**EXHIBIT 10.2**
**EMPLOYMENT AGREEMENT**
     This Employment Agreement (“Agreement”) is made and entered into by**Winston Hotels, Inc.**, a North Carolina corporation (hereinafter the“Corporation”), and **James P. Frey**(hereinafter the “Employee”).
     The Corporation desires to employ Employee and Employee desires to acceptsuch employment on the terms set forth below.
     In consideration of the mutual promises set forth below and other good andvaluable consideration, the receipt and sufficiency of which the partiesacknowledge, the Corporation and Employee agree as follows:
     **1. Employment.**The Corporation employs Employee and Employee acceptsemployment on the terms and conditions set forth in this Agreement.
     **2. Nature Of Employment.**
          Employee shall serve as the Vice President–Barclay Design of theCorporation and shall have such responsibilities and authority consistent withsuch positions as may be reasonably assigned to him by the Board of Directorsof the Corporation. Employee shall devote his full time and attention and bestefforts to perform successfully his duties and advance the Corporation’sinterests. Employee shall abide by the Corporation’s policies, procedures, andpractices as they may exist from time to time.
     During this employment, Employee shall have no other employment of anynature whatsoever without the prior consent of the Corporation;
 

 

provided, however, this Agreement shall not prohibit Employee from personallyowning and dealing in stocks, bonds, securities, real estate, commodities orother investment properties for his own benefit.
     **3. Compensation and Benefits.**
          (a) Salary. Compensation for Employee’s services under this Agreementinitially shall be One Hundred Forty-Three Thousand Five Hundred Dollars($143,500) per year, payable in accordance with the Corporation’s reasonablepolicies, procedures, and practices as they may exist from time to time. TheEmployee’s salary shall be reviewed annually by the Corporation’s ChiefExecutive Officer or Board of Directors as of December 31 and by February 15 ofeach year and may be changed in the CEO’s or Board’s reasonable discretion.
          (b) Bonus. Employee shall be entitled to earn an annual bonus of up tofifty percent (50%) of his annual salary with the specific amount to bereviewed and determined annually by the Corporation’s Board of Directors.
          (c) Benefits. Employee may participate in any medical insurance or otheremployee benefit plans and programs which may be made available from time totime to other Corporation employees at Employee’s level; provided, however,that Employee’s participation in such benefit plans and programs is subject tothe applicable terms, conditions, and eligibility requirements of those plansand programs, some of which are within the plan administrator’s discretion, asthey may exist from time to time.
          (d) Expenses. Employee shall be reimbursed by the Corporation for anyreasonable expenses incurred by Employee on behalf of the Corporation or inconnection with Employee’s performance of his
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duties hereunder. Such reimbursement shall be in accordance with theCorporation’s practices or policies as they may exist from time to time.
          (e) Vacation. Employee shall be entitled to four (4) weeks of vacationeach year. Such vacation shall be taken in accordance with the Corporation’spolicies and practices as they may exist from time to time.
     **4. Term Of Employment.**Unless terminated earlier as provided herein, theoriginal term of employment under this Agreement shall be for three (3) yearscommencing on the date hereof. Upon the expiration of the original term ofemployment or any subsequent term, this Agreement shall be automaticallyrenewed for an additional one (1) year period unless either party gives theother ninety (90) days prior written notice of intent not to renew.
     **5. Termination of Employment.**
          (a) With Notice. Either the Corporation or Employee may terminate thisAgreement during the original or any extension term of employment by givingninety (90) days prior written notice to the other party. If the Corporationterminates this Agreement with such notice, or gives a notice of non-renewalpursuant to Section 4 of this Agreement, then Employee shall be entitled to anamount equal to the sum of (i) the Employee’s then current monthly salarymultiplied by 12 plus (ii) an accrued bonus amount equal to 50% of theEmployee’s then current annual salary pro rated from the first day of thecalendar year in which such notice is given through and including the day anddate that the Employee leaves the employment of the Company, with said amountto be paid in a lump sum upon the date of termination of this Agreement.
