Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission file number: 001-31775
ASHFORD HOSPITALITY TRUST, INC.
(Exact name of registrant as specified in its charter)
Maryland
  
86-1062192
(State or other jurisdiction of incorporation or organization)
  
(IRS employer identification number)
14185 Dallas Parkway, Suite 1100
Dallas, Texas
  
75254
(Address of principal executive offices)
  
(Zip code)
(972) 490-9600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
  
Name of each exchange on which registered
Common Stock
  
New York Stock Exchange
Preferred Stock, Series A
  
New York Stock Exchange
Preferred Stock, Series D
  
New York Stock Exchange
Preferred Stock, Series E
  
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. þ   Yes     ¨   No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨   Yes     þ   No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     þ   Yes           ¨   No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)     þ   Yes     ¨   No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company (as defined in Rule 12b-2 of the Exchange Act):
Large accelerated filer   þ
  
Accelerated filer   o
 
 
 
Non-accelerated filer   o
  
Smaller reporting company   o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     þ   No
As of June 28, 2013 , the aggregate market value of 74,467,843 shares of the registrant’s common stock held by non-affiliates was approximately $852,657,000 .
As of February 27, 2014 , the registrant had 80,565,563 shares of common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement pertaining to the 2014 Annual Meeting of Shareholders are incorporated herein by reference into Part III of this Form 10-K.
 

Table of Contents

ASHFORD HOSPITALITY TRUST, INC.
YEAR ENDED DECEMBER 31, 2013
INDEX TO FORM 10-K
 
 
 
Page
 
PART I
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 1B.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II
 
 
 
Item 5.
 
 
 
Item 6.
 
 
 
Item 7.
 
 
 
Item 7A.
 
 
 
Item 8.
 
 
 
Item 9.
 
 
 
Item 9A.
 
 
 
Item 9B.
 
PART III
 
 
 
Item 10.
 
 
 
Item 11.
 
 
 
Item 12.
 
 
 
Item 13.
 
 
 
Item 14.
 
PART IV
 
 
 
Item 15.
 

Table of Contents

This Annual Report is filed by Ashford Hospitality Trust, Inc., a Maryland corporation (the “Company”). Unless the context otherwise requires, all references to the Company include those entities owned or controlled by the Company. In this report, the terms “the Company,” “we,” “us” or “our” mean Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.
FORWARD-LOOKING STATEMENTS
Throughout this Form 10-K and documents incorporated herein by reference, we make forward-looking statements that are subject to risks and uncertainties. These forward-looking statements include information about possible, estimated or assumed future results of our business, financial condition and liquidity, results of operations, plans, and objectives. Statements regarding the following subjects are forward-looking by their nature:
•
our business and investment strategy;
•
anticipated or expected purchases or sales of assets;
•
our projected operating results;
•
completion of any pending transactions;
•
our ability to obtain future financing arrangements;
•
our understanding of our competition;
•
market trends;
•
projected capital expenditures; and
•
the impact of technology on our operations and business.
 
Such forward-looking statements are based on our beliefs, assumptions, and expectations of our future performance taking into account all information currently known to us. These beliefs, assumptions, and expectations can change as a result of many potential events or factors, not all of which are known to us. If a change occurs, our business, financial condition, liquidity, results of operations, plans, and other objectives may vary materially from those expressed in our forward-looking statements. Additionally, the following factors could cause actual results to vary from our forward-looking statements:
•
factors discussed in this Form 10-K, including those set forth under the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” and “Properties;”
•
general volatility of the capital markets and the market price of our common and preferred stock;
•
changes in our business or investment strategy;
•
availability, terms, and deployment of capital;
•
availability of qualified personnel;
•
changes in our industry and the market in which we operate, interest rates, or the general economy; and
•
the degree and nature of our competition.
 
When we use words or phrases such as “will likely result,” “may,” “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” or similar expressions, we intend to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. We are not obligated to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

2
Table of Contents

PART I
Item 1.     Business
GENERAL
Ashford Hospitality Trust, Inc., together with its subsidiaries, is a self-administered real estate investment trust (“REIT”) focused on investing in the hospitality industry across all segments and in all methods including direct real estate, equity and debt. Additional information can be found on our website at www.ahtreit.com. We were formed as a Maryland corporation in May 2003 and commenced operations in August 2003 with the acquisition of six hotel properties in connection with our initial public offering. We own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership, our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of the Company, serves as the sole general partner of our operating partnership.
Our hotels are primarily operated under the widely recognized upscale and upper upscale brands of Hilton, Hyatt, Marriott, Starwood and Intercontinental Hotels Group. Currently, all of our hotels are located in the United States. As of December 31, 2013, we owned interests in the following hotel properties and notes receivable:
•
87 consolidated hotel properties (“legacy hotel properties”), including 85 directly owned and two owned through majority-owned investments in consolidated entities, which represent 17,030 total rooms (or 17,003 net rooms excluding those attributable to our partners),
•
28 hotel properties owned through a 71.74% common equity interest and a 50.0% preferred equity interest in an unconsolidated joint venture (“PIM Highland JV”), which represent 8,084 total rooms (or 5,800 net rooms excluding those attributable to our joint venture partner),
•
90 hotel condominium units at WorldQuest Resort in Orlando, Florida, and
•
a mezzanine loan with a carrying value of $3.4 million.
The following briefly summarizes certain acquisitions and transactions that we have completed since our inception:
•
Effective December 2, 2011, one of our partners assigned to us its 11% ownership interest in an entity, in which we previously had an 89% ownership interest.
•
In March 2011, in connection with the foreclosure on a mezzanine loan held in a joint venture with Prudential Real Estate Investors (“PREI”), we and PREI each invested additional funds and each contributed an existing mezzanine loan to form a new joint venture, the PIM Highland JV, which acquired the 28-hotel property portfolio (the “Highland Portfolio”) securing the two mezzanine loans. Our investment was $150.0 million. We have an ownership interest of 71.74% in PIM Highland JV’s common equity and a $25.0 million preferred equity interest. Although we have the majority ownership interest and can exercise significant influence over the joint venture, we do not control the activities that most significantly impact the PIM Highland JV’s economic performance. All the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons, of which we and our joint venture partner each designate two persons. As a result, we are not the primary beneficiary of PIM Highland JV and therefore it is not consolidated. Our investment in the joint venture is accounted for using the equity method. The Highland Portfolio consists of high quality full-service and select-service hotel properties with 8,084 total rooms, or 5,800 net rooms excluding those attributable to our joint venture partner.
•
Additionally, in March 2011, we acquired 96 hotel condominiums units at WorldQuest Resort in Orlando, Florida ("WorldQuest") for $12.0 million and subsequently sold two units in 2011 and four units in 2013. At December 31, 2013 , we owned 90 units. At December 31, 2013 , we also wholly owned one mezzanine loan with a net carrying value of $3.4 million .
•
Beginning in March 2008, we entered into various derivative transactions with financial institutions to hedge our debt, to improve cash flows, and to capitalize on the historical correlation between changes in London Interbank

3
Table of Contents

Offered Rate ("LIBOR") and Revenue Per Available Room ("RevPAR"). The derivative instruments associated with these transactions had all expired by March 2013. Through December 31, 2013 , we recorded cash and accrued income of $234.4 million from the derivative transactions.
For federal income tax purposes, we have elected to be treated as a REIT, which imposes limitations related to operating hotels. As of December 31, 2013 , all of our 87 legacy hotel properties were leased or owned by our wholly-owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations. With respect to our unconsolidated joint venture, PIM Highland JV, the 28 hotels are leased to PIM Highland JV’s wholly-owned subsidiary, which is treated as a taxable REIT subsidiary for federal income tax purposes.
We do not operate any of our hotels directly; instead we employ hotel management companies to operate them for us under management contracts. Remington Lodging & Hospitality, LLC, together with its affiliates (“Remington Lodging”), is our primary property manager, and is beneficially wholly-owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer, and Mr. Archie Bennett, Jr., our Chairman Emeritus. As of December 31, 2013 , Remington Lodging managed 54 of our 87 legacy hotel properties, while third-party management companies managed the remaining 33 hotel properties. In addition, as of December 31, 2013 , Remington Lodging managed 21 of the 28 PIM Highland JV hotel properties and the WorldQuest condominium properties.
SIGNIFICANT TRANSACTIONS IN 2013 AND RECENT DEVELOPMENTS
Refinanced our $141.7 Million Mortgage Loan - On February 26, 2013, we refinanced our $141.7 million loan due August 2013, which had an outstanding balance of $141.0 million, with a $199.9 million loan due February 2018. The new loan provides for an interest rate of LIBOR + 3.50%, with no LIBOR floor. The new loan continues to be secured by the Capital Hilton in Washington, DC and the Hilton La Jolla Torrey Pines in La Jolla, California. We had a 75% ownership interest in the properties, with Hilton holding the remaining 25%. The excess loan proceeds above closing costs and reserves were distributed to the partners on a pro rata basis. Our share of the excess loan proceeds was approximately $40.5 million, which was added to our unrestricted cash balance. These properties were included in the spin-off of Ashford Hospitality Prime, Inc. discussed below.
Acquisition of the Pier House Resort - On May 14, 2013, we acquired a 100% interest in the Pier House Resort in Key West, Florida, for a contractual purchase price of $90.0 million in cash. In connection with the acquisition, we incurred transaction costs of $901,000 , which are included in transaction costs on the consolidated statement of operations. The purchase price has been allocated to the assets acquired and liabilities assumed using the estimated fair value at the date of acquisition based on a third party appraisal.
Common Stock Offering - On June 20, 2013, we commenced a follow-on public offering of 11.0 million shares of our common stock at $12.00 per share for gross proceeds of $132.0 million. The aggregate proceeds, net of the 4.25% underwriting discount and other expenses of $500,000, were approximately $125.9 million. The offering settled on June 26, 2013. We granted the underwriters a 30-day option to purchase up to an additional 1.65 million shares of our common stock. On July 24, 2013, the underwriters partially exercised their option and purchased an additional 1.25 million shares of our common stock at a price of $12.00 per share less the underwriting discount resulting in additional proceeds of approximately $14.2 million.
$69.0 Million Pier House Financing - On September 10, 2013, we completed the financing for a $69.0 million loan due September 2015 and secured by the Pier House Resort. The new financing has a two-year term and three, one-year extension options with no test requirements for the first two extensions. The loan provides for a floating interest rate of LIBOR + 4.90%, with no LIBOR Floor. The loan proceeds, net of typical closing costs and reserves, were added to our unrestricted cash balance.
Spin-off of an 8-hotel Portfolio - On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8-hotel portfolio, totaling 3,146 rooms (2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. This distribution was comprised of common stock in Ashford Hospitality Prime, Inc. (“Ashford Prime”), a newly formed company. We contributed the portfolio interests into Ashford Hospitality Prime Limited Partnership ("Ashford Prime OP"), Ashford Prime's operating partnership. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our shareholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such shareholder as of the close of business on November 8, 2013. Ashford Prime is expected to qualify as a REIT for federal income tax purposes, and is listed on the New York Stock Exchange, under the symbol “AHP.” The transaction also includes options for Ashford Prime to purchase the Crystal Gateway Marriott in Arlington, Virginia and the Pier House Resort in Key West, Florida. Ashford Hospitality Advisors LLC, our subsidiary acts as external advisor to Ashford Prime.

4
Table of Contents

$18.2 Million Loan Financings - On December 20, 2013, we refinanced a $6.5 million loan due April 2034, with a $10.8 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49%. The new loan continues to be secured by the Residence Inn Jacksonville. Additionally, we completed the financing for a $7.4 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% and is secured by the Residence Inn Manchester. We have an 85% ownership interest in the property, with Interstate Hotels & Resorts holding the remaining 15%. Our share of the excess loan proceeds were added to our unrestricted cash balance.
Proposed Spin-off of Asset Management Business - On February 27, 2014, we announced that our Board of Directors has unanimously approved a plan to spin-off its asset management business into a separate publicly traded company in the form of a taxable distribution.  The distribution is expected to be completed in the third quarter of 2014, and we anticipate that the distribution will be comprised of common stock in Ashford, Inc. (“Ashford Inc.”), a newly formed or successor company of our current subsidiary Ashford Hospitality Advisors LLC. We also expect that Ashford Inc. will file an application to list its shares on the NYSE or NYSE MKT Exchanges.  In connection with the proposed spin-off, we expect that Ashford Inc. will enter into a 20-year advisory agreement to externally advise the Company. Ashford Inc. will continue to externally advise Ashford Prime. This distribution is anticipated to be declared during the third quarter of 2014; however, it remains subject to the filing of the required registration statement with the Securities and Exchange Commission ("SEC"), the review of the registration statement by the SEC, the approval of the listing of shares by the applicable exchange, and other legal requirements. The Company cannot be certain this distribution will proceed or proceed in the manner as currently anticipated.
Sale of Pier House Resort - On March 1, 2014, we closed on the sale of the Pier House Resort to Ashford Prime. The sales price was $92.7 million . Ashford Prime assumed the $69 million mortgage and paid the balance of the purchase price in cash.
BUSINESS STRATEGIES
Following the recession that commenced in 2008, the lodging industry has experienced improvement in fundamentals, which continued through 2013. Room rates, measured by the average daily rate ("ADR"), which typically lags occupancy growth in the early stage of a recovery, have shown upward growth. We believe improvements in the economy will continue to positively impact the lodging industry and hotel operating results for several years to come, and we will continue to seek ways to benefit from the cyclical nature of the hotel industry.  We believe that in the prior cycle, hotel values and cash flows, for the most part, peaked in 2007, and we believe the hotel industry may exceed these cash flows and values during the next cyclical peak.
Based on our primary business objectives and forecasted operating conditions, our current key priorities and financial strategies include, among other things:
•
acquisition of hotel properties;
•
disposition of non-core hotel properties;
•
investing in securities;
•
pursuing capital market activities to enhance long-term shareholder value;
•
preserving capital, enhancing liquidity, and continuing current cost saving measures;
•
implementing selective capital improvements designed to increase profitability;
•
implementing effective asset management strategies to minimize operating costs and increase revenues;
•
financing or refinancing hotels on competitive terms;
•
utilizing hedges and derivatives to mitigate risks; and
•
making other investments or divestitures that our Board of Directors deems appropriate.
Our investment strategies continue to focus on the full-service and select-service hotels in the upscale and upper-upscale segments within the lodging industry that have RevPAR generally less than twice the national average. We believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategies to take advantage of new lodging-

5
Table of Contents

related investment opportunities as they may develop. Our Board of Directors may change our investment strategies at any time without shareholder approval or notice.
As the business cycle changes and the hotel markets continue to improve, we intend to continue to invest in a variety of lodging-related assets based upon our evaluation of diverse market conditions including our cost of capital and the expected returns from those investments. Our investments may include: (i) direct hotel investments; (ii) mezzanine financing through origination or acquisition; (iii) first-lien mortgage financing through origination or acquisition; and (iv) sale-leaseback transactions.
Our strategy is designed to take advantage of lodging industry conditions and adjust to changes in market circumstances over time. Our assessment of market conditions will determine asset reallocation strategies. While we seek to capitalize on favorable market fundamentals, conditions beyond our control may have an impact on overall profitability and our investment returns.
Our strategy of combining lodging-related equity and debt investments seeks, among other things, to:
•
capitalize on both current yield and price appreciation, while simultaneously offering diversification of types of assets within the hospitality industry; and
•
vary investments across an array of hospitality assets to take advantage of market cycles for each asset class.
To take full advantage of future investment opportunities in the lodging industry, we intend to invest according to the asset allocation strategies described below. However, due to ongoing changes in market conditions, we will continually evaluate the appropriateness of our investment strategies. Our Board of Directors may change any or all of these strategies at any time without shareholder approval or notice.
Direct Hotel Investments – In selecting hotels to acquire, we target hotels that offer either a high current return or the opportunity to increase in value through repositioning, capital investments, market-based recovery, or improved management practices. Our direct hotel acquisition strategy primarily targets full-service and select-service hotels in primary, secondary, and resort markets, typically throughout the United States and will seek to achieve both current income and appreciation. In addition, we will continue to assess our existing hotel portfolio and make strategic decisions to sell certain under-performing or non-strategic hotels that do not fit our investment strategy or criteria due to micro or macro market changes or other reasons.
Mezzanine Financing – Subordinated loans, or mezzanine loans, that we acquire or originate may relate to a diverse segment of hotels that are located across the U.S. These mezzanine loans are secured by junior mortgages on hotels or pledges of equity interests in entities owning hotels. As the global economic environment improves and the hotel industry stabilizes, we may refocus our efforts on the acquisition or origination of mezzanine loans. Given the greater repayment risks of these types of loans, to the extent we acquire or originate them in the future, we will have a more conservative approach in underwriting these assets. Mezzanine loans that we acquire in the future may be secured by individual assets as well as cross-collateralized portfolios of assets.
First Mortgage Financing – From time to time, we may acquire or originate first mortgages. As the dynamics in the capital markets and the hotel industry make first-mortgage investments more attractive, we may acquire, potentially at a discount to par, or originate loans secured by first priority mortgages on hotels. We may be subject to certain state-imposed licensing regulations related to commercial mortgage lenders, with which we intend to comply. However, because we are not a bank or a federally chartered lending institution, we are not subject to state and federal regulatory constraints imposed on such entities.
Sale-Leaseback Transactions – To date, we have not participated in any sale-leaseback transactions. However, if the lodging industry fundamentals shift such that sale-leaseback transactions become more attractive investments, we intend to purchase hotels and lease them back to their existing hotel owners.
Other Transactions - We may also invest in other lodging related assets or businesses that offer diversification, attractive risk adjusted returns, and/or capital allocation benefits.
BUSINESS SEGMENTS
We currently operate in two business segments within the hotel lodging industry: direct hotel investments and hotel financing. A discussion of each operating segment is incorporated by reference to Note 22 of Notes to Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data.
FINANCING STRATEGY
We utilize debt to increase equity returns. When evaluating our future level of indebtedness and making decisions regarding the incurrence of indebtedness, our Board of Directors considers a number of factors, including:

6
Table of Contents

•
our leverage levels across the portfolio;
•
the purchase price of our investments to be acquired with debt financing;
•
impact on financial covenants;
•
cost of debt;
•
loan maturity schedule;
•
the estimated market value of our investments upon refinancing;
•
the ability of particular investments, and our Company as a whole, to generate cash flow to cover expected debt service; and.
•
trailing twelve months net operating income of the hotel to be financed.
  We may incur debt in the form of purchase money obligations to the sellers of properties, publicly or privately placed debt instruments, or financing from banks, institutional investors, or other lenders. Any such indebtedness may be secured or unsecured by mortgages or other interests in our properties. This indebtedness may be recourse, non-recourse, or cross-collateralized. If recourse, such recourse may include our general assets or be limited to the particular investment to which the indebtedness relates. In addition, we may invest in properties or loans subject to existing loans secured by mortgages or similar liens on the properties, or we may refinance properties acquired on a leveraged basis.
We may use the proceeds from any borrowings for working capital to:
•
purchase interests in partnerships or joint ventures;
•
finance the origination or purchase of debt investments; or
•
finance acquisitions, expand, redevelop or improve existing properties, or develop new properties or other uses.
In addition, if we do not have sufficient cash available, we may need to borrow to meet taxable income distribution requirements under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). No assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy. In addition, we may selectively pursue debt financing on our individual properties and debt investments.
DISTRIBUTION POLICY
In December 2012, the Board of Directors approved our dividend policy for 2013 with an annualized target of $0.48 per share. For the year ended December 31, 2013 , we have declared dividends of $0.48 per share. We may incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. We may pay dividends in excess of our cash flow.
Distributions are authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our directors. No assurance can be given that our dividend policy will not change in the future. In December 2013, the Board of Directors approved our dividend policy for 2014 and we expect to pay a quarterly dividend of $0.12 per share during 2014 . The adoption of a dividend policy does not commit our Board of Directors to declare future dividends or the amount thereof. The Board of Directors will continue to review our dividend policy on a quarterly basis. Our ability to pay distributions to our shareholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect, wholly-owned subsidiaries of our operating partnership and the management of our properties by our property managers. Distributions to our shareholders are generally taxable to our shareholders as ordinary income. However, since a portion of our investments are equity ownership interests in hotels, which result in depreciation and non-cash charges against our income, a portion of our distributions may constitute a non-taxable return

7
Table of Contents

of capital, to the extent of a shareholder’s tax basis in the stock. To the extent that it is consistent with maintaining our REIT status, we may maintain accumulated earnings of Ashford TRS in that entity.
Our charter allows us to issue preferred stock with a preference on distributions, such as our Series A, Series D and Series E preferred stock. The partnership agreement of our operating partnership also allows the operating partnership to issue units with a preference on distributions, such as our class B common units. The issuance of these series of preferred stock and units together with any similar issuance in the future, given the dividend preference on such stock or units, could limit our ability to make a dividend distribution to our common shareholders.
COMPETITION
The hotel industry is highly competitive and the hotels in which we invest are subject to competition from other hotels for guests. Competition is based on a number of factors, most notably convenience of location, availability of rooms, brand affiliation, price, range of services, guest amenities or accommodations offered and quality of customer service. Competition is often specific to the individual markets in which our properties are located and includes competition from existing and new hotels. Increased competition could have a material adverse effect on the occupancy rate, average daily room rate and room revenue per available room of our hotels or may require us to make capital improvements that we otherwise would not have to make, which may result in decreases in our profitability.
Our principal competitors include other hotel operating companies, ownership companies (including hotel REITs) and national and international hotel brands. We face increased competition from providers of less expensive accommodations, such as select-service hotels or independent owner-managed hotels, during periods of economic downturn when leisure and business travelers become more sensitive to room rates.
EMPLOYEES
At December 31, 2013 , we had 83 full-time employees. These employees directly or indirectly perform various acquisition, development, asset management, capital markets, accounting, tax, risk management, legal, redevelopment, and corporate management functions. None of our corporate employees are unionized. All persons employed in day-to-day hotel operations are employees of the management companies and not the Company, and some of the management company employees are unionized. Occasionally, we hire temporary employees to assist in tasks. We also hire numerous third parties to provide various professional services. In addition, certain employees of a related party provide services to us or split their time between us and the related party. Costs for these services are included in the corporate general and administrative expense reimbursements to the related party.
ENVIRONMENTAL MATTERS
Under various federal, state, and local laws and regulations, an owner or operator of real estate may be liable for the costs of removal or remediation of certain hazardous or toxic substances on such property. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous or toxic substances. Furthermore, a person who arranges for the disposal of a hazardous substance or transports a hazardous substance for disposal or treatment from property owned by another may be liable for the costs of removal or remediation of hazardous substances released into the environment at that property. The costs of remediation or removal of such substances may be substantial, and the presence of such substances, or the failure to promptly remediate such substances, may adversely affect the owner’s ability to sell the affected property or to borrow using the affected property as collateral. In connection with the ownership and operation of our properties, we, our operating partnership, or Ashford TRS may be potentially liable for any such costs. In addition, the value of any lodging property loan we originate or acquire would be adversely affected if the underlying property contained hazardous or toxic substances.
Phase I environmental assessments, which are intended to identify potential environmental contamination for which our properties may be responsible, have been obtained on substantially all of our properties. Such Phase I environmental assessments included:
•
historical reviews of the properties;
•
reviews of certain public records;
•
preliminary investigations of the sites and surrounding properties;
•
screening for the presence of hazardous substances, toxic substances, and underground storage tanks; and
•
the preparation and issuance of a written report.

8
Table of Contents

Such Phase I environmental assessments did not include invasive procedures, such as soil sampling or ground water analysis. Such Phase I environmental assessments have not revealed any environmental liability that we believe would have a material adverse effect on our business, assets, results of operations, or liquidity, and we are not aware of any such liability. To the extent Phase I environmental assessments reveal facts that require further investigation, we would perform a Phase II environmental assessment. However, it is possible that these environmental assessments will not reveal all environmental liabilities. There may be material environmental liabilities of which we are unaware, including environmental liabilities that may have arisen since the environmental assessments were completed or updated. No assurances can be given that (i) future laws, ordinances, or regulations will not impose any material environmental liability, or (ii) the current environmental condition of our properties will not be affected by the condition of properties in the vicinity (such as the presence of leaking underground storage tanks) or by third parties unrelated to us.
We believe our properties are in compliance in all material respects with all federal, state, and local ordinances and regulations regarding hazardous or toxic substances and other environmental matters. Neither we nor, to our knowledge, any of the former owners of our properties have been notified by any governmental authority of any material noncompliance, liability, or claim relating to hazardous or toxic substances or other environmental matters in connection with any of our properties.
INSURANCE
We maintain comprehensive insurance, including liability, property, workers’ compensation, rental loss, environmental, terrorism, and, when available on commercially reasonable terms, flood and earthquake insurance, with policy specifications, limits, and deductibles customarily carried for similar properties. Certain types of losses (for example, matters of a catastrophic nature such as acts of war or substantial known environmental liabilities) are either uninsurable or require substantial premiums that are not economically feasible to maintain. Certain types of losses, such as those arising from subsidence activity, are insurable only to the extent that certain standard policy exceptions to insurability are waived by agreement with the insurer. We believe, however, that our properties are adequately insured, consistent with industry standards.
FRANCHISE LICENSES
We believe that the public’s perception of quality associated with a franchisor can be an important feature in the operation of a hotel. Franchisors provide a variety of benefits for franchisees, which include national advertising, publicity, and other marketing programs designed to increase brand awareness, training of personnel, continuous review of quality standards, and centralized reservation systems.
As of December 31, 2013 , we owned interests in 123 hotels, 118 of which operated under the following franchise licenses or brand management agreements:
Embassy Suites is a registered trademark of Hilton Hospitality, Inc.
Hilton is a registered trademark of Hilton Hospitality, Inc.
Hilton Garden Inn is a registered trademark of Hilton Hospitality, Inc.
Homewood Suites by Hilton is a registered trademark of Hilton Hospitality, Inc.
Hampton Inn is a registered trademark of Hilton Hospitality, Inc.
Marriott is a registered trademark of Marriott International, Inc.
SpringHill Suites is a registered trademark of Marriott International, Inc.
Residence Inn by Marriott is a registered trademark of Marriott International, Inc.
Courtyard by Marriott is a registered trademark of Marriott International, Inc.
Fairfield Inn by Marriott is a registered trademark of Marriott International, Inc.
TownePlace Suites is a registered trademark of Marriott International, Inc.
Renaissance is a registered trademark of Marriott International, Inc.
Ritz Carlton is a registered trademark of Marriott International, Inc.
Hyatt Regency is a registered trademark of Hyatt Corporation.

