 58, Yucaipa has interests in the merger that are different from those of the unaffiliated stockholders by virtue of the fact that Yucaipa’s Series A preferred securities and warrants to purchase common stock of the Company will be exchanged in the merger for a combination of common and preferred equity interests in Purchaser and certain restaurant leasehold interests. While Mr. Nugent is a partner of Yucaipa and a director of the Company, because of his participation in the transaction as described under the section captioned “ Agreements Involving Common Stock and Series A Preferred Securities ,” beginning on page 103, he recused himself from the Board’s determination on the merger and did not participate in the related Board vote and approval. For these reasons, Mr. Nugent does not believe that his or Yucaipa’s interests in the merger influenced the decision of the Board with respect to the merger agreement or the merger.

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The unaffiliated stockholders were represented by the Board, which negotiated the terms and conditions of the merger and the merger agreement on their behalf, with the assistance of the Board’s financial and legal advisors. The Board approved the terms and conditions of the merger and the merger agreement (with Mr. Nugent recusing himself from the Board’s determination in respect thereof, and not participating in the related Board vote and approval due to his involvement in the transaction). Yucaipa has not performed, or engaged a financial advisor to perform, any independent valuation or other analysis for the purpose of assessing the fairness of the merger to the Company’s unaffiliated stockholders. Yucaipa believes, however, that the merger is substantively and procedurally fair to the unaffiliated stockholders based upon Yucaipa’s knowledge of the Company and on substantially the same factors considered, and not considered, by, and the finding of, the Board (other than Mr. Nugent) with respect to the fairness of the merger to the unaffiliated stockholders. See “ —Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger ,” beginning on page 44. Yucaipa agrees with the analyses, determinations and conclusions of the Board described under “ —Reasons for the Merger; Recommendation of the Board of Directors; Fairness of the Merger .”

The foregoing discussion of the information and factors considered by Yucaipa in connection with the fairness of the merger agreement and the merger is not intended to be exhaustive but is believed to include all material factors considered by Yucaipa. Yucaipa did not find it practicable to, and did not, quantify or otherwise attach relative weights to the foregoing factors in reaching their position as to the fairness of the merger agreement and the merger. Rather, Yucaipa made the fairness determinations after considering all of the foregoing as a whole. Yucaipa believes these factors provide a reasonable basis upon which to form its belief that the merger is fair to the Company’s unaffiliated stockholders. This belief should not, however, be construed as a recommendation to any Company stockholder to vote in favor of the proposal to adopt the merger agreement. Yucaipa does not make any recommendation as to how stockholders of the Company should vote their shares of the common stock relating to the merger.

Purposes and Reasons of SBE, Merger Sub and Purchaser for the Merger

Under the SEC rules governing “going-private” transactions, each of the SBE parties may be deemed to be affiliates of the Company, and, therefore, they are required to express their purposes and reasons for the merger to the Company’s “unaffiliated security holders”, as defined under Rule 13e-3 of the Exchange Act. The SBE parties are making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. The views each of the SBE parties should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote on the proposal to adopt the merger agreement.

For the SBE parties, the primary purpose of the merger is to allow Purchaser to directly or indirectly own equity interests in the Company and to bear the rewards and risks of such ownership after the merger is completed and the common stock ceases to be publicly traded. SBE, Merger Sub and, upon its formation and assumption of SBE’s rights under the merger agreement, Purchaser believe that structuring the transaction in such manner is preferable to other transaction structures because it (i) will enable Purchaser to indirectly acquire all of the outstanding common stock at the same time, (ii) will allow the Company to cease to be a publicly registered and reporting company, (iii) represents an opportunity for the Company’s unaffiliated stockholders to receive $2.25 in cash for their shares of common stock and (iv) allows Yucaipa to maintain a portion of their investment in the Company through direct ownership in Purchaser. In addition, the merger will result in the ownership by Purchaser of a complementary portfolio of owned and managed hotels with an increased scale for both SBE and the Company, which will provide access to a more diversified revenue base.

