EXHIBIT
10.2


 


Advisory Agreement

between CNL Hospitality Properties, Inc. and CNL Hospitality Corp.

dated as of April 1, 2004


 

















 


ADVISORY AGREEMENT


 


THIS ADVISORY AGREEMENT,
dated as of April 1, 2004, is between CNL HOSPITALITY PROPERTIES, INC., a
corporation organized under the laws of the State of Maryland (the “Company”)
and CNL HOSPITALITY CORP., a corporation organized under the laws of the State
of Florida (the “Advisor”).


 


W I T N E S S E T H


 


WHEREAS, the Company
filed with the Securities and Exchange Commission (“SEC”) a Registration
Statement (No. 333-9943) on Form S-11 covering 16,500,000 of its common shares,
par value $.01 per share (“Shares”) to be offered to the public (“Initial
Offering”);


 


WHEREAS, the Company
filed with the SEC a Registration Statement (No. 333-67787) on Form S-11
covering 27,500,000 of its Shares to be offered to the public  (“1999 Offering”);


 


WHEREAS, the Company
filed with the SEC a Registration Statement (No. 333-89691) on Form S-11
covering 45,000,000 of its Shares to be offered to the public (the “2000
Offering”);


 


WHEREAS, the Company
filed with the SEC a Registration Statement (No. 333-67124) on Form S-11
covering 45,000,000 of its Shares to be offered to the public (the “2002
Offering”);


 


WHEREAS, the Company filed
with the SEC a Registration Statement (No. 333-98047) on Form S-11 covering
175,000,000 of its Shares to be offered to the public (the “2003 Offering”);


 


WHEREAS, the Initial
Offering was terminated on June 17, 1999 and the 1999 Offering of 27,500,000 Shares
commenced;


 


WHEREAS, the 1999
Offering terminated on September 14, 2000 and the 2000 Offering of 45,000,0000
Shares commenced;


 


WHEREAS, the 2000
Offering terminated on April 22, 2002 and the 2002 Offering of 45,000,000
Shares commenced;


 


WHEREAS, the 2002
Offering terminated on February 4, 2003 and the 2003 Offering of 175,000,000
Shares commenced;


 

















 


WHEREAS, the 2003
Offering terminated on March 12, 2004, and the Company may subsequently issue
Securities (as defined below) or otherwise raise additional capital;


 


WHEREAS, the Company is
currently qualified as a REIT (as defined below), and intends to continue to
invest its funds in investments permitted by the terms of the Registration
Statement and Sections 856 through 860 of the Code (as defined below);


 


WHEREAS, the Company
desires to avail itself of the experience, sources of information, advice,
assistance and certain facilities available to the Advisor and to have the
Advisor undertake the duties and responsibilities hereinafter set forth, on behalf
of, and subject to the supervision, of the Board of Directors of the Company
all as provided herein; and


 


WHEREAS, the Advisor is
willing to undertake to render such services, subject to the supervision of the
Board of Directors, on the terms and conditions hereinafter set forth;


 


NOW, THEREFORE, in
consideration of the foregoing and of the mutual covenants and agreements
contained herein, the parties hereto agree as follows:


 


(1) Definitions.  As used in this Advisory Agreement (the “Agreement”), the
following terms have the definitions hereinafter indicated:


 


Acquisition
Expenses.  Any and all
expenses incurred by the Company, the Advisor, or any Affiliate of either in
connection with the selection or acquisition of any Property or the making of
any Mortgage Loan, whether or not acquired or made, including, without
limitation, legal fees and expenses, travel and communication expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, and title insurance.


 


Acquisition Fees.  Any and all fees and commissions, exclusive
of Acquisition Expenses, paid by any Person or entity to any other Person or
entity (including any fees or commissions paid by or to any Affiliate of the
Company or the Advisor) in connection with making or investing in Mortgage
Loans or the purchase, development or construction of a Property, including,
without limitation, real estate commissions, acquisition fees, finder’s fees,
selection fees, Development Fees, Construction Fees, nonrecurring management
fees, consulting fees, loan fees, points, or any other fees or commissions of a
similar nature. Excluded shall be development fees and construction fees paid
to any Person or entity not Affiliated with the Advisor in connection with the
actual development and construction of any Property.


 


Advisor.  CNL Hospitality Corp., a Florida
corporation, any successor Advisor to the Company, or any Person or entity to
which CNL Hospitality Corp. or any successor


 


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advisor subcontracts
substantially all of its functions.  The
Advisor will have responsibility for the day-to-day operations of the Company.


 


Affiliate or
Affiliated.  As to any
individual, corporation, partnership, trust or other association (other than
the Excess Shares Trust), (i) any Person or entity directly or indirectly
through one or more intermediaries controlling, controlled by, or under common
control with another person or entity; 
(ii) any Person or entity, directly or indirectly owning, controlling or
holding with power to vote ten percent (10%) or more of the outstanding voting
securities of another Person or entity; 
(iii) any officer, director, partner, or trustee of such  Person or 
entity;  (iv) any  Person 
ten  percent  (10%) or more of whose outstanding voting
securities are directly or indirectly owned, 
controlled,  or held, with power
to vote, by such other Person;  and (v)
if such other Person or entity is an officer, 
director,  partner, or trustee of
a Person or entity, the Person or entity for which such Person or entity acts
in any such capacity.


 


Appraised Value.  Value according to an appraisal made by an
Independent Appraiser.


 


Articles of
Incorporation.  The
Articles of Incorporation of the Company, as amended from time to time.


 


Asset Management
Fee.  The fee payable
to the Advisor for day-to-day professional management services in connection
with the Company and its investments in Properties and Mortgage Loans pursuant
to this Agreement.


 


Assets.  Properties and Mortgage Loans, collectively.


 


Average Invested
Assets.  For a
specified period, the average of the aggregate book value of the assets of the
Company invested, directly or indirectly, in equity interests in and loans
secured by real estate before reserves for depreciation or bad debts or other
similar non-cash reserves, computed by taking the average of such values at the
end of each month during such period.


 


Board of Directors
or Board.  The persons
holding such office, as of any particular time, under the Articles of
Incorporation of the Company, whether they be the Directors named therein or
additional or successor Directors.


 


Bylaws.  The bylaws of the Company, as the same are
in effect and may be amended from time to time.


 


Cause.  With respect to the termination of this
Agreement, fraud, criminal conduct, willful misconduct or willful or negligent
breach of fiduciary duty by the Advisor, breach of this Agreement, a default by
the Sponsor under the guarantee by the Sponsor to the Company or the bankruptcy
of the Sponsor.


 


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Change of Control.  A change of control of the Company of such a
nature that would be required to be reported in response to the disclosure
requirements of Schedule 14A of Regulation 14A promulgated under the Securities
Exchange Act of 1934, as amended, as enacted and in force on the date hereof
(the  “Exchange Act”), whether or not
the Company is then subject to such reporting requirements; provided, however,
that, without limitation, a change of control shall be deemed to have occurred
if: (i) any “person” (within the meaning of Section 13(d) of the Exchange Act)
is or becomes the “beneficial owner” (as that term is defined in Rule 13d-3, as
enacted and in force on the date hereof, under the Exchange Act) of securities
of the Company  representing 8.5% or
more of the combined voting power of the Company’s  securities then outstanding; 
(ii) there occurs a merger, consolidation or other reorganization of the
Company which is not approved by the Board of Directors of the Company; (iii)
there occurs a sale, exchange, transfer or other disposition of substantially
all of the assets of the Company to another entity, which disposition is not
approved by the Board of Directors of the Company; or (iv) there occurs a
contested proxy solicitation of the Stockholders of the Company that results in
the contesting party electing candidates to a majority of the Board of
Directors’ positions next up for election.