9
Table of Contents

Sheraton is a registered trademark of Sheraton Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.
Westin is a registered trademark of Westin Hotels and Resorts, a division of Starwood Hotels and Resorts Worldwide, Inc.
Crowne Plaza is a registered trademark of InterContinental Hotels Group.
One Ocean is a registered trademark of Remington Hotels LP.
Our management companies, including our affiliate Remington Lodging, must operate each hotel pursuant to the terms of the related franchise or brand management agreement and must use their best efforts to maintain the right to operate each hotel pursuant to such terms. In the event of termination of a particular franchise or brand management agreement, our management companies must operate any affected hotels under another franchise or brand management agreement, if any, that we enter into. We anticipate that many of the additional hotels we acquire could be operated under franchise licenses or brand management agreements as well.
Our franchise licenses and brand management agreements generally specify certain management, operational, recordkeeping, accounting, reporting, and marketing standards and procedures with which the franchisee or brand operator must comply, including requirements related to:  
•
training of operational personnel;
•
safety;
•
maintaining specified insurance;
•
types of services and products ancillary to guestroom services that may be provided;
•
display of signage; and
•
type, quality, and age of furniture, fixtures, and equipment included in guestrooms, lobbies, and other common areas.
SEASONALITY
Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months, while certain other properties maintain higher occupancy rates during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. We anticipate that our cash flows from the operations of our properties will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.
ACCESS TO REPORTS AND OTHER INFORMATION
We maintain a website at www.ahtreit.com. On our website, we make available free-of-charge our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as soon as reasonably practicable after we electronically file such material with the SEC. In addition, our Code of Business Conduct and Ethics, Code of Ethics for the Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, Corporate Governance Guidelines, and Board Committee Charters are also available free-of-charge on our website or can be made available in print upon request.
All reports filed with the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E. Washington, DC 20549-1090. Further information regarding the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. In addition, all of our filed reports can be obtained at the SEC’s website at www.sec.gov.

10
Table of Contents

Item 1A.
Risk Factors
RISKS RELATED TO OUR BUSINESS
The financial crisis and general economic slowdown, which began in late 2007, harmed the operating performance of the hotel industry generally. If these or similar events recur, we may be harmed by declines in occupancy, average daily room rates and/or other operating revenues.
The performance of the lodging industry has been closely linked with the performance of the general economy and, specifically, growth in the U.S. gross domestic product. A majority of our hotels are classified as upscale and upper-upscale. In an economic downturn, these types of hotels may be more susceptible to a decrease in revenue, as compared to hotels in other categories that have lower room rates. This characteristic may result from the fact that upscale and upper-upscale hotels generally target business and high-end leisure travelers. In periods of economic difficulties, business and leisure travelers may seek to reduce travel costs by limiting travel or seeking to reduce costs on their trips. Any economic recession will likely have an adverse effect on us.
Failure of the hotel industry to exhibit sustained improvement or to improve as expected may adversely affect us.
A substantial part of our business plan is based on our belief that the lodging markets in which we invest will experience improving economic fundamentals in the future, despite that fundamentals have already substantially improved over the last several years. In particular, our business strategy is dependent on our expectation that key industry performance indicators, especially RevPAR, will continue to improve. There can be no assurance as to whether or to what extent, hotel industry fundamentals will continue to improve. In the event conditions in the industry do not sustain improvement or improve as we expect, or deteriorate, we may be adversely affected.
We are subject to various risks related to our use of, and dependence on, debt.
As of December 31, 2013 , we had aggregated borrowings of approximately $1.8 billion outstanding, including $579.4 million of variable interest rate debt. The interest we pay on variable-rate debt increases as interest rates increase above any floor rates, which may decrease cash available for distribution to our shareholders. We are also subject to the risk that we may not be able to meet our debt service obligations or refinance our debt as it becomes due. If we do not meet our debt service obligations, we risk the loss of some or all of our assets to foreclosure. Changes in economic conditions or our financial results or prospects could (i) result in higher interest rates on variable-rate debt, (ii) reduce the availability of debt financing generally or debt financing at favorable rates, (iii) reduce cash available for distribution to our shareholders, (iv) increase the risk that we could be forced to liquidate assets or repay debt, either of which could have a material adverse effect on us, and (v) create other challenging situations for us.
Some of our debt agreements contain financial and other covenants. If we violate covenants in any debt agreements, including as a result of impairments of our hotel or mezzanine loan assets, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may also prohibit us from borrowing unused amounts under our lines of credit, even if repayment of some or all the borrowings is not required. In any event, financial covenants under our current or future debt obligations could impair our planned business strategies by limiting our ability to borrow beyond certain amounts or for certain purposes. Our governing instruments do not contain any limitation on our ability to incur indebtedness.
We voluntarily elected to cease making payments on the mortgages securing four of our hotels during the recent economic downturn, and we may voluntarily elect to cease making payments on additional mortgages in the future, which could reduce the number of hotels we own as well as our revenues and could affect our ability to raise equity or debt financing in the future or violate covenants in our debt agreements.
During the past economic crisis, we undertook a series of actions to manage the sources and uses of our funds in an effort to navigate through challenging market conditions while still pursuing opportunities to create long-term shareholder value. In this effort, we attempted to proactively address value and cash flow deficits among certain of our mortgaged hotels, with a goal of enhancing shareholder value through loan amendments, or in certain instances, consensual transfers of hotel properties to the lenders in satisfaction of the related debt, some of which resulted in impairment charges. The loans secured by these hotels, subject to certain customary exceptions, were non-recourse to us. We may continue to proactively address value and cash flow deficits in a similar manner as necessary and appropriate.
We had approximately $1.8 billion of mortgage debt outstanding as of December 31, 2013 . We may face issues with these loans or with other loans or borrowings that we incur in the future, some of which issues may be beyond our control, including our ability to service payment obligations from the cash flow of the applicable hotel, or the inability to refinance existing debt at

11
Table of Contents

the applicable maturity date. In such event, we may elect to default on the applicable loan and, as a result, the lenders would have the right to exercise various remedies under the loan documents, which would include foreclosure on the applicable hotels. Any such defaults, whether voluntary or involuntary, could result in a default under our other debt agreements, could have an adverse effect on our ability to raise equity or debt capital, could increase the cost of such capital or could otherwise have an adverse effect on our business, results of operations or financial condition.
Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on a co-venturer’s financial condition and disputes between us and our co-venturers.
We have in the past and may continue to co-invest with third parties through partnerships, joint ventures or other entities, acquiring controlling or non-controlling interests in, or sharing responsibility for, managing the affairs of a property, partnership, joint venture or other entity. In such event, we may not be in a position to exercise sole decision-making authority regarding the property, partnership, joint venture or other entity. Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve risks not present were a third party not involved, including the possibility that partners or co-venturers might become bankrupt, suffer a deterioration in their financial condition or fail to fund their share of required capital contributions. Partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, budgets, or financing, because neither we nor the partner or co-venturer would have full control over the partnership or joint venture. Disputes between us and partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. Consequently, actions by, or disputes with, partners or co-venturers might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our third-party partners or co-venturers.
Our business strategy depends on our continued growth. We may fail to integrate recent and additional investments into our operations or otherwise manage our planned growth, which may adversely affect our operating results.
Our business plan contemplates a period of growth in the next several years. We cannot assure you that we will be able to adapt our management, administrative, accounting, and operational systems, or hire and retain sufficient operational staff to successfully integrate and manage any future acquisitions of additional assets without operating disruptions or unanticipated costs. Acquisitions of any additional portfolios of properties or mortgages would generate additional operating expenses that we will be required to pay. As we acquire additional assets, we will be subject to the operational risks associated with owning those assets. Our failure to successfully integrate any future acquisitions into our portfolio could have a material adverse effect on our results of operations and financial condition and our ability to pay dividends to our shareholders.
We may be unable to identify additional investments that meet our investment criteria or to acquire the properties we have under contract.
We cannot assure you that we will be able to identify real estate investments that meet our investment criteria, that we will be successful in completing any investment we identify, or that any investment we complete will produce a return on our investment. Moreover, we have broad authority to invest in any real estate investments that we may identify in the future. We also cannot assure you that we will acquire properties we currently have under firm purchase contracts, if any, or that the acquisition terms we have negotiated will not change.
Conflicts of interest could result in our management acting other than in our shareholders’ best interest.
Conflicts of interest in general and specifically relating to Remington Lodging may lead to management decisions that are not in the shareholders’ best interest. The Chairman of our Board of Directors and Chief Executive Officer, Mr. Monty J. Bennett, serves as the Chief Executive Officer of Remington Lodging and Mr. Archie Bennett, Jr., who is our Chairman Emeritus, serves as Chairman of the Board of Directors of Remington Lodging. Messrs. Archie and Monty J. Bennett beneficially own 100% of Remington Lodging, which, as of December 31, 2013 , managed  54 of our 87 legacy properties, 21 of the 28 PIM Highland JV hotel properties and the WorldQuest condominium properties; and provides related services, including property management services and project management services.
Messrs. Archie and Monty J. Bennett’s ownership interests in and management obligations to Remington Lodging present them with conflicts of interest in making management decisions related to the commercial arrangements between us and Remington Lodging, and Mr. Monty J. Bennett's management obligations to Remington Lodging reduces the time and effort he spends managing Ashford. Our Board of Directors has adopted a policy that requires all material approvals, actions or decisions to which we have the right to make under the management agreements with Remington Lodging be approved by a majority or, in certain circumstances, all of our independent directors. However, given the authority and/or operational latitude to Remington Lodging under the management agreements to which we are a party, Messrs. Archie and Monty J. Bennett, as officers of Remington Lodging,

12
Table of Contents

could take actions or make decisions that are not in our shareholders’ best interest or that are otherwise inconsistent with their obligations under the management agreement or our obligations under the applicable franchise agreements.
Holders of units in our operating partnership, including members of our management team, may suffer adverse tax consequences upon our sale of certain properties. Therefore, holders of units, either directly or indirectly, including Messrs. Archie and Monty J. Bennett, Mr. David Brooks, our Chief Operating Officer and General Counsel, Mr. David Kimichik, our Chief Financial Officer, Mr. Mark Nunneley, our Chief Accounting Officer and Mr. Martin L. Edelman (or his family members), one of our directors, may have different objectives regarding the appropriate pricing and timing of a particular property’s sale. These officers and directors of ours may influence us to sell, not sell, or refinance certain properties, even if such actions or inactions might be financially advantageous to our shareholders, or to enter into tax deferred exchanges with the proceeds of such sales when such a reinvestment might not otherwise be in our best interest.
In addition, we have agreed to indemnify for a period of time contributors of properties contributed to us in exchange for operating partnership units, including (indirectly) Messrs. Archie and Monty J. Bennett, Brooks, Kimichik, Nunneley, and Edelman (or his family members), against the income tax they may incur if we dispose of the specified contributed properties. Because of this indemnification, our indemnified management team members may make decisions about selling any of these properties that are not in our shareholders’ best interest.
We are a party to a master hotel management agreement and an exclusivity agreement with Remington Lodging, which describes the terms of Remington Lodging’s services to our hotels, as well as any future hotels we may acquire that may or may not be managed by Remington Lodging. The exclusivity agreement requires us to engage Remington Lodging, unless our independent directors either (i) unanimously vote to hire a different manager or developer, or (ii) by a majority vote, elect not to engage Remington Lodging because they have determined that special circumstances exist or that, based on Remington Lodging’s prior performance, another manager or developer could perform the duties materially better. As the sole owners of Remington Lodging, which would receive any development, management, and management termination fees payable by us under the management agreement, Mr. Monty Bennett, and to a lesser extent, Mr. Archie Bennett, Jr., in his role as Chairman Emeritus, may influence our decisions to sell, acquire, or develop hotels when it is not in the best interests of our shareholders to do so.
Tax indemnification obligations that apply in the event that we sell certain properties could limit our operating flexibility.
We have acquired certain of our properties in exchange transactions in which we issued units in our operating partnership in exchange for hotel properties. In certain of these transactions, we agreed to ongoing indemnification obligations in the event we sell or transfer the related property and in some instances in the event we refinance the related property. Accordingly, we may be obligated to indemnify the contributors, including Messrs. Archie and Monty J. Bennett whom have substantial ownership interests, against the tax consequences of such transactions.
In general, our tax indemnities will be equal to the amount of the federal, state, and local income tax liability the contributor or its specified assignee incurs with respect to the gain allocated to the contributor. The terms of the contribution agreements also generally require us to gross up tax indemnity payments for the amount of income taxes due as a result of the tax indemnity and this additional payment.
While the tax indemnities generally do not contractually limit our ability to conduct our business in the way we desire, we are less likely to sell any of the contributed properties for which we have agreed to the tax indemnities described above in a taxable transaction during the applicable indemnity period. Instead, we would likely either hold the property for the entire indemnity period or seek to transfer the property in a tax-deferred like-kind exchange. In addition, a condemnation of one of our properties could trigger our tax indemnification obligations.
Hotel franchise requirements could adversely affect distributions to our shareholders.
We must comply with operating standards, terms, and conditions imposed by the franchisors of the hotel brands under which our hotels operate. Franchisors periodically inspect their licensed hotels to confirm adherence to their operating standards. The failure of a hotel to maintain standards could result in the loss or cancellation of a franchise license. With respect to operational standards, we rely on our property managers to conform to such standards. Franchisors may also require us to make certain capital improvements to maintain the hotel in accordance with system standards, the cost of which can be substantial. It is possible that a franchisor could condition the continuation of a franchise based on the completion of capital improvements that our management or Board of Directors determines is too expensive or otherwise not economically feasible in light of general economic conditions or the operating results or prospects of the affected hotel. In that event, our management or Board of Directors may elect to allow the franchise to lapse or be terminated, which could result in a termination charge as well as a change in brand franchising or operation of the hotel as an independent hotel.

13
Table of Contents

In addition, when the term of a franchise expires, the franchisor has no obligation to issue a new franchise. The loss of a franchise could have a material adverse effect on the operations and/or the underlying value of the affected hotel because of the loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. The loss of a franchise could also have a material adverse effect on cash available for distribution to our shareholders.
Our investments are concentrated in particular segments of a single industry.
Nearly all of our business is hotel related. Our current long-term investment strategy is to acquire or develop upscale to upper-upscale hotels, acquire first mortgages on hotel properties, invest in other mortgage-related instruments such as mezzanine loans to hotel owners and operators, and participate in hotel sale-leaseback transactions. Adverse conditions in the hotel industry will have a material adverse effect on our operating and investment revenues and cash available for distribution to our shareholders.
Our reliance on third party property managers, including Remington Lodging, to operate our hotels and for a substantial majority of our cash flow may adversely affect us.
Because federal income tax laws restrict REITs and their subsidiaries from operating or managing hotels, third parties must operate our hotels. A REIT may lease its hotels to taxable REIT subsidiaries in which the REIT can own up to a 100% interest. A taxable REIT subsidiary (“TRS”) pays corporate-level income tax and may retain any after-tax income. A REIT must satisfy certain conditions to use the TRS structure. One of those conditions is that the TRS must hire, to manage the hotels, an “eligible independent contractor” (“EIC”) that is actively engaged in the trade or business of managing hotels for parties other than the REIT. An EIC cannot (i) own more than 35% of the REIT, (ii) be owned more than 35% by persons owning more than 35% of the REIT, or (iii) provide any income to the REIT (i.e., the EIC cannot pay fees to the REIT, and the REIT cannot own any debt or equity securities of the EIC).
Accordingly, while we may lease hotels to a TRS that we own, the TRS must engage a third-party operator to manage the hotels. Thus, our ability to direct and control how our hotels are operated is less than if we were able to manage our hotels directly. We have entered into management agreements with Remington Lodging, which is owned 100% by Messrs. Archie and Monty J. Bennett, to manage  54 of our 87  legacy hotel properties, 21 of the 28 PIM Highland JV hotel properties, and the WorldQuest condominium properties as of December 31, 2013 . We have hired unaffiliated third–party property managers to manage our remaining properties. We do not supervise any of the property managers or their respective personnel on a day-to-day basis, and we cannot assure you that the property managers will manage our properties in a manner that is consistent with their respective obligations under the applicable management agreement or our obligations under our hotel franchise agreements. We also cannot assure you that our property managers will not be negligent in their performance, will not engage in criminal or fraudulent activity, or will not otherwise default on their respective management obligations to us. If any of the foregoing occurs, our relationships with any franchisors may be damaged, we may be in breach of our franchise agreement, and we could incur liabilities resulting from loss or injury to our property or to persons at our properties. In addition, from time to time, disputes may arise between us and our third-party managers regarding their performance or compliance with the terms of the hotel management agreements, which in turn could adversely affect us. We generally will attempt to resolve any such disputes through discussions and negotiations; however, if we are unable to reach satisfactory results through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter to third-party dispute resolution, the expense of which may be material and the outcome of which may harm us. Any of these circumstances could adversely affect us.
Our management agreements could adversely affect our sale or financing of hotel properties.
We have entered into management agreements, and acquired properties subject to management agreements, that do not allow us to replace hotel managers on relatively short notice or with limited cost or contain other restrictive covenants, and we may enter into additional such agreements or acquire properties subject to such agreements in the future.  For example, the terms of a management agreement may restrict our ability to sell a property unless the purchaser is not a competitor of the manager, assumes the management agreement and meets other conditions.  Also, the terms of a long-term management agreement encumbering our property may reduce the value of the property.  When we enter into or acquire properties subject to any such management agreements, we may be precluded from taking actions in  our best interest and could incur substantial expense as a result of the agreements.
If we cannot obtain additional capital, our growth will be limited.
We are required to distribute to our shareholders at least 90% of our REIT taxable income, excluding net capital gains, each year to maintain our qualification as a REIT. As a result, our retained earnings available to fund acquisitions, development, or other capital expenditures are nominal. As such, we rely upon the availability of additional debt or equity capital to fund these activities. Our long-term ability to grow through acquisitions or development, which is an important strategy for us, will be limited if we cannot obtain additional financing or equity capital. Market conditions may make it difficult to obtain financing or equity capital, and we cannot assure you that we will be able to obtain additional debt or equity financing or that we will be able to obtain

14
Table of Contents

it on favorable terms. We may elect to pay dividends on our common stock in cash or a combination of cash and shares as permitted under federal income tax laws governing REIT distribution requirements. In certain circumstances, if we are unable to obtain replacement refinancing or loan modifications, we could be forced to raise equity capital at inappropriate times, make unplanned asset sales or face foreclosure on our hotel properties.
We may be unable to generate sufficient revenue from operations to pay our operating expenses and to pay dividends to our shareholders. Currently, our credit facility limits us from paying dividends if we are in default under the credit facility, including by reason of failing to meet certain covenants.
As a REIT, we are required to distribute at least 90% of our REIT taxable income each year, excluding net capital gains, to our shareholders. Our ability to make distributions may be adversely affected by the risk factors described herein. We cannot assure you that we will be able to make distributions in the future. In the event of future downturns in our operating results and financial performance, unanticipated capital improvements to our hotels or declines in the value of our mortgage portfolio, we may be unable to declare or pay distributions to our shareholders to the extent required to maintain our REIT qualification. The timing and amount of such distributions will be in the sole discretion of our Board of Directors, which will consider, among other factors, our financial performance and debt service obligations. We may elect to pay dividends on our common stock in cash or a combination of cash and shares as permitted under federal income tax laws governing REIT distribution requirements. Currently, our credit facility limits us from paying dividends if we are in default under the credit facility, including by reason of failing to meet certain covenants.
Covenants, “cash trap” provisions or other terms in our loan agreements could limit our flexibility and adversely affect our financial condition or our qualification as a REIT.
Certain of our loan agreements contain financial and other covenants. If we violate covenants in any loan agreements, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may also prohibit us from borrowing unused amounts under our lines of credit, even if repayment of some or all the borrowings is not required. In any event, financial covenants under our current or future debt obligations could impair our planned business strategies by limiting our ability to borrow beyond certain amounts or for certain purposes.
Certain of our loan agreements also contain cash trap provisions that may be triggered if the performance of our hotels decline. When these provisions are triggered, substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. Cash is not distributed to us at any time after the cash trap provisions have been triggered until we have cured performance issues. This could affect our liquidity and our ability to make distributions to our shareholders.
In connection with the Ashford Prime Spin-off, we are still jointly and severally liable under certain carve-out guarantees and environmental indemnities associated with three loans. Ashford Prime has indemnified us in the case that any of these guarantees are ever called.
We compete with other hotels for guests and face competition for acquisitions and sales of hotel properties and of desirable debt investments.
The hotel business is competitive. Our hotels compete on the basis of location, room rates, quality, service levels, amenities, reputation, and reservation systems, among many other factors. New hotels may be constructed and these additions to supply create new competitors, in some cases without corresponding increases in demand for hotel rooms. The result in some cases may be lower revenue, which would result in lower cash available to meet debt service obligations, operating expenses, and requisite distributions to our shareholders.
We compete for hotel acquisitions with entities that have similar investment objectives as we do. This competition could limit the number of suitable investment opportunities offered to us. It may also increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire new properties on attractive terms or on the terms contemplated in our business plan. In addition, we compete to sell hotel properties. Availability of capital, the number of hotels available for sale and market conditions all affect prices. We may not be able to sell hotel assets at our targeted price.
We also compete for mortgage asset investments with numerous public and private real estate investment vehicles, such as mortgage banks, pension funds, other REITs, institutional investors, and individuals. Mortgages and other investments are often obtained through a competitive bidding process. In addition, competitors may seek to establish relationships with the financial institutions and other firms from which we intend to purchase such assets. Competition may result in higher prices for mortgage assets, lower yields, and a narrower spread of yields over our borrowing costs.

15
Table of Contents

Some of our competitors are larger than us, may have access to greater capital, marketing, and other resources, may have personnel with more experience than our officers, may be able to accept higher levels of debt or otherwise may tolerate more risk than us, may have better relations with hotel franchisors, sellers, or lenders, and may have other advantages over us in conducting certain business and providing certain services.
Future terrorist attacks or changes in terror alert levels could materially and adversely affect us.
Previous terrorist attacks and subsequent terrorist alerts have adversely affected the U.S. travel and hospitality industries since 2001, often disproportionately to the effect on the overall economy. The extent of the impact that actual or threatened terrorist attacks in the U.S. or elsewhere could have on domestic and international travel and our business in particular cannot be determined, but any such attacks or the threat of such attacks could have a material adverse effect on travel and hotel demand, our ability to finance our business and our ability to insure our hotels, which could materially adversely affect us.
We face risks related to changes in the global and political economic environment, including capital and credit markets.
Our business may be impacted by global economic conditions, which recently have been volatile. Political crises in individual countries or regions, including sovereign risk related to a deterioration in the credit worthiness or a default by local governments, has contributed to this volatility. If the global economy experiences continued volatility or significant disruptions, such disruptions or volatility could hurt the U.S. economy and our business could be negatively impacted by reduced demand for business and leisure travel related to a slow-down in the general economy, by disruptions resulting from tighter credit markets, and by liquidity issues resulting from an inability to access credit markets to obtain cash to support operations. Our objective is to maintain access to capital and credit markets.
We are increasingly dependent on information technology, and potential cyber attacks, security problems or other disruption and expanding social media vehicles present new risks.
As do most companies, we (and our various property managers) rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, personal identifying information, reservations, billing and operating data. We and our hotel managers purchase some of our information technology from vendors, on whom our systems depend, and we rely on commercially available systems, software, tools and monitoring to provide security for processing, transmission and storage of confidential operator and other customer information, such as individually identifiable information, including information relating to financial accounts.
We often depend upon the secure transmission of this information over public networks. Our and our hotel managers' networks and storage applications are subject to unauthorized access by hackers or others (through cyber attacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means) or may be breached due to operator error, malfeasance or other system disruptions. In some cases, it is difficult to anticipate or immediately detect such incidents and the damage caused thereby. Any significant breakdown, invasion, destruction, interruption or leakage of our or our hotel managers’ systems could harm us.
In addition, the use of social media could cause us to suffer brand damage or information leakage. Negative posts or comments about us, our hotel managers or our hotels on any social networking website could damage our or our hotels’ reputations. In addition, employees or others might disclose non-public sensitive information relating to our business through external media channels. The continuing evolution of social media will present us with new challenges and risks.
Changes in laws, regulations, or policies may adversely affect our business.
The laws and regulations governing our business or the regulatory or enforcement environment at the federal level or in any of the states in which we operate may change at any time and may have an adverse effect on our business. For example, the Patient Protection and Affordable Care Act of 2010, as it is phased in over time, will significantly affect the administration of health care services and could significantly impact our cost of providing employees with health care insurance. We are unable to predict how this or any other future legislative or regulatory proposals or programs will be administered or implemented or in what form, or whether any additional or similar changes to statutes or regulations, including the interpretation or implementation thereof, will occur in the future. Any such action could affect us in substantial and unpredictable ways and could have an adverse effect on our results of operations and financial condition. Our inability to remain in compliance with regulatory requirements in a particular jurisdiction could have a material adverse effect on our operations in that market and on our reputation generally. No assurance can be given that applicable laws or regulations will not be amended or construed differently or that new laws and regulations will not be adopted, either of which could materially adversely affect our business, financial condition, or results of operations.

