Exhibit 10.2
 
 

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LIMITED LIABILITY COMPANY AGREEMENT

of

MYSTIC PARTNERS, LLC

a Delaware Limited Liability Company

 
Dated as of _______, 2005
 
 
 

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TABLE OF CONTENTS
 
1.
 
DEFINED TERMS
1
2.
 
ORGANIZATION
14
   
2.1
Continuation
14
   
2.2
Name and Principal Place of Business.
15
   
2.3
Term
15
   
2.4
Registered Agent and Registered Office
15
   
2.5
Purpose of Company
15
   
2.6
Members; Membership Interests.
16
   
2.7
Limitation on Liability
16
   
2.8
Title to Company Property
16
3.
 
CAPITAL
16
   
3.1
Initial Capital Contributions.
16
   
3.2
Additional Capital Contributions
17
   
3.3
Return of Capital; No Interest on Capital
19
   
3.4
No Third-Party Beneficiary
19
   
3.5
Capital Accounts.
19
4.
 
MANAGEMENT OF THE COMPANY
21
   
4.1
Authority of Managing Member.
21
   
4.2
Restriction of Managing Member’s Authority
23
   
4.3
Budgeting and Business Plan
24
   
4.4
Managing Member’s Time and Effort; Conflicts
25
   
4.5
Competitive Ventures.
25
   
4.6
Indemnification
27
   
4.7
Certificates and Instruments
27
   
4.8
Management Cost Reimbursement
28
   
4.9
Leases
28
   
4.10
Asset Management Fee
28
   
4.11
Property Management.
28
5.
 
DISTRIBUTIONS
30
   
5.1
Distributions Generally
30
   
5.2
Distributions of Net Cash Flow and Capital Proceeds
30
   
5.3
Distributions Upon Final Liquidation
32
   
5.4
The Right to Withhold
32
6.
 
ALLOCATIONS
32
   
6.1
In General
32
   
6.2
Allocations
32
   
6.3
Limitation on Allocation of Losses
33
   
6.4
Additional Allocation Provisions
33
7.
 
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS
34
   
7.1
Company Books
34
   
7.2
Records
35
   
7.3
Company Tax Elections; Tax Controversies
35
   
7.4
Fiscal Year
36
   
7.5
Financial Reports
36
   
7.6
REIT Status
37

 
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8.
 
TRANSFERS AND ENCUMBRANCES OF COMPANY INTERESTS
37
   
8.1
Restricted Transfers and Encumbrances
37
   
8.2
Substitution of Approved Transferee for Member
38
   
8.3
Possible Amendment
39
9.
 
ADDITIONAL MEMBERS
39
   
9.1
Admissions and Withdrawals
39
   
9.2
Cessation of Managing Member
39
   
9.3
New Managing Member
40
10.
 
DISSOLUTION AND WINDING UP
40
   
10.1
Dissolution and Distributions of Property
40
   
10.2
Dissolution Events
40
   
10.3
Liquidation and Final Distribution Proceeds
40
   
10.4
Cancellation of Certificate
41
   
10.5
No Capital Contribution Upon Dissolution
41
11.
 
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MEMBERS
41
   
11.1
Authority
41
   
11.2
Consents
41
   
11.3
No Conflict
42
   
11.4
No Broker
42
   
11.5
Foreign Partner
42
12.
 
REQUIRED SALE
42
   
12.1
Offers
42
   
12.2
Response
42
   
12.3
No Suspension of Rights Under Article 13
43
13.
 
BUY-SELL DISPUTE RESOLUTION
44
   
13.1
Exercise
44
   
13.2
Closing
45
   
13.3
Buy-Sell Default
45
   
13.4
Payment of Debts
46
   
13.5
Release of Capital Contribution Obligations
46
   
13.6
Operations in Pre-Closing Period
46
   
13.7
Suspension of Rights Under Article 12
47
14.
 
MISCELLANEOUS
47
   
14.1
Right of First Offer
47
   
14.2
Waiver of Conflict of Interest
48
   
14.3
Amendment by Members
48
   
14.4
Amendment by Managing Member
48
   
14.5
Waivers
48
   
14.6
No Assignments; Binding Effect
48
   
14.7
Notices
48
   
14.8
Certain Waivers
49
   
14.9
Preservation of Intent
49
   
14.10
Entire Agreement
49
   
14.11
Certain Rules of Construction
49
   
14.12
Counterparts
50
   
14.13
Governing Law; Venue
50

 
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Exhibits  

A
Members, Capital Contributions and Capital Sharing Ratios

1.1
Membership Interests and Owner Entities

1.2
Description of the Property

1.3
Form of Lease

2.5.2
Owner Entity Operating Agreement

3.1.2
Pre-Closing Costs Reimbursable Amounts

4.3
Initial Operating Budget and Business Plan

4.8
Management Agreement

Index of Defined Terms
 
Act
1
 
Event of Bankruptcy
4
Adjusted Capital Account
2
 
Gross Asset Value
5
Adjusted Capital Account Deficit
2
 
Gross Revenue
6
Affiliate
2
 
Hartford Hilton
4
Agreement
1
 
Hartford Marriott
4
Agreement Date
1
 
Initiating Member
42
Asset Management Fee
28
 
Initiating Notice
44
Asset Manager
28
 
Investor Class A Member
6
Business Day
2
 
Investor Class A Membership Interest
6
Business Plan
24
 
Investor Class B Member
6
Buy-Sell Closing Date
45
 
Investor Class B Membership Interest
6
Buy-Sell Option
44
 
Lease
6
Capital Account
19
 
Lessee
7
Capital Contribution
2
 
Losses
11
Capital Contribution Default
18
 
Major Decision
7
Capital Proceeds
2
 
Major Dispute
9
Capital Sharing Ratio
2
 
Major Dispute Notice
23
Capital Transaction
2
 
Management Agreements
28
Cause
3
 
Management Fee
29
Certificate of Formation
1
 
Managing Member
9
Change in Control
3
 
Member Loan Interest Rate
9
Code
3
 
Member Minimum Gain
9
Company
1
 
Member Nonrecourse Debt
9
Company Minimum Gain
3
 
Member Nonrecourse Deductions
9
Competitive Venture
25
 
Members
1,9
Conflicting Activity
25
 
Membership Interest
9
Contribution Account
3
 
Membership Interests
1
Contribution Agreement
3
 
Minority Interest Holder
9
Contribution Agreement Closing
4
 
Minority Interests
9
Contribution Agreement Closing Date
4
 
Net Cash Flow
9
Control
4
 
Net Operating Income
10
Defaulted Acquirer
45
 
Non-Discretionary Expenses
10
Defaulted Amount
18
 
Non-Initiating Member
42
Depreciation
4
 
Non-Managing Member
10
Development Asset Entity
4
 
Nonrecourse Deductions
10
Development Assets
4
 
Offer
42
Dissolution Event
4
 
Offeree
44
Distributable Funds
30
 
Offeror
44
Effective Date
48
 
Old Plans
24
Encumbrance
4
 
Operating Account
29
Entity
4
 
Operating Budget
24
Epoch Member
1
 
Operating Expenses
10

 
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Operating Revenues
11
 
Residual Sharing Ratios
13
Owner Entities
1
 
Response Period
42
Owner Entity
11
 
Sale Notice
42
Owner Entity Operating Agreement
15
 
Site Improvement Work
13
Part Owned Entity
11
 
Stabilized Asset Entity
13
Part Owned Property
11
 
Stabilized Assets
13
Part Owned Property Lessee
11
 
Target
42
Patriot Act
22
 
Tax Contest
13
Permitted Expense
7
 
Tax Correspondence
13
Person
11
 
Tax Liability Distribution
31
Pre-Closing Costs Reimbursement Amount
17
 
Tax Matters Member
35
Preferred Return
11
 
Third Party Purchaser
42
Preferred Return Account
11
 
Transfer
13
Profits
11
 
Transferred
13
Project Acquisition Costs
12
 
Valuation Amount
44
Properties
1
 
Venture Package
25
Property
1
 
Waterford Class Membership Interest
14
Property Manager
28
 
Waterford Member
1
Regulatory Allocations
33
 
Wholly Owned Entity
14
REIT
37
 
Wholly Owned Property
14
Removal Event
39
 
Wholly Owned Property Lessee
14
Replacement Acquirer
45
 
Working Capital
29

 
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LIMITED LIABILITY COMPANY OPERATING AGREEMENT
of
MYSTIC PARTNERS, LLC
 
THIS LIMITED LIABILITY COMPANY OPERATING AGREEMENT (this “Agreement”) of MYSTIC
PARTNERS, LLC (the “Company”) is made and entered into as of ____________, 2005
(the “Agreement Date”) by and among HERSHA HOSPITALITY LIMITED PARTNERSHIP, a
Virginia limited partnership, having an address at 510 Walnut Street, 9th fl.,
Philadelphia PA 19106 (“Investor Member”), and MYSTIC HOTEL INVESTORS, LLC and
WATERFORD HOSPITALITY GROUP, LLC, each a Delaware limited liability company
having an address at 914 Hartford Turnpike, P.O. Box 715, Waterford, CT 06385
(collectively, “Waterford Member”). Investor Member and Waterford Member are
sometimes hereinafter collectively referred to as the “Members” and individually
as a “Member.”

W I T N E S S E T H:

WHEREAS:

Waterford Member is the owner of the membership interests specified on Exhibit
1.1 (the “Membership Interests”) in the limited liability companies (the “Owner
Entities”) specified on Exhibit 1.1;

Each of the Owner Entities owns or has a leasehold interest in the respective
land, as identified on Exhibit 1.2, and the hotel and other improvements located
thereon (each, individually, a “Property” and collectively, the “Properties”),
all as more particularly described on Exhibit 1.2;

The parties hereto desire to form a limited liability company to acquire the
entities owning the Properties, subject to the Minority Interests (hereinafter
defined), and to develop and operate the Properties as hotels with potentially
other compatible uses for portions thereof.

The Company was formed pursuant to a Certificate of Formation (the “Certificate
of Formation”) filed with the Delaware Secretary of State on ___________, 2005.

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

1.
DEFINED TERMS

In addition to the defined terms set forth above and elsewhere in this
Agreement, the following terms shall have the definitions hereinafter indicated
whenever used in this Agreement with initial capital letters:

“Act” means the Delaware Limited Liability Company Act, as previously or
hereafter amended.
 

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“Adjusted Capital Account” means, with respect to any Member, the balance, if
any, in such Member’s Capital Account as of the end of the relevant taxable
year, after: (i) crediting to such Capital Account any amounts that such Member
is obligated to restore pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) (or
is deemed to be obligated to restore pursuant to the penultimate sentences of
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5)) and (ii) debiting from
such Capital Account the items described in Regulations Sections
1.704-1(b)(2)(ii)(d)(4), (5) and (6).

“Adjusted Capital Account Deficit” means, with respect to any Member, the
deficit balance, if any, in such Member’s Adjusted Capital Account.

The foregoing definitions of Adjusted Capital Account and of Adjusted Capital
Account Deficit are intended to comply with the provisions of Regulation Section
1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith.

“Affiliate” means a Person that directly or indirectly, through one or more
intermediaries, has Control of or is Controlled by, or is under common Control
with, the Person specified. “Affiliate” shall also include the spouse,
ancestors, descendents and siblings of any Person that is an individual,
Affiliates of such family members and trusts for the benefit of an Affiliate of
the relevant Person.

“Business Day” means any day other than a Saturday, Sunday or other day on which
commercial banks in New York are authorized or required to close under the laws
of the State of New York.

“Capital Contribution” means, with respect to any Member, the amount of money
and the initial Gross Asset Value of any property (other than money) contributed
to the Company by such Member, less the amount of liabilities of such Member
assumed by the Company or that are secured by any property contributed by such
Member to the Company. The initial Capital Contributions of the Members are as
set forth on Exhibit A.

“Capital Proceeds” means the net proceeds of a Capital Transaction distributed
to the Company by an Owner Entity.

“Capital Sharing Ratio” means the percentages in which the Members participate
in, and bear, certain Company items. The initial Capital Sharing Ratios of the
Members are as follows:

 
Investor Class A Member:
66.7% with respect to Stabilized Assets Entities and

    0% with respect to Development Assets Entities

 
Investor Class B Member:
0% with respect to Stabilized Assets Entities and

    50% with respect to Development Assets Entities

 
Waterford Member:
33.3% with respect to Stabilized Assets Entities and

    50% with respect to Development Assets Entities

“Capital Transaction” means a transaction pursuant to which (i) an Owner Entity
finances or refinances any Property or any portion thereof, except for
acquisition financing, (ii) all or any portion of any Property is sold,
condemned, exchanged or otherwise disposed of, (iii) insurance proceeds or other
damages in respect of any Property are recovered by an Owner Entity, or (iv) any
other transaction that, in accordance with generally accepted accounting
principles, is considered capital in nature.
 
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“Cause” means the existence or occurrence of any of the following events or
conditions with respect to (1) a Member, (2) any Controlling Affiliate of a
Member or (3) any Affiliate of a Member regardless of whether Controlling, if
such Affiliate or its executive officers and employees have direct involvement
in the Company or any Property, as the case may be: (a) the indictment for a
felony involving a crime or crimes of moral turpitude or dishonesty or for a
Patriot Act (hereinafter defined) offense (in each case, whether or not
convicted), misapplication, conversion or theft of any funds belonging to the
Company; or (b) the commission of fraud, gross negligence or willful misconduct
with respect to the Company or any Property. For the avoidance of doubt, the
indictment of a Member or any executive officer or employee of them for a felony
involving a crime or crimes of moral turpitude or dishonesty (whether or not
convicted), or the misapplication of funds belonging to the Company or the
commission of fraud, gross negligence or willful misconduct with respect to the
Company or any Property shall not be curable and “Cause” shall be deemed to
exist upon the occurrence or existence of any such event.

“Change in Control” means, with respect to any Person, the occurrence of any of
the following:

(i)      the sale of all or substantially all of that Person’s assets;

(ii)     the merger, reorganization, share exchange, recapitalization,
restructuring or consolidation of that Person, if such transaction would result
in the voting securities of that Person outstanding immediately prior thereto no
longer representing (either by remaining outstanding or by being converted into
voting securities of the surviving entity) at least 50% of the combined voting
power of the voting securities of that Person or such surviving entity
outstanding immediately after such transaction;

(iii)     the acquisition by any “Person” or “Group” (within the meaning of
Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) of an
aggregate of 50% or more of the beneficial ownership (within the meaning of Rule
13d-3 of the Securities Exchange Act of 1934) of the issued and outstanding
voting securities of that Person.

“Code” means the Internal Revenue Code of 1986, as previously or hereafter
amended.

“Company Minimum Gain” means “partnership minimum gain” as defined in Treasury
Regulation Section 1.704-2(d).

“Contribution Account” means, with respect to each Member, an account maintained
for such Member on the Company’s books and records in the amount of that
Member’s Capital Contributions, less all distributions made in accordance with
Sections 5.2.3.A and 5.2.3.B, but in no event less than zero.

“Contribution Agreement” means that certain Membership Interest Contribution
Agreement, dated June __, 2005, among the Company, Waterford Hospitality Group,
LLC and Mystic Hotel Investors, LLC with respect to the Property.
 
3

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“Contribution Agreement Closing” means the closing of the transaction set forth
in the Contribution Agreement, i.e., the acquisition by the Company of the Owner
Entities (subject to the Minority Interests), pursuant to the Contribution
Agreement.

“Contribution Agreement Closing Date” means the date upon which the Contribution
Agreement Closing occurs.

“Control” (including the terms “controlling”, “controlled by” or “under common
control with”) means the possession, directly or indirectly, through one or more
intermediaries, of the power to direct or cause the direction of the management
or policies of a Person, whether through the ownership of voting securities, by
contract or otherwise.

“Depreciation” means, for each fiscal year or other period, an amount equal to
the federal income tax depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that if the Gross Asset Value of an asset differs from its adjusted basis
for federal income tax purposes at the beginning of such year or other period,
Depreciation shall be an amount that bears the same ratio to such beginning
Gross Asset Value as the federal income tax depreciation, amortization or other
cost recovery deduction for such year or other period bears to such beginning
adjusted tax basis; provided, however, that if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by Tax Matters Member.

“Development Assets” means the following Properties: Hartford Hilton, Hartford,
CT (the “Hartford Hilton”); and the Hartford Marriott, Hartford, CT (the
“Hartford Marriott”), but only, in the case of the Hartford Marriott, from and
after the date (if ever) that the Company shall acquire the membership interests
of the company that owns the Hartford Marriott Property (subject to Minority
Interests) in accordance with the terms of the Contribution Agreement.