 


Code.  Internal Revenue Code of 1986, as amended
from time to time, or any successor statute thereto. Reference to any provision
of the Code shall mean such provision as in effect from time to time, as the
same may be amended, and any successor provision thereto, as interpreted by any
applicable regulations as in effect from time to time.


 


Company.  CNL Hospitality Properties, Inc., a
corporation organized under the laws of the State of Maryland.


 


Company Property.  Any and all property, real, personal or
otherwise, tangible or intangible, including Mortgage Loans, which is
transferred or conveyed to the Company 
(including all rents, income, profits and gains therefrom), and which is
owned or held by, or for the account of, the Company.


 


Competitive Real
Estate Commission.  A
real estate or brokerage commission for the purchase or sale of property, which
is reasonable, customary, and competitive in light of the size, type, and
location of the property.  The total of
all real estate commissions paid by the Company to all Persons (including the
Subordinated Disposition Fee payable to the Advisor) in connection with any
Sale of one or more of the Company’s Properties shall not exceed the lesser of
(i) a Competitive Real Estate Commission or (ii) six percent of the gross sales
price of the Property or Properties.


 


Construction Fee.  A fee or other remuneration for acting as a
general contractor and/or construction manager to construct improvements,
supervise and coordinate projects or provide major repairs or rehabilitation on
a Property.


 


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Contract Purchase
Price.  The amount
actually paid or allocated (as of the date of purchase) to the purchase,
development, construction or improvement of property, exclusive of Acquisition
Fees and Acquisition Expenses.


 


Contract Sales
Price.  The total
consideration received by the Company for the sale of Company Property.


 


Development Fee.  A fee for such activities as negotiating and
approving plans and undertaking to assist in obtaining zoning and necessary
variances and necessary financing for a specific Property, either initially or
at a later date.


 


Director.  A member of the Board of Directors of the
Company.


 


Distributions.  Any distribution of money or other property
by the Company to owners of Equity Shares, including distributions that may
constitute a return of capital for federal income tax purposes.


 


Equipment.  The furniture, fixtures and equipment used
at Hotel Chains.


 


Equity Interest.  The stock of or other interests in, or
warrants or other rights to purchase the stock of or other interests in, any
entity that has borrowed money from the Company or that is a tenant of the
Company or that is a parent or controlling Person of any such borrower or
tenant.


 


Equity Shares.  This term shall have the same meaning as the
definition of “Equity Shares” in the Company’s Articles of Incorporation.


 


Excess Shares
Trust.  This term
shall have the same meaning as the definition of “Excess Shares Trust” in the
Company’s Articles of Incorporation.


 


Gross Proceeds.  The aggregate purchase price of all Shares
sold for the account of the Company through the 2003 Offering, without
deduction for selling commissions, volume discounts, the marketing support fee,
due diligence expense reimbursements or Offering Expenses.  For the purpose of computing Gross Proceeds,
the purchase price of any Share for which reduced selling commissions are paid
to the Managing Dealer or a Soliciting Dealer (where net proceeds to the
Company are not reduced) shall be deemed to be the full offering price of the
Shares.


 


Hotel Chains.  The national and regional hotel chains,
primarily limited service, extended stay and full service chains, to be
selected by the Advisor, and who themselves or their franchisees will either
(i) lease Properties purchased by the Company, or (ii) become borrowers under
Mortgage Loans.


 


Independent
Appraiser.  A
qualified appraiser of real estate as determined by the Board. Membership in a
nationally recognized appraisal society such as the American


 


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Institute of Real Estate
Appraisers (“M.A.I.”) or the Society of Real Estate Appraisers  (“S.R.E.A.”) shall be conclusive evidence of
such qualification.


 


Independent
Director.  A Director
who is not, and within the last two years has not been, directly or indirectly
associated with the Advisor by virtue of 
(i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment by the Advisor or its Affiliates, 
(iii) service as an officer or director of the Advisor or its
Affiliates, (iv) performance of services, other than as a Director, for the
Company,  (v) service as a director or
trustee of more than three real estate investment trusts advised by the
Advisor, or (vi) maintenance of a material business or professional
relationship with the Advisor or any of its Affiliates. A business or
professional relationship is considered material if the gross revenue derived
by the Director from the Advisor and Affiliates exceeds 5% of either the
Director’s annual gross revenue during either of the last two years or the
Director’s net worth on a fair market value basis.  An indirect relationship shall include circumstances in which a
Director’s spouse, parents, children, siblings, mothers- or fathers-in-law,
sons- or daughters-in-law, or brothers- or sisters-in-law are or have been
associated with the Advisor, any of its Affiliates, or the Company.


 


Independent Expert.  A Person or entity with no material current
or prior business or personal relationship with the Advisor or the Directors
and who is engaged to a substantial extent in the business of rendering
opinions regarding the value of assets of the type held by the Company.


 


Initial Offering.  The initial public offering of up to
16,500,000 Shares that was completed on June 17, 1999.


 


Invested Capital.  The amount calculated by multiplying the
total number of Shares purchased by stockholders by the issue price, reduced by
the portion of any Distribution that is attributable to Net Sales Proceeds and
by any amounts paid by the Company to repurchase Shares pursuant to the
Company’s plan for redemption of Shares.


 


Joint Ventures.  The joint venture or general partnership
arrangements in which the Company is a co-venturer or general partner which are
established to acquire Properties.


 


Line of Credit.  One or more lines of credit in an aggregate
amount up to $350,000,000 (or such greater amount as shall be approved by the
Board of Directors), the proceeds of which will be used to acquire Properties
and make Mortgage Loans and for any other authorized purpose.  The Line of Credit may be in addition to any
Permanent Financing.


 


Listing.  The listing of the Shares of the Company on
a national securities exchange or over-the-counter market.


 


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Managing Dealer.  CNL Securities Corp., an Affiliate of the
Advisor.  CNL Securities Corp. is a
member of the National Association of Securities Dealers, Inc.


 


Mortgage Loans.  In connection with mortgage financing
provided by the Company, the notes or other evidence of indebtedness or
obligations which are secured or collateralized by real estate owned by the
borrowers.


 


Net Income.  For any period, the total revenues
applicable to such period, less the total expenses applicable to such period
excluding additions to reserves for depreciation, bad debts or other similar
non-cash reserves; provided, however, Net Income for purposes of calculating
total allowable Operating Expenses (as defined herein) shall exclude the gain
from the sale of the Company’s assets.