16
Table of Contents

Our failure to qualify as a REIT would potentially give rise to a claim for damages from Ashford Prime.
In connection with the spin-off of Ashford Prime, which was completed in November 2013, we represented in the Separation and Distribution Agreement that we have no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT. We also covenanted in the Separation and Distribution Agreement to use our reasonable best efforts to maintain our REIT status for each of our taxable years ending on or before December 31, 2014 (unless we obtain an opinion from a nationally recognized tax counsel or a private letter ruling from the IRS to the effect that our failure to maintain our REIT status will not cause Ashford Prime to fail to qualify as a REIT under the successor REIT rules). In the event of a breach of this representation or covenant, Ashford Prime may be able to seek damages from us, which could have a significantly negative effect on our liquidity and results of operations.
RISKS RELATED TO HOTEL INVESTMENTS
We are subject to general risks associated with operating hotels.
Our hotels and hotels underlying our mortgage and mezzanine loans are subject to various operating risks common to the hotel industry, many of which are beyond our control, including, among others, the following:
•
competition from other hotel properties in our markets;
•
over-building of hotels in our markets, which results in increased supply and adversely affects occupancy and revenues at our hotels;
•
dependence on business and commercial travelers and tourism;
•
increases in operating costs due to inflation, increased energy costs and other factors that may not be offset by increased room rates;
•
changes in interest rates and in the availability, cost and terms of debt financing;
•
increases in assessed property taxes from changes in valuation or real estate tax rates;
•
increases in the cost of property insurance;
•
changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
•
unforeseen events beyond our control, such as terrorist attacks, travel related health concerns which could reduce travel, including pandemics and epidemics such as H1N1 influenza (swine flu), avian bird flu and SARS, imposition of taxes or surcharges by regulatory authorities, travel-related accidents, travel infrastructure interruptions and unusual weather patterns, including natural disasters such as hurricanes, tsunamis or earthquakes;
•
adverse effects of national, regional, and local economic and market conditions and increases in energy costs or labor costs and other expenses affecting travel, which may affect travel patterns and reduce the number of business and commercial travelers and tourists;
•
adverse effects of a downturn in the lodging industry; and
•
risks generally associated with the ownership of hotel properties and real estate, as we discuss in more detail below.
These factors could adversely affect our hotel revenues and expenses, as well as the hotels underlying our mortgage and mezzanine loans, which in turn could adversely affect our financial condition, results of operations, the market price of our common stock and our ability to make distributions to our shareholders.
We may have to make significant capital expenditures to maintain our hotel properties, and any development activities we undertake may be more costly than we anticipate.
Our hotels have an ongoing need for renovations and other capital improvements, including replacements, from time to time, of furniture, fixtures, and equipment. Managers or franchisors of our hotels also will require periodic capital improvements pursuant to the management agreements or as a condition of maintaining franchise licenses. Generally, we are responsible for the cost of these capital improvements. As part of our long-term growth strategy, we may also develop hotels. Hotel renovation and development involves substantial risks, including:
•
construction cost overruns and delays;

17
Table of Contents

•
the disruption of operations and displacement of revenue at operating hotels, including revenue lost while rooms, restaurants or meeting space under renovation are out of service;
•
the cost of funding renovations or developments and inability to obtain financing on attractive terms;
•
the return on our investment in these capital improvements or developments failing to meet expectations;
•
inability to obtain all necessary zoning, land use, building, occupancy, and construction permits;
•
loss of substantial investment in a development project if a project is abandoned before completion;
•
environmental problems; and
•
disputes with franchisors or property managers regarding compliance with relevant franchise agreements or management agreements.
If we have insufficient cash flow from operations to fund needed capital expenditures, then we will need to obtain additional debt or equity financing to fund future capital improvements.
The hotel business is seasonal, which affects our results of operations from quarter to quarter.
The hotel industry is seasonal in nature. This seasonality can cause quarterly fluctuations in our financial condition and operating results, including in any distributions on common stock. Our quarterly operating results may be adversely affected by factors outside our control, including weather conditions and poor economic factors in certain markets in which we operate. We can provide no assurances that our cash flows will be sufficient to offset any shortfalls that occur as a result of these fluctuations. As a result, we may have to reduce distributions or enter into short-term borrowings in certain quarters in order to make distributions to our shareholders, and we can provide no assurances that such borrowings will be available on favorable terms, if at all.
Many real estate costs are fixed, even if revenue from our hotels decreases.
Many costs, such as real estate taxes, insurance premiums and maintenance costs, generally are not reduced even when a hotel is not fully occupied, room rates decrease or other circumstances cause a reduction in revenues. In addition, newly acquired or renovated hotels may not produce the revenues we anticipate immediately, or at all, and the hotel's operating cash flow may be insufficient to pay the operating expenses and debt service associated with these new hotels. If we are unable to offset real estate costs with sufficient revenues across our portfolio, we may be adversely affected.
The increasing use of Internet travel intermediaries by consumers may adversely affect our profitability.
Some of our hotel rooms are booked through Internet travel intermediaries, including, but not limited to, Travelocity.com, Expedia.com and Priceline.com. As Internet bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or other significant contract concessions from our management companies. Moreover, some of these Internet travel intermediaries are attempting to offer hotel rooms as a commodity, by increasing the importance of price and general indicators of quality (such as “three-star downtown hotel”) at the expense of brand identification. These intermediaries hope that consumers will eventually develop brand loyalties to their reservations system rather than to the brands under which our properties are franchised. Although most of the business for our hotels is expected to be derived from traditional channels, if the amount of sales made through Internet intermediaries increases significantly, room revenues may be lower than expected, and we may be adversely affected.
Our hotel investments may be subject to risks relating to potential terrorist activity.
During 2013 , approximately 16.7% of our total hotel revenue was generated from 11 hotels located in the Washington D.C. and Baltimore areas, areas considered vulnerable to terrorist attack. Our financial and operating performance may be adversely affected by potential terrorist attacks. Terrorist attacks in the future may cause our results to differ materially from anticipated results. Hotels we own in other market locations may be subject to this risk as well.
We are subject to risks associated with the employment of hotel personnel, particularly with hotels that employ unionized labor.
Our third-party managers are responsible for hiring and maintaining the labor force at each of our hotels. Although we do not directly employ or manage employees at our hotels, we still are subject to many of the costs and risks generally associated with the hotel labor force, particularly those hotels with unionized labor. From time to time, hotel operations may be disrupted as a result of strikes, lockouts, public demonstrations or other negative actions and publicity. We also may incur increased legal costs and indirect labor costs as a result of contract disputes or other events. The resolution of labor disputes or re-negotiated labor

18
Table of Contents

contracts could lead to increased labor costs, either by increases in wages or benefits or by changes in work rules that raise hotel operating costs. We do not have the ability to affect the outcome of these negotiations.
RISKS RELATED TO DERIVATIVE TRANSACTIONS AND INVESTMENTS IN MARKETABLE SECURITIES AND OTHER
We have engaged in and may continue to engage in derivative transactions, which can limit our gains and expose us to losses.
We have entered into and may continue to enter into hedging transactions to (i) attempt to take advantage of changes in prevailing interest rates, (ii) protect our portfolio of mortgage assets from interest rate fluctuations, (iii) protect us from the effects of interest rate fluctuations on floating-rate debt, (iv) protect us from the risk of fluctuations in the financial and capital markets, or (v) preserve net cash in the event of a major downturn in the economy. Our hedging transactions may include entering into interest rate swap agreements, interest rate cap or floor agreements or flooridor and corridor agreements, credit default swaps and purchasing or selling futures contracts, purchasing or selling put and call options on securities or securities underlying futures contracts, or entering into forward rate agreements. Hedging activities may not have the desired beneficial impact on our results of operations or financial condition. Volatile fluctuations in market conditions could cause these instruments to become ineffective. Any gains or losses associated with these instruments are reported in our earnings each period. No hedging activity can completely insulate us from the risks inherent in our business.
Credit default hedging could fail to protect us or adversely affect us because if a swap counterparty cannot perform under the terms of our credit default swap, we may not receive payments due under such agreement and, thus, we may lose any potential benefit associated with such credit default swap. Additionally, we may also risk the loss of any collateral we have pledged to secure our obligations under such credit default swaps if the counterparty becomes insolvent or files for bankruptcy.
Moreover, interest rate hedging could fail to protect us or adversely affect us because, among other things:
•
available interest rate hedging may not correspond directly with the interest rate risk for which protections is sought;
•
the duration of the hedge may not match the duration of the related liability;
•
the party owing money in the hedging transaction may default on its obligation to pay;
•
the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and
•
the value of derivatives used for hedging may be adjusted from time to time in accordance with generally accepted accounting principles ("GAAP") to reflect changes in fair value and such downward adjustments, or “mark-to-market loss,” would reduce our shareholders’ equity.
Hedging involves both risks and costs, including transaction costs, which may reduce our overall returns on our investments. These costs increase as the period covered by the hedging relationship increases and during periods of rising and volatile interest rates. These costs will also limit the amount of cash available for distributions to shareholders. We generally intend to hedge to the extent management determines it is in our best interest given the cost of such hedging transactions as compared to the potential economic returns or protections offered. The REIT qualification rules may limit our ability to enter into hedging transactions by requiring us to limit our income and assets from hedges. If we are unable to hedge effectively because of the REIT rules, we will face greater interest rate exposure than may be commercially prudent.
The assets associated with certain of our derivative transactions do not constitute qualified REIT assets and the related income will not constitute qualified REIT income. Significant fluctuations in the value of such assets or the related income could jeopardize our REIT status or result in additional tax liabilities.
We have entered into certain derivative transactions to protect against interest rate risks and credit default risks not specifically associated with debt incurred to acquire qualified REIT assets. The REIT provisions of the Internal Revenue Code limit our income and assets in each year from such derivative transactions. Failure to comply with the asset or income limitation within the REIT provisions of the Internal Revenue could result in penalty taxes or loss of our REIT status. If we elect to contribute the non-qualifying derivatives into a taxable REIT subsidiary to preserve our REIT status, such an action would result in any income from such transactions being subject to federal income taxation.
Our prior investment performance is not indicative of future results.
The performance of our prior investments is not necessarily indicative of the results that can be expected for the investments to be made by our newly-formed investment subsidiary. On any given investment, total loss of the investment is possible. Although

19
Table of Contents

our management team has experience and has had success in making investments in real estate-related lodging debt and hotel assets, the past performance of these investments is not necessarily indicative of the results of our future investments.
Our investment portfolio will contain investments concentrated in a single industry and will not be fully diversified.
Our investment subsidiary was formed for the primary purpose of acquiring public securities and other investments of lodging-related entities. As such, our investment portfolio will contain investments concentrated in a single industry and may not be fully diversified by asset class, geographic region or other criteria, which will expose us to significant loss due to concentration risk. Investors have no assurance that the degree of diversification in our investment portfolio will increase at any time in the future.
The values of our investments are affected by the U.S. credit and financial markets and, as such, may fluctuate.
The U.S. credit and financial markets have recently experienced severe dislocations and liquidity disruptions. The values of our investments are likely to be sensitive to the volatility of the U.S. credit and financial markets, and, to the extent that turmoil in the U.S. credit and financial markets continues or intensifies, such volatility has the potential to materially affect the value of our investment portfolio.
We are subject to the risk of default or insolvency by the hospitality entities underlying our investments.
The leveraged capital structure of the hospitality entities underlying our investments will increase their exposure to adverse economic factors (such as rising interest rates, competitive pressures, downturns in the economy or deterioration in the condition of the real estate industry) and to the risk of unforeseen events. If an underlying entity cannot generate adequate cash flow to meet such entity’s debt obligations (which may include leveraged obligations in excess of its aggregate assets), it may default on its loan agreements or be forced into bankruptcy. As a result, we may suffer a partial or total loss of the capital we have invested in the securities and other investments of such entity.
The enactment of derivatives legislation and regulation could have an adverse effect on our ability to use derivative instruments to reduce the negative effect of interest rate fluctuations and other risks associated with our business.
On July 21, 2010 new comprehensive financial reform legislation, known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), was enacted that establishes federal oversight and regulation of the over-the-counter derivatives market and entities, such as us, that participate in that market. The Dodd-Frank Act requires the Commodities Futures Trading Commission (the “CFTC”), the SEC and other regulators to promulgate rules and regulations implementing the new legislation. In its rulemaking under the Dodd-Frank Act, the CFTC has issued final regulations to set position limits for certain futures and option contracts in certain markets and for swaps that are their economic equivalents. Certain bona fide hedging transactions would be exempt from these position limits. The position limits rule was vacated by the United States District Court (the “District Court”) for the District of Columbia in September of 2012, although the CFTC has stated that it will appeal the District Court's decision. The CFTC also has finalized other regulations, including critical rulemakings on the definition of “swap”, “security-based swap”, “swap dealer” and “major swap participant”. The Dodd-Frank Act and CFTC rules will require us in connection with certain derivatives activities to comply with clearing and trade-execution requirements (or take steps to qualify for an exemption to such requirements, if available). In addition, new regulations may require us to comply with margin requirements, although these regulations are not finalized and their application to us is uncertain at this time. Other regulations also remain to be finalized, and the CFTC recently has delayed the compliance dates for various regulations already finalized. As a result, it is not possible at this time to predict with certainty the full effects of the Dodd-Frank Act and CFTC rules on us and the timing of such effects. The Dodd-Frank Act may also require the counterparties to our derivative instruments to spin off some of their derivatives activities to separate entities, which may not be as creditworthy as the current counterparties. The Dodd-Frank Act and regulations could significantly increase the cost of derivative contracts (including from swap recordkeeping and reporting requirements and through requirements to post collateral which could adversely affect our available liquidity), materially alter the terms of derivative contracts, reduce the availability of derivatives to protect against risks we encounter, reduce our ability to monetize or restructure our existing derivative contracts, and increase our exposure to less creditworthy counterparties. If we reduce our use of derivatives as a result of the Dodd-Frank Act and regulations, our results of operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures. Any of these consequences could have a material adverse effect on our consolidated financial position, results of operations and cash flows.

20
Table of Contents

RISKS RELATED TO INVESTMENTS IN MORTGAGES AND MEZZANINE LOANS
Debt investments that are not United States government insured involve risk of loss.
As part of our business strategy, we may originate or acquire lodging-related uninsured and mortgage assets, including mezzanine loans. While holding these interests, we are subject to risks of borrower defaults, bankruptcies, fraud and related losses, and special hazard losses that are not covered by standard hazard insurance. Also, costs of financing the mortgage loans could exceed returns on the mortgage loans. In the event of any default under mortgage loans held by us, we will bear the risk of loss of principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the mortgage loan. We suffered significant impairment charges with respect to our investments in mortgage loans in 2009 and 2010. We may incur similar losses in the future for the remaining mezzanine loan of $3.4 million at December 31, 2013 . The value and the price of our securities may be adversely affected.
We may invest in non-recourse loans, which will limit our recovery to the value of the mortgaged property.
Our mortgage and mezzanine loan assets have typically been non-recourse. With respect to non-recourse mortgage loan assets, in the event of a borrower default, the specific mortgaged property and other assets, if any, pledged to secure the relevant mortgage loan, may be less than the amount owed under the mortgage loan. As to those mortgage loan assets that provide for recourse against the borrower and its assets generally, we cannot assure you that the recourse will provide a recovery in respect of a defaulted mortgage loan greater than the liquidation value of the mortgaged property securing that mortgage loan.
Investment yields affect our decision whether to originate or purchase investments and the price offered for such investments.
In making any investment, we consider the expected yield of the investment and the factors that may influence the yield actually obtained on such investment. These considerations affect our decision whether to originate or purchase an investment and the price offered for that investment. No assurances can be given that we can make an accurate assessment of the yield to be produced by an investment. Many factors beyond our control are likely to influence the yield on the investments, including, but not limited to, competitive conditions in the local real estate market, local and general economic conditions, and the quality of management of the underlying property. Our inability to accurately assess investment yields may result in our purchasing assets that do not perform as well as expected, which may adversely affect the price of our securities.
Volatility of values of mortgaged properties may adversely affect our mortgage loans.
Lodging property values and net operating income derived from lodging properties are subject to volatility and may be affected adversely by a number of factors, including the risk factors described herein relating to general economic conditions, operating lodging properties, and owning real estate investments. In the event its net operating income decreases, one of our borrowers may have difficulty paying our mortgage loan, which could result in losses to us. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to our borrowers to repay our mortgage loans, which could also cause us to suffer losses.
Mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties.
We may continue to make and acquire mezzanine loans. These types of loans are considered to involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property due to a variety of factors, including the loan being entirely unsecured or, if secured, becoming unsecured as a result of foreclosure by the senior lender. We may not recover some or all of our investment in these loans. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans resulting in less equity in the property and increasing the risk of loss of principal.
RISKS RELATED TO THE REAL ESTATE INDUSTRY
Mortgage debt obligations expose us to increased risk of property losses, which could harm our financial condition, cash flow, and ability to satisfy our other debt obligations and pay dividends.
Incurring mortgage debt increases our risk of property losses because defaults on indebtedness secured by properties may result in foreclosure actions initiated by lenders and ultimately our loss of the property securing any loans for which we are in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on the foreclosure but would not receive any cash proceeds. As a result, we may be required to identify and utilize other sources of cash for distributions to our shareholders of that income.

21
Table of Contents

In addition, our default under any one of our mortgage debt obligations may result in a default on our other indebtedness. If this occurs, our financial condition, cash flow, and ability to satisfy our other debt obligations or ability to pay dividends may be impaired.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our hotel properties and harm our financial condition.
Because real estate investments are relatively illiquid, our ability to sell promptly one or more hotel properties or mortgage loans in our portfolio for reasonable prices in response to changing economic, financial, and investment conditions is limited.
The real estate market is affected by many factors that are beyond our control, including:
•
adverse changes in national, regional and local economic and market conditions;
•
changes in interest rates and in the availability, cost, and terms of debt financing;
•
changes in governmental laws and regulations, fiscal policies, and zoning and other ordinances, and related costs of compliance with laws and regulations, fiscal policies and zoning and other ordinances;
•
the ongoing need for capital improvements, particularly in older structures;
•
changes in operating expenses; and
•
civil unrest, acts of war or terrorism, and acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured and underinsured losses.
We may decide to sell hotel properties or loans in the future. We cannot predict whether we will be able to sell any hotel property or loan for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a hotel property or loan. Because we intend to offer more flexible terms on our mortgage loans than some providers of commercial mortgage loans, we may have more difficulty selling or participating our loans to secondary purchasers than would these more traditional lenders.
We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct those defects or to make those improvements. In acquiring a hotel property, we may agree to lock-out provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These and other factors could impede our ability to respond to adverse changes in the performance of our hotel properties or a need for liquidity.
The costs of compliance with or liabilities under environmental laws may harm our operating results.
Operating expenses at our hotels could be higher than anticipated due to the cost of complying with existing or future environmental laws and regulations. In addition, our hotel properties and properties underlying our loan assets may be subject to environmental liabilities. An owner of real property, or a lender with respect to a property that exercises control over the property, can face liability for environmental contamination created by the presence or discharge of hazardous substances on the property. We may face liability regardless of:
•
our knowledge of the contamination;
•
the timing of the contamination;
•
the cause of the contamination; or
•
the party responsible for the contamination.
There may be environmental problems associated with our hotel properties or properties underlying our loan assets of which we are unaware. Some of our hotel properties or the properties underlying our loan assets use, or may have used in the past, underground tanks for the storage of petroleum-based or waste products that could create a potential for release of hazardous substances. If environmental contamination exists on a hotel property, we could become subject to strict, joint and several liabilities for the contamination if we own the property or if we foreclose on the property or otherwise have control over the property.
The presence of hazardous substances on a property we own or have made a loan with respect to may adversely affect our ability to sell, on favorable terms or at all, or foreclose on the property, and we may incur substantial remediation costs. The discovery of material environmental liabilities at our properties or properties underlying our loan assets could subject us to unanticipated significant costs.

22
Table of Contents

We generally have environmental insurance policies on each of our owned properties, and we intend to obtain environmental insurance for any other properties that we may acquire. However, if environmental liabilities are discovered during the underwriting of the insurance policies for any property that we may acquire in the future, we may be unable to obtain insurance coverage for the liabilities at commercially reasonable rates or at all, and we may experience losses. In addition, we generally do not require our borrowers to obtain environmental insurance on the properties they own that secure their loans from us.
Numerous treaties, laws and regulations have been enacted to regulate or limit carbon emissions. Changes in the regulations and legislation relating to climate change, and complying with such laws and regulations, may require us to make significant investments in our hotels and could result in increased energy costs at our properties.
Our properties and the properties underlying our mortgage loans may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediating the problem.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Concern about indoor exposure to mold has been increasing as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. Some of the properties in our portfolio may contain microbial matter such as mold and mildew. As a result, the presence of significant mold at any of our properties or the properties underlying our loan assets could require us or our borrowers to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, the presence of significant mold could expose us or our borrowers to liability from hotel guests, hotel employees, and others if property damage or health concerns arise.
Compliance with the Americans with Disabilities Act and fire, safety, and other regulations may require us or our borrowers to incur substantial costs.
All of our properties and properties underlying our mortgage loans are required to comply with the Americans with Disabilities Act of 1990, as amended (the “ADA”). The ADA requires that “public accommodations” such as hotels be made accessible to people with disabilities. Compliance with the ADA’s requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. In addition, we and our borrowers are required to operate our properties in compliance with fire and safety regulations, building codes, and other land use regulations as they may be adopted by governmental agencies and bodies and become applicable to our properties. Any requirement to make substantial modifications to our hotel properties, whether to comply with the ADA or other changes in governmental rules and regulations, could be costly.
We may experience uninsured or underinsured losses.
We have property and casualty insurance with respect to our hotel properties and other insurance, in each case, with loss limits and coverage thresholds deemed reasonable by our management team (and with the intent to satisfy the requirements of lenders and franchisors). In doing so, we have made decisions with respect to what deductibles, policy limits, and terms are reasonable based on management’s experience, our risk profile, the loss history of our property managers and our properties, the nature of our properties and our businesses, our loss prevention efforts, and the cost of insurance.
Various types of catastrophic losses may not be insurable or may not be economically insurable. In the event of a substantial loss, our insurance coverage may not cover the full current market value or replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations, and other factors might cause insurance proceeds to be insufficient to fully replace or renovate a hotel after it has been damaged or destroyed. Accordingly, there can be no assurance that:
•
the insurance coverage thresholds that we have obtained will fully protect us against insurable losses (i.e., losses may exceed coverage limits);
•
we will not incur large deductibles that will adversely affect our earnings;
•
we will not incur losses from risks that are not insurable or that are not economically insurable; or
•
current coverage thresholds will continue to be available at reasonable rates.
In the future, we may choose not to maintain terrorism insurance on any of our properties. As a result, one or more large uninsured or underinsured losses could have a material adverse effect on us.
Each of our current lenders requires us to maintain certain insurance coverage thresholds, and we anticipate that future lenders will have similar requirements. We believe that we have complied with the insurance maintenance requirements under the current governing loan documents and we intend to comply with any such requirements in any future loan documents. However,

23
Table of Contents

a lender may disagree, in which case the lender could obtain additional coverage thresholds and seek payment from us, or declare us in default under the loan documents. In the former case, we could spend more for insurance than we otherwise deem reasonable or necessary or, in the latter case, subject us to a foreclosure on hotels collateralizing one or more loans. In addition, a material casualty to one or more hotels collateralizing loans may result in the insurance company applying to the outstanding loan balance insurance proceeds that otherwise would be available to repair the damage caused by the casualty, which would require us to fund the repairs through other sources, or the lender foreclosing on the hotels if there is a material loss that is not insured.
RISKS RELATED TO OUR STATUS AS A REIT
If we do not qualify as a REIT, we will be subject to tax as a regular corporation and could face substantial tax liability.
We conduct operations so as to qualify as a REIT under the Internal Revenue Code. However, qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial or administrative interpretations exist. Even a technical or inadvertent mistake could jeopardize our REIT status. Due to the gain we recognized as a result of the spin-off of Ashford Prime, if Ashford Prime were to fail to qualify as a REIT for 2013, we may fail to qualify as a REIT for 2013. Furthermore, new tax legislation, administrative guidance, or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify as a REIT. If we fail to qualify as a REIT in any tax year, then:
•
we would be taxed as a regular domestic corporation, which, among other things, means being unable to deduct distributions to our shareholders in computing taxable income and being subject to federal income tax on our taxable income at regular corporate rates;
•
we would also be subject to federal alternative minimum tax and, possibly, increased state and local taxes;
•
any resulting tax liability could be substantial and would reduce the amount of cash available for distribution to shareholders; and
•
unless we were entitled to relief under applicable statutory provisions, we would be disqualified from treatment as a REIT for the subsequent four taxable years following the year that we lost our qualification, and, thus, our cash available for distribution to shareholders could be reduced for each of the years during which we did not qualify as a REIT.
If we fail to qualify as a REIT, we will not be required to make distributions to shareholders to maintain our tax status. As a result of all of these factors, our failure to qualify as a REIT could impair our ability to raise capital, expand our business, and make distributions to our shareholders and could adversely affect the value of our securities.
Even if we qualify and remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we qualify and remain qualified for taxation as a REIT, we may be subject to certain federal, state, and local taxes on our income and assets. For example:
•
We will be required to pay tax on undistributed REIT taxable income.
•
We may be required to pay the “alternative minimum tax” on our items of tax preference.
•
If we have net income from the disposition of foreclosure property held primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay tax on that income at the highest corporate rate.
•
If we sell a property in a “prohibited transaction,” our gain from the sale would be subject to a 100% penalty tax.
•
Each of our taxable REIT subsidiaries is a fully taxable corporation and will be subject to federal and state taxes on its income.
•
We may continue to experience increases in our state and local income tax burden. Over the past several years, certain state and local taxing authorities have significantly changed their income tax regimes in order to raise revenues. The changes enacted that have increased our state and local income tax burden include the taxation of modified gross receipts (as opposed to net taxable income), the suspension of and/or limitation on the use of net operating loss deduction, increases in tax rates and fees, the addition of surcharges, and the taxation of our partnership income at the entity level. Facing mounting budget deficits, more state and local taxing authorities have indicated that they are going to revise their income tax regimes in this fashion and/or eliminate certain federally allowed tax deductions such as the REIT dividends paid deduction.

