FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

 

 

 
 
 
                                                                    EXHIBIT 10.2
 
                              EMPLOYMENT AGREEMENT
 
     THIS EMPLOYMENT AGREEMENT (the "Agreement") is made this 24th day of
October, 2003, by Highland Hospitality, L.P., a Delaware limited partnership
(the "Company"), and Highland Hospitality Corporation, a Maryland corporation
(the "REIT"), each with its principal place of business at 8405 Greensboro
Drive, Suite 500, McLean, VA 22102 (the "Company") and James L. Francis,
residing at 1006 Long Point Road, Grasonville, Maryland 21638 (the "Executive").
 
     WHEREAS, the REIT is the general partner of the Company; and
 
     WHEREAS, the parties desire to enter into this agreement to reflect the
Executive's executive capacities in the REIT's business and to provide for the
Company's and the REIT's employment of the Executive; and
 
     WHEREAS, the parties wish to set forth the terms and conditions of that
employment;
 
     NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties hereto, the parties
agree as follows:
 
1.   Term of Employment
 
     The Company and the REIT hereby employ the Executive, and the Executive
hereby accepts employment with the Company and the REIT, upon the terms and
conditions set forth in this Agreement. Unless terminated earlier pursuant to
Section 5, the Executive's employment pursuant to this Agreement shall be for
the three (3) year period commencing on the date of closing of the initial
public offering of the REIT's common stock pursuant to the REIT's registration
statement on Form S-11 filed with the Securities and Exchange Commission (the
"Commencement Date") and ending on the third anniversary of the Commencement
Date (the "Initial Term"). The Initial Term shall be extended for an additional
twelve (12) months on each anniversary of the Commencement Date unless the
Company or the Executive provides written notice to the contrary at least six
(6) months before the applicable anniversary of the Commencement Date. The
Initial Term, together with any such extensions, shall be referred to herein as
the "Employment Period." In the event that the Board of Directors of the REIT
(the "Board of Directors") determines that active efforts to complete the
closing of the initial public offering have been abandoned, this Agreement shall
become null and void.
 
2.   Title; Duties
 
     The Executive shall be employed as Chief Executive Officer and President of
the REIT and, if elected, agrees to serve (without additional compensation) as
the Vice Chairman of the Board of Directors. The Executive shall report to the
Board of Directors, who shall have the authority to direct, control and
supervise the activities of the Executive. The Executive shall perform such
services consistent with his position as may be assigned to him from time to
time by the Board of Directors and are consistent with the bylaws of the REIT
and the Agreement of Limited Partnership of the Company as it may be amended
from time to time, including, but not limited to, managing the affairs of the
REIT and the Company.
 
<PAGE>
 
3.   Extent of Services
 
     (a)  General. The Executive agrees not to engage in any business activities
     during the Employment Period except those which are for the sole benefit of
     the Company or the REIT and their subsidiaries (the Company and the REIT
     are hereinafter referred to as the "Company Group"), and to devote his
     entire business time, attention, skill and effort to the performance of his
     duties under this Agreement. Notwithstanding the foregoing, the Executive
     may, without impairing or otherwise adversely affecting the Executive's
     performance of his duties to the Company Group, (i) engage in personal
     investments and charitable, professional and civic activities, and (ii)
     with the prior approval of the Board of Directors, serve on the boards of
     directors of corporations other than the REIT, provided, however, that no
     such approval shall be necessary for the Executive's continued service on
     any board of directors on which he was serving on the date of this
     Agreement, all of which have been previously disclosed to the Board of
     Directors in writing and provided further, that in no event shall the
     Executive be permitted to serve on the board of directors of any other
     entity that owns, operates, acquires, sells, develops and/or manages any
     hotel or similar asset in the lodging industry. The Executive shall perform
     his duties to the best of his ability, shall adhere to the Company Group's
     published policies and procedures, and shall use his best efforts to
     promote the Company Group's interests, reputation, business and welfare.
 
     (b)  Corporate Opportunities. The Executive agrees that he will not take
     personal advantage of any business opportunities which arise during his
     employment with the Company Group and which may be of benefit to the
     Company Group. All material facts regarding such opportunities must be
     promptly reported by the Executive to the Board of Directors for
     consideration by the Company Group.
 
4.   Compensation and Benefits
 
     (a)  Salary. The Company shall pay the Executive a gross base annual salary
     ("Base Salary") of $415,000. The salary shall be payable in arrears in
     approximately equal semi-monthly installments (except that the first and
     last such semi-monthly installments may be prorated if necessary) on the
     Company's regularly scheduled payroll dates, minus such deductions as may
     be required by law or reasonably requested by the Executive. The REIT's
     Compensation Policy Committee (the "Compensation Committee") shall review
     his Base Salary annually in conjunction with its regular review of employee
     salaries and may increase (but not decrease) his Base Salary as in effect
     from time to time as the Compensation Committee shall deem appropriate.
 
     (b)  Other Benefits. The Executive shall be entitled to paid time off and
     holiday pay in accordance with the Company Group's policies in effect from
     time to time and shall be eligible to participate in such life, health, and
     disability insurance, pension, deferred compensation and incentive plans,
     stock options and awards, performance bonuses and other benefits as the
     Company Group extends, as a matter of policy, to its executive employees.
     The Company Group shall maintain a disability insurance policy or plan
     covering the Executive during the Employment Period.
 