“Development Asset Entity” an Owner Entity that owns, in whole or part, a
Development Asset; provided that the Owner Entity that owns the Hartford
Marriott Property shall be considered an Owner Entity only from and after the
date (if ever) that the Company shall acquire the membership interest of such
company in accordance with the terms of the Contribution Agreement.

“Dissolution Event” means any event specified in Section 10.2 that results in
the dissolution and winding up of the Company.

“Encumbrance” means a pledge, alienation, mortgage, hypothecation, encumbrance,
lien or collateral assignment by any other means, whether for value or no value
and whether voluntary or involuntary (including, by operation of law or by
judgment, levy, attachment, garnishment, bankruptcy or other legal or equitable
proceedings).

“Entity” means any general partnership, limited partnership, limited liability
partnership, corporation, limited liability company, joint venture, trust,
business trust, cooperative or association.

“Event of Bankruptcy” means, with respect to any Person, the occurrence of:
 
4

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·
an assignment by the Person for the benefit of creditors;

 
·
the filing by the Person of a voluntary petition in bankruptcy;

 
·
the entry of a judgment by any court that the Person is bankrupt or insolvent,
or the entry against the Person of an order for relief in any bankruptcy or
insolvency proceeding;

 
·
the filing of a petition or answer by the Person seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation;

 
·
the filing by the Person of an answer or other pleading admitting or failing to
contest the material allegations of a petition filed against it in any
proceeding for reorganization or of a similar nature;

 
·
the consent or acquiescence of the Person to the appointment of a trustee,
receiver or liquidator of the Person or of all or any substantial part of its
properties; or

 
·
any event or occurrence not included in the foregoing list that is referenced in
Section 18-304 of the Act.

“Gross Asset Value” means, with respect to any asset, the asset’s adjusted basis
for federal income tax purposes, except as follows:

A.     The initial Gross Asset Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such asset, as determined by
Investor Member and Waterford Member (acting together), or pursuant to the
Contribution Agreement, as applicable.

B.     The Gross Asset Values of all Company assets shall be adjusted to equal
their respective gross fair market values, as determined by Investor Member and
Waterford Member (acting together), as of the following times:

i.     immediately prior to the acquisition of an additional interest in the
Company by a new or existing Member, if Managing Member reasonably determines
that such adjustment is necessary or appropriate to reflect the relative
economic interests of the Members in the Company;
 
ii.     immediately prior to the distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for an interest in
the Company, if Managing Member reasonably determines that such adjustment is
necessary or appropriate to reflect the relative economic interests of the
Members in the Company;
 
    iii.     immediately prior to the liquidation of the Company within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g); and
 
5

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iv.     at such other times as Managing Member shall reasonably determine
necessary or advisable in order to comply with Regulations Sections 1.704-1(b)
and 1.704-2.

C.       The Gross Asset Value of any Company asset distributed to a Member
shall be the gross fair market value of such asset on the date of distribution
as determined by Investor Member and Waterford Member (acting together).

D.      The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1 (b)(2)(iv)(m); provided, however, that
Gross Asset Values shall not be adjusted pursuant to this clause D to the extent
that Managing Member determines that an adjustment pursuant to clause B is
necessary or appropriate in connection with a transaction that would otherwise
result in an adjustment pursuant to this clause D.

E.      If the Gross Asset Value of a Company asset has been determined or
adjusted pursuant to clauses A, B or D of this definition, such Gross Asset
Value shall thereafter be adjusted by the Depreciation taken into account with
respect to such Company asset for purposes of computing Profits and Losses.

“Gross Revenue” shall mean, as to any Year, all revenues and receipts of every
kind derived from the operation of the Property and all departments and parts
thereof, including, but not limited to, receipts (from both cash and credit
transactions), before commissions and discounts for prompt or cash payments,
from the rental of guest rooms, meeting rooms, stores, offices, exhibit or sales
space of any kind, parking charges, license and concession fees and rentals (but
not including the gross receipts of any licensees, lessees and concessionaires),
booking fees, telephone and television viewing charges, food and beverage sales,
wholesale and retail sales, proceeds, if any, from business interruption or
other loss of income insurance; provided, however, Gross Revenues shall not
included gratuities to Property employees or Federal, State and Municipal
excise, sales and use taxes or similar impositions collected directly from
patrons or guests or included as part of the sales price of any goods or
services.

“Investor Class A Member” means the Member holding the interest so designated on
Exhibit A hereto. On the date hereof, Investor Member is the Investor Class A
Member.

“Investor Class A Membership Interest” means the class of Membership Interest
issued to the Investor Class A Member.

“Investor Class B Member” means the Member holding the interest so designated on
Exhibit A hereto. On the date hereof, Investor Member is the Investor Class B
Member.

“Investor Class B Membership Interest” means the class of Membership Interest
issued to the Investor Class B Member.

“Lease” means a Lease Agreement with respect to a Property between a Lessee and
an Owner Entity, substantially in the form attached hereto as Exhibit 1.3.
 
6

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“Lessee” means a Wholly Owned Property Lessee or a Part Owned Property Lessee.

“Major Decision” means any decision regarding each of the matters described
below:

 
·
The financing or refinancing of, or the increasing of any indebtedness secured
by any interest in any Owner Entity, any Property or any Lease, or any interest
or estate therein, or the incurrence of any other secured or unsecured
borrowings or other indebtedness by the Company or the Owner Entities, including
determination of the terms and conditions thereof, and any amendments to such
terms and conditions except as contemplated in the approved Business Plan or the
prepayment in whole or in part of any loan or other type of financing with
respect to the Company or any Property;

 
·
Any sale, transfer, grant of option, exchange, mortgage, financing,
hypothecation or encumbrance or abandonment of all, or any part of or any
interest in any Owner Entity, any Property or any other material asset of the
Company or an Owner Entity (other than the sale or transfer of any Owner Entity
or Property in accordance with Article 12 hereof), and, in each such case, the
material terms and conditions thereof, excluding, however, incidental sales,
exchanges, conveyances, transfers or other dispositions of personal property or
fixtures used in the operation and management of the Properties if such
disposition of personal property and fixtures in accordance with this clause,
together with all other such dispositions in the calendar year in question,
involves property having a value or sales price of less than $500,000 in the
aggregate;

 
·
Any acquisition by the Company or any Owner Entity of any real property or
development rights or any other material asset other than in accordance with the
Business Plan;

 
·
The requirement of any additional Capital Contributions;

 
·
The approval or adoption of an annual Business Plan and an annual Operating
Budget, and any material amendment, modification or other change thereto or
deviation therefrom;

 
·
The amendment or replacement of any franchise agreement with respect to any
Property that is a hotel, to the extent that the Company or any Owner Entity is
the franchisee or has the ability, directly or indirectly, to determine the
franchisee;

 
·
The entering into, amendment or replacement of a Lease;

 
·
Unless otherwise specified herein, the selection of property managers, and any
amendment of any Management Agreement;

 
·
The incurring of any cost or expense or incurring of any obligation or liability
by or for the Company or an Owner Entity that is not a Permitted Expense; for
such purposes, “Permitted Expense” shall mean (i) Operating Expenses, capital
improvements, replacements and debt service as set forth in the approved
Business Plan or Operating Budget, or, in the case of capital improvements, that
is less than $25,000 with respect to the particular project, (ii) emergency
expenses, (iii) with respect to each item in the Operating Budget (other than
Non-Discretionary Expenses), the expenditure contemplated by such Operating
Budget item plus 10% of each such item, (iv) Non-Discretionary Expenses and (v)
any reasonable costs or expenses incurred in implementing a Major Decision
approved by all Members and not otherwise already included in a Business Plan or
Operating Budget;

 
7

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·
The selection or replacement of the Company’s or any Owner Entities’
accountants, legal counsel, or other material advisors;

 
·
The taking, initiation, prosecution, stipulation or settlement or any similar
action with respect to any legal action or dispute on behalf of the Company or
an Owner Entity with any third party or government or regulatory agency, except
in the normal course of business;

 
·
The commencement of any case, proceeding or other action seeking protection for
the Company or any Owner Entity as debtor under any existing or future law of
any jurisdiction or otherwise relating to an Event of Bankruptcy, insolvency,
reorganization or relief of debtors;

 
·
Issuance of any press release or other written materials regarding the Company
(as opposed to any Property) or any other Member;

 
·
Changes in the depreciation or accounting methods or other methods with respect
to the tax or accounting treatment of Company transactions;

 
·
Extension of the existence of the Company beyond the date set forth in Section
2.3;

 
·
Entering into, amending, modifying or changing any contract or agreement by the
Company or an Owner Entity with an Affiliate of any Member, or employing or
paying any compensation to such Affiliate, except as expressly permitted by this
Agreement, the Management Agreement or as part of any Business Plan;

 
·
The acquisition of any Minority Interest;

 
·
Establishment of and amounts to be held as operating reserves and contingency
reserves for the Company and each Owner Entity;

 
·
Except in accordance with Section 5.2, the making of any distributions of the
Owner Entities or the Company;

 
·
The appointment of replacement or additional officers of the Company, it being
agreed by the Members that the initial officers of the Company shall be Del
Lauria, President, Mark Wolman, Vice President and Glenn Jette, Treasurer and it
being further agreed that such officers shall have the powers and duties as
Managing Member shall from time to time determine necessary or convenient for
the conduct of the Company’s business;

 
·
Matters set forth in Section 4.2.1, and

 
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In the event that authority to take any of the foregoing actions or make the
foregoing decisions with respect to a particular Property is partially or wholly
vested in an Owner Entity or a Lessee, then such action shall be a Major
Decision only to the extent (if at all) that the Company may have the authority
to make or implement such decision, it being understood, however, that the
Company shall seek (and the Members shall cooperate in so effecting, and shall
cause their Affiliates to cooperate) with respect to any Major Decision rendered
under the terms of this Agreement, to impose or implement such Major Decision at
the level of the relevant Owner Entity or Lessee, to the extent permitted under
the applicable limited liability company and lease documents.

“Major Dispute” means the failure of the Members to agree upon or approve any
Major Decision or other action requiring the consent of all Members, in
accordance with Section 4.2.

“Managing Member” means Waterford Member, initially, or any other Person who is
hereafter appointed as a managing member of the Company in accordance with this
Agreement and applicable law, until the date that such Person resigns or is
removed from its role as a managing member.

“Members” mean, collectively, Investor Member and Waterford Member and/or any
other Person hereafter admitted as a member of the Company in accordance with
this Agreement and applicable law.

“Member Loan Interest Rate” means a simple rate of interest equal to the prime
rate of U.S. money center commercial banks as published in The Wall Street
Journal (or if more than one such rate is published, the average of such rates),
plus two percent per annum.

“Member Minimum Gain” means minimum gain attributable to “partner non-recourse
debt” determined in accordance with Treasury Regulation Section 1.704-2(i).

“Member Nonrecourse Debt” means “partner nonrecourse debt” as defined in
Treasury Regulation Section 1.704-2(b)(4).

“Member Nonrecourse Deductions” means “partner nonrecourse deductions” as
defined in Treasury Regulation Section 1.704-2(i)(2).

“Membership Interest” means the interest, as a Member, of any Person in the
Company.

“Minority Interests” means the ownership interest of any Person (other than the
Company) in an Owner Entity that owns any Part Owned Property.

“Minority Interest Holder” means any Person that owns a Minority Interest.

“Net Cash Flow” means, with respect to any fiscal year or other accounting
period, Net Operating Income less (a) debt service (including interest and
principal payments) on loans to the Owner Entities, less (b) capital
expenditures not paid from (i) reserves, (ii) capital contributions to the Owner
Entities by its members or (iii) Capital Transactions, less (c) increases or
decreases in reserves for working capital, operating deficits and capital items,
established by the Owner Entities or such other amount as may be approved by the
Entities, less (d) Incentive Fees, less (e) all amounts required to be paid to
Minority Interest Holders.
 
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[NOTE: INCOME AND EXPENSE RELATED DEFINITIONS TO BE CONFORMED WITH THE FINAL
STRUCTURE OF COMPANY HOLDINGS, AS AGREED BY THE PARTIES IN GOOD FAITH. RESERVE
REQUIREMENTS MAY BE REFERENCED IN OWNER ENTITY OPERATING AGREEMENTS]

“Net Operating Income” means, for any period, Operating Revenues, less (i)
Operating Expenses, less (ii) real property and personal property taxes, income
taxes, and other taxes other than payroll taxes, less (iii) insurance premiums
and deductibles, less (iv) leases or purchase money financing of FF&E or of real
property and improvements, less (v) Base Fees and fees payable to the asset
manager, less (vi) Lessee-related expenses, and less (vii) additions to any
operating and replacement reserves, in the amount of

for Stabilized Assets: 4% of Gross Revenue, until the second anniversary of the
date hereof, and 5% of Gross Revenue thereafter,

for the Hartford Hilton: 3% of Gross Revenue, until the second anniversary of
the date hereof, thereafter 4% of Gross Revenue until the fourth anniversary of
the date hereof, and 5% of Gross Revenue thereafter,

for the Hartford Marriott (if applicable): $0 until the first anniversary of the
date hereof, thereafter 3% of Gross Revenue until the fifth anniversary of the
date hereof, and 4% of Gross Revenue thereafter,

or such higher amount as may be required pursuant to the franchise agreement or
loan with respect to the applicable hotel.

“Non-Discretionary Expenses” shall mean third party expenses over which Managing
Member and the Property Manager have no control (including, for example, items
that are budgeted for and/or approved by the Members, taxes, water and sewer
costs and assessments, union labor contract costs and property-related expenses
reasonably required to be incurred as a result of force majeure).

“Non-Managing Member” means any Member(s) other than Managing Member.

“Nonrecourse Deductions” means deductions as described in Treasury Regulation
Section 1.704-2(c).

“Operating Expenses” means, for any period, the current obligations of the Owner
Entities for such period, determined in accordance with sound accounting
principles approved by the Owner Entities and applicable to commercial real
estate, consistently applied, for operating expenses of the Property. Operating
Expenses shall not include any non-cash expenses such as depreciation or
amortization.

“Operating Revenues” means, for any period, the gross revenues of the Owner
Entities arising from the ownership and leasing of the Properties during such
period, including proceeds of any business interruption insurance, but
specifically excluding the proceeds of Capital Transactions and capital
contributions made by members.
 
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“Owner Entity” means a Development Asset Entity or a Stabilized Asset Entity
that is owned in whole or part by the Company; provided that the Owner Entity
that owns the Hartford Marriott Property shall be considered an Owner Entity
only from and after the date (if ever) that the Company shall acquire the
membership interest of such company in accordance with the terms of the
Contribution Agreement.

“Part Owned Entity” meant the entities owning the Part Owned Properties in the
percentage interests as set forth in Exhibit 1.1.

“Part Owned Property” means any Property that is not wholly owned by the Company
or by a wholly owned subsidiary of the Company. On the date hereof, the
following Properties are a Part Owned Property:
Residence Inn, Danbury, CT;
[Hartford Marriott, Hartford, CT; to be included only if and when the membership
interests in the company owning the Hartford Marriott are acquired by the
Company];
Hartford Hilton, Hartford, CT;
Dunkin Donuts, 790 West St., Southington, CT; and
Residence Inn Southington, Southington, CT.
 
“Part Owned Property Lessee” means one or more limited liability companies
formed through Affiliates of the Members to lease and operate a Part Owned
Property and in which the Minority Interest Holder shall have an interest
percentage in proportion to its Minority Interest in such Part Owned Property
and as to which such Affiliates shall hold respective ownership interests in the
same proportion as the Affiliated Members hold ownership interests in the
Company.

“Person” means and includes any individual or Entity.

“Preferred Return” means, for each Member, an amount that accrues on the average
daily balance of such Member’s Contribution Account at a per annum rate of eight
and one-half percent (8.5%) from the date such Member’s Capital Contributions
are made until the Preferred Return is paid to the respective contributing
Member as provided herein. The Preferred Return of the Members shall not be
compounded.

“Preferred Return Account” means for each Member an account maintained for
Member to which shall be credited the accrued Preferred Return of such Member
and from which shall be debited the amount of any distributions of the Preferred
Return to such Member pursuant to Section 5.2.2.A or 5.2.2.B hereof, as well as
any distribution of the “Preferred Return” as defined in the Limited Liability
Company Agreement of [Leaseco, LLC] dated ___, 2005, made to a Member or its
Affiliate by a Lessee.

