--------------------------------------------------------------------------------

Exhibit 10.1
 
THIRD AMENDMENT
TO
AGREEMENT OF LIMITED PARTNERSHIP
OF
HERSHA HOSPITALITY LIMITED PARTNERSHIP
 
THIS THIRD AMENDMENT TO THE AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP (this “Third Amendment”) dated as of August 5, 2005, is entered into
by HERSHA HOSPITALITY TRUST, a Maryland real estate investment trust, as general
partner (the “General Partner”) of HERSHA HOSPITALITY LIMITED PARTNERSHIP, a
limited partnership formed under the laws of the Commonwealth of Virginia (the
“Partnership”), for itself and on behalf of the limited partners of the
Partnership.

WHEREAS, the Amended and Restated Agreement of Limited Partnership of the
Partnership was executed on January 26, 1999, a First Amendment thereto was
executed on December 31, 1999, and a Second Amendment thereto was executed on
April 21, 2003 (the “Partnership Agreement”); and

WHEREAS, Section 4.02(a) of the Partnership Agreement authorizes the General
Partner to cause the Partnership to issue additional Partnership Units in one or
more classes or series, with such designations, preferences and relative,
participating, optional or other special rights, powers and duties as shall be
determined by the General Partner, without the approval of the Limited Partners;
and

WHEREAS, on August 5, 2005, the General Partner issued 2,400,000 shares of 8.00%
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest, par
value $0.01 per share (the “Series A Preferred Shares,” each a “Series A
Preferred Share”) at a gross offering price of $25.00 per Series A Preferred
Share and, in connection therewith, the General Partner, pursuant to Section
4.02(b) of the Agreement, is contributing the proceeds of such issuance to the
Partnership and causing the Partnership to issue to the General Partner Series A
Preferred Partnership Units (as hereinafter defined); and

WHEREAS, pursuant to the authority granted to the General Partner pursuant to
Sections 4.02(a) and Article XI of the Partnership Agreement and as authorized
by the resolutions of the General Partner dated July 14, 2005, the General
Partner desires to amend the Partnership Agreement (i) to reclassify the
existing Series A Preferred Partnership Units established by the Second
Amendment to the Partnership Agreement on April 23, 2003, into a reclassified
and redesignated class of Partnership Units, the Series A Preferred Partnership
Units (as hereinafter defined), and to set forth the designations, rights,
powers, preferences and duties of such Series A Preferred Partnership Units,
(ii) to issue the Series A Preferred Partnership Units to the General Partner
and (iii) to make certain other changes to the Partnership Agreement.

--------------------------------------------------------------------------------

NOW, THEREFORE, in consideration of good and valuable consideration, the receipt
and sufficiency of which hereby are acknowledged, the General Partner hereby
amends the Partnership Agreement as follows:

 
1.     The Partnership Agreement is hereby amended by the addition of a new
annex thereto, entitled Annex A, in the form attached hereto, which sets forth
the designations, allocations, preferences and other special rights, powers and
duties of the Series A Preferred Partnership Units and which shall be attached
to and made a part of the Agreement.
 
2.     Pursuant to Section 4.02(a) of the Partnership Agreement, effective as of
August 5, 2005, the issuance date of the Series A Preferred Partnership Units by
the General Partner, the Partnership hereby issues 2,400,000 Series A Preferred
Partnership Units to the General Partner. The Series A Preferred Partnership
Units have been created and are being issued in conjunction with the General
Partner’s issuance of the Series A Preferred Shares, and as such, the Series A
Preferred Partnership Units are intended to have designations, preferences and
other rights, all such that the economic interests are substantially identical
to the designations, preferences and other rights of the Series A Preferred
Shares, and the terms of this Third Amendment, including without limitation the
attached Annex A, shall be interpreted in a fashion consistent with this intent.
In return for the issuance to the General Partner of the Series A Preferred
Partnership Units, the General Partner has contributed to the Partnership the
funds raised through its issuance of the Series A Preferred Partnership Units
(the General Partner’s capital contribution shall be deemed to equal the amount
of the gross proceeds of that share issuance (i.e., the net proceeds actually
contributed, plus any underwriter’s discount or other expenses incurred, with
any such discount or expense deemed to have been incurred by the General Partner
on behalf of the Partnership)).
 