                                      -2-
 
<PAGE>
 
     (c)  Reimbursement of Business Expenses. The Company shall reimburse the
     Executive for all reasonable travel, entertainment and other expenses
     incurred or paid by the Executive in connection with, or related to, the
     performance of his duties, responsibilities or services under this
     Agreement, upon presentation by the Executive of documentation, expense
     statements, vouchers, and/or such other supporting information as the
     Company may reasonably request.
 
5.   Termination
 
     (a)  Termination by the Company for Cause. The Company may terminate the
     Executive's employment under this Agreement at any time for Cause, upon
     written notice by the Company to the Executive. For purposes of this
     Agreement, "Cause" for termination shall mean any of the following: (i) the
     conviction of the Executive of, or the entry of a plea of guilty or nolo
     contendere by the Executive to, any felony; (ii) fraud, misappropriation or
     embezzlement by the Executive; (iii) the Executive's willful failure or
     gross negligence in the performance of his assigned duties for the Company
     Group, which failure or negligence continues for more than fifteen (15)
     calendar days following the Executive's receipt of written notice of such
     willful failure or gross negligence; (iv) the Executive's breach of any of
     his fiduciary duties to the Company Group; (v) any act or omission of the
     Executive that has a demonstrated and material adverse impact on the
     Company Group's reputation for honesty and fair dealing; or (vi) the breach
     by the Executive of any material term of this Agreement.
 
     (b)  Termination by the Company Without Cause or by the Executive Without
     Good Reason. Either party may terminate this Agreement at any time without
     Cause (in the case of the Company) or without Good Reason (in the case of
     the Executive), upon giving the other party sixty (60) days' written
     notice. At the Company's sole discretion, it may substitute sixty (60)
     days' salary in lieu of notice. Any salary paid to the Executive in lieu of
     notice shall not be offset against any entitlement the Executive may have
     to the Severance Payment pursuant to Section 6(c).
 
     (c)  Termination by Executive for Good Reason. The Executive may terminate
     his employment under this Agreement at any time for Good Reason, upon
     written notice by the Executive to the Company. For purposes of this
     Agreement, "Good Reason" for termination shall mean, without the
     Executive's consent, (i) the assignment to the Executive of substantial
     duties or responsibilities inconsistent with the Executive's position at
     the Company Group, or any other action by the Company Group which results
     in a substantial diminution of the Executive's duties or responsibilities
     other than any such reduction which is remedied by the Company Group within
     30 days of receipt of written notice thereof from the Executive; (ii) a
     requirement that the Executive work principally from a location outside the
     fifty (50) mile radius from the Company's address first written above;
     (iii) the Company's failure to pay the Executive any Base Salary or other
     compensation to which he becomes entitled, other than an inadvertent
     failure which is remedied by the Company within thirty (30) days after
     receipt of written notice thereof from the Executive (or ten (10) days for
     failure to pay Base Salary); or (iv) a substantial reduction in the
     Executive's aggregate Base Salary and other compensation taken as a whole,
     excluding any reductions caused by the failure to achieve performance
     targets.
 
                                      -3-
 
<PAGE>
 
     (d)  Executive's Death or Disability. The Executive's employment shall
     terminate immediately upon his death or, upon written notice as set forth
     below, his Disability. As used in this Agreement, "Disability" shall mean
     such physical or mental impairment as would render the Executive eligible
     to receive benefits under the long-term disability insurance policy or plan
     then made available by the Company Group to the Executive. If the
     Employment Period is terminated by reason of the Executive's Disability,
     either party shall give thirty (30) days' advance written notice to that
     effect to the other.
 
6.   Effect of Termination
 
     (a)  General. Regardless of the reason for any termination of this
     Agreement, the Executive (or the Executive's estate if the Employment
     Period ends on account of the Executive's death) shall be entitled to (i)
     payment of any unpaid portion of his Base Salary through the effective date
     of termination; (ii) reimbursement for any outstanding reasonable business
     expense he has incurred in performing his duties hereunder; (iii) continued
     insurance benefits to the extent required by law; (iv) payment of any
     vested but unpaid rights as required independent of this Agreement by the
     terms of any bonus or other incentive pay or stock plan, or any other
     employee benefit plan or program of the Company Group; and (v) except in
     the case of "Termination by the Company for Cause," any bonus or incentive
     compensation that was approved but not paid.
 
     (b)  Termination by the Company for Cause or by Executive Without Good
     Reason. If the Company terminates the Executive's employment for Cause or
     the Executive terminates his employment without Good Reason, the Executive
     shall have no rights or claims against the Company Group except to receive
     the payments and benefits described in Section 6(a).
 