24
Table of Contents

We may be subject to taxes in the event our leases are held not to be on an arm’s-length basis.
In the event that leases between us and our taxable REIT subsidiaries are held not to be on an arm’s-length basis, we or our taxable REIT subsidiaries could be subject to taxes, and adjustments to the rents could cause us to fail to meet certain REIT income tests. In determining amounts payable by our taxable REIT subsidiaries under our leases, we engage a third party to prepare transfer pricing studies to ascertain whether the lease terms we establish are on an arm’s-length basis. The transfer pricing studies that we have received concluded that the lease terms have been consistent with arm’s-length terms as required by applicable Treasury Regulations. However, in September 2010, the Internal Revenue Service ("IRS") completed an audit of one of our taxable REIT subsidiaries that leases two of our hotel properties for the tax year ended December 31, 2007. The IRS issued a notice of proposed adjustment based on Internal Revenue Code Section 482 that reduced the amount of rent we charged the taxable REIT subsidiary ("TRS"). We owned a 75% interest in the hotel properties and the TRS at issue. In connection with the TRS audit, the IRS selected our REIT for audit for the same tax year. In October 2011, the IRS issued an income tax adjustment to the REIT as an alternative to the TRS proposed adjustment. The REIT adjustment is based on the REIT 100% federal excise tax on our share of the amount by which the rent was held to be greater than the arm's length rate. We strongly disagreed with the IRS' position and appealed our cases to the IRS Appeals Office. In determining amounts payable by our TRS subsidiaries under our leases, we engaged a third party to prepare a transfer pricing study which concluded that the lease terms were consistent with arms' length terms as required by applicable Treasury regulations. We believe the IRS transfer pricing methodologies applied in the audits contained flaws and that the IRS adjustments to the rent charged were inconsistent with the U.S. federal tax laws related to REITs and true leases. The IRS Appeals Office reviewed our cases in 2012. In July 2013, the IRS Appeals Office issued "no-change letters" for the TRS and the REIT indicating that the 2007 tax returns were accepted as filed and the examinations resulted in no deficiencies. U.S. federal income tax assessment statutes of limitations generally limit the time the IRS has to make assessments to within three years after a return is due or filed, whichever is later. As a result, the IRS requested and we agreed to extend the assessment statute of limitations for both the TRS and the REIT for the 2007 tax year to March 31, 2014. Accordingly, the IRS has the right to reopen the cases until March 31, 2014. However, the IRS typically only reopens closed cases in very limited circumstances, none of which we believe are applicable to our cases.
In June 2012, the IRS completed audits of the same TRS and our REIT for the tax years ended December 31, 2008 and 2009. With respect to the 2009 tax year, the IRS did not propose any adjustments to the TRS or the REIT. For the 2008 tax year, the IRS issued notices of proposed adjustments for both the REIT and the TRS. The REIT adjustment is for $3.3 million of U.S. federal excise taxes and represents the amount by which the IRS asserts that the rent charged to the TRS was greater than the arms' length rate pursuant to Internal Revenue Code Section 482. The TRS adjustment is for $1.6 million of additional income which would equate to approximately $467,000 of additional U.S. federal income taxes and potential state income taxes of $83,000 , net of federal benefit. The TRS adjustment represents the IRS' imputation of compensation to the TRS under Internal Revenue Code Section 482 for agreeing to be a party to the lessor entity's bank loan agreement. We owned a 75% interest in the lessor entity through November 19, 2013, when our interest was contributed to Ashford Prime in connection with the previously discussed Ashford Prime spin-off. We strongly disagree with both of the IRS adjustments for the reasons noted under the 2007 audits, and in addition, we believe the IRS has misinterpreted certain terms of the lease, third party hotel management agreements, and bank loan agreements. We appealed our cases to the IRS Appeals Office and the IRS assigned the same Appeals team that oversaw our 2007 cases to our 2008 cases. Our representatives attended the Appeals conferences for the 2008 cases in August 2013 and February 2014. One or more additional conferences with the Appeals Office will be required to resolve our cases and we anticipate these will occur in 2014. The IRS has requested and we have agreed to extend the assessment statute of limitations three times for both the TRS and REIT for the 2008 tax year. The most recent request was made in August 2013 and extends the statute for the 2008 tax year to September 30, 2014.
With respect to the 2008 IRS audit, we believe we will substantially prevail in the eventual settlement of the audit and that the settlement will not have a material adverse effect on our financial condition and results of operations. We have concluded that the positions reported on the tax returns under audit by the IRS are, solely on their technical merits, more-likely-than-not to be sustained upon examination.
During 2010, the Canadian taxing authorities selected our TRS subsidiary that leased our one Canadian hotel for audit for the tax years ended December 31, 2007, 2008, and 2009. The Canadian hotel was sold in June 2008 and the TRS ceased activity in Canada at that time. In May 2012, the Canadian taxing authorities issued their final letter of audit adjustments. Their adjustments were nominal in amount and did not result in the assessment of any additional taxes.
In addition, if the IRS were to successfully challenge the terms of our leases with any of our taxable REIT subsidiaries for 2009 and later years, we or our taxable REIT subsidiaries could owe additional taxes and we could be required to pay penalty taxes if the effect of such challenges were to cause us to fail to meet certain REIT income tests, which could materially adversely affect us and the value of our securities.

25
Table of Contents

Complying with REIT requirements may cause us to forego otherwise attractive opportunities.
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders, and the ownership of our stock. We may be required to make distributions to shareholders at disadvantageous times or when we do not have funds readily available for distribution. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
Complying with REIT requirements may limit our ability to hedge effectively.
The REIT provisions of the Internal Revenue Code may limit our ability to hedge mortgage securities and related borrowings by requiring us to limit our income and assets in each year from certain hedges, together with any other income not generated from qualified real estate assets, to no more than 25% of our gross income. In addition, we must limit our aggregate income from nonqualified hedging transactions, from our provision of services, and from other non-qualifying sources to no more than 5% of our annual gross income. As a result, we may have to limit our use of advantageous hedging techniques. This could result in greater risks associated with changes in interest rates than we would otherwise want to incur. However, for transactions that we enter into to protect against interest rate risks on debt incurred to acquire qualified REIT assets and for which we identify as hedges for tax purposes, any associated hedging income is excluded from the 95% income test and the 75% income test applicable to a REIT. If we were to violate the 25% or 5% limitations, we may have to pay a penalty tax equal to the amount of income in excess of those limitations multiplied by a fraction intended to reflect our profitability. If we fail to satisfy the REIT gross income tests, unless our failure was due to reasonable cause and not due to willful neglect, we could lose our REIT status for federal income tax purposes.
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
To qualify as a REIT, we must also ensure that at the end of each calendar quarter at least 75% of the value of our assets consists of cash, cash items, government securities, and qualified REIT real estate assets. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total assets can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffer adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.
Complying with REIT requirements may force us to borrow to make distributions to our shareholders.
As a REIT, we must distribute at least 90% of our annual REIT taxable income, excluding net capital gains, (subject to certain adjustments) to our shareholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under federal tax laws.
From time to time, we may generate taxable income greater than our net income for financial reporting purposes or our taxable income may be greater than our cash flow available for distribution to our shareholders. If we do not have other funds available in these situations, we could be required to borrow funds, sell investments at disadvantageous prices, or find another alternative source of funds to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements.
We may in the future choose to pay dividends in our common shares instead of cash, in which case shareholders may be required to pay income taxes in excess of the cash dividends they receive.
We may distribute taxable dividends that are payable in cash and common stock at the election of each shareholder. The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as taxable dividends that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for U.S. federal income tax purposes. Those rulings may be relied upon only by taxpayers to whom they were issued, but we could request a similar ruling from the IRS. Accordingly, it is unclear whether and to what extent we will be able to make taxable dividends payable in cash and common stock.

26
Table of Contents

If we made a taxable dividend payable in cash and common stock, taxable shareholders receiving such dividends will be required to include the full amount of the dividend as ordinary income to the extent of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes. As a result, shareholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends received. If a U.S. shareholder sells the common shares that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale. Furthermore, with respect to certain non-U.S. shareholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common shares. In addition, if we made a taxable dividend payable in cash and our common stock and a significant number of our shareholders determine to sell shares of our common stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our common stock. We do not currently intend to pay taxable dividends of our common stock and cash, although we may choose to do so in the future.
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our securities.
At any time, the federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. Any of those new laws or interpretations may take effect retroactively and could adversely affect us or our shareholders. The maximum regular income tax rate applicable to individuals on dividend income from regular C corporations is 20%. This reduces substantially the so-called “double taxation” (that is, taxation at both the corporate and shareholder levels) applicable to corporations that are not taxed as REITs. Generally, dividends from REITs will not qualify for such maximum rate, and dividends from REITs may be taxed at regular income tax rates as great as 39.6%. This difference in maximum tax rates could ultimately cause individual investors to view stocks of non-REIT corporations as more attractive relative to shares of REITs because the dividends paid by non-REIT corporations would be subject to lower tax rates. We cannot predict whether in fact this will occur or, if it occurs, what the impact will be on the value of our securities.
If Ashford Prime were to fail to qualify as a REIT for 2013, it would significantly affect our ability to maintain our REIT status.
For federal income tax purposes, we recorded a gain of approximately $145.7 million as a result of the spin-off of Ashford Prime in November 2013.  If Ashford Prime qualifies for taxation as REIT for 2013, that gain will be qualifying income for purposes of our 2013 REIT income tests.  If, however, Ashford Prime were to fail to qualify as a REIT for 2013, that gain would be non-qualifying income for purposes of the 75% gross income test.  Although Ashford Prime covenanted in the Separation and Distribution Agreement to use reasonable best efforts to qualify as a REIT in 2013, no assurance can be given that it will so qualify. If Ashford Prime were to fail to qualify, it could cause us to fail our 2013 REIT income tests, which could cause us to lose our REIT status and thereby materially negatively impact our business, financial condition and potentially impair our ability to continue operating in the future.
Your investment in our securities has various federal, state, and local income tax risks that could affect the value of your investment.
We strongly urge you to consult your own tax advisor concerning the effects of federal, state, and local income tax law on an investment in our securities because of the complex nature of the tax rules applicable to REITs and their shareholders.
RISKS RELATED TO OUR CORPORATE STRUCTURE
There are no assurances of our ability to make distributions in the future.
In December 2012, the Board of Directors approved our dividend policy for 2013 with an annualized target of $0.48 per share for 2013. For the year ended December 31, 2013 , we have declared dividends of $0.48 per share. In December 2013, the Board of Directors approved our dividend policy for 2014 with an annualized target of $0.48 per share for 2014, and we expect to pay a quarterly dividend of $0.12 per share for 2014. However, our ability to pay dividends may be adversely affected by the risk factors described herein. All distributions will be made at the discretion of our Board of Directors and will depend upon our earnings, our financial condition, maintenance of our REIT status and such other factors as our Board of Directors may deem relevant from time to time. There are no assurances of our ability to pay dividends in the future. In addition, some of our distributions may include a return of capital.
Failure to maintain an exemption from the Investment Company Act would adversely affect our results of operations.
We believe that we will conduct our business in a manner that allows us to avoid registration as an investment company under the Investment Company Act of 1940, or the 1940 Act. Under Section 3(c)(5)(C) of the 1940 Act, entities that are primarily engaged in the business of purchasing or otherwise acquiring “mortgages and other liens on and interests in real estate” are not treated as investment companies. The SEC staff’s position generally requires us to maintain at least 55% of our assets directly in

27
Table of Contents

qualifying real estate interests to be able to rely on this exemption. To constitute a qualifying real estate interest under this 55% requirement, a real estate interest must meet various criteria. Mortgage securities that do not represent all of the certificates issued with respect to an underlying pool of mortgages may be treated as securities separate from the underlying mortgage loans and, thus, may not qualify for purposes of the 55% requirement. Our ownership of these mortgage securities, therefore, is limited by the provisions of the 1940 Act and SEC staff interpretive positions. There are no assurances that efforts to pursue our intended investment program will not be adversely affected by operation of these rules.
Our charter does not permit ownership in excess of 9.8% of our capital stock, and attempts to acquire our capital stock in excess of the 9.8% limit without approval from our Board of Directors are void.
For the purpose of preserving our REIT qualification, our charter prohibits direct or constructive ownership by any person of more than 9.8% of the lesser of the total number or value of the outstanding shares of our common stock or more than 9.8% of the lesser of the total number or value of the outstanding shares of our preferred stock unless our Board of Directors grants a waiver. Our charter’s constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of the outstanding stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of the outstanding stock, and thus be subject to our charter’s ownership limit. Any attempt to own or transfer shares of our common or preferred stock in excess of the ownership limit without the consent of the Board of Directors will be void, and could result in the shares being automatically transferred to a charitable trust.
Because provisions contained in Maryland law and our charter may have an anti-takeover effect, investors may be prevented from receiving a “control premium” for their shares.
Provisions contained in our charter and Maryland general corporation law may have effects that delay, defer, or prevent a takeover attempt, which may prevent shareholders from receiving a “control premium” for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our shareholders to receive a premium for their common stock over then-prevailing market prices.
These provisions include the following:
•
Ownership limit: The ownership limit in our charter limits related investors, including, among other things, any voting group, from acquiring over 9.8% of our common stock without our permission.
•
Classification of preferred stock: Our charter authorizes our Board of Directors to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued. These actions can be taken without soliciting shareholder approval. Our preferred stock issuances could have the effect of delaying or preventing someone from taking control of us, even if a change in control were in our shareholders’ best interests.
Maryland statutory law provides that an act of a director relating to or affecting an acquisition or a potential acquisition of control of a corporation may not be subject to a higher duty or greater scrutiny than is applied to any other act of a director. Hence, directors of a Maryland corporation are not required to act in certain takeover situations under the same standards as apply in Delaware and other corporate jurisdictions.
Offerings of debt securities, which would be senior to our common stock and any preferred stock upon liquidation, or equity securities, which would dilute our existing shareholders’ holdings could be senior to our common stock for the purposes of dividend distributions, may adversely affect the market price of our common stock and any preferred stock.
We may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes, convertible securities, and classes of preferred stock or common stock or classes of preferred units. Upon liquidation, holders of our debt securities or preferred units and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of shares of preferred stock or common stock. Furthermore, holders of our debt securities and preferred stock or preferred units and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common or preferred stock or both. Our preferred stock or preferred units could have a preference on liquidating distributions or a preference on dividend payments that could limit our ability to make a dividend distribution to the holders of our common stock. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, our shareholders bear the risk of our future offerings reducing the market price of our securities and diluting their securities holdings in us.

28
Table of Contents

Securities eligible for future sale may have adverse effects on the market price of our securities.
We cannot predict the effect, if any, of future sales of securities, or the availability of securities for future sales, on the market price of our outstanding securities. Sales of substantial amounts of common stock, or the perception that these sales could occur, may adversely affect prevailing market prices for our securities.
We also may issue from time to time additional shares of our securities or units of our operating partnership in connection with the acquisition of properties and we may grant additional demand or piggyback registration rights in connection with these issuances. Sales of substantial amounts of our securities or the perception that such sales could occur may adversely affect the prevailing market price for our securities or may impair our ability to raise capital through a sale of additional debt or equity securities.
We depend on key personnel with long-standing business relationships. The loss of key personnel could threaten our ability to operate our business successfully.
Our future success depends, to a significant extent, upon the continued services of our management team. In particular, the lodging industry experience of Messrs. Monty J. Bennett, Douglas A. Kessler, David A. Brooks, David J. Kimichik, Jermey Welter, Mark L. Nunneley, Deric Eubanks and J. Robison Hays III and the extent and nature of the relationships they have developed with hotel franchisors, operators, and owners and hotel lending and other financial institutions are critically important to the success of our business. We do not maintain key–person life insurance on any of our officers other than in connection with our deferred compensation plan. Although these officers currently have employment agreements with us, we cannot assure their continued employment. The loss of services of one or more members of our corporate management team could harm our business and our prospects.
An increase in market interest rates may have an adverse effect on the market price of our securities.
A factor investors may consider in deciding whether to buy or sell our securities is our dividend rate as a percentage of our share or unit price relative to market interest rates. If market interest rates increase, prospective investors may desire a higher dividend or interest rate on our securities or seek securities paying higher dividends or interest. The market price of our securities is likely based on the earnings and return that we derive from our investments, income with respect to our properties, and our related distributions to shareholders and not from the market value or underlying appraised value of the properties or investments themselves. As a result, interest rate fluctuations and capital market conditions can affect the market price of our securities. For instance, if interest rates rise without an increase in our dividend rate, the market price of our common or preferred stock could decrease because potential investors may require a higher dividend yield on our common or preferred stock as market rates on interest-bearing securities, such as bonds, rise. In addition, rising interest rates would result in increased interest expense on our variable–rate debt, thereby adversely affecting cash flow and our ability to service our indebtedness and pay dividends.
Our major policies, including our policies and practices with respect to investments, financing, growth, debt capitalization, and REIT qualification and distributions, are determined by our Board of Directors. Although we have no indication that our Board of Directors has a present intention to do so, our Board of Directors may amend or revise these and other policies from time to time without a vote of our shareholders. Accordingly, our shareholders will have limited control over changes in our policies and the changes could harm our business, results of operations, and share price.
Changes in our strategy or investment or leverage policy could expose us to greater credit risk and interest rate risk or could result in a more leveraged balance sheet. We cannot predict the effect any changes to our current operating policies and strategies may have on our business, operating results, and stock price. However, the effects may be adverse.
RISKS RELATED TO THE PROPOSED SPIN-OFF
We may not be able to complete the proposed spin-off on the terms anticipated, or at all.
Our board of directors has unanimously approved a plan to spin-off our asset management business. We are targeting completion of the proposed spin-off in the third quarter of 2014. However, there can be no assurance that the proposed spin-off will be completed as anticipated, or at all. Our ability to complete the proposed spin-off and related restructuring transactions is subject to, among other things, the filing and effectiveness of a registration statement with the SEC, the filing and approval of an application to list the common stock of Ashford Inc. on the NYSE or the NYSE MKT Exchanges, and the final approval and declaration of the proposed distribution by our board of directors. If we are unable to consummate the proposed spin-off, we may not realize the full expected benefits of the proposed spin-off, and our stock price may decline.
We have the right not to consummate or complete the proposed spin-off if, at any time, our board of directors determines, in its sole discretion, that the proposed spin-off is not in our best interests or that market conditions are such that it is not advisable to separate our asset management business from us.

29
Table of Contents

Item 1B. Unresolved Staff Comments
None.
Item 2.
Properties
OFFICES.   We lease our headquarters located at 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254.
HOTEL PROPERTIES.    As of December 31, 2013 , we had ownership interests in 87 legacy hotel properties that were included in our consolidated operations, which included direct ownership in 85 hotel properties and 85% ownership in two hotel properties through equity investments with joint venture partners. Currently, all of our hotel properties are located in the United States. The following table presents certain information related to our hotel properties:
Hotel Property
 
Location
 
Service Type
 
Total Rooms
 
% Owned
 
Owned Rooms
 
Year Ended December 31, 2013
Occupancy
 
ADR
 
RevPAR
Fee Simple Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Embassy Suites
 