3.     In order to reflect the issuance of the Series A Preferred Partnership
Units, Exhibit A to the Partnership Agreement is hereby amended by adding to the
end of such Exhibit A the following table:
 
Key
Partner
Cash Contribution
Agreed Value of Capital Contribution
Series A Preferred Partnership Units
Percentage Interest of Series
 
Hersha Hospitality Trust
$58,110,000
$58,110,000
2,400,000
100.00%

--------------------------------------------------------------------------------

 
4.     Section 8.05(c) of the Partnership Agreement is hereby amended by
inserting the following new clause (v) and renumbering the existing clause “(v)”
as clause “(vi)”: “(v) cause any person who operates Property on behalf of a
“taxable REIT subsidiary” of the Company, as defined in Section 856(1) of the
Code, which Property is a “qualified lodging facility” within the meaning of
Section 856(d)(9)(D) of the Code that is leased to such taxable REIT subsidiary,
to fail to qualify as an “eligible independent contractor” within the meaning of
Section 856(d)(9)(A) of the Code with respect to such taxable REIT subsidiary.”
 
5.     This Third Amendment shall replace the Second Amendment in its entirety.
 
6.     The foregoing recitals are incorporated in and are part of this Third
Amendment.
 
7.     Except as specifically defined herein, all capitalized terms shall have
the definitions provided in the Partnership Agreement. This Third Amendment has
been authorized by the General Partner pursuant to Article XI of the Partnership
Agreement and does not require execution by the Limited Partners. No other
changes to the Partnership Agreement are authorized under this Third Amendment.
 
[Signature Page Follows]

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, this Third Amendment has been executed as of the date first
above written.

GENERAL PARTNER:
HERSHA HOSPITALITY TRUST, 
 
a Maryland real estate investment trust 
                   
By:
/s/ Ashish R. Parikh
 
Name:
Ashish R. Parikh
 
Title:
Chief Financial Officer

--------------------------------------------------------------------------------

 
ANNEX A
 
DESIGNATION OF THE SERIES A PREFERRED PARTNERSHIP UNITS
OF
HERSHA HOSPITALITY LIMITED PARTNERSHIP

1.    Designation and Number. A series of preferred partnership units,
designated the “Series A Preferred Partnership Units” (the “Series A Preferred
Partnership Units”), is hereby established. The number of Series A Preferred
Partnership Units hereby authorized shall be 2,400,000. The terms of this Annex
A to the Third Amendment replace in their entirety the terms of the Second
Amendment previously designating the Series A Preferred Partnership Units on
April 21, 2003.
 
2.    Rank. The Series A Preferred Partnership Units shall, with respect to
distribution rights and rights upon liquidation, dissolution or winding up of
the Partnership, rank (a) senior to all classes or series of Partnership Units
the terms of which do not specifically provide that such units rank on a parity
with or senior to the Series A Preferred Partnership Units (the “Common Units”);
(b) on a parity with all other Partnership Units issued by the Partnership the
terms of which specifically provide that such Partnership Units rank on a parity
with the Series A Preferred Partnership Units as to the payment of distributions
and the distribution of assets in the event of any liquidation, dissolution or
winding up; and (c) junior to (i) all indebtedness of the Partnership and (ii)
Partnership Units issued by the Partnership the terms of which specifically
provide that such Partnership Units rank senior to the Series A Preferred
Partnership Units as to the payment of distributions and the distribution of
assets in the event of any liquidation, dissolution or winding up.
 

 
3.
Distributions.

 
a.      Holders of the then outstanding Series A Preferred Partnership Units
shall be entitled to receive, when and as declared by the Partnership, out of
funds legally available for the payment of distributions, cumulative cash
distributions at the rate of 8.00% per year of the $25.00 liquidation preference
(equivalent to a fixed annual amount of $2.00 per share). Distributions on the
Series A Preferred Partnership Units are payable quarterly in arrears on January
15, April 15, July 15 and October 15 of each year and, if such day is not a
business day, the next succeeding business day, commencing on October 15, 2005
(each, a “Distribution Payment Date”). The quarterly period between Distribution
Payment Dates is referred to herein as a “distribution period” and the
distribution which shall accrue in respect of any full distribution period shall
be $0.50 regardless of the actual number of days in such full distribution
period. The first distribution will be for less than a full quarter and will
cover the period from August 5, 2005 to October 15, 2005. Such distribution and
any distribution payable on the Series A Preferred Partnership Units for any
partial distribution period will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Distributions will be payable to holders of
record as they appear in the stock records of the Partnership at the close of
business on the applicable record date, which shall be the first day of the
calendar month in which the applicable Distribution Payment Date falls or on
such other date designated by the Partnership as the record date for the payment
of distributions on the Series A Preferred Partnership Units that is not more
than 30 nor less than 10 days prior to such Distribution Payment Date (each, a
“Distribution Record Date”).
 