     (c)  Termination by the Company Without Cause or by Executive for Good
     Reason. Except as provided in Section 6(d), if the Company terminates the
     Executive's employment without Cause pursuant to Section 5(b), or the
     Executive terminates his employment for Good Reason pursuant to Section
     5(c), the Executive shall be entitled to receive, in addition to the items
     referenced in Section 6(a), the following:
 
          (i)    continued payment of his Base Salary, at the rate in effect on
          his last day of employment, for a period of twenty-four (24) months
          (the "Severance Payment"). The Severance Payment shall be paid in
          approximately equal installments on the Company's regularly scheduled
          payroll dates, subject to all legally required payroll deductions and
          withholdings for sums owed by the Executive to the Company Group;
 
          (ii)   continued payment by the Company for the Executive's life,
          health and disability insurance coverage during the twenty-four (24)
          month severance period referenced in Section 6(c)(i) to the same
          extent that the Company paid for such coverage immediately prior to
          the termination of the Executive's employment and subject to the
          eligibility requirements and other terms and conditions of such
          insurance coverage, provided that if any such insurance coverage shall
          become unavailable during the twenty-four (24) month severance period,
          the Company
 
                                      -4-
 
<PAGE>
 
          thereafter shall be obliged only to pay to the Executive an amount
          which, after reduction for income and employment taxes, is equal to
          the employer premiums for such insurance for the remainder of such
          severance period;
 
          (iii)  vesting as of the last day of his employment in any unvested
          portion of any stock option and any restricted stock previously issued
          to the Executive by the Company Group; and
 
          (iv)   a bonus equal to the greater of (x) the average of all bonuses
          paid to the Executive (taking into account a payment of no bonus or a
          payment of a bonus of $0) over the preceding thirty-six (36) months
          (or the period of the Executive's employment if shorter), and (y) the
          most recent bonus paid to the Executive. Such bonus shall be paid to
          the Executive within sixty (60) days following the end of the fiscal
          year in which such termination occurs.
 
     None of the benefits described in this Section 6(c) will be payable unless
the Executive has signed a general release which has become irrevocable,
satisfactory to the Company in the reasonable exercise of its discretion,
releasing the Company, its affiliates, including the REIT, and their officers,
directors and employees, from any and all claims or potential claims arising
from or related to the Executive's employment or termination of employment.
 
     (d)  Termination Following Change in Control. If, (x) during the Employment
     Period and within twelve (12) months following a Change in Control, the
     Company (or its successor) terminates the Executive's employment without
     Cause pursuant to Section 5(b) or the Executive terminates his employment
     for Good Reason pursuant to Section 5(c), or (y) the Executive, by notice
     given under this clause (y) of this Section 6(d) on or before the tenth
     (10th) business day following the Change in Control, terminates his
     employment for any reason, which termination shall be effective on the
     sixtieth (60th) day following a Change in Control, the Executive shall be
     entitled to receive, in addition to the items referenced in Section 6(a),
     the following:
 
          (i)    continued payment of his Base Salary, at the rate in effect on
          his last day of employment, for a period of thirty-six (36) months
          (the "Control Change Severance Payment"). The Control Change Severance
          Payment shall be paid in approximately equal installments on the
          Company's regularly scheduled payroll dates, subject to all legally
          required payroll deductions and withholdings for sums owed by the
          Executive to the Company Group;
 
          (ii)   continued payment by the Company for the Executive's life,
          health and disability insurance coverage during the thirty-six (36)
          month severance period referenced in Section 6(d)(i) to the same
          extent that the Company paid for such coverage immediately prior to
          the termination of the Executive's employment and subject to the
          eligibility requirements and other terms and conditions of such
          insurance coverage, provided that if any such insurance coverage shall
          become unavailable during the thirty-six (36) month severance period,
          the Company thereafter shall be obliged only to pay to the Executive
          an amount which, after reduction for income and employment taxes, is
          equal to the employer premiums
 
                                      -5-
 
<PAGE>
 
          for such insurance for the remainder of such severance period;
 
          (iii) vesting as of the last day of his employment in any unvested
          portion of any stock option and any restricted stock previously issued
          to the Executive by the Company Group; and
 
          (iv)  a bonus equal to three (3) times the greater of (x) the average
          of all bonuses paid to the Executive (taking into account a payment of
          no bonus or a payment of a bonus of $0) over the preceding thirty-six
          (36) months (or the period of the Executive's employment if shorter),
          and (y) the most recent bonus paid to the Executive. Such bonus shall
          be paid to the Executive within sixty (60) days following the end of
          the fiscal year in which such termination occurs.
 
          (v)   (A) In the event that any Control Change Severance Payment,
          insurance benefits, accelerated vesting, pro-rated bonus or other
          benefit payable to the Executive (under this Agreement or otherwise),
          shall (1) constitute "parachute payments" within the meaning of
          Section 280G (as it may be amended or replaced) of the Internal
          Revenue Code (the "Code") ("Parachute Payments") and (2) be subject to
          the excise tax imposed by Section 4999 (as it may be amended or
          replaced) of the Code ("the Excise Tax"), then the Company shall pay
          to the Executive an additional amount (the "Gross-Up Amount") such
          that the net benefits retained by the Executive after the deduction of
          the Excise Tax (including interest and penalties) and any federal,
          state or local income and employment taxes (including interest and
          penalties) upon the Gross-Up Amount shall be equal to the benefits
          that would have been delivered hereunder had the Excise Tax not been
          applicable and the Gross-Up Amount not been paid.
 
                (B) For purposes of determining the Gross-Up Amount: (1)
          Parachute Payments provided under arrangements with the Executive
          other than under any bonus or other incentive pay or stock plan or
          program of the Company (collectively, the "Plan") and this Agreement,
          if any, shall be taken into account in determining the total amount of
          Parachute Payments received by the Executive so that the amount of
          excess Parachute Payments that are attributable to provisions of the
          Plan and Agreement is maximized; and (2) the Executive shall be deemed
          to pay federal, state and local income taxes at the highest marginal
          rate of taxation for the Executive's taxable year in which the
          Parachute Payments are includable in the Executive's income for
          purposes of federal, state and local income taxation.
 