 


Net Sales Proceeds.  In the case of a transaction described in
clause (i)(A) of the definition of Sale, the proceeds of any such transaction
less the amount of all real estate commissions and closing costs paid by the
Company.  In the case of a transaction
described in clause (i)(B) of such definition, Net Sales Proceeds means the
proceeds of any such transaction less the amount of any legal and other selling
expenses incurred in connection with such transaction. In the case of a transaction
described in clause (i)(C) of such definition, Net Sales Proceeds means the
proceeds of any such transaction actually distributed to the Company from the
Joint Venture. In the case of a transaction or series of transactions described
in clause (i)(D) of the definition of Sale, Net Sales Proceeds means the
proceeds of any such transaction less the amount of all commissions and closing
costs paid by the Company.  In the case
of a transaction described in clause (ii) of the definition of Sale, Net Sales Proceeds
means the proceeds of such transaction or series of transactions less all
amounts generated thereby and reinvested in one or more Properties within 180
days thereafter and less the amount of any real estate commissions, closing
costs, and legal and other selling expenses incurred by or allocated to the
Company in connection with such transaction or series of transactions.  Net Sales Proceeds shall also include, in
the case of any lease of a Property consisting of a building only, any Mortgage
Loan, any amounts from tenants, borrowers or lessees that the Company
determines, in its discretion, to be economically equivalent to proceeds of a
Sale.  Net Sales Proceeds shall not
include, as determined by the Company in its sole discretion, any amounts reinvested
in one or more Properties or Mortgage Loans, to repay outstanding indebtedness,
or to establish reserves.


 


Offering Expenses.  Any and all costs and expenses (other than
selling commissions, the marketing support fee, due diligence expense reimbursements
and, in connection with the Initial Offering, the 2000 Offering and the 2002
Offering,  any Soliciting Dealer
Servicing Fees) incurred by the Company, the Advisor or any Affiliate of either
in connection with the qualification and registration of the Company and the
marketing and distribution of Shares, including, without limitation, the
following: legal, accounting and escrow fees; printing, amending,
supplementing, mailing and distributing costs; filing, registration and
qualification fees and taxes; telegraph and telephone costs;


 


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and all advertising
and  marketing expenses, including the
costs related to investor and broker-dealer sales meetings.


 


Operating Expenses.  All costs and expenses incurred by the
Company, as determined under generally accepted accounting principles, which in
any way are related to the operation of the Company or to Company business,
including (a) advisory fees, (b) in connection with the Initial Offering, the
2000 Offering and the 2002 Offering, any Soliciting Dealer Servicing Fees, (c)
the Asset Management Fee, (d) the Performance Fee and (e) the Subordinated
Incentive Fee, but excluding (i) the expenses of raising capital such as
Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing,
registration, and other fees, printing and other such expenses and tax incurred
in connection with the issuance, distribution, transfer, registration and
Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash
expenditures such as depreciation, amortization and bad loan reserves, (v) the
Advisor’s subordinated 10% share of Net Sales Proceeds, and (vi) Acquisition
Fees and Acquisition Expenses, real estate 
commissions on the sale of property, and other expenses connected with
the acquisition, and ownership of real estate interests, mortgage loans or
other property (such as the costs of foreclosure, insurance premiums, legal
services, maintenance, repair and improvement of property).


 


Performance Fee.  The fee payable to the Advisor upon
termination of this Agreement under certain circumstances if certain
performance standards have been met and the Subordinated Incentive Fee has not
been paid.


 


Permanent
Financing.  The
financing to acquire Assets, to pay a fee of 4.5% of any Permanent Financing as
Acquisition Fees, and to refinance outstanding amounts on the Line of
Credit.  Permanent Financing may be in
addition to any borrowing under the Line of Credit.


 


Person.  An individual, corporation, partnership,
estate, trust (including a trust qualified under Section 401(a) or 501(c)(17)
of the Code), a portion of a trust permanently set aside for or to be used
exclusively for the purposes described in Section 642(c) of the Code,
association, private foundation within the meaning of Section 509(a) of the
Code, joint stock company or other entity, or any government or any agency or
political subdivision thereof, and also includes a group as that term is used
for purposes of Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, but does not include an underwriter that participates in a public
offering of Equity Shares for a period of sixty (60) days following the initial
purchase by such underwriter of such Equity Shares in such public offering, provided
that the foregoing exclusion shall apply only if the ownership of such Equity
Shares by an underwriter would not cause the Company to fail to qualify as a
REIT by reason of being “closely  held”
within the meaning of Section 856(a) of the Code or otherwise cause the Company
to fail to qualify as a REIT.


 


Property or
Properties.  Interests
in (i) the real properties, including the buildings located thereon, (ii) the
real properties only, or (iii) the buildings only; any of which are


 


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acquired by the Company,
either directly or through joint ventures, partnerships or other legal
entities.


 


Prospectus.  “Prospectus” means the same as that term as
defined in Section 2(10) of the Securities Act of 1933, as amended, including a
preliminary prospectus, an offering circular as described in Rule 253 of the
General Rules and Regulations under the Securities Act of 1933 or, in the case
of an intrastate offering, any document by whatever name known, utilized for the
purpose of offering and selling securities to the public.


 


Real Estate Asset
Value.  The amount
actually paid or allocated to the purchase, development, construction or
improvement of a Property, exclusive of Acquisition Fees and Acquisition
Expenses.


 


REIT.  A “real estate investment trust” under
Sections 856 through 860 of the Code.


 


Sale or Sales.  (i) Any transaction or series of
transactions whereby: (A) the Company sells, grants, transfers, conveys, or
relinquishes its ownership of any Property or portion thereof, including the
lease of any Property consisting of the building only, and including any event
with respect to any Property which gives rise to a significant amount of
insurance proceeds or condemnation awards; (B) the Company sells, grants, transfers,
conveys, or relinquishes its ownership of all or substantially all of the
interest of the Company in any Joint Venture in which it is a co-venturer or
partner; (C) any Joint Venture in which the Company as a co-venturer or partner
sells, grants, transfers,  conveys, or
relinquishes its ownership of any Property or portion thereof, including any
event with respect to any Property 
which gives rise to insurance claims or condemnation  awards; or (D) the Company sells, grants,
conveys or relinquishes its interest in any Mortgage Loan or other asset, or
portion thereof, including any event with respect to any Mortgage Loan or other
asset which gives rise to a significant amount of insurance proceeds or similar
awards, but (ii) not including any transaction or series of transactions
specified in clause (i)(A), (i)(B), or (i)(C) above in which the proceeds of
such transaction or series of transactions are reinvested in one or more
Properties within 180 days thereafter.


 


Securities.  Any Equity Shares, Excess Shares (as such
terms are defined in the Company’s Articles of Incorporation), any other stock,
shares or other evidences of equity or beneficial or other interests, voting
trust certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as “securities” or any certificates of interest,
shares or participations in, temporary or interim certificates for, receipts
for, guarantees of, or warrants, options or rights to subscribe to, purchase or
acquire, any of the foregoing.


 


Shares.  The common shares of the Company.


 


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Soliciting Dealers.  Broker-dealers that are members of the
National Association of Securities Dealers, Inc., or that are exempt from
broker-dealer registration, and that, in either case, have executed
participating broker or other agreements with the Managing Dealer to sell
Shares.


 


Soliciting Dealer
Servicing Fee.  An annual
fee of .20% of Invested Capital (calculated using Shares sold only in the
Initial Offering, the 2000 Offering and the 2002 Offering) on December 31 of
each year, commencing in the year following the year in which the Initial
Offering, the 2000 Offering or the 2002 Offering terminated, as applicable,
payable to the Managing Dealer, which in turn may reallow all or a portion of
such fee to the Soliciting Dealers whose clients hold Shares purchased in the
Initial Offering, the 2000 Offering or the 2002 Offering, as applicable, on
such date.