“Profits” and “Losses” means for each fiscal year or other period an amount
equal to the Company’s taxable income or loss with respect to the relevant
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments:
 
11

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·
Any income of the Company that is exempt from federal income tax and not
otherwise taken into account in computing Profits and Losses pursuant to this
clause shall be added to such taxable income or loss;

 
·
Any expenditures of the Company described in Code Section 705(a)(2)(B) or
treated as Code Section 705(a)(2)(B) expenditures pursuant to Regulations
Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in computing
Profits or Losses pursuant to this clause, shall be subtracted from such taxable
income or loss;

 
·
If the Gross Asset Value of any Company asset is adjusted pursuant to clauses B
or C of the definition of Gross Asset Value, the amount of such adjustment shall
be taken into account in the taxable year of adjustment as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;

 
·
Gain or loss resulting from any disposition of Company property with respect to
which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the property disposed of,
notwithstanding that the adjusted tax basis of such property differs from its
Gross Asset Value;

 
·
In lieu of the depreciation, amortization and other cost recovery deductions
taken into account in computing such taxable income or loss, there shall be
taken into account Depreciation for such fiscal year or other period, computed
in accordance with the definition of Depreciation;

 
·
To the extent an adjustment to the adjusted tax basis of any asset included in
Company assets pursuant to Code Section 734(b) or Code Section 743(b) is
required pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(4) to be taken
into account in determining Capital Accounts as a result of a distribution other
than in liquidation of a Member’s interest, the amount of such adjustment shall
be treated as an item of gain (if the adjustment increases the basis of the
asset) or loss (if the adjustment decreases the basis of the asset) from the
disposition of the asset and shall be taken into account for the purposes of
computing Profits and Losses; and

 
·
Notwithstanding any other provision of this definition any items of income,
gain, loss or deduction that are specially allocated pursuant to Article 6 shall
not be taken into account in computing Profits or Losses. The amount of items of
income, gain, loss and deduction available to be specially allocated pursuant to
Article 6 shall be determined using rules analogous to those set forth in this
definition.

“Project Acquisition Costs” means all costs incurred by the Company or paid as a
capital contribution to an Owner Entity in connection with or related to the
acquisition of the Properties by the Owner Entities or the acquisition of the
Owner Entities by the Company, the obtaining of all necessary approvals for
development and construction of the Development Assets not obtained as of the
Contribution Agreement Closing Date, and the formation of the Company not
including any Lessees but including, (i) any amounts paid by the Company under
the Contribution Agreement in connection with the acquisition of the Owner
Entities, (ii) any amounts paid pursuant to Section 3.1.2 hereof, (iii) all
costs of title insurance, recording fees, and all costs and fees of lawyers,
architects, engineers and other professionals, including any of same expended
for “due diligence” in connection with the acquisition of the Properties or the
Owner Entities, (iv) all costs of permits and approvals for the acquisition of
the Owner Entities, (v) all costs incurred in the assumption of any franchise or
operating agreements by a Lessee, (vi) all costs incurred in the assumption,
negotiation or refinancing of any indebtedness with respect to any Property and
(vii) the cost of any negotiations with, and payments made on any account to,
the Minority Interest Holders in respect of (A) the acquisition by the Company
of the Owner Entities, (B) the establishment of any Lessee or (C) acquisition of
any Minority Interest. Project Acquisition Costs shall be tracked and allocated
among the Properties as applicable.
 
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“Residual Sharing Ratios” means the percentages in which Members participate in
distributions of Net Cash Flow and Capital Proceeds pursuant to Section 5.2. The
Residual Sharing Ratios of the Members are as follows:

 
Investor Class A Member:
56.7% with respect to Stabilized Assets and 0%

     with respect to Development Assets;

 
Investor Class B Member:
0% with respect to Stabilized Assets and 35%

     with respect to Development Assets;

 
Waterford Class Member:
43.3% with respect to Stabilized Assets and 65%

    with respect to Development Assets.

“Site Improvement Work” means any work required to construct or improve all
parking and other common areas of any Property, including utilities, drainage,
irrigation, grading, paving, roadwork, parking areas, curbing, signs, lighting
and landscaping.

“Stabilized Assets” means the following Properties: (1) Residence Inn by
Marriott and Whitehall Mansion, Mystic, CT; (2) Courtyard by Marriott, Warwick,
RI; (3) Courtyard by Marriott and Rosemont Suites, Norwich, CT; (4) SpringHill
Suites by Marriott, Waterford, CT; (5) Mystic Marriott Hotel and Spa, Groton,
CT; (6) Residence Inn by Marriott, Southington, CT, and ancillary Dunkin Donuts;
(7) Residence Inn by Marriott, Danbury, CT.

“Stabilized Asset Entity” an Owner Entity that owns, in whole or part, a
Stabilized Asset.

“Tax Contest” means an audit, review, examination, or any other administrative
or judicial proceeding with the purpose or effect of redetermining any taxes
(including any administrative or judicial review of any claim for refund).

“Tax Correspondence” means all written and oral communications from the IRS (or
other taxing authority) relating to any item of income, gain, loss or deduction
arising with respect to any activities or assets of the Company, whether
communicated with respect to an audit or otherwise.

“Transfer” and “Transferred” means a sale, transfer, assignment, conveyance,
gift, bequest or disposition by any other means, whether for value or no value
and whether voluntary or involuntary (including, by realization upon any
Encumbrance or by operation of law or by judgment, levy, attachment,
garnishment, bankruptcy or other legal or equitable proceedings).
 
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“Waterford Class Membership Interest” means the class of Membership Interest
issued to the Waterford Member.

“Wholly Owned Entity” means the entities owning the Wholly Owned Properties.

“Wholly Owned Property” means any Property that is wholly owned by the Company
or by a subsidiary of the Company. On the date hereof, the following Properties
are Wholly Owned Properties:

Courtyard Hotel Warwick, Warwick, RI
Residence Inn, Mystic, CT
Courtyard, Norwich, CT
Springhill Suites, Waterford, CT
Marriott, Mystic, CT

“Wholly Owned Property Lessee” means a limited liability company formed by or
through Affiliates of the Members to lease and operate the Wholly Owned
Properties and as to which such Affiliates shall hold respective ownership
interests in the same proportion as the Affiliated Members hold ownership
interests in the Company.

A reference to any agreement, budget, document or schedule shall include such
agreement, budget, document or schedule as revised, amended, modified or
supplemented from time to time in accordance with its terms and the terms of
this Agreement. The singular includes the plural and the plural includes the
singular. The words “include”, “includes” and “including” are not limiting.
Reference to a particular “Section” or “Articles” refers to that section or
articles of this Agreement unless otherwise indicated. The words “herein”,
“hereof”, “hereunder” and words of like import shall refer to this Agreement as
a whole and not to any particular section or subdivision of this Agreement.

2.
ORGANIZATION

 
 
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2.2
Name and Principal Place of Business.

 
2.2.1        The name of the Company is set forth on the cover page to this
Agreement. The Members may change the name of the Company or adopt such trade or
fictitious names for use by the Company as the Members may from time to time
determine. All business of the Company shall be conducted under such name, and
title to all Company property shall be held in such name.

2.2.2        The principal place of business and office of the Company shall be
located at 914 Hartford Turnpike, Waterford, CT 06385, or at such other place or
places as Investor Member and Waterford Member (acting together) may from time
to time designate.
 
2.3          Term.       The term of the Company commenced on ____________,
2005, the date of the filing of the Certificate of Formation pursuant to the
Act, and shall continue until December 31, 2055, unless sooner terminated or
further extended pursuant to the provisions of this Agreement.
 
2.4          Registered Agent and Registered Office.    The name of the
Company’s registered agent for service of process shall be CT Corporation
Systems, and the address of the Company’s registered agent in the State of
Connecticut shall be ____________________. Managing Member may, upon notice to
all Members, change such agent and such office from time to time.
 
2.5
Purpose of Company.

 
2.5.1        The purpose of the Company is to engage in the following business
and financial activities in accordance with the terms of this Agreement: to
acquire, own, hold, maintain, lease, improve, develop, finance, pledge,
encumber, mortgage, assign, sell, exchange, lease, dispose of and otherwise deal
with any Property (through the Owner Entities), together with such other
activities as may be ancillary or related to, or otherwise necessary or
advisable in connection with the foregoing. The Company, without the written
consent of all Members, shall not engage in any business unrelated to the
Properties and shall not own any assets other than those related to the
Properties or otherwise in furtherance of the purposes of the Company.

2.5.2        Each Property shall be separately held by an Owner Entity that is
wholly owned by the Company or owned by the Company and the Minority Interest
Holders. Each Owner Entity shall be operated under an agreement (each such
agreement, an “Owner Entity Operating Agreement”) substantially in the form
attached hereto as Exhibit 2.5.2, in the case of any Wholly Owned Property, and
with respect to any Part Owned Property in the form of any operating agreement
now in effect, with such changes as may be mutually approved by Investor Member,
Waterford Member and the relevant Minority Interest Holder. The Managing Member
shall be the manager of the Owner Entities and implement the decisions of the
Members made pursuant to each Owner Entity Operating Agreement.

2.5.3        It is the Members’ intention to cause the Properties to be operated
and maintained by the Owner Entities as quality hotels (with ancillary retail
components) and for the Property now operated as a Dunkin Donuts to be operated
as that or another retail use approved by the Members, pursuant to commercially
reasonable conditions and standards, with a view to maximizing the Net Cash Flow
and Capital Proceeds. Members intend that the funding for the Properties shall
be provided first from Operating Revenues and from Capital Contributions
(together with, in the case of the Part Owned Properties, the proportional
capital contributions of Minority Interest Holders) or third party loans.
 
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2.6
Members; Membership Interests.

 
2.6.1        The Company shall have three classes of Membership Interests:
Investor Class A, Investor Class B and Waterford Class, each class having
identical rights on all matters other than as expressly provided herein.

2.6.2        Effective as of the Agreement Date, the Members of the Company
shall be Investor Member and Waterford Member. Except as expressly permitted by
this Agreement, no other Person shall be admitted as a member of the Company and
no additional membership interests shall be issued.

2.6.3        Waterford Member shall be the initial Managing Member of the
Company, and shall bear responsibility and authority for the affairs and
management of the Company to the extent contemplated hereby, except to the
extent that this Agreement contemplates that a Non-Managing Member, the Property
Manager or the Tax Matters Member shall have specific responsibility or
authority with respect thereto.
 
2.7         Limitation on Liability.    Except as otherwise expressly provided
in the Act, the debts, obligations and liabilities of the Company, whether
arising in contract, tort or otherwise, shall be solely the debts, obligations
and liabilities of the Company, and no Member shall be obligated personally for
any such debt, obligation or liability of the Company solely by reason of being
a Member of the Company. Except as otherwise expressly provided in the Act and
in Section 4.6 hereof, the liability of each Member shall be limited to the
amount of Capital Contributions required to be made by such Member in accordance
with the provisions of this Agreement, but only when and to the extent the same
shall become due pursuant to the provisions of this Agreement.
 
2.8         Title to Company Property.    All property owned by the Company,
whether real or personal, tangible or intangible, shall be deemed to be owned by
the Company as an entity, and no Member, individually, shall have any ownership
of such property.
 
3.
CAPITAL

 
3.1
Initial Capital Contributions.

3.1.1        The Members acknowledge that on or prior to the date hereof,
Waterford Member and Investor Member have made Capital Contributions to the
Company as follows:

A.     In exchange for the Waterford Class Membership Interests and the payment
to the Waterford Member of [$___________], the Waterford Member shall have
transferred as a capital contribution to the Company all of its interests in
each Wholly Owned Entity (which shall comprise all of the outstanding interests
in each Wholly Owned Entity) and all of its interests in the Part Owned
Entities, in each case free and clear of any and all Encumbrances, and with a
net fair market value (it being understood and agreed that such fair market
value shall equal the Contribution Value) of [$_________] after giving effect to
the Cash Payment (as defined in the Contribution Agreement) made to Waterford
Member in accordance with the Contribution Agreement), as shown on Exhibit A.
The parties acknowledge and agree that the contribution to the Company of the
Waterford Member’s interest in the Owner Entities shall be treated as a part
disguised sale, described in Code Section 707 and the Treasury Regulations
promulgated thereunder, and as a part capital contribution described in Code
Section 721. The parties further acknowledge and agree that [$________] of the
cash paid to Waterford Member and [$______] of the liabilities of Waterford
Member that are assumed by the Company relate to capital expenditures with
respect to the Wholly Owned Properties incurred during the two-year period prior
to the contribution, and therefore shall not be considered sales proceeds in the
disguised sale pursuant to the Treasury Regulations promulgated under Code
Section 707.
 
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B.     In exchange for the Investor Class A Membership Interests, the Investor
Member shall have made Capital Contributions in cash to the Company in the
amount of [$__________].

C.     In exchange for the Investor Class B Membership Interests, the Investor
Member shall have made Capital Contributions in cash to the Company in the
amount of [$_________].

D.     The Capital Contributions are allocated to the various Owner Entities in
accordance with Exhibit A.

3.1.2       On the Contribution Agreement Closing Date, Waterford Member and
Investor Member shall make further Capital Contributions in accordance with the
Capital Sharing Ratios of the amount required to pay all amounts due and payable
under the terms of the Contribution Agreement, as well as all other Project
Acquisition Costs (subject to the allocations for such costs established under
the Contribution Agreement) and to establish appropriate operating reserves and
accounts, as determined by Investor Member and Waterford Member. On the
Contribution Agreement Closing Date, the Company shall reimburse each Member for
those third party expenses and other expenses set forth in Exhibit 3.1.2,
incurred by it or its Affiliates prior to the date of this Agreement
(collectively, the “Pre-Closing Costs Reimbursement Amount”).
 
3.2
Additional Capital Contributions.

 
3.2.1       Except as otherwise required by law or pursuant to this Section and
Section 3.1, no Member shall be required to make any additional Capital
Contributions to the Company. At any time and from time to time following the
making of the initial Capital Contributions set forth in Section 3.1, the
Members may determine by unanimous consent that the Company requires additional
cash Capital Contributions and the amount, terms and conditions thereof in
connection with the development of the Property (including, for renovation or
construction of buildings, common areas and other site improvements, or payment
of Operating Expenses and subject, in the case of the Part Owned Properties, to
the approval rights of the Minority Holders in respect of additional Capital
Contributions and agreement to bear their ratable share of any additional
Capital Contributions), or to meet the ordinary Operating Expenses of the
Company. Any such additional Capital Contributions shall be made in accordance
with the applicable Capital Sharing Ratios. Capital Contributions made to fund
an Owner Entity shall be used only for that purpose and shall otherwise be
returned to the respective Members in the amounts contributed.
 
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3.2.2       In the event that the Waterford Member’s interests in the
Development Asset Entity that owns the Hartford Marriott located in Hartford,
Connecticut (the “Deferred Property”) is not purchased by the Company as a
Development Asset on or prior to the date hereof pursuant to Section 3.1, then
at such time as the conditions to the purchase of the Deferred Property set
forth in Section 14.2.4 of the Contribution Agreement have been satisfied, (A)
the Waterford Member shall transfer all of its interests in the Deferred
Property to the Company (which shall be the percentage of the outstanding
interests in the Deferred Property as shown on Exhibit A), free and clear of any
and all Encumbrances and with a net fair market value to be credited as a
Capital Contribution of [$_________] (after giving effect to payments made to
the Waterford Member in accordance with the Contribution Agreement), as shown on
Exhibit A; (B) the Investor Member shall make a Capital Contribution in the
amount of [$________], [and (C) the Company shall pay the Waterford Member
[$__________] as the Cash Payment (as defined in the Contribution Agreement)
allocated to the Deferred Property]. The Waterford Member and Investor Member
shall make further Capital Contributions in accordance with the Capital Sharing
Ratios applicable to the Development Assets in the amount required to pay all
amounts due and payable under the terms of the Contribution Agreement, as well
as all other Project Acquisition Costs, if any, to acquire the Deferred Property
(subject to the Minority Interests) and to establish appropriate operating
reserves and accounts for the Deferred Property, as determined by Investor
Member and Waterford Member.