                (C) The determination of whether the Excise Tax is payable, the
          amount thereof, and the amount of any Gross-Up Amount shall be made in
          writing in good faith by a nationally recognized independent certified
          public accounting firm selected by the Company and approved by the
          Executive, such approval not to be unreasonably withheld (the
          "Accounting Firm"). If such determination is not finally accepted by
          the Internal Revenue Service (or state or local revenue authorities)
          on audit,
 
                                      -6-
 
<PAGE>
 
          then appropriate adjustments shall be computed based upon the amount
          of Excise Tax and any interest or penalties so determined; provided,
          however, that the Executive in no event shall owe the Company any
          interest on any portion of the Gross-Up Amount that is returned to the
          Company. For purposes of making the calculations required by this
          Section 6(d)(v), to the extent not otherwise specified herein,
          reasonable assumptions and approximations may be made with respect to
          applicable taxes and reasonable, good faith interpretations of the
          Code may be relied upon. The Company and the Executive shall furnish
          such information and documents as may be reasonably requested in
          connection with the performance of the calculations under this Section
          6(d)(v). The Company shall bear all costs incurred in connection with
          the performance of the calculations contemplated by this Section
          6(d)(v). The Company shall pay the Gross-Up Amount to the Executive no
          later than sixty (60) days following receipt of the Accounting Firm's
          determination of the Gross-Up Amount.
 
          (vi) None of the benefits described in this Section 6(d) will be
          payable unless the Executive has signed a general release which has
          become irrevocable, satisfactory to the Company in the reasonable
          exercise of its discretion, releasing the Company, its affiliates,
          including the REIT, and their officers, directors and employees, from
          any and all claims or potential claims arising from or related to the
          Executive's employment or termination of employment.
 
          (vii) For purposes of this Agreement, a "Change in Control" shall mean
          any of the following events:
 
               (A) The ownership or acquisition (whether by a merger
          contemplated by Section 6(d)(vii)(B) below, or otherwise) by any
          Person (other than a Qualified Affiliate), in a single transaction or
          a series of related or unrelated transactions, of Beneficial Ownership
          of more than fifty percent (50%) of (1) the REIT's outstanding common
          stock (the "Common Stock") or (2) the combined voting power of the
          REIT's outstanding securities entitled to vote generally in the
          election of directors (the "Outstanding Voting Securities");
 
               (B) The merger or consolidation of the REIT with or into any
          other Person other than a Qualified Affiliate, if, immediately
          following the effectiveness of such merger or consolidation, Persons
          who did not Beneficially Own Outstanding Voting Securities immediately
          before the effectiveness of such merger or consolidation directly or
          indirectly Beneficially Own more than fifty percent (50%) of the
          outstanding shares of voting stock of the surviving entity of such
          merger or consolidation (including for such purpose in both the
          numerator and denominator, shares of voting stock issuable upon the
          exercise of then outstanding rights (including conversion rights),
          options or warrants) ("Resulting Voting Securities"), provided that,
          for purposes of this Section 6(d)(vii)(B), if a
 
                                       -7-
 
<PAGE>
 
          Person who Beneficially Owned Outstanding Voting Securities
          immediately before the merger or consolidation Beneficially Owns a
          greater number of the Resulting Voting Securities immediately after
          the merger or consolidation than the number the Person received solely
          as a result of the merger or consolidation, that greater number will
          be treated as held by a Person who did not Beneficially Own
          Outstanding Voting Securities before the merger or consolidation, and
          provided further that such merger or consolidation would also
          constitute a Change in Control if it would satisfy the foregoing test
          if rights, options and warrants were not included in the calculation;
 
               (C) Any one or a series of related sales or conveyances to any
          Person or Persons (including a liquidation) other than any one or more
          Qualified Affiliates of all or substantially all of the assets of the
          Company;
 
               (D) Incumbent Directors cease to be a majority of the members of
          the Board of Directors, where an "Incumbent Director" is (1) an
          individual who is a member of the Board of Directors on the effective
          date of this Agreement or (2) any new director whose appointment by
          the Board of Directors or whose nomination for election by the
          stockholders was approved by a majority of the persons who were
          already Incumbent Directors at the time of such appointment, election
          or approval, other than any individual who assumes office initially as
          a result of an actual or threatened election contest with respect to
          the election or removal of directors or other actual or threatened
          solicitation of proxies or consents by or on behalf of a Person other
          than the Board of Directors or as a result of an agreement to avoid or
          settle such a contest or solicitation; or
 
               (E) A Change in Control shall also be deemed to have occurred
          immediately before the completion of a tender offer for the REIT's
          securities representing more than fifty percent (50%) of the
          Outstanding Voting Securities, other than a tender offer by a
          Qualified Affiliate.
 