          (b) Cause, Disability, or Death. The Corporation may terminate Employee’semployment immediately for “Disability,” “Cause,”
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or in the event of Employee’s death. For purposes of this Agreement,Disability shall mean a mental or physical condition, or both, thatsubstantially interferes with Employee’s ability to perform satisfactorily hisusual duties for the Corporation for a period of more than six (6) consecutivemonths upon the certificate of a qualified physician approved by theCorporation. For purposes of this Agreement, Cause shall mean: (i) any act ofEmployee’s in connection with his employment and relating to the Corporation’sbusiness, including but not limited to, gross negligence, which is materiallydetrimental to the Corporation’s interests; (ii) any act of willful misconduct,unlawfulness or dishonesty by Employee in connection with his employment, whichis materially detrimental to the Corporation’s interests; (iii) the Employee’sfailure to (a) perform his job in a reasonably satisfactory manner followingtwo consecutive notice and cure periods as set forth below; or, (b) comply withthe Corporation’s reasonable directions; or (iv) Employee’s material breach ofthis Agreement. Employee shall be given written notice and a thirty (30) dayopportunity to cure any deficiencies arising under Sections 5(b) (i), (iii) and(iv) above.
     In the event of termination for Cause, the Corporation’s obligation tocompensate Employee ceases on the date of termination except as to the amountsof salary due at that time. In the event of termination for Disability, theCorporation shall pay Employee’s then current annual salary (reduced by anypayments Employee receives from disability insurance) and any bonus to which hemay be entitled equal to 50% of the Employee’s then current annual salary fora period of one year from the date of termination. In the event of terminationfor death, the Corporation shall pay Employee’s estate any salary and proratedbonuses to which he may be entitled as of the date of termination.
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     **6. Non-Competition and Non-Solicitation.**
     (a) During the Executive’s employment with the Company and for a periodof eighteen (18) months following the Executive’s Date of Termination, theExecutive shall not, for himself or on behalf of or in conjunction with anyother person, persons, company, firm, partnership, corporation, business, groupor other entity (each, a “Person”), work in the principal line of businessengaged in, or planned to be engaged in, by the Company at the Date ofTermination within any state where the Company is doing business or has plansfor commencing business as of the Date of Termination. The Executive’s passiveownership of less than five percent (5%) of the securities of a company shallnot be treated as an action in competition with the Company.
     (b) Executive hereby acknowledges and agrees that his employment with theCompany places him in a position of trust and confidence with respect to thebusiness operations, customers, prospects and personnel of the Company. Heagrees that, due to his position and knowledge, his engaging in any businessthat directly competes in the principal line of business as the Company willcause the Company significant and irreparable harm.
     (c) In consideration of the compensation and benefits extended to himunder this Agreement, Executive agrees that, during the term of Executive’semployment by the Company and for eighteen (18) months following the Date ofTermination, the Executive shall not, for any reason whatsoever, directly orindirectly, for himself or herself or on behalf of or in conjunction with anyother Person:
(i) solicit and/or hire any Person who is on the Date ofTermination, or has been within six (6) months prior to the Date ofTermination, an Executive of the Company or its affiliates;
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(ii) solicit, induce or attempt to induce any Person who is, at theDate of Termination, or has been within six (6) months prior to theDate of Termination, an actual customer, client, business partner,or a prospective customer, client, business partner (i.e., acustomer, client or business partner who is party to a writtenproposal or letter of intent with Company, in each case writtenless than six (6) months prior to the Date of Termination) of theCompany, for the purpose or with the intent of (A) inducing orattempting to induce such Person to cease doing business withCompany or its affiliates, (B) enticing or attempting to enticesuch Person to do business with Executive or any affiliate ofExecutive, or (C) in any way interfering with the relationshipbetween such Person and Company or its affiliates; or
(iii) solicit, induce or attempt to induce any Person who is orthat is, at the time of the Date of Termination, or has been withinsix (6) months prior to the Date of Termination, a supplier,licensee or consultant of, or provider of goods or services toCompany or its affiliates, for the purpose or with the intent of(A) inducing or attempting to induce such Person to cease doingbusiness with Company or its affiliates or (B) in any wayinterfering with the relationship between such Person and Companyor its affiliates.