--------------------------------------------------------------------------------

b.      No distributions on Series A Preferred Partnership Units shall be
declared by the Partnership or paid or set apart for payment by the Partnership
at such time as the terms and provisions of any agreement of the Partnership,
including any agreement relating to its indebtedness, (i) prohibits such
declaration, payment or setting apart for payment of distributions or (ii)
provides that such declaration, payment or setting apart for payment of
distributions would constitute a breach thereof or a default thereunder, or if
such declaration or payment shall be restricted or prohibited by law.
 
c.      Notwithstanding the foregoing, distributions on the Series A Preferred
Partnership Units shall accrue whether or not the terms and provisions set forth
in Section 3(b) hereof at any time prohibit the current payment of
distributions, whether or not the Partnership has earnings, whether or not there
are funds legally available for the payment of such distributions and whether or
not such distributions are declared.
 
d.      Accrued but unpaid distributions on the Series A Preferred Partnership
Units will accumulate as of the Distribution Payment Date on which they first
become payable. Except as provided in Section 3(e) below, no distributions will
be declared or paid or set apart for payment, and no distribution will be made
on any Common Units or any other series of Preferred Partnership Units ranking,
as to distributions, on a parity with or junior to the Series A Preferred
Partnership Units other than a distribution that consists of the Partnership’s
Common Units or units of any other class of Partnership Units ranking junior to
the Series A Preferred Partnership Units as to distributions and upon
liquidation, for any period unless full cumulative distributions on the Series A
Preferred Partnership Units have been or contemporaneously are declared and
paid, or declared and a sum sufficient for the payment thereof is set apart for
such payment on the Series A Preferred Partnership Units for all distribution
periods ending on or prior to the date of such action with respect to our Common
Units or any other series of Partnership Units ranking, as to distributions, on
a parity with or junior to the Series A Preferred Partnership Units.
 
e.      When distributions are not paid in full (or a sum sufficient for such
full payment is not so set apart) upon the Series A Preferred Partnership Units
and the units of any other series of Partnership Units ranking on a parity as to
distributions with the Series A Partnership Units, all distributions declared
upon the Series A Preferred Partnership Units and any other series of
Partnership Units ranking on a parity as to distributions with the Series A
Preferred Partnership Units shall be declared pro rata so that the amount of
distributions declared per unit of Series A Preferred Partnership Units and such
other series of Partnership Units shall in all cases bear to each other the same
ratio that accrued distributions per unit on the Series A Preferred Partnership
Units and such other series of Preferred Partnership Units (which shall not
include any accrual in respect of unpaid distributions for prior distribution
periods if such Partnership Units do not have a cumulative distribution) bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any distribution payment or payments on Series A Preferred
Partnership Units which may be in arrears.
 

--------------------------------------------------------------------------------

f.      Except as provided in the immediately preceding paragraph, unless full
cumulative distributions on the Series A Preferred Partnership Units have been
or contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof is set apart for payment for all past distribution periods,
no distributions (other than distributions paid in Common Units or other
Partnership Units ranking junior to the Series A Preferred Partnership Units as
to distributions and upon liquidation) shall be declared or paid or set aside
for payment, nor shall any other distribution be declared or made, upon the
Common Units or any other Partnership Units ranking junior to or on a parity
with the Series A Preferred Partnership Units as to distributions or upon
liquidation, nor shall any Common Units, or any other Partnership Units ranking
junior to or on a parity with the Series A Preferred Partnership Units as to
distributions or upon liquidation be redeemed, purchased or otherwise acquired
for any consideration (or any moneys be paid to or made available for a sinking
fund for the redemption of any such units) by the Partnership (except by
conversion into or exchange for other units of the Partnership ranking junior to
the Series A Preferred Partnership Units as to distributions and upon
liquidation).
 
g.      Holders of the Series A Preferred Partnership Units shall not be
entitled to any distribution, whether payable in cash, property or units in
excess of full cumulative distributions on the Series A Preferred Partnership
Units as provided above. Any distribution payment made on Series A Preferred
Partnership Units shall first be credited against the earliest accrued but
unpaid distribution due with respect to such units which remains payable.
 

