exv10w26w1






Exhibit 10.26.1




LIMITED LIABILITY COMPANY AGREEMENT




OF




PIM ASHFORD VENTURE I, LLC




(a Delaware Limited Liability Company)




as of February 6, 2008



THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR REGISTERED OR QUALIFIED UNDER THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED (1) ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER THE SECURITIES ACT, OR (2) EXCEPT IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.





 









 








Table of Contents




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 
	ARTICLE I DEFINITIONS	 	 	1	 
	 

	 	Section 1.01
	 	Definitions
	 	 	1	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE II ORGANIZATION AND PURPOSE	 	 	14	 
	 

	 	Section 2.01
	 	Formation
	 	 	14	 
	 

	 	Section 2.02
	 	Name
	 	 	14	 
	 

	 	Section 2.03
	 	Places of Business
	 	 	14	 
	 

	 	Section 2.04
	 	Registered Office and Agent
	 	 	14	 
	 

	 	Section 2.05
	 	Term
	 	 	14	 
	 

	 	Section 2.06
	 	Purpose
	 	 	14	 
	 

	 	Section 2.07
	 	Member Information
	 	 	15	 
	 

	 	Section 2.08
	 	Ownership and Waiver of Partition
	 	 	15	 
	 

	 	Section 2.09
	 	Qualifications in Other Jurisdictions
	 	 	15	 
	 

	 	Section 2.10
	 	Management of the Company
	 	 	15	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE III MEMBERS	 	 	15	 
	 

	 	Section 3.01
	 	Members
	 	 	15	 
	 

	 	Section 3.02
	 	Election and Removal of Program Representatives Members
	 	 	16	 
	 

	 	Section 3.03
	 	No Liability to the Members or the Company
	 	 	16	 
	 

	 	Section 3.04
	 	Other Business Activities of the Investor
	 	 	17	 
	 

	 	Section 3.05
	 	Other Business Activities of Ashford
	 	 	17	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IV DISTRIBUTIONS/ALLOCATIONS	 	 	17	 
	 

	 	Section 4.01
	 	Percentage Interests in Company
	 	 	17	 
	 

	 	Section 4.02
	 	Certain Definitions and Example
	 	 	18	 
	 

	 	Section 4.03
	 	Distributions
	 	 	19	 
	 

	 	Section 4.04
	 	Allocations
	 	 	21	 
	 

	 	Section 4.05
	 	Other Allocations and Profits
	 	 	23	 
	 

	 	Section 4.06
	 	Tax Allocations
	 	 	23	 
	 

	 	Section 4.07
	 	Intentionally Omitted
	 	 	24	 
	 

	 	Section 4.08
	 	Intentionally Omitted
	 	 	24	 
	 

	 	Section 4.09
	 	Withholding
	 	 	24	 
	 

	 	Section 4.10
	 	Section 83(b) Elections
	 	 	24	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE V CAPITAL CONTRIBUTIONS	 	 	25	 
	 

	 	Section 5.01
	 	Members’ Capital Contributions
	 	 	25	 






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(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 5.02
	 	Capital Calls
	 	 	25	 
	 

	 	Section 5.03
	 	Capital Call Notices
	 	 	25	 
	 

	 	Section 5.04
	 	Failure to Fund Capital Contributions
	 	 	25	 
	 

	 	Section 5.05
	 	Records to Reflect Capital Contributions
and Capital Commitments
	 	 	26	 
	 

	 	Section 5.06
	 	Further Capital Contributions
	 	 	26	 
	 

	 	Section 5.07
	 	Resignations; Withdrawals of Capital
	 	 	26	 
	 

	 	Section 5.08
	 	Restoration of Negative Capital Accounts
	 	 	26	 
	 

	 	Section 5.09
	 	Capital Contributions to Cure Loan Defaults
	 	 	27	 
	 

	 	Section 5.10
	 	Capital Contributions to Purchase Debt
	 	 	27	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VI MANAGEMENT; INDEMNIFICATION	 	 	27	 
	 

	 	Section 6.01
	 	Management by the Program Representatives
	 	 	27	 
	 

	 	Section 6.02
	 	No Assignment of Rights
	 	 	28	 
	 

	 	Section 6.03
	 	Program Representatives
	 	 	28	 
	 

	 	Section 6.04
	 	Removal of Program Representatives
	 	 	28	 
	 

	 	Section 6.05
	 	Affiliate Transactions
	 	 	28	 
	 

	 	Section 6.06
	 	Company Expenses and Reserves
	 	 	28	 
	 

	 	Section 6.07
	 	Presentation of Acquisition Opportunities
	 	 	28	 
	 

	 	Section 6.08
	 	Company Acts
	 	 	29	 
	 

	 	Section 6.09
	 	Compensation
	 	 	29	 
	 

	 	Section 6.10
	 	Sourcing Fees
	 	 	30	 
	 

	 	Section 6.11
	 	Indemnification
	 	 	30	 
	 

	 	Section 6.12
	 	Delegation
	 	 	32	 
	 

	 	Section 6.13
	 	Major Decisions
	 	 	33	 
	 

	 	Section 6.14
	 	Real Estate Owned
	 	 	34	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VII TRANSFER RIGHTS OF MEMBERS	 	 	35	 
	 

	 	Section 7.01
	 	Transfers
	 	 	35	 
	 

	 	Section 7.02
	 	Sales of Company Interests to Third Parties
	 	 	35	 
	 

	 	Section 7.03
	 	Assumption by Assignee
	 	 	37	 
	 

	 	Section 7.04
	 	Amendment of Certificate of Formation
	 	 	37	 
	 

	 	Section 7.05
	 	Resolution of Deadlock
	 	 	38	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE VIII COMPANY BOOKS AND RECORDS	 	 	39	 
	 

	 	Section 8.01
	 	Books, Records, Accounting and Reports
	 	 	39	 






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(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 8.02
	 	Tax Returns
	 	 	39	 
	 

	 	Section 8.03
	 	Reports
	 	 	40	 
	 

	 	Section 8.04
	 	Bank Accounts
	 	 	41	 
	 

	 	Section 8.05
	 	Tax Elections
	 	 	41	 
	 

	 	Section 8.06
	 	Tax Matters Member
	 	 	41	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE IX COVENANTS	 	 	41	 
	 

	 	Section 9.01
	 	Preservation of Company’s Existence and Compliance
with Laws and Regulations
	 	 	41	 
	 

	 	Section 9.02
	 	Confidentiality
	 	 	42	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE X REPRESENTATIONS AND WARRANTIES OF THE MEMBERS	 	 	43	 
	 

	 	Section 10.01
	 	Member Representations
	 	 	43	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE XI DISSOLUTION AND TERMINATION	 	 	45	 
	 

	 	Section 11.01
	 	Dissolution
	 	 	45	 
	 

	 	Section 11.02
	 	Winding Up, Liquidation and Distribution of Assets
	 	 	46	 
	 

	 	Section 11.03
	 	Certificate of Cancellation
	 	 	46	 
	 

	 	Section 11.04
	 	Return of Contribution Nonrecourse to Other Members
	 	 	46	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE XII MISCELLANEOUS	 	 	46	 
	 

	 	Section 12.01
	 	Specific Performance; Other Rights
	 	 	46	 
	 

	 	Section 12.02
	 	Notices
	 	 	46	 
	 

	 	Section 12.03
	 	Prior Agreements; Construction; Entire Agreement
	 	 	48	 
	 

	 	Section 12.04
	 	No Waiver
	 	 	48	 
	 

	 	Section 12.05
	 	Amendments
	 	 	48	 
	 

	 	Section 12.06
	 	Severability
	 	 	48	 
	 

	 	Section 12.07
	 	Counterparts
	 	 	49	 
	 

	 	Section 12.08
	 	Applicable Law; Jurisdiction
	 	 	49	 
	 

	 	Section 12.09
	 	Waiver Of Jury Trial
	 	 	49	 
	 

	 	Section 12.10
	 	Arbitration
	 	 	49	 
	 

	 	Section 12.11
	 	No Rights of Third Parties
	 	 	49	 
	 

	 	Section 12.12
	 	Further Assurances
	 	 	49	 
	 

	 	Section 12.13
	 	Survival
	 	 	49	 
	 

	 	Section 12.14
	 	Headings
	 	 	49	 
	 

	 	Section 12.15
	 	No Broker
	 	 	50	 
	 

	 	Section 12.16
	 	Services to Members
	 	 	50	 






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(continued)




	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Page
	 
	 	 	 	 	 	 	 	 
	 

	 	Section 12.17
	 	Currency
	 	 	50	 
	 

	 	Section 12.18
	 	Attorneys’ Fees
	 	 	50	 
	 

	 	Section 12.19
	 	Compliance with ERISA
	 	 	50	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE XIII REIT COMPLIANCE	 	 	51	 
	 

	 	Section 13.01
	 	REIT Compliance
	 	 	51	 
	 
	 	 	 	 	 	 	 	 
	ARTICLE XIV REOC COMPLIANCE	 	 	52	 
	 

	 	Section 14.01
	 	Application
	 	 	52	 
	 

	 	Section 14.02
	 	REOC Compliance
	 	 	52	 






-iv-









 






TABLE OF CONTENTS

(continued)




SCHEDULES



Schedule A List of Members, Percentage Interests, Capital Commitments and Investments




	 	 	 
	EXHIBITS	 	 
	 
	Exhibit A

	 	Form of Program Agreement
	Exhibit B

	 	Form of Subsidiary Agreement
	Exhibit C

	 	Investment Criteria
	Exhibit D

	 	Hypothetical Investment Calculations Example
	Exhibit E

	 	Form of Loan Servicing Agreement






-i-









 






LIMITED LIABILITY COMPANY AGREEMENT




     This LIMITED LIABILITY COMPANY AGREEMENT of PIM ASHFORD VENTURE I, LLC, a Delaware limited
liability company (the “Company”), is made and entered into to be effective for all
purposes as of February 6, 2008, by and between PRISA III Investments, LLC, a Delaware limited
liability company (“Investor”) and Ashford Hospitality Finance, LP, a Delaware limited
partnership (“Ashford”) whose signatures appear below as Members of the Company and each
Person admitted as a Member of the Company after the date hereof pursuant to the provisions of this
Agreement. All capitalized terms used in this Agreement which are not otherwise defined have the
meanings set forth in Article I.



WITNESSETH:




     WHEREAS, Ashford and Prudential Investment Management, Inc., a Delaware corporation
(“PIM”), are parties to that certain Investment Program Agreement dated as of January 22,
2008 and attached hereto as Exhibit A (the “Program Agreement”) pursuant to which
Ashford and PIM have agreed to establish an exclusive investment program (the “Program”)
whereby PIM will identify one (1) or more investors (each, a “PIM Investor”) to invest in
Master Ventures to make Qualifying Investments through such Master Ventures and Master Venture
subsidiaries;



     WHEREAS, pursuant to the Program, PIM has identified the Investor through the Program as a PIM
Investor, and PIM has committed to contribute capital to a Master Venture in accordance with the
terms of a Master Venture Agreement and the Program Agreement.



     WHEREAS, Ashford, PIM and the Investor agreed to form the Company as a limited liability
company to own, hold and invest in Investments through Subsidiaries in accordance with the terms
hereof; and



     WHEREAS, this Agreement is being entered into by the Members to govern their affairs as a
limited liability company under the Act.



     NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants
contained in this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as follows:



ARTICLE I




DEFINITIONS




     Section 1.01 Definitions. As used in this Agreement, the following terms shall have
the following meanings:



     “1933 Act” shall mean the Securities Act of 1933, as amended, or any successor federal
statute, and the rules and regulations thereunder, all as the same shall be in effect at the time.



 









 





     “1934 Act” shall mean the Securities Exchange Act of 1934, as amended, or any
successor federal statute, and the rules and regulations thereunder, all as the same shall be in
effect at the time.



     “1940 Act” shall mean the Investment Company Act of 1940, as amended, or any successor
federal statute, and the rules and regulations thereunder, all as the same shall be in effect at
the time.



     “Accepted Loan Servicing Practices” shall mean the same care, skill, prudence and
diligence which Ashford utilizes for servicing mortgage and/or mezzanine loans, which Ashford owns
for its own account, in each case, acting in accordance with applicable law, the terms of this
Agreement and the Program Agreement solely and in the best interests of each of the Company and
each Subsidiary and with a view to the maximization of Investment Yield in respect of Investments.



     “Acquisition Opportunity” shall have the meaning set forth in Section 6.07
herein.



     “Act” shall mean the Delaware Limited Liability Company Act, 6 Del. C. § 18-101 et
seq., as amended, and any successor to such statute.



     “Adjusted Capital Account Deficit” shall mean with respect to any Member, the deficit
balance, if any, in such Member’s Capital Account as of the end of the relevant Company Year, after
giving effect to the following adjustments:




     (i) Credit to such Capital Account any amounts which such Member is deemed to be
obligated to restore to the Company pursuant to the second to last sentence of Regulations
§§ 1.704-2(g)(l) and 1.704-2(i)(5).




     (ii) Debit to such Capital Account the items described in Regulations §§
1.704-l(b)(2)(ii)(d)(4), (5) and (6).



     Except as otherwise modified herein, the foregoing definition of Adjusted Capital Account
Deficit is intended to comply with the provisions of Regulation § 1.704-l(b)(2)(ii)(d) and
shall be interpreted consistently therewith.



     “Affiliate” shall mean, when used with reference to a specified Person, (i) any Person
that directly or indirectly, through one or more intermediaries, Controls or is Controlled by or is
under common Control with the specified Person; (ii) any Person who, from time to time, is a spouse
or immediate relative of a specified Person; (iii) any Person who, directly or indirectly, is the
beneficial owner of ten percent (10%) or more of any class of equity securities or other ownership
interests of the specified Person, or of which the specified Person is directly or indirectly the
owner of ten percent (10%) or more of any class of equity securities or other ownership interests.



     “Agreement” shall mean this Limited Liability Company Agreement as originally
executed and as amended, supplemented or restated from time to time.



     “Allocable Acquisition Costs” shall have the meaning set forth in Section
6.06 herein.



2









 





     “Ashford” shall have the meaning set forth in the introductory paragraph herein.



     “Ashford Election” shall have the meaning set forth in Section 7.05(a)
herein.



     “Ashford Election Period” shall have the meaning set forth in Section
7.05(a) herein.



     “Ashford Expenses” shall mean the ordinary day-to-day expenses incidental to the
administration of the Company and its Subsidiaries, including, without limitation, costs and
expenses incurred prior to Preliminary Approval in respect of an Acquisition Opportunity that is
not consummated by the Company, all costs and expenses of providing to the Company the office
space, facilities, office equipment, utility service and necessary administrative and clerical
functions (including internal costs associated with the preparation of all reports required
hereunder) and similar overhead expenses connected with the Company and Ashford’s operation
thereof; and all other ordinary operating expenses of Ashford and compensation (including benefits)
of Ashford’s employees who are engaged in the operation or management of the business of the
Company and each Subsidiary.



     “Ashford Promote” shall have the meaning set forth in Section 4.02(j)
herein.



     “Ashford’s Unreturned Capital” shall have the meaning set forth in Section 4.02(j)
herein.



     “Ashford Yield” shall have the meaning set forth in Section 4.02(c) herein.



     “Ashford Yield Percentage” shall have the meaning set forth in Section
4.02(d) herein.



     “Business Day” shall mean each day other than a Saturday, Sunday or any other day on
which banking institutions in the State of New York are authorized or obligated by law or executive
order to be closed.



     “Capital Account” shall mean, with respect to each Member, a book account maintained
in accordance with the following provisions:




     (i) To each Member’s Capital Account there shall be credited such Member’s Capital
Contributions, such Member’s distributive share of Profits and any items in the nature of
income or gain which are allocated to such Member pursuant to Section 4.04, and the
amount of any Company liabilities that are assumed by such Member or that are secured by any
Company Asset distributed to such Member.




     (ii) To each Member’s Capital Account there shall be debited the amount of cash and the
Gross Asset Value of any Company Asset distributed to such Member pursuant to any provision
of this Agreement (net of liabilities secured by such distributed property or asset that
such Member assumes or takes subject to), such Member’s distributive share of Losses and any
items in the nature of expenses and losses which are allocated to such Member pursuant to
Section 4.04, and the amount of any liabilities of such Member that are assumed by
the Company or which are secured by any property contributed to the Company by such Member
(except to the extent already reflected in the amount of such Member’s Capital
Contributions).



3









 





     The foregoing definition and other provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Code § 704(b) and the Regulations thereunder, and
shall be interpreted and applied in a manner consistent with such Regulations. Notwithstanding
anything to the contrary contained in this Agreement, the Program Representatives may modify the
manner in which Capital Accounts or any debits or credits thereto are computed in order to comply
with such Regulations, provided, that any such modifications do not have a material effect on the
amount distributable to any Member pursuant to Section 11.02 upon the liquidation of the
Company. Any questions with respect to a Member’s Capital Account shall be reasonably resolved by
the Program Representatives, applying principles consistent with this Agreement.



     Any Transferee of Company Interests shall succeed to the Capital Account relating to the
Company Interests transferred or the corresponding portion thereof.



     “Capital Call” shall have the meaning set forth in Section 5.02
herein.




     “Capital Call Notice” shall have the meaning set forth in
Section 5.03 herein.



     “Capital Commitment” of a Member shall mean the aggregate amount of Capital
Contributions committed to be made by such Member to the Company as set forth on Schedule A
hereto, upon the terms and subject to the conditions of this Agreement.



     “Capital Contribution” shall mean, with respect to a Member, the amount of cash and
the initial Gross Asset Value of any other property contributed (or deemed contributed pursuant to
Section 6.07 herein) to the capital of the Company by such Member reduced, in the case of
any property contributed or deemed contributed, by the amount of any liability assumed by the
Company relating to the property and any liability to which such property is subject.



     “Cash Value” shall have the meaning set forth in Section 7.02 herein.



     “Certificate of Formation” shall mean the Certificate of Formation of the Company
as filed with the Secretary of State of Delaware pursuant to the Act and as may be amended from
time to time.



     “Change in Control” shall have the meaning set forth in the Program Agreement.



     “Code” shall mean the Internal Revenue Code of 1986, as amended (or any
corresponding provision of succeeding law).



     “Commission” means the United States Securities and Exchange Commission and any
successor thereto.



     “Commitment Period” means the period commencing as of the date hereof and ending on
the earliest of (i) the second anniversary of the date hereof, (ii) the date following a
termination of the Program Agreement on which Ashford determines to end the Commitment Period and
(iii) the date of termination of the Company.



     “Company” shall have the meaning set forth in the introductory paragraph herein.



4









 





     “Company Assets” shall mean the assets and property, whether tangible or intangible
and whether real, personal, or mixed, at any time owned by or held, directly or indirectly, for the
benefit of the Company, and all right, title, and interest, if any, held and owned, directly or
indirectly, by the Company in other entities, including any Subsidiaries, but, excluding any and
all rights to the name “Ashford,” and all variations thereof and all associated goodwill, which is
and shall be the exclusive property of Ashford.