3.2.3        Upon a determination by the Members to require additional Capital
Contributions, Managing Member shall issue a written notice of such
determination and stating the amount of each Member’s Capital Contribution. Each
Member shall make payment of its Capital Contribution within 15 Business Days
after written notice of the call therefor, in the case where the aggregate
Capital Contributions demanded of all Members are less than or equal to
$100,000, and within 20 Business Days, in the case where the aggregate Capital
Contributions demanded of all Members exceed $100,000. Capital Contributions
(other than the initial Capital Contribution of Waterford Member as provided in
Section 3.1) shall be made in cash unless otherwise agreed by each Member.
Failure to make a Capital Contribution when required hereunder shall be a
“Capital Contribution Default,” following which:

A.            distributions made in accordance with clauses 5.2.2 or 5.2.3,
shall be amended to reflect the following deemed changes to the Members’ Capital
Accounts and Capital Sharing Ratios:

i.      the non-defaulting Member shall be deemed to have made an additional
Capital Contribution equal to one-half of the portion of the capital call that
the defaulting Member failed to make (the “Defaulted Amount”), and

ii.     the non-defaulting Member’s Capital Account shall similarly be increased
by one-half of the Defaulted Amount, and the Capital Sharing Ratio shall be
recalculated on the basis of the revised Capital Account balances.
 
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Notwithstanding the foregoing, for the purpose of further Capital Contributions,
the defaulting Member shall nonetheless be required to make Capital
Contributions at the initial Capital Sharing Ratio that existed prior to (and
without giving effect to) any such deemed adjustment, and

B.           the provisions of Section 9.2 shall also apply.

3.2.4        If a Member or the Managing Member believes that there are
insufficient Company resources available to meet the emergency expenditures of
the Company, any Property or Owner Entity occasioned on account of imminent
threats of property damage or personal injury or death, in order to remedy such
emergency or casualty, it shall notify the other Members and provide details of
the amounts required and the reasons therefor. The Members may thereafter agree
but shall have no obligation to, contribute the additional capital as a Capital
Contribution pursuant to the provisions of Section 3.2.1. If, for any reason,
any Member is unwilling or unable to contribute its share of such additional
capital, the other Member may loan to the Company the required amount as an
advance to the Company (a “Member Loan”). Each such Member Loan shall be
evidenced by a note of the Company bearing interest at the Member Loan Interest
Rate and, if applicable, on-lent to the applicable Owner Entity on the same
terms. Repayment of a Member Loan shall not be a distribution under Article 5.
All outstanding Member Loans shall be repaid in full, together with all accrued
interest, prior to any distribution to the Members.
 
3.3          Return of Capital; No Interest on Capital.    Except as expressly
provided in this Agreement, no Member shall be entitled to the return of any or
all of its Capital Contribution. Neither a Member’s Capital Account nor its
Capital Contribution shall earn interest.
 
3.4          No Third-Party Beneficiary.    No creditor or other third party
having dealings with the Company shall have the right to enforce the right or
obligation of any Member to make Capital Contributions or to pursue any other
right or remedy hereunder or at law or in equity, it being understood and agreed
that the provisions of this Agreement shall be solely for the benefit of, and
may be enforced solely by, the parties hereto and their respective successors
and assigns. None of the rights or obligations of the Members herein set forth
to make Capital Contributions to the Company shall be deemed an asset of the
Company for any purpose by any creditor or other third party, nor may such
rights or obligations be sold, transferred or assigned by the Company or pledged
or encumbered by the Company to secure any debt or other obligation of the
Company or of any of the Members.
 
3.5
Capital Accounts.

3.5.1       There shall be established for each Member on the books of the
Company, as of the date hereof, a Capital Account, which shall be increased and
decreased in the manner set forth herein.

3.5.2       “Capital Account” means, with respect to each Member, an account
maintained for such Member on the Company’s books and records in accordance with
the following provisions:
 
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A.          To each Member’s Capital Account there shall be added (a) the amount
of cash and the initial Gross Asset Value of any property contributed by such
Member to the capital of the company, (b) such Member’s share of (i) Profits and
(ii) any items in the nature of income or gain that are specially allocated
pursuant to Article 6 and (c) the amount of any Company liabilities assumed by
such Member or that are secured by any Company property distributed to such
Member.

B.           From each Member’s Capital Account there shall be subtracted (a)
the amount of (i) cash and (ii) the Gross Asset Value of any Company property
distributed to such Member pursuant to any provision of this Agreement (other
than amounts paid as interest or in repayment of principal on any loan by a
Member to the Company), (b) such Member’s share of (i) Losses and (ii) any items
in the nature of expenses or losses that are specially allocated pursuant to
Article 6 and (c) the amount of any liabilities of such Member assumed by the
Company or that are secured by any property contributed by such Member to the
Company.

C.           In determining the amount of any liability for purposes of Sections
3.5.2.A and 3.5.2.B, there shall be taken into account Code Section 752(c) and
any other applicable provisions of the Code and the Regulations.

D.           A Member who has more than one interest in the Company shall have a
single Capital Account that reflects all such interests regardless of the class
of interests owned by such Member and regardless of the time or manner in which
such interests were acquired.

3.5.3        Adjustments to Capital Accounts in respect to Company income, gain,
loss, deduction and non-deductible expenditures (or item thereof) shall be made
with reference to the federal tax treatment of such items (and, in the case of
book items, with reference to the federal tax treatment of the corresponding tax
items) at the Company level, without regard to any requisite or elective tax
treatment of such items at the Member level.

3.5.4        The provisions of this Section and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to comply
with Regulations Sections 1.704-1(b) and 1.704-2 and shall be interpreted and
applied in a manner consistent with such Regulations. In the event that Managing
Member shall determine that it is prudent to modify the manner in which Capital
Accounts, or any additions or subtractions thereto (including, adjustments
relating to liabilities that are secured by contributed or distributed property
or that are assumed by the Company or the Members), are computed in order to
comply with such Regulations, Managing Member shall be entitled to make such
modification, provided that it is not likely to have a material effect on the
amounts distributable to any Member pursuant to Section 10.3 upon dissolution of
the Company.

3.5.5         No adjustments shall be made to the Capital Account of any Member
by reason of payment or receipt of any fees by it or any Affiliate pursuant to
Article 4 hereof.
 
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4.
MANAGEMENT OF THE COMPANY

 
4.1
Authority of Managing Member.

4.1.1         Managing Member shall conduct the day-to-day management of the
Company and (subject to the consent, management and other rights of Minority
Interest Holders) each Owner Entity in order to implement the purposes of the
Company identified in Section 2.5, the applicable Business Plan, Operating
Budget and all Major Decisions and other decisions of the Members that have then
been made. Without limiting the generality of the foregoing, except to the
extent that any of the following would constitute a Major Decision or otherwise
require the consent of all Members under the terms hereof, Managing Member,
acting in its reasonable discretion but without any requirement of any consent
or approval from any other Member, shall have general responsibility for the
following with respect to the Company and the Owner Entities:

A.          To implement all Major Decisions the Members have made;

B.           To employ, engage or contract with or dismiss from employment or
engagement Persons to the extent deemed necessary by Managing Member for the
operation and management of the Company business, including but not limited to,
contractors, subcontractors, engineers, architects, surveyors, mechanics,
consultants, accountants, investment bankers, underwriters, insurance brokers
and others as contemplated by the Business Plan (it being understood that unless
the Members shall unanimously agree otherwise, PriceWaterhouseCoopers shall
provide general auditing services for the Company, as an expense of the Company,
and KPMG shall provide Sarbanes-Oxley Act compliance control testing for the
Company, at the request of Investor and as an expense of Investor); provided
that the cost of any control established by the Company on the advice of KPMG or
otherwise in accordance with the Sarbanes-Oxley Act shall be an expense of the
Company;

C.           To acquire and enter into any contract of insurance contemplated by
the Business Plan;

D.           To conduct banking transactions on behalf of the Company and the
Owner Entities in the ordinary course of business;

E.            To demand, sue for, receive, and otherwise take steps to collect
or recover all debts, rents, proceeds, interests, dividends, goods, chattels,
income from property, damages and all other property, to which the Company or
the Owner Entities may be entitled or that are or may become due to the Company
or the Owner Entities from any Person in the ordinary course of business; to
implement the decisions of the Members to commence, prosecute, enforce, defend,
answer, oppose, contest and abandon all legal proceedings in which the Company
or the Owner Entities is or may hereafter be interested; and to submit to
arbitration any accounts, debts, claims, disputes and matters that may arise
between the Company or the Owner Entities and any other Person;

F.           To take all reasonable measures necessary to ensure compliance by
the Company or the Owner Entities with applicable agreements, and other
contractual obligations and arrangements, entered into by the Company or the
Owner Entities from time to time in accordance with the provisions of this
Agreement, including periodic reports as required to be submitted to lenders;
 
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G.          To maintain the Company’s and the Owner Entities’ books and records,
which shall include, but not be limited to, separately tracking and accounting
for the portion of Net Cash Flow that is attributable to each Property;

H.          To prepare and deliver, or cause to be prepared and delivered, all
financial and other reports with respect to the operations of the Company and
the Owner Entities and all federal and state tax returns and reports;

I.           To pay or reimburse any and all fees, costs and expenses incurred
in the formation and organization of the Company;

J.          To do all acts that are necessary, customary or appropriate for the
protection, maintenance, repair, operation and preservation of the Company’s
assets;

K.         To establish and maintain any and all reserves, working capital
accounts and other cash or similar balances in such amounts as the Members have
determined;

L.          To enter into any Lease; and

M.         In general, to exercise all of the general rights, privileges and
powers permitted to be exercised by the provisions of the Act.

4.1.2        Managing Member shall have the right, power and authority to
execute documents on behalf of the Company and the Owner Entities to implement
the Business Plan, and otherwise in the ordinary course of business. The
signature of Managing Member shall be sufficient to bind the Company.
Notwithstanding the foregoing, if requested in writing by Managing Member, each
Member shall execute and deliver those documents deemed necessary or desirable
by Managing Member in order to carry out the provisions of this Agreement. The
exercise of any of the rights or powers of the Member pursuant to the terms of
this Agreement shall not be deemed to be taking part in the affairs of the
Company or the exercise of control over the affairs of the Company.

4.1.3       Managing Member shall provide to the Non-Managing Members, promptly
following receipt, copies of all material notices from any Person and copies of
all notices from any government or judicial body.

4.1.4       Managing Member shall implement and enforce an anti-money laundering
policy and a program of compliance with the Uniting and Strengthening America by
Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA
PATRIOT ACT) Act of 2001, Public Law 107-56 (October 26, 2001) as the same may
be amended from time to time, and corresponding provisions of future laws (the
“Patriot Act”).

4.1.5       Managing Member agrees to use good faith, reasonable efforts to
operate and cause each Owner Entity to operate each Property as a quality hotel
(with ancillary retail components) pursuant to commercially reasonable
conditions and standards in accordance with the purposes of the Company
identified in Section 2.5 and the applicable Business Plan and Operating Budget.
 
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4.2
Restriction of Managing Member’s Authority.

 
4.2.1         Notwithstanding the foregoing provisions of Section 4.1, except as
otherwise (i.e., other than in Section 4.1) expressly permitted by this
Agreement, Managing Member agrees that it will not take any actions within the
scope of a Major Decision or any other decision expressly reserved to the
Non-Managing Members hereunder without the prior written consent of all
Non-Managing Members. In addition to any other matter designated herein as a
Major Decision, Major Decisions also shall include the following:

A.         Admit any new Member to the Company or issue additional Membership
Interests (other than as provided in Section 8.1).

B.          Cause the Company to merge with or into any other entity.

C.          Engage in any business unrelated to the Property, or own any assets
other than those related to the Property or otherwise in furtherance of the
purposes of the Company.

D.          Amend this Agreement or the governing documents of any Owner Entity,
except as otherwise provided in Article 14.

E.           Sell or lease any Property or any portion thereof to an Affiliate
of Managing Member, except pursuant to a Lease or as provided in Article 12 or
Article 13.

F.           Dissolve or liquidate the Company (except as otherwise provided in
Article 10), unless required by law.

All Major Decisions and actions on the matters set forth in Section 4.2.1 (and
all other matters requiring the consent of the Members hereunder) shall require
written notice to all Members issued by the Managing Member or any Member.
Managing Member shall cause written minutes to be prepared of all actions taken
by the decision of the Members with respect to Major Decisions or other matters
requiring the consent of the Members hereunder, whether by formal meeting,
telephonic meeting or otherwise.

4.2.2       If, within five days of such notice, the Members cannot agree on a
Major Decision, any Member may issue a written notice (the “Major Dispute
Notice”). In order to be effective, any Major Dispute Notice must contain a
description of the Major Decision on which the Members have been unable to agree
and must contain the following language typed in BOLD PRINT on the face of the
Major Dispute Notice:

THIS NOTICE IS GIVEN PURSUANT TO THE LIMITED LIABILITY COMPANY AGREEMENT OF
MYSTIC PARTNERS, LLC (THE “AGREEMENT”) IN ORDER TO ADVISE A MEMBER THAT A MAJOR
DISPUTE WILL EXIST UNDER THE AGREEMENT UNLESS THE MEMBERS ARE ABLE TO AGREE
WITHIN 30 DAYS WITH RESPECT TO THE MATTERS SET FORTH IN THIS NOTICE.
 
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The Members shall in good faith meet to discuss and resolve the Major Decision
in question. If, within 30 days of the delivery of a Major Dispute Notice, the
Members are still unable to agree on the Major Decision in question, then there
shall exist a Major Dispute hereunder.
 
4.3           Budgeting and Business Plan. On or before November 15 of each
year, Managing Member shall prepare and submit to the other Member with respect
to the upcoming calendar year a draft:

4.3.1    operating budget (the “Operating Budget”) for the Company and the Owner
Entities (subject to any approval rights of the Minority Interest Holders in
respect of the Part Owned Properties), setting forth by line item the estimated
rents, revenues and other receipts of the Company and the Owner Entities, and
the operating expenses and capital items for the Company and each Owner Entity,
including anticipated reserves; and

4.3.2     business plan (the “Business Plan”) for the Company, in light of the
Operating Budget, setting forth an executive summary outlining the business
strategy and budgeted and forecasted financial information for the upcoming
period, and containing a comprehensive statement setting forth the overall plan
for the business of the Company, including proposed financings and refinancings,
development or redevelopment.

Any reference in this Agreement to an “approved Operating Budget” and “approved
Business Plan” means an Operating Budget or Business Plan, respectively, as
unanimously approved by the Members in accordance with this Section, as the same
may be subsequently amended from time to time by the Members in accordance with
Section 4.2. In preparing and approving each Operating Budget and Business Plan
and any revisions or amendments thereto, Managing Member will consider, among
other things, the previous year’s experience, current and projected market
conditions and anticipated future needs in light of such projections. Waterford
Member and Investor Member will promptly consider any proposed annual Business
Plan and Operating Budget or amendment thereto. The failure of Waterford Member
and Investor Member to approve unanimously an annual Operating Budget and
Business Plan within 30 days after its presentation to them will constitute a
Major Dispute under Section 4.2.3; however, the Members shall work in good faith
to approve an Operating Budget and Business Plan in order to avoid a Major
Dispute. Upon approval and adoption of an Operating Budget and Business Plan,
the previously effective annual Operating Budget and Business Plan shall be
completely superseded and no longer effective.

If an annual Operating Budget or Business Plan has not been approved unanimously
in accordance with this Section with respect to any fiscal year by the start of
the fiscal year, then annual the Operating Budget or Business Plan, as
applicable, in effect for the immediately preceding Fiscal Year (the “Old
Plans”) will (subject to the proviso at the end of this sentence) serve as the
interim annual Operating Budget and/or Business Plan until a new annual
Operating Budget and Business Plan is so approved (if at all); provided,
however, that the Old Plans will be deemed to include all items that have been
agreed upon and, with respect to each Operating Budget or line item thereof that
has not been approved by the Members, a corresponding Operating Budget or line
item that: (A) is based on the Operating Budget or particular line item thereof,
for the then current fiscal year (inflation adjusted) and (B) reflects increases
in amounts payable with respect to Non-Discretionary Expenses. Attached hereto
as Exhibit 4.3 are the agreed Business Plan and Operating Budget for the
remainder of calendar year 2005.
 
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In addition, Managing Manager or any Member may from time to time present
proposed amendments to the annual Business Plan to Members for approval.
 
4.4           Managing Member’s Time and Effort; Conflicts.    Managing Member
and Tax Matters Member shall devote whatever time, effort and skill as is
reasonably required to fulfill their respective obligations under this
Agreement. Except as provided in Section 4.5, each Member may engage in any
business or activity, including those that may conflict or compete with the
Company (“Conflicting Activity”), and any such Member shall not be required to
offer any opportunity in any business or activity to such Persons or otherwise
provide compensation to such Persons therefor.
 