Austin, TX
 
Full
 
150

 
100
%
 
150

 
78.67
%
 
$
148.47

 
$
116.81

Embassy Suites
 
Dallas, TX
 
Full
 
150

 
100
%
 
150

 
67.85
%
 
$
123.41

 
$
83.73

Embassy Suites
 
Herndon, VA
 
Full
 
150

 
100
%
 
150

 
68.70
%
 
$
142.86

 
$
98.15

Embassy Suites
 
Las Vegas, NV
 
Full
 
220

 
100
%
 
220

 
72.44
%
 
$
112.74

 
$
81.67

Embassy Suites
 
Syracuse, NY
 
Full
 
215

 
100
%
 
215

 
73.98
%
 
$
117.08

 
$
86.61

Embassy Suites
 
Flagstaff, AZ
 
Full
 
119

 
100
%
 
119

 
82.15
%
 
$
128.53

 
$
105.59

Embassy Suites
 
Houston, TX
 
Full
 
150

 
100
%
 
150

 
80.67
%
 
$
175.18

 
$
141.32

Embassy Suites
 
West Palm Beach, FL
 
Full
 
160

 
100
%
 
160

 
76.11
%
 
$
116.03

 
$
88.31

Embassy Suites
 
Philadelphia, PA
 
Full
 
263

 
100
%
 
263

 
72.16
%
 
$
141.27

 
$
101.94

Embassy Suites
 
Walnut Creek, CA
 
Full
 
249

 
100
%
 
249

 
79.81
%
 
$
141.11

 
$
112.62

Embassy Suites
 
Arlington, VA
 
Full
 
267

 
100
%
 
267

 
83.11
%
 
$
176.46

 
$
146.65

Embassy Suites
 
Portland, OR
 
Full
 
276

 
100
%
 
276

 
81.95
%
 
$
172.49

 
$
141.35

Embassy Suites
 
Santa Clara, CA
 
Full
 
257

 
100
%
 
257

 
80.63
%
 
$
179.10

 
$
144.41

Embassy Suites
 
Orlando, FL
 
Full
 
174

 
100
%
 
174

 
79.72
%
 
$
119.07

 
$
94.92

Hilton Garden Inn
 
Jacksonville, FL
 
Select
 
119

 
100
%
 
119

 
67.27
%
 
$
109.98

 
$
73.98

Hilton
 
Houston, TX
 
Full
 
243

 
100
%
 
243

 
71.10
%
 
$
117.17

 
$
83.31

Hilton
 
St. Petersburg, FL
 
Full
 
333

 
100
%
 
333

 
67.23
%
 
$
130.48

 
$
87.73

Hilton
 
Santa Fe, NM
 
Full
 
157

 
100
%
 
157

 
66.84
%
 
$
147.34

 
$
98.49

Hilton
 
Bloomington, MN
 
Full
 
300

 
100
%
 
300

 
82.86
%
 
$
121.47

 
$
100.66

Hilton
 
Costa Mesa, CA
 
Full
 
486

 
100
%
 
486

 
79.84
%
 
$
116.53

 
$
93.03

Homewood Suites
 
Mobile, AL
 
Select
 
86

 
100
%
 
86

 
75.79
%
 
$
113.22

 
$
85.81

Hampton Inn
 
Lawrenceville, GA
 
Select
 
86

 
100
%
 
86

 
69.96
%
 
$
93.33

 
$
65.30

Hampton Inn
 
Evansville, IN
 
Select
 
141

 
100
%
 
141

 
69.21
%
 
$
108.36

 
$
74.99

Hampton Inn
 
Terre Haute, IN
 
Select
 
112

 
100
%
 
112

 
62.93
%
 
$
97.45

 
$
61.32

Hampton Inn
 
Buford, GA
 
Select
 
92

 
100
%
 
92

 
74.38
%
 
$
110.15

 
$
81.92

Marriott
 
Durham, NC
 
Full
 
225

 
100
%
 
225

 
59.94
%
 
$
141.08

 
$
84.57

Marriott
 
Arlington, VA
 
Full
 
697

 
100
%
 
697

 
73.27
%
 
$
174.00

 
$
127.48

Marriott
 
Bridgewater, NJ
 
Full
 
347

 
100
%
 
347

 
67.13
%
 
$
193.22

 
$
129.71

Marriott
 
Dallas, TX
 
Full
 
266

 
100
%
 
266

 
67.48
%
 
$
126.80

 
$
85.56

SpringHill Suites by Marriott
 
Jacksonville, FL
 
Select
 
102

 
100
%
 
102

 
75.33
%
 
$
88.41

 
$
66.60

SpringHill Suites by Marriott
 
Baltimore, MD
 
Select
 
133

 
100
%
 
133

 
74.73
%
 
$
107.00

 
$
79.96

SpringHill Suites by Marriott
 
Kennesaw, GA
 
Select
 
90

 
100
%
 
90

 
73.70
%
 
$
98.01

 
$
72.23

SpringHill Suites by Marriott
 
Buford, GA
 
Select
 
96

 
100
%
 
96

 
79.22
%
 
$
98.24

 
$
77.82

SpringHill Suites by Marriott
 
Gaithersburg, MD
 
Select
 
162

 
100
%
 
162

 
60.94
%
 
$
105.54

 
$
64.31

SpringHill Suites by Marriott
 
Centreville, VA
 
Select
 
136

 
100
%
 
136

 
68.02
%
 
$
86.07

 
$
58.55

SpringHill Suites by Marriott
 
Charlotte, NC
 
Select
 
136

 
100
%
 
136

 
68.07
%
 
$
98.57

 
$
67.10

SpringHill Suites by Marriott
 
Durham, NC
 
Select
 
120

 
100
%
 
120

 
79.93
%
 
$
85.26

 
$
68.15

SpringHill Suites by Marriott
 
Orlando, FL
 
Select
 
400

 
100
%
 
400

 
76.39
%
 
$
92.17

 
$
70.41

SpringHill Suites by Marriott
 
Manhattan Beach, CA
 
Select
 
164

 
100
%
 
164

 
82.19
%
 
$
123.99

 
$
101.90


30
Table of Contents

Hotel Property
 
Location
 
Service Type
 
Total Rooms
 
% Owned
 
Owned Rooms
 
Year Ended December 31, 2013
Occupancy
 
ADR
 
RevPAR
SpringHill Suites by Marriott
 
Plymouth Meeting, PA
 
Select
 
199

 
100
%
 
199

 
62.30
%
 
$
119.86

 
$
74.68

SpringHill Suites by Marriott
 
Glen Allen, VA
 
Select
 
136

 
100
%
 
136

 
58.89
%
 
$
88.05

 
$
51.85

Fairfield Inn by Marriott
 
Kennesaw, GA
 
Select
 
87

 
100
%
 
87

 
70.65
%
 
$
88.37

 
$
62.44

Fairfield Inn by Marriott
 
Orlando, FL
 
Select
 
388

 
100
%
 
388

 
80.21
%
 
$
80.84

 
$
64.84

Courtyard by Marriott
 
Bloomington, IN
 
Select
 
117

 
100
%
 
117

 
70.70
%
 
$
127.54

 
$
90.16

Courtyard by Marriott
 
Columbus, IN
 
Select
 
90

 
100
%
 
90

 
60.38
%
 
$
92.59

 
$
55.90

Courtyard by Marriott
 
Louisville, KY
 
Select
 
150

 
100
%
 
150

 
68.16
%
 
$
130.78

 
$
89.15

Courtyard by Marriott
 
Crystal City, VA
 
Select
 
272

 
100
%
 
272

 
71.81
%
 
$
126.89

 
$
91.12

Courtyard by Marriott
 
Ft. Lauderdale, FL
 
Select
 
174

 
100
%
 
174

 
77.39
%
 
$
105.92

 
$
81.97

Courtyard by Marriott
 
Overland Park, KS
 
Select
 
168

 
100
%
 
168

 
61.39
%
 
$
95.70

 
$
58.74

Courtyard by Marriott
 
Palm Desert, CA
 
Select
 
151

 
100
%
 
151

 
55.71
%
 
$
113.27

 
$
63.10

Courtyard by Marriott
 
Foothill Ranch, CA
 
Select
 
156

 
100
%
 
156

 
69.05
%
 
$
114.56

 
$
79.11

Courtyard by Marriott
 
Alpharetta, GA
 
Select
 
154

 
100
%
 
154

 
68.83
%
 
$
106.75

 
$
73.48

Courtyard by Marriott
 
Orlando, FL
 
Select
 
312

 
100
%
 
312

 
77.15
%
 
$
92.07

 
$
71.03

Courtyard by Marriott
 
Oakland, CA
 
Select
 
156

 
100
%
 
156

 
82.11
%
 
$
120.17

 
$
98.68

Courtyard by Marriott
 
Scottsdale, AZ
 
Select
 
180

 
100
%
 
180

 
74.09
%
 
$
88.57

 
$
65.62

Courtyard by Marriott
 
Plano, TX
 
Select
 
153

 
100
%
 
153

 
69.65
%
 
$
121.79

 
$
84.82

Courtyard by Marriott
 
Edison, NJ
 
Select
 
146

 
100
%
 
146

 
75.26
%
 
$
114.32

 
$
86.04

Courtyard by Marriott
 
Newark, CA
 
Select
 
181

 
100
%
 
181

 
73.17
%
 
$
116.26

 
$
85.07

Courtyard by Marriott
 
Manchester, CT
 
Select
 
90

 
85
%
 
77

 
74.11
%
 
$
110.41

 
$
81.83

Courtyard by Marriott
 
Basking Ridge, NJ
 
Select
 
235

 
100
%
 
235

 
66.66
%
 
$
171.86

 
$
114.55

Marriott Residence Inn
 
Lake Buena Vista, FL
 
Select
 
210

 
100
%
 
210

 
80.54
%
 
$
118.07

 
$
95.09

Marriott Residence Inn
 
Evansville, IN
 
Select
 
78

 
100
%
 
78

 
86.15
%
 
$
111.63

 
$
96.17

Marriott Residence Inn
 
Orlando, FL
 
Select
 
350

 
100
%
 
350

 
84.60
%
 
$
105.93

 
$
89.62

Marriott Residence Inn
 
Falls Church, VA
 
Select
 
159

 
100
%
 
159

 
73.89
%
 
$
142.26

 
$
105.12

Marriott Residence Inn
 
San Diego, CA
 
Select
 
150

 
100
%
 
150

 
74.11
%
 
$
157.62

 
$
116.82

Marriott Residence Inn
 
Salt Lake City, UT
 
Select
 
144

 
100
%
 
144

 
63.11
%
 
$
124.88

 
$
78.81

Marriott Residence Inn
 
Palm Desert, CA
 
Select
 
130

 
100
%
 
130

 
70.50
%
 
$
113.98

 
$
80.35

Marriott Residence Inn
 
Las Vegas, NV
 
Select
 
256

 
100
%
 
256

 
71.46
%
 
$
102.56

 
$
73.29

Marriott Residence Inn
 
Phoenix, AZ
 
Select
 
200

 
100
%
 
200

 
63.90
%
 
$
100.60

 
$
64.29

Marriott Residence Inn
 
Plano, TX
 
Select
 
126

 
100
%
 
126

 
76.00
%
 
$
99.73

 
$
75.80

Marriott Residence Inn
 
Newark, CA
 
Select
 
168

 
100
%
 
168

 
78.96
%
 
$
119.24

 
$
94.15

Marriott Residence Inn
 
Manchester CT
 
Select
 
96

 
85
%
 
82

 
80.05
%
 
$
117.59

 
$
94.13

Marriott Residence Inn Buckhead
 
Atlanta, GA
 
Select
 
150

 
100
%
 
150

 
70.59
%
 
$
110.36

 
$
77.90

Marriott Residence Inn
 
Jacksonville, FL
 
Select
 
120

 
100
%
 
120

 
78.19
%
 
$
100.70

 
$
78.74

TownePlace Suites by Marriott
 
Manhattan Beach, CA
 
Select
 
144

 
100
%
 
144

 
80.72
%
 
$
112.90

 
$
91.13

One Ocean
 
Atlantic Beach, FL
 
Full
 
193

 
100
%
 
193

 
59.54
%
 
$
189.23

 
$
112.67

Sheraton Hotel
 
Langhorne, PA
 
Full
 
187

 
100
%
 
187

 
67.47
%
 
$
112.19

 
$
75.69

Sheraton Hotel
 
Minneapolis, MN
 
Full
 
222

 
100
%
 
222

 
69.52
%
 
$
112.10

 
$
77.93

Sheraton Hotel
 
Indianapolis, IN
 
Full
 
371

 
100
%
 
371

 
70.35
%
 
$
111.49

 
$
78.43

Sheraton Hotel
 
Anchorage, AK
 
Full
 
370

 
100
%
 
370

 
67.16
%
 
$
137.58

 
$
92.41

Sheraton Hotel
 
San Diego, CA
 
Full
 
260

 
100
%
 
260

 
71.17
%
 
$
108.01

 
$
76.87

Hyatt Regency
 
Coral Gables, FL
 
Full
 
242

 
100
%
 
242

 
82.46
%
 
$
171.06

 
$
141.05

Crowne Plaza
 
Beverly Hills, CA
 
Full
 
260

 
100
%
 
260

 
78.13
%
 
$
170.61

 
$
133.30

Annapolis Historic Inn
 
Annapolis, MD
 
Full
 
124

 
100
%
 
124

 
64.29
%
 
$
140.16

 
$
90.11

Pier House Resort
 
Key West, FL
 
Full
 
142

 
100
%
 
142

 
84.37
%
 
$
322.54

 
$
272.13

Ground Lease Properties
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Hilton (a)
 
Ft. Worth, TX
 
Full
 
294

 
100
%
 
294

 
71.21
%
 
$
152.31

 
$
108.45

Crowne Plaza (b)
 
Key West, FL
 
Full
 
160

 
100
%
 
160

 
83.53
%
 
$
243.13

 
$
203.08

Total
 
 
 
 
 
17,030

 
 
 
17,003

 
73.21
%
 
$
128.66

 
$
94.19

________
(a) The partial ground lease expires in 2040.
(b) The ground lease expires in 2084.

31
Table of Contents

Item 3.
Legal Proceedings
We are engaged in various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.
Item 4.
Mine Safety Disclosures
Not Applicable

PART II
 
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
(a)   Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters
Market Price and Dividend Information
Our common stock is listed and traded on the New York Stock Exchange under the symbol “AHT.” On February 27, 2014 , there were 123 registered holders of record of our common stock. In order to comply with certain requirements related to our qualification as a REIT, our charter limits the number of shares of capital stock that may be owned by any single person or affiliated group without our permission to 9.8% of the outstanding shares of any class of our capital stock. We are aware of one Section 13G filer that presently holds in excess of 9.8% of our outstanding common shares, but our Board of Directors has granted a waiver which provides this holder with an exception to our ownership restrictions.
The following table sets forth, for the indicated periods, the high and low sales prices for our common stock as traded on that exchange and cash distributions declared per common share and have not been adjusted for the impact of the Ashford Prime spin-off. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for additional information on the spin-off.
 
First Quarter
 
Second Quarter
 
Third Quarter
 
Fourth Quarter
2013
 
 
 
 
 
 
 
High
$
12.69

 
$
14.26

 
$
12.77

 
$
13.70

Low
$
10.32

 
$
11.05

 
$
11.22

 
$
7.86

Close
$
12.36

 
$
11.45

 
$
12.34

 
$
8.28

Cash dividends declared per share
$
0.12

 
$
0.12

 
$
0.12

 
$
0.12

2012
 
 
 
 
 
 
 
High
$
9.91

 
$
9.41

 
$
9.40

 
$
10.72

Low
$
7.77

 
$
7.45

 
$
7.33

 
$
8.02

Close
$
9.01

 
$
8.43

 
$
8.40

 
$
10.51

Cash dividends declared per share
$
0.11

 
$
0.11

 
$
0.11

 
$
0.11

For the year ended December 31, 2012, we declared and paid dividends of $0.44 per share. For the year ended December 31, 2013 , we have declared dividends of $0.48 per share. In December 2013, the Board of Directors approved our dividend policy for 2014 and we expect to pay a quarterly dividend of $0.12 per share for 2014. The adoption of a dividend policy does not commit our Board of Directors to declare future dividends or the amount thereof. The Board of Directors will continue to review our dividend policy on a quarterly basis. We may incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. We may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. To maintain our qualification as a REIT, we

32
Table of Contents

intend to make annual distributions to our shareholders of at least 90% of our REIT taxable income, excluding net capital gains (which does not necessarily equal net income as calculated in accordance with GAAP). Distributions will be authorized by our Board of Directors and declared by us based upon a variety of factors deemed relevant by our Directors. Our ability to pay distributions to our shareholders will depend, in part, upon our receipt of distributions from our operating partnership. This, in turn, may depend upon receipt of lease payments with respect to our properties from indirect, wholly-owned subsidiaries of our operating partnership and the management of our properties by our property managers.
Characterization of Distributions
For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination thereof. Distributions paid per share were characterized as follows:
 
 
2013
 
2012
 
2011
 
Amount
 
 
%
 
Amount
 
 
%
 
Amount
 
 
%
Common Stock (cash):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

  
 
—
%
 
$
—

  
 
—
%
 
$
—

 
 
—
%
Capital gain
0.1245

(1)  
 
26.49

 
—

  
 
—

 
—

 
 
—

Return of capital
0.3455

(1)  
 
73.51

 
0.4300

(1)  
 
100.00

 
0.3000

(1)  
 
100.00
%
Total
$
0.4700

  
 
100.00
%
 
$
0.4300

  
 
100.00
%
 
$
0.3000

 
 
100.00
%
Common Stock (stock):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

 
 
—
%
 
$
—

 
 
—
%
 
$
—

 
 
—
%
Capital gain
1.1310

(1)  
 
26.49

 
—

 
 
—

 
—

 
 
—

Return of capital
3.1390

(1)  
 
73.51

 
—

 
 
—

 
—

 
 
—

Total
$
4.2700

 
 
100.00
%
 
$
—

 
 
—
%
 
$
—

 
 
—
%
Preferred Stock – Series A:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

  
 
—
%
 
$
—

  
 
—
%
 
$
1.5092

(1)  
 
70.60
%
Capital gain
2.6719

(1)  
 
100.00

 
—

  
 
—

 
—

 
 
—

Return of capital
—


 
—

 
2.1375

(1)  
 
100.00

 
0.6283

(1)  
 
29.40

Total
$
2.6719

    
 
100.00
%
 
$
2.1375

  
 
100.00
%
 
$
2.1375

 
 
100.00
%
Preferred Stock – Series D:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

    
 
—
%
 
$
—

  
 
—
%
 
$
1.4915

(1)  
 
70.60
%
Capital gain
2.6406

(1)  
 
100.00

 
—

  
 
—

 
—

 
 
—

Return of capital
—


 
—

 
2.1125

(1)  
 
100.00

 
0.6210

(1)  
 
29.40

Total
$
2.6406

    
 
100.00
%
 
$
2.1125

  
 
100.00
%
 
$
2.1125

 
 
100.00
%
Preferred Stock – Series E:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ordinary income
$
—

    
 
—
%
 
$
—

  
 
—
%
 
$
0.7193

(1)  
 
70.60
%
Capital gain
2.8125

(1)  
 
100.00

 
—

  
 
—

 
—

 
 
—

Return of capital
—


 
—

 
2.2500

(1)  
 
100.00

 
0.2995

(1)  
 
29.40

Total
$
2.8125

  
 
100.00
%
 
$
2.2500

  
 
100.00
%
 
$
1.0188

 
 
100.00
%
 ____________________
(1)  
The fourth quarter 2011 preferred and common distributions paid January 16, 2012 are treated as 2012 distributions for tax purposes. The fourth quarter 2012 preferred and common distributions paid January 15, 2013 are treated as 2013 distributions for tax purposes. The fourth quarter 2013 common distributions paid January 15, 2014 are treated as 2014 distributions for tax purposes.

33
Table of Contents

Equity Compensation Plan Information
The following table sets forth certain information with respect to securities authorized and available for issuance under our equity compensation plans.  
 
Number of Securities to be Issued Upon Exercise of
Outstanding Options, Warrants and Rights
 
Weighted-Average
Exercise Price
Of Outstanding
Options, Warrants,
And Rights
 
Number of
 Securities Remaining Available for Future Issuance
 
 
Equity compensation plans approved by security holders:
 
 
 
 
 
 
 
Restricted common stock
None
 
N/A
 
1,584,484

 
(1)  
Equity compensation plans not approved by security holders
None
 
N/A
 
None

 
  
Total
None
 
N/A
 
1,584,484

 
 
____________________
(1)  
As of December 31, 2013 , there were no shares of our common stock, or securities convertible into shares of our common stock, that remained available for issuance under our Amended and Restated 2003 Stock Incentive Plan. As of December 31, 2013, there were 1,584,484 shares of our common stock, or securities convertible into 1,584,484 shares of our common stock that remained available for issuance under our 2011 Stock Incentive Plan.
Performance Graph
The following graph compares the percentage change in the cumulative total shareholder return on our common stock with the cumulative total return of the S&P 500 Stock Index, the FTSE National Association of Real Estate Investment Trusts ("NAREIT") Mortgage REITs Index, and the FTSE NAREIT Lodging & Resorts Index for the period from December 31, 2008 through December 31, 2013 , assuming an initial investment of $100 in stock on December 31, 2008 with reinvestment of dividends. The NAREIT Lodging Resorts Index is not a published index; however, we believe the companies included in this index provide a representative example of enterprises in the lodging resort line of business in which we engage. Shareholders who wish to request a list of companies in the FTSE NAREIT Lodging & Resorts Index may send written requests to Ashford Hospitality Trust, Inc., Attention: Shareholder Relations, 14185 Dallas Parkway, Suite 1100, Dallas, Texas 75254.

34
Table of Contents

The stock price performance shown below on the graph is not necessarily indicative of future price performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Ashford Hospitality Trust, Inc., the S&P Index,
the FTSE NAREIT Mortgage REITs Index and the FTSE NAREIT Lodging & Resorts
Purchases of Equity Securities by the Issuer
The following table provides the information with respect to purchases of shares of our common stock during each of the months in the fourth quarter of 2013 :
Period
 
Total
Number of
Shares
Purchased
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plan (1)
 
Maximum Dollar
Value of Shares That
May Yet Be Purchased
Under the Plan
Common stock:
 
 
 
 
 
 
 
 
October 1 to October 31
 
—

 
$
—

 
—

 
$
200,000,000

November 1 to November 30
 
—

 
$
—

 
—

 
$
200,000,000

December 1 to December 31
 
—

 
$
—

 
—

 
$
200,000,000

Total
 
—

 
$
—

 
—

 
 
 ____________________
(1)  
In September 2011, our Board of Directors authorized the reinstatement of our 2007 share repurchase program and authorized an increase in repurchase plan authorization from the remaining $58.4 million to $200.0 million. The plan provides for: (i) the repurchase of shares of our common stock, Series A preferred stock, Series D preferred stock and Series E preferred stock, and /or (ii) discounted purchases of outstanding debt obligations, including debt secured by hotel assets. No shares of common or preferred stock have been repurchased under this program since September 2011.

35
Table of Contents

Item 6.
Selected Financial Data
The following sets forth our selected consolidated financial and operating information on a historical basis and should be read together with “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and notes thereto, which are included in “Item 8. Financial Statements and Supplementary Data.”
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 
(in thousands, except per share amounts)
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Total revenue
$
942,260

 
$
922,606

 
$
859,978

 
$
808,928

 
$
805,637

Total operating expenses
$
824,857

 
$
807,832

 
$
766,114

 
$
747,155

 
$
884,464

Operating income (loss)
$
117,403

 
$
114,774

 
$
93,864

 
$
61,773

 
$
(78,827
)
Income (loss) from continuing operations
$
(48,558
)
 
$
(58,558
)
 
$
7,763

 
$
(26,125
)
 
$
(184,345
)
Income (loss) from discontinued operations
$
—

 
$
(3,650
)
 
$
(7,880
)
 
$
(35,667
)
 
$
(104,316
)
Net income (loss) attributable to the Company
$
(41,283
)
 
$
(53,780
)
 
$
2,109

 
$
(51,740
)
 
$
(250,243
)
Net loss attributable to common shareholders
$
(75,245
)
 
$
(87,582
)
 
$
(44,767
)
 
$
(72,934
)
 
$
(269,565
)
Diluted income (loss) per common share:

 
 
 
 
 
 
 
 
Loss from continuing operations attributable to common shareholders
$
(1.00
)
 
$
(1.25
)
 
$
(0.60
)
 
$
(0.83
)
 
$
(2.62
)
Loss from discontinued operations attributable to common shareholders
—

 
(0.05
)
 
(0.13
)
 
(0.60
)
 
(1.31
)
Net loss attributable to common shareholders
$
(1.00
)
 
$
(1.30
)
 
$
(0.73
)
 
$
(1.43
)
 
$
(3.93
)
Weighted average diluted common shares
75,155

 
67,533

 
61,954

 
51,159

 
68,597

 
 
 
 
 
 
 
 
 
 
 
At December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 
(in thousands)
Balance Sheets Data:
 
 
 
 
 
 
 
 
 
Investments in hotel properties, net
$
2,164,389

 
$
2,872,304

 
$
2,957,899

 
$
3,023,736

 
$
3,383,759

Cash and cash equivalents
$
128,780

 
$
185,935

 
$
167,609

 
$
217,690

 
$
165,168

Restricted cash
$
61,498

 
$
84,786

 
$
84,069

 
$
67,666

 
$
77,566

Notes receivable
$
3,384

 
$
11,331

 
$
11,199

 
$
20,870

 
$
55,655

Total assets
$
2,677,002

 
$
3,464,729

 
$
3,589,726

 
$
3,716,524

 
$
3,914,498

Indebtedness of continuing operations
$
1,818,929

 
$
2,339,410

 
$
2,362,458

 
$
2,518,164

 
$
2,772,396

Series B-1 preferred stock
$
—

 
$
—

 
$
—

 
$
72,986

 
$
75,000

Total shareholders’ equity of the Company
$
617,789

 
$
831,942

 
$
973,407

 
$
816,808

 
$
837,976


36

 
Year Ended December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 
(in thousands, except per share amounts)
Other Data:
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
$
130,935

 
$
130,635

 
$
74,593

 
$
82,647

 
$
65,614

Cash used in investing activities
$
(340,363
)
 
$
(68,446
)
 
$
(47,774
)
 
$
(47,476
)
 
$
(44,754
)
Cash provided by (used in) financing activities
$
152,273

 
$
(43,863
)
 
$
(76,900
)
 
$
17,351

 
$
(97,289
)
Cash dividends declared per common share
$
0.48

 
$
0.44

 
$
0.40

 
$
—

 
$
—

EBITDA (unaudited) (1)
$
314,526

 
$
317,035

 
$
359,634

 
$
331,911

 
$
231,337

Funds From Operations (FFO) (unaudited) (1)
$
95,523

 
$
84,209

 
$
74,080

 
$
107,696

 
$
64,464

____________________
(1)  
A more detailed description and computation of FFO and EBITDA is contained in the “Non-GAAP Financial Measures” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
EXECUTIVE OVERVIEW
General
Following the recession that commenced in 2008, the lodging industry has experienced improvement in fundamentals, which continued through 2013. Room rates, measured by the ADR, which typically lag occupancy growth in the early stage of a recovery, have shown upward growth. We believe improvements in the economy will continue to positively impact the lodging industry and hotel operating results for several years to come, and we will continue to seek ways to benefit from the cyclical nature of the hotel industry.  We believe that in the prior cycle, hotel values and cash flows, for the most part, peaked in 2007, and we believe the hotel industry may exceed these cash flows and values during the next cyclical peak.
As of December 31, 2013 , we owned 85 hotel properties directly, and two hotel properties through majority-owned investments in consolidated entities, which represents 17,030 total rooms, or 17,003 net rooms excluding those attributable to our joint venture partners. Currently, all of our hotel properties are located in the United States. In March 2011, we acquired 96 hotel condominium units at WorldQuest Resort in Orlando, Florida for $12.0 million. Also in March 2011, with an investment of $150.0 million, we converted our interest in a joint venture that held a mezzanine loan into a 71.74% common equity interest and a $25.0 million preferred equity interest in a new joint venture (the “PIM Highland JV”) that holds 28 high quality full-service and select-service hotel properties with 8,084 total rooms, or 5,800 net rooms excluding those attributable to our joint venture partner. On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8-hotel portfolio, totaling 3,146 rooms (2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company into which we contributed the portfolio interests. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our shareholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such shareholder as of the close of business on November 8, 2013. At December 31, 2013 , we also wholly owned one mezzanine loan with a net carrying value of $3.4 million .
Based on our primary business objectives and forecasted operating conditions, our current key priorities and financial strategies include, among other things:
•
acquisition of hotel properties;
•
disposition of non-core hotel properties;
•
investing in securities;
•
pursuing capital market activities to enhance long-term shareholder value;
•
preserving capital, enhancing liquidity, and continuing current cost saving measures;
•
implementing selective capital improvements designed to increase profitability;
•
implementing effective asset management strategies to minimize operating costs and increase revenues;