     “Company Expenses” shall mean the following, whenever incurred, to the extent relating
to Qualifying Investments that receive Preliminary Approval (as defined in the Program Agreement)
and are allocated to the Company by the Program Representatives (i) all reasonable third party
costs and expenses, if any, incurred in conducting due diligence investigations into, purchasing,
acquiring, negotiating, structuring, and disposing of such Investments, including reasonable third
party costs for financial, legal, accounting, consulting or other advisers retained by the Program
Representatives on behalf of the Company and other costs and fees provided in the Program
Agreement, including Program Reimbursable Expenses (as defined in the Program Agreement) (to the
extent not subject to any reimbursement of such costs and expenses by entities in which the Company
or any Subsidiary invests or other third parties); (ii) broken deal expenses to the extent Ashford
or its Affiliates or the Company are not reimbursed; (iii) the costs of any fidelity bond or
similar insurance and the costs of any litigation, D&O liability or other insurance and
indemnification or extraordinary expense or liability relating to the affairs of the Company and
its Subsidiaries, in each case to the extent approved by the Program Representatives; (iv) subject
to the terms of the Program Agreement, costs of organizing the Company and each Subsidiary; (v)
expenses of liquidating the Company and each Subsidiary; and (vi) any taxes, fees or other
governmental charges levied against the Company or any Subsidiary and all reasonable expenses
incurred in connection with any tax audit, investigation, settlement or review of the Company or
any Subsidiary in accordance with the terms hereof. Company Expenses shall not include Ashford
Expenses.



     “Company Interest” shall mean, to any Member, all of the interest of that Member in
the Company including such Member’s (i) right to a distributive share of the Profits and Losses and
distributions of Current Income and Disposition Proceeds, (ii) right to a distributive share of
Company Assets, (iii) rights, if any, to participate in the management of the Company and (iv) the
obligations of such Member to comply with all the terms and provisions of this Agreement and of the
Act.



     “Company Minimum Gain” shall mean partnership minimum gain as defined in
Regulation § 1.704-2(d).



     “Company Year” shall mean the taxable year of the Company for federal income tax
purposes.



     “Control” (including the terms “Controlling” “Controlled by” and
“under common Control with”) shall mean the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.



     “Cure Capital” shall have the meaning set forth in Section 5.09.



5









 





     “Current Income” shall mean, except as otherwise provided on Exhibit D,
proceeds from an Investment (including the release of previously reserved amounts attributable to
Current Income in respect of such Investment) and any Temporary Investment Income, other than
Disposition Proceeds, net of Company Expenses and reserves therefor which are allocated to such
proceeds in accordance with Section 6.06.



     “Current Yield Percentages” shall
have the meaning set forth in Section 4.02(k).



     “Deadlock Notice” shall have the meaning
set forth in Section 7.05(a).



     “Deadlock Notice Period” shall have the meaning set forth in Section
7.05(a).



     “Debt Purchase Capital” shall have the meaning set forth in Section
5.10.



     “Default” shall mean, with respect to an Investment, any period during which there
exists an uncured default in any payment required pursuant to the terms of such Investment,
continuing for a period of at least ninety (90) days; provided that an Investment shall not be
considered in Default if any default in payment existed (or was imminent) and was disclosed to PIM
prior to the Company acquiring the Investment.



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



     “Disposition” means (i) the sale, exchange, redemption, repayment in full, repurchase,
refinancing or other disposition by the Company of all or any portion of an Investment for cash and
shall include the receipt by the Company of a liquidating dividend or other like distribution of
cash on such Investment, including repayment of the outstanding principal balance of any
Investment, but excluding (a) any principal payments in respect of regularly scheduled amortization
received by the Company or any Subsidiary prior to the full repayment of the Investment, and (b)
any partial prepayments of a portion of the outstanding principal balance of the Investment (the
principal amounts received in connection with the foregoing clauses (a) and (b) shall be treated as
set forth in Exhibit D attached hereto), (ii) placement and funding of any indebtedness of
the Company or any Subsidiary secured by some or all of the Investments of the Company or its
Subsidiaries with respect to borrowed money, excluding short term borrowing in the ordinary course
of business of the Company or any Subsidiary; and (iii) any unrestored loss of Company or
Subsidiary property or any part thereof or interest therein by casualty, failure of title or
otherwise, including a security becoming worthless within the meaning of Section 165(g) of the
Code. For all purposes of this Agreement, whenever a portion of an Investment (but not



6









 




the entire Investment) is the subject of a Disposition (other than by repayment of a portion of the
outstanding principal balance of the Investment as described in clauses (a) and (b) above), that
portion shall be treated as having been a separate Investment from the portion of the Investment
that is retained by the Company, and prior distributions of Current Income and Capital
Contributions for the Investment shall be treated as having been divided between the sold portion
and the retained portion on a pro rata basis.




     “Disposition Proceeds” shall mean all amounts received by the Company in respect of
the Disposition of an Investment; provided that all or any portion of the amount of principal
payments received in respect of an Investment that were not included in originally calculating
Investment Yield for such Investment shall be considered Disposition Proceeds (and shall not be
taken into account as Current Income). Any payments in respect of an Investment received as
non-cash consideration pursuant to a Disposition, including promissory notes or deferred payment
obligations, shall be considered Disposition Proceeds when such non-cash consideration is received
in cash by the Company to the same extent as provided in the first sentence of this definition;
provided, however, if the Program Representatives so determine, such non-cash assets may be
distributed in-kind pursuant to Section 4.03(b) as if the fair market value of such
non-cash assets at the date of distribution was cash.



     “Duty Breach” shall mean a breach of any material obligation under this Agreement, any
other Master Venture Agreement or the Program Agreement (including, but not limited to,
Sections 4.09, 4.11, or 4.12 of the Program Agreement), which remains uncured for a
period of at least thirty (30) days after receipt of notice of such breach, provided, that if such
breach can be cured but is not reasonably capable of being cured within such thirty (30)-day
period, such longer period of time as is necessary to cure such breach but in no event in excess of
a total of seventy-five (75) days. A failure to make a capital contribution shall not be considered
a Duty Breach.



     “Entire Interest” shall have the meaning set forth in Section 7.02 herein.



     “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as
amended (or any corresponding provision of succeeding law).



     “Failing Member” shall have the meaning set forth in Section
5.04 herein.



     “First Member” shall have the meaning set forth in
Section 6.11(e) herein.



     “Funding Date” shall have the meaning
set forth in Section 5.03 herein.



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




     (i) 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 at the time of contribution, as
reasonably determined by the Program Representatives;




     (ii) The Gross Asset Values of all Company Assets shall be adjusted to equal their
respective gross fair market values, as reasonably determined by the Program



7









 






Representatives as of the following times: (a) the acquisition of an additional Company
Interest by any new or existing Member; (b) the distribution by the Company to a Member of
more than a de minimis amount of property or assets as consideration for a Company
Interest; and (c) the liquidation of the Company within the meaning of Regulation §
1.704-l(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (a) and (b)
above shall be made only if the Program Representatives reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic interests of the
Members in the Company;




     (iii) The Gross Asset Value of any Company Asset distributed to any Member shall be
the gross fair market value of such asset on the date of distribution, as reasonably
determined by the Program Representatives; and




     (iv) 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 §§ 734(b) or
743(b), but only to the extent that such adjustments are taken into account in determining
Capital Accounts pursuant to Regulation § 1.704-l(b)(2)(iv)(m).


If the Gross Asset Value of an asset has been determined or adjusted pursuant to this provision,
such Gross Asset Value shall thereafter be adjusted by the Depreciation taken into account with
respect to such asset for purposes of computing Profits and Losses. Any adjustment to the Gross
Asset Values of Company Assets shall require an adjustment to the Member’s Capital Account as
provided in the definition of Profits and Losses.




     “including” shall mean “including, without limitation,”.



     “Indemnified Person” shall have the meaning set forth in Section 6.11(a).



     “Independent Accountants” shall mean a certified public accounting firm selected by
the Program Representatives pursuant to Section 8.02.



     “Initial Capital Contribution” shall have the meaning set forth in Section
5.01.



     “Institutional Investor” shall mean an Affiliate of Investor or Ashford, as the case
may be, or:




     (a) one or more of the following:




     (i) an insurance company, bank, savings and loan association, investment
bank, trust company, commercial credit corporation, pension plan, pension fund,
pension fund advisory firm, mutual fund, real estate investment trust, governmental
entity or plan;




     (ii) an investment company, money management firm or a “qualified
institutional buyer” within the meaning of Rule 144A under the Securities Act of
1933, as amended, or an institutional “accredited investor” within the meaning of
Regulation D under the Securities Act of 1933, as amended, which regularly



8









 







engages in the business of making or owning investments of types similar to the
Qualifying Investments;




     (iii) an investment fund, limited liability company, limited partnership or
general partnership in which a Permitted Fund Manager which is investing through a
fund with committed capital of at least $250,000,000.00, acts as the general
partner, managing member, or the fund manager responsible for the day to day
management and operation of such investment vehicle; provided that at least fifty
percent (50%) of the equity interests in such investment vehicle are owned, directly
or indirectly, by one (1) or more entities that are otherwise Institutional
Investors; or




     (iv) an institution substantially similar to any of the foregoing;


that has, in the case of entities referred to in clauses (a)(i), (ii) or (iv) of this definition
or, except as otherwise provided therein, in the case of entities referred to in clause (iii) of
this definition, at least $250,000,000 in capital/statutory surplus or shareholders’ equity (except
with respect to a pension advisory firm or similar fiduciary) and at least $600,000,000 in total
assets (in name or under management), and is regularly engaged in the business of making or owning
commercial real estate loans or commercial loans (or interests therein) similar to the Qualifying
Investments; or





     (b) any entity Controlled by, or under common Control with, any of the
entities described in clause (b) above.



     “Investment” shall mean any acquisition of a Qualifying Investment by the Company or a
Subsidiary thereof during the term of this Agreement. Upon acquisition of a Qualifying Investment
by the Company and/or a Subsidiary, such Investment will be listed on Schedule A attached
hereto, which exhibit shall be updated from time to time to reflect current Investments.



     “Investment Cost” shall have the meaning set forth in Section 4.02(b)
herein.



     “Investment Criteria” has the meaning ascribed to it in Exhibit
C herein.



     “Investment Yield” shall have the meaning set forth in
Section 4.02(a) herein.



     “Investor” shall have the meaning set forth in
the introductory paragraph herein.



     “Investor REIT” means PRISA III REIT, LLC, a Delaware limited liability company, a
real estate investment trust, or REIT, that has an ownership interest in Investor.



     “Investor’s Unreturned Capital” shall have the meaning set forth in Section
4.02(h) herein.



     “Investor Yield” shall have the meaning set forth in Section 4.02(f) herein.



     “Investor Yield Percentage” shall have the meaning set forth in Section
4.02(g) herein.



9









 





     “IRS” shall mean the United States Internal Revenue Service.



     “Loan Servicing Agreement” means a loan servicing agreement substantially in the
form attached hereto as Exhibit E to be entered into between Ashford and the Company
in connection with Investments.



     “Losses” shall have the meaning set forth in the definition of
Profits.



     “Major Decision” shall have the meaning set forth in
Section 6.13 herein.



     “Major Uncured Breach” shall mean with respect to Ashford, a Change in Control or Duty
Breach.



     “Management Fee” shall have the meaning set forth in the Loan Servicing Agreement.



     “Master Venture” shall have the meaning set forth in the Program Agreement.



     “Master Venture Agreement” shall have the meaning set forth in the Program
Agreement.



     “Maximum Spread” shall have the meaning set forth in Section 4.02 herein.



     “Member” shall mean the Investor and Ashford and any Person subsequently admitted as a
member of the Company pursuant to the provisions of this Agreement for the period for which such
Person shall remain a Member. Schedule A shall be revised from time to time by the Program
Representatives to reflect the admission or permitted withdrawal of Members and/or the Transfer of
Company Interests by Members pursuant to the provisions of this Agreement.



     “Member Information” shall have the meaning set forth in Section 2.07
herein.



     “Member Minimum Gain” shall mean an amount, with respect to each Member
Nonrecourse Debt, equal to the Company Minimum Gain that would result if such Member
Nonrecourse Debt were treated as a Nonrecourse Liability, determined in accordance with
Regulation § 1.704-2(i)(3).



     “Member Loan” shall mean a loan made by any Member or any Affiliate of a Member to
another Member pursuant to Article 5.



     “Member Nonrecourse Debt” shall have the meaning as defined in Regulation §
1.704-2(b)(4).



     “Member Nonrecourse Deductions” shall have the meaning as defined in Regulation §
1.704-2(i)(2). The amount of Member Nonrecourse Deductions with respect to a Member Nonrecourse
Debt for a Company Year equals the net increase, if any, in the amount of Member Minimum Gain
during such Company Year attributable to such Member Nonrecourse Debt, reduced by any distributions
during that Company Year to the Member that bears the economic risk of loss for such Member
Nonrecourse Debt to the extent that such distributions are from the proceeds of such Member
Nonrecourse Debt and are allocable to an increase in Member



10









 




Minimum Gain attributable to such Member Nonrecourse Debt, determined according to the provisions
of Regulations §§ 1.704-2(h) and 1.704-2(i).




     “Non-Failing Member” shall have the meaning set forth in Section 5.04
herein.



     “Non-Receiving Member” shall have the meaning set forth in
Section 7.02 herein.



     “Nonrecourse Deductions” shall have the meaning set forth in Regulations Section
1.704-2(b)(l). The amount of Nonrecourse Deductions for a Company Year equals the net increase, if
any, in the amount of Company Minimum Gain during such Company Year reduced by any distributions
during such Company Year of proceeds of a Nonrecourse Liability that are allocable to an increase
in Company Minimum Gain, determined according to the provisions of Regulations Sections 1.704-2(c)
and 1.704-2(h).



     “Nonrecourse Liability” shall have the meaning as defined in Regulation §
1.704-2(b)(3).



     “Notice of Intention” shall have the meaning set forth in Section 5.04
herein.



     “Operating Partner” means PRISA III Operating LP, a Delaware limited partnership, in
which Investor REIT is a limited partner.



     “Percentage Interests” shall have the meaning provided in Section 4.01
herein.



     “Person” shall mean any individual, partnership, corporation, limited liability
company, joint venture, association, trust, unincorporated organization or other governmental or
legal entity.



     “PIM” shall mean Prudential Investment Management, Inc., a Delaware corporation.



     “PIM Investor” shall have the meaning set forth in the recitals herein.



     “Pipeline Transactions” shall have the meaning set forth in the Program Agreement.



     “Plan Assets Regulation” has the meaning given in Section 2.10.



     “Plan Violation” means a transaction, condition or event that would constitute a
nonexempt prohibited transaction under ERISA and/or Section 4975 of the Code.



     “Preliminary Approval”, with respect to an Investment, shall have the meaning set
forth in the Program Agreement.



     “Prime Rate” shall mean the rate of interest published from time to time by The Wall
Street Journal, as the “prime rate.”



     “Profits” and “Losses” shall mean for each Company Year or other period, an
amount equal to the Company’s taxable income or loss for such Company Year or period, determined in
accordance with Code § 703(a) (for this purpose, all items of income, gain, loss or deduction



11









 




required to be stated separately pursuant to Code § 703(a)(l) shall be included in taxable income
or loss), with the following adjustments:





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




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




     (iii) In the event the Gross Asset Value of any Company Asset is adjusted pursuant
to any provision of this Agreement in accordance with the definition of Gross Asset Value,
the amount of such adjustment shall be taken into account as gain or loss from the
disposition of such asset for purposes of computing Profits or Losses;




     (iv) Gain or loss resulting from any disposition of any Company Asset 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 asset differs from its Gross Asset Value;




     (v) 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 Company Year or other period, computed in accordance with the
definition of Depreciation;




     (vi) Notwithstanding any other provision herein, any items which are specially
allocated pursuant to Section 4.04(b), (c), (d) and (f) shall not be taken into
account in computing Profits or Losses and the allocation of Profits or Losses and specially
allocated items to a Member shall be treated as an allocation to such Member of the same
share of each item of income, gain, loss, deduction and Code § 705(a)(2)(B) expenditure that
has been taken into account in computing Profits and Losses; and



     Profits and Losses shall be further determined and adjusted in accordance with the
Regulations issued under § 704 of the Code.



     “Program” shall have the meaning set forth in the recitals herein.



     “Program Agreement” shall have the meaning set forth in the recitals
herein.



     “Program Reimbursable Expenses” shall have the meaning set forth in the Program
Agreement.



     “Program Representative” shall mean a Person designated as such as provided in
Section 6.03 herein.



12









 





     “Proprietary Information” shall have the meaning set forth in Section
9.02 herein.



     “Put Purchase Price” shall have the meaning set forth in
Section 7.05(c) herein.



     “Qualifying Investment” means each (i) Acquisition Opportunity that meets the
Investment Criteria set forth on Exhibit C hereto (as agreed to by the PIM Program
Representative in good faith pursuant to the Program Agreement) and (ii) other opportunity that
fails to meet the Investment Criteria but for which the Investment Criteria have been waived by the
PIM Program Representative pursuant to the Program Agreement.



     “Receiving Member” shall have the meaning set forth in Section 7.02 herein.



     “Regulations” shall mean the Income Tax Regulations of the IRS as such Regulations may
be amended from time to time (including Temporary Regulations of the IRS). A reference to any
Regulation shall be deemed to include any amendatory or successor provision thereto.



     “REO Event” shall have the meaning set forth in Section 6.14 herein.



     “REO Investment” shall have the meaning set forth in Section 6.14 herein.



     “REO Investment Percentages” shall have the meaning set forth in Section
6.14 herein.



     “REO Property” shall have the meaning set forth in Section 6.14 herein.



     “REOC” has the meaning given in Section 2.10.



     “Rescission Notice” shall have the meaning set forth in Section 5.03 herein.



     “Reserve Account” shall have the meaning set forth in Section 6.06 herein.



     “Securities Laws” shall mean collectively the 1933 Act, the 1934 Act and the 1940
Act.



     “Sourcing Fee” shall have the meaning set forth in Section 6.10 herein.



     “Subsidiary” shall mean a wholly-owned limited liability company organized by the
Company to acquire, hold and invest in Investments.



     “Subsidiary Agreement” shall mean the limited liability company agreement of a
particular Subsidiary, substantially in the form of Exhibit B to this Agreement, subject to
such changes as will not adversely affect the economic terms of such form but as may be necessary
or desirable for any one (1) or more Investors to address tax or other legal issues applicable to
any of them.



     “Tax Matters Member” shall have the meaning set forth in Code § 6231(a)(7) and
described in Section 8.06.



     “Temporary Investment Income” shall mean income of the Company or any Subsidiary from
sources other than Investments.



13









 





     “Term” shall have the meaning set forth in Section 2.05 herein



     “Unfunded Capital Commitment” shall have the meaning set forth in
Section 5.02 herein.



     “Workout Fee” shall have the meaning set forth in the Loan Serving Agreement.