Purposes and Reasons of Yucaipa for the Merger

Under the SEC rules governing “going-private” transactions, Yucaipa may be deemed to be an affiliate of the Company, and, therefore, Yucaipa is required to express its purposes and reasons for the merger to the Company’s “unaffiliated security holders”, as defined under Rule 13e-3 of the Exchange Act. Yucaipa is making the statements included in this section solely for the purpose of complying with the requirements of Rule 13e-3 and the related rules under the Exchange Act. The views of Yucaipa should not be construed as a recommendation to any Company stockholder as to how that stockholder should vote on the proposal to adopt the merger agreement.

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For Yucaipa, the primary purpose of the merger for the Company is to enable its unaffiliated stockholders to, as of the closing of the merger, immediately realize the value of their investment in the Company through the receipt of the per share merger consideration price of $2.25 in cash. In connection with the merger, Yucaipa will exchange its Series A preferred securities and warrants to purchase common stock of the Company for a combination of common and preferred equity interests in Purchaser and certain restaurant leasehold interests, and thereby be able to indirectly own equity interests in the Company and to bear the rewards and risks of such ownership after the merger is completed and the common stock ceases to be publicly traded. Yucaipa also believes that the merger will provide the Company with flexibility to pursue certain strategic alternatives that it would not be practicable to pursue as a public company, including the ability to pursue business initiatives without focusing on the short-term market reaction of the Company’s public stockholders with respect to such initiatives or the collective risk tolerance of such public stockholders as it relates to such initiatives.

Plans for the Company after the Merger

If the merger is consummated, SBE, Merger Sub and Yucaipa currently anticipate that the Company’s operations initially will be conducted following the closing substantially as they are currently being conducted (except that the Company will cease to be a public company and will instead be a direct or indirect wholly owned subsidiary of Purchaser). SBE, Merger Sub and Yucaipa are currently conducting a review of the Company and its business and operations with a view towards determining how to integrate the Company’s operations with those of SBE and to improve the Company’s long-term earnings potential as a private company (including by investing capital across certain assets currently owned by the Company to generate improved performance and continuing to grow the Company and SBE’s combined core management platform), and expect to complete such review following consummation of the merger. Further, following consummation of the merger, Purchaser will continue to assess the Company’s assets, corporate and capital structure, capitalization, operations, business, properties and personnel to determine what additional changes, if any, would be desirable following the merger to enhance the business and operations of the Company.

Certain Effects of the Merger

If the merger agreement is adopted by the Company’s stockholders and the other conditions to the closing of the merger are either satisfied or, to the extent permitted, waived, Merger Sub will be merged with and into the Company with the Company surviving the merger as a direct or indirect wholly owned subsidiary of Purchaser. The separate corporate existence of Merger Sub will cease and the Company will continue its corporate existence under Delaware law as the surviving corporation in the merger.

At the effective time of the merger each share of common stock issued and outstanding immediately prior to the effective time of the merger (other than shares cancelled shares and any dissenting shares) will be automatically converted into the right to receive $2.25 per share in cash, without interest and less any applicable withholding taxes, whereupon all such shares of common stock will be automatically cancelled upon the conversion thereof and will cease to exist, and the holders of such shares will cease to have any rights with respect thereto, other than the right to receive the merger consideration.

At the effective time of the merger, each Company stock option, whether vested or unvested, that is outstanding immediately prior to the effective time of the merger, will be cancelled and converted into the right to receive an amount in cash equal to (a) the excess, if any, of (1) $2.25 over (2) the exercise price per share of common stock subject to such Company stock option, multiplied by (B) the number of shares of common stock subject to such Company stock option immediately prior to the effective time of the merger, less any applicable tax withholding. At the effective time of the merger, Company stock options with an exercise price per share immediately prior to the effective time of the merger that is greater than or equal to $2.25 will be cancelled for no payment or consideration. All Company stock options are vested and have an exercise price in excess of $2.25 per share, meaning that, at the effective time of the merger, all Company stock options will be cancelled for no payment or consideration.