37
Table of Contents

•
financing or refinancing hotels on competitive terms;
•
utilizing hedges and derivatives to mitigate risks; and
•
making other investments or divestitures that our Board of Directors deems appropriate.
Our investment strategies continue to focus on the full-service and select-service hotels in the upscale and upper-upscale segments within the lodging industry that have RevPAR less than twice the national average. We believe that as supply, demand, and capital market cycles change, we will be able to shift our investment strategies to take advantage of new lodging-related investment opportunities as they may develop. Our Board of Directors may change our investment strategies at any time without shareholder approval or notice.
SIGNIFICANT TRANSACTIONS IN 2013 AND RECENT DEVELOPMENTS
Refinanced our $141.7 Million Mortgage Loan - On February 26, 2013, we refinanced our $141.7 million loan due August 2013, which had an outstanding balance of $141.0 million, with a $199.9 million loan due February 2018. The new loan provides for an interest rate of LIBOR + 3.50%, with no LIBOR floor. The new loan continues to be secured by the Capital Hilton in Washington, DC and the Hilton La Jolla Torrey Pines in La Jolla, California. We had a 75% ownership interest in the properties, with Hilton holding the remaining 25%. The excess loan proceeds above closing costs and reserves were distributed to the partners on a pro rata basis. Our share of the excess loan proceeds was approximately $40.5 million, which was added to our unrestricted cash balance. These properties were included in the spin-off of Ashford Prime discussed below.
Acquisition of the Pier House Resort - On May 14, 2013, we acquired a 100% interest in the Pier House Resort in Key West, Florida, for a contractual purchase price of $90.0 million in cash. In connection with the acquisition, we incurred transaction costs of $901,000 , which are included in transaction costs on the consolidated statement of operations. The purchase price has been allocated to the assets acquired and liabilities assumed using the estimated fair value at the date of acquisition based on a third party appraisal.
Common Stock Offering - On June 20, 2013, we commenced a follow-on public offering of 11.0 million shares of our common stock at $12.00 per share for gross proceeds of $132.0 million. The aggregate proceeds, net of the 4.25% underwriting discount and other expenses of $500,000, were approximately $125.9 million. The offering settled on June 26, 2013. We granted the underwriters a 30-day option to purchase up to an additional 1.65 million shares of our common stock. On July 24, 2013, the underwriters partially exercised their option and purchased an additional 1.25 million shares of our common stock at a price of $12.00 per share less the underwriting discount resulting in additional proceeds of approximately $14.2 million.
$69.0 Million Pier House Financing - On September 10, 2013, we completed the financing for a $69.0 million loan due September 2015 and secured by the Pier House Resort. The new financing has a two-year term and three, one-year extension options with no test requirements for the first two extensions. The loan provides for a floating interest rate of LIBOR + 4.90%, with no LIBOR Floor. The loan proceeds, net of typical closing costs and reserves, were added to our unrestricted cash balance.
Spin-off of an 8-hotel Portfolio - On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8-hotel portfolio, totaling 3,146 rooms (2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company. We contributed the portfolio interests into Ashford Prime OP, Ashford Prime's operating partnership. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our shareholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such shareholder as of the close of business on November 8, 2013. Ashford Prime is expected to qualify as a REIT for federal income tax purposes, and is listed on the New York Stock Exchange, under the symbol “AHP.” The transaction also includes options for Ashford Prime to purchase the Crystal Gateway Marriott in Arlington, Virginia and the Pier House Resort in Key West, Florida. Ashford Hospitality Advisors LLC, our subsidiary acts as external advisor to Ashford Prime.
With respect to the eight hotel properties that are now owned by Ashford Prime, the operating results for the period from January 1, 2013 through November 18, 2013 and the years ended December 31, 2012 and 2011 are included in our consolidated statements of operations for the respective years ended December 31, 2013, 2012 and 2011, in accordance with the applicable accounting guidance. The Crystal Gateway Marriott in Arlington, Virginia and the Pier House Resort in Key West, Florida are included in "assets held and used" and continuing operations as they do not meet the requirements to be classified as "held for sale" or "discontinued operations" in accordance with the applicable accounting guidance. The following table summarizes the operating results of the eight-hotel portfolio included in our results of operations (in thousands):

38

 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
 
 
 
 
 
 
 
Total revenue
 
$
214,566

 
$
221,188

 
$
191,991

Total operating expenses
 
167,958

 
178,536

 
157,999

Operating income
 
46,608

 
42,652

 
33,992

Interest income
 
21

 
29

 
24

Other income
 
—

 
—

 
9,673

Interest expense and amortization of loan costs
 
(29,017
)
 
(31,244
)
 
(31,803
)
Write-off of loan costs and exit fees
 
(1,971
)
 
—

 
—

Unrealized loss on derivatives
 
(31
)
 
—

 
—

Income before income taxes
 
$
15,610

 
$
11,437

 
$
11,886

The cash flows from operations generated by the 8-hotel portfolio were approximately $52.8 million for the period from January 1, 2013 through November 18, 2013 and $38.7 million and $25.0 million for the years ended December 31, 2012 and 2011, respectively. The absence of the cash flows from these eight hotel properties could have a significant impact on our liquidity. However, as a result of retaining a 20% ownership interest in Ashford Prime OP, Ashford Prime's operating partnership, our portion of Ashford Prime OP’s net income (loss) is reflected in our results of operations since November 19, 2013. Additionally, our subsidiary Ashford Hospitality Advisors LLC acts as the external advisor to Ashford Prime, and as a result, we receive advisory fees from Ashford Prime. Ashford Prime is required to pay Ashford Hospitality Advisors LLC a quarterly base fee equal to 0.70% per annum of the total enterprise value of Ashford Prime, subject to a minimum quarterly base fee, as payment for managing the day-to-day operations of Ashford Prime and its subsidiaries in conformity with Ashford Prime’s investment guidelines. Ashford Prime is also required to pay Ashford Hospitality Advisors LLC an incentive fee that is based on Ashford Prime’s total return performance as compared to Ashford Prime’s peer group. The fees are included in our results of operations since November 19, 2013 and could, over time, result in significant cash inflows, which could also have a material impact on our liquidity.
$18.2 Million Loan Financings - On December 20, 2013, we refinanced our $6.5 million loan due April 2034, with a $10.8 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49%. The new loan continues to be secured by the Residence Inn Jacksonville. Additionally, we completed the financing for a $7.4 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% and is secured by the Residence Inn Manchester. We have an 85% ownership interest in the property, with Interstate Hotels & Resorts holding the remaining 15%. Our share of the excess loan proceeds were added to our unrestricted cash balance.
Proposed Spin-off of Asset Management Business - On February 27, 2014, we announced that our Board of Directors has unanimously approved a plan to spin-off its asset management business into a separate publicly traded company in the form of a taxable distribution.  The distribution is expected to be completed in the third quarter of 2014, and we anticipate that the distribution will be comprised of common stock in Ashford Inc., a newly formed or successor company of our current subsidiary Ashford Hospitality Advisors LLC. We also expect that Ashford Inc. will file an application to list its shares on the NYSE or NYSE MKT Exchanges.  In connection with the proposed spin-off, we expect that Ashford Inc. will enter into a 20-year advisory agreement to externally advise the Company. Ashford Inc. will continue to externally advise Ashford Prime. This distribution is anticipated to be declared during the third quarter of 2014; however, it remains subject to the filing of the required registration statement with the SEC, the review of the registration statement by the SEC, the approval of the listing of shares by the applicable exchange, and other legal requirements. The Company cannot be certain this distribution will proceed or proceed in the manner as currently anticipated.
Sale of Pier House Resort - On March 1, 2014, we closed on the sale of the Pier House Resort to Ashford Prime. The sales price was $92.7 million . Ashford Prime assumed the $69 million mortgage and paid the balance of the purchase price in cash.
LIQUIDITY AND CAPITAL RESOURCES
Our cash position from operations is affected primarily by macro industry movements in occupancy and rate as well as our ability to control costs. Further, interest rates can greatly affect the cost of our debt service as well as the value of any financial hedges we may put in place. We monitor industry fundamentals and interest rates very closely. Capital expenditures above our reserves will affect cash flow as well.

39

Certain of our loan agreements contain cash trap provisions that may get triggered if the performance of our hotels decline. When these provisions are triggered, substantially all of the profit generated by our hotels is deposited directly into lockbox accounts and then swept into cash management accounts for the benefit of our various lenders. Cash is distributed to us only after certain items are paid, including deposits into ground leasing and maintenance reserves and the payment of debt service, insurance, taxes, operating expenses, and extraordinary capital expenditures and ground leasing expenses. This could affect our liquidity and our ability to make distributions to our shareholders.
Also, we have entered into certain customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of our subsidiaries or joint ventures that may result from non-recourse carve-outs, which include, but are not limited to fraud, misrepresentation, willful misconduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities.  Certain of these guarantees represent a guaranty of material amounts, and if we are required to make payments under those guarantees, our liquidity could be adversely affected. In connection with the Ashford Prime Spin-off, we are still jointly and severally liable under certain carve-out guarantees and environmental indemnities associated with three loans. Ashford Prime has indemnified us in the case that any of these guarantees are ever called.
In September 2010, we entered into an ATM program with an investment banking firm to offer for sale from time to time up to $50.0 million of our common stock at market prices. No shares have been sold under this ATM program since its inception. The ATM program will remain in effect until such time that either party elects to terminate or the $50.0 million cap is reached.
In September 2011, we entered into an at-the-market (“ATM”) program with an investment banking firm, pursuant to which we may issue up to 700,000 shares of 8.55% Series A Cumulative Preferred Stock and up to 700,000 shares of 8.45% Series D Cumulative Preferred Stock at market prices up to $30.0 million in total proceeds. The ATM program will remain in effect until such time that either party elects to terminate or the share or dollar thresholds are reached. On March 2, 2012, we commenced issuances of preferred stock and, during the first two quarters of the year ended December 31, 2012, we issued 169,306 shares of 8.55% Series A Cumulative Preferred Stock for gross proceeds of $4.2 million and 501,909 shares of 8.45% Series D Cumulative Preferred Stock for gross proceeds of $12.3 million . The aggregate proceeds, net of commissions and other expenses, were $16.0 million for the year ended December 31, 2012. There were no issuances for the year ended December 31, 2013.
On February 21, 2012, we expanded our borrowing capacity under our $105.0 million senior credit facility to an aggregate $145.0 million and on September 24, 2012, we further expanded our borrowing capacity to an aggregate $165.0 million. We have an option, subject to lender approval, to further expand the facility to an aggregate size of $225.0 million. As part of these expansions two additional banks have been added to the participating banks in the senior credit facility. We may use up to $10.0 million for standby letters of credit. On December 21, 2012, we amended the senior credit facility to reduce the minimum fixed charge coverage ratio from 1.35x to 1.25x through expiration in September 2014.
On February 26, 2013, we refinanced our $141.7 million loan due August 2013, which had an outstanding balance of $141.0 million, with a $199.9 million loan due February 2018. The new loan provides for an interest rate of LIBOR + 3.50%, with no LIBOR floor. The new loan continues to be secured by the Capital Hilton in Washington, DC and the Hilton La Jolla Torrey Pines in La Jolla, California. We had a 75% ownership interest in the properties, with Hilton holding the remaining 25%. The excess loan proceeds above closing costs and reserves were distributed to the partners on a pro rata basis. Our share of the excess loan proceeds was approximately $40.5 million, which was added to our unrestricted cash balance. These properties were included in the previously discussed Ashford Prime spin-off.
On June 20, 2013, we commenced a follow-on public offering of 11.0 million shares of our common stock at $12.00 per share for gross proceeds of $132.0 million. The aggregate proceeds, net of the 4.25% underwriting discount and other expenses of $500,000, were approximately $125.9 million. The offering settled on June 26, 2013. We granted the underwriters a 30-day option to purchase up to an additional 1.65 million shares of our common stock. On July 24, 2013, the underwriters exercised their option and purchased an additional 1.25 million shares of our common stock at a price of $12.00 per share less the underwriting discount resulting in additional net proceeds of approximately $14.2 million.
On September 10, 2013, we completed the financing for a $69.0 million loan due September 2015 and secured by the Pier House Resort. The new financing has a two-year term and three, one-year extension options with no test requirements for the first two extensions. The loan provides for a floating interest rate of LIBOR + 4.90%, with no LIBOR Floor. The excess loan proceeds were added to our unrestricted cash balance.
On December 20, 2013, we refinanced our $6.5 million loan due April 2034, with a $10.8 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49%. The new loan continues to be secured by the Residence Inn Jacksonville. Additionally, we completed the financing for a $7.4 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% and is secured by the Residence Inn Manchester. We have an 85% ownership interest in the

40

property, with Interstate Hotels & Resorts holding the remaining 15%. Our share of the excess loan proceeds were added to our unrestricted cash balance.
Our principal sources of funds to meet our cash requirements include: cash on hand, positive cash flow from operations, capital market activities, property refinancing proceeds and asset sales. Additionally, our principal uses of funds are expected to include possible operating shortfalls, owner-funded capital expenditures, new investments, and debt interest and principal payments. Items that impacted our cash flow and liquidity during the periods indicated are summarized as follows:    
Net Cash Flows Provided by Operating Activities. Net cash flows provided by operating activities, pursuant to our Consolidated Statements of Cash Flows which includes changes in balance sheet items, were $145.5 million and $130.6 million for the year ended December 31, 2013 and 2012 , respectively. Cash flows from operations are impacted by changes in hotel EBITDA as well as changes in restricted cash due to the timing of cash deposits for certain loans and capital expenditures as well as the timing of collecting receivables from hotel guests, paying vendors and settling with hotel managers.
Net Cash Flows Used in Investing Activities. For the year ended December 31, 2013 , investing activities used net cash flows of $354.0 million , which primarily consisted of $162.8 million of cash contributed to Ashford Prime OP in connection with the previously discussed Ashford Prime spin-off, $88.2 million for the acquisition of the Pier House Resort, $96.3 million of capital improvements made to various hotel properties and $13.6 million of transaction costs related to the Ashford Prime spin-off that will be reimbursed by Ashford Prime, partially offset by a cash distribution of $6.0 million from Ashford Prime OP made in connection with the Ashford Prime spin-off and net proceeds of $654,000 attributable to the sale of four WorldQuest condominium units and proceeds from cash payments received on a previously impaired mezzanine loan. For the year ended December 31, 2012 , investing activities used net cash flows of $68.4 million . Cash outlays primarily consisted of $81.4 million for capital improvements made to various hotel properties partially offset by cash inflows of $5.2 million attributable to cash payments received on previously impaired mezzanine loans and $7.7 million from the sale of our Doubletree Guest Suites hotel in Columbus, Ohio.
Net Cash Flows Used in Financing Activities. For the year ended December 31, 2013 , net cash flows provided by financing activities were $151.4 million . Cash inflows consisted primarily of $287.1 million in borrowings on indebtedness, $140.1 million from our follow-on public offering and $7.9 million in proceeds from the counterparties of our interest rate derivatives. Cash inflows were partially offset by cash outlays primarily consisting of $184.8 million for repayments of indebtedness, $78.8 million for dividend payments to common and preferred shareholders and unit holders, $14.4 million for distributions to noncontrolling interests in consolidated entities and $5.4 million for payments of loan costs and prepayment penalties. For the year ended December 31, 2012 , net cash flows used in financing activities were $43.9 million . Cash outlays primarily consisted of $71.6 million for dividend payments to common and preferred stockholders and unit holders, $353.4 million for repayments of indebtedness, $10.4 million for payments of deferred loan costs and $1.9 million for distributions to noncontrolling interests in consolidated entities. These cash outlays were partially offset by cash inflows of $16.0 million from issuance of our Series A and Series D preferred stock under our ATM program, $32.0 million in proceeds from the counterparties of our interest rate derivatives and $346.0 million in borrowings on indebtedness.
We are required to maintain certain financial ratios under various debt and derivative agreements. If we violate covenants in any debt or derivative agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in us being unable to borrow unused amounts under a line of credit, even if repayment of some or all borrowings is not required. In any event, financial covenants under our current or future debt obligations could impair our planned business strategies by limiting our ability to borrow (i) beyond certain amounts or (ii) for certain purposes. Presently, our existing financial debt covenants primarily relate to maintaining minimum debt coverage ratios, maintaining an overall minimum net worth, maintaining a maximum loan-to-value ratio, and maintaining an overall minimum of total assets. As of December 31, 2013 , we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended.
Mortgage and mezzanine loans are nonrecourse to the borrowers, except for customary exceptions or carve-outs that trigger recourse liability to the borrowers in certain limited instances. Recourse obligations typically include only the payment of costs and liabilities suffered by lenders as a result of the occurrence of certain bad acts on the part of the borrower. However, in certain cases, carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral, and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition.

41

At December 31, 2013 , our only recourse obligation is our $165.0 million senior credit facility held by six banks, which expires in September 2014. The senior credit facility has a one-year extension option subject to advance notice and a 0.25% extension fee. Currently, there is no outstanding balance on this credit facility. The primary covenants of this senior credit facility include (i) the minimum fixed charge coverage ratio, as defined in the credit facility, of 1.25x through expiration (ours was 1.29x at December 31, 2013 ); and (ii) the maximum leverage ratio, as defined in the credit facility, of 65% (ours was 58.57% at December 31, 2013 ). In the event we borrow on this credit facility, we may be unable to refinance a portion or all of this senior credit facility before maturity. However, if it becomes necessary to pay down the principal balance, if any, at maturity, we believe we will be able to accomplish that with cash on hand, cash flows from operations, equity raises, or, to the extent necessary, asset sales.
Based on our current level of operations, management believes that our cash flow from operations, our existing cash balances, and availability under our senior credit facility ($165.0 million at December 31, 2013 ) will be adequate to meet upcoming anticipated requirements for interest and principal payments on debt, working capital, and capital expenditures for the next 12 months. With respect to upcoming maturities, we will continue to proactively address our 2014 maturities. No assurances can be given that we will obtain additional financings or, if we do, what the amount and terms will be. Our failure to obtain future financing under favorable terms could adversely impact our ability to execute our business strategy. In addition, we may selectively pursue debt financing on individual properties. Additionally, we have no further rights to extend our senior credit facility beyond the one-year extension option and can give no assurance that the lenders under our senior credit facility would agree to any further extension or that a replacement credit facility could be obtained.
We are committed to an investment strategy where we will opportunistically pursue hotel-related investments as suitable situations arise. Funds for future hotel-related investments are expected to be derived, in whole or in part, from cash on hand, future borrowings under a credit facility or other loans, or proceeds from additional issuances of common stock, preferred stock, or other securities, asset sales, and joint ventures. However, we have no formal commitment or understanding to invest in additional assets, and there can be no assurance that we will successfully make additional investments. We may, when conditions are suitable, consider additional capital raising opportunities.
Our existing hotels are mostly located in developed areas with competing hotel properties. Future occupancy, ADR, and RevPAR of any individual hotel could be materially and adversely affected by an increase in the number or quality of competitive hotel properties in its market area. Competition could also affect the quality and quantity of future investment opportunities.
Dividend Policy . During the years ended December 31, 2013 and 2012 , the Board of Directors declared quarterly dividends of $0.12 and $0.11 per share of outstanding common stock, respectively. In December 2013 , the Board of Directors approved our 2014 dividend policy which anticipates a quarterly dividend payment of $0.12 per share for 2014 . However, the adoption of a dividend policy does not commit our Board of Directors to declare future dividends. The Board of Directors will continue to review our dividend policy on a quarterly basis. We may incur indebtedness to meet distribution requirements imposed on REITs under the Internal Revenue Code to the extent that working capital and cash flow from our investments are insufficient to fund required distributions. Alternatively, we may elect to pay dividends on our common stock in cash or a combination of cash and shares of securities as permitted under federal income tax laws governing REIT distribution requirements. We may pay dividends in excess of our cash flow.
RESULTS OF OPERATIONS
Marriott International, Inc. (“Marriott”) manages 26 of our properties as of December 31, 2013. There were eight additional hotel properties managed by Marriott until May 31, 2013 and six properties managed by Marriott were included in the Ashford Prime spin-off. For these 40 Marriott-managed hotels, the 2011 and 2012 fiscal years reflect twelve weeks of operations in each of the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Beginning in 2013, the fiscal quarters end on March 31 st , June 30 th , September 30 th and December 31 st . Therefore, in any given quarterly period, period-over-period results will have different ending dates. . For Marriott-managed hotels, the fourth quarters of 2013, 2012 and 2011 ended December 31, 2013, December 28, 2012 and December 30, 2011, respectively. Prior results have not been adjusted.
RevPAR is a commonly used measure within the hotel industry to evaluate hotel operations. RevPAR is defined as the product of the ADR charged and the average daily occupancy achieved. RevPAR does not include revenues from food and beverage or parking, telephone, or other guest services generated by the property. Although RevPAR does not include these ancillary revenues, it is generally considered the leading indicator of core revenues for many hotels. We also use RevPAR to compare the results of our hotels between periods and to analyze results of our comparable hotels (comparable hotels represent hotels we have owned for the entire year). RevPAR improvements attributable to increases in occupancy are generally accompanied by increases in most categories of variable operating costs. RevPAR improvements attributable to increases in ADR are generally accompanied by increases in limited categories of operating costs, such as management fees and franchise fees.

42

The following table summarizes the changes in key line items from our consolidated statements of operations for the years ended December 31, 2013 , 2012 and 2011 (in thousands):
 
Year Ended December 31,
 
Favorable (Unfavorable)
Change
 
2013
 
2012
 
2011
 
2013 to 2012
 
2012 to 2011
Total revenue
$
942,260

 
$
922,606

 
$
859,978

 
$
19,654

 
$
62,628

Total hotel expenses
$
(596,313
)
 
$
(590,340
)
 
$
(552,933
)
 
$
(5,973
)
 
$
(37,407
)
Property taxes, insurance and other
$
(47,075
)
 
$
(44,903
)
 
$
(45,085
)
 
$
(2,172
)
 
$
182

Depreciation and amortization
$
(127,990
)
 
$
(133,979
)
 
$
(131,243
)
 
$
5,989

 
$
(2,736
)
Impairment charges
$
396

 
$
5,349

 
$
4,841

 
$
(4,953
)
 
$
508

Gain on insurance settlements
$
270

 
$
91

 
$
2,035

 
$
179

 
$
(1,944
)
Transaction acquisition and contract termination costs
$
(1,324
)
 
$
—

 
$
793

 
$
(1,324
)
 
$
(793
)
Corporate general and administrative
$
(52,821
)
 
$
(44,050
)
 
$
(44,522
)
 
$
(8,771
)
 
$
472

Operating income
$
117,403

 
$
114,774

 
$
93,864

 
$
2,629

 
$
20,910

Equity in earnings (loss) of unconsolidated entities
$
(23,404
)
 
$
(20,833
)
 
$
14,528

 
$
(2,571
)
 
$
(35,361
)
Interest income
$
71

 
$
125

 
$
85

 
$
(54
)
 
$
40

Other income
$
5,650

 
$
31,700

 
$
109,524

 
$
(26,050
)
 
$
(77,824
)
Interest expense and amortization of loan costs
$
(141,469
)
 
$
(144,796
)
 
$
(137,212
)
 
$
3,327

 
$
(7,584
)
Write-off of premiums, loan costs and exit fees
$
(2,098
)
 
$
(3,998
)
 
$
(729
)
 
$
1,900

 
$
(3,269
)
Unrealized gain (loss) on marketable securities
$
5,115

 
$
2,502

 
$
(391
)
 
$
2,613

 
$
2,893

Unrealized gain (loss) on derivatives
$
(8,315
)
 
$
(35,657
)
 
$
(70,286
)
 
$
27,342

 
$
34,629

Income tax (expense) benefit
$
(1,511
)
 
$
(2,375
)
 
$
(1,620
)
 
$
864

 
$
(755
)
Income (loss) from continuing operations
$
(48,558
)
 
$
(58,558
)
 
$
7,763

 
$
10,000

 
$
(66,321
)
Loss from discontinued operations
$
—

 
$
(3,650
)
 
$
(7,880
)
 
$
3,650

 
$
4,230

Net loss
$
(48,558
)
 
$
(62,208
)
 
$
(117
)
 
$
13,650

 
$
(62,091
)
Income from consolidated entities attributable to noncontrolling interests
$
(908
)
 
$
(868
)
 
$
(610
)
 
$
(40
)
 
$
(258
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
$
8,183

 
$
9,296

 
$
2,836

 
$
(1,113
)
 
$
6,460

Net income (loss) attributable to the Company
$
(41,283
)
 
$
(53,780
)
 
$
2,109

 
$
12,497

 
$
(55,889
)
Comparison of Year Ended December 31, 2013 with Year Ended December 31, 2012
Income from continuing operations represents the operating results of 87 legacy hotel properties and WorldQuest included in continuing operations for the years ended December 31, 2013 and 2012 as well as the operating results from January 1, 2012 through November 18, 2013 of the eight hotel properties that were contributed to Ashford Prime OP in connection with the previously discussed Ashford Prime spin-off. See the "Executive Overview" section of Management’s Discussion and Analysis of Financial Condition and Results of Operations for a summary of the operating results of these properties. Additionally, the operating results of the Pier House Resort are included since its acquisition in May 2013.