ARTICLE II




ORGANIZATION AND PURPOSE




     Section 2.01 Formation. The Company was formed as a Delaware limited liability
company pursuant to the Act on February 5, 2008 by the filing of the Certificate of Formation for
the Company with the Secretary of State of the State of Delaware, and the Members hereby adopt and
ratify the Certificate of Formation and all acts taken in connection therewith. The Certificate of
Formation shall include all amendments thereto, and additional instruments and amendments thereto,
as may from time to time be necessary or appropriate to carry out this Agreement and enable the
Company to conduct its business in accordance with applicable laws.



     Section 2.02 Name. The name of the Company is “PIM Ashford Venture I, LLC.” The
Company business may be conducted under any other name or names approved by the unanimous approval
of the Program Representatives, including the name of any Member or any Affiliate thereof.



     Section 2.03 Places of Business. The Company may locate its place or places of
business at any place or places as the Program Representatives may from time to time approve by
unanimous approval. The Company’s initial principal place of business shall be at 14185 Dallas
Parkway, Suite 1100, Dallas, Texas 75254. The Company may maintain offices at such other place or
places as unanimously approved by the Program Representatives trustee.



     Section 2.04 Registered Office and Agent. The name of the Company’s registered agent
for service of process shall be The Corporation Trust Company, and the address of the Company’s
registered agent and the address of the Company’s registered office in the State of Delaware shall
be The Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801. The registered
agent and the registered office of the Company may be changed from time to time by filing the
address of the new registered office and/or the name of the new registered agent with the Secretary
of the State of the State of Delaware pursuant to the Act.



     Section 2.05 Term. The term of the Agreement (the “Term”) commenced on the
date hereof and shall continue until terminated in accordance with the provisions of this
Agreement.



     Section 2.06 Purpose. The principal purposes of the Company shall be to identify
Acquisition Opportunities and to acquire, own, administer, service, sell, dispose of or otherwise
deal with Investments and to do all the things and to take all actions necessary and desirable in
connection therewith. The business and purpose of the Company shall be limited to its principal
purposes, unless the Program Representatives otherwise determines by unanimous approval that the
Company shall have the authority to engage in any other lawful business purpose or activity
permitted under the Act. Subject to the restrictions set forth above, the Company shall possess



14









 




and may exercise all of the powers and privileges granted by the Act or which may be exercised by
any Person, together with any powers incidental thereto, so far as such powers or privileges are
desirable, necessary, suitable or convenient to the conduct, promotion or attainment of the
purposes of the Company. In furtherance of these purposes, the Company shall have all powers
desirable, necessary, suitable or convenient for the accomplishment thereof.




     Section 2.07 Member Information. The name, address, Capital Commitment and
Percentage Interest of each Member is set forth on Schedule A attached hereto. Schedule
A shall be revised from time to time by the Program Representatives to reflect the withdrawal
or admission of Members and the Transfer of Company Interests by Members pursuant to the provisions
of this Agreement and to reflect any other change in the name, address, Capital Commitment or
Percentage Interest of a Member or description of the Investments (collectively, the “Member
Information”).



     Section 2.08 Ownership and Waiver of Partition. All property and interests in
property, real or personal, owned by the Company shall be held in the name of the Company and
deemed owned by the Company as an entity, and no Member, individually, shall have any ownership of
or interest in such property or interests owned by the Company, except as a Member of the Company.
Each of the Members irrevocably waives, during the Term and during any period of its liquidation
following any dissolution, any right that it may have to seek or maintain any action for partition
with respect to any Company assets.



     Section 2.09 Qualifications in Other Jurisdictions. The Program Representatives
shall cause the Company to be qualified or registered if and to the extent required under
applicable laws of any jurisdiction in which the Company transacts business and shall be authorized
to execute, deliver and file or cause the execution, delivery and filing of any certificates and
documents necessary to effect such qualification or registration including the appointment of
agents for service of process in such jurisdictions.



     Section 2.10 Management of the Company. Notwithstanding anything to the contrary
set forth herein, to the extent the underlying Company Assets constitute an investment in real
estate that is managed or developed (within the meaning of the Plan Assets Regulation), the Members
shall conduct the activities of the Company so as not to disqualify the Operating Partner or any
holder of direct or indirect interests in Investor as a “real estate operating company”
(“REOC”) within the meaning of U.S. Department of Labor Regulations published at 29 C.F.R.
Section 2510.3-101 (the “Plan Assets Regulation”). Any provision of this Agreement that
might jeopardize the status of the Operating Partner or the holder of any direct or indirect
interests in Investor as a REOC shall be reformed, as necessary, to avoid the failure of the
Operating Partner or the holder of direct or indirect interests in Investor to qualify as a REOC,
or void and of no effect if such provision is incapable of reform.



ARTICLE III




MEMBERS




     Section 3.01 Members. Each of the parties to this Agreement and each Person
admitted as a Member of the Company pursuant to Section 2.07 of this Agreement and in
accordance with



15









 




the Act shall be Members of the Company until they cease to be Members in accordance with the
provisions of this Agreement. Each Member shall have the rights, powers, duties, obligations,
preferences and privileges set forth in this Agreement. No Member (solely in its capacity as such)
shall have any authority to bind the Company except as permitted by this Agreement.




     Section 3.02 Election and Removal of Program Representatives Members. The Members
shall elect, remove and replace the Program Representatives in accordance with the provisions of
Sections 6.03 and 6.04 herein and shall have no other voting or approval rights as
to any other matter except as provided in Sections 2.06 and 6.01 of this Agreement
or as otherwise expressly provided by this Agreement.



     Section 3.03 No Liability to the Members or the Company.




(a) Except as otherwise required by law or the provisions of this Agreement, or the Program
Agreement, none of Ashford, PIM, the Investor or any Affiliate of any of the foregoing or
any Program Representative, nor any of the Company’s current or former Affiliates, officers
or agents, if any, shall be liable to the Company, any Subsidiary or to each other for any
debts, liabilities or obligations of the Company, whether arising in contract, tort or
otherwise, or for any action taken, or omitted to be taken, in good faith and in a manner
reasonably believed to be in, or not opposed to, the best interest of the Company and, with
respect to any criminal action or proceeding, for any action taken, or omitted to be taken,
with no reasonable cause to believe that the conduct was unlawful, in each case except to
the extent of the applicable party’s adjudicated fraud, gross negligence, willful
misconduct, criminal conduct (unless there was no reasonable cause to believe the criminal
action taken or omitted was unlawful) or to the extent such action taken or omitted to be
taken constitutes a material breach of any provision of this Agreement or other contract
between such party and the Company. Except as expressly set forth herein, none of Ashford,
PIM, the Investor or any Affiliate of any of the foregoing shall have to make any
contributions or deliver any letters of credit, guaranties or other tangible property to the
Company or any Subsidiary. Nothing in this Agreement shall be construed to make Ashford or
the Investor liable for any losses or debts of the Company, except to the extent of losses
of their respective Capital Contributions to the Company pursuant to the terms of this
Agreement.




(b) No Affiliate or member of any of Ashford, PIM or the Investor shall have personal
liability for the obligations of such person hereunder or otherwise, except as provided
herein or under applicable law or in a written agreement (including this Agreement or the
Program Agreement), the parties to which include such Affiliate.




(c) Nothing in this Agreement, and, without limiting the generality of the foregoing, in
this Section 3.03, expressed or implied, is intended or shall be construed to give
to any creditor of the Company or any Subsidiary or to any creditor of Ashford, PIM or the
Investor or any creditor of any other Person whatsoever, other than Ashford, PIM and the
Company, any legal or equitable right, remedy or claim under or in respect of this Agreement
or any covenant, condition or provisions herein contained, and such provisions are and shall
be held to be for the sole and exclusive benefit of Ashford, PIM, the Investor and the
Company.



16









 






(d) In accordance with the Act, a member of a limited liability company may,
under certain circumstances, be required to return to the Company for the benefit of Company
creditors amounts previously distributed to it as a return of capital. It is the intent of
the Members that a distribution to any Member be deemed a compromise within the meaning of
Section 18-502(b) of the Act and not a return or withdrawal of capital, even if such
distribution represents, for income tax purposes or otherwise (in full or in part), a
distribution of capital, and no Member shall be obligated to pay any such amount to or for
the account of the Company or any creditor of the Company, except as provided in this
Section 3.03. However, if any court of competent jurisdiction holds that,
notwithstanding the provisions of this Agreement, any Member is obligated to make any such
payment, such obligation shall be the obligation of such Member.



     Section 3.04 Other Business Activities of the Investor. PIM and the Investor and
their Affiliates may have other business interests and may engage in other business ventures of any
nature or description whatsoever, whether presently existing or hereafter created, including, the
acquisition, development, ownership, administration, servicing, leasing, management, operation,
franchising, syndication, financing, refinancing and/or sale of real estate or real estate-related
investments and may compete, directly or indirectly, with the business of the Program. None of PIM,
the Investor or their Affiliates shall incur any liability to the Program, Ashford, PIM or any
other Investor as a result of the pursuit by such Investor or its Affiliates of such other business
interests and ventures and competitive activity, and neither the Program nor Ashford, PIM or any
Investor shall have any right to participate in such other business interests or ventures or to
receive or share in any income derived therefrom.



     Section 3.05 Other Business Activities of Ashford. Subject to the provisions of
this Agreement, any Master Venture Agreement and Program Agreement, Ashford and its Affiliates may
have other business interests and may engage in other business ventures of any nature or
description whatsoever, whether presently existing or hereafter created, including, the
development, ownership, leasing, management, operation, franchising, syndication, financing,
refinancing and/or sale of real estate any of which may compete, directly or indirectly, with the
business of the Company or any Subsidiary or any member thereof. Neither Ashford nor its Affiliates
shall incur any liability to the Company, PIM, the Investor, any Subsidiary or any of its members
or their Affiliates as a result of the pursuit by Ashford or any of its Affiliates of such other
real estate, business interests or ventures, except as provided herein or in any Venture Agreement,
and neither the Program, PIM, the Investor, any Subsidiary nor any of its members nor their
Affiliates shall have any right to participate in such other real estate holdings, business
interests or ventures or to receive or share in any income derived therefrom except as provided
herein or in any other Master Venture Agreement.



ARTICLE IV




DISTRIBUTIONS/ALLOCATIONS




     Section 4.01 Percentage Interests in Company. The percentage interest of the
respective Members in the Company shall be:



     (a) Investor: 75%



17









 





     (b) Ashford: 25%



     The percentage interest of each Member, which is subject adjustment pursuant to the terms of
Section 6.14, shall be set forth on Schedule A, and is hereinafter called such
Member’s “Percentage Interest.”



     Section 4.02 Certain Definitions and Example. The following terms shall have
the following meanings when used herein:




(a) “Investment Yield” shall mean generally the interest rate payable in respect of
a Qualifying Investment, subject to such adjustments and assumptions in respect thereof, as
are provided by Ashford in the Preliminary Package for such Qualifying Investment. Where the
Investment Yield determined by Ashford in respect of a Qualifying Investment varies from the
interest rate provided for by the terms of such Qualifying Investment, the adjustments and
assumptions relating to such variation to the extent not addressed on Exhibit D hereto,
shall be subject to the agreement of the Program Representatives who shall agree to the
Investment Yield in connection with Final Approval (as defined in the Program Agreement) of
such Qualifying Investment.




(b) “Investment Cost” means (i) the cost of acquiring or issuing an Investment plus
(ii) the remainder of (A) the Sourcing Fee and unreimbursed Company Expenses attributable to
acquisition or issuance of such Investment as provided in Section 6.06, less (B) any
origination fees, application fees or other similar upfront fees, but in no event less than
zero (0), in respect of such Investment.




(c) “Ashford Yield” means for each Investment, the percentage equal to the product
of Investment Yield for such Investment and 1.30; provided that if Ashford Yield in respect
of an Investment as so determined exceeds Investor Yield by more than the Maximum Spread (as
defined below) applicable to such Investment, Ashford Yield and Investor Yield in respect of
such Investment shall be adjusted by reducing Ashford Yield and increasing Investor Yield so
that the difference for such Investment in such yields equals the Maximum Spread applicable
to such Investment




(d) “Ashford Yield Percentage” means, with respect to each Investment, the
percentage determined by dividing (i) the product of (a) Ashford Yield in respect of such
Investment and (b) Ashford’s Percentage Interest, by (ii) the Investment Yield for such
Investment.




(e) “Maximum Spread” shall mean,




     (i) 4.50% in respect of an Investment with an Investment Yield of less than
14.0%, and




     (ii) 4.75% in respect of an Investment with an Investment Yield of 14.0% or
more, plus an additional 0.25% for each full percentage point that Investment Yield
exceeds 14.0%.



18









 





(f) “Investor Yield” means, for each Investment, the percentage equal to the quotient
determined by dividing (i) the difference between (a) the product of Investor’s Percentage Interest
and Investment Yield for such Investment, and (b) the product of (x) the difference between the
Ashford Yield and Investment Yield for such Investment, and (y) Ashford’s Percentage Interest, by
(ii) Investor’s Percentage Interest.




(g) “Investor Yield Percentage” means, with respect to each Investment, the percentage
determined by dividing (i) the product of (a) Investor Yield in respect of such Investment and (b)
Investor’s Percentage Interest, by (ii) the Investment Yield for such Investment.




(h) “Investor’s Unreturned Capital” shall mean, for Investor, its Capital
Contributions attributable to an Investment, reduced by any distributions to Investor
attributable to such Investment pursuant to Section 4.03 (iii) herein.




(i) “Ashford’s Unretnrned Capital” shall mean, for Ashford, its Capital
Contributions attributable to an Investment, reduced by any distributions to Ashford
attributable to such Investment pursuant to Section 4.03 (b)(iv) herein.




(j) “Ashford Promote” shall mean, in respect of each Investment, an amount
determined annually in respect of such Investment equal to 5% of the annual Investment Yield for
such Investment determined as provided herein, and payable only as provided in Section
4.03(c) herein.




(k) “Current Yield Percentages” means, with respect to an Investment, for
Ashford, the Ashford Yield Percentage for such Investment, and for Investor, the Investor Yield
Percentage for such Investment.




(1) Example. Attached hereto as Exhibit D is an example approved by the
Members illustrating the calculation of terms defined in this Section 4.02 and their
application under Section 4.03. In the event of any conflict between any term of this
Agreement and Exhibit D hereto, Exhibit D shall control.



     Section 4.03 Distributions.




(a) Current Income. Subject to Sections 4.03(c) and 5.04 herein, the Company
shall distribute Current Income for each Investment in each month during the term of the Company
within ten (10) days after the end of each such month to the Members:




     (i) During the existence of a Default in respect of such Investment, or if
such Investment was acquired by the Company or a Subsidiary with Debt Purchase Capital
(subject to the terms of Section 5.10), in proportion to their Percentage
Interests in respect of such Investment; provided, however, that once such Default is
cured and provided there exists no Major Uncured Breach or another Default in respect of
such Investment, then distributions pursuant to this Section 4.03(a) and, to the
extent necessary, Section 4.03(b). shall be adjusted among Investor and Ashford so
that distributions in respect of such Investment equal the amounts that would have
distributed if no Default had existed; and



19









 






     (ii) If no Default exists in respect of such Investment, in proportion to
their respective Current Yield Percentages.




(b) Disposition Proceeds. Subject to Sections 4.03(c) and 5.04. with respect
to
each Investment, the Company shall distribute Disposition Proceeds in respect of such
Investment within three (3) business days following a Disposition thereof, or as soon as
practicable thereafter, to the Members as follows:




     (i) First, to Investor to the extent of any unreturned Cure Capital
attributable to such Investment contributed by Investor pursuant to Section
5.09;




     (ii) Second, to Ashford to the extent of any unreturned Cure Capital
attributable to such Investment contributed by Ashford pursuant to Section
5.09;




     (iii) Third, to Investor to the extent of Investor’s Unreturned Capital
attributable to such Investment (excluding any Investor’s Unreturned Capital
represented by the payment of the Sourcing Fee or Company Expenses attributable to
such Investment);




     (iv) Fourth, to Ashford to the extent of Ashford’s Unreturned Capital
attributable to such Investment (excluding any Ashford’s Unreturned Capital
represented by the payment of the Sourcing Fee or Company Expenses attributable to
such Investment);




     (v) Fifth, to Investor to the extent of Investor’s accrued and unpaid
Investor Yield attributable to such Investment;




     (vi) Sixth, to Ashford to the extent of Ashford’s accrued and unpaid
Ashford Yield attributable to such Investment;




     (vii) Seventh, to Investor and Ashford in proportion to their respective
Percentage Interests until Investor’s Unreturned Capital and Ashford’s Unreturned
Capital represented by the payment of the Sourcing Fee or Company Expenses
attributable to such Investment is recovered by the parties; and




     (viii) Thereafter, any remaining balance to Investor and Ashford in proportion
to their respective Current Yield Percentages; provided that in respect of a partial
Disposition of an Investment then in Default, such remaining balance shall be
distributed in accordance with Percentage Interests until Investor shall have
received its Unreturned Capital attributable to the entire Investment plus an amount
equal to the Investor Yield thereon.



     Notwithstanding the foregoing, any Distribution Proceeds from any Investment acquired by Debt
Purchase Capital pursuant to Section 5.10 herein shall be distributed to the Members pari
passu in accordance with their Percentage Interests (as further described in Section 5.10
herein) and shall not be subject to the provisions of Section 4.03(b)(i) through
(viii) above.



20









 






(c) Promote to Ashford. Following the second (2nd) anniversary of the date of
this Agreement, if average Investor Yield on Investments is at least nine percent (9%) (determined
for this purposes by calculating Investment Yield in respect of Investments providing for variable
or floating rates of returns, at no lower than the rate applicable when acquired or issued by the
Company, assuming in respect of any Investment that is then in Default, that such Investment is
worthless and taking into account such adjustments as may be required in respect of REO Properties
pursuant to Section 6.14) in respect of Investments held by the Company, then, Ashford
shall be distributed the Ashford Promote in respect of each Investment. The Ashford Promote shall
be distributable following the annual period for which a determination in made, provided that any
Ashford Promote distributable in respect of the first two (2) years following the date of this
Agreement, shall be payable following such initial two (2) year period. Ashford Promote shall be
distributed from amounts otherwise distributable to Investor pursuant to Section 4.03(a)
and 4.03(b).



     Section 4.04 Allocations.





(a) Profits and Losses. Except as otherwise provided in this Agreement, Profits and Losses
and to the extent necessary, individual items of income, gain or loss or deduction of the Company
shall be allocated in a manner such that the Capital Account of each Member after giving effect to
the special allocations set forth in Sections 4.04(b) through 4.04(h) is, as nearly as
possible, equal (proportionately) to (i) the distributions that would be made pursuant to
Section 4.03(b) if the Company were dissolved, its affairs wound up and its assets sold for
cash equal to their Gross Asset Value, all Company liabilities were satisfied (limited with respect
to each non-recourse liability to the Gross Asset Value of the assets securing such liability) and
the net assets of the Company were distributed in accordance with Section 4.03(b) to the
Members immediately after making such allocation, minus (ii) such Member’s share of Company
Minimum Gain (defined below) and Member Minimum Gain (defined below), computed immediately prior to
the hypothetical sale of assets




(b) Minimum Gain Chargeback. Notwithstanding any other provision of this Article IV, if
there is a net decrease in Company Minimum Gain during any Company Year or other applicable period,
then, subject to the exceptions set forth in Regulations § 1.704-2(f)(2), (3), (4) and (5), each
Member shall be specially allocated items of Company income and gain for such Company Year (and, if
necessary, subsequent Company Years) in an amount equal to such Member’s share of the net decrease
in Company Minimum Gain, as determined in accordance with Regulation § 1.704-2(g). Allocations
pursuant to the previous sentence shall be made in proportion to the respective amounts required to
be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulation § 1.704-2(f). This Section 4.04(b) is intended to comply with
the minimum gain chargeback requirement in Regulation § 1.704-2(f) and shall be interpreted
consistently therewith.