4.5
Competitive Ventures. 

4.5.1          Each Member agrees that neither it nor its Affiliates will
develop, purchase, own or manage any competitive hotel (other than a Property or
other hotels in respect of which any Member has undertaken any planning or
development activity, or that is owned, operated by any Member or their
respective Affiliates, as of the date hereof) within a five-mile radius of any
of the Properties (a “Competitive Venture”) unless, with respect to each such
Competitive Venture, the acquiring or developing party has offered to the other
Member hereunder the right to participate in the ownership, development and
management of such property on terms substantially similar to the terms
available to the offering Member, at the rate of 66.7% Investor Member
participation/ 33.3% Waterford Member participation, in the case of a
Competitive Venture located within five miles of a Stabilized Asset, and at the
rate of 50% Investor Member participation/50% Waterford Member participation, in
the case of a Competitive Venture located within five miles of a Development
Asset, together, in each case, with a management agreement with Property Manager
in the form incorporated herein by reference. If the proposed Competitive
Venture is within five miles of both a Development Asset and a Stabilized Asset,
the participation percentage shall be determined by the nearest asset.

4.5.2        The Member seeking to develop, purchase, own or manage a
Competitive Venture shall submit to the other Member, in confidence, each of the
following (to the extent that each such item is applicable and available, given
the nature of the proposed Competitive Venture) (the “Venture Package”):

A.       a description of the Competitive Venture and of the real property to be
purchased or otherwise acquired, including survey and title information if
available;

B.        financial projections with respect to the Competitive Venture for a
minimum of five years, and, in the case of an acquisition, historical financial
statements with for a minimum of three years, to the extent available; such
financial statements to include projected operating statements, and a before-
and after-tax calculation (based upon a pro forma tax rate) of (i) the projected
internal rate of return to be derived from the proposed investment in the
Competitive Venture, and (ii) the unleveraged yield on cost to be derived from
the Competitive Venture;
 
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C.         a detailed, itemized acquisition and, if applicable, initial
development budget containing all line items customary for a commercial
development or redevelopment and development schedule with respect to any
proposed construction or redevelopment of the Competitive Venture, which budget
shall, among other items, estimate all costs of development and the aggregate
equity investment and the approximate schedule upon which such funds are to be
contributed;

D.         a summary of the terms of any financing arrangements proposed in
connection with the Competitive Venture and copies of all commitments and
financing documents then available;

E.          a summary of the terms of any management arrangements proposed in
connection with the Competitive Venture and copies of the following to the
extent available: all commitments, term sheets, management agreements and other
documents either executed or proposed with a property manager and information
about the financial strength, background, experience and qualifications of any
such proposed property manager;

F.           a summary of the terms of any proposed arrangements with any
proposed investor in connection with the Competitive Venture and copies of the
following to the extent then available: all commitments, term sheets, management
agreements, development agreements, operating/joint venture agreement and other
documents either executed or proposed with such investor and information about
the financial strength, background, experience and qualifications of any such
proposed investor;

G.           copies of any acquisition agreement, construction contract,
architect’s agreements, proposed lease form, or other documents either executed
or proposed in connection with the Competitive Venture;

H.          detailed market information, including an overview of all existing
and proposed competitive properties and identifying sales/operating results of
comparable properties over the most recent three-year period;

I.            structural engineering reports and environmental reports with
respect to the Competitive Venture if then available, provided, however, that if
either structural engineering reports or environmental reports, or both, are not
then available for such Project, the offeree Member may condition its investment
in such Competitive Venture on its receipt and review of such report or reports
and approval thereof;

J.           information about zoning or other permitting issues applicable to
the Competitive Venture, if any; and

K.          such other information and documentation as the Member shall
reasonably request in connection with its review of the proposed Competitive
Venture.
 
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The offeree Member shall have 20 days in which to review the Venture Package and
determine whether to participate in the Competitive Venture. If the offeree
Member does not agree to participate within such 20 day period, the other Member
may proceed with the Competitive Venture for its own account or with others.
 
4.6
Indemnification.

 
4.6.1       Managing Member and Tax Matters Member, and all agents acting on
their or the Company’s behalf, shall not be liable, responsible, or accountable,
in damages or otherwise, to the Members or the Company for doing any act or
failing to do any act, the effect of which may cause or result in loss or damage
to the Company or the other Member save and except that which arises from
Managing Member’s or Tax Matters Member’s fraud, willful misconduct, breach of
fiduciary duty or material and willful breach of their covenants and obligations
under this Agreement. The Company shall indemnify, protect and hold each Member
and any such agent harmless against all claims, expenses (including reasonable
attorneys’ fees), losses, penalties and liability whatsoever by reason of any
act performed or omitted to be performed by it in connection with the business
of the Company, including reasonable attorneys’ fees incurred in connection with
the defense of any action based on any such act or omission (which attorneys’
fees may be paid as incurred), except that such indemnification shall not apply
with respect to a claim if and to the extent the claim is attributable to or
caused by Managing Member’s or Tax Matters Member’s fraud, willful misconduct,
breach of fiduciary duty or material and willful breach of its covenants and
obligations under this Agreement.

4.6.2       In the event that any existing or future lender requires a
nonrecourse carveout guaranty, each Member agrees to give such a guaranty,
subject to indemnity by the Company for all losses not caused by the indemnitee,
and by the other Member for losses caused by it. In the event that any
obligations of the Company must be undertaken by the Members on a joint and
several basis or if, under any other circumstances, a demand is made of a Member
with respect to an obligation or liability of the Company (other than
obligations and liabilities caused by the intentional act, willful misconduct or
gross negligence of either Member), each Member shall make a mandatory capital
contribution (and the proceeds there of shall be immediately disbursed to the
Member(s) who have made any disbursement pursuant to such demand) so that the
Members bear such liability according to their Capital Sharing Ratios.
 
4.7           Certificates and Instruments.    Each Member covenants and agrees
that it will, within 5 days following request by the other Member:

4.7.1       execute, swear to, acknowledge and/or deliver (A) all certificates
and other instruments and all amendments of this Agreement that Managing Member
reasonably deems appropriate or necessary to form, qualify, or continue the
qualification of, the Company as a limited liability company in all
jurisdictions in which the Company may conduct business or own the Property in
accordance with this Agreement; (B) all instruments that Managing Member
reasonably deems appropriate or necessary to reflect any amendment, change,
modification or restatement of this Agreement properly made in accordance with
Sections 14.3 and 14.4; (C) all conveyances and other instruments or documents
that Managing Member reasonably deems appropriate or necessary to reflect, in
accordance with this Agreement, the acquisition or disposition of all or any
portion of any Property or Owner Entity, the admission or withdrawal of any
Member and the dissolution and liquidation of the Company; and (D) all
instruments relating to the admission or withdrawal of any Member pursuant to
and in accordance with this Agreement; and
 
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4.7.2     swear to, represent or acknowledge, confirm, or ratify that any vote,
consent, approval, agreement or other action, which is made or given properly by
the Member hereunder or is consistent with the terms of this Agreement has been
made or given (whether or not such specific Member voted in favor thereof or
consented thereto).
 
4.8           Management Cost Reimbursement.     The Company shall on demand
reimburse all reasonable travel expenses and third party expenses incurred by
Managing Member in connection with the business of the Company as contemplated
hereunder and made pursuant to the Operating Budget and Business Plan.
Furthermore, the Company shall reimburse Tax Matters Member for the reasonable
cost of the services of its in-house accountants in connection with Owner
Entity, Property or Company accounting. All expenses incurred with respect to
any tax matter that does or may affect the Company, including but not limited to
expenses incurred by Waterford Member acting in its capacity as Tax Matters
Member in connection with Company-level administrative or judicial tax
proceedings, shall be paid out of Company assets, whether or not included in an
annual Business Plan.
 
4.9           Leases.     Each Owner Entity, as landlord, shall enter into a
Lease with a Lessee, as tenant, to lease, operate and manage the Property owned
by such Owner Entity, such lease transactions to be structured so as to
preserve, to the extent possible, the economic results that would otherwise
pertain hereunder. The Owner Entity Operating Agreements and all financing
arrangements and contracts entered into by an Owner Entity shall permit such
Leases and related transactions.
 
4.10         Asset Management Fee.     Pursuant to certain Asset Management
Agreements to be entered into by the Owner Entities or the Property Manager and
Investor Member (the “Asset Manager”), the Asset Manager shall be paid an asset
management fee (the “Asset Management Fee”) in the amount in the amount of 1% of
Operating Revenues, with respect to the Stabilized Assets, and 0.25% of
Operating Revenues, with respect to Development Assets. The Asset Management Fee
shall be payable monthly in arrears, based on Property Manager’s estimate of
Operating Revenues for the month then expiring, and shall reflect, in each
monthly payment, Property Manager’s reconciliation of the estimated Operating
Revenues for the prior calendar month against the actual, final Operating
Revenues for that period. The parties acknowledge and agree that the Asset
Management Fee shall be treated as a guaranteed payment pursuant to Code Section
707(c).
 
4.11
Property Management.

 
4.11.1      Each Lessee shall enter into a separate management agreement
substantially in the form attached hereto as Exhibit 4.8 (the “Management
Agreements”) with a property manager (the “Property Manager”). Waterford Hotel
Group, Inc., an Affiliate of Waterford Member, shall be the initial Property
Manager, unless and until such Person ceases to be the property manager pursuant
to the Management Agreement. The Property Manager is not required to be a Member
of the Company; provided, however, that Investor Member shall have the right to
remove the initial Property Manager as Property Manager (a) in the event that
Waterford Member shall cease to be a Member, (b) in the event that Waterford
Hotel Group, Inc. is no longer an Affiliate of Waterford Member, (c) for Cause
or (d) if a Removal Event occurs, and in the case of event (c) or (d), Investor
Member shall have the sole right to designate a replacement Property Manager.
Under each Management Agreement, Property Manager shall provide property
management services for each Property and the Owner Entities for a management
fee (the “Management Fee”) in the amount contemplated by the Management
Agreement except that, with respect to the Properties known as Dunkin Donuts,
Southington and Residence Inn, Southington, the nominal base management fee
shall be 4% of Gross Revenue (as defined in the Management Agreements) and the
Manager shall be directed (and shall agree) to remit a portion of such fee (in
the amount of 1% of Operating Revenues) to the Owner Entity, to be applied to
the Asset Management Fee. In addition, the Lessees shall pay any sales tax due
and payable in connection with the foregoing goods and services, as provided in
the Management Agreements. The Management Fee shall be calculated on a
Property-by-Property basis, with the intent that any Minority Interest Holders
bear their ratable share of the Management Fee with respect to any Part Owned
Property.
 
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4.11.2       Subject to any present or future requirements of any lender to the
Company or an Owner Entity, the Management Agreements shall instruct the
Property Manager and delegate to the Property Manager the authority to:

A.        collect Gross Revenue and other revenues of the Property,

B.         deposit such funds into operating accounts (each such account, an
“Operating Account”) in each Lessee’s name and in respect of which the Property
Manager and Managing Member shall have check-writing authority;

C.         withdraw from such Operating Account to pay Operating Expenses that
are then due and payable and that are contemplated by the Business Plan or
Operating Budget or approved by all Members (subject in the case of Part Owned
Properties to the rights and obligations of the Minority Interest Holders);

D.         pay from such Operating Account the Asset Management Fee and the
Management Fee; and

E.          remit monthly on the last Business Day of the month from such
Operating Account to a separate account designated by the Managing Member (and
in respect of which Property Manager shall have no withdrawal authority) all
remaining Operating Account funds, but only to the extent the foregoing exceed
the Working Capital (hereinafter defined) for the upcoming calendar month.
“Working Capital” for any calendar month means the amount equal to the result
(but only if such result is a positive number) of (i) the projected Operating
Expenses contemplated to be paid, (ii) minus projected Operating Revenues
contemplated to be received in the following month, (iii) plus reserves
established or required to be established or funded during the relevant time
period in accordance with the terms of this Agreement, (iv) minus cash on hand
and reserves on hand and available for the purpose of the payment of expenses
enumerated in clause (i), above, (v) plus any operating shortfalls that Property
Manager reasonably expects to incur in the upcoming calendar quarter, based on
the historic seasonality of occupancy rates.
 
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4.11.3     The Management Agreement shall be expressly subject to this
Agreement. The Management Agreement shall have an initial term of five years and
shall thereafter be renewable by Manager for two terms of five years, each.
 
5.
DISTRIBUTIONS

 
5.1           Distributions Generally.      Distributions of Company assets
shall be made only in accordance with this Article and Article 10.
 
5.2
Distributions of Net Cash Flow and Capital Proceeds.

 
                5.2.1        From time to time, but not less often than annually
with respect to Net Cash Flow and within 30 days after a Capital Transaction
with respect to Capital Proceeds, Managing Member shall determine the amount, if
any, of Distributable Funds (hereinafter defined) available for distribution to
Members in accordance with this Section. Distributable Funds shall then be
distributed to the Members in accordance with the provisions of this Article.
“Distributable Funds” shall mean Net Cash Flow on hand (after repayment of any
outstanding Member Loans) and Capital Proceeds actually received.

5.2.2        Distributable Funds with respect to any Property constituting Net
Cash Flow shall be distributed to the Members in the following order of
priority:

A.      first, to Investor Class A Member and Investor Class B Member (in
proportion to the relative Capital Sharing Ratios as between the Investor Class
A Member and Investor Class B Member) in the amount of any unpaid balance in
that Member’s Preferred Return Account with respect to all Property;

B.      then, to Waterford Member in the amount of any unpaid balance in that
Member’s Preferred Return Account with respect to all Property; and

C.      any excess, to the Members in accordance with their Residual Sharing
Ratios with respect to such Property.

Notwithstanding the foregoing, distributions pursuant to Sections 5.2.2.A and
5.2.2.B, shall be made only to the extent such unreturned balance has accrued
during the Fiscal Year in which such distribution is made, it being understood
that for the purposes of this Section 5.2, only, each Member’s Preferred Return
Account balance shall be deemed to be $0 at the commencement of each Fiscal
Year, regardless of all amounts distributed in, or Preferred Return Account
balances accrued with respect to, prior periods.

5.2.3       Distributable Funds with respect to any Property constituting
Capital Proceeds shall be distributed to the Members in the following order of
priority:
 
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A.     first, to Investor Class A Member or Investor Class B Member, as
appropriate, the return of its Capital Contributions in respect of such
Property;

B.      then, to Waterford Class Member, the return of its Capital Contributions
in respect of such Property;

C.      then, to Investor Class A Member or Investor Class B Member, in the
amount of 8.5% multiplied by the Capital Contributions made by such Member,
attributed solely to the Property generating the relevant Capital Proceeds and
calculated without regard to distributions made in accordance with Section
5.2.2;

D.     then, to Waterford Member, in the amount of 8.5% multiplied by the
Capital Contributions made by such Member, attributed solely to the Property
generating the relevant Capital Proceeds and calculated without regard to
distributions made in accordance with Section 5.2.2; and

E.       last, to the Members in accordance with their Residual Sharing Ratios.

5.2.4       Investor Member and Waterford Member (acting together) shall
determine using reasonable judgment whether, and to what extent, Net Cash Flow
and Capital Proceeds shall be distributed or shall be set aside and retained in
a working capital reserve or capital expenditure reserve, or reserves for funds
to be used for the payment or reduction of any Company or Owner Entity
indebtedness. At such time as the Net Cash Flow is finally determined with
respect to a Company fiscal year, the Company shall distribute to the Members in
accordance with Section 5.2.2, the Members’ respective undistributed shares, if
any, of the Company’s actual Net Cash Flow for such fiscal year, and if advance
distributions to a Member exceed such Member’s distributable share of such
actual Net Cash Flow for such fiscal year, as finally determined, such Member
shall immediately repay to the Company the amount of such excess, and any
amounts not so repaid by a Member may be deducted from the next distributions of
Net Cash Flow or Capital Proceeds distributable to such Member.

5.2.5        Notwithstanding the foregoing, the Company shall make cash
distributions to the Members out of Net Cash Flow in amounts intended to enable
(and at such times as necessary to enable) the Members to discharge their United
States federal, state and local income tax liabilities arising from the
allocations made pursuant to Article 6 (a “Tax Liability Distribution”). The
amount of any such Tax Liability Distribution shall be determined by Managing
Member in its discretion, taking into account (a) the maximum combined United
States and [Connecticut] tax rate applicable to individuals or corporations
(whichever is higher) on ordinary income and net short-term capital gain or on
net long-term capital gain, as applicable, and taking into account the
deductibility of state and local income taxes for United States federal income
tax purposes (and the deductibility of local income taxes for state income tax
purposes, if applicable), and (b) the amounts so allocated pursuant to Article 6
to each Member, and otherwise based on such reasonable assumptions as Managing
Member determines in good faith to be appropriate. Tax Liability Distributions
shall be made to the Members pro rata in accordance with their respective
allocation of the corresponding item(s) of gain or income, and shall be treated
as advances with respect to amounts otherwise to be received by such Members
pursuant to this Section 5.2.
 