 


Sponsor.  Any Person directly or indirectly
instrumental in organizing, wholly or in part, the Company or any Person who
will control, manage or participate in the management of the Company, and any
Affiliate of such Person.  Not included
is any Person whose only relationship with the Company is that of an
independent property manager of Company assets, and whose only compensation is
as such.  Sponsor does not include
independent third parties such as attorneys, accountants, and underwriters
whose only compensation is for professional services. A Person may also be
deemed a Sponsor of the Company by:


 


a.                                       taking
the initiative, directly or indirectly, in founding or organizing the business
or enterprise of the Company, either alone or in conjunction with one or more
other Persons;


 


b.                                      receiving
a material participation in the Company in connection with the founding or
organizing of the business of the Company, in consideration of services or
property, or both services and property;


 


c.                                       having
a substantial number of relationships and contacts with the Company;


 


d.                                      possessing
significant rights to control the Company Properties;


 


e.                                       receiving
fees for providing services to the Company which are paid on a basis that is
not customary in the industry; or


 


f.                                         providing
goods or services to the Company on a basis which was not negotiated at arms
length with the Company.


 


Stockholders.  The registered holders of the Company’s
Equity Shares.


 


Stockholders’ 8%
Return.  As of each
date, an aggregate amount equal to an 8% cumulative, noncompounded, annual
return on Invested Capital.


 


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Subordinated
Disposition Fee.  The
Subordinated Disposition Fee as defined in Paragraph 9(c).


 


Subordinated
Incentive Fee.  The
fee payable to the Advisor under certain circumstances if the Shares are listed
on a national securities exchange or over-the-counter market.  The Subordinated Incentive Fee will not be
paid if Listing occurs on the Pink Sheets or the OTC Bulletin Board.


 


Termination Date.  The date of termination of this Agreement.


 


Total Proceeds.  The Gross Proceeds, plus loan proceeds from
Permanent Financing and amounts outstanding on the Line of Credit that are used
to acquire Properties.


 


Total Property
Cost.  With regard to
any Company Property, an amount equal to the sum of the Real Estate Asset Value
of such Property plus the Acquisition Fees paid in connection with such
Property.


 


2%/25% Guidelines.  The requirement pursuant to the guidelines
of the North American Securities Administrators Association, Inc. that, in any
12 month period, total Operating Expenses may not exceed the greater of 2% of
the Company’s Average Invested Assets during such 12 month period or 25% of the
Company’s Net Income over the same 12 month period.


 


1999 Offering.  The 1999 public offering of 27,500,000
Shares that commenced upon completion of the Initial Offering and was completed
on September 14, 2000.


 


2000 Offering.  The 2000 public offering of 45,000,000 Shares
that commenced upon completion of the 1999 Offering and was completed on April
22, 2002.


 


2002 Offering.  The 2002 public offering of 45,000,000
Shares that commenced upon completion of the 2000 Offering and was completed on
February 4, 2003.


 


2003 Offering.  The 2003 public offering of 175,000,000
Shares that commenced upon completion of the 2002 Offering and was completed on
March 12, 2004.


 


2003 Registration
Statement.  The
Registration Statement (No. 333-98047) on Form S-11, as supplemented through January
26, 2004, pursuant to which Shares were sold in the 2003 Offering.


 


Valuation.  An estimate of value of the Assets of the
Company as determined by an Independent Expert.


 


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(2) Appointment.  The Company hereby appoints the Advisor to
serve as its advisor on the terms and conditions set forth in this Agreement,
and the Advisor hereby accepts such appointment.


 


(3) Duties of the Advisor.  The Advisor undertakes to use its best
efforts to present to the Company potential investment opportunities and to
provide a continuing and suitable investment program consistent with the
investment objectives and policies of the Company as determined and adopted
from time to time by the Directors.  In
performance of this undertaking, subject to the supervision of the Directors
and consistent with the provisions of the Articles of Incorporation and Bylaws
of the Company, the Advisor shall, either directly or by engaging an Affiliate:


 


(a) serve as the
Company’s investment and financial advisor and provide research and economic
and statistical data in connection with the Company’s assets and investment
policies;


 


(b) provide the daily
management of the Company and perform and supervise the various administrative
functions reasonably necessary for the management of the Company;


 


(c) investigate, select,
and, on behalf of the Company, engage and conduct business with such Persons as
the Advisor deems necessary to the proper performance of its obligations
hereunder, including but not limited to, consultants, accountants,
correspondents, lenders, technical advisors, attorneys, brokers, underwriters,
corporate fiduciaries, escrow agents, depositaries, custodians, agents for
collection, insurers, insurance agents, banks, builders, developers, property
owners, mortgagors, and any and all agents for any of the foregoing, including
Affiliates of the Advisor, and Persons acting in any other capacity deemed by
the Advisor necessary or desirable for the performance of any of the services
herein, including but not limited to entering into contracts in the name of the
Company with any of the foregoing;


 


(d) consult with the
officers and Directors of the Company and assist the Directors in the
formulation and implementation of the Company’s financial policies, and, as
necessary, furnish the Directors with advice and recommendations with respect
to the making of investments consistent with the investment objectives and
policies of the Company and in connection with any borrowings proposed to be
undertaken by the Company;


 


(e) subject to the
provisions of Paragraphs 3(g) and 4 hereof, (i) locate, analyze and select
potential investments in Properties, Mortgage Loans and other investments, (ii)
structure and negotiate the terms and conditions of transactions pursuant to
which investment in Properties, Mortgage Loans and other investments will be
made by the Company; (iii) make investments in Properties, Mortgage Loans and
other investments on behalf of the Company in compliance with the investment
objectives and policies of the Company; (iv) arrange for financing and
refinancing and make other


 


12

















 


changes in the asset or
capital structure of, and dispose of, reinvest the proceeds from the sale of,
or otherwise deal with the investments in, Properties, Mortgage Loans and other
investments; and (v) enter into leases and service contracts for Company
Property and, to the extent necessary, perform all other operational functions
for the maintenance and administration of such Company Property;


 


(f) provide the Directors
with periodic reports regarding prospective investments;


 


(g) obtain the prior
approval of the Directors for any and all investments in Properties, Mortgage
Loans (with respect to which the vote of a majority of the Independent
Directors must be obtained), or other assets;


 


(h) negotiate on behalf
of the Company with banks or lenders for loans to be made to the Company and
negotiate on behalf of the Company with investment banking firms and
broker-dealers or negotiate private sales of Shares and Securities or obtain
loans for the Company, but in no event in such a way so that the Advisor shall
be acting as broker-dealer or underwriter; and provided, further, that any fees
and costs payable to third parties incurred by the Advisor in connection with
the foregoing shall be the responsibility of the Company;


 


(i) obtain reports (which
may be prepared by the Advisor or its Affiliates), where appropriate,
concerning the value of investments or contemplated investments of the Company;


 


(j) from time to time, or
at any time reasonably requested by the Directors, make reports to the
Directors of its performance of services to the Company under this Agreement;


 


(k) provide the Company
with all necessary cash management services;


 


(l) do all things
necessary to assure its ability to render the services described in this
Agreement;


 


(m) deliver to or
maintain on behalf of the Company copies of all appraisals obtained in
connection with the investments in Properties and Mortgage Loans; and


 


(n) notify the Board of
all proposed material transactions before they are completed.


 


(4) Authority of Advisor.