(c) Member Minimum Gain Chargeback. Notwithstanding any other provision of this Article
IV, except Section 4.04(b), if there is a net decrease in Member Minimum Gain attributable to a
Member Nonrecourse Debt during any Company Year or



21









 







other applicable period, then, subject to the exceptions set forth in Regulation § 1.704-2(i)(4),
each Member who has a share of the Member Minimum Gain attributable to such Member Nonrecourse
Debt, determined in accordance with Regulation § 1.704-2(i)(5) shall be specially allocated items
of Company income and gain for such Company Year (and, if necessary, subsequent Company Years) in
an amount equal to such Member’s share of the net decrease in Member Minimum Gain attributable to
such Member Nonrecourse Debt, determined in accordance with Regulation § 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective amounts required to
be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in
accordance with Regulation § 1.704-2(i)(4). This Section 4.04(c) is intended to comply with
the minimum gain chargeback requirement in Regulation § 1.704-2(i)(4) and shall be interpreted
consistently therewith.




(d) Qualified Income Offset. Notwithstanding any provision of this Article IV,
except Sections 4.04(b) and 4.04(c), in the event any Member receives any
adjustments, allocations or distributions described in Regulations §§ 1.704-l(b)(2)(ii)(d)(4), (5)
or (6), that cause or increase an Adjusted Capital Account Deficit of such Member, items of Company
income and gain shall be specially allocated to such Member in an amount and manner sufficient to
eliminate, to the extent required by the Regulations, the Adjusted Capital Account Deficit of such
Member as quickly as possible. This Section 4.04(d) is intended to comply with the
qualified income offset provision of Regulation § 1.704- l(b)(2)(ii)(d) and shall be interpreted
consistently therewith.




(e) No Excess Deficit. To the extent that any Member has or would have, as a result of an
allocation of Loss (or item thereof), an Adjusted Capital Account Deficit, such amount of Loss (or
item thereof) shall be allocated to the other Members in accordance with Section 4.04(a).
but in a manner which will not produce an Adjusted Capital Account Deficit as to such Members. To
the extent such allocation would result in all Members having Adjusted Capital Account Deficits,
such Losses shall be allocated in accordance with Section 4.04(a). Any allocations of Loss
pursuant to this
Section 4.04(e) shall be reversed with a corresponding allocation of Profits in subsequent
years.




(f) Member Nonrecourse Deductions. Any Member Nonrecourse Deductions for any Company Year
or other applicable period shall be specially allocated to the Member who bears the economic risk
of loss with respect to the Member Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Regulation § 1.704-2(i)(l).




(g)
Code §754 Adjustments. To the extent an adjustment to the adjusted tax basis of any
Company Asset pursuant to Code §§ 734(b) or 743(b) is required, pursuant to Regulation §
1.704-l(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases
the basis of the asset) or loss (if the adjustment decreases such basis) and such gain or loss
shall be specially allocated to the Members in a manner consistent with the manner in which their
Capital Accounts are required to be adjusted pursuant to such section of the Regulations.



22









 






(h) Curative Allocations. Any mandatory allocations of items of income, gain,
loss or deduction pursuant to Sections 4.04(b) through 4.04(f) above shall be
taken into account for the purpose of equitably adjusting subsequent allocations of Profits and
Losses and items of income, gain, loss or deduction among the Members so that, to the extent
possible, the net allocations, in the aggregate, allocated to each Member pursuant to this
Article IV, and the Capital Accounts of each Member, shall as quickly as possible and to
the extent possible, be the same as if no mandatory allocations had been made.



     Section 4.05 Other Allocations and Profits.




(a) For purposes of determining the Profits, Losses or any other items allocable to any period,
Profits, Losses and any such other items shall be determined on a daily, monthly or other basis, as
determined by the Program Representatives using any permissible method under Code § 706 and the
Regulations thereunder.




(b) Except as otherwise provided in this Agreement, all items of Member income, gain, loss,
deduction, and any other allocations not otherwise provided for shall be divided among the Members
in the same proportions as they share Profits and Losses, as the case may be, for the Company Year.




(c) The Members are aware of the income tax consequences of the allocations made by this
Article IV and hereby agree to be bound by the provisions thereof in reporting their shares
of Company income and loss for income tax purposes.




(d) To the extent permitted under Regulations § 1.704-2(h)(3), the Company shall treat a
distribution of proceeds of a Nonrecourse Liability as a distribution that is not allocable to an
increase in Company Minimum Gain.



     Section 4.06 Tax Allocations.




(a) Except as otherwise provided for in this Section 4.06, for federal income tax purposes,
each item of income, gain, loss and deduction shall be allocated among the Members in the same
manner as its correlative item of “book” income, gain, loss or deduction is allocated pursuant to
Sections 4.03, 4.04 and 4.05 above.




(b) In accordance with Code §§ 704(b) and 704(c) and the Regulations thereunder, income, gain, loss
and deduction with respect to any property contributed to the Company shall, solely for federal
income tax purposes, be allocated among the Members so as to take into account any variation
between the adjusted basis of such property to the Company for federal income tax purposes and the
initial Gross Asset Value. If the Gross Asset Value of any Company asset is adjusted as described
in the definition of Gross Asset Value, subsequent allocations of income, gain, loss and deduction
with respect to such Company asset shall take into account any variation between the adjusted basis
of such Company asset for federal income tax purposes and its Gross Asset Value in the same manner
as under Code § 704(c) and the Regulations thereunder. Allocations pursuant to this Section
4.06(b) are solely for purposes of federal, state and local taxes and shall not affect, or in
any way be taken into account in



23









 







computing, any Member’s Capital Account or share of Profits, Losses, other items or
distributions pursuant to any provision of this Agreement.




(c) Profits and Losses allocable to a Company Interest assigned or reissued
during a Company Year shall be allocated to each Person who was the holder of such Company
Interest during such Company Year, in proportion to the number of days that each such holder
was recognized as the owner of such Company Interest during such Company Year or by an
interim closing of the books or in any other proportion permitted by the Code and selected
by the Program Representatives in accordance with this Agreement, without regard to the
results of the Company operations or the date, amount or recipient of any distributions
which may have been made with respect to such Company Interest.



     Section 4.07 Intentionally Omitted.



     Section 4.08 Intentionally Omitted.



     Section 4.09 Withholding. Each Member hereby authorizes the Company to withhold
from or pay on behalf of or with respect to such Member any amount of federal, state, local, or
foreign taxes that the Program Representatives reasonably determines the Company is or may be
required to withhold or pay with respect to any amount distributable or allocable to such Member
pursuant to this Agreement, including any taxes required to be withheld or paid by the Company
pursuant to Code § 1441, 1442, 1445, or 1446. Any amount paid on behalf of or with respect to a
Member shall constitute a loan by the Company to such Member, which loan shall be repaid through
withholding of subsequent distributions to such Member. Any amounts withheld pursuant to this
Section 4.09 shall be treated as a distribution to such Member. In the event that a Member
fails to pay any amounts owed to the Company pursuant to this Section 4.09 when due, the
Program Representatives may, in its sole and absolute discretion, elect to cause the Company to
make the payment on behalf of such defaulting Member, and in such event the Company shall be deemed
to have loaned such amount to such defaulting Member and shall succeed to all rights and remedies
of the Company as against such defaulting Member. Without limitation, in such event the Company
shall have the right to retain distributions that would otherwise be distributable to such
defaulting Member until such time as such loan, together with all interest thereon, has been paid
in full; and any such distributions so retained by the Company shall be treated as having been
distributed to the defaulting Member and immediately paid by the defaulting Member to Company in
repayment of such loan. Any amounts payable by a Member hereunder shall bear interest at the lesser
of (i) the Prime Rate plus five percent (5%) or (ii) the maximum lawful rate of interest on such
obligation, such interest to accrue from the date such amount is due (which shall be fifteen (15)
Business Days after written demand) until such amount is paid in full.



     Section 4.10 Section 83(b) Elections. Upon the request of Ashford, the Company and
the Members will all consent to and execute an election under Section 83(b) of the Code and provide
any required information and filings relating to such election or any new rules or regulations
promulgated by the IRS relating to “carried interests” or any other provisions of Article IV
hereof.




24











 





ARTICLE V




CAPITAL CONTRIBUTIONS




     Section 5.01 Members’ Capital Contributions, During the Term hereof, Investor and
Ashford shall make Capital Contributions up to the amounts for each as set forth on Schedule
A. The aggregate initial Capital Contribution of each Member as of the date of this Agreement
shall equal the amount set forth as such for such Member in Schedule A (an “Initial
Capital Contribution”) with any additional Capital Contributions to be funded in accordance
with the provisions of Sections 5.02 and 5.03.



     Section 5.02 Capital Calls. The Program Representatives may, from time to time and
at any time, make one or more capital calls to each of PIM, on behalf of Investor, and Ashford
(each, a “Capital Call”) from their respective unfunded remaining Capital Commitments (such
amount remaining from time to time, collectively, the “Unfunded Capital Commitments”) to
acquire Investments or otherwise as additional capital contributions to fund additional cash
investments for any reason in any Investment, Company Expenses or repayment of any outstanding
financing of the Company or any Subsidiary; provided, that all Capital Calls to PIM, on behalf of
Investor, on the one hand, and Ashford, on the other hand, shall be made in proportion to the
respective Unfunded Capital Commitments of Investor and Ashford.



     Section 5.03 Capital Call Notices. Subject to the terms of Section 5.09,
the Program Representatives shall make a Capital Call by providing written notice to each of PIM,
on behalf of Investor, and Ashford (each, a “Capital Call Notice”) in the manner set forth
in this Section 5.03. Each Capital Call Notice shall specify the total amount of the
Capital Call and the date (the “Funding Date”) that the applicable Capital Contribution
shall be funded by Investor and Ashford, which date shall be no less than three (3) Business Days
nor more than five (5) Business Days after the Capital Call Notice is provided to each of PIM, on
behalf of Investor, and Ashford. On the Funding Date, each of Investor and Ashford shall contribute
their respective amounts so called to the Company in immediately available funds by wire transfer
to an account specified by the Program Representatives. Investor and Ashford shall contribute
capital called under this Section 5.03 to acquire Investments in proportion to their
Percentage Interests and capital in all other purposes in proportion to the respective Unfunded
Capital Commitments of the Investor and Ashford.



     At any time, the Program Representatives may send a written notice to the Investor (on behalf
of each of Investor(s)) and Ashford) advising that the Program Representatives are rescinding all
or a portion of a specific Capital Call Notice (a “Rescission Notice”), which Rescission
Notice shall identify the particular Capital Call Notice being rescinded and the revised amount of
any remaining unfunded Capital Contribution obligation of each Member with respect to such Capital
Call Notice.



     Section 5.04 Failure to Fund Capital Contributions. If a Member fails to contribute
an amount equal to the entire amount required to be contributed by it within the applicable period
specified above after the Capital Call Notice (the “Failing Member”), and if the other
Member (the “Non-Failing Member”) makes its proportionate contribution within such
applicable period and so notifies the Failing Member, and the Failing Member fails fully to remedy
its failure to




25









 







contribute within five (5) days after the giving of a notice by the Non-Failing Member with respect
to a failure under this Section 5.04 (the “Notice of Intention”), then one or more
of the following may occur, at the option and election of the Non-Failing Member, which election
shall be specified in the Notice of Intention: (i) the Non-Failing Member may require the Company
to repay immediately to the Non-Failing Member the contribution it made pursuant to the applicable
Capital Call Notice, together with interest actually earned thereon by the Company until repayment,
if any; (ii) the Non-Failing Member may, but need not, make an additional contribution to the
Company not in excess of the amount the Failing Member failed to contribute pursuant to Section
5.03, in which case the Percentage Interests of the Members with respect to the Investment for
which Capital Contributions were made in respect of such Capital Call Notice shall be adjusted and
reflect the ratio of the Capital Contributions actually made by each Member to the total Capital
Contributions actually made by each Member to the total Capital Contributions in respect of such
notice, or (iii) the Non-Failing Member may elect to advance to the Company, as a loan to the
Failing Member, an amount equal to the amount the Failing Member failed to contribute pursuant to
Section 5.03, which loan shall bear interest at an annual rate (compounded semi-annually)
equal to the highest rater permitted by applicable law in no event to exceed twenty percent (20%)
(a “Member Loan”). During the Term, notwithstanding anything to the contrary, a Member Loan
shall be repaid with amounts otherwise distributable by the Company to the Failing Member being
delivered directly by the Company to the Non-Failing Member until such Member Loan and all interest
thereon is repaid (which payments will be applied first to accrued interest on the outstanding
principal balance of such loan and then outstanding principal balance of such loan) and any amounts
so applied shall be treated under this Agreement as having been distributed to the Failing Member.
Any such loan shall be recourse to the Failing Member and any outstanding balance following
dissolution of the Company shall be immediately due and payable by the Failing Member. A Member
Loan may be prepaid at any time or from time to time by a Failing Member.




     Section 5.05 Records to Reflect Capital Contributions and Capital Commitments. The
Member Information described in Section 2.07 and set forth on Schedule A attached
hereto shall be revised from time to time by the Program Representatives to reflect any change in
the Member Information.



     Section 5.06 Further Capital Contributions. Unless it agrees otherwise in writing or
in an amendment to this Agreement, no Member shall be required to make Capital Contributions other
than those it has committed to make hereunder as set forth in Sections 5.01, 5.02 and 5.03
and on Schedule A.



     Section 5.07 Resignations; Withdrawals of Capital. Except upon dissolution of the
Company or as may be expressly set forth in this Agreement, no Member shall have the right to
withdraw from the Company or demand or receive the return of its Capital Contributions or any part
of its Capital Account, and, except as expressly set forth in this Agreement, no Member shall be
entitled to receive any interest on its outstanding Capital Account balance or any distribution
(including the return of its Capital Contributions) that is not expressly provided for in this
Agreement.



     Section 5.08 Restoration of Negative Capital Accounts. No Member shall be obligated
to restore any deficit balance in its Capital Account or be personally liable for the return of the




26









 







Capital Contributions of any other Member, or any portion thereof or return thereon, it being
expressly understood that (x) any such return shall be made solely from Company Assets and amounts
set aside in the Reserve Account but subject to the distribution provisions set forth in
Section 4.03 hereof, and (y) a deficit in a Member’s Capital Account shall not constitute a
Company Asset.




     Section 5.09 Capital Contributions to Cure Loan Defaults. Either Member shall have
the right to make a capital call by delivery of written notice to the other for funds necessary to
cure a default under any financing on any Company or Subsidiary property that is other than an
Investment. Such notice shall specify the nature of the default and the amount required to cure
such default. If the Members agree within five (5) Business Days following receipt of such notice
to make the requested capital contributions, Ashford and Investor shall fund their respective
shares of the amount requested pro rata in accordance with and to the extent of their Unfunded
Capital Commitments, respectively. If a Member does not agree to make a requested capital
contribution under this Section, the other Member shall have the right to advance the full capital
contribution requested in the applicable notice. All amounts funded by a Member under this Section,
together with any interest payable thereon pursuant to the documents evidencing and securing such
financing, shall constitute “Cure Capital” of such Member and shall be repaid in accordance with
Section 4.03.



     Section 5.10 Capital Contributions to Purchase Debt. If the Members elect to
purchase indebtedness under Section 6.13(I), each Member shall make a Capital Contribution
for such purpose in an amount equal to its Percentage Interest (without regard to any adjustment
thereto pursuant to Section 5.04(ii)) of the total amount needed to effect such purchase
(“Debt Purchase Capital”), and the indebtedness so acquired shall constitute an Investment
under this Agreement; provided, however, that such Investment shall be excluded from the
calculations of Investment Yield (and related calculations) hereunder, and provided, further, that
any distributions of Current Income or Disposition Proceeds from such Investments shall be made to
the Members in accordance with their Percentage Interests, notwithstanding any provision to the
contrary contained herein. If, however, one Member does not wish to purchase indebtedness under
Section 6.13(l), the other Member (the “Purchasing Member”) shall have the right to
do so. The Members shall cooperate in all reasonable respects with respect to the structuring of
the acquisition of the applicable indebtedness by the Purchasing Member, including by causing the
Company or any applicable Subsidiary to assign its rights to purchase such indebtedness to the
Purchasing Member if that is possible. If that is not possible or if the Purchasing Member
otherwise elects, then the Purchasing Member shall have the right to fund all Debt Purchase Capital
necessary to acquire such indebtedness to the Company and to cause the Company and any applicable
Subsidiary to purchase such indebtedness on its behalf and, notwithstanding anything to the
contrary, to distribute all proceeds and amounts of any nature received with respect to such
indebtedness whenever received promptly and solely to the Purchasing Member.



ARTICLE VI




MANAGEMENT; INDEMNIFICATION




     Section 6.01 Management by the Program Representatives. Subject to the delegation
by the Program Representatives to Ashford of the right to conduct the ordinary and routine day-to-




27









 







day activities of the Company and the Subsidiaries, as more particularly provided in Section 6.12,
the business and affairs of the Company shall be managed solely and exclusively by the Program
Representatives.




     Section 6.02 No Assignment of Rights. Other than as specifically provided herein, no
party hereto shall have the right, directly or indirectly, by operation of law or otherwise, to
assign, sell or otherwise transfer all or any portion of its right, title or interest under this
Agreement, except to an entity under common Control with such party and upon prior written notice
to the other party. Any assignment, sale or other transfer prohibited hereunder shall be null and
void.



     Section 6.03 Program Representatives. Each of the Program Representatives shall be
appointed in accordance with the provisions set forth in the Program Agreement. No action shall be
taken under this Agreement without the unanimous consent of the Program Representatives.



     Section 6.04 Removal of Program Representatives. Each of the Program
Representatives may be removed in accordance with the provisions set forth in the Program
Agreement.



     Section 6.05 Affiliate Transactions. Notwithstanding anything to the contrary
contained in this Agreement, the Program Representatives must approve of any contract or
understanding between the Company and any Member or Affiliate of any Member in any capacity,
including in connection with the business and operations of the Company, and the terms of any such
arrangement shall be commercially reasonable and competitive with amounts that would be paid to
third parties on an “arms-length” basis.