At the effective time of the merger, each Company RSU award that is outstanding immediately prior to the effective time of the merger, will be cancelled and converted into the right to receive an amount in cash equal to (a) $2.25, multiplied by (B) the number of shares of common stock subject to such Company RSU award immediately prior to the effective time of the merger, less any applicable tax withholding.

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Prior to the effective time of the merger, all of the outstanding Long Term Incentive Plan (LTIP) units will be converted into Non-Managing Member Units in accordance with the terms of the Morgans Group LLC Agreement. The Non-Managing Member Units will be converted into shares of common stock prior to the effective time of the merger and will be converted into the merger consideration of $2.25 per share at the effective time of the merger.

A primary benefit of the merger to our stockholders (other than the Yucaipa investors, with respect to the Series A preferred securities and warrants to purchase common stock held by them) will be the right of such stockholders to receive a cash payment of $2.25, without interest and less any applicable withholding taxes, for each share of common stock held by such stockholders as described above, representing a premium of approximately 69% over the closing market price of the common stock on May 5, 2016, the last unaffected trading day prior to an announcement of SBE’s interest to purchase the Company. Additionally, such stockholders will avoid the risk of any possible decrease in our future earnings, growth or value, and the risks related to the Company’s ongoing debt service and the accreting coupon on the Series A preferred securities.

The primary detriments of the merger to our stockholders (other than the Yucaipa investors, with respect to the Series A preferred securities and warrants to purchase common stock held by them) include the lack of interest of such stockholders in any potential future earnings, growth or value realized by the Company after the merger. Additionally, the receipt of cash in exchange for shares of common stock pursuant to the merger will generally be a taxable sale transaction for U.S. federal income tax purposes to our stockholders who surrender shares of our common stock in the merger as described in “ —Material U.S. Federal Income Tax C onsequences of the Merger ,” beginning on page 72.

Following the merger, it is contemplated that all of the equity interests in the Company will be owned, indirectly through Purchaser, by the members of SBE and Yucaipa. The Purchaser does not currently own any interest in the Company. Following consummation of the merger, the Purchaser will own 100% of the outstanding common stock of the Company and will have a corresponding interest in our net book value and net earnings. Each equityholder of the Purchaser will have an interest in our net book value and net earnings in proportion to such equityholder’s ownership interest in Purchaser. Our net loss for the fiscal year ended December 31, 2015, was approximately $22 million and our net book value, excluding goodwill, as of December 31, 2015, was approximately $(263) million. Our net loss for the three (3) months ended March 31, 2016, was approximately $(8.9) million and our net book value, excluding goodwill, as of March 31, 2016, was approximately $(272) million. The table below sets forth the direct and indirect interests in the Company’s net book value and net earnings of the equityholders of SBE and Yucaipa prior to and immediately after the merger, based on the net book value at December 31, 2015, and March 31, 2016, and net earnings for the year ended December 31, 2015, and the three (3) months ended March 31, 2016. For additional information, see “ Important Information Regarding the Company—Security Ownership of Certain Beneficial Owners and Management ,” beginning on page 112.

If the merger is completed, the members of SBE and Yucaipa will be the sole beneficiaries of our future earnings and growth, if any, and they will be the only ones entitled to vote on corporate matters affecting the Company following the merger. Similarly, the members of SBE and Yucaipa will also bear the risks of ongoing operations, including the risks of any decrease in the value of the Company after the merger and other risks related to the incurrence by the surviving corporation of debt as described below under “ —Financing—Debt Financing ,” beginning on page 65.

The common stock is currently registered under the Exchange Act and is listed with, and traded on, the NASDAQ under the symbol “MHGC.” As a result of the merger, the Company will be a privately held corporation, directly or indirectly wholly owned by Purchaser and there will be no public market for its common stock. After the merger, the common stock will cease to be listed with, and traded on, the NASDAQ and price quotations with respect to sales of common stock in the public market will no longer be available. In addition, registration of the common stock under the Exchange Act will be terminated and the Company will no longer file periodic reports with the SEC with respect to the common stock.