 


(a) Pursuant to the terms
of this Agreement (including the restrictions included in this Paragraph 4 and in
Paragraph 7), and subject to the continuing and exclusive authority of the
Directors over the management of the Company, the Directors hereby


 


13

















 


delegate to the Advisor
the authority to (1) locate, analyze and select investment opportunities, (2)
structure the terms and conditions of transactions pursuant to which
investments will be made or acquired for the Company, (3) acquire Properties
and make Mortgage Loans and other investments in compliance with the  investment objectives and policies of the
Company, (4) arrange for financing or refinancing with respect to Properties
and Mortgage Loans, (5) enter into leases and service contracts for the
Company’s Property, and perform other property 
management services, (6) oversee non-affiliated property managers and
other non-affiliated Persons who perform services for the Company; and (7)
undertake accounting and other record-keeping functions at the Property level.


 


(b) Notwithstanding the
foregoing, any investment in Properties or Mortgage Loans (whether directly or
indirectly), including any acquisition of a Property by the Company (as well as
any financing acquired by the Company in connection with such acquisition) will
require the prior approval of the Directors (including a majority of the
Independent Directors with respect to investments in Mortgage Loans).


 


(c) If a transaction
requires approval by the Independent Directors, the Advisor will deliver to the
Independent Directors all documents required by them to properly evaluate the
proposed investment in the Property or Mortgage Loan.  The prior approval of a majority of the Independent Directors and
a majority of the Directors not otherwise interested in the transaction will be
required for each transaction with the Advisor or its Affiliates.


 


The Directors may, at any
time upon the giving of notice to the Advisor, modify or revoke the authority
set forth in this Paragraph 4. If and to the extent the Directors so modify or
revoke the authority contained herein, the Advisor shall henceforth submit to
the Directors for prior approval such proposed transactions involving
investments as thereafter require prior approval, provided, however, that such
modification or revocation shall be effective upon receipt by the Advisor and
shall not be applicable to investment transactions to which the Advisor has
committed the Company prior to the date of receipt by the Advisor of such
notification.


 


(5) Bank Accounts.  The Advisor may establish and maintain one or more bank accounts
in its own name for the account of the Company or in the name of the Company
and may collect and deposit into any such account or accounts, and disburse
from any such account or accounts, any money on behalf of the Company, under
such terms and conditions as the Directors may approve, provided that no funds
shall be commingled with the funds of the Advisor; and the Advisor shall from
time to time render appropriate accountings of such  collections  and payments
to the Directors and to the auditors of the Company.


 


(6) Records; Access.  The Advisor shall maintain appropriate records of all its
activities hereunder and make such records available for inspection by the
Directors and by counsel, auditors and authorized agents of the Company, at any
time or from time to


 


14

















 


time during normal
business hours. The Advisor shall at all reasonable times have access to the
books and records of the Company.


 


(7) Limitations on Activities.  Anything else in this Agreement to the
contrary notwithstanding, the Advisor shall refrain from taking any action
which, in its sole judgment made in good faith, would (a) adversely affect the
status of the Company as a REIT, (b) subject the Company to regulation under the
Investment Company Act of 1940, or (c) violate any law, rule, regulation or
statement of policy of any governmental body or agency having jurisdiction over
the Company, its Equity Shares or its Securities, or otherwise not be permitted
by the Articles of Incorporation or Bylaws of the Company, except if such
action shall be ordered by the Directors, in which case the Advisor shall
notify promptly the Directors of the Advisor’s judgment of the potential impact
of such action and shall refrain from taking such action until it receives
further clarification or  instructions
from the Directors.  In such event the
Advisor shall have no liability for acting in accordance with the specific
instructions of the Directors so given. 
Notwithstanding the foregoing, the Advisor, its directors, officers,
employees and stockholders, and stockholders, directors and officers of the
Advisor’s Affiliates shall not be liable to the Company or to the Directors or
Stockholders for any act or omission by the Advisor, its directors, officers or
employees, or stockholders, directors or officers of the Advisor’s Affiliates,
except as provided in Paragraphs 21 and 22 of this Agreement.


 


(8) Relationship with Directors.  Directors, officers and employees of the
Advisor or an Affiliate of the Advisor or any corporate parents of an
Affiliate, or directors, officers or stockholders of any director, officer or
corporate parent of an Affiliate may serve as a Director and as officers of the
Company, except that no director, officer or employee of the Advisor or its
Affiliates who also is a Director or officer of the Company shall receive any
compensation from the Company for serving as a Director or officer of the
Company other than reasonable reimbursement for travel and related expenses
incurred in attending meetings of the Directors of the Company.


 


(9) Fees.


 


(a) Asset Management
Fee.  The Company shall pay to the
Advisor as compensation for the advisory services rendered to the Company under
Paragraph 3 above a monthly fee in an amount equal to one-twelfth of .60% of
the Company’s Real Estate Asset Value and the outstanding principal amount of
the Mortgage Loans (the “Asset Management Fee”), as of the end of the preceding
month.  Specifically, Real Estate Asset
Value equals the amount invested in the Properties wholly owned by the Company,
determined on the basis of cost, plus, in the case of Properties owned by any
Joint Venture or partnership in which the Company is a co-venturer or partner,
the portion of the cost of such Properties paid by the Company, exclusive of
Acquisition Fees and Acquisition Expenses. 
The Asset Management Fee shall be payable monthly on the last day of
such month, or the first business day following the last day of such month.  The Asset Management Fee, which will not
exceed fees which are competitive for similar services in the same geographic
area, may or may not be taken, in whole or in part as to


 


15

















 


any year, in the sole
discretion of the Advisor.  All or any
portion of the Asset Management Fee not taken as to any fiscal year shall be
deferred without interest and may be taken in such other fiscal year, as the
Advisor shall determine.


 


(b) Acquisition Fees.  The Company shall pay the Advisor a fee in
the amount of 4.5% of Total Proceeds as Acquisition Fees.  Acquisition Fees shall be reduced to the
extent that, and, if necessary to limit, the total compensation paid to all
persons involved in the acquisition of any Property to the amount customarily
charged in arm’s-length transactions by other persons or entities rendering
similar services as an ongoing public activity in the same geographical
location and for comparable types of Properties and to the extent that other
acquisition fees, finder’s fees, real estate commissions, or other similar fees
or commissions are paid by any person 
in connection with the transaction. 
The total of all Acquisition Fees and any Acquisition Expenses shall be
limited in accordance with the Articles of Incorporation.  In addition, no Acquisition Fees will be
paid on loan proceeds from the Line of Credit until such time as all net
offering proceeds (Gross Proceeds less selling commissions, Offering Expenses,
the marketing support fee and due diligence reimbursements) of the 2003 Offering
have been invested by the Company.