43

The following table illustrates the key performance indicators of these hotels:
 
Year Ended
December 31,
 
2013
 
2012
RevPAR (revenue per available room)
$
102.84

 
$
98.80

Occupancy
74.27
%
 
73.80
%
ADR (average daily rate)
$
138.48

 
$
133.87

Revenue . Rooms revenue for the year ended December 31, 2013 (“ 2013 ”) increased $22.1 million , or 3.0% , to $749.3 million from $727.1 million for the year ended December 31, 2012 (“ 2012 ”). The increase in rooms revenue was due to continued improvements in occupancy coupled with an increase in our ADR. During 2013 , we experienced a 47 basis point increase in occupancy and a 3.4% increase in room rates. We also experienced higher rooms revenue of $9.0 million as a result of the Pier House Resort acquisition and lower rooms revenue as a result of the Ashford Prime spin-off. Food and beverage revenues experienced a decrease of $6.9 million , or 4.3% , due to events at certain hotels during 2012 that did not reoccur in 2013 as well as the Ashford Prime spin-off, all of which was slightly offset by $1.8 million of food and beverage revenue as a result of the Pier House Resort acquisition. Other hotel revenue, which consists mainly of Internet access, parking and spa, experienced an improvement of $3.1 million , of which $813,000 is attributable to the Pier House Resort acquisition, while other revenue was negatively impacted by the Ashford Prime spin-off when compared to 2012. We recorded advisory services revenue of $1.0 million from Ashford Prime which was comprised of a base advisory fee of $878,000, reimbursable overhead of $53,000 and internal audit reimbursements of $116,000. No incentive management fee was earned for 2013 in connection with the advisory agreement between one of our subsidiaries and Ashford Prime. Other non-hotel revenue was $526,000 and $305,000 for 2013 and 2012 , respectively.
Hotel Operating Expenses. Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. We experienced increases of $1.1 million in direct expenses and $4.9 million in indirect expenses and management fees in 2013 . The increase in these expenses is primarily attributable to higher occupancy and higher management fees resulting from increased hotel revenue and higher sales and marketing expenses. In addition, the Pier House Resort acquisition contributed $3.5 million of direct expenses and $3.3 million in indirect expenses and management fees. The higher hotel operating expenses were offset by the impact of the Ashford Prime spin-off. Direct expenses were 31.8% and 32.0% of total hotel revenue for 2013 and 2012 , respectively.
Property Taxes, Insurance, and Other. Property taxes, insurance, and other increased $2.2 million during 2013 to $47.1 million . The increase is primarily due to higher property taxes as a result of increased property value assessments related to certain hotels, higher insurance costs and a credit to uninsured losses in 2012, offset by lower costs as a result of the Ashford Prime spin-off when compared against 2012.
Depreciation and Amortization. Depreciation and amortization decreased $6.0 million for 2013 compared to 2012 primarily due to lower depreciation for certain assets that became fully depreciated since December 31, 2012 and the impact of the Ashford Prime spin-off which was partially offset by the acquisition of the Pier House Resort.
Impairment Charges. We recorded credits to impairment charges of $396,000 and $5.3 million for 2013 and 2012 , respectively, for cash received and resulting valuation adjustments on previously impaired mezzanine loans.
Investments in hotel properties are reviewed for impairment for each reporting period. We take into account the latest operating cash flows and market conditions and their impact on future projections. For the properties that show indicators of impairment, we perform a recoverability analysis using the sum of each property’s estimated future undiscounted cash flows compared to the property’s carrying value. The estimates of future cash flows are based on assumptions about the future operating results including disposition of the property. In addition, the cash flow estimation periods used are based on the properties’ remaining useful lives to us (expected holding periods). For properties securing mortgage loans, the assumptions regarding holding periods considered our ability and intent to hold the property to or beyond the maturity of the related indebtedness.
In analyzing projected hotel properties’ operating cash flows, we factored in RevPAR growth based on data from third party sources. In addition, the projected hotel properties’ operating cash flows factored in our ongoing implementation of asset management strategies to minimize operating costs. After factoring in the expected revenue growth and the impact of company-specific strategies implemented to minimize operating costs, the hotel properties’ estimated future undiscounted cash flows were in excess of the properties’ carrying values. The analyses performed in 2013 and 2012 did not identify any properties with respect to which an impairment loss should be recognized.

44

Transaction Costs. We recorded transaction costs of $1.3 million for 2013 which included $901,000 related to the Pier House Resort acquisition and $423,000 related to costs associated with other miscellaneous items. There were no transaction costs in 2012.
Corporate, General, and Administrative. Corporate, general, and administrative expenses increased $8.8 million to $52.8 million for 2013 compared to $44.1 million for 2012 . Non-cash equity-based compensation experienced an increase of $8.1 million due to additional expense associated with accelerated vestings of LTIP units of our Chairman Emeritus as a result of his retirement as our Chairman and $4.3 million as a result of modifications to the deferred compensation plan in connection with the Ashford Prime spin-off in which plan participants were granted additional shares of our stock. Additionally, corporate, general, and administrative expenses increased $672,000 during 2013 compared to 2012 period due to higher salaries and benefits of $2.1 million partially offset by lower professional fees.
Equity in Loss of Unconsolidated Entities. We recorded equity in loss of unconsolidated entities of $23.4 million and $20.8 million for 2013 and 2012 , respectively. Included in 2013 was our equity in loss of Ashford Prime since its spin-off on November 19, 2013 of $4.0 million and equity in loss of PIM Highland JV of $19.4 million.
Interest Income. Interest income was $71,000 and $125,000 for 2013 and 2012 , respectively.
Other Income. Other income was $5.7 million and $31.7 million for 2013 and 2012 , respectively. Other income primarily represents income from the non-hedge interest rate swaps of $6.2 million and $32.0 million in 2013 and 2012 , respectively, of which the decrease is primarily attributable to derivatives that have expired since December 31, 2012. Other income also includes $1.2 million and $831,000, of realized losses on marketable securities and $460,000 and $484,000 of dividend income for 2013 and 2012, respectively.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs decreased $3.3 million to $141.5 million for 2013 from $144.8 million for 2012 . The decrease is primarily due to lower interest expense resulting from a decrease in the weighted average interest rate of our debt in 2013 and the impact of the Ashford Prime spin-off. This decrease was partially offset by additional interest expense resulting from a new mortgage loan entered into in September 2013 associated with the Pier House Resort, which was previously unencumbered, and higher loan cost amortization of $1.6 million. The average LIBOR rates for 2013 and 2012 were 0.19% and 0.24%, respectively.
Write-off of Loan Costs and Exit Fees. In 2013 , we refinanced our $141.7 million loan, with an outstanding balance of $141.0 million, due August 2013 with a $199.9 million loan due February 2018. As a result, we wrote-off the unamortized loan costs of $472,000 and incurred additional loan costs of $1.5 million. Additionally, we refinanced our $6.5 million loan due April 2034 with a $10.8 million loan due January 2024. As a result, we wrote-off the unamortized loan costs of $64,000 and incurred additional loan costs of $63,000.
Unrealized Gain on Marketable Securities. Unrealized gain on marketable securities of $5.1 million and $2.5 million for 2013 and 2012 , respectively, are based on changes in closing market prices during the period.
Unrealized Loss on Derivatives. For 2013 , we recorded an unrealized loss of $8.3 million , consisting of $6.4 million related to interest-rate derivatives and $1.9 million related to credit default swaps. In 2012 , we recorded an unrealized loss of $35.7 million related to losses of $31.7 million on interest-rate derivatives and an unrealized loss of $3.9 million related to credit default swaps entered into in 2011. The fair value of interest-rate derivatives is primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of credit default swaps is based on the change in value of CMBX indices.
Income Tax Expense. We recorded income tax expense of $1.5 million and $2.4 million for 2013 and 2012 , respectively. The decrease in income tax expense in 2013 is primarily due to an increase in certain indirect expenses recognized by our TRS subsidiaries.
Loss from Discontinued Operations. For 2012, loss from discontinued operations was $3.7 million related to two hotel properties disposed of in 2012. The Hilton hotel in Tucson, Arizona was disposed of in December 2012. The Doubletree Guest Suites hotel in Columbus, Ohio was sold in November 2012 for net proceeds of $7.7 million. We recorded an impairment charge of $4.1 million related to the Hilton hotel and a net gain of $4.5 million upon disposition of these hotels.
Income from Consolidated Entities Attributable to Noncontrolling Interests. Noncontrolling interest partners in consolidated entities were allocated income of $908,000 and $868,000 during 2013 and 2012, respectively. Two hotel properties held in a 75% owned consolidated entity were contributed to Ashford Prime in connection with the previously discussed Ashford Prime spin-off.
Net Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net losses of $8.2 million and $9.3 million in 2013 and 2012 , respectively. Redeemable

45

noncontrolling interests represented ownership interests of 12.72% and 12.92% in the operating partnership at December 31, 2013 and 2012 , respectively.
Comparison of Year Ended December 31, 2012 with Year Ended December 31, 2011
Income from continuing operations represents the operating results of 94 hotel properties (“comparable hotels”) and WorldQuest included in continuing operations for the years ended December 31, 2012 and 2011. The results of WorldQuest are included since its acquisition in March 2011. Additionally, there is one hotel property we began consolidating as of December 2, 2011. The hotel property previously was under a triple-net operating lease for which we only recorded rental income through December 1, 2011.
The following table illustrates the key performance indicators of these hotels:
 
Year Ended
December 31,
 
2012
 
2011
RevPAR (revenue per available room)
$
98.80

 
$
93.93

Occupancy
73.80
%
 
72.52
%
ADR (average daily rate)
$
133.87

 
$
129.52

Revenue .  Room revenues from comparable hotels increased $57.5 million , or 8.6% , during the year ended December 31, 2012 (“ 2012 ”) compared to the year ended December 31, 2011 (“ 2011 ”). The increase in room revenue was primarily due to the continued improvements in occupancy coupled with the increase in ADR. During 2012 , we experienced a 128 basis point increase in occupancy and a 3.4% increase in room rates as the economy continued to improve. Food and beverage revenues from comparable hotels experienced a similar increase of $9.8 million , or 6.5% , due to improved occupancy. Other hotel revenue, which consists mainly of Internet access, parking and spa, experienced a slight improvement of $725,000 . The increase in total hotel revenue includes additional revenue of $1.3 million and $19.6 million related to the acquisition of WorldQuest condominium properties in March 2011 and the assignment to us of the remaining 11% ownership interest in a joint venture which previously held a hotel property under a triple-net lease in December 2011, respectively. Rental income from the triple-net operating lease decreased $5.3 million for the same reason. Other non-hotel revenue was $305,000 and $362,000 for 2012 and 2011, respectively.
Hotel Operating Expenses.   Hotel operating expenses consist of direct expenses from departments associated with revenue streams and indirect expenses associated with support departments and management fees. We experienced increases of $18.3 million in direct expenses and $19.1 million in indirect expenses and management fees in 2012. The increase in these expenses is primarily attributable to higher occupancy and higher management fees resulting from increased hotel revenues and higher sales and marketing expenses. In addition, WorldQuest condominium properties and the consolidation of the previously mentioned triple-net lease hotel property contributed $797,000 and $16.1 million, respectively, in total hotel operating expenses during 2012. Direct expenses were 31.8% and 32.0% of total hotel revenue for 2012 and 2011, respectively.
Property Taxes, Insurance, and Other. Property taxes, insurance, and other decreased $182,000 during 2012 to $44.9 million . The decrease is primarily due to decreased insurance expense of $923,000 resulting from lower premiums for insurance policies and a reduction in deductibles for losses of $1.9 million offset by a) a $2.3 million increase in property taxes resulting from refunds and reductions in 2011 related to successful appeals and increased property value assessments related to certain hotels in 2012 and b) a gain of $333,000 recognized on an insurance settlement and other gains in 2011.
Depreciation and Amortization. Depreciation and amortization increased $2.7 million for 2012 compared to 2011 primarily due to capital improvements made at certain hotel properties since December 31, 2011.
Impairment Charges. We recorded credits to impairment charges of $5.3 million and $4.8 million for 2012 and 2011, respectively, for cash received and resulting valuation adjustments on previously impaired mezzanine loans.
Investments in hotel properties are reviewed for impairment for each reporting period. We take into account the latest operating cash flows and market conditions and their impact on future projections. For the properties that show indicators of impairment, we perform a recoverability analysis using the sum of each property’s estimated future undiscounted cash flows compared to the property’s carrying value. The estimates of future cash flows are based on assumptions about the future operating results including disposition of the property. In addition, the cash flow estimation periods used are based on the properties’ remaining useful lives to us (expected holding periods). For properties securing mortgage loans, the assumptions regarding holding periods considered our ability and intent to hold the property to or beyond the maturity of the related indebtedness.

46

In analyzing projected hotel properties’ operating cash flows, we factored in RevPAR growth based on data from third party sources. In addition, the projected hotel properties’ operating cash flows factored in our ongoing implementation of asset management strategies to minimize operating costs. After factoring in the expected revenue growth and the impact of company-specific strategies implemented to minimize operating costs, the hotel properties’ estimated future undiscounted cash flows were in excess of the properties’ carrying values. The analyses performed in 2012 and 2011 did not identify any properties with respect to which an impairment loss should be recognized.
Transaction Costs. In 2011, we recorded a net credit to transaction costs of $793,000. We were reimbursed $1.1 million by the joint venture relating to certain costs for the acquisition of a 71.74% interest in PIM Highland JV and incurred an additional $135,000 for the acquisition. In addition, we incurred $298,000 for the acquisition of real estate and other rights in the WorldQuest Resort condominium project. There were no transaction costs in 2012.
Corporate, General, and Administrative. Corporate, general, and administrative expenses decreased $472,000 to $44.1 million for 2012 compared to $44.5 million for 2011. This decrease was primarily attributable to $6.9 million in legal costs associated with a litigation settlement in 2011, which was partially offset by a $5.0 million increase in non-cash equity-based compensation primarily due to the higher expense recognized on restricted stock/unit-based awards granted in 2012 and 2011 at a higher cost per share and higher legal costs of approximately $1.5 million.
Equity in Earnings (Loss) of Unconsolidated Entities. We recorded equity in earnings (loss) of unconsolidated entities of $(20.8) million and $14.5 million for 2012 and 2011, respectively. Included in 2011 was a gain of $82.1 million recognized by PIM Highland JV at acquisition, of which our share was $46.3 million, and $17.6 million of transaction costs recorded for the acquisition. In addition, the PIM Highland JV incurred contract termination costs of $2.9 million for 2011. Excluding the gain and transaction costs, our equity loss would have been $17.5 million for 2011.
Interest Income. Interest income was $125,000 and $85,000 for 2012 and 2011 , respectively.
Other Income. Other income was $31.7 million and $109.5 million for 2012 and 2011 , respectively. Income from the non-hedge interest rate swaps, floors, and flooridors accounted for $32.0 million and $70.6 million in 2012 and 2011 , respectively. This decrease is primarily attributable to derivatives that have expired since December 31, 2011. Other income also includes $254,000 and $979,000 of realized losses on marketable securities and other for 2012 and 2011 , respectively. For 2012 , other income also included a gain of $30.0 million recognized from a litigation settlement, income of $9.7 million recognized from the 11% of ownership interest we acquired in a joint venture at no cost, income of $289,000 from a previously written-off mezzanine loan and the credit default swap premium amortization of $31,000.
Interest Expense and Amortization of Loan Costs. Interest expense and amortization of loan costs increased $7.6 million to $144.8 million for 2012 from $137.2 million for 2011 . The increase is primarily due to higher interest expense of $6.1 million primarily attributable to higher interest rates associated with mortgage loans refinanced in December 2011 and May 2012 partially offset by lower interest associated with our senior credit facility which was repaid in 2011. The remaining increase is due to higher loan cost amortization of $1.5 million. The average LIBOR rates for 2012 and 2011 were 0.24% and 0.23%, respectively.
Write-off of Premiums, Loan Costs and Exit Fees. In 2012, we refinanced our $167.2 million mortgage loan and our $153.9 million mortgage loan which resulted in the write-off of the associated unamortized deferred loan costs of $1.9 million. We also incurred prepayment penalties of $2.1 million associated with our $153.9 million mortgage loan. In 2011, we repaid the outstanding balance on the $250.0 million senior credit facility, terminated the credit facility, and wrote-off the unamortized deferred loan cost of $729,000.
Unrealized Gain (Loss) on Marketable Securities. Unrealized gain (loss) on marketable securities of $2.5 million and $(391,000) for 2012 and 2011 , respectively, are based on changes in closing market prices during the period or, if derivatives, overall security market fluctuations.
Unrealized Gain (Loss) on Derivatives. For 2012 , we recorded an unrealized loss of $35.7 million , consisting of $31.7 million related to interest-rate derivatives and $3.9 million related to credit default swaps. In 2011 , we recorded an unrealized loss of $70.3 million related to losses of $69.0 million on interest-rate derivatives and an unrealized loss of $1.3 million related to credit default swaps entered into in 2011. The fair value of interest-rate derivatives is primarily based on movements in the LIBOR forward curve and the passage of time. The fair value of credit default swaps is based on the change in value of CMBX indices.
Income Tax Expense. We recorded income tax expense of $2.4 million and $1.6 million for 2012 and 2011 , respectively. The increase in income tax expense in 2012 is primarily due to the Texas Margin Tax. Our Texas Margin Tax was significantly lower in 2011 as we recorded a large benefit for the tax write-off of certain mezzanine loans for the 2010 tax year that was not anticipated at December 31, 2010.

47

Loss from Discontinued Operations. For 2012, loss from discontinued operations was $3.7 million related to two hotel properties disposed of in 2012. The Hilton hotel in Tucson, Arizona was disposed of in December 2012. The Doubletree Guest Suites hotel in Columbus, Ohio was sold in November 2012 for net proceeds of $7.7 million. We recorded an impairment charge of $4.1 million related to the Hilton hotel and a net gain of $4.5 million upon disposition of these hotels. For 2011, loss from discontinued operations was $7.9 million , which includes the two aforementioned hotels as well as four hotels sold in 2011. The JW Marriott San Francisco in California, the Hilton Rye Town in New York, and the Hampton Inn Houston in Texas were sold in the first quarter of 2011 and the Hampton Inn hotel in Jacksonville, Florida, was sold in the third quarter of 2011. The 2011 period included an impairment charge of $6.2 million related to the Hampton Inn hotel in Jacksonville, Florida and a net gain of $2.6 million related to sales of these hotels.
Income from Consolidated Entities Attributable to Noncontrolling Interests. Noncontrolling interest partners in consolidated entities were allocated income of $868,000 and $610,000 during 2012 and 2011, respectively. In 2011, we recorded a gain of $2.1 million from the sale of the Hampton Inn hotel in Houston, Texas, that was held by a joint venture.
Net Loss Attributable to Redeemable Noncontrolling Interests in Operating Partnership. Noncontrolling interests in operating partnership were allocated net loss of $9.3 million and $2.8 million in 2012 and 2011 , respectively. Redeemable noncontrolling interests represented ownership interests of 12.92% and 11.43% in the operating partnership at December 31, 2012 and 2011, respectively.
INFLATION
We rely entirely on the performance of our properties and the ability of the properties’ managers to increase revenues to keep pace with inflation. Hotel operators can generally increase room rates rather quickly, but competitive pressures may limit their ability to raise rates faster than inflation. Our general and administrative costs, real estate and personal property taxes, property and casualty insurance, and utilities are subject to inflation as well.
SEASONALITY
Our properties’ operations historically have been seasonal as certain properties maintain higher occupancy rates during the summer months, while certain other properties maintain higher occupancy rates during the winter months. This seasonality pattern can cause fluctuations in our quarterly lease revenue under our percentage leases. We anticipate that our cash flows from the operations of our properties will be sufficient to enable us to make quarterly distributions to maintain our REIT status. To the extent that cash flows from operations are insufficient during any quarter due to temporary or seasonal fluctuations in lease revenue, we expect to utilize other cash on hand or borrowings to fund required distributions. However, we cannot make any assurances that we will make distributions in the future.
OFF-BALANCE SHEET ARRANGEMENTS
During 2013 , we did not maintain any off-balance sheet arrangements and do not currently anticipate any such arrangements.
CONTRACTUAL OBLIGATIONS AND COMMITMENTS
The table below summarizes our future obligations for principal and estimated interest payments on our debt, future minimum lease payments on our operating and capital leases with regard to our continuing operations, each as of December 31, 2013 (in thousands):
 
Payments Due by Period
 
< 1 Year
 
1-3 Years
 
3-5 Years
 
> 5 Years
 
Total
Contractual obligations excluding extension options:
 
 
 
 
 
 
 
 
 
Long-term debt obligations
$
638,226

 
$
592,537

 
$
477,805

 
$
110,361

 
$
1,818,929

Operating lease obligations
925

 
1,444

 
1,167

 
27,963

 
31,499

Estimated interest obligations  (1)
91,133

 
102,139

 
21,041

 
13,030

 
227,343

Total contractual obligations
$
730,284

 
$
696,120

 
$
500,013

 
$
151,354

 
$
2,077,771

  _________________________
(1)
For variable interest rate indebtedness, interest obligations are estimated based on the LIBOR interest rate as of December 31, 2013 .
In addition to the amounts discussed above, we also have management agreements which require us to pay monthly management fees, market service fees and other general fees, if required. These management agreements expire from 2015 through

48

2032 . See Note 13 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
CRITICAL ACCOUNTING POLICIES
Our accounting policies are fully described in Note 2 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. We believe that the following discussion addresses our most critical accounting policies, representing those policies considered most vital to the portrayal of our financial condition and results of operations and require management’s most difficult, subjective, and complex judgments.
Management Agreements – In connection with our acquisitions of the Crystal Gateway Marriott hotel in Arlington, Virginia, on July 13, 2006 and the 51-hotel CNL Portfolio on April 11, 2007, we assumed certain existing management agreements. Based on our review of these management agreements, we concluded that the terms of certain management agreements are more favorable to the respective managers than typical current market management agreements. As a result, we recorded unfavorable contract liabilities related to these management agreements of $23.4 million as of the respective acquisition dates based on the present value of expected cash outflows over the initial terms of the related agreements. Such unfavorable contract liabilities are being amortized as non-cash reductions to incentive management fees on a straight-line basis over the initial terms of the related agreements. In evaluating unfavorable contract liabilities, our analysis involves considerable management judgment and assumptions. An unfavorable management contract with a carrying value of $493,000 was contributed to Ashford Prime OP in connection with the Ashford Prime spin-off.
Income Taxes – At December 31, 2013 , we had a valuation allowance of approximately $35.1 million which fully reserves our deferred tax asset. As a result of consolidated losses in 2013 , 2012 and 2011 , and the limitations imposed by the Internal Revenue Code on the utilization of net operating losses of acquired subsidiaries, we believe that it is more likely than not our deferred tax asset will not be realized, and therefore, have provided a valuation allowance to reserve the balance. At December 31, 2013 , Ashford TRS has net operating loss carryforwards for federal income tax purposes of approximately $82.3 million, which are available to offset future taxable income, if any, through 2032. At December 31, 2013 , Ashford Hospitality Trust, Inc., our REIT, had net operating loss carryforwards for federal income tax purposes of approximately $270.3 million , which are available to offset future taxable income, if any, through 2032. The analysis utilized in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.
In July 2006, the Financial Accounting Standards Board (“FASB”) issued accounting guidance that clarified the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a financial statement recognition and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities. Tax years 2010 through 2013 remain subject to potential examination by certain federal and state taxing authorities. An income tax examination of one of the TRS subsidiaries is currently in process; see Note 13 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data. We believe that the results of the completion of this examination will not have a material adverse effect on our financial condition. We have indemnified Ashford Prime for any potential losses resulting from the completion of these examinations.
Investments in Hotel Properties – Hotel properties are generally stated at cost. However, the remaining four hotel properties contributed upon our formation in 2003 that are still owned by us (the “Initial Properties”) are stated at the predecessor’s historical cost, net of impairment charges, if any, plus a noncontrolling interest partial step-up related to the acquisition of noncontrolling interests from third parties associated with four of the Initial Properties. For hotel properties owned through our majority-owned joint ventures, the carrying basis attributable to the joint venture partners’ minority ownership is recorded at the predecessor’s historical cost, net of any impairment charges, while the carrying basis attributable to our majority ownership is recorded based on the allocated purchase price of our ownership interests in the joint ventures. All improvements and additions which extend the useful life of the hotel properties are capitalized.
Impairment of Investments in Hotel Properties – Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We test impairment by using current or projected cash flows over the estimated useful life of the asset. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. We may also use fair values of comparable assets. If an asset is deemed to be impaired, we record an impairment charge for the amount that the property’s net book value exceeds its estimated fair value, less cost to sell. During 2012 and 2011 , we recorded impairment charges of $4.1 million and $6.2 million on hotel properties, respectively. No impairment charges were recorded in 2013. See the detailed discussion