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5.2.6     Notwithstanding the provisions of Sections 5.2.2 to the contrary, any
Incentive Fees (as defined in the Management Agreement) payable to the Property
Manager in accordance with the terms of the Management Agreement shall be paid
to Manager immediately prior to distributions under Sections 5.2.2.C. [PAYMENT
AND PAYMENT MECHANISM TO BE REVISED TO CONFORM WITH STRUCTURE, AS AGREED BY THE
PARTIES IN GOOD FAITH.]
 
5.3           Distributions Upon Final Liquidation.    Upon a final liquidation
of the Company in accordance with Article 10, all of the Company’s assets shall
be distributed as set forth in Section 10.3.
 
5.4           The Right to Withhold.    The Company shall withhold from any
distribution such amounts as are required to be withheld by the laws of any
taxing jurisdiction (or shall pay on behalf of or with respect to such Member
any taxes that Managing Member or Tax Matters Member determines that the Company
is required to pay with respect to any amount allocable to such Member pursuant
to this Agreement). Such withheld amounts shall be treated as amounts
distributed to the respective Members on whose account the withholding was
imposed. Any amount paid on behalf of or with respect to a Member pursuant to
this Section 5.4 shall constitute a loan by the Company to such Member, which
loan such Member shall repay within 15 days after notice from the Company that
such payment must be made unless (i) the Company withholds such payment from a
distribution that would otherwise be made to the Member or (ii) all Members
jointly determine that such payment may be satisfied out of Net Cash Flow that
would, but for such payment, be distributed to the Member. Each Member hereby
unconditionally and irrevocably grants to the Company a security interest in
such Member's obligation to pay to the Company any amounts required to be paid
pursuant to this Section 5.4. Any amounts payable by a Member hereunder shall
bear interest at the prime rate as published from time to time in the Wall
Street Journal (but not higher than the maximum lawful rate from the time such
amount is due (i.e., 15 days after demand) until such amount is paid in full.
Each Member shall take such actions as the Company shall request in order to
perfect or enforce the security interest created hereunder. A Member's
obligation hereunder shall survive the dissolution, liquidation or winding up of
the Company.
 
6.
ALLOCATIONS

 
6.1           In General.      Profits and Losses of the Company shall be
determined and allocated with respect to each fiscal year of the Company as of
the end of such year, and at such times as the Gross Asset Value of any asset is
adjusted pursuant to the definition of Gross Asset Value. Subject to the other
provisions of this Article, an allocation to a Member of a share of Profits or
Losses shall be treated as an allocation of the same share of each item of
income, gain, loss and deduction that is taken into account in computing Profits
or Losses.
 
6.2            Allocations.      Except as otherwise provided in this Article,
Profits and Losses of the Company shall be allocated for each fiscal year or
other period to the Members such that the positive balance of the Adjusted
Capital Account of each Member immediately following such allocation is, as
closely as possible, equal (proportionately) to the amount of the distributions
that would be made to such Member pursuant to Section 5.2.3 if the Company were
dissolved, its affairs wound up and all of its assets sold for an amount equal
to their Gross Asset Value, all Company liabilities were satisfied (limited with
respect to each nonrecourse liability to the Gross Asset Value of the assets
securing such liability) and the remaining cash was distributed in accordance
with the priority set forth in Section 5.2.3.
 
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6.3           Limitation on Allocation of Losses.      The Losses allocated to
any Member pursuant to Section 6.2 shall not exceed the maximum amount of Losses
that can be so allocated without causing such Member to have an Adjusted Capital
Account Deficit at the end of any fiscal year. All Losses in excess of the
limitation set forth in this Section 6.3 shall be allocated to the other
Members, pro rata to the allocation of other Losses to such Members, subject to
the limitations of this Section 6.3.
 

6.4          Additional Allocation Provisions.     Notwithstanding the foregoing
provisions of this Article (other than Section 6.3), the special allocations
required by this Section 6.4 shall be made in the following order of priority:

 
6.4.1
Regulatory Allocations.

A.      If there is a net decrease in Company Minimum Gain or Member Minimum
Gain during any fiscal year, the Members shall be allocated items of Company
income and gain for such year (and, if necessary, for subsequent years) in
accordance with Treasury Regulation Section 1.704-2(f) or Section 1.704-2(i)(4),
as applicable. It is intended that this Section 6.4.1.A qualify and be construed
as a “minimum gain chargeback” and a “chargeback of member nonrecourse debt
minimum gain” within the meaning of such Regulations, which shall be controlling
in the event of a conflict between such Regulations and this Section 6.4.1.A.

B.      Any Member Nonrecourse Deductions for any fiscal year shall be specially
allocated to the Member(s) who bear the economic risk of loss with respect to
the Member Nonrecourse Debt to which such deductions are attributable.

C.      If any Member unexpectedly receives an adjustment, allocation or
distribution described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4),
(5) or (6), items of Company income and gain shall be allocated, in accordance
with Treasury Regulation Section 1.704-1(b)(2)(ii)(d), to the Member in an
amount and manner sufficient to eliminate, to the extent required by such
Regulation, the Adjusted Capital Account Deficit of the Member as quickly as
possible. It is intended that this Section 6.4.1.C qualify and be construed as a
“qualified income offset” within the meaning of Treasury Regulation
1.704-1(b)(2)(ii)(d), which shall be controlling in the event of a conflict
between such Regulation and this Section 6.4.1.C.

6.4.2       The allocations set forth in Section 6.3, Sections 6.4.1.A, B and C
(the “Regulatory Allocations”) are intended to comply with certain regulatory
requirements, including, the requirements of Treasury Regulation Sections
1.704-1(b) and 1.704-2. Notwithstanding the provisions of Section 6.2, the
Regulatory Allocations shall be taken into account in allocating other items of
income, gain, loss and deduction among the Members so that, to the extent
possible, the net amount of such allocations of other items and the Regulatory
Allocations to each Member shall be equal to the net amount that would have been
allocated to each such Member if the Regulatory Allocations had not occurred.
 
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6.4.3     For purposes of determining a Member’s proportional share of the
Company’s “excess nonrecourse liabilities” with respect to any Property within
the meaning of Treasury Regulations Section 1.752-3(a)(3), each Member’s
interest in Profits shall be such Member’s Capital Sharing Ratio with respect to
such Property.

6.4.4     In the event that the Code or any Treasury Regulations promulgated
thereunder require allocations of items of income, gain, loss, deduction or
credit different from those set forth in this Agreement, upon the advice of the
Company’s counsel or accountants, Managing Member is hereby authorized to make
new allocations in reliance upon the Code, the Treasury Regulations and such
advice of the Company’s counsel or accountants, such new allocations shall be
deemed to be made pursuant to the fiduciary obligation of Managing Member to the
Company and the Non-Managing Members, and no such new allocation shall give rise
to any claim or cause of action by any Non-Managing Member.

6.4.5     Notwithstanding the foregoing provisions of this Article 6, income,
gain, loss and deduction with respect to property contributed to the Company by
a Member shall be allocated among the Members, pursuant to Regulations Section
1.704-3(b), so as to take account of the variation, if any, between the adjusted
basis of such property to the Company and its initial Gross Asset Value
(computed in accordance with the definition of Gross Asset Value). In the event
the Gross Asset Value of any Company asset is adjusted pursuant to clause B of
the definition thereof, subsequent allocations of income, gain, loss and
deduction with respect to such asset shall take account of the variation, if
any, between the adjusted basis of such asset for federal income tax purposes
and its Gross Asset Value in the same manner as under Code Section 704(c) and
the applicable Regulations, consistent with the requirements of Section
1.704-1(b)(2)(iv)(g) of the Regulations. Allocations pursuant to this Section
6.4.5 are solely for purposes of federal, state and local income taxes and shall
not affect, or in any way be taken into account in computing, any Member’s
Capital Account or share of Profits, Losses, other tax items or distributions
pursuant to any provision of this Agreement.

7.
BOOKS AND RECORDS; ACCOUNTING; TAX ELECTIONS

 
7.1          Company Books. Managing Member shall maintain the books of the
Company, for financial reporting purposes, on an accrual basis in accordance
with generally accepted accounting principles. Managing Member shall make all
decisions as to accounting matters in its reasonable judgment, other than those
that would constitute Major Decisions or that are contemplated to be made by Tax
Matters Member hereunder. Managing Member shall establish appropriate procedures
(which procedures shall be reasonably acceptable to Non-Managing Member) to
track Net Cash Flow and Capital Proceeds with respect to each Property, in order
to attribute income and distributions among the Development Assets and the
Stabilized Assets, for the purpose of distributions pursuant to Sections 5.2.2.
and 5.2.3. and the other provisions of this Agreement. Managing Member shall
make allocations in accordance with such procedure.
 
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7.2          Records.     Managing Member shall keep at the Company’s office the
following Company documents:
 
7.2.1      a current list of the full name and last known business or residence
address of each Member, together with the Capital Contribution, Capital Sharing
Ratio and Membership Interest of each Member;

7.2.2      copies of all certificates evidencing membership interests and
executed copies of any powers of attorney pursuant to which other filings have
been made;

7.2.3      copies of the Company’s federal, state, and local income tax or
information returns and reports, if any, for the six most recent tax years;

7.2.4      copies of this Agreement and all amendments to this Agreement and all
other agreements to which the Company or an Owner Entity is party;

7.2.5      financial statements of the Company for the six most recent tax
years; and

7.2.6      the Company’s books and records as they relate to the internal
affairs of the Company for the current and past three tax years.

On reasonable advance notice to Managing Member, any Member (or an authorized
representative thereof) shall have the right to inspect, examine and make
photocopies or extracts from any of the foregoing at the offices of the Company,
and to meet with the Persons responsible for preparing any of the foregoing.
 
7.3           Company Tax Elections; Tax Controversies. Waterford Member (in
such capacity, “Tax Matters Member”) is hereby designated as the “Tax Matters
Partner” pursuant to the requirements of Section 6231(a)(7) of the Code.

7.3.1     The Tax Matters Member shall promptly deliver to each Member copies of
all written Tax Correspondence and shall promptly advise each Member of the
content of any substantive verbal Tax Correspondence. The Tax Matters Member
shall use all reasonable efforts to provide each Member and its attorneys the
opportunity to attend any such conversations, and shall keep each Member advised
of all developments with respect to any proposed adjustments that come to the
Tax Matters Member’s attention. In addition, the Tax Matters Member shall (x)
provide to each Member draft copies of any substantive correspondence or filing
to be submitted by the Tax Matters Member to the IRS (or other taxing
authority), including, with respect to any Tax Contest (a “Written Submission”),
at least 14 business days prior to the date the Written Submission is required
to be submitted, (y) shall consider in good faith changes or comments to the
Written Submission requested by other Members, and shall consult with such other
Members with respect to such changes and comments, and (z) shall provide to each
Member a final copy of the Written Submission. The Tax Matters Member shall
provide each Member with notice reasonably in advance of any scheduled meetings
or conferences (including telephone conferences) with respect to any scheduled
meetings or conferences. The Tax Matters Member will take such reasonable
actions, including providing powers of attorney, as may be necessary, for each
Member and its counsel to attend such meetings and conferences. Each Member
shall provide the Tax Matters Member with written comments to drafts of Written
Submissions delivered pursuant to this Section 7.3.1 within 7 business days of
receipt of such drafts.
 
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7.3.2        The Tax Matters Member agrees that it will not take the following
actions without each Member’s consent (such consent not to be unreasonably
withheld):

A.     Settling or proposing a settlement with the IRS regarding a Tax Contest;

B.     Terminating an extension of the statute of limitations regarding the
Company’s tax year;

C.     Seeking technical advice or otherwise involving IRS personnel outside the
audit team or using procedures outside the normal audit procedures with respect
to a Tax Contest; and

D.     If a Tax Contest results in a deficiency, choosing the forum for appeals
or litigation, and settling or proposing a settlement for such a controversy.

7.3.3       At the Company’s expense, the Managing Member shall cause Price
Waterhouse Coopers (or such other accounting firm mutually acceptable to the
Members) to prepare the Federal income tax returns for the Company and all other
tax and information returns of the Company, including state and local tax
returns. Managing Member may extend the time for filing any such tax returns as
provided for under applicable statutes. At least 30 days prior to filing the
Federal and state income tax returns and information returns of the Company,
Managing Member shall deliver to the members for their review a copy of the
Company’s Federal and state income tax returns and information returns in the
form proposed to be filed for each Taxable Year, and shall incorporate all
reasonable changes or comments to such proposed tax returns and information
returns requested by Members at least ten days prior to the filing date for such
returns. After taking into account any such requests changes as described above,
Managing Member shall cause the Company to timely file, taking into account any
applicable extensions, such tax returns. Within 20 days after filing such
Federal and state income tax returns and information returns of the Company,
Managing Member shall cause the Company to deliver to each Member a copy of the
Company’s Federal and state income tax returns and information returns as filed
for each Taxable Year, together with any additional tax-related information in
the possession of the Company that such Member may reasonably and timely request
in order to properly prepare its own income tax returns.

7.3.4      To the extent that the Company may, or is required to, make elections
for Federal, state or local income or other tax purposes, such elections shall
be made by the Managing Member with the consent of each Member; provided that if
requested by any Member, Managing Member shall make a Section 754 election.
 
7.4          Fiscal Year.    The fiscal year of the Company shall be the
calendar year, unless otherwise required by the Code or determined by the
Members.
 
7.5          Financial Reports. Managing Member shall prepare or cause to be
prepared and shall furnish each Member as specified below or otherwise as soon
as practicable the following (at the expense of the Company):
 
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7.5.1      On or before March 31 of each calendar year, for the preceding year,
the following: all information necessary for the preparation by each Member of
its federal income tax return as to the Company’s income, gains, losses,
deductions or credits and the allocations thereof to each Member, including a
Schedule K-1 (or any other comparable form subsequently required by the Internal
Revenue Service), and a copy of the federal income tax return of the Company,
and any state or local income tax return required for the Company;

7.5.2      Within 30 days after the end of each fiscal quarter, for each
Property, quarterly unaudited profit and loss statements, balance sheets and
related statements of retained earnings and cash flow (which unaudited
statements shall be, to Managing Member’s best knowledge, true, correct and
complete) and comparing the results of operations of each Property for such
quarter and for the year to date to the Operating Budget;

7.5.3      Monthly, such additional reporting as Investor Member may reasonably
request;

7.5.4      Within 30 days after the end of each fiscal quarter, a summary of
each Member’s Capital Contributions to date plus each Member’s share of approved
but unfunded Capital Contributions; and

7.5.5      Within 90 days after the end of each fiscal year, annual audited
financial statements.
 
7.6           REIT Status.    The Members, upon receipt of written notice of any
act or omission that adversely affects the ability of Hersha Hospitality Trust
to qualify as a real estate investment trust (“REIT”) under Section 856 of the
Code or subjects Investor Member to any additional taxes under the Code, will
use their commercially reasonable best efforts to take such action, or cause the
Company and the Owner Entities to take such action, or refrain from taking any
action, in each case as requested by Investor Member to ensure continued
qualification of Hersha Hospitality Trust as a REIT and avoid the imposition of
additional taxes under the Code.