 
4.
Liquidation Preference.

 
a.      Upon any voluntary or involuntary liquidation, dissolution or winding up
of the affairs of the Partnership, the holders of Series A Preferred Partnership
Units then outstanding are entitled to be paid out of the assets of the
Partnership legally available for distribution to its partners a liquidation
preference of $25.00 per share, plus an amount equal to any accrued and unpaid
distributions to the date of payment, before any distribution of assets is made
to holders of Common Units or any other class or series of Partnership Units
that ranks junior to the Series A Preferred Partnership Units as to liquidation
rights. After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Series A Preferred Partnership Units
will have no right or claim to any of the remaining assets of the Partnership.
 
b.      In the event that, upon any such voluntary or involuntary liquidation,
dissolution or winding up, the available assets of the Partnership are
insufficient to pay the amount of the liquidating distributions on all
outstanding Series A Preferred Partnership Units and the corresponding amounts
payable on all Partnership Units of other classes or series of Partnership Units
ranking on a parity with the Series A Preferred Partnership Units in the
distribution of assets, then the holders of the Series A Preferred Partnership
Units and all other such classes or series of Partnership Units shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
 

--------------------------------------------------------------------------------

c.      Written notice of any such liquidation, dissolution or winding up of the
Partnership, stating the payment date or dates when, and the place or places
where, the amounts distributable in such circumstances shall be payable, shall
be given by first class mail, postage pre-paid, not less than 30 nor more than
60 days prior to the payment date stated therein, to each record holder of the
Series A Preferred Partnership Units at the respective addresses of such holders
as the same shall appear in the books and records of the Partnership.
 
d.     The consolidation, combination or merger of the Partnership with or into
any other corporation, partnership or entity or consolidation or merger of any
other corporation with or into the Partnership, or the sale, lease or conveyance
of all or substantially all of the Partnership’s assets, property or business or
any statutory share exchange, shall not be deemed to constitute a liquidation,
dissolution or winding up of the Partnership.
 

 
5.
Redemption.

 
a.      Right of Optional Redemption. Except as expressly provided herein, the
Series A Preferred Partnership Units are not redeemable prior to August 5, 2010.
On and after August 5, 2010, the Partnership, at its option and upon not less
than 30 nor more than 60 days’ written notice, may redeem the Series A Preferred
Partnership Units, in whole or in part, at any time or from time to time, for
cash at a redemption price of $25.00 per share, plus an amount equal to all
accrued and unpaid distributions thereon to the date fixed for redemption
(except as provided in Section 5(c) below), without interest. If less than all
of the outstanding Series A Preferred Partnership Units are to be redeemed, the
Series A Preferred Partnership Units to be redeemed shall be selected pro rata
(as nearly as may be practicable without creating fractional units) or by any
other equitable method determined by the Partnership.
 
b.      Limitations on Redemption. Unless full cumulative distributions on all
Series A Preferred Partnership Units shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for payment for all past distribution periods, no Series A Preferred
Partnership Units shall be redeemed unless all outstanding Series A Preferred
Partnership Units are simultaneously redeemed, and the Partnership shall not
purchase or otherwise acquire directly or indirectly any Series A Preferred
Partnership Units (except by exchange for Partnership Units ranking junior to
the Series A Preferred Partnership Units as to distributions and upon
liquidation); provided, however, that the foregoing shall not prevent the
purchase or acquisition of Series A Preferred Partnership Units pursuant to a
purchase or exchange offer made on the same terms to holders of all outstanding
Series A Preferred Partnership Units.
 
c.      Payment of Distributions in Connection with Redemption. Immediately
prior to any redemption of Series A Preferred Partnership Units, the Partnership
shall pay, in cash, any accumulated and unpaid distributions through the
redemption date, unless a redemption date falls after a Distribution Record Date
and prior to the corresponding Distribution Payment Date, in which case each
holder of Series A Preferred Partnership Units at the close of business on such
Distribution Record Date shall be entitled to the distribution payable on such
units on the corresponding Distribution Payment Date notwithstanding the
redemption of such units before such Distribution Payment Date. Except as
provided above, the Partnership will make no payment or allowance for unpaid
distributions, whether or not in arrears, on Series A Preferred Partnership
Units which are redeemed.
 

--------------------------------------------------------------------------------

d.      Other Redemptions. At any time that the General Partner exercises its
right to redeem all or any of the Series A Preferred Shares, the General Partner
shall cause the Partnership to concurrently redeem an equal number of Series A
Preferred Partnership Units, at a redemption price per Series A Preferred
Partnership Unit payable in cash and equal to the same price per share paid by
the General Partner to redeem the Series A Preferred Shares (i.e., a redemption
price of $25.00 per Series A Preferred Share, plus any accrued and unpaid
dividends thereon). No interest shall accrue for the benefit of the Series A
Preferred Partnership Units to be redeemed on any cash set aside by the
Partnership.
 
e.      Status of Redeemed Units. Any Series A Preferred Partnership Units that
shall at any time have been redeemed shall, after such redemption, have the
status of authorized but unissued Preferred Partnership Units, without
designation as to series until such units are thereafter designated as part of a
particular series by the Board of Partnershipees.
 