     Section 6.06 Company Expenses and Reserves. Company Expenses directly related to
the acquisition or issuance of an Investment (including the Sourcing Fee for such Investment) shall
be allocated to that Investment for purposes of determining the Investment Cost of such Investment
(“Allocable Acquisition Costs”). Company Expenses not characterized as Allocable
Acquisition Costs (such as the Management Fee and Workout Fee in respect of Investments) shall be
allocated to each applicable Investment, and Company Expenses not reasonably allocable to any one
Investment shall be allocated among the Investments as reasonably determined by the Program
Representatives. Company Expenses not funded with Capital Contributions shall be paid out of
Current Income of the Company, using any proceeds attributable to Temporary Investment Income first
and thereafter from Current Income received in respect of Investments. To the extent that Current
Income is insufficient to pay any Company Expenses, the Program Representatives may call capital
pursuant to Section 5.02 or cause the Company or any Subsidiary to borrow funds to pay such
amounts. The Program Representatives may cause the Company or any Subsidiary to create a reserve
account funded with Current Income for purposes of (i) repaying any indebtedness (other than
acquisition financing (and any refinancing thereof) in respect of an Investment, unless required by
the terms of such acquisition financing (or refinancing thereof)) incurred by the Company or any
Subsidiary, regardless of whether the Current Income was derived from the Investment for which such
indebtedness was incurred, or (ii) paying other Company Expenses (a “Reserve Account”).



     Section 6.07 Presentation of Acquisition Opportunities.



28









 






(a) During the Commitment Period and pursuant to the Program Agreement, Ashford shall
identify, investigate and analyze Acquisition Opportunities (as defined in the Program
Agreement) for the Company and other Master Ventures to acquire, own, finance, encumber
dispose of or and/or otherwise deal with proposed, targeted investments meeting the
Investment Criteria set forth on Exhibit C hereto (as reasonably determined by the
Ashford Program Representative in good faith).




(b) Any third party costs incurred by Ashford in identifying or underwriting, or that are
otherwise associated with, an Acquisition Opportunity, shall remain the sole cost and
expense of Ashford and shall not be considered a Company Expense, unless the applicable
Preliminary Package is approved by the PIM Program Representative or such approval is
provided for in the Program Agreement.




(c) To the extent Ashford acquires an Investment as contemplated by Section 4.08 of the
Program Agreement, and that Investment is subsequently acquired by the Company or a
Subsidiary, Ashford shall contribute the Investment to the Company in exchange for a Capital
Contribution by Investor equal to the sum of (i) Investor’s Percentage Interest of the
Investment Cost (including the Sourcing Fee) of such Investment, plus (ii) Investor’s
Percentage Interest of the excess of (A) the reasonable costs incurred by Ashford on account
of the administration (but not the financing) of such Investment following Ashford’s
acquisition thereof and prior to Investor’s Capital Contribution under this item (c) in
connection therewith, over (B) all amounts reimbursed or paid to Ashford on account of such
costs by a borrower or other third party (such excess, “Administration Costs”). The
Capital Contributions made by Investor under this item (c) shall be distributed and paid to
Ashford on the date each such applicable Investment is transferred to the Company. Ashford’s
Percentage Interest of the Investment Cost of any such Investment so contributed and of the
Administration Costs paid in connection with such Investment shall be deemed a Capital
Contribution to the Company. Any additional amount funded by Investor and paid to Ashford in
respect of the Investment Cost of such Investment shall be paid to Ashford and treated as a
guaranteed payment by the Company pursuant to Section 707 of the Code and not otherwise
taken into account for purposes of determining Investment Yield, Investor Yield, Ashford
Yield or any other provisions of this Agreement relating to distributions or payments of
fees by the Company.



     Section 6.08 Company Acts. When the taking of Company action has been authorized
pursuant to Section 6.03, or as otherwise provided in this Agreement, any duly appointed
agent of the Company may execute any contract or other agreement or document consistent with such
authorized action, in the name and on behalf of the Company.



     Section 6.09 Compensation.




(a) The Program Representatives shall serve in their capacities without
compensation.



29









 






(b) Except as other provided herein, each of PIM, the Investor and Ashford shall bear their
own costs and expenses associated with negotiating and entering into this Agreement.




(c) The Company shall enter into a Loan Servicing Agreement with Ashford or any of its
Affiliates in respect of each Investment.




(d) All third party payments made to PIM, the Investor, Ashford or any of their Affiliates
in connection with the business of the Company or any Subsidiary (exclusive of the fees
expressly provided for herein as payable to Ashford) shall be deemed to belong to the
Company and shall be paid over by the receiving party to the Company.



     Section 6.10 Sourcing Fees.


Ashford or any of its Affiliates (as it may designate) in connection with the sourcing of an
Investment for the Company shall be entitled to receive for its own account a sourcing fee (the
“Sourcing Fee”) equal to one-quarter percent (0.25%) of Capital Contributions funded by the
Investor (excluding any Capital Contributions funded by the Investor to pay any management fees,
the Sourcing Fee, or amounts funded to reimburse Program Reimbursable Expenses) pursuant to Capital
Calls for such Investment, and shall be paid by the Company at closing of such Investment.




     Section 6.11 Indemnification. Neither (i) the Members, (ii) any Affiliate of the
Member (including Program Representatives), nor (iii) any officer, director, member, partner,
shareholder, agent, employee or representative of a Member or such Affiliate (including the Program
Representatives) (each, an “Indemnified Person”), acting on behalf of the Company in
connection with any business or activity of the Company, shall be liable, responsible or
accountable to the Company or to any Member for any loss or damage arising out of or in connection
with the management, operation or conduct of the Company affairs, except to the extent (x) caused
by reason of bad faith, willful misconduct, fraud, gross negligence, or acting outside the scope of
its authority hereunder or (y) caused as a result of a failure by Ashford to perform its
obligations under Section 4.08 of the Program Agreement, which remains uncured beyond any
applicable notice and cure period. The Company, to the fullest extent permitted by the Act and
other applicable law, shall indemnify and hold harmless each Indemnified Person, in its capacity as
such, from and against any and all claims, obligations, costs, losses, liabilities, damages,
penalties, actions, judgments, suits, proceedings, disbursements, expenses (including the
reasonable expense of defending, investigating or preparing to defend, or the cost of any appeal or
settlement of, any claim, suit, action or proceeding instituted or threatened and the costs of
enforcing its indemnification rights hereunder) or liabilities (including reasonable attorneys’
fees) of any kind or nature whatsoever suffered or sustained by such Indemnified Person by reason
of, or in any way relating to or arising out of, or alleged to relate to or arise out of or caused
or alleged to have been caused in whole or in part by, any acts performed or omitted to be
performed by such Indemnified Person on behalf of the Company or in furtherance of the interest of
the Company, except to the extent caused by reason of bad faith, willful misconduct, fraud, gross
negligence, or acting outside the scope of its authority hereunder.




30









 









(a) No claim, action or proceeding, or any appeal therefrom which is subject to the indemnification
provisions of Section 6.11 shall be settled by the Company without the consent of the
Indemnified Person affected thereby, unless the settlement of such claim, action or proceeding
requires solely the payment of money which is fully paid by the Company. Notwithstanding the
foregoing, if the Company is also a defendant in any such claim, action, proceeding or appeal, the
Company may enter into any settlement for itself without the consent of any other defendant;
provided that (i) such settlement does not adversely affect any Indemnified Person and (ii) the
Company shall remain liable for the satisfaction of its obligations to the Indemnified Persons in
accordance with its obligations under this Agreement. The Company shall not be liable for any claim
settled without the approval of the Program Representatives, which approval shall not be
unreasonably withheld or delayed.




(b) To the extent that, at law or in equity, an Indemnified Person has duties (including fiduciary
duties) and liabilities relating thereto to the Company or to the Members, such Indemnified Person
acting under this Agreement or otherwise shall not be liable to the Company or to any Member for
its good faith reliance on the provisions of this Agreement unless it constitutes bad faith,
willful misconduct, fraud, gross negligence, or acting outside the scope of its authority. The
provisions of this Agreement, to the extent that they expand or restrict the duties and liabilities
of an Indemnified Person otherwise existing at law or in equity, are agreed by the Members to
replace such other duties and liabilities of such Indemnified Person.




(c) In any action, suit or proceeding against the Company or any Indemnified Person relating to or
arising, or alleged to relate to or arise, out of or caused or alleged to have been caused in whole
or in part by any action or non-action of an Indemnified Person, the Indemnified Persons shall have
the right to jointly employ, at the expense of the Company, counsel of the Indemnified Persons’
choice, which counsel shall be reasonably satisfactory to the Company, in such action, suit or
proceeding, provided that if retention of joint counsel by the Indemnified Persons would create a
conflict of interest, each group of Indemnified Persons which would not cause such a conflict shall
have the right to employ, at the expense of the Company, separate counsel of the Indemnified
Persons’ choice, which counsel shall be reasonably satisfactory to the Company, in such action,
suit or proceeding. The satisfaction of the obligations of the Company under this Section 6.11
(c) shall be from and limited to the assets of the Company and no Member shall have any
personal liability on account thereof.




(d) The provision of advances of funds from the Company to an Indemnified Person for legal expenses
and other costs incurred as a result of any legal action or proceeding is required if requested by
any Member or Indemnified Person if (i) such suit, action or proceeding relates to or arises out
of, or is alleged to relate to or arise out of or caused or alleged to have been caused in whole or
in part by, any action or inaction on the part of the Indemnified Person in the performance of its
duties or provision of its services on behalf of the Company; and (ii) the Indemnified Person
undertakes to repay any funds advanced pursuant to this Section 6.1l(d) in cases in which
such Indemnified Person would not be entitled to indemnification under Section 6.1l(a). If
advances are required under this Section 6.11 (d). the Indemnified Person shall furnish the
Company



31









 






with an undertaking as set forth in clause (ii) of this paragraph and shall thereafter have
the right to bill the Company for, or otherwise require the Company to pay, at any time and
from time to time after such Indemnified Person shall become obligated to make payment
therefor, any and all reasonable amounts for which such Indemnified Person is entitled to
indemnification under Section 6.11 and the Company shall pay the same within thirty
(30) days after request for payment. In the event that a determination is made by a court of
competent jurisdiction or an arbitrator that the Company is not so obligated in respect of
any amount paid by it to a particular Indemnified Person, such Indemnified Person will
refund such amount within sixty (60) days of such determination, and in the event that a
determination by a court of competent jurisdiction or an arbitrator is made that the Company
is so obligated in respect to any amount not paid by the Company to a particular Indemnified
Person, the Company will pay such amount to such Indemnified Person within thirty (30) days
of such final determination, in either case together with interest at the Prime Rate plus
two percent (2%) from the date paid until repaid or the date it was obligated to be paid
until the date actually paid.




(e) Each Member (for purposes of this clause (e), the “First Member”) shall,
severally and not jointly, indemnify and hold harmless the Company and each other Member and
its respective officers, directors, members, partners, shareholders and agents from and
against any and all claims, obligations, costs, losses, damages, penalties, actions,
judgments, suits, proceedings, disbursements, expenses (including the expense of defending,
investigating or preparing to defend, or the cost of any appeal or settlement of any claim,
suit, action or proceeding instituted or threatened and the costs of enforcing its
indemnification rights hereunder) or liabilities (including reasonable attorneys’ fees) suffered or sustained by the Company or any other Member to the extent caused by
reason of bad faith, willful misconduct, fraud, gross negligence, and acting outside the
scope of its authority hereunder. In any such action, suit or proceeding against the Company
or any other Member, the Company and each such other Member shall have the right to jointly
employ, at the expense of the First Member, counsel of the First Member’s choice, which
counsel shall be reasonably satisfactory to the Company and each such other Member, in such
action, suit or proceeding, provided that if retention of joint counsel by the Company and
each such other Member would create a conflict of interest, the Company and each group of
other Members which would not cause such a conflict shall have the right to employ, at the
expense of the First Member, separate counsel of the First Member’s choice, which counsel
shall be reasonably satisfactory to the Company and each such other Member, in such action,
suit or proceeding, and provided, further that such counsel is acceptable to internal
counsel of Investor, in its reasonable discretion, if Investor is an Indemnified Person.




(f) Notwithstanding anything to the contrary in this Agreement, the Members and the Company
each waive any and all rights to allege or claim any punitive, special, speculative and/or
consequential damages.



     Section 6.12 Delegation. Subject to the terms and conditions of this Agreement, the
Program Representatives delegate to Ashford the responsibility and authority for the day-to-day
management and operation of the business and affairs of the Company in accordance with policies and
procedures established by the Program Representatives and the terms of this




32









 







Agreement. The Program Representatives shall have the right to revoke such delegation of authority
at any time in their sole discretion. Investor, acting alone, shall have the right to revoke such
authority at any time following the occurrence of a Duty Breach or a Change in Control of Ashford.
Ashford accepts and agrees to perform its duties and undertake its responsibilities set forth in
this Agreement and to exercise all commercially reasonable efforts to cause the business of the
Company to be operated and managed in accordance with the policies and procedures established by
the Program Representatives, Accepted Loan Servicing Practices, where applicable, and the terms of
this Agreement. Notwithstanding anything to the contrary, Investor shall have sole and exclusive
authority to act on behalf of the Company, its Subsidiaries and the Holders (as defined in the Loan
Servicing Agreement) with respect to the termination of the Loan Servicing Agreement following a
Servicer Default (as defined in the Loan Servicing Agreement).




     Section 6.13 Major Decisions. Notwithstanding Ashford’s right to conduct the
ordinary and routine day-to-day activities of the Company in accordance with the terms of this
Agreement, Ashford shall have no authority to undertake any of the following actions except upon
the approval of the Program Representatives (each, a “Major Decision”):




     (a) Entering into any Investment;




     (b) Selling, financing or refinancing any Investment;




     (c) Consummating any modification, restructuring or workout in connection with any
Investment;




     (d) Consenting to any requested approvals under any Investment-related documents;




     (e) Declaring a default under, or taking or waiving any enforcement actions upon the
continuance of a default under, any Investment-related documents;




     (f) Making any material change in investment strategy of the Company or any Subsidiary
from that contemplated in this Agreement;




     (g) Materially amending this Agreement or the Certificate of Formation;




     (h) Except as otherwise provided herein, making any additional Capital
Contribution to the Company;




     (i) Authorizing or effecting a merger or consolidation of the Company with or
into one or more other entities;




     (j) Filing of any petition for bankruptcy, reorganization or arrangement
pursuant to federal bankruptcy law, or any similar federal or state law, by the Company;




     (k) Guaranteeing the debt of any other Person, including any Member;



33









 






     (1) Acquiring all or any portion of or direct or indirect interest in any
indebtedness related to any property directly or indirectly securing any Investment;




     (m) Acquiring an REO Property, selling an REO Property for a gross purchase price
of less than the sum of the Investment Cost of the Investment that led to the existence of
such REO Property, all other Capital Contributions made by one (1) or more Members in
accordance with the terms of this Agreement with respect to such Investment and all accrued
unpaid interest and other amounts that were owing on such Investment at the time it became
an REO Property or failing to sell any REO Property within ninety (90) days following its
acquisition by the Company or a Subsidiary;




     (n) Taking any of the following actions as Tax Matters Member: entering into a
settlement agreement with the Internal Revenue Service which purports to bind Members other
than Ashford; filing a petition as contemplated in Section 6226(a) or 6228 of the Code;
intervening in any action as contemplated in Section 6226(b)(6) of the Code; filing any
request contemplated in Section 6227(a) of the Code; or entering into any agreement to
extend the period of limitations contemplated under Section 6229(b)(l)(B) of the Code;




     (o) Subject to Article XIII. approving or making any determination with
respect to a proposed activity or transaction of the Company or any Subsidiary that may
affect the REIT status of any Member or its direct or indirect owners. The determination of
whether a proposed activity or transaction may affect the REIT status of the Investor REIT
shall be made in the sole discretion of the PIM Program Representative. The determination of
whether a proposed activity or transaction may affect the REIT status of Ashford Hospitality
Trust, Inc. shall be made in the sole discretion of the Ashford Program Representative; and




     (p) Except as otherwise provided in Section 6.12 above, approving any item
requiring approval of the Company or any Holder under the Loan Servicing Agreement,
including, without limitation, under Section 2(c) thereof.



     Section 6.14 Real Estate Owned. In the event Company or any Subsidiary proposes to
acquire the real estate or other collateral underlying any Investment (“REO Property”)
during the existence of a default thereunder (an “REO Event”), a Subsidiary of the Company
shall acquire such REO Property in a manner consistent with Section 13.01 herein and such
other terms as the Program Representatives shall determine. If any REO Property is not sold in
accordance with the terms hereof within ninety (90) days following its acquisition by the Company
or any Subsidiary, the value of such REO Property shall be determined by a national, reputable
M.A.I. appraisal firm retained by Investor. Such appraiser shall have more than ten (10) years’
experience in appraising the value of real estate and other collateral securing investments of the
nature of the applicable REO Property to determine the value thereof. The value of any such REO
Property, as so determined, shall be deemed distributed in-kind by the Company to its Members
pursuant to Section 4.03(b) in respect of the related Investment and recontributed to the
Company by the Members as a new Investment (a “REO Investment”) with the percentage
interests of the Members in such REO Investment based on the relative amounts of each Member in the
value of the REO Property as determined by the appraiser (the “REO Investment




34









 







Percentages”) and any Current Income or Disposition Proceeds in respect of such REO
Investment distributed in accordance with such REO Investment Percentages. Any amount deemed
recontributed by a Member to the Company shall not reduce such Member’s Unfunded Capital
Commitment. The original Investment resulting in an REO Property shall be removed from the
calculations under Section 4.02 for purposes of calculating the Ashford Promote, and the
Members shall determine the ongoing economic terms applicable to each REO Investment prior to the
acquisition thereof




ARTICLE VII




TRANSFER RIGHTS OF MEMBERS




     Section 7.01 Transfers. Except as expressly provided in this Article VII.
no Member, or any assignee or successor in interest of a Member, may sell, assign, give, pledge,
hypothecate, encumber or otherwise transfer, or permit the transfer of, all or any portion of its
interest in the Company, or in any loans made by it, or in all or any part of the assets of the
Company, directly or indirectly, whether by operation of law or otherwise without the prior written
consent of the other Member, which consent shall not be unreasonably withheld; provided, however,
that with respect to any transfer by Ashford, Investor may consider the experience of an Offerer
(as hereinafter defined) in terms of its reputation of owning and operating hotel properties and
investments. Any purported sale, assignment, gift, pledge, hypothecation, encumbrance or other
transfer of all or any portion of a Member’s interest in the Company or any loans made by it not
otherwise expressly permitted by this Article VII shall be null and void and of no force or
effect whatsoever. A sale, assignment, gift, pledge, hypothecation, encumbrance or other transfer
by Investor of all or a portion of its Entire Interest (as defined below) in the Company to an
Affiliate or to a pension fund advisory client of PIM from time to time, or in connection with any
corporate merger, acquisition or other combination or the sale or transfer of all or substantially
all of its assets shall be a transfer permitted under this Article VII, and Investor shall
not be required to obtain the consent of, nor offer all or any portion of its Entire Interest to be
sold, assigned, given, pledged, hypothecated, encumbered or transferred, to Ashford. No transfers
of any interest in PIM shall be restricted in any way. Further, if necessary or desirable for or to
Investor for purposes described in Article XIII, Ashford will cooperate in all reasonable
respects with respect to the structuring of the acquisition of any Investment, including, without
limitation, by structuring the acquisition of such Investment in a manner that would allow Investor
to invest through one (1) or more taxable REIT subsidiaries, so long as such structuring does not
adversely affect the economic terms intended to be provided Ashford under this Agreement.