 


(c) Subordinated
Disposition Fee.  If the Advisor or
an Affiliate provides a substantial amount of the services (as determined by a
majority of the Independent Directors) in connection with the Sale of one or
more Properties, the Advisor or an Affiliate shall receive a Subordinated
Disposition Fee equal to the lesser of (i) one-half of a Competitive Real
Estate Commission or (ii) 3% of the sales price of such Property or
Properties.  The Subordinated
Disposition Fee will be paid only if Stockholders have received total
Distributions in an amount equal to the sum of their aggregate Invested Capital
and their aggregate Stockholders’ 8% Return. 
To the extent that Subordinated Disposition Fees are not paid by the
Company on a current basis due to the foregoing limitation, the unpaid fees
will be accrued and paid at such time as the subordination conditions have been
satisfied.  The Subordinated Disposition
Fee may be paid in addition to real estate commissions paid to non-Affiliates,
provided that the total real estate commissions paid to all Persons by the
Company (including the Subordinated Disposition Fee) shall not exceed an amount
equal to the lesser of (i) 6% of the Contract Sales Price of a Property or (ii)
the Competitive Real Estate Commission. 
In the event this Agreement is terminated prior to such time as the
Stockholders have received total Distributions in an amount equal to 100% of
Invested Capital plus an amount sufficient to pay the Stockholders’ 8% Return
through the Termination Date, an appraisal of the Properties then owned by the
Company shall be made and the Subordinated Disposition Fee on Properties
previously sold will be deemed earned if the Appraised Value of the Properties
then owned by the Company plus total Distributions received prior to the
Termination  Date equals 100% of
Invested Capital plus an amount sufficient to pay the Stockholders’ 8% Return
through the Termination  Date. Upon
Listing, if the Advisor has accrued but not been paid such Subordinated
Disposition Fee, then for purposes of determining whether the subordination
conditions have been satisfied, Stockholders will be deemed to have received a
Distribution in the amount equal to the product of the total


 


16

















 


number of Shares outstanding and the average closing price of the
Shares over a period, beginning 180 days after Listing, of 30 days during which
the Shares are traded.


 


(d) Subordinated Share
of Net Sales Proceeds.  The
Subordinated Share of Net Sales Proceeds shall be payable to the Advisor in an
amount equal to 10% of Net Sales Proceeds from Sales of Assets of the Company
after the Stockholders have received Distributions equal to the sum of the
Stockholders’ 8% Return and 100% of Invested Capital.  Following Listing, no Subordinated Share of Net Sales Proceeds
will be paid to the Advisor.


 


(e) Subordinated
Incentive Fee.  Upon Listing (other
than on the Pink Sheets or the OTC Bulletin Board), the Advisor shall be paid
the Subordinated Incentive Fee in an amount equal to 10% of the amount by which
(i) the market value of the Company, measured by taking the average closing
price or average of bid and asked price, as the case may be, over a period of
30 days during which the Shares are traded, with such period beginning 180 days
after Listing (the “Market Value”), plus the total Distributions paid to
Stockholders from the Company’s inception until the date of Listing, exceeds
(ii) the sum of (A) 100% of Invested Capital and (B) the total  Distributions required to be paid to
the  Stockholders  in order to pay the  Stockholders’  8% Return from  inception
through the date the Market Value is determined.  The Company shall have the option to pay such fee in the form of
cash, Securities, a promissory note or any combination of the foregoing.  The Subordinated Incentive Fee will be
reduced by the amount of any prior payment to the Advisor of a deferred,
Subordinated Share of Net Sales Proceeds from Sales of assets of the Company.


 


(f) Loans from
Affiliates.  If any loans are made
to the Company by an Affiliate of the Advisor, the maximum amount of interest
that may be charged by such Affiliate shall be the lesser of (i) 1% above the
prime rate of interest charged from time to time by The Bank of New York and
(ii) the rate that would be charged to the Company by unrelated lending
institutions on comparable loans for the same purpose.  The terms of any such loans shall be no less
favorable than the terms available between non-Affiliated Persons for similar
commercial loans.


 


(g) Changes to Fee
Structure.  In the event of Listing,
the Company and the Advisor shall negotiate in good faith to establish a fee
structure appropriate for a perpetual-life entity. A majority of the
Independent Directors must approve the new fee structure negotiated with the
Advisor. In negotiating a new fee structure, the Independent Directors shall
consider all of the factors they deem relevant, including, but not limited
to:  (i) the amount of the advisory fee
in relation to the asset value, composition and profitability of the Company’s
portfolio;  (ii) the success of the
Advisor in generating opportunities that meet the investment objectives of the
Company;  (iii) the rates charged to
other REITs and to investors other than REITs by advisors performing the same
or similar services;  (iv) additional
revenues realized by the Advisor and its Affiliates through their relationship
with the Company, including loan administration, underwriting or broker
commissions, servicing, engineering, inspection and other fees, whether paid by


 


17

















 


the Company or by others with whom the Company does business;  (v) the quality and extent of service and
advice furnished by the Advisor; (vi) the performance of the investment
portfolio of the Company, including income, conversion or appreciation of
capital, and number and frequency of problem investments; and (vii) the quality
of the Property and Mortgage Loan portfolio of the Company in relationship to
the investments generated by the Advisor for its own account. The new fee
structure can be no more favorable to the Advisor than the current fee
structure.


 


(10) Expenses.


 


(a) In addition to the
compensation paid to the Advisor pursuant to Paragraph 9 hereof, the Company
shall pay directly or reimburse the Advisor for all of the expenses paid or
incurred by the Advisor in connection with the services it provides to the
Company pursuant to this Agreement, including, but not limited to:


 


(i) the Company’s
Offering Expenses;


 


(ii) Acquisition Expenses
incurred in connection with the selection and acquisition of Properties or the
making of Mortgage Loans, for goods and services provided by the Advisor at the
lesser of the actual cost or 90% of the competitive rate charged by
unaffiliated persons providing similar goods and services in the same
geographic location;


 


(iii) the actual cost of
goods and materials used by the Company and obtained from entities not
affiliated with the Advisor, other than Acquisition Expenses, including
brokerage fees paid in connection with the purchase and sale of securities;


 


(iv) interest and other
costs for borrowed money, including discounts, points and other similar fees;


 


(v) taxes and assessments
on income or Property and taxes as an expense of doing business;


 


(vi) costs associated
with insurance required in connection with the business of the Company or by
the Directors;


 


(vii) expenses of
managing and operating Properties owned by the Company, whether payable to an
Affiliate of the Company or a non-affiliated Person;


 


(viii) all expenses in
connection with payments to the Directors and meetings of the Directors and
Stockholders;


 


(ix) expenses associated
with Listing or with the issuance and distribution of Shares and Securities,
such as selling commissions and fees, advertising expenses, taxes, legal and
accounting fees, and Listing and registration fees;


 


18

















 


(x) expenses connected
with payments of Distributions in cash or otherwise made or caused to be made
by the Directors to the Stockholders;


 


(xi) expenses of
organizing, revising, amending, converting, modifying, or terminating the
Company or the Articles of Incorporation;


 


(xii) expenses of
maintaining communications with Stockholders, including the cost of
preparation, printing, and mailing annual reports and other Stockholder
reports, proxy statements and other reports required by governmental entities;


 


(xiii) expenses related
to negotiating and servicing Mortgage Loans;


 


(xiv) administrative
service expenses (including personnel costs; provided, however, that no
reimbursement shall be made for costs of personnel to the extent that such
personnel perform services in transactions for which the Advisor receives a
separate fee at the lesser of actual cost or 90% of the competitive rate
charged by unaffiliated persons providing similar goods and services in the
same geographic location); and


 


(xv) audit, accounting
and legal fees.


 


(b) Expenses incurred by
the Advisor on behalf of the Company and payable pursuant to this Paragraph 10
shall be reimbursed no less than monthly to the Advisor.  The Advisor shall prepare a statement
documenting the expenses of the Company during each quarter, and shall deliver
such statement to the Company within 45 days after the end of each quarter.


 


(11) Other Services.  Should the Directors request that the
Advisor or any director, officer or employee thereof render services for the
Company other than set forth in Paragraph 3, such services shall be separately
compensated at such rates and in such amounts as are agreed by the Advisor and
the Independent Directors of the Company, subject to the limitations contained
in the Articles of Incorporation, and shall not be deemed to be services pursuant
to the terms of this Agreement.