               (F) For purposes of this Agreement, the following definitions
          shall apply:
 
                   (a) "Beneficial Ownership," "Beneficially Owned" and
                   "Beneficially Owns" shall have the meanings provided in
                   Exchange Act Rule 13d-3;
 
                   (b) "Exchange Act" shall mean the Securities Exchange Act of
                   1934, as amended;
 
                   (c) "Person" shall mean any individual, entity, or group
                   (within the meaning of Section 13(d)(3) or 14(d)(2) of the
                   Exchange Act), including any natural person, corporation,
                   trust, association, company, partnership, joint venture,
 
                                      -8-
 
<PAGE>
 
               limited liability company, legal entity of any kind, government,
               or political subdivision, agency or instrumentality of a
               government, as well as two or more Persons acting as a
               partnership, limited partnership, syndicate or other group for
               the purpose of acquiring, holding or disposing of the REIT's
               securities; and
 
               (d) "Qualified Affiliate" shall mean (i) any directly or
               indirectly wholly owned subsidiary of the REIT or the Company,
               (ii) any employee benefit plan (or related trust) sponsored or
               maintained by the REIT or the Company or by any entity controlled
               by the REIT or the Company; or (iii) any Person consisting in
               whole or in part of the Executive or one or more individuals who
               are then the REIT's Chief Executive Officer or any other named
               executive officer (as defined in Item 402 of Regulation S-K under
               the Securities Act of 1933) of the REIT as indicated in its most
               recent securities filing made before the date of the transaction.
 
     (e) Termination In the Event of Death or Disability.
 
         (i) If the Executive's employment terminates because of his death, any
         unvested portion of any stock option and any restricted stock
         previously issued to the Executive by the Company Group shall become
         fully vested as of the date of his death. In addition, the Executive's
         estate shall be entitled to receive a pro-rata share of any
         performance bonus to which he otherwise would have been entitled for
         the fiscal year in which his death occurs.
 
         (ii) In the event the Executive's employment terminates due to his
         Disability, he shall be entitled to receive his Base Salary until such
         date as he shall commence receiving disability benefits pursuant to
         any long-term disability insurance policy or plan provided to him by
         the Company Group. In addition, as of the effective date of the
         termination notice specified in Section 5(d), the Executive shall vest
         in any unvested portion of any stock option and any restricted shares
         previously granted to him by the Company Group. The Executive also
         shall be entitled to receive a pro-rata share of any performance bonus
         to which he otherwise would have been entitled for the fiscal year in
         which his employment terminates due to his Disability.
 
7.   Confidentiality
 
     (a) Definition of Proprietary Information. The Executive acknowledges that
     he may be furnished or may otherwise receive or have access to confidential
     information which relates to the Company Group's past, present or future
     business activities, strategies, services or products, research and
     development; financial analysis and data; improvements, inventions,
     processes, techniques, designs or other technical data; profit
 
                                      -9-
 
<PAGE>
 
     margins and other financial information; fee arrangements; terms and
     contents of leases, asset management agreements and other contracts; tenant
     and vendor lists or other compilations for marketing or development;
     confidential personnel and payroll information; or other information
     regarding administrative, management, financial, marketing, leasing or
     sales activities of the Company Group, or of a third party which provided
     proprietary information to the Company Group on a confidential basis. All
     such information, including any materials or documents containing such
     information, shall be considered by the Company Group and the Executive as
     proprietary and confidential (the "Proprietary Information").
 
     (b) Exclusions. Notwithstanding the foregoing, Proprietary Information
     shall not include information in the public domain not as a result of a
     breach of any duty by the Executive or any other person.
 
     (c) Obligations. Both during and after the Employment Period, the Executive
     agrees to preserve and protect the confidentiality of the Proprietary
     Information and all physical forms thereof, whether disclosed to him before
     this Agreement is signed or afterward. In addition, the Executive shall not
     (i) disclose or disseminate the Proprietary Information to any third party,
     including employees of the Company Group (or their affiliates) without a
     legitimate business need to know; (ii) remove the Proprietary Information
     from the Company Group's premises without a valid business purpose; or
     (iii) use the Proprietary Information for his own benefit or for the
     benefit of any third party.
 
     (d) Return of Proprietary Information. The Executive acknowledges and
     agrees that all the Proprietary Information used or generated during the
     course of working for the Company Group is the property of the Company
     Group. The Executive agrees to deliver to the Company Group all documents
     and other tangibles (including diskettes and other storage media)
     containing the Proprietary Information at any time upon request by the
     Board of Directors during his employment and immediately upon termination
     of his employment.
 
8.   Noncompetition
 
     (a) Restriction on Competition. For the period of the Executive's
     employment with the Company Group and for twelve (12) months following the
     expiration or termination of the Executive's employment by the Company
     Group (the "Restricted Period"), the Executive agrees not to engage,
     directly or indirectly, as an owner, director, trustee, manager, member,
     employee, consultant, partner, principal, agent, representative,
     stockholder, or in any other individual, corporate or representative
     capacity, in any of the following: (i) any public or private lodging
     company, or (ii) any other business that the Company Group conducts as of
     the date of the Executive's termination of employment. Notwithstanding the
     foregoing, the Executive shall not be deemed to have violated this Section
     8(a) solely by reason of his passive ownership of 1% or less of the
     outstanding stock of any publicly traded corporation or other entity.
 
     (b) Non-Solicitation of Clients. During the Restricted Period, the
     Executive agrees not to solicit, directly or indirectly, on his own behalf
     or on behalf of any other person(s),
 
                                      -10-
 
<PAGE>
 
     any client of the Company Group to whom the Company Group had provided
     services at any time during the Executive's employment with the Company
     Group in any line of business that the Company Group conducts as of the
     date of the Executive's termination of employment or that the Company Group
     is actively soliciting, for the purpose of marketing or providing any
     service competitive with any service then offered by the Company Group.
 