          (d) Because of the difficulty of measuring economic losses to Company as aresult of a breach of the foregoing covenants, and because of the immediate andirreparable damage that could be caused to Company for which it would have noother adequate remedy, Executive agrees that the foregoing covenants in thisSection 6, in addition to and not in limitation of any other rights, remediesor damages available to Company at law, in equity or under this Agreement,shall be enforced
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by Company in the event of the breach or threatened breach by Executive, byinjunctions and/or restraining orders.
          (e) It is agreed by the parties that the covenants contained in thisSection 6 impose a fair and reasonable restraint on Executive in light of theactivities and business of Company on the date of the execution of thisAgreement and the current plans of Company; but it is also the intent ofCompany and Executive that such covenants be construed and enforced inaccordance with the changing activities, business and locations of Company andits affiliates throughout the term of these covenants. Executive alsoacknowledges that this restraint will not prevent him from earning a living inhis chosen field of work.
          (f) The covenants in this Section 6 are severable and separate, and theunenforceability of any specific covenant shall not affect the provisions ofany other covenant. Moreover, in the event any court of competent jurisdictionshall determine that the scope, time or territorial restrictions set forthherein are unreasonable, then it is the intention of the parties that suchrestrictions be enforced to the fullest extent that such court deemsreasonable, and the Agreement shall thereby be reformed to reflect the same.
          (g) All of the covenants in this Section 6 shall be construed as anagreement independent of any other provision in this Agreement, and theexistence of any claim or cause of action of Executive against Company whetherpredicated on this Agreement or otherwise shall not constitute a defense to theenforcement by Company of such covenants. It is specifically agreed that theduration of the period during which the agreements and covenants of Executivemade in this Section 6 shall be effective shall be computed by excluding fromsuch computation any time during which Executive is in violation of anyprovision of this Section 6.
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          (h) Notwithstanding any of the foregoing, if any applicable law, judicialruling or order shall reduce the time period during which Executive shall beprohibited from engaging in any competitive activity described in Section 6hereof, the period of time for which Executive shall be prohibited pursuant toSection 6 hereof shall be the maximum time permitted by law.
     **7. Proprietary Information And Property.**Employee shall not, at any timeduring or following employment with the Corporation, disclose or use, except inthe course of his employment with the Corporation or as may be required by law,any confidential or proprietary information of the Corporation received byEmployee while employed hereunder, whether such information is in Employee’smemory or embodied in writing or other physical form.
     Confidential or proprietary information is information which is notgenerally available to the general public, or Corporation’s competitors, orascertainable through common sense or general business knowledge; including,but not limited to data, compilations, methods, financial data, financialplans, business plans, product plans, lists of actual or potential customers,and marketing information regarding executives and employees.
     All records, files or other objects maintained by or under the control,custody or possession of the Corporation or its agents in their capacity asagents shall be and remain the Corporation’s property. Upon termination of hisemployment, Employee shall return to the Corporation all property (including,but not limited to, equipment, records, files, documents, credit cards, andkeys) which he received in connection with his employment. At theCorporation’s request, Employee shall bring current all such records, files ordocuments before returning them.
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     Upon notice of cessation of his employment with the Corporation, Employeeshall fully cooperate with the Corporation in winding up his pending work andtransferring his work to those individuals designated by the Corporation.
     The terms and conditions of this Section 7 shall survive expiration ortermination of this Agreement or Employee’s employment and shall not beaffected by any change or modification of this Agreement unless specificreference is made to this Section 7.