8.
TRANSFERS AND ENCUMBRANCES OF COMPANY INTERESTS

 
8.1          Restricted Transfers and Encumbrances.    Except with the consent
of the other Members, and other than as expressly provided herein, no Member may
directly or indirectly Transfer all or any portion of its Membership Interest
(or any right to receive distributions), nor grant or permit an Encumbrance of
all or any portion of or any interest in its Membership Interest. Any purported
Transfer or Encumbrance of any Membership Interest (except as expressly
permitted or consented to by all other Members as aforesaid) shall be null and
void. In addition, any (1) Change in Control of Waterford Member or of any
Controlling Affiliate of Waterford Member or (2) disposition of any interest,
direct or indirect, in Waterford Member or any Controlling Affiliate of
Waterford Member shall be subject to the approval of Investor Member, which
approval may be given, withheld or made subject to conditions determined by
Investor Member. Notwithstanding the foregoing, for the purpose of the
restrictions contained in this Article,
 
8.1.1     Transfers of interests in Waterford Member (a) among Persons who hold
a direct or indirect equity interest in Waterford Member as of the date hereof
or who hereafter acquire an interest in accordance with the terms hereof (but
with respect to transfers by or to Persons who acquire an interest after the
date hereof, the allocation of ownership interests resulting from such transfers
shall in no event exceed 49% of the voting ownership interest of the Company, as
provided in clause (d), below), (b) by any of the foregoing to a personal trust
established for estate planning or tax reasons, (c) by any of the foregoing to
their immediate family members or (d) to other Persons in one or more
transactions in amounts aggregating not more than 49% of the total voting
ownership interest of Waterford Member, shall not be restricted or require any
consent hereunder;

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8.1.2     Transfers of direct or indirect interests in Investor Member shall not
be subject to the consent of any other Member; provided that in the event of a
Change in Control of Investor Member, Waterford Member may invoke the provisions
of Section 13; and

8.1.3     Investor Class B Member may freely Transfer its Membership Interest,
representing its rights to all payments in respect of the Development Assets
hereunder, and the transferee shall be entitled to copies of all notices
delivered to Investor Class B Member in accordance with the terms hereof,
provided that the initial Investor Member shall remain the sole party authorized
to vote, give consents and otherwise act with respect to the entire Membership
Interest initially held by Investor Member on the date hereof, and Investor
Member shall remain liable hereunder to Contributor Member for all obligations
with respect to such entire Membership Interest;

provided, in each case, that the relevant Transfer would not cause a default or
otherwise restrict the Company’s rights under any financing or franchise
agreement to which the Company or any Property is then subject. Subject to the
foregoing exceptions, a Person to whom a Membership Interest is Transferred may
be admitted to the Company as a Member only with the consent of the other
Member, which may be given or withheld in the other Member’s sole and absolute
discretion.
 
8.2           Substitution of Approved Transferee for Member.    A transferee of
a Membership Interest pursuant to Section 8.1 shall have no right to become a
substituted Member with respect to the transferred Company Interest unless the
following conditions are satisfied: the Member making such Transfer and the
assignee shall furnish the other Member with such documents regarding the
Transfer as the other Member may reasonably request (in form and substance
reasonably satisfactory to the other Member), including a copy of the Transfer
instrument, an assumption and ratification by the assignee of this Agreement (if
the assignee is to be admitted as a Member), and a legal opinion or other
reasonably satisfactory evidence to the non-Transferring Member that the
Transfer (i) complies with applicable federal and state securities laws, (ii)
will not cause the Company to be classified as other than a “partnership” or as
a publicly traded partnership for federal income tax purposes, and (iii) will
not cause the Company to be in breach of or default under any credit agreement,
mortgage, deed of trust, security agreement or other agreement encumbering any
Property or otherwise binding on the Company. Upon any transfer of a Membership
Interest pursuant to this Section, the transferor and transferee shall file with
the Company an executed or authenticated copy of the written instrument of
assignment to it. Any transferee under this Section shall, as a condition to the
effectiveness of the assignment to it of the economic benefits of Membership
Interest, acknowledge in writing that the rights to the Membership Interest
acquired by it are subject to the restrictions on Transfers set forth in this
Article.
 
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8.3           Possible Amendment.     The parties hereto agree to amend the
transfer provisions of this Article if Tax Matters Member reasonably determines
that such amendment is necessary for the Company to be treated as a partnership
for federal, Delaware and/or Connecticut income tax purposes.
 
 
9.
ADDITIONAL MEMBERS

 
9.1           Admissions and Withdrawals.      No Person shall be admitted to
the Company as a Member except in accordance with Article 8. No Member shall be
entitled to withdraw from the Company without the consent of each Member, which
consent may be given, withheld or made subject to conditions determined by that
Member, in its sole and absolute discretion. Neither the admission of a Member
nor the withdrawal of a Member, whether in accordance with this Agreement or
not, shall cause the dissolution of the Company. If any Member voluntarily or
involuntarily withdraws from the Company, then it shall be and remain liable for
all obligations and liabilities incurred by it as a Member, and shall be liable
to the Company and the other Member for all indemnifications set forth herein
arising prior to its withdrawal and for any liabilities, losses, claims,
damages, costs and expenses (including reasonable attorney’s fees) incurred by
the Company as a result of any withdrawal in breach of this Agreement. Any
purported admission, withdrawal or removal that is not in accordance with this
Agreement shall be null and void.
 
9.2          Cessation of Managing Member.    Waterford Member shall cease to be
Managing Member of the Company at the election of Investor Member, and any other
or future Managing Member shall cease to be Managing Member at the election of
the Non-Managing Member, upon the earliest to occur of one of the following
events (in each case, a “Removal Event”):

9.2.1      the filing of a certificate of dissolution, or its equivalent, for
Managing Member (unless withdrawn, revoked or corrected within 30 days);

9.2.2      an Event of Bankruptcy of Managing Member;

9.2.3      A Capital Contribution Default by Managing Member in excess of 60
days;

9.2.4      Managing Member commits a material breach or material default of this
Agreement and such breach or default is not cured within 15 days after written
notice by the non-defaulting Member, or if such breach does not involve the
failure to pay money and cannot reasonably be cured within such 15-day period,
such breach is not cured within 90 days after such written notice so long as the
cure for the same has commenced within said 15-day period and Manager Member is
diligently and continuously pursuing the cure of the same;

9.2.5      If Property Manager is then an Affiliate of Managing Member, the
Management Agreement shall have been terminated on account of a default of
Property Manager thereunder; or

9.2.6      Cause with respect to the Managing Member.
 
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9.3           New Managing Member.      Except as set forth in the next
sentence, no Person shall become a Managing Member of the Company without the
written approval of all Members, which approvals may be given or withheld, or
made subject to such conditions as are determined by the applicable Member, in
such Member’s sole and absolute discretion. In the event of an occurrence of an
event described in Section 9.2 hereof, the remaining Member shall (on notice to
all other Members) immediately become the new, sole Managing Member and the
Company shall continue without interruption (but such remaining Member shall not
be entitled to receive any fees or reimbursements then accrued and originally
payable to the former Managing Member under this Agreement), and any successor
Managing Member may be appointed by such remaining Member.
 
10.
DISSOLUTION AND WINDING UP

 
10.1         Dissolution and Distributions of Property.     Except for
dissolution expressly permitted by this Agreement, no Member shall have the
right to, and each Member hereby agrees that it shall not (and hereby
irrevocably waives any right to), seek to dissolve or cause the dissolution of
the Company or to seek to cause a partial or whole distribution or sale of the
Property or a partition of the Company or any of its assets, whether by court
action or otherwise, it being agreed that any actual or attempted partition,
dissolution, distribution or sale would cause a substantial hardship to the
Company and the remaining Member(s).
 
10.2         Dissolution Events.     The Company shall be dissolved upon the
earliest to occur of one of the following events:

10.2.1      the first occurrence of any event set forth in Sections 9.2.1 or
9.2.2; provided, however, that within 60 days after such event, the remaining
Members (A) may elect in their sole and absolute discretion to continue the
Company and (B) may designate a new, successor Managing Member as set forth in
Section 9.3, in which case the Company shall not be dissolved;

10.2.2      the sale, transfer or disposition of every Property or all interests
of the Company therein; or

10.2.3      the happening of any other event causing its dissolution under the
Act.

Notwithstanding anything contained herein to the contrary, to the extent
permitted by applicable law, the Company shall not dissolve or merge with or
into any other entity, or convert into another form of business entity, or
otherwise terminate, and the Company shall continue (and not dissolve) for so
long as a single solvent Member exists. Notwithstanding anything contained
herein to the contrary, to the extent permitted by applicable law, an Event of
Bankruptcy respecting the Company shall not cause a dissolution of the Company.
 
10.3
Liquidation and Final Distribution Proceeds.

 
10.3.1      Upon the dissolution of the Company pursuant to Sections 10.2.1
through 10.2.4, the Company shall thereafter engage in no further business other
than that which is necessary to wind up the business. The steps to be
accomplished by the liquidator are as follows:
 
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A.     as promptly as possible after dissolution and again after final
liquidation, the liquidator shall cause a proper accounting to be made by the
auditor of the Company’s assets, liabilities, and operations through the last
day of the calendar month in which the dissolution shall occur or the final
liquidation shall be completed, as applicable;

B.     the liquidator shall pay all of the debts and liabilities of the Company
or otherwise make adequate provision therefor (including the establishment of a
cash escrow fund for contingent liabilities in such amount and for such term as
the liquidator may reasonably determine); and

all remaining assets of the Company shall be distributed to the Members in
accordance with Section 5.2.3.
 
10.4          Cancellation of Certificate.     On completion of the distribution
of Company assets, the Member (or such other person as the Act may require or
permit) shall file a Certificate of Cancellation with the Secretary of State of
Delaware, and take such other actions as may be necessary to terminate the
existence of the Company.
 
10.5           No Capital Contribution Upon Dissolution.    Each Member shall
look solely to the assets of the Company for all distributions with respect to
the Company, its Capital Contribution thereto, its Capital Account and its share
of Profits or Losses, and shall have no recourse therefor (upon dissolution or
otherwise) against Managing Member or any Non-Managing Member. If, upon
liquidation of the Company or upon liquidation of a Member’s interest in the
Company, a Member has a deficit balance in its Capital Account (after giving
effect to all contributions, distributions and allocations for all taxable
years, including the year during which the liquidation occurs), such Member
shall not be obligated to make any capital contribution with respect to such
deficit.

11.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE MEMBERS

To induce the other Member to enter into this Agreement, each Member hereby
represents, warrants and covenants as follows to the Company and to the other
Member:
 
11.1         Authority.     It has been duly formed and is a validly existing in
the jurisdiction of its formation, is in good standing, and with requisite power
to execute this Agreement and perform all its obligations hereunder. The persons
and entities executing this Agreement and all assignments contemplated hereby on
its behalf have the power and authority to enter into this Agreement. The
execution, delivery and performance of this Agreement by it has been duly and
validly authorized by all necessary action of it. This Agreement has been duly
executed and delivered by it and constitutes a legal, valid and binding
obligation of such Member, enforceable against it in accordance with the terms
hereof.
 
11.2         Consents.      It has obtained all consents required to enter into
and perform this Agreement required under any company agreement, shareholder
agreement, limited liability company agreement, covenant, charter, declaration
of trust, or other agreement concerning it or to which it is a party or which is
binding upon it or by any law or regulations or any judgment, order or decree of
any governmental body, agency or court having jurisdiction over it.
 
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11.3          No Conflict.     Neither the execution and delivery of this
Agreement nor the consummation of the transactions herein contemplated will
conflict with, result in a breach of or constitute (with or without the giving
of notice or the passing of time, or both) a default under, or otherwise
adversely affect any contract, agreement, instrument, license or undertaking to
which such Member or any of its Affiliates is a party or by which it or any of
them or any of their respective properties or assets is or may be bound.
 
11.4           No Broker.    Neither Investor Member nor any of its Affiliates
have dealt with any broker or finder in connection with the transactions between
the parties hereto contemplated by this Agreement, except that Waterford Member
has dealt with Hodges Ward Elliott, whom Waterford Member will pay pursuant to a
separate agreement. Each Member agrees to defend, indemnify and hold the other
harmless from and against any and all loss, liability party may incur arising by
reason of the above representation being false.
 
11.5          Foreign Partner.    It is neither a “foreign person” within the
meaning of Code Section 1445(f) nor a “foreign partner” within the meaning of
Code Section 1446(e).

Each Member hereby agrees to and shall defend, indemnify, and hold the Company
and the other Member harmless from and against any loss or damage caused by or
accruing from a breach by such indemnifying Member of any representation,
warranty or covenant made by it in this Agreement.

12.
REQUIRED SALE.

 
The provisions of this article shall be subject to the consent, distribution and
other rights of Minority Holders in all respects, with respect to any Part Owned
Property.
 
12.1        Offers.    If at any time after the third anniversary of the
acquisition of the Properties, a Member desires to offer one or more Properties
or Owner Entities (“Target”) for sale to third parties not Affiliated with such
Member (“Third Party Purchaser”) on terms specified by such Member (including
the sales price, method of payment, anticipated closing date measured from the
date of any to-be-executed contract), or that Member receives from a Third Party
Purchaser a bona fide written cash offer (i.e., not seller-financed) for the
purchase of the Target on terms that such Member desires for the Company to
accept (such specified terms or bona fide offer, the “Offer”), then the Member
desiring so to make or accept the Offer (“Initiating Member”) shall provide
written notice of the terms of such Offer (the “Sale Notice”) to the other
Member (“Non-Initiating Member”). Any Offer must be in an amount at least equal
to the amount of all indebtedness secured by the Target.
 
12.2        Response.     Non-Initiating Member shall have 15 Business Days from
the date of the delivery of Sale Notice (the “Response Period”) to provide
notice to Initiating Member of its willingness or unwillingness to make or
accept the Offer to Third Parties Purchasers; failure to deliver such notice
shall constitute an election to sell the Target on the terms of the Offer.
 
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12.2.1     Purchase Option.    If Non-Initiating Member notifies the Company
that it is unwilling to make or accept the Offer, Non-Initiating Member may at
the same time give notice to Initiating Member of its election to purchase the
Target, in which case Non-Initiating Member shall purchase the Target (subject
to the rights of any Minority Interest Holders) on the terms set forth in the
Offer. Non-Initiating Member shall have until 30 days from the date of delivery
of the Sale Notice to execute a definitive sale contract with the Company and
until 90 days after the delivery of the Sale Notice in which to close on the
purchase of the Target. Non-Initiating Member’s failure to timely exercise this
option shall be deemed an election to sell the Target on the terms of the Offer.
If Initiating Member or Non-Initiating Member defaults at the closing, the
non-defaulting party shall have the right to bring suit in the name of the
Company for damages, for specific performance, or exercise any other remedy
available at law or in equity, and such default shall be deemed a material
default under this Agreement. Upon payment at closing, the Company and
Non-Initiating Member shall execute and deliver all documents reasonably
required to transfer the Target.

12.2.2     Offer Acceptable.    If Non-Initiating Member consents to the Company
selling the Target on the terms of the Offer or fails to exercise its purchase
option with respect to the Target, then Initiating Member shall be permitted to
sell, on behalf of the Company, the Target for cash at a price not less than 95%
of the price set forth in the Offer and substantially on the other terms and
conditions set forth in the Offer for a period of up to 90 days following the
expiration of the Response Period. If Initiating Member enters into a bona fide
contract with a Third Party Purchaser to sell the Target for cash at the price
set forth in the Offer and substantially on the other terms and conditions set
forth in the Offer within such 90-day period, Initiating Member shall have an
additional period of 60 days after the date of such contract (that is, within
150 days after the end of the Response Period) in which to consummate the sale.
If Initiating Member is unable to enter into a bona fide contract to sell the
Target for cash at the price set forth in the Offer and substantially on the
other terms and conditions set forth in the Offer within such 90-day period, or,
if after having obtained such bona fide contract, Initiating Member is unable to
consummate such sale within 150 days after the end of the Response Period, then
the Offer shall be terminated, and thereafter Initiating Member must again
submit an Offer to Non-Initiating Member under the terms of this Article before
it may sell the Target pursuant to this Article.

12.2.3     Sale By the Company.    In the event of the sale of any Property to a
Third Party Purchaser in accordance with this Article, then the sale will be
treated as a sale by the applicable Owner Entity, and the Capital Proceeds
resulting therefrom shall be distributed accordingly. In the event of a purchase
of a Property by the Non-Initiating Member under this Article, then
Non-Initiating Member shall pay to Initiating Member the proceeds that
Initiating Member would have received in a liquidation, had the Property been
sold at the Offer price and the Company thereupon liquidated. At the request of
either Member and so long as the same can be accomplished at no additional cost,
expense or delay to the Company and so long as the Company is not required to
take title to any exchange property, the Members will give fair consideration
to, but will be under no obligation to implement, any structure proposed by the
requesting member for disposing of the Property in a manner that permits the
requesting Member to report its share of the sales proceeds as a tax-free
exchange under Section 1031 of the Code.
 
12.3         No Suspension of Rights Under Article 13.    Notwithstanding
anything to the contrary contained in this Agreement, a Member’s exercise of its
rights under this Article shall not affect or prevent a Member’s exercise of its
rights under Article 13 hereof, it being understood that the rights of a Member
under Article 13 are superior to those of a Member under this Article.
 