     (c) Non-Solicitation of Employees. During the Restricted Period, the
     Executive agrees that he will not, directly or indirectly, hire or attempt
     to hire or cause any business, other than an affiliate of the Company
     Group, to hire any person who is then or was at any time during the
     preceding six (6) months an employee of the Company Group and who is at the
     time of such hire or attempted hire, or was at the date of such employee's
     separation from the Company Group a vice president, senior vice president
     or executive vice president or other senior executive employee of the
     Company Group.
 
     (d) Acknowledgement. The Executive acknowledges that he will acquire much
     Proprietary Information concerning the past, present and future business of
     the Company Group as the result of his employment, as well as access to the
     relationships between the Company and the REIT and their clients and
     employees. The Executive further acknowledges that the business of the
     Company Group is very competitive and that competition by him in that
     business during his employment, or after his employment terminates, would
     severely injure the Company Group. The Executive understands and agrees
     that the restrictions contained in this Section 8 are reasonable and are
     required for the Company Group's legitimate protection, and do not unduly
     limit his ability to earn a livelihood.
 
     (e) Rights and Remedies upon Breach. The Executive acknowledges and agrees
     that any breach by him of any of the provisions of Sections 7 and 8 (the
     "Restrictive Covenants") would result in irreparable injury and damage for
     which money damages would not provide an adequate remedy. Therefore, if the
     Executive breaches, or threatens to commit a breach of, any of the
     provisions of the Restrictive Covenants, the Company and its affiliates,
     including the REIT, shall have the following rights and remedies, each of
     which rights and remedies shall be independent of the other and severally
     enforceable, and all of which rights and remedies shall be in addition to,
     and not in lieu of, any other rights and remedies available to the Company
     and its affiliates, including the REIT, under law or in equity (including,
     without limitation, the recovery of damages):
 
         (i)   The right and remedy to have the Restrictive Covenants
         specifically enforced (without posting bond and without the need to
         prove damages) by any court of competent jurisdiction, including,
         without limitation, the right to an entry against the Executive of
         restraining orders and injunctions (preliminary, mandatory, temporary
         and permanent) against violations, threatened or actual, and whether
         or not then continuing, of such covenants; and
 
         (ii)  The right and remedy to require the Executive to account for and
         pay over to the Company and its affiliates all compensation, profits,
         monies, accruals,
 
                                      -11-
 
<PAGE>
 
          increments or other benefits (collectively, "Benefits") derived or
          received by him as the result of any transactions constituting a
          breach of the Restrictive Covenants, and the Executive shall account
          for and pay over such Benefits to the Company and, if applicable, its
          affected affiliates.
 
     (f)  Without limiting Section 11(i), if any court or other decision-maker
     of competent jurisdiction determines that any of the Restrictive Covenants,
     or any part thereof, is unenforceable because of the duration or
     geographical scope of such provision, then, after such determination has
     become final and unappealable, the duration or scope of such provision, as
     the case may be, shall be reduced so that such provision becomes
     enforceable and, in its reduced form, such provision shall then be
     enforceable and shall be enforced.
 
9.   Executive Representation
 
     The Executive represents and warrants to the Company Group that he is not
now under any obligation of a contractual or other nature to any person,
business or other entity which is inconsistent or in conflict with this
Agreement or which would prevent him from performing his obligations under this
Agreement.
 
10.  Arbitration
 
     (a)  Except as provided in Section 10(b), any disputes between the Company
     Group and the Executive in any way concerning the Executive's employment,
     the termination of his employment, this Agreement or its enforcement shall
     be submitted at the initiative of either party to mandatory arbitration in
     Maryland before a single arbitrator pursuant to the Commercial Arbitration
     Rules of the American Arbitration Association, or its successor, then in
     effect. The decision of the arbitrator shall be rendered in writing, shall
     be final, and may be entered as a judgment in any court in the State of
     Maryland. The parties irrevocably consent to the jurisdiction of the
     federal and state courts located in Maryland for this purpose. Each party
     shall be responsible for its or his own costs incurred in such arbitration
     and in enforcing any arbitration award, including attorneys' fees and
     expenses.
 
     (b)  Notwithstanding the foregoing, the Company or the REIT, in its sole
     discretion, may bring an action in any court of competent jurisdiction to
     seek injunctive relief and such other relief as the Company or the REIT
     shall elect to enforce the Restrictive Covenants. If the courts of any one
     or more of such jurisdictions hold the Restrictive Covenants wholly
     unenforceable by reason of breadth of scope or otherwise it is the
     intention of the Company Group and the Executive that such determination
     not bar or in any way affect the Company Group's right, or the right of any
     of its affiliates, to the relief provided in Section 8(e) above in the
     courts of any other jurisdiction within the geographical scope of such
     Restrictive Covenants, as to breaches of such Restrictive Covenants in such
     other respective jurisdictions, such Restrictive Covenants as they relate
     to each jurisdiction being, for this purpose, severable, diverse and
     independent covenants, subject, where appropriate, to the doctrine of res
     judicata. The parties hereby agree to waive any right to a trial by jury
     for any and all disputes hereunder (whether or
 
                                      -12-
 
<PAGE>
 
     not relating to the Restrictive Covenants).
 