     **8. Change in Control.**
(a) For purposes of this Agreement, “Change in Control” shall mean:
     (i) The acquisition by any entity or person, which theretoforebeneficially owned less than 50% of the Corporation’s common stockin a transaction or series of transactions which results in suchentity or person beneficially owning 50% or more of theCorporation’s common stock or voting power, where beneficialownership and the percentages of shares outstanding are determinedpursuant to Sections 13(d) and (g) of the Securities Exchange Actof 1934 and the rules and regulations promulgated thereunder; or
     (ii) The merger, share exchange, or consolidation of theCorporation with one or more corporations in a transaction orseries of transactions where the common stock of the Corporation isexchanged for less than 50% of the voting stock of the resulting orsurviving corporation, including, without limitation, an exchangeof the common stock of the Corporation for cash; or
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     (iii) The sale, assignment, transfer, pledge, hypothecation orother disposition of assets (except a pledge, hypothecation orother similar disposition made at the time the Corporation entersinto a bona fide financing transaction with a party which at thetime of such transaction is not an affiliate of the Corporation) ofthe Corporation having a value in excess of 50% of the consolidatedtotal assets of the Corporation.
     (iv) The individuals who, as of the date of this Agreement,are members of the Board of Directors (the “Incumbent Board”),cease for any reason to constitute at least two-thirds of themembers of the Board; provided, however, that if the election, ornomination for election by the Corporation’s common stockholders ofany new director was approved by a vote of at least two-thirds ofthe Incumbent Board, such new director shall, for purposes of thisAgreement, be considered as a member of the Incumbent Board.
A Change in Control shall not include a transaction, or series of transactions,whereby the Corporation becomes a subsidiary of a holding company if theshareholders of the holding company are substantially the same as theshareholders of the Corporation prior to such transaction or series of seriesof transactions.
                    (b) After the occurrence of a Change in Control, Employee shall beentitled to receive payments and benefits pursuant to Section 8 of thisAgreement in the following circumstances:
     (i) If within one year after the occurrence of a Change inControl, the Corporation (or any successor in interest)
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terminates Employee’s employment for reasons other than Cause,Disability, or Death.
     (ii) If within one year after the occurrence of a Change inControl, the Employee terminates his employment with theCorporation (or any successor in interest) for “Good Reason.” Forpurposes of this Agreement “Good Reason” shall mean the occurrenceafter a Change in Control of any of the following events orconditions:
         (1) a change in the Employee’s status, titles,positions, or responsibilities (including reportingresponsibilities) which, in the Employee’s reasonablejudgment represents an adverse change from his status,titles, positions, or responsibilities in effect immediatelyprior thereto; the assignment to Employee of any duties orresponsibilities which, in the Employee’s reasonablejudgment, are inconsistent with his status, titles, positionsor responsibilities; or any removal of Employee from orfailure to reappoint or re-elect him to any of suchpositions, status, or titles, except in connection with thetermination of his employment for Disability, Cause, ordeath, or by the Employee other than for Good Reason;
         (2) a reduction in the Employee’s base salary and/or anymaterial adverse change in the bonus program applicable tothe Employee;
         (3) the Corporation’s requiring the Employee to be basedat any place outside a thirty (30) mile radius from Raleigh,North Carolina, except for reasonably required travel on theCorporation’s business which is
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not substantially greater than such travel requirementsprior to the Change in Control;
         (4) the failure by the Corporation to continue in effectany compensation, welfare, or benefit plan in which Employeeis participating at the time of a Change in Control withoutsubstituting plans providing Employee with substantiallysimilar or greater benefits, or the taking of any action bythe Corporation which would adversely affect Employee’sparticipation in or materially reduce Employee’s benefitsunder, any of such plans or deprive Employee of any materialfringe benefit enjoyed by Employee at the time of the Changein Control;
         (5) any purported termination of Employee’s employmentfor Cause or Disability without grounds therefor;
         (6) any breach by the Corporation of any provision ofthis Agreement; or
         (7) the failure of the Corporation to obtain anagreement, satisfactory to the Employee, from any successoror assign of the Corporation to assume and agree to performall of the provisions of this Agreement; or,
         (8) the principal executive offices of the Corporationbeing located outside of a thirty (30) mile radius ofRaleigh, North Carolina.