 


(12) Fidelity Bond.  The Advisor shall maintain a fidelity bond
for the benefit of the Company which bond shall insure the Company from losses
of up to $10 million per occurrence and shall be of the type customarily purchased
by entities performing services similar to those provided to the Company by the
Advisor.


 


(13) Reimbursement to the Advisor.  The Company shall not reimburse the Advisor
at the end of any fiscal quarter for Operating Expenses that, in the four
consecutive fiscal quarters then ended (the “Expense Year”) exceed the greater
of 2% of Average Invested Assets or 25% of Net Income (the “2%/25% Guidelines”)
for such year.  Within 60 days after the
end of any fiscal quarter of the Company for which total


 


19

















 


Operating Expenses for
the Expense Year exceed the 2%/25% Guidelines, the Advisor shall reimburse the
Company the amount by which the total Operating Expenses paid or incurred by
the Company exceed the 2%/25% Guidelines. 
The Company will not reimburse the Advisor or its Affiliates for
services for which the Advisor or its Affiliates are entitled to compensation
in the form of a separate fee. All figures used in the foregoing computation
shall be determined in accordance with generally accepted accounting principles
applied on a consistent basis.


 


(14) Other Activities of the Advisor.  Nothing herein contained shall prevent the
Advisor from engaging in other activities, including, without limitation, the
rendering of advice to other Persons (including other REITs) and the management
of other programs advised, sponsored or organized by the Advisor or its
Affiliates; nor shall this Agreement limit or restrict the right of any
director, officer, employee, or stockholder of the Advisor or its Affiliates to
engage in any other business or to render services of any kind to any other
partnership, corporation, firm, individual, trust or association. The Advisor
may, with respect to any investment in which the Company is a participant, also
render advice and service to each and every other participant therein.  The Advisor shall report to the Directors
the existence of any condition or circumstance, existing or anticipated, of
which it has knowledge, which creates or could create a conflict of interest
between the Advisor’s obligations to the Company and its obligations to or its
interest in any other partnership, corporation, firm, individual, trust or
association.  The Advisor or its
Affiliates shall promptly disclose to the Directors knowledge of such condition
or circumstance.  If the Sponsor,
Advisor, Director or Affiliates thereof have sponsored other investment
programs with similar investment objectives which have investment funds
available at the same time as the Company, it shall be the duty of the
Directors (including the Independent Directors) to adopt the method set forth
in the 2003 Registration Statement or another reasonable method by which
properties are to be allocated to the competing investment entities and to use
their best efforts to apply such method fairly to the Company.


 


The Advisor shall be
required to use its best efforts to present a continuing and suitable
investment program to the Company which is consistent with the investment
policies and objectives of the Company, but neither the Advisor nor any
Affiliate of the Advisor shall be obligated generally to present any particular
investment opportunity to the Company even if the opportunity is of the
character which, if presented to the Company, could be taken by the Company.
The Advisor or its Affiliates may make such an investment in a property only
after (i) such investment has been offered to the Company and all public
partnerships and other investment entities affiliated with the Company with funds
available for such investment and (ii) such investment is found to be
unsuitable for investment by the Company, such partnerships and investment
entities.


 


In the event that the
Advisor or its Affiliates is presented with a potential investment which might
be made by the Company and by another investment entity which the Advisor or
its Affiliates advises or manages, the Advisor and its Affiliates shall
consider the investment portfolio of each entity, cash flow of each entity, the
effect of the


 


20

















 


acquisition on the diversification of each entity’s portfolio, rental
payments during any renewal period, the estimated income tax effects of the
purchase on each entity, the policies of each entity relating to leverage, the
funds of each entity available for investment and the length of time such funds
have been available for investment.  In
the event that an investment opportunity becomes available which is suitable
for both the Company and a public or private entity which the Advisor or its
Affiliates are Affiliated, then the entity which has had the longest period of
time elapse since it was offered an investment opportunity will first be
offered the investment opportunity.


 


(15) Relationship of Advisor and Company.  The Company and the Advisor are not partners
or joint venturers with each other, and nothing in this Agreement shall be
construed to make them such partners or joint venturers or impose any liability
as such on either of them.


 


(16) Term; Termination of Agreement.  This Agreement shall continue in force until
March 31, 2005, subject to an unlimited number of successive one-year renewals
upon mutual consent of the parties.  It
is the duty of the Directors to evaluate the performance of the Advisor annually
before renewing the Agreement, and each such agreement shall have a term of no
more than one year.


 


(17) Termination by Either Party.  This Agreement may be terminated upon 60
days written notice without Cause or penalty, by either party or by the mutual
consent of the parties (by a majority of the Independent Directors of the
Company or a majority of the Board of Directors of the Advisor, as the case may
be).


 


(18) Assignment to an Affiliate.  This Agreement may be assigned by the
Advisor to an Affiliate with the approval of a majority of the Directors
(including a majority of the Independent Directors).  The Advisor may assign any rights to receive fees or other
payments under this Agreement without obtaining the approval of the
Directors.  This Agreement shall not be
assigned by the Company without the consent of the Advisor, except in the case
of an assignment by the Company to a corporation or other organization which is
a successor to all of the assets, rights and obligations of the Company, in which
case such successor organization shall be bound hereunder and by the terms of
said assignment in the same manner as the Company is bound by this Agreement.


 


(19) Subcontracts with Affiliates.  The Advisor may subcontract with an
Affiliate for a portion of the services and duties to be performed under this
Agreement without obtaining the approval of the Directors to the extent such
services or duties are primarily administrative in nature.  The Advisor may further subcontract any
rights to receive fees or other payments for such services or duties under this
Agreement without obtaining the approval of the Directors.


 


21

















 


(20) Payments to and Duties of Advisor Upon Termination.  Payments to the Advisor pursuant to this
Paragraph 20 shall be subject to the 2%/25% Guidelines to the extent
applicable.


 


(a) After the Termination
Date, the Advisor shall not be entitled to compensation for further services
hereunder except it shall be entitled to receive from the Company within 30
days after the effective date of such termination all unpaid reimbursements of
expenses and all earned but unpaid fees payable to the Advisor prior to
termination of this Agreement, exclusive of disputed items arising out of
possible unauthorized transactions.


 


(b) Upon termination, the
Advisor shall be entitled to payment of the Performance Fee if performance
standards satisfactory to a majority of the Board of Directors, including a
majority of the Independent Directors, when compared to (a) the performance of
the Advisor in comparison with its performance for other entities, and (b) the
performance of other advisors for similar entities, have been met. If Listing
has not occurred, the Performance Fee, if any, shall equal 10% of the amount,
if any, by which (i) the appraised value of the assets of the Company on the
Termination Date, less the amount of all indebtedness secured by such assets,
plus the total Distributions paid to stockholders from the Company’s inception
through the Termination Date, exceeds (ii) Invested Capital plus an amount
equal to the Stockholders’ 8% Return from inception through the Termination
Date. The Advisor shall be entitled to receive all accrued but unpaid
compensation and expense reimbursements in cash within 30 days of the
Termination Date. All other amounts payable to the Advisor in the event of a
termination shall be evidenced by a promissory note and shall be payable from
time to time.