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13.
BUY-SELL DISPUTE RESOLUTION

 
13.1
Exercise.

 
13.1.1      From and after the third anniversary of the Contribution Agreement
Closing Date, in the event that:

A.     at any time there exists a Major Dispute (other than failure to agree on
an Operating Budget or a Business Plan), in which case either Member may be an
initiating party; or

B.      an Event of Bankruptcy shall occur or exist with respect to a Member or
its direct or indirect parent entity, in which case only the other Member may be
the initiating party, or if,

13.1.2     at any time, the proviso in Section 8.1.2 applies, in which case only
Waterford Member may be the initiating party,

then the Member that is permitted to be the initiating party under this Section
may exercise its right to initiate the provisions of this Article (the “Buy-Sell
Option”). The Member desiring to exercise the Buy-Sell Option (“Offeror”) shall
do so by giving notice (the “Initiating Notice”) to the other Member (“Offeree”)
setting forth a statement of intent to invoke its rights under this Article,
stating therein the aggregate dollar amount (the “Valuation Amount”) that
Offeror would be willing to pay for the assets of the Company as of the Buy-Sell
Closing Date (hereinafter defined) free and clear of all liabilities (as if
unencumbered), but subject to the rights of the Minority Interest Holders with
respect to any Part Owned Property. The only closing adjustments or prorations
to the Valuation Amount shall be the amount of monetary payment obligation
liabilities to which the Properties are subject and the pro rata adjustment to
reflect any Minority Interests. Notwithstanding anything to the contrary
contained in this Agreement, in no event will the purchase price paid for a
Membership Interest pursuant to this Article be less than zero.

After receipt of such notice, Offeree shall elect either to (1) sell its entire
Membership Interest to Offeror for an amount equal to the amount Offeree would
have been entitled to receive if the Company had sold its assets for the
Valuation Amount on the Buy-Sell Closing Date and the Company had immediately
paid all Company liabilities and distributed the resulting Capital Proceeds to
the Members in satisfaction of their interests in the Company pursuant to the
liquidating provisions of Article 10 hereof, or (2) purchase the entire
Membership Interest of Offeror for an amount equal to the amount Offeror would
have been entitled to receive if the Company had sold all of its assets for the
Valuation Amount on the Buy-Sell Closing Date and the Company had immediately
paid all Company liabilities and distributed the resulting Capital Proceeds of
the sale to the Members in satisfaction of their interests in the Company
pursuant to the liquidating provisions of Article 10 hereof. If the Buy-Sell
Option is exercised, then Offeree shall have 45 days after the giving of
Offeror’s notice in which to exercise either of its options by giving written
notice to Offeror. If Offeree does not elect to acquire Offeror’s Membership
Interest within the 45-day period, Offeree shall be deemed to have elected to
sell its interest to Offeror. Within 3 Business Days after an election has been
made under this Section (whether deemed or otherwise) the acquiring Member shall
deposit with an escrow agent selected by the selling Member and reasonably
acceptable to the acquiring Member an earnest money deposit in an amount equal
to 10% of the amount the selling Member is entitled to receive for its
Membership Interest under this Section, which deposit will be applied to the
purchase price at Closing. Only contemporaneously with the closing under this
Article, the acquiring Member may assign its right to acquire the interest of
the selling Member to another party designated by the acquiring Member so long
as the acquiring Member remains liable for such purchase.
 
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13.2         Closing.    The closing of an acquisition pursuant to this Article
shall be held at the principal place of business of the Company on a mutually
acceptable date (the “Buy-Sell Closing Date”) not later than 90 days after the
Initiating Notice. The acquiring Member may extend the Buy-Sell Closing Date for
up to sixty days after the foregoing 90-day period, provided that not later than
75 days after the Initiating Notice the acquiring Member has given notice of
such extension and unconditionally made a purchase deposit of $1,000,000 in
escrow with an escrow agent mutually acceptable to acquiring Member and selling
Member. At the Closing of the disposition and acquisition of such interests the
following shall occur:
 
13.2.1         The selling Member shall assign to the acquiring Member or its
designee the selling Member’s Membership Interest in accordance with the
instructions of the acquiring Member, and shall execute and deliver to the
acquiring Member or its designee all documents which may be reasonably required
to give effect to the disposition and acquisition of such interests, in each
case free and clear of all liens, claims, and encumbrances, with covenants of
general warranty;

13.2.2          if any assumption fees under any loan are due or owing due to
the assignment of a Member’s Membership Interest, then the Company shall pay for
such fees when due; and

13.2.3          The acquiring Member shall pay to the selling Member the
consideration therefor in cash.
 
13.3
Buy-Sell Default.

 
13.3.1     If the acquiring Member (for such purposes the “Defaulted Acquirer”)
defaults in its obligation to buy in accordance with this Article, then the
selling Member (for such purposes, the “Replacement Acquirer”) shall exercise
one of the following alternative remedies within 30 days after the Defaulted
Acquirer’s default as the Replacement Acquirer’s sole and exclusive remedy for
such default:

A.    The Replacement Acquirer shall purchase the Defaulted Acquirer’s
Membership Interest on the terms set forth above, such closing to occur not
later than 180 days after the Initiating Notice, except that the purchase price
shall be 90% of the amount that the Defaulted Acquirer would be entitled to
receive for its Membership Interest under Section 13.1; or
 
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B.    The Replacement Acquirer shall retain the earnest money deposit as full
liquidated damages for such default of the Defaulted Acquirer, the Members
hereby acknowledging and agreeing that it is impossible to more precisely
estimate the damages to be suffered by the Replacement Acquirer upon the
Defaulted Acquirer’s default and the Members acknowledge and agree that the
earnest money deposit that may be retained by the Replacement Acquirer is
intended not as a penalty, but as full liquidated damages for such default of
the Defaulted Acquirer. In the event the Defaulted Acquirer failed to make its
earnest money deposit as required in Section 13.1 and the Replacement Acquirer
has elected its remedy under this Section 13.3, then the Replacement Acquirer
shall have the right to recover an award or judgment against the Defaulted
Acquirer in the amount of such required earnest money deposit, together with its
reasonable attorneys’ fee and costs incurred in obtaining such award or
judgment.

13.3.2      If the selling Member defaults in its obligation to sell in
accordance with this Article, the acquiring Member shall exercise one of the
following alternative remedies within 30 days after the selling Member’s default
as the acquiring Member’s sole and exclusive remedy for such default:

A.     The acquiring Member shall be entitled to demand and receive a return of
its earnest money deposit previously deposited with the selling Member; or

B.      The acquiring Member shall be entitled to seek specific performance of
the selling Member’s obligations under this Article, the Members expressly
agreeing that the remedy at law for breach of the obligations of the selling
Member set forth in this Article is inadequate in view of (A) the complexities
and uncertainties in measuring the actual damage to be sustained by the
acquiring Member on account of the default of the selling Member; and (B) the
uniqueness of the Company business and the Members’ relationships.
 
13.4        Payment of Debts.     If, at the Buy-Sell Closing Date, the selling
Member has any outstanding debts to the Company or the acquiring Member relating
to the Company, all proceeds of the purchase price due the selling Member for
its Membership Interest will be paid to the Company or the acquiring Member
(pro--rata in accordance with the amounts owed by the selling Member to each)
for and on behalf of the selling Member until all the debts will have been paid
and discharged in full. The acquiring Member will be entitled to deduct from the
amounts otherwise payable to the selling Member any and all amounts owed to the
acquiring Member, including damages owed by reason of any default, to the extent
agreed by the parties or to the extent such damages have been reduced to an
arbitration award or a final nonappealable judgment, as applicable.
 
13.5        Release of Capital Contribution Obligations.     At the time of
closing on the purchase and sale of a Membership Interest pursuant to this
Article, each selling Member will be released from any further obligation to
make Capital Contributions to the Company.
 
13.6        Operations in Pre-Closing Period.     From the date the Initiating
Notice is given until the date the closing occurs under this Article or, if
earlier, the date on which the Members agree not to proceed with such closing,
the Company will continue to be operated in the ordinary course as though the
closing were not going to occur, the Members will continue to have all power and
authority granted in this Agreement (including the power to make distributions),
and the Members will exercise their power and authority in good faith and
without regard to the fact that such closing may occur (although the selling
Member shall not unreasonably withhold any consents with respect to the Property
during such period); provided, however, that, any and all distributions received
by the selling Member from the Company during such period representing
distributions of Capital Proceeds shall be credited against and reduce the price
otherwise payable to the selling Member for its Membership Interest and any
Capital Contributions made by the selling Member during such period shall be
added to and increase the price otherwise payable to the selling Member for its
Membership Interest, and the Company shall not agree to sell or otherwise
dispose of any Property; however, the Company shall be authorized to consummate
any transactions that were the subject of binding contractual obligations
entered into prior to the commencement of such period.
 
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13.7          Suspension of Rights Under Article 12.    Notwithstanding anything
to the contrary contained in this Agreement, at any time a Member has exercised
the Buy-Sell Option in accordance with this Article, then the Members’
respective rights under Article 12 shall not be exercised or pursued (unless a
binding sale contract is then in effect) unless and until the initiation of the
Buy-Sell Option is withdrawn or rescinded by Offeror or unless and until the
occurrence of a breach or default with respect to the Buy-Sell Option by the
acquiring Member.
 
 
14.
MISCELLANEOUS

 
14.1         Right of First Offer.    In the event that Waterford Member desires
to sell to any party that is not an Affiliate any property Waterford Member then
owns (other than its Membership Interest), regardless of whether Waterford
Member has then identified a purchaser, then Waterford Member shall present a
written proposal to Investor Member setting forth all material terms of a
proposed sale and shall provide Investor Member with the information required to
be provided in a Venture Package under Section 4.5 and other customary due
diligence information and access with respect to the relevant property,
including legal, financial, accounting, operational and environmental books and
records. Investor Member shall have 15 days in which to notify Waterford Member
as to whether Investor Member will accept the terms of the proposed sale. In the
event that Investor Member notifies Waterford Member within said 15-day period
that Investor Member desires to accept the proposal from Waterford Member, then
Investor Member and Waterford Member shall work towards a binding agreement
containing substantially all of the terms and conditions set forth in said
proposal.

In the event that Investor Member fails to so notify Waterford Member within
such fifteen day period, Waterford Member shall be free to make the same offer
upon substantially the same terms, or a purchase price not ten percent lower
than such terms, to a third party for a period of 90 days from the date which is
the end of said fifteen-day period. If no such binding commitment is obtained
between Waterford Member and a third party within said 90-day period, then,
before entering into any such proposed agreement, Waterford Member must again
notify and offer to Investor Member the contemplated sale under this Section
14.1.
 
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14.2       Waiver of Conflict of Interest.     The Company and the Members may,
at their option, be represented by the same counsel. The attorneys, accountants
and other experts who perform services for the Company may also perform services
for a Member. To the extent that the foregoing representation constitutes a
conflict of interest, the Company, Managing Member and each Non-Managing Member
hereby expressly waive any such conflict of interest.
 
14.3        Amendment by Members.     Except as otherwise stated in Section
4.7.1 or 14.4 the written approval of each Member shall be required to amend or
waive any provision of this Agreement.
 
14.4        Amendment by Managing Member.     Notwithstanding Section 14.3, any
provision of this Agreement may be amended or waived from time to time by
Managing Member, without the consent of any Non-Managing Member, only to the
extent that such amendment or waiver is necessary or advisable in the opinion of
Managing Member: (i) to qualify or continue the qualification of the Company as
a limited liability company in which the Members have limited liability under
the laws of any state; (ii) to ensure that the Company will be treated as a
partnership for federal income tax purposes; (iii) to ensure that all
allocations of Profits and Losses are respected for federal income tax purposes;
and (vi) to properly reflect the Members and their respective Capital Sharing
Ratios, as such Members may change due to admissions and withdrawals of Members
in accordance with this Agreement.

However, no amendment or waiver referred to above that would alter a Member’s
Capital Contribution, Capital Account or Capital Sharing Ratio (except to the
extent that such are indirectly affected by any amendments or waivers pertaining
to such admissions or withdrawals of Managing or Non-Managing Members), the
liability of a Member to third parties, or the removal of any Member shall be
permitted without the prior approval of the Member so affected.
 
14.5         Waivers.    No waiver by any Member of any default with respect to
any provision, condition or requirement hereof shall be deemed to be a waiver of
any other provision, condition or requirement hereof; nor shall any delay or
omission of any Member to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it hereafter.
 
14.6          No Assignments; Binding Effect.    This Agreement shall not be
assigned or otherwise transferred (by operation of law or otherwise) by any
Member (except as may be expressly permitted in this Agreement). This Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
heirs, executors, administrators, successors, legal representatives and assigns
permitted in accordance with this Agreement and the Act.
 
14.7          Notices.    Any notice, approval, consent or other communication
required or permitted to any Member under this Agreement shall be in writing and
shall be deemed to have been duly given or made: (i) if delivered personally by
courier or otherwise, then as of the date delivered (the “Effective Date”) or if
delivery is refused, then as of the date presented (also an “Effective Date”),
or (ii) if sent or mailed by Federal Express, Express Mail or other overnight
mail service to the Company and to each Member, then as of the first Business
Day after the date so mailed (also an “Effective Date”). Each communication
shall be addressed as follows:
 
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If to Investor Member:
Hersha Hospitality Trust
     
510 Walnut Street, 9th fl.
     
Philadelphia, PA 19106
     
Attn: Jay H. Shah
           
with a copy to:
Hunton & Williams LLP
     
1900 K Street NW
     
Washington, DC 20006
     
Attn: John M. Ratino, Esq.
           
If to Waterford Member:
c/o Waterford Group, LLC
     
914 Hartford Turnpike
     
P.O. Box 715
     
Waterford, CT 06385
     
Attn: Len Wolman
           
with a copy to:
Latham & Watkins LLP
     
885 Third Ave.
     
New York, NY 10022
     
Attn: Raymond Lin (024576-0017)
         

The parties may change their addresses for subsequent notice, by a notice sent
to each other party. The parties may also send courtesy notices by facsimile to
Investor Member at ______________, or to Waterford Member at (860) 447-8554,
although such facsimile notices shall not be considered to have been officially
given hereunder.
 
14.8          Certain Waivers.     The Members waive any and all rights they may
have to a jury trial, and any and all rights they may have to punitive, special,
exemplary, or consequential damages, in respect of any dispute based on this
Agreement.
 
14.9          Preservation of Intent.     If any provision of this Agreement is
determined by any court having jurisdiction to be illegal or in conflict with
any laws of any state or jurisdiction, then the Members agree that such
provision shall be modified to the extent legally possible so that the intent of
this Agreement may be legally carried out. If any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect or for any reason, then the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired
or affected, it being intended that all of the Members’ rights and privileges
shall be enforceable to the fullest extent permitted by law.
 
14.10         Entire Agreement.     This Agreement sets forth the entire and
only agreement or understanding between the Members relating to the subject
matter hereof and supersedes and cancels all previous agreements negotiations,
commitments and representations in respect thereof among them, and no Member
shall be bound by any conditions, definitions, warranties or representations
with respect to the subject matter of this Agreement.
 
14.11         Certain Rules of Construction.     All Article or Section titles
or other captions in this Agreement are for convenience only, and shall not be
deemed part of this Agreement and in no way define, limit, extend or describe
the scope or intent of any provisions hereof. Unless the context otherwise
requires: (i) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles; (ii) words in
the singular include the plural, and words in the plural include the singular;
(iii) provisions apply to successive events and transactions; (iv)
“herein”“hereof” and other words of similar import refer to this Agreement as a
whole and not to any particular Article, Section or other subdivision; and (v)
all references to “clauses,”“Sections” or “Articles” refer to clauses, Sections
or Articles of this Agreement.
 
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14.12          Counterparts.     This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
 
14.13          Governing Law; Venue.     This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
 
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IN WITNESS WHEREOF, the Members have caused this Agreement to be duly executed
by their respective and duly authorized representatives as of the date first
above written.
 

 
INVESTOR MEMBER:
         
HERSHA HOSPITALITY LIMITED
   
PARTNERSHIP
         
By:  ________________________________________
   
Name: ___________________________________
   
Title: ____________________________________
               
WATERFORD MEMBER:
         
MYSTIC HOTEL INVESTORS, LLC
         
By:  ________________________________________
   
Name: ___________________________________
   
Title: ____________________________________
               
[WATERFORD HOSPITALITY GROUP, LLC
         
By:  ________________________________________
   
Name: ___________________________________
   
Title: ______________________________________]
 

 

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