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                    (c) In the event that Employee’s employment with the Corporationterminates under any of the circumstances described above in this Section 8,Employee shall be entitled to receive all of the following:
     (i) all accrued compensation and any pro rata bonuses to whichhe may be entitled and which Employee may have earned up to thedate of termination;
     (ii) a severance payment equal to one and one-half (1.5) timesthe amount of the Employee’s current annual compensation plus abonus equal to 50% of the Employee’s then current annual salary;provided, however, that in no case shall the amount used for suchannual compensation or bonus be less than those amounts immediatelyprior to the Change in Control. The severance payment shall bepaid in a lump sum upon the date of termination;
     (iii) a continuation of benefits. The Corporation shallmaintain in full force and effect, for one (1) year after the dateof termination, all life insurance, health, accidental death anddismemberment, and disability plans and other benefit programs inwhich Employee is entitled to participate immediately prior to thetermination, provided that Employee’s continued participation ispossible under the general terms and provisions of such plans andprograms. Employee’s continued participation in such plans andprograms shall be at no greater cost to Employee than the cost hebore for such participation immediately prior to termination. IfEmployee’s participation in any such plan or program is barred, theCorporation shall arrange upon comparable terms, and at no greatercost to Employee than the cost he bore for such plans and programsprior to termination, to provide Employee with benefitssubstantially similar to, or
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greater than, those which he is entitled to receive under anysuch plan or program; and,
(iv) a lump sum payment (or otherwise as specified by Employee to the extentpermitted by the applicable plan) of any and all amounts contributed to aCorporation pension or retirement plan which Employee is entitled to under theterms of any such plan.
     **9. Remedies.**Employee agrees that his breach or violation of Section 6will result in immediate and irreparable harm to the Corporation for whichlegal remedies would be inadequate. Therefore, in addition to any legal orother relief to which the Corporation may be entitled, the Corporation may seeklegal and equitable relief, including but not limited to, preliminary andpermanent injunctive relief.
     **10. Employee Representation.**Employee represents and warrants that hisemployment and obligations under this Agreement will not breach any duty orobligation he owes to another person or entity.
     **11. Waiver Of Breach.**The Corporation’s or Employee’s waiver of anybreach of a provision of this Agreement shall not waive any subsequent breachby the other party.
     **12. Entire Agreement.**This Agreement including any exhibit or attachmenthereto: (i) supersedes all other understandings and agreements, oral orwritten, between the parties with respect to the subject matter of thisAgreement including any exhibit or attachment hereto; and (ii) constitutes thesole agreement between the parties with respect to this subject matter. Eachparty acknowledges that: (i) no representations, inducements, promises oragreements, oral or written, have been made by any party or by anyone acting onbehalf of any party, which are not embodied in this Agreement including anyexhibit or attachment hereto; and (ii) no agreement, statement or promise notcontained in this
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Agreement shall be valid. No change or modification of this Agreement shall bevalid or binding upon the parties unless such change or modification is inwriting and is signed by the parties.
     **13. Severability.**If a court of competent jurisdiction holds that anyprovision or sub-part thereof contained in this Agreement is invalid, illegalor unenforceable, that invalidity, illegality or unenforceability shall notaffect any other provision in this Agreement.
     **14. Parties Bound.**The terms, provisions, covenants and agreementscontained in this Agreement shall apply to, be binding upon and inure to thebenefit of the Corporation’s successors and assigns. Employee may not assignthis Agreement without the Corporation’s prior written consent.
     **15. Governing Law.**This Agreement and the employment relationship createdby it shall be governed by North Carolina law. The parties hereby consent toexclusive jurisdiction in North Carolina for the purpose of any litigationrelating to this Agreement and agree that any litigation by or involving themrelating to this Agreement shall be conducted in the court of Wake County orthe federal court of the United States for the Eastern District of NorthCarolina.
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     **IN WITNESS WHEREOF,**the parties have entered into this Agreement on theday and year written below.    **EMPLOYEE**   3/30/04 /s/ James P. Frey   Date **James P. Frey**    **WINSTON HOTELS, INC.**   3/30/04 /s/ Robert W. Winston   Date **Robert W. Winston** Chief Executive Officer
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