     Section 7.02 Sales of Company Interests to Third Parties. If, at any time, either
of the Members shall receive from an Institutional Investor (the “Offeror”) a bona fide
offer (the “Offer”), in writing, signed by the Offeror setting forth all the material terms
of the Offer for such Member’s entire equity interest in the Company (which shall include any and
all interests in the Company held by persons that acquired their interests from such Member) and
all unpaid Member Loans made by such Member (collectively, such Member’s “Entire
Interest”), including a statement of the cash value, as reasonably determined by such Member,
of any non-cash consideration to be delivered for all or any portion of the Entire Interest (the
“Cash Value”), then the Member who shall have received such Offer (the “Receiving
Member”) shall, if it wishes to accept the Offer, forward a true and complete copy thereof to
the other Member (the




35









 







“Non-Receiving Member”), together with reasonable information as to the identity of the
Offeror (e.g., its partners or directors, officers and controlling shareholders) and the terms of
the Offer.





(a) In such event, the Non-Receiving Member may, within thirty (30) days after receiving a
copy of the Offer from the Receiving Member, either:




     (1) notify the Receiving Member of the Non-Receiving Member’s intent to
purchase the Receiving Member’s Entire Interest upon the same terms and
conditions contained in the Offer, except as to date, hour and place of
closing and as otherwise provided below in this item (1). If the Offer
proposes an acquisition of the Receiving Member’s Entire Interest for
consideration that is in whole or in part other than cash, the Non-Receiving
Member shall be entitled to purchase the Receiving Member’s Entire Interest
for cash in an amount equal to the sum of any cash to have been paid pursuant
to the Offer plus the Cash Value, if any (the “Third Party Sale
Amount”). Notice of election to purchase the Receiving Member’s Entire
Interest shall be addressed to the Receiving Member and shall provide for the
consummation of the transaction on the date set forth in the notice of
election, which date shall be not more than thirty (30) days after receipt by
the Receiving Member of the Non- Receiving Member’s notice. Such notice shall
also set forth the hour and place of closing, which shall be in the offices
of the seller’s counsel set forth herein, during usual business hours and
such notice shall be accompanied by a deposit in an amount equal to five
percent (5%) of the Third Party Sale Amount which amount shall be
non-refundable except in the event of any default by the Receiving Member. If
the Non-Receiving Member elects to purchase the Receiving Member’s Entire
Interest in accordance with this Section 7.02(a)(1), then the
Receiving Member shall be obligated to sell and transfer its Entire Interest
to the Non-Receiving Member in accordance with the terms and conditions of
the Offer and notice of election provided for in Section 7.02(a)(l);
or




     (2) notify the Receiving Member that the Non-Receiving Member objects
for reasonable reasons to the Offeror becoming a Member in the Company. If
the Non-Receiving Member shall not have given notice of such objection within
such thirty (30) day period, it shall thereafter have no option to dissolve
the Company as provided in Section 7.02(b).




(b) If the Non-Receiving Member does not exercise its right to purchase as described above
and has objected on reasonable grounds within the required thirty (30) day period to the
Offeror becoming a Member in the Company, then the Receiving Member shall have the right and
option (to be exercised by notice to the Non-Receiving Member to such effect within thirty
(30) days after the Receiving Member shall have received such notice of objection from the
Non-Receiving Member in the manner provided in Section 7.02(a)(2)) either to (i)
retain its Entire Interest and not proceed with a sale of it to the Offeror or (ii) subject
to the terms of this Section 7.02, sell its Entire Interest to the Offeror upon the
terms submitted in the Offer, and upon the Offerer’s



36









 






complying with the provisions of Sections 7.03 and 7.04, the assignee shall become a
Member in place of the Receiving Member. Any assignment of the Receiving Member’s Entire
Interest to the Offeror pursuant to Section 7.02(b)(ii) shall give the Non-Receiving
Member the option (to be exercised within sixty 60 days after receipt by the Non-Receiving
Member of notice that such assignment has been completed) to dissolve the Company pursuant
to Article XI. The Receiving Member shall deliver notice to the Non-Receiving Member
of the completion of an assignment of its Entire Interest pursuant to Section
7.02(b)(iii) within five (5) days of such completion.




(c) If the Non-Receiving Member neither exercises its rights under Section
7.02(a)(1) nor objects to the sale of the Receiving Member’s Entire Interest to the
Offeror pursuant to Section 7.02(a)(2), then, upon the assignment of the Receiving
Member’s Entire Interest to the Offeror, the Offeror shall be admitted as a Member of the
Company in place of the Receiving Member, which shall have sold its Entire Interest. As a
condition precedent to the foregoing, the Offeror shall execute and deliver an instrument,
in substance and form reasonably satisfactory to the Non-Receiving Member, assuming and
agreeing to perform the terms and conditions of this Agreement as provided in Section
7.03, and such other documents as the Non-Receiving Member may reasonably require in
order to effectuate the foregoing.




(d) Whether or not any transaction contemplated by the foregoing provisions of this
Section 7.02 is consummated pursuant to the provisions of the Offer, all the
provisions of this Section 7.02 shall apply to any subsequent offer or offers to
purchase a Member’s Entire Interest.



     Section 7.03 Assumption by Assignee. Any assignment of an Entire Interest in the
Company permitted under this Article VII shall be in writing, and shall be an assignment
and transfer of all of the assignor’s rights and obligations hereunder, and the assignee shall
expressly agree in writing to be bound by all of the terms of this Agreement and assume and agree
to perform all of the assignor’s agreements and obligations existing or arising at the time of and
subsequent to such assignment. Upon any such permitted assignment of the assignor’s Entire
Interest, and after such assumption, the assignor shall be relieved of its agreements and
obligations hereunder arising after such assignment and the assignee shall become a Member in place
of the assignor. An executed counterpart of each such assignment of a Entire Interest in the
Company and assumption of a Member’s obligations shall be delivered to each Member and to the
Company. The assignee shall pay all expenses incurred by the Company in admitting the assignee as a
Member. Except as otherwise expressly provided herein, no permitted assignment shall terminate the
Company.



     As a condition to any assignment of an Entire Interest, the selling Member shall obtain such
consents as may be required from third parties, if any, or waivers thereof. The other Member shall
use reasonable efforts to cooperate with the selling Member in obtaining such consents or waivers.



     Section 7.04 Amendment of Certificate of Formation. If an assignment of an Entire
Interest in the Company shall take place pursuant to the provisions of this Article VII
then unless the Company is dissolved by such assignment, the continuing Members promptly thereafter
shall




37









 







cause to be filed, to the extent necessary, an amendment to the Company’s Certificate of Formation
with all applicable state authorities, together with any necessary amendments to the fictitious or
assumed name(s) of the Company in order to reflect such change or take such similar action as may
be required.




     Section 7.05 Resolution of Deadlock.




(a) If the Members are unable to agree upon any Major Decision with respect to an Investment
for more than fifteen (15) days (such fifteen day period, the “Deadlock Notice
Period”) following delivery of written notice from one to the other of the existence of
a deadlock (each, a “Deadlock Notice”) then Ashford shall have the right to purchase
the Investor’s indirect interest in the Subsidiary holding such Investment in accordance
with the terms of this Section 7.05. Ashford shall notify the Investor in writing of
its election within ten (10) days following the expiration of the Deadlock Notice Period
(the “Ashford Election Period”), and such written notice shall be accompanied by a
non-refundable deposit in the amount of five percent (5 %) of the Put Purchase Price payable
by Ashford as determined pursuant to Section 7.05(c). Ashford shall thereafter close
on the acquisition of the Investor’s indirect interest in such Subsidiary on such date as is
specified in the Ashford Election, which shall not be more than seventy-five (75) days nor
earlier than twenty (20) days following the expiration of the Deadlock Notice Period, all in
accordance with the terms of Section 7.02 as if Ashford were the acquiring Member.
Any failure by Ashford to deliver the Ashford Election within the Ashford Election Period
shall constitute an election not to acquire the Investor’s indirect interest in such
Subsidiary.




(b) If Ashford elects not or is deemed to have elected not to acquire Investor’s indirect
interest in such Subsidiary, then:




     (i) the Investor shall have the right to purchase the Ashford’s indirect
interest in the Subsidiary holding such Investment provided it notifies Ashford in
writing of its election within ten (10) days following the Ashford Election Period
(the “Investor Election”) and such written notice shall be accompanied by a
non-refundable deposit in the amount of five percent (5%) of the Put Purchase Price
payable by Investor as determined pursuant to Section 7.05(c). Investor
shall thereafter close on the acquisition of Ashford’s indirect interest in such
Subsidiary on such date as is specified in the Investor Notice, which shall not be
more than seventy-five (75) days nor earlier than twenty (20) days following the
expiration of the Deadlock Notice Period, all in accordance with the terms of
Section 7.02 as if Investor were the acquiring Member; or




     (ii) If Investor has not elected to purchase Ashford’s indirect interest
in such Subsidiary, then Investor shall have the right to make all decisions with
respect to the Investment that was the subject of the Deadlock Notice without any of
them constituting a Major Decision or otherwise in any way requiring Ashford’s
approval, and the Investor shall have the right to cause the applicable Subsidiary
to retain a special loan servicer pursuant to a loan servicing agreement



38









 






to assist in the handling of such Investment, including any and all enforcement
activities in connection therewith.




(c) Put Purchase Price. The Put Purchase Price payable by Ashford pursuant
to Section 7.05(a) shall be equal to the sum of the Investor Unreturned Capital plus
the accrued and unpaid Investor Yield attributable to such Investment and the Put Purchase
Price payable by Investor pursuant to Section 7.05(b) shall be equal to the sum of
the Ashford Unreturned Capital plus the accrued and unpaid Ashford Yield attributable to
such Investment.



ARTICLE VIII




COMPANY BOOKS AND RECORDS




     Section 8.01 Books, Records, Accounting and Reports.




(a) Ashford, acting as a Member and on behalf of the Company, shall maintain, or cause to be
maintained, in a manner customary and consistent with good accounting principles, practices
and procedures, a comprehensive system of office records, books and accounts (which records,
books and accounts shall be and remain the property of the Company) in which shall be
entered fully and accurately each and every financial transaction with respect to the
ownership and operation of the property of the Company. Such books and records of account
shall be prepared and maintained at the principal place of business of the Company. Such
books and records shall be maintained, and income, gain, losses and deductions shall be
determined and accounted for, on the accrual basis in accordance with generally accepted
accounting principals consistently applied (with sufficient supplementary records to permit
the computation of cash flow on a cash basis). Each Member or its duly authorized
representative, upon reasonable prior notice, shall have the right to inspect, examine and
copy such books and records of account at the Company’s office during reasonable business
hours and to receive other material information about the Company and its operations. A
reasonable charge for copying books and records may be charged by the Company. Each Member,
upon reasonable prior notice, shall have the right to audit such records and books of
account by an accountant of its choice at its expense. Ashford, acting as a Member and on
behalf of the Company, shall reasonably cooperate with any Member or its agents in
connection with any review or audit of the Company or its records and books. Ashford, acting
as a Member and on behalf of the Company, shall retain all records and books relating to the
Company for a period of at least six (6) years after the dissolution of the Company and
shall thereafter destroy such records and books only after giving at least thirty (30) days’
advance written notice to the Members.




(b) The Company and its Subsidiaries shall report their operations for tax purposes on the
accrual method. The Company Year may be changed from time to time by the Program
Representatives in accordance with the Code.



     Section 8.02 Tax Returns. Independent accountants for the Company selected by the
Program Representatives (the “Independent Accountants”) shall either prepare or review and




39









 







sign, as requested by the Program Representatives, all federal, state and/or local income tax
returns of the Company, including required Schedule K-1s for the Members. Ashford, acting as a
Member and on behalf of the Company, shall use its commercially reasonable efforts to cause the tax
and information returns that the Company may be required to file, to be filed on a timely basis
with the appropriate governmental authorities; provided that the Program Representatives shall have
provided their approval of all such tax and information returns on a timely basis. The Company
shall provide to each Member a copy of each tax return filed by the Company within thirty (30) days
of the applicable due date or as soon thereafter as reasonably possible.




     Section 8.03 Reports.




(a) Ashford, acting as a Member and on behalf of the Company, or an officer
designated by Ashford, shall cause the preparation of the financial reports and other
information provided for herein it such manner as it determines appropriate, provided,
however, that all such reports shall be prepared in form and substance as required for
public reporting if and to the extent (x) that it determines appropriate or (y) requested by
any Member. In any event:




     (i) Ashford, acting as a Member and on behalf of the Company, or an officer
designated by Ashford, shall cause to be prepared and furnished to the Program
Representatives in draft form within seventy-five (75) calendar days after the close of each
Company Year a balance sheet of the Company dated as of the end of the Company Year, a
related statement of income and expense, a statement of cash flow and a statement of changes
in Members’ capital for the Company for the Company Year and information for the Company
Year as to the balance in each Member’s Capital Account, unpaid balance under all
obligations of the Company and all other information reasonably required by each Member, all
of which shall be certified by the Chief Financial Officer of Ashford, to the best of his or
her knowledge, as being true and correct and all of which shall promptly thereafter be
finalized by Ashford upon its receipt of comments from, or the approval of, the Program
Representatives. If requested by a Member, Ashford shall cause all or any portion of the
materials to be delivered under this Section to be reviewed and/or audited at such Member’s
sole cost and expense.




     (ii) Ashford, acting as a Member and on behalf of the Company, or an officer
designated by Ashford, shall prepare and furnish to each of the Members, within forty-five
(45) days after the end of each calendar quarter (including the fourth calendar quarter), a
balance sheet of the Company dated as of the end of such calendar quarter, a related
statement of income and expense and a statement of cash flow, each of which shall be
unaudited, and a consolidated operations report with respect to such calendar quarter in
such form as the Program Representatives shall reasonably determine;




     (iii) Ashford, acting as a Member and on behalf of the Company, or an officer
designated by Ashford, within ninety (90) days after the end of each Company Year, shall use
all commercially reasonable efforts to cause the Independent Accountants to prepare and
deliver to each Member a report setting forth in sufficient detail all such information and
data with respect to business transactions effected by or involving the Company during the
applicable Company Year as shall enable the Company and each



40









 







Member timely to prepare its federal, state and local income tax returns in accordance with
all applicable laws, rules and regulations. Ashford or an officer designated by Ashford,
also shall use all commercially reasonable efforts to cause the Independent Accountant to
prepare federal, state and local tax returns required of the Company, submit those returns
to the Members for their joint approval no later than twenty (20) calendar days prior to
the date required for the filing thereof (including any extensions granted) and shall file
the tax returns after they have been jointly approved by the Members. In the event the
Members shall not desire or be able to approve any such tax return prior to the date
required for the filing thereof (including any extensions granted), Ashford, acting as a
Member and on behalf of the Company, or an officer designated by Ashford, shall timely
obtain an extension of such date to the extent permitted by the Code.




     (b) All other decisions as to accounting principles shall be made by the
Program Representatives, subject to the provisions of this Agreement.



     Section 8.04 Bank Accounts. All funds of the Company shall be deposited in its name
in an account or accounts maintained with a bank or other financial institution selected by the
Program Representatives. Funds of the Company shall not be commingled with funds of any other
Person. Checks and wire transfers shall be drawn upon the Company’s account or accounts only for
the purposes of the Company and shall be signed by duly authorized representatives of the Company.



     Section 8.05 Tax Elections. Any and all federal, state or local tax elections for
the Company shall be made by the Program Representatives in their reasonable discretion. In making
such elections, Program Representatives shall take into account tax matters with respect to the
Company that would adversely affect a Member and shall use its good faith efforts to consult with
such Member and to make elections that have the least adverse effect on that Member, provided that
such election(s) do not have a material adverse effect on the Company or any other Member.



     Section 8.06 Tax Matters Member. Ashford shall be the “Tax Matters Member” of the
Company within the meaning of Code § 6231(a)(7) and in any similar capacity under applicable state
or local law and shall have all of the power and responsibilities of such position as provided in
the Code. Any reasonable expenses incurred by Ashford, on behalf of the Members, while acting in
such capacity shall be paid or reimbursed by the Company.



ARTICLE IX




COVENANTS




     Section 9.01 Preservation of Company’s Existence and Compliance with Laws and
Regulations. The Members shall use all commercially reasonable efforts to cause to be done all
things necessary to preserve, renew and keep in full force and effect and good standing the
Company’s existence, rights, licenses, permits and franchise, and shall use all commercially
reasonable efforts to cause the Company to comply in all material respects with all applicable laws
and regulations.




41









 








     Section 9.02 Confidentiality.




(a) General. It is expected that the Members and the Company will disclose to each other
during the Term certain information which is confidential or proprietary and which may include
technology, products, trade secrets, processes, programs, technical know-how, customers,
distributors, costs, pricing, business operations and other business information (“Proprietary
Information”). All Proprietary Information owned solely by one party or by the Company and
disclosed to any other party shall remain solely the property of the disclosing party or the
Company, and its confidentiality shall be maintained and protected by the party to whom the
information was disclosed with the same degree of care used to protect its own Proprietary
Information of a similar nature; provided, however, that Pipeline Transactions and Acquisition
Opportunities designated to the Company by the Program Committee and designated to be an Investment
shall be deemed the property of the Company or the applicable Subsidiary and client lists,
financial and analytical models, processes and procedures utilized or developed by Ashford in
connection with the business of the Company or the applicable Subsidiary shall be deemed the
property of Ashford, but only to the extent they are different than the client lists, models,
processes and procedures currently used by Affiliates of the Investor. No Proprietary Information
owned solely by one party or by the Company shall be used by the other party except in furtherance
of the terms and provisions of this Agreement. Except to the extent permitted under this Agreement
or as required by law or court order, the parties shall in all circumstances exercise reasonable
care not to allow to be published or disclosed the other party’s or the Company’s Proprietary
Information to any third party or to any of its own employees not having a need to know. Each party
shall advise its employees to whom the other party’s or the Company’s Proprietary Information is
disclosed of these obligations of confidentiality.




(b) The parties agree that the following information shall not constitute Proprietary
Information under this Agreement:




     (i) information available from public sources at any time before or after
it is disclosed to a party hereto by the other party hereto;




     (ii) information obtained from a third party who obtained such
information, directly or indirectly, from a party other than a party to this
Agreement; and




     (iii) information independently developed by the party against whom enforcement of
this provision is sought without the use of information provided by the party seeking
such enforcement.




(c) Notwithstanding any provision of this Agreement to the contrary, any person (and each employee,
representative, or other agent of such person) may disclose to any and all other persons, without
limitation of any kind, (i) the tax treatment and tax structure of any transaction contemplated or
consummated pursuant to this Agreement, (ii) all materials of any kind (including any opinions or
other tax analysis) that are provided to such person relating to the tax treatment and tax
structure of any such



42









 






transaction and (iii) any information required to be disclosed or obtained by law or court
order.