 


(c) The Performance Fee
shall be paid in 12 equal quarterly installments without interest on the unpaid
balance, provided, however, that no payment will be made in any quarter in
which such payment would jeopardize the Company’s REIT status, in which case
any such payment or payments will be delayed until the next quarter in which
payment would not jeopardize REIT status. 
Notwithstanding the preceding sentence, any amounts which may be deemed
payable at the date the obligation to pay the Performance Fee is incurred which
relate to the appreciation of the Company’s assets shall be an amount which
provides compensation to the terminated Advisor only for that portion of the
holding period for the respective assets during which the Advisor provided
services to the Company.


 


(d) If Listing occurs,
the Performance Fee, if any, payable thereafter will be as negotiated between
the Company and the Advisor.  The
Advisor shall not be entitled to payment of the Performance Fee in the event
this Agreement is terminated because of failure of the Company and the Advisor
to establish, pursuant to Paragraph 9(g) hereof, a fee structure appropriate
for a perpetual-life entity at such time, if any, as Listing occurs.  The Performance Fee, to the extent payable
at the time of Listing, will not be payable in the event the Subordinated
Incentive Fee is paid.


 


22

















 


(e) The Advisor shall
promptly upon termination:


 


(i) pay over to the
Company all money collected and held for the account of the Company pursuant to
this Agreement, after deducting any accrued compensation and reimbursement for
its expenses to which it is then entitled;


 


(ii) deliver to the
Directors a full accounting, including a statement showing all payments
collected by it and a statement of all money held by it, covering the period
following the date of the last accounting furnished to the Directors;


 


(iii) deliver to the
Directors all assets, including Properties and Mortgage Loans, and documents of
the Company then in the custody of the Advisor; and


 


(iv) cooperate with the
Company to provide an orderly management transition.


 


(21) Indemnification by the Company.  The Company shall indemnify and hold
harmless the Advisor and its Affiliates, including their respective officers,
directors, partners and employees, from all liability, claims, damages or
losses arising in the performance of their duties hereunder, and related
expenses, including reasonable attorneys’ fees, to the extent such liability,
claims, damages or losses and related expenses are not fully reimbursed by
insurance, subject to any limitations imposed by the laws of the State of
Maryland or the Articles of Incorporation of the Company.  Notwithstanding the foregoing, the Advisor
shall not be entitled to indemnification or be held harmless pursuant to this
Paragraph 21 for any activity for which the Advisor shall be required to
indemnify or hold harmless the Company pursuant to Paragraph 22. Any
indemnification of the Advisor may be made only out of the net assets of the
Company and not from Stockholders.


 


(22) Indemnification by Advisor.  The Advisor shall indemnify and hold
harmless the Company from contract or other liability, claims, damages, taxes
or losses and related expenses including attorneys’ fees, to the extent that
such liability, claims, damages, taxes or losses and related expenses are not
fully reimbursed by insurance and are incurred by reason of the Advisor’s bad
faith, fraud, misconduct, or negligence, but the Advisor shall not be held
responsible for any action of the Board of Directors in following or declining
to follow  any advice or recommendation
given by the Advisor.


 


(23) Notices.  Any notice, report or other communication
required or permitted to be given hereunder shall be in writing unless some
other method of giving such notice, report or other communication is required
by the Articles of Incorporation, the Bylaws, or accepted by the party to whom
it is given, and shall be given by being delivered by hand or by overnight mail
or other overnight delivery service to the addresses set forth herein:


 


23

















 


	
  To the Directors and to
  the Company:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  CNL Hospitality
  Properties, Inc.

  
	
   

  	
   

  	
  450 South Orange Avenue

  
	
   

  	
   

  	
  Orlando, Florida 32801

  
	
   

  	
   

  	
   

  
	
  To the Advisor:

  	
   

  	
  CNL Hospitality Corp.

  
	
   

  	
   

  	
  450 South Orange Avenue

  
	
   

  	
   

  	
  Orlando, Florida 32801

  



 


Either party may at any
time give notice in writing to the other party of a change in its address for
the purposes of this Paragraph 23.


 


(24) Modification.  This Agreement shall not be changed,
modified, terminated, or discharged, in whole or in part, except by an
instrument in writing signed by both parties hereto, or their respective
successors or assignees.


 


(25) Severability.  The provisions of this Agreement are
independent of and severable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for
any reason any other or others of them may be invalid or unenforceable in whole
or in part.


 


(26) Construction.  The provisions of this Agreement shall be
interpreted, construed and enforced in all respects in accordance with the laws
of the State of Florida applicable to contracts to be made and performed
entirely in said state.


 


(27) Entire Agreement.  This Agreement contains the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or
written, of any nature whatsoever with respect to the subject matter hereof.  The express terms hereof control and
supersede any course of performance and/or usage of the trade inconsistent with
any of the terms hereof. This Agreement may not be modified or amended other
than by an agreement in writing.


 


(28) Indulgences, Not Waivers.  Neither the failure nor any delay on the
part of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. 
No waiver shall be effective unless it is in writing and is signed by
the party asserted to have granted such waiver.


 


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(29) Gender.  Words used herein regardless of the number
and gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context requires.


 


(30) Titles Not to Affect Interpretation.  The titles of paragraphs and subparagraphs
contained in this Agreement are for convenience only, and they neither form a
part of this Agreement nor are they to be used in the construction or
interpretation hereof.


 


(31) Execution in Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. 
This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories.


 


(32) Name.  CNL Hospitality Corp. has a proprietary
interest in the name “CNL.” 
Accordingly, and in recognition of this right, if at any time the
Company ceases to retain CNL Hospitality Corp. or an Affiliate thereof to
perform the services of Advisor, the Directors of the Company will, promptly
after receipt of written request from CNL Hospitality Corp., cease to conduct
business under or use the name “CNL” or any diminutive thereof and the Company
shall use its best efforts to change the name of the Company to a name that
does not contain the name “CNL” or any other 
word or words  that might, in the
sole discretion of the Advisor, be susceptible of indication of some form of
relationship between the Company and the Advisor or any Affiliate thereof.  Consistent with the foregoing, it is
specifically recognized that the Advisor or one or more of its Affiliates has
in the past and may in the future organize, sponsor or otherwise permit to
exist other investment vehicles (including vehicles for investment in real
estate) and financial and service organizations having “CNL” as a part of their
name, all without the need for any consent 
(and without the right to object thereto) by the Company or its
Directors.


 


(33) Initial Investment.  The Advisor has contributed to the Company
$200,000 in exchange for 20,000 Equity Shares (the  “Initial Investment”).  The
Advisor may not sell these shares while the Advisory Agreement is in effect,
although the Advisor may transfer such shares to Affiliates.  The restrictions included above shall not
apply to any Equity Shares, other than the Equity Shares acquired through the
Initial Investment, acquired by the Advisor or its Affiliates.  The Advisor shall not vote any Equity Shares
it now owns, or hereafter acquires, in any vote for the removal of Directors or
any vote regarding the approval or termination of any contract with the Advisor
or any of its Affiliates.


 


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


 


	
   

  	
  CNL HOSPITALITY
  PROPERTIES, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ James M. Seneff,
  Jr.

  	
   

  
	
   

  	
   

  	
  Name: James M. Seneff,
  Jr.

  
	
   

  	
   

  	
  Its: Chairman of the
  Board

  
	
   

  	
   

  	
   

  
	
   

  	
  CNL HOSPITALITY CORP.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John A. Griswold

  	
   

  
	
   

  	
   

  	
  Name: John A. Griswold

  
	
   

  	
   

  	
  Its: President

  
					



 


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