11.  Miscellaneous
 
     (a)  Notices. All notices required or permitted under this Agreement shall
     be in writing and shall be deemed effective (i) upon personal delivery,
     (ii) upon deposit with the United States Postal Service, by registered or
     certified mail, postage prepaid, or (iii) in the case of facsimile
     transmission or delivery by nationally recognized overnight delivery
     service, when received, addressed as follows:
 
          (i)  If to the Company or the REIT, to:
 
               Highland Hospitality Corporation
               8405 Greensboro Drive
               Suite 500
               McLean, VA 22102
               Attention: General Counsel
               Fax No. 571/382-1757
 
          (ii) If to the Executive, to:
 
               James L. Francis
               1006 Long Point Road
               Grasonville, MD 21638
 
               or to such other address or addresses as either party shall
          designate to the other in writing from time to time by like notice.
 
     (b)  Pronouns. Whenever the context may require, any pronouns used in this
     Agreement shall include the corresponding masculine, feminine or neuter
     forms, and the singular forms of nouns and pronouns shall include the
     plural, and vice versa.
 
     (c)  Entire Agreement. This Agreement constitutes the entire agreement
     between the parties and supersedes all prior agreements and understandings,
     whether written or oral, relating to the subject matter of this Agreement.
 
     (d)  Amendment. This Agreement may be amended or modified only by a written
     instrument executed by both the Company and the Executive, which amendment
     or modification is consented to by the REIT.
 
     (e)  Governing Law. This Agreement shall be construed, interpreted and
     enforced in accordance with the laws of the State of Maryland, without
     regard to its conflicts of laws principles.
 
     (f)  Successors and Assigns. This Agreement shall be binding upon and inure
     to the benefit of both parties and their respective successors and assigns,
     including any entity with which or into which the Company or the REIT may
     be merged or which may succeed to its assets or business or any entity to
     which the Company or the REIT may
 
                                      -13-
 
<PAGE>
 
     assign its rights and obligations under this Agreement; provided, however,
     that the obligations of the Executive are personal and shall not be
     assigned or delegated by him.
 
     (g)  Waiver. No delays or omission by the Company, the REIT or the
     Executive in exercising any right under this Agreement shall operate as a
     waiver of that or any other right. A waiver or consent by the Company shall
     not be effective unless consented to by the REIT. A waiver or consent given
     by the Company or the Executive on any one occasion shall be effective only
     in that instance and shall not be construed as a bar or waiver of any right
     on any other occasion.
 
     (h)  Captions. The captions appearing in this Agreement are for convenience
     of reference only and in no way define, limit or affect the scope or
     substance of any section of this Agreement.
 
     (i)  Severability. In case any provision of this Agreement shall be held by
     a court or arbitrator with jurisdiction over the parties to this Agreement
     to be invalid, illegal or otherwise unenforceable, such provision shall be
     restated to reflect as nearly as possible the original intentions of the
     parties in accordance with applicable law, and the validity, legality and
     enforceability of the remaining provisions shall in no way be affected or
     impaired thereby.
 
     (j)  Counterparts. This Agreement may be executed in two or more
     counterparts, each of which shall be deemed an original but all of which
     together shall constitute one and the same instrument.
 
                                      -14-
 
<PAGE>
 
     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
 
                                HIGHLAND HOSPITALITY, L.P.
 
                                By:  Highland Hospitality Corporation, its
                                      general partner
 
 
                                By:  /s/  Tracy M.J. Colden
                                     -----------------------------------------
                                     Tracy M. J. Colden
                                     Executive Vice President
 
 
                                JAMES L. FRANCIS
 
 
 
                                  /s/  James L. Francis
                                ----------------------------------------------
 
 
                                HIGHLAND HOSPITALITY CORPORATION
 
                                By:  /s/  Tracy M.J. Colden
                                     -----------------------------------------
                                     Tracy M. J. Colden
                                     Executive Vice President
 
                                      -15-
 

 

EXHIBIT 10.2.1

 

FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

 

This First Amendment to Employment Agreement is made this 29th day of March 2004, by Highland Hospitality, L.P., a Delaware limited partnership (the “Company”), and Highland Hospitality Corporation, a Maryland Corporation (the “REIT”), each with its principal place of business at 8405 Greensboro Drive, Suite 500, McLean, VA 22102 and James L. Francis, residing at 1006 Long Point Road, Grasonville, Maryland 21638 (the “Executive”).

 

WHEREAS, the Company and the REIT entered into that certain Employment Agreement dated October 24, 2003 (the “Employment Agreement”) with the Executive;

 

WHEREAS, the parties have agreed to amend the Employment Agreement to reflect the fact that the REIT is the employing entity regularly paying the compensation to the Executive and the employing entity with primary responsibility for taking action with respect to Executive’s employment under the Employment Agreement; and

 

WHEREAS, the parties desire to correct a reference in Section 6(d)(vii)(C) of the Employment Agreement.

 

NOW THEREFORE, the parties agree as follows:

 

1. References in Sections 1, 4, 5 and 6 of the Employment Agreement to actions required or permitted to be taken by the “Company” shall be required or permitted to be taken by the “Company Group”.

 

2. The word “Company” in Section 6(d)(vii)(C) shall be replaced with the word “REIT”.

 

3. Section 11(d) is amended to read as follows:

 

“(d) Amendment. This Agreement may be amended or modified only by a written instrument executed by both the REIT and the Executive, which amendment or modification is consented to by the Company.”