6.     Voting Rights. Except as provided by law, the General Partner, in its
capacity as the holder of the Series A Preferred Partnership Units, shall not be
entitled to vote for any purpose or otherwise participate in any action taken by
the Partnership or the Partners.
 
7.     Conversion. The Series A Preferred Partnership Units are not convertible
into or exchangeable for any other property or units of the Partnership.
 

 
8.
Allocations.

a.      Sections 5.01(a) and (b) of the Partnership Agreement are hereby deleted
and replaced by sections (a) and (b), below.
 

 
(a)
Net Profit.

Except as otherwise provided herein, Net Profit for any fiscal year or other
applicable period shall be allocated in the following order and priority: 
 
(i)      first, to the General Partner in respect of its Series A Preferred
Partnership Units to the extent that Net Loss previously allocated to such
holders pursuant to Section 5.01(b)(iii) below for all prior fiscal years or
other applicable periods exceeds Net Profit previously allocated to such
Partners pursuant to this Section 5.01(a)(i) for all prior fiscal years or other
applicable periods,
 

--------------------------------------------------------------------------------

(ii)     second, to the General Partner and the Limited Partners holding Common
Units in proportion to their respective Percentage Interests to the extent that
Net Loss previously allocated to such holders pursuant to Section 5.01(b)(ii)
below for all prior fiscal years or other applicable periods exceeds Net Profit
previously allocated to such Partners pursuant to this Section 5.01(a)(ii) for
all prior fiscal years or other applicable periods,
 
(iii)     third, to the General Partner in respect of its Series A Preferred
Partnership Units until it has been allocated Net Profit equal to the excess of
(x) the cumulative amount of distributions the General Partner has received for
all fiscal years or other applicable period or to the date of redemption, to the
extent such Series A Preferred Units are redeemed during such period, over (y)
the cumulative Net Profit allocated to the General Partner, pursuant to this
Section 5.01(a)(iii) for all prior fiscal years or other applicable periods, and
 
(iv)     thereafter, to the Partners holding Common Units in accordance with
their respective Percentage Interests.
 
(b)    Net Loss.
 
Except as otherwise provided herein, Net Loss for any fiscal year or other
applicable period shall be allocated in the following order and priority:
 
(i)       first, to the Partners holding Common Units in accordance with their
respective Percentage Interests to the extent of Net Profit previously allocated
to such Partners pursuant to Section 5.01(a)(iv) above for all prior fiscal
years or other applicable period exceeds Net Loss previously allocated to such
Partners pursuant to this Section 5.01(b)(i) for all prior fiscal years or other
applicable periods,
 
(ii)      second, to the General Partner and the Limited Partners holding Common
Units in proportion to their respective Percentage Interests until the adjusted
Capital Account (including for this purpose any amounts a Partner is obligated
to contribute to the capital of the Partnership or is deemed obligated to
contribute pursuant to Regulations Section 1.704-1(b)(2)(ii)(c)(2)) of each
Partner with respect to such Common Units is reduced to zero, and
 
(iii)      thereafter, to the General Partner in respect of its Series A
Preferred Partnership Units, until the adjusted Capital Account (modified in the
same manner as in clause (ii)) of the General Partner with respect to such
Series A Preferred Partnership Units is reduced to zero.
 
It is the intention of the parties hereunder that the aggregate Capital Account
balance of the General Partner in respect of its Series A Preferred Units at any
date shall not exceed the amount of the original Capital Contribution of such
holder plus all accrued and unpaid distributions thereon, whether or not
declared, to the extent not previously distributed.

--------------------------------------------------------------------------------

 
b.       Notwithstanding anything to the contrary contained herein, in
connection with the liquidation of the Partnership or the interest of a holder
of Series A Preferred Partnership Units, and prior to making any other
allocations of Net Profit or Net Loss, items of income and gain or deduction and
loss shall first be allocated to the General Partner in respect of its Series A
Preferred Partnership Units in such amounts as is required to cause the General
Partner's adjusted Capital Account Balance (taking into account any amounts such
Partner is obligated to contribute to the capital of the Partnership or is
deemed obligated to contribute pursuant to Regulations Section
1.704-1(b)(2)(ii)(c)(2)) to equal the amount such Partner is entitled to receive
pursuant to the provisions of Sections 4 and 5 hereof.
 
c.      For purposes of this Section 8, "Net Profit" means the excess of the
Partnership's Profit over the Partnership's Loss for any fiscal year or portion
thereof, and "Net Loss" means the excess of the Partnership's Loss over the
Partnership's Profit for any fiscal year or portion thereof.
 
 

--------------------------------------------------------------------------------