ARTICLE X




REPRESENTATIONS AND WARRANTIES OF THE MEMBERS




     Section 10.01 Member Representations. Each Member represents and warrants to and
covenants with the other Members as follows:




(a) Organization. It is duly organized, validly existing and in good standing under
the laws of its jurisdiction of formation with all requisite power and authority to enter
into this Agreement, to perform its obligations hereunder and to conduct the business of the
Company.




(b) Enforceability. This Agreement constitutes the legal, valid and binding
obligation of such Member enforceable in accordance with its terms.




(c) Consents and Authority. No consents or approvals are required from any
governmental authority or other Person for the Member to enter into this Agreement. All
action on the part of such Member necessary for the authorization, execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby by such Member,
have been duly taken.




(d) No Conflict. The execution and delivery of this Agreement by such Member and the
consummation of the transactions contemplated hereby by such Member do not conflict with or
contravene the provisions of its organizational documents or any agreement or instrument by
which it or its properties or assets are bound or any law, rule, regulation, order or decree
to which it or its properties or assets are subject.




(e) Investment Intent. Such Member’s interest in the Company is intended to be and
is being acquired solely for such Member’s own account for investment, with no present
intention of distributing or reselling all or any part thereof; such Member acknowledges
that it is able and is prepared to bear the economic risk of making all Capital
Contributions contemplated hereby and to suffer any loss up to the amount of such Member’s
liability hereunder.




(f) Sophistication. It, alone or with its professional advisors, has the
educational, financial and business background and knowledge so as to be capable of
evaluating the merits and risks of an investment in the Company and has the capacity to
protect its own interests in making this investment.




(g) Regulatory Approval. It understands that neither the Commission nor any state
regulatory agency has passed upon or endorsed the merits of an investment in the Company.



43









 






(h) Registration. It understands
that its interest in the Company has not been
and will not be registered pursuant to the 1933 Act, or any applicable state securities laws,
and is being issued pursuant to an exemption therefrom.




(i) Transfer Restrictions. It
understands that there are substantial restrictions
on the transferability of its interest in the Company and such interest will not be, and such
Member has no right to require that it be, registered or qualified under the 1933 Act, and/or any
applicable state securities laws. It understands that there will be no public market for interests
in the Company.




(j) Advisors. It has been
afforded the opportunity to seek and rely upon the advice of its own attorney, accountant or other professional advisor in connection with an
investment in the Company and the execution of this Agreement.




(k) Rule 144. It understands that the exemption under Rule 144 under the
1933 Act, for holders of securities which have been held for at least two years since the
acquisition of such securities from the issuer or any affiliate of the issuer and concerning which
issuer there is available specified public information, may not be available to it or to the
Company for sales of Company Interests because the Company does not contemplate making available
such public information, and there may never be a trading market for the interests in the Company
sufficient to permit compliance with the “brokers’ transaction” requirement of such Rule 144.




(1) Government Determinations. It is aware that no federal or state agency has
made any finding or determination as to the fairness of any aspect of the Investment in the
Company.




(m) Breach. As of the date hereof, it is not aware of any breach of this
Agreement by any of the other Members.




(n) Investment Company. Either (i) all of its outstanding securities (as such
term is defined in the 1940 Act) are beneficially owned by five or less natural person or (ii) it
is not an “investment company” (as such term is defined in the 1940 Act) and is not excluded from
the definition of “investment company” under the 1940 Act based on the exceptions set forth in
subparagraph 3(c)(l) or 3(c)(7) of the 1940 Act.




(o) ERISA. If any portion of its Capital Contributions consist, or will consist,
of assets of an employee benefit plan as defined in Section 3(3) of ERISA, whether or not such plan
is subject to Title I of ERISA or a plan subject to Section 4975 of the Code, determined after
giving effect to applicable regulations, rulings, and exemptions thereunder, it has so notified the
Program Representatives in writing.




44











 





ARTICLE XI




DISSOLUTION AND TERMINATION




     Section 11.01 Dissolution.




(a) The Company shall be dissolved upon the occurrence of any of the following events:




     (i) On the twentieth (20th) anniversary of date of this Agreement
unless and to the extent extended by mutual agreement of all of the Members;




     (ii) (x) the filing by the Company of a voluntary petition for relief under Title
11 of the United States Code or any successor or amendatory provisions thereto, or (y)
ninety (90) days after the filing of an involuntary petition against the Company for relief
under Title 11 of the United States Code or any successor or amendatory provisions thereto,
or (z) ninety (90) days after the appointment of a trustee or receiver of the Company or
the assignment of the Company or any material part of the Company Assets for the benefit of
creditors by, of, or with respect to the Company, unless any such event referred to in
subsection (a)(ii)(y) or (a)(ii)(z) is remedied within ninety (90) days of its occurrence
or unless within ninety (90) days after the occurrence of an event referred to in
subsection (a)(ii)(x) or the expiration of the ninety (90)-day period referred to in
subsection (a)(ii)(y) or (a)(ii)(z) the Members jointly determine to continue the Company;




     (iii) a unanimous election by the Members to dissolve the Company;




     (iv) by the Investor, in its sole discretion, if there is a Major Uncured Breach,
or once its Capital Commitment has been fully funded; provided that, in each instance,
there is no Investment outstanding;




     (v) the termination of the Program Agreement pursuant to Article VIII thereof
provided that no Investment governed or affected by this Agreement shall remain unpaid or
otherwise outstanding; and




     (vi) any other event causing the dissolution of the Company under the Act.




(b) The Company shall be dissolved in accordance with Section 11.02. Notwithstanding any
provision of the Act to the contrary, the Company shall continue and not dissolve as a result of
the death, retirement, resignation, expulsion, bankruptcy or dissolution of any Member or any other
event that terminates the continued membership of any Member.



45









 





     Section 11.02 Winding Up, Liquidation and Distribution of Assets.




(a) Upon dissolution, (i) the Program Representatives shall immediately proceed to wind up
the affairs of the Company as expeditiously as business circumstances allow and proceed
within a reasonable period of time to sell or otherwise liquidate the Company Assets. In the
event that the Program Representatives shall, in its discretion, determine that a sale or
other disposition of part or all of the Company Assets would cause undue loss to the Members
or otherwise be impractical, the Program Representatives may either defer liquidation of any
such Company Assets, and withhold distributions relating thereto for a reasonable time, or
distribute part or all of such Company Assets to the Members in accordance with this
Agreement.




(b) Upon any liquidation, dissolution or winding up of the Company, proceeds from the
Company Assets shall be distributed as follows:




     (i) first, to creditors, including Members and Program Representatives who are
creditors in satisfaction of liabilities of the Company (whether by payment or the making of
reasonable provision for payment thereof) other than liabilities for which reasonable
provision for payment has been made, and for the expenses of winding up or liquidation; and




     (ii) the balance to the Members in accordance with the priorities of Section
4.03.



     Section 11.03 Certificate of Cancellation. When all debts, liabilities and obligations
have been paid and discharged or adequate provisions have been made therefor and all of the
remaining property and Company Assets have been distributed to the Members, a certificate of
cancellation shall be prepared, executed and filed by the Program Representatives in accordance
with the Act.



     Section 11.04 Return of Contribution Nonrecourse to Other Members. Except as provided
by law or as expressly provided in this Agreement, upon dissolution, each Member shall look solely
to the Company Assets for the return of such Member’s Capital Contribution. If the distribution
provided in Section 11.02(b)(ii) is insufficient to return the Capital Contribution of one
or more Members, such Member or Members shall have no recourse against the Company or any other
Member.



ARTICLE XII




MISCELLANEOUS




     Section 12.01 Specific Performance; Other Rights. The parties recognize that various
of the rights granted under this Agreement are unique and, accordingly, the parties shall, in
addition to such other remedies as may be available to them at law or in equity, have the right to
enforce their rights under this Agreement by actions for injunctive relief and specific
performance.



     Section 12.02 Notices. All notices or other communications required or permitted to be
given hereunder shall be in writing and shall be delivered by hand or sent, postage prepaid, by



46









 







registered, certified or express mail or reputable overnight courier service or by telecopier and
shall be deemed given when so delivered by hand or, if mailed, three days after mailing (one
business day in the case of express mail or overnight courier service), addressed as follows:


If to Ashford:



c/o Ashford Hospitality Trust

14185 Dallas Parkway

Suite 1100

Dallas, Texas 75254

Attention: Douglas A. Kessler

Telephone: 972-490-9600

Facsimile: 972-980-2705



with a simultaneous copies (which shall not constitute notice) to:



c/o Ashford Hospitality Trust

14185 Dallas Parkway

Suite 1100

Attention: David A. Brooks

Telephone: 972-490-9600

Facsimile: 972-980-2705



and



Akin Gump Strauss Hauer & Feld LLP

1700 Pacific Avenue

Suite 4100

Dallas, TX 75201-4675

Attention: Robert W. Dockery, Esq.

Telephone: (214) 969-4316

Facsimile: (214) 969-4343



If to the Investor or PIM:



c/o Prudential Investment Management, Inc.

8 Campus Drive

Parsippany, NJ 07054

Attention: Jim Walker

Telephone: (973) 683-1690

Facsimile: (973) 683-1752




47









 







And



c/o PREI Law Department

8 Campus Drive

Parsippany, NJ 07054

Attention: Joan N. Hayden, Esq.

Telephone: (973) 683-1772

Facsimile: (973) 683-1788



with a simultaneous copy (which shall not constitute notice) to:



Goodwin Procter LLP

Exchange Place

Boston, MA 02109

Attention: Minta E. Kay, Esq.

Telephone: (617) 570-1877

Facsimile: (617) 523-1231



or to such other address, individual or electronic communication number as may be designated by
notice given by any party to the others.




     Section 12.03 Prior Agreements; Construction; Entire Agreement. This Agreement,
including the Exhibits and other documents referred to herein (which form a part hereof),
constitutes the entire agreement of the parties with respect to the subject matter hereof, and
supersedes all prior agreements and understandings between them as to such subject matter and all
such prior agreements and understandings are merged herein and shall not survive the execution and
delivery hereof.



     Section 12.04 No Waiver. The waiver of any breach of any term or condition of this
Agreement shall not operate as a waiver of any other breach of such term or condition or of any
other term or condition, nor shall any failure to enforce any provision hereof operate as a waiver
of such provision or of any other provision hereof.



     Section 12.05 Amendments. This Agreement may not be amended, altered or modified
except by (i) the approval of the Program Representatives and (ii) instrument in writing and signed
by all Members. Notwithstanding anything to the contrary in this Agreement, this Agreement shall be
amended by the Program Representatives automatically and without any further action of the Program
Representatives to the extent necessary to reflect (a) the admission or substitution of any Member
permitted under this Agreement or (b) any Transfer permitted under this Agreement.



     Section 12.06 Severability. If any provision of this Agreement shall be held or deemed
by a final order of a competent authority to be invalid, inoperative or unenforceable, such
circumstance shall not have the effect of rendering any other provision or provisions herein
contained invalid, inoperative or unenforceable, but this Agreement shall be construed as if such
invalid, inoperative or unenforceable provision had never been contained herein so as to give full
force and effect to the remaining such terms and provisions.



48









 





     Section 12.07 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and shall become
effective when one or more such counterparts have been signed by each of the parties and delivered
to each of the other parties.



     Section 12.08 Applicable Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. The parties consent to the
exclusive jurisdiction of the United States District Court for the District of New York in
connection with any civil action concerning any controversy, dispute or claim arising out of or
relating to this Agreement, or any other agreement contemplated by, or otherwise with respect to,
this Agreement or the breach hereof, unless such court would not have subject matter jurisdiction
thereof, in which event the parties consent to the jurisdiction of the state courts of the State of
New York. The parties hereby waive and agree not to assert in any litigation concerning this
Agreement the doctrine of forum non-conveniens.



     Section 12.09 Waiver Of Jury Trial. THE MEMBERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AND FOR ANY
COUNTERCLAIM THEREIN.



     Section 12.10 Arbitration. Any unresolved dispute, question, disagreement, controversy
or claim arising from or relating to this Agreement or breach thereof that is to be settled by
arbitration shall be settled by arbitration in New York, New York, administered by the American
Arbitration Association in accordance with its Commercial Arbitration Rules including the Emergency
Interim Relief Procedures, and judgment on the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof. Except as may be required by law, neither a party nor an
arbitrator may disclose the existence, content or results of any arbitration hereunder without the
prior written consent of all parties.



     Section 12.11 No Rights of Third Parties. This Agreement is made solely and
specifically between and for the benefit of the parties hereto and their respective members,
successors and assigns subject to the express provisions hereof relating to successors and assigns.
No other Person whatsoever shall have any rights, interest, or claims hereunder or be entitled to
any benefits under or on account of this Agreement as a third party beneficiary or otherwise.



     Section 12.12 Further Assurances. In connection with this Agreement, as well as all
transactions contemplated by this Agreement, each Member agrees to execute and deliver such
additional documents and instruments and to perform such additional acts as may be necessary or
appropriate to effectuate, carry out and perform all of the terms, provisions and conditions of
this Agreement, and all such transactions contemplated hereby.



     Section 12.13 Survival. The covenants contained in this Agreement which, by
their terms, require performance after the expiration or termination of this Agreement shall
be enforceable notwithstanding the expiration or other termination of this Agreement.



     Section 12.14 Headings. Headings are included solely for convenience of reference and
if there is any conflict between headings and the text of this Agreement, the text shall control.



49









 





     Section 12.15 No Broker. Each Member represents and warrants that it has not dealt
with any broker in connection with this Agreement and agrees to indemnify, defend and hold harmless
each other Member and its Affiliates from all claims or damages as a result of its representation
and warranty contained in this sentence being false. Each Member further represents and warrants
that it has not dealt with any broker with respect to the acquisition of its Company Interests or
the acquisition by the Company of the Company Assets and agrees to indemnify, defend and hold
harmless each other Member and its Affiliates from all claims or damages as a result of its
representation and warranty contained in this sentence being false.



     Section 12.16 Services to Members. Each Member hereby acknowledges and recognizes that
the Company has retained, and may in the future retain, the services of various professionals,
including general and special legal counsel, accountants, architects and engineers, for the
purposes of representing and providing services to the Company in the investigation, analysis,
acquisition, development, renting, marketing and operation of the Company Assets, or otherwise.
Each Member hereby acknowledges that such persons or entities may have in the past represented and
performed and currently and/or may in the future represent or perform services for certain of the
Members or their Affiliates. Accordingly, each Member and the Company consents to the performance
by such persons or entities of services for the Company and waives any right to claim a conflict of
interest based on such past or present representation or services to any of the Members or their
Affiliates.



     Section 12.17 Currency. Any exchange of funds between the Company and its Members
shall be made in United States dollars, including any distribution, reimbursement or fee payable to
Members and any Capital Contributions made by Members. In addition, all calculations including,
without limitation, those relevant to distributions and fees shall be based on United States
dollars.



     Section 12.18 Attorneys’ Fees. Should any litigation be commenced between the parties
hereto or their representatives, or should any party institute any proceeding in a bankruptcy or
similar court which has jurisdiction over any other party hereto or any or all of his or its
property or assets concerning any provision of this Agreement or the rights and duties of any
Person in relation thereto, the party or parties prevailing in such may be granted a reasonable sum
as and for his or its or their attorneys’ fees and court and other costs in such matter, which
amount shall be determined by the judicial referee, a court in such litigation or in a separate
action brought for that purpose.



     Section 12.19 Compliance with ERISA




(a) The Company will not enter into any agreements, or suffer any conditions, that Investor
determines would result in a Plan Violations. At Ashford’s request, Investor shall deliver
notice of each such determination to Ashford together with an explanation of the reasons for
the determination.




(b) Investor and Ashford will cooperate in all reasonable respects to discover and correct
Plan Violations.



50









 





ARTICLE XIII




REIT COMPLIANCE




     Section 13.01 REIT Compliance. The Members and the Program Representatives acknowledge
that Investor is indirectly owned through one or more pass-through entities by the PRISA III Fund
REIT, Inc. (the “Investor REIT”), and that Ashford is subject to the federal income tax
rules applicable to REITs (as defined below). The Members and the Program Representatives
acknowledge and agree that:




(a) the business and affairs of the Company will be managed in a manner that will ensure
that the Investor REIT and Ashford qualify as a real estate investment trust under the Code
(a “REIT”) and do not incur any amount of tax pursuant to Sections 857 or 4981 of
the Code;




(b) the Program Representatives shall be entitled to exercise any vote, consent, election or
other right under this Agreement consistent with this Section 13.01 and without
regard to whether conducting the business of the Company in such manner will maximize either
pre-tax or after-tax profit of the Company to the Members;




(c) it is the intent of the PIM Program Representative to exercise its approval rights
pursuant to Sections 6.01, 6.13, this Article XIII, the Program Agreement
and under any other provision of this Agreement or the organizational documents of any
Subsidiary in order to ensure that the Investor REIT qualifies as a REIT and does not incur
any amount of tax pursuant to Sections 857 or 4981 of the Code; and




(d) it is the intent of the Ashford Program Representative to exercise its approval rights
pursuant to Sections 6.01, 6.13, this Article XIII, the Program Agreement
and under any other provision of this Agreement or the organizational documents of any
Subsidiary, in order to ensure that Ashford qualifies as a REIT and does not incur any
amount of tax pursuant to Sections 857 or 4981 of the Code; and




(e) the Program Representatives shall cooperate in all reasonable respects with respect to
(i) the structuring of the acquisition and operation of any Qualifying Investment, any REO
Property or any other Company Asset, and (ii) changes to the structure of the ownership or
operation of any existing Investment, REO Property or other Company Asset, as may be
necessary or advisable to allow Investor REIT or Ashford to each qualify as a REIT and not
incur any amount of tax pursuant to Sections 857 or 4981 of the Code, including, without
limitation, by structuring the acquisition, operation or ownership of any such Qualifying
Investment, existing Investment, REO Property or any other Company Asset in a manner that
would allow Investor REIT and Ashford, as each may request, to invest in all or a part of
such Qualifying Investment, Investment, REO Property or other Company Asset, through one (1)
or more taxable REIT subsidiaries (as defined in Section 856(1) of the Code), so long as the
structuring requested by one party does not adversely affect the economic terms intended to
be provided the other party under this Agreement.



51









 





ARTICLE XIV




REOC COMPLIANCE




     Section 14.01 Application. The Members acknowledge and agree that the provisions of
this Article XIV shall be applicable if Investor REIT has a direct or indirect ownership
interest in the Company.