 

4. Section 11(g) is amended to read as follows:

 

“(g) Waiver. No delays or omission by the Company, the REIT or the Executive in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent by the REIT shall not be effective unless consented to by the Company. A waiver or consent given by the Company Group or the Executive on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.”

 

-1-


IN WITNESS WHEREOF, the parties have executed this First Amendment to Employment Agreement as of the day and year first above written.

 

 

 

 

HIGHLAND HOSPITALITY, L.P.

 

 

By:

 

HHC GP Corporation, its general

partner

 

 

By:

 

/s/    Tracy M. J. Colden

 

 


 

 

Tracy M. J. Colden

Executive Vice President

 

JAMES L. FRANCIS

 

/s/    James L. Francis


 

HIGHLAND HOSPITALITY CORPORATION

 

 

By:

 

/s/    Tracy M. J. Colden

 

 


 

 

Tracy M. J. Colden

Executive Vice President

 

 

 

Exhibit 10.3.2

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

This Second Amendment to Employment Agreement is made this 23rd day of May 2006, by Highland Hospitality Corporation, a Maryland Corporation (the “REIT”), with its principal place of business at 8405 Greensboro Drive, Suite 500, McLean, VA 22102 and James L. Francis, residing at 7283 Kent Point Road, Stevensville, Maryland 21666 (the “Executive”).

WHEREAS, the Company and the REIT entered into that certain Employment Agreement dated October 24, 2003 and amended on March 29, 2004 (the “Employment Agreement”) with the Executive;

WHEREAS, the parties have agreed to amend the Employment Agreement to comply with the payment rules applicable to nonqualified deferred compensation under Section 409A of the Internal Revenue Code of 1986, as amended; and

WHEREAS, Highland Hospitality, L.P. has consented to this Second Amendment.

NOW THEREFORE, the parties agree that the Employment Agreement shall be amended as follows:

1. Section 6(d)(v) is amended by the addition of a new Sub-section 6(d)(v)(D) which shall read as follows:

(D) Notwithstanding the preceding terms of this Section 6(d)(v), in determining the net benefits that that would have been retained by the Executive if the Excise Tax had not been applicable and for purposes of determining the Executive’s highest marginal rate of taxation used in determining the Gross-Up Amount, any interest or additional tax under Section 409A(a)(1)(B) of the Code (applicable to certain nonqualified deferred compensation payments) shall disregarded.

2. The Employment Agreement is amended by the addition of a new Section 12, which shall read as follows:

12. Section 409A Compliance

Notwithstanding anything in this Agreement or any other agreements between the REIT or the Company, and the Executive (“Other Agreements”) to the contrary, if, based on Internal Revenue Service guidance available as of the date the payment or provision of any amount or other benefit is required to be made under this Agreement (including, but no limited to, any payment, accelerated vesting, benefit continuation right or Gross-Up Amount under Section 6 hereof) or under any Other Agreements, the REIT reasonably determines that the payment or provision of such amount or other benefit at such specified time may potentially subject the Executive to “additional tax” and “interest” under


Section 409A(a)(1)(B) of the Code (together with any interest or penalties imposed with respect to, or in connection with, such tax, a “409A Tax”), because the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code or otherwise, and if payment of such amount or provision of such benefit at a later date would likely avoid any such 409A Tax, then the payment or provision thereof shall be postponed to the earliest business day on which the REIT reasonably determines such amount or benefit can be paid or provided without incurring any such 409A Tax, but in no event later than the first business day after the six-month anniversary of the Executive’s severance from service within the meaning of Section 409A(a)(2) of the Code (the “Delayed Payment Date”). In the event a benefit is to be provided during the period commencing on the Executive’s separation from service and ending on the Delayed Payment Date and the provision of such benefit during that period would be treated as a payment of nonqualified deferred compensation in violation of Section 409A(a)(2)(B)(i) of the Code, then continuation of such benefit during that period shall be conditioned on payment by the Executive of the full premium or other cost of coverage and as of the Delayed Payment Date the REIT shall reimburse the Executive for the premiums or other cost of coverage paid by the Executive, which but for this paragraph would have been paid by the REIT. The REIT and the Executive may agree to take other actions to avoid the imposition of 409A Tax at such time and in such manner as permitted under Section 409A. The REIT shall have no liability to the Executive in the event that Executive shall be liable for a 409A Tax.

IN WITNESS WHEREOF, the parties have executed this Second Amendment to Employment Agreement as of the day and year first above written.

 

 

 

 

HIGHLAND HOSPITALITY CORPORATION

 

 

By:

 

/s/ Tracy M. J. Colden

Name:

 

Tracy M. J. Colden

Title:

 

Executive Vice President

 

JAMES L. FRANCIS

 

/s/ James L. Francis

 

-2-


Consent of Highland Hospitality, L.P.

Highland Hospitality, L.P. hereby consents to this Second Amendment to the Employment Agreement of James L. Francis.

 

 

 

 

HIGHLAND HOSPITALITY, L.P.

By:

 

HHC GP Corporation, its general partner

 

 

By:

 

/s/ Tracy M. J. Colden

Name:

 

Tracy M. J. Colden

Title:

 

Executive Vice President

 

-3-