     Section 14.02 REOC Compliance. The Members acknowledge that the Operating Partner is
intended to qualify as a REOC under the Plan Assets Regulation and, to the extent the underlying
Company Assets constitute an investment in real estate that is managed or developed (within the
meaning of the Plan Assets Regulation), that the ownership interest in the Company is intended to
qualify as a real estate investment for purposes of qualification by the Operating Partner as a
REOC. The Members agree that the Operating Partner shall have the following management rights with
respect to such underlying real estate (the “Land”) and further agree that they will give
due consideration to such input as may be provided by the Operating Partner in exercise of such
rights:




(a) The right to review and approve the Land’s annual budgets and business plans, and to
offer suggestions and input regarding the same;




(b) The right to review and approve any agreements with independent contractors with respect
to the Land that provide for payments in excess of $10,000 and to offer suggestions and
input regarding the same;




(c) The right to review and approve any capital expenditures for the Land in excess of
$10,000 and to offer suggestions and input regarding the same;




(d) The right to discuss, and provide advice with respect to, the Land with the Company’s
members, officers, employees, directors and agents and the right to consult with and advise
the Company’s management on matters materially affecting the Land;




(e) The right to submit business proposals or suggestions relating, to the Land to the
Company’s management from time to time with the requirement that one or more members of the
Company’s management discuss such proposals or suggestions with the Operating Partner within
a reasonable period after such submission and the right to call a meeting with the Company’s
management in order to discuss such proposals or suggestions; and




(f) The right (i) to visit the Company’s business premises and the Land during normal
business hours, (ii) to receive financial statements, operating reports, budgets or other
financial reports of the Company (including those relating to the Land) on a regular basis
describing the financial performance, significant proposals and other material aspects of
the Company (including the Land), (iii) to examine the books and records of the Company
(including those relating to the Land) and (iv) to request such other information relating
to the Company (including the Land) at reasonable tunes and intervals in light of the
Company’s normal business operations concerning the general



52









 







status of the Company’s business, financial condition and operations (including the Land)
but only to the extent such information is reasonably available to the Company and in a
format consistent with how the Company maintains such information.


The Company shall not enter into any agreement delegating to any person management rights with
respect to the Land other than agreements (i) that are terminable by the Company on not more than
one month’s notice without penalty or cause and (ii) pursuant to which the Company maintains
substantial oversight and approval rights with respect to the delegated management functions. Any
such agreement must provide that it is fully subject to all, and in no way limits or abrogates any,
of Investor’s (and the Operating Partner’s) approval and other rights with respect to the Land. The
Members hereby acknowledge and agree that all rights of Investor (and the Operating Partner) in
respect of the Company and the Land shall be exercised and enforced solely by the sole member of
Investor in its capacity as such. In the event the Land is owned by an entity that is owned,
directly or indirectly, by the Company, Investor (and the Operating Partner) shall have the same
rights with respect to the Land as they would have hereunder were the Land owned directly by the
Company, and the Company shall take such actions, and/or cause any such entity to take such
actions, as are necessary to achieve the foregoing result.




     Notwithstanding the provision of Sections 2.10 and 12.19, and this Article
XIV, nothing contained therein shall require the parties hereto to waive, modify or otherwise
amend the definition of “Qualifying Investments” and to the extent that any Qualifying Investments
are deemed not suitable by Investor under the provisions of Sections 2.10 and 12.19
or Article XIV, such Qualifying Investment shall be deemed “rejected” for purposes of this
Agreement and the Program Agreement as provided herein and therein.



[Remainder of page intentionally left blank.]




53









 








     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date
first above written.



	 	 	 	 	 
	 	PRISA III INVESTMENTS, LLC, a Delaware limited liability company





 	 
	 	By:  	PRISA III REIT Operating LP, a Delaware limited partnership, its sole member
 	 
	 
	 	By:  	PRISA III OP GP, LLC, a Delaware limited liability company, its general partner
 	 
	 
	 	By:  	PRISA III Fund LP, a Delaware limited partnership, its manager
 	 
	 
	 	By:  	PRISA III Fund GP, LLC, a Delaware limited liability company, its general partner
 	 
	 
	 	By:  	PRISA III Fund PIM, LLC, a Delaware limited liability company, its sole member
 	 
	 
	 	By:  	Prudential Investment

Management, Inc., a Delaware

corporation, its sole member

 	 
	 	 	 	 	 
	 	 	 
	 	By:  	/s/ James P. Walker
 	 
	 	 	Name:  	James P. Walker   	 
	 	 	Title:  	Vice President 	 
	 



	 	 	 	 	 
	 	ASHFORD HOSPITALITY FINANCE LP, a Delaware limited partnership




 	 
	 	By:  	Ashford Hospitality Finance General Partner LLC, a

Delaware limited liability company, its general partner

 	 
	 	By:  	
 	 
	 	 	Name:  	David Brooks  	 
	 	 	Title:  	Vice President 	 
	 



Signature Page to Limited Liability Company Agreement




 









 









     IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date
first above written.



	 	 	 	 	 
	 	PRISA III INVESTMENTS, LLC, a Delaware limited liability company





 	 
	 	By:  	PRISA III REIT Operating LP, a Delaware limited partnership, its sole member
 	 
	 
	 	By:  	PRISA III OP GP, LLC, a Delaware limited liability company, its general partner
 	 
	 
	 	By:  	PRISA III Fund LP, a Delaware limited partnership, its manager
 	 
	 
	 	By:  	PRISA III Fund GP, LLC, a Delaware limited liability company, its general partner
 	 
	 
	 	By:  	PRISA III Fund PIM, LLC, a Delaware limited liability company, its sole member
 	 
	 
	 	By:  	Prudential Investment

Management, Inc., a Delaware

corporation, its sole member

 	 
	 	 	 	 	 
	 	 	 
	 	By:  	
 	 
	 	 	Name:  	James P. Walker   	 
	 	 	Title:  	Vice President 	 
	 



	 	 	 	 	 
	 	ASHFORD HOSPITALITY FINANCE LP, a Delaware limited partnership




 	 
	 	By:  	Ashford Hospitality Finance General Partner LLC, a

Delaware limited liability company, its general partner

 	 
	 	By:  	/s/ David Brooks
 	 
	 	 	Name:  	David Brooks  	 
	 	 	Title:  	Vice President 	 
	 



Signature Page to Limited Liability Company Agreement





 











 





SCHEDULE A




	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	UNFUNDED	 	WESTIN
	 	 	 	 	MEMBER	 	PERCENTAGE	 	CAPITAL	 	CAPITAL	 	LOANS
	MEMBER NAME	 	ADDRESS	 	INTEREST	 	COMMITMENT	 	COMMITMENT	 	INVESTMENT
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	PRISA III	 	c/o Prudential Investment
	 	 	75	%	 	$	300,000,000	 	 	$	283,834,687.50	 	 	$	16,165,312.50	 
	Investments, LLC	 	Management
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	8 Campus Drive
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Parsippany, NJ 07054
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Ashford	 	c/o Ashford Hospitality Trust
	 	 	25	%	 	$	100,000,000	 	 	$	94,611,562.50	 	 	$	5,388,437.50	 
	Hospitality	 	14185 Dallas Parkway
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	Finance LP	 	Suite 1100
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	Dallas, Texas 75254
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 






Investments




1. Westin Loans Investment. As of February 5, 2008, the Company formed PIM Ashford
Subsidiary I, LLC, a Delaware limited liability company (“Subsidiary I”), to acquire all of the
right, title and interest of Ashford Hospitality Finance LP
(“Assignor”) in, to and under that
certain mezzanine loan (the “Westin Loans Investment”) originated in accordance with that certain
Mezzanine Loan Agreement dated December 5, 2007 by and among Assignor and Transwest Tucson II,
L.L.C., formerly known as SCG Tucson II, L.L.C. (“La Paloma Borrower”), a Delaware limited
liability company, and Transwest Hilton Head II, L.L.C, formerly known as SCG Hilton Head II,
L.L.C, a Delaware limited liability company (“Hilton Head Borrower” and together with La Paloma
Borrower, “Borrowers”). Subsidiary I is the owner of the Westin Loans Investment pursuant to that
certain Assignment and Assumption of Loan Documents dated as of February 6, 2008.



 









 





Exhibit C to LLC Agreement




Investment Criteria





	•	 	Target Returns: Overall Venture unlevered returns of 9% - 13+% yield on Venture equity with
the variance depending upon the relative risk/reward profile of the investment.






	•	 	Investment Period: Each Venture will have an investment period of two years from closing of
the Venture.






	•	 	Collateral: Participations in first mortgages, second mortgages, stock secured loans,
guarantees, preferred equity, or pledge of equity interests in Borrower’s collateral or other
collateral acceptable to the Members.






	•	 	Collateral Asset Class: Single hotel assets, hotel portfolios, and preferred positions in
hotel entities. Full-service (branded and independent) hotels and resorts in upper-upscale to
luxury segments along with branded select service hotels in upscale and mid-scale segments.
Extended stay and economy assets may be considered if they constitute a minority position in a
portfolio.
	 
	•	 	Location: Hotels located in the U.S.






	•	 	Investment Size: Maximum single asset investment of $50 million (with typical range of $10 -
$25 million) and up to $75 million for diversified portfolio.






	•	 	Capital Stack Positioning: Typically a position in the capital structure within the 60% -
85% LTV range based upon cost in the case of a new acquisition and Sponsor/Investor
underwriting in the case of assets already owned. Additional collateral support may allow for
higher LTV positions.






	•	 	Loan Maturity: Generally three to five years (including extensions) for floating rate loans,
whereas three to ten years for fixed rate. In select cases, maturities may be shorter,
particularly if loans are acquired, rather than originated. Floating rates will typically have
at least twelve month lockouts and fixed rates will be structured with either defeasance or
yield maintenance.






	•	 	Debt Service Coverage: Assets will be at least 1.0x TTM coverage unless adequate collateral
support (reserves, guarantees, etc.) is provided.






	•	 	REIT Compliance: Investments will comply with the REIT Compliance requirements in the
organizational documents of the Master Joint Ventures and Subsidiaries, unless otherwise
approved by Investor in its sole and absolute discretion.




 









 











Exhibit D to LLC Agreement




Hypothetical Investment Calculations Example




(All calculations contained herein contain rounding errors, but are confirmed on the attached spreadsheet)




The Company desires to acquire an existing mezzanine loan (the “Loan”) at a discount to
its par value. The Loan is described as follows:


Original Principal Amount: $96,053,199

Interest Rate: LIBOR + 2.75%

Current LIBOR: 4.32%

Amortization: None



Purchase Price: $82,705,726

Discount: $13,140,709

Discount Margin: 6.82%

Sourcing Fee: $206,764 (0.25% of the Purchase Price)

Unreimbursed Company Expenses: $0

Origination Fee: $0




The Purchase Price is the price required to achieve a zero net present value of the projected
income stream from the Loan (e.g., interest payments projected using the forward LIBOR curve plus
receipt of the Discount at maturity) using a discount rate equal to current LIBOR plus the desired
Discount Margin.



Section 1. Venture Cost




The Venture Cost is the Purchase Price (or if the Loan is originated by Ashford or the Company,
the original principal balance of the Loan), plus the sum of (i) the Sourcing Fee and all Company
Expenses allocable to the Loan (to the extent not reimbursed by the borrower), less (ii) the
amount of any origination fees, application fees or similar upfront fees allocable to the Loan but
only to the extent not in excess of the amounts described in clause (i) of this sentence. If and
to the extent the amounts set forth in clause (ii) of the previous sentence exceed the amounts set
forth in clause (i) of the previous sentence (the “Origination Excess”), the Origination Excess
shall be distributed to the parties in accordance with their Current Yield Percentages (as
calculated in Section 2 below); provided, however, the Origination Excess shall be excluded from
the calculation of the Investment Yield and the Current Yield Percentages for all purposes.



          Venture
Cost = $82,705,726 + $206,764 - 0 = $82,912,490




Section 2. Ashford Promote Qualification




For purposes of the Ashford Promote, the Investor Yield must be at least 9% for the period of
calculation. The calculation utilizes the LIBOR rate in effect at the time the Loan is acquired.
In addition, for this example, the calculation must take into account the payment of the Discount
at maturity. Using the Discount Margin, the Investment Yield for any given period is as follows:



          =
(4.32% Libor + 6.82%) x Purchase Price / Venture Cost = 11.11%




The resulting Ashford Yield and Investor Yield are:



 









 





          Ashford Yield = 1.3 x 11.11% = 14.45%




          Investor
Yield = [(75% x 11.11%) - [(14.45% - 11.11%) x 25%]] / 75% = 10.00%




The difference between the Ashford Yield and the Investor Yield does not exceed the Maximum Spread
of 4.5%. Therefore, no further adjustment to the yields is required.1 Since the
Investor Yield exceeds 9%, the Loan qualifies for the Ashford Promote.2



The Current Yield Percentages for purposes of distributing any Origination Excess are:



          Ashford Yield Percentage = 14.45% x 25% / 11.11% = 32.5%




          Investor
Yield Percentage = 10% x 75% / 11.11% = 67.5%




Section 3. Monthly Payments of Current Income




Each monthly payment of interest is calculated pursuant to the terms of the loan documents,
typically being the Loan Principal x Interest Rate x number of days in the month / 360 days. For
this example, we will review the first February interest payment of $543,875. Upon receipt of the
monthly payment, an Investment Yield will be calculated by annualizing the payment as follows (the
“Annualized Interest Payment”).



          = $543,875 x 365days / 28 days = $7,089,799.11




The Annualized Payment / Venture Cost = the “Annualized Investment
Yield”



          = $7,089,799.11 / Venture Cost = 8.55%




The Annualized Investment Yield is split into the Ashford Yield and Investor Yield as
follows:



          Ashford
Yield = 1.3 x 8.55% = 11.12%




          Investor
Yield = [(75% x 8.55%) - [(11.12% - 8.55%) x 25%]] / 75% = 7.70%




The difference between the Ashford Yield and the Investor Yield does not exceed the 4.5% Maximum
Spread, so no adjustment is required to the Ashford Yield.



The monthly interest payment is divided between Ashford and Investor based on their respective
Current Yield Percentages as follows:



          Ashford Yield Percentage = 11.12% x 25% / 8.55% = 32.5%




          Investor Yield Percentage = 7.70% x 75% / 8.55% = 67.5%




Thus, Ashford receives $176,759 (32.5% of the interest payment) and Investor receives $367,115
(67.5% of the interest payment).





 




			
	1	 	Had the difference between the Ashford Yield and the Investor Yield exceeded 4.5%, the
Ashford Yield would be reduced (and the Investor Yield consequently increased) until the spread
equaled 4.5%.
	 
	2	 	If there are other Investments in the Company, the Investor Yield for each Investment
must be weight averaged (based on Investor’s invested capital) to determine if the 9% threshold is satisfied.




 









 










Section 4. Amortization and Other Payments




If the Loan had a regularly scheduled amortization feature, the principal amount received each
month would be allocated pro rata among (i) principal applied against the Venture Cost, which
would be distributed to the parties in accordance with their Percentage Interests, and (ii)
principal to be applied against the Discount, which would be added to the Annualized Interest
Payment for calculation of the Ashford Yield and Investor Yield and distributed to the parties in
accordance with their resulting Current Yield Percentages, as described in the prior Section 3.
The amount to be applied against the Venture Cost is the ratio that the Purchase Price bears to
the Original Principal Amount of the Loan. The amount to be applied against the Discount is the
ratio that the Discount bears to the Original Principal Amount of the Loan.3 In the
event the Loan is partially prepaid prior to maturity, the principal amount prepaid shall be
allocated and distributed in the manner described in this paragraph (and footnote 3), with any
prepayment penalty or exit fees received in connection therewith added to the Annualized Interest
Payment for calculation of the Ashford Yield and Investor Yield in accordance with Section 3.



Except as otherwise provided in the prior paragraph, if the Company receives any extension fees,
late payment fees, assumption fees or default interest (to the extent in excess of the non-default
interest rate) prior to the full Loan repayment date (which do not constitute principal allocable
to a return of Venture Cost or a reimbursement of Company Expenses), such amounts shall be excluded
from the calculation of the Investment Yield and the Current Yield Percentages, and shall be
distributed to the parties in accordance with their Percentage Interests.



Section 5. Ashford Promote Calculation




Assuming the Ashford Promote is qualified for the Company, on the second anniversary of the
Company, the monthly Ashford Yields utilized for the then expired term of the Loan are
recalculated by allocating an additional 5% of the Investment Yield to the Ashford Yields (i.e.,
an Investment Yield multiplier of 1.35x assuming no prior Maximum Spread adjustments. If there had
been a Maximum Spread adjustment, the recalculation would utilize the actual multiplier + 0.05x).



For the February interest payment, the recalculated Ashford Yield is as follows:



          Ashford Yield = 1.35 x 8.55% = 11.54%




The Ashford Yield Percentage is recalculated with respect to each payment of monthly interest
received during the expired term. For the February interest payment:



          Ashford Yield % = 11.54% x 25% / 8.55% = 33.75%




Thus, Ashford should have received $183,558 (33.75% of the interest payment). The shortfall of
$6,798 together with the sum of the shortfalls for all months of the expired term totaling
$150,321 are to be paid to Ashford by Investor as the Ashford Promote on the second anniversary of
the Company.



The foregoing recalculation of the Ashford Yields and payment of shortfall amounts by Investor
shall be performed on each anniversary date following the second anniversary of the Company,
covering the prior twelve month period. Upon repayment of the Loan in full, the recalculation of
the Ashford Yields and payment of shortfall amounts shall cover the period since the last
anniversary date of the Company.





 




			
	3	 	If the Loan were not purchased at a Discount, the full amount of the principal
received would be distributed to the parties in accordance with their Percentage Interests.




 









 










Section 6. Payment of the Discount at Maturity




Upon full repayment of the Loan, a final Investment Yield in the form of an internal rate of return
on the total cash flow (of whatever amounts or character) of the Venture Cost shall be calculated
in order to determine the allocation of the Discount between Ashford and Investor.4 For
this example, the Investment Yield is equal to 11.02% as shown on the attached spreadsheet (the
“Final Investment Yield”1.



The Final Investment Yield is split into the Ashford Yield and Investor Yield (without reference
to the Ashford Promote) as follows:



          Ashford Yield = 1.3 x 11.02% = 14.32




          Investor
Yield = [(75% x 11.02%) - [(14.32% - 11.02%) x 25%]] / 75% = 9.92%




The difference between the Ashford Yield and the Investor Yield does not exceed the 4.5% Maximum
Spread, so no adjustment is required to the Ashford Yield.



Because the Loan qualifies for the Ashford Promote, the final Ashford Yield and Investor Yield is
calculated as follows (the “Final Yields”):



          Ashford Yield = (1.35) x 11.02% = 14.87%




          Investor
Yield = [(75% x 11.02%) - [(14.87% - 11.02%) x 25%]] / 75% = 9.73%




The Discount is distributed to Ashford and Investor in such amounts that will achieve the parties
having received their respective Final Yields for the overall Loan transaction.



Section 7. Fees received at Full Repayment.



When an Investment is paid in full at maturity (or prepaid in full prior to maturity), whether or
not the Investment was purchased for a discount, the distribution of any prepayment premiums, exit
fees, or equity participations will be allocated and distributed in the same manner as the Discount
pursuant to Section 6 above.



See attached spreadsheet






 




			
	4 	 	The principal amount of the Loan not represented by the Discount shall be distributed
to the parties in accordance with Section 4.03(b) of the Agreement.