49

in Notes 6 and 17 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Depreciation and Amortization Expense – Depreciation expense is based on the estimated useful life of the assets, while amortization expense for leasehold improvements is based on the shorter of the lease term or the estimated useful life of the related assets. Presently, hotel properties are depreciated using the straight-line method over lives which range from 7.5 to 39 years for buildings and improvements and 3 to 5 years for furniture, fixtures, and equipment. While we believe our estimates are reasonable, a change in estimated lives could affect depreciation expense and net income (loss) as well as resulting gains or losses on potential hotel sales.
Assets Held For Sale and Discontinued Operations – We classify assets as held for sale when management has obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. In addition, we deconsolidate a property when it becomes subject to the control of a government, court, administrator or regulator and we effectively lose control of the property/subsidiary. When deconsolidating a property/subsidiary, we recognize a gain or loss in net income measured as the difference between the fair value of any consideration received, the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated, and the carrying amount of the former property/subsidiary. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from our ongoing operations, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) we will not have any significant continuing involvement subsequent to the disposal.
During 2012 and 2011 , we recorded impairment charges of $4.1 million and $6.2 million on hotel properties, respectively, all of which are included in the operating results of discontinued operations. See the detailed discussion in Notes 3, 6 and 17 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Notes Receivable – We provide mezzanine and first-mortgage financing in the form of notes receivable. These loans are held for investment and are intended to be held to maturity and accordingly are recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts and the allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received. Payments received on impaired nonaccrual loans are recorded as reductions to the note receivable balance. The net carrying amount of the impaired notes receivable is adjusted to reflect the net present value of the future cash flows with the adjustment recorded in impairment charges.
Our mezzanine and first-mortgage notes receivable are each secured by various hotel properties or partnership interests in hotel properties and are subordinate to the senior holders in the secured hotel properties. All such notes receivable are considered to be variable interests in the entities that own the related hotels. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary that has: (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the mezzanine loan VIEs’ activities and operations, we are not considered to be the primary beneficiary of these hotel properties as a result of holding these loans. Therefore, we do not consolidate the hotels for which we have provided financing. We assess our interests in those entities on an ongoing basis to determine whether such entities should be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Impairment of Notes Receivable – We review notes receivable for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.
When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral dependent. If a loan is deemed to be impaired, we record a valuation allowance through a charge to earnings for any shortfall. Our assessment of impairment is based on considerable judgment and estimates. See Notes 4 and 17 of Notes to Consolidated Financial Statements included in Item 8. Financial Statements and Supplementary Data.
Investments in Unconsolidated Entities – Investments in entities in which we have ownership interests ranging from 14.4% to 71.74% are accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the entity’s net income (loss). We review the investments in our unconsolidated entities for impairment in each reporting

50

period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated entities. No such impairment was recorded in 2013 , 2012 or 2011.
We adopted the equity accounting method for our investment in the PIM Highland JV due to the fact that we do not control the joint venture. Although we have the majority ownership of 71.74% in the joint venture, all the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. Our investment in the PIM Highland JV had a carrying value of $139.3 million and $158.7 million at December 31, 2013 and 2012 , respectively, which was based on our share of PIM Highland JV’s equity.
In connection with the previously discussed spin-off of Ashford Prime on November 19, 2013, we maintained a 20% ownership interest in Ashford Prime OP. We adopted the equity accounting method for our investment in Ashford Prime OP due to the fact that we exercise significant influence but do not control the entity. All major decisions related to Ashford Prime OP that most significantly impact Ashford Prime OP's economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of Ashford Prime OP General Partner LLC, its general partner. Our investment in Ashford Prime OP had a carrying value of $56.2 million at December 31, 2013 .
Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the unconsolidated entities’ activities and operations, we are not considered to be the primary beneficiary of these joint ventures on an ongoing basis and therefore such entities will not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
Marketable Securities – Marketable securities, include U.S. treasury bills, stocks, and put and call options of certain publicly traded companies. All of these investments are recorded at fair value. Put and call options are considered derivatives. The fair value of these investments has been determined based on the closing price as of the balance sheet date and is reported as “Marketable securities” or “Liabilities associated with marketable securities and other” in the consolidated balance sheets. Net investment income, including interest income (expense), dividends, investment costs, and realized gains or losses on the investments, is reported as a component of “Other income,” and unrealized gains and losses on marketable securities are reported as “Unrealized gain (loss) on marketable securities” in the consolidated statements of operations.
Derivative Financial Instruments and Hedges – We primarily use interest rate derivatives to capitalize on the historical correlation between changes in LIBOR and RevPAR. Interest rate swaps (or reverse swaps) involve the exchange of fixed-rate payments for variable-rate payments (or vice versa) over the life of the derivative agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges provide us with interest rate protection above the strike rate of the cap and result in us receiving interest payments when actual rates exceed the cap strike. For interest rate floors, we pay our counterparty interest when the variable interest rate index is below the strike rate. The interest rate flooridor combines two interest rate floors, structured such that the purchaser simultaneously buys an interest rate floor at a strike rate X and sells an interest rate floor at a lower strike rate Y. The purchaser of the flooridor is paid when the underlying interest rate index (for example, LIBOR) resets below strike rate X during the term of the flooridor. Unlike a standard floor, the flooridor limits the benefit the purchaser can receive as the related interest rate index falls. Once the underlying index falls below strike rate Y, the sold floor offsets the purchased floor. The interest rate corridor involves purchasing an interest rate cap at strike rate X and selling an interest rate cap with a higher strike rate Y. The purchaser of the corridor is paid when the underlying interest rate index resets above the strike rate X during the term of the corridor. The corridor limits the benefit the purchaser can receive as the related interest rate index rises above the strike rate Y. There is no additional liability to us other than the purchase price associated with the flooridor and corridor.
We also use credit default swaps to hedge financial and capital market risk. A credit default swap is a derivative contract that works like an insurance policy against the credit risk of an entity or obligation. The credit risk underlying the credit default swaps are referenced to the CMBX index. The CMBX is a group of indices that references underlying bonds from 25 Commercial Mortgage-Backed Securities ("CMBS"), tranched by rating class. The CMBX is traded via “pay-as-you-go” credit default swaps, which involve ongoing, two-way payments over the life of the contract between the buyer and the seller of protection. The reference obligations are CMBS bonds. The seller of protection assumes the credit risk of the reference obligation from the buyer of protection

51

in exchange for payments of an annual premium. If there is a default or a loss, as defined in the credit default swap agreements, on the underlying bonds, then the buyer of protection, is protected against those losses.
All these derivatives are subject to master netting settlement arrangements and the credit default swaps are subject to credit support annexes. For credit default swaps, cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
All derivatives are recorded at fair value in accordance with the applicable authoritative accounting guidance and reported as “Derivative assets” or “Derivative liabilities.” Accrued interest on the non-hedge designated interest rate derivatives is included in “Accounts receivable, net” in the consolidated balance sheets. For interest rate derivatives designated as cash flow hedges, the effective portion of changes in the fair value is reported as a component of “Accumulated Other Comprehensive Income (Loss)” (“OCI”) in the equity section of the consolidated balance sheets. The amount recorded in OCI is reclassified to interest expense in the same period or periods during which the hedged transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For non-hedge designated interest rate derivatives, the credit default swap derivatives and all other derivatives, the changes in the fair value are recognized in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 2011, the FASB issued accounting guidance to require disclosures about offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements that are either netted on the balance sheet or subject to an enforceable master netting agreement or similar arrangement. The new accounting guidance is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013 and the disclosures should be reported retrospectively for all comparative periods presented. We adopted this accounting guidance on January 1, 2013. The adoption of this accounting guidance did not have any impact on our financial position or results of operations .
NON-GAAP FINANCIAL MEASURES
The following non-GAAP presentations of EBITDA, Adjusted EBITDA, FFO and Adjusted FFO are made to help our investors in evaluating our operating performance.

EBITDA is defined as net income (loss) attributable to the Company before interest expense and amortization of loan costs, interest income other than interest income from mezzanine loans, income taxes, depreciation and amortization, and noncontrolling interests in the operating partnership and after adjustments for unconsolidated joint ventures. We adjust EBITDA to exclude certain additional items such as gains or losses on sales of properties, impairment of assets, write-off of loan costs and exit fees, transaction costs, transaction costs associated with spin-off (net of reimbursements), other income, legal costs related to a litigation settlement, operating results of hotel properties in receivership, dead deal costs, debt restructuring costs and non-cash items such as amortization of unfavorable management contract liabilities, equity-based compensation and unrealized gains and losses on marketable securities and derivative instruments, non-cash gain on insurance settlements, modification of rent terms, as well as the Company's portion of adjustments to EBITDA of unconsolidated entities. We exclude items from Adjusted EBITDA that are either non-cash or are not part of our core operations in order to provide a period-over-period comparison of our operations. We present EBITDA and Adjusted EBITDA because we believe these measurements a) more accurately reflect the ongoing performance of our hotel assets and other investments, b) provide more useful information to investors as indicators of our ability to meet our future debt payment and working capital requirements, and c) provide an overall evaluation of our financial condition. EBITDA and Adjusted EBITDA as calculated by us may not be comparable to EBITDA and Adjusted EBITDA reported by other companies that do not define EBITDA and Adjusted EBITDA exactly as we define the terms. EBITDA and Adjusted EBITDA do not represent cash generated from operating activities determined in accordance with GAAP and should not be considered as an alternative to a) GAAP net income or loss as an indication of our financial performance or b) GAAP cash flows from operating activities as a measure of our liquidity.

52

The following table reconciles net loss to EBITDA and Adjusted EBITDA (in thousands) (unaudited):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Net loss
$
(48,558
)
 
$
(62,208
)
 
$
(117
)
Income from consolidated entities attributable to noncontrolling interests
(908
)
 
(868
)
 
(610
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
8,183

 
9,296

 
2,836

Net income (loss) attributable to the Company
(41,283
)
 
(53,780
)
 
2,109

Interest expense and amortization of loan costs
139,782

 
144,857

 
137,466

Depreciation and amortization
125,041

 
133,463

 
130,995

Income tax expense (benefit)
1,511

 
2,352

 
1,705

Net loss attributable to redeemable noncontrolling interests in operating partnership
(8,183
)
 
(9,296
)
 
(2,836
)
Interest income
(70
)
 
(124
)
 
(84
)
Equity in (earnings) loss of unconsolidated entities
23,404

 
20,833

 
(14,528
)
Company's portion of EBITDA of unconsolidated entities (Ashford Prime OP)
(2,577
)
 
—

 
—

Company’s portion of EBITDA of unconsolidated entities (Highland)
76,901

 
78,730

 
104,807

EBITDA
314,526

 
317,035

 
359,634

Amortization of unfavorable management contract liability
(2,245
)
 
(2,447
)
 
(2,447
)
Impairment charges
(396
)
 
(1,229
)
 
1,395

Gain on sale/disposition of properties
—

 
(4,488
)
 
(2,655
)
Non-cash gain on insurance settlements
(270
)
 
(91
)
 
(1,287
)
Write-off of loan costs and exit fees
2,098

 
4,117

 
1,677

Other income (1)
(5,650
)
 
(31,700
)
 
(109,524
)
Transaction costs
1,657

 
—

 
(793
)
Transaction costs related to spin-off, net of reimbursements
1,548

 
—

 
—

Dead deal costs
—

 
869

 
—

Legal costs related to a litigation settlement (2)
—

 
2,491

 
6,875

El Conquistador results since appointment of receiver
—

 
1,402

 
—

Debt restructuring costs
—

 
—

 
823

Unrealized (gain) loss on marketable securities
(5,115
)
 
(2,502
)
 
391

Unrealized loss on derivatives
8,315

 
35,657

 
70,286

Modification of rent terms
539

 
—

 
—

Equity-based compensation
25,539

 
17,440

 
12,391

Company’s portion of adjustments to EBITDA of unconsolidated entities (Ashford Prime OP)
2,781

 
—

 
—

Company’s portion of adjustments to EBITDA of unconsolidated entities (Highland)
4,442

 
219

 
(42,248
)
Adjusted EBITDA
$
347,769

 
$
336,773

 
$
294,518

_________________________
(1)
Other income related to income from interest rate derivatives is excluded from the Adjusted EBITDA for all periods presented. In addition, the gain from a litigation settlement, other income recognized for the acquisition of 11% ownership interest in a joint venture at no cost, the net investment loss on marketable securities, and the premiums and fees associated with credit default swaps are also excluded from Adjusted EBITDA for 2011.
(2)
The legal costs associated with the litigation settlement are also excluded from Adjusted EBITDA for 2011.
We calculate Funds From Operations (“FFO”) and Adjusted FFO ("AFFO") in the following table. FFO is calculated on the basis defined by NAREIT, which is net income (loss), computed in accordance with GAAP, excluding gains or losses on sales of properties, and extraordinary items as defined by GAAP, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated entities and noncontrolling interests in the operating partnership. Adjustments for unconsolidated entities are calculated to reflect FFO on the same basis. NAREIT developed FFO as a relative measure of performance of an equity REIT to recognize that income-producing real estate historically has not depreciated on the basis determined by GAAP. Our calculation of Adjusted FFO ("AFFO") excludes write-off of loan costs and exit fees, asset impairment adjustments, transaction costs, transaction costs related to spin-off (net of reimbursements), legal costs related to a litigation settlement, other income,

53

operating results of hotel properties in receivership, dividends on convertible preferred stock, dead deal costs, debt restructuring costs and non-cash items such as equity-based compensation adjustments for modified employment terms, equity-based deferred compensation related to spin-off, modification of rent terms, non-cash gain on insurance settlements, non-cash dividends on Series B-1 preferred stock and unrealized gains and losses on marketable securities and derivative instruments as well as our portion of adjustments to FFO related to unconsolidated entities. We exclude items from AFFO that are either non-cash or are not part of our core operations in order to provide a period-over-period comparison of our operating results. We consider FFO and AFFO to be appropriate measures of our ongoing normalized operating performance as a REIT. We compute FFO in accordance with our interpretation of standards established by NAREIT, which may not be comparable to FFO reported by other REITs that either do not define the term in accordance with the current NAREIT definition or interpret the NAREIT definition differently than us. FFO and AFFO do not represent cash generated from operating activities as determined by GAAP and should not be considered as an alternative to a) GAAP net income or loss as an indication of our financial performance or b) GAAP cash flows from operating activities as a measure of our liquidity, nor is it indicative of funds available to satisfy our cash needs, including our ability to make cash distributions. However, to facilitate a clear understanding of our historical operating results, we believe that FFO and AFFO should be considered along with our net income or loss and cash flows reported in the consolidated financial statements.

54

The following table reconciles net loss to FFO and Adjusted FFO (in thousands) (unaudited):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Net loss
$
(48,558
)
 
$
(62,208
)
 
$
(117
)
Income from consolidated entities attributable to noncontrolling interests
(908
)
 
(868
)
 
(610
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
8,183

 
9,296

 
2,836

Preferred dividends
(33,962
)
 
(33,802
)
 
(46,876
)
Net loss available to common shareholders
(75,245
)
 
(87,582
)
 
(44,767
)
Depreciation and amortization on real estate
124,611

 
133,246

 
130,741

Gain on sale/disposition of properties/note receivable
—

 
(4,488
)
 
(2,655
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
(8,183
)
 
(9,296
)
 
(2,836
)
Equity in (earnings) loss of unconsolidated entities
23,404

 
20,833

 
(14,528
)
Company’s portion of FFO of unconsolidated entities (Ashford Prime OP)
(3,339
)
 
—

 
—

Company’s portion of FFO of unconsolidated entities (Highland)
34,275

 
31,496

 
8,125

FFO available to common shareholders
95,523

 
84,209

 
74,080

Dividends on convertible preferred stock
—

 
—

 
1,374

Write-off of loan costs and exit fees
2,098

 
4,117

 
1,677

Non-cash gain on insurance settlements
(270
)
 
(91
)
 
(1,287
)
Impairment charges
(396
)
 
(1,229
)
 
1,395

Transaction costs
1,657

 
—

 
(793
)
Transaction costs related to spin-off, net of reimbursements
1,548

 
—

 
—

Other income (1)
565

 
340

 
(38,663
)
Legal costs related to a litigation settlement (2)
—

 
2,491

 
6,875

Dead deal costs
—

 
869

 
—

Debt restructuring costs
—

 
—

 
823

El Conquistador results, interest, and amortization of deferred loan costs since appointment of receiver
—

 
2,068

 
—

Modification of rent terms
539

 
—

 
—

Equity-based compensation adjustment related to modified employment terms
4,678

 
480

 
—

Equity-based deferred compensation related to spin-off
4,313

 
—

 
—

Unrealized (gain) loss on marketable securities
(5,115
)
 
(2,502
)
 
391

Unrealized loss on derivatives
8,315

 
35,657

 
70,286

Non-cash dividends on Series B-1 preferred stock (3)
—

 
—

 
17,363

Company’s portion of adjustments to FFO of unconsolidated entities (Ashford Prime OP)
2,716

 
—

 
—

Company’s portion of adjustments to FFO of unconsolidated entities (Highland)
24

 
234

 
16,682

Adjusted FFO available to common shareholders
$
116,195

 
$
126,643

 
$
150,203

_________________________
(1)
The net investment loss on marketable securities and for 2011, the gain from a litigation settlement, other income recognized for the acquisition of 11% ownership interest in an entity as a result of a dispute resolution and the premiums and fees associated with credit default swaps are excluded from Adjusted FFO.
(2)
The legal costs associated with the litigation settlement are also excluded from the Adjusted FFO for 2011.
(3)
Represents the conversion of 1.4 million shares of the Series B-1 preferred stock to shares of our common stock that was treated as a dividend in accordance with applicable accounting guidance in 2011.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Our primary market risk exposure consists of changes in interest rates on borrowings under our debt instruments, our derivatives portfolio and notes receivable that bear interest at variable rates that fluctuate with market interest rates. The analysis below presents the sensitivity of the market value of our financial instruments to selected changes in market interest rates.

55
Table of Contents

At December 31, 2013 , the total consolidated indebtedness of $1.8 billion included $579.4  million of variable-rate debt. The impact on the results of operations of a 25-basis point change in interest rate on the outstanding balance of variable-rate debt at December 31, 2013 would be approximately $1.4 million per year. Interest rate changes will have no impact on the remaining $1.2 billion of fixed rate debt.
The above amounts were determined based on the impact of hypothetical interest rates on our borrowings and assume no changes in our capital structure. As the information presented above includes only those exposures that existed at December 31, 2013 , it does not consider exposures or positions that could arise after that date. Accordingly, the information presented herein has limited predictive value. As a result, the ultimate realized gain or loss with respect to interest rate fluctuations will depend on exposures that arise during the period, the hedging strategies at the time, and the related interest rates.
We primarily use interest rate derivatives in order to capitalize on the historical correlation between changes in LIBOR and RevPAR. Beginning in March 2008, we entered into various interest rate swap, cap, floor, and flooridor transactions that were not designated as hedges and expired in March 2013. The changes in the fair market values of these transactions are noncash items and recorded in earnings. The interest rate derivatives we entered into since 2008 have resulted in total income of approximately $234.4 million through December 31, 2013 . Based on the LIBOR in effect on December 31, 2013 , any remaining derivatives are not expected to result in any income or expense in 2014 .
In August 2011, we entered into credit default swap transactions for a notional amount of $100.0 million to hedge financial and capital market risk. A credit default swap is a derivative contract that works like an insurance policy against the credit risk of an entity or obligation. The credit risk underlying the credit default swaps are referenced to the CMBX index. The CMBX is a group of indices that references underlying bonds from 25 Commercial Mortgage-Backed Securities, tranched by rating class. The only liability for us, the buyer of protection, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For the CMBX trades that we have completed, we were the buyer of protection in all trades. Assuming the underlying bonds pay off at par over their remaining average life, our total exposure for these trades is approximately $8.5 million .

56
Table of Contents

Item 8.
Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
 
 
 
 
 
 
 
 
 
 
 
 


57
Table of Contents

Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Ashford Hospitality Trust, Inc. and subsidiaries
We have audited the accompanying consolidated balance sheets of Ashford Hospitality Trust, Inc. and subsidiaries (the Company) as of December 31, 2013 and 2012, and the related consolidated statements of operations, comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedules listed in the Index at Item 15(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Ashford Hospitality Trust, Inc. and subsidiaries at December 31, 2013 and 2012, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (1992 framework) and our report dated March 3, 2014 expressed an unqualified opinion thereon.
/s/      Ernst & Young LLP
Dallas, Texas
March 3, 2014


58

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
 
December 31,
 
2013
 
2012
Assets
 
 
 
Cash and cash equivalents
$
128,780

 
$
185,935

Marketable securities
29,601

 
23,620

Total cash, cash equivalents and marketable securities
158,381

 
$
209,555

Investments in hotel properties, net
$
2,164,389

 
2,872,304

Restricted cash
61,498

 
84,786

Accounts receivable, net of allowance of $242 and $265, respectively
21,791

 
35,116

Inventories
1,946

 
2,111

Notes receivable, net of allowance of $7,937 and $8,333, respectively
3,384

 
11,331

Investment in unconsolidated entities
195,545

 
158,694

Deferred costs, net
10,155

 
17,194

Prepaid expenses
7,519

 
10,145

Derivative assets
19

 
6,391

Other assets
4,303

 
4,594

Intangible asset, net
—

 
2,721

Due from Ashford Prime, net
13,042

 
—

Due from affiliates
1,302

 
1,168

Due from third-party hotel managers
33,728

 
48,619

Total assets
$
2,677,002

 
$
3,464,729

Liabilities and Equity
 
 
 
Liabilities:
 
 
 
Indebtedness
$
1,818,929

 
$
2,339,410

Capital leases payable
28

 
—

Accounts payable and accrued expenses
70,683

 
84,293

Dividends payable
20,735

 
18,258

Unfavorable management contract liabilities
7,306

 
11,165

Due to related party, net
270

 
3,725

Due to third-party hotel managers
958

 
1,410

Liabilities associated with marketable securities and other
3,764

 
1,641

Other liabilities
1,286

 
6,348

Total liabilities
1,923,959

 
2,466,250

Commitments and contingencies (Note 13)

 

Redeemable noncontrolling interests in operating partnership
134,206

 
151,179

Equity:
 
 
 
Preferred stock, $0.01 par value, 50,000,000 shares authorized –
 
 
 
Series A cumulative preferred stock, 1,657,206 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively
17

 
17

Series D cumulative preferred stock, 9,468,706 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively
95

 
95

Series E cumulative preferred stock, 4,630,000 shares issued and outstanding at December 31, 2013 and December 31, 2012, respectively
46

 
46

Common stock, $0.01 par value, 200,000,000 shares authorized, 124,896,765 shares issued; and 80,565,563 and 68,150,617 shares outstanding at December 31, 2013 and 2012, respectively
1,249

 
1,249

Additional paid-in capital
1,652,743

 
1,766,168

Accumulated other comprehensive loss
(197
)
 
(282
)
Accumulated deficit
(896,110
)
 
(770,467
)
Treasury stock, at cost, 44,331,202 and 56,746,148 shares, respectively
(140,054
)
 
(164,884
)
Total shareholders’ equity of the Company
617,789

 
831,942

Noncontrolling interests in consolidated entities
1,048

 
15,358

Total equity
618,837

 
847,300

Total liabilities and equity
$
2,677,002

 
$
3,464,729

See Notes to Consolidated Financial Statements.


59
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 
Year Ended December 31,
 
2013
 
2012
 
2011
Revenue
 
 
 
 
 
Rooms
$
749,270

 
$
727,124

 
$
669,660

Food and beverage
153,602

 
160,488

 
150,651

Rental income from operating leases
—

 
—

 
5,341

Other
37,815

 
34,689

 
33,964

Total hotel revenue
940,687

 
922,301

 
859,616

Advisory services revenue
1,047

 
—

 
—

Other
526

 
305

 
362

Total revenue
942,260

 
922,606

 
859,978

Expenses
 
 
 
 
 
Hotel operating expenses:
 
 
 
 
 
Rooms
171,006

 
166,625

 
154,679

Food and beverage
104,536

 
108,274

 
102,776

Other expenses
281,826

 
276,949

 
260,088

Management fees
38,945

 
38,492

 
35,390

Total hotel expenses
596,313

 
590,340

 
552,933

Property taxes, insurance and other
47,075

 
44,903

 
45,085

Depreciation and amortization
127,990

 
133,979

 
131,243

Impairment charges
(396
)
 
(5,349
)
 
(4,841
)
Gain on insurance settlement
(270
)
 
(91
)
 
(2,035
)
Transaction costs
1,324

 
—

 
(793
)
Corporate, general and administrative
52,821

 
44,050

 
44,522

Total expenses
824,857

 
807,832

 
766,114

Operating income
117,403

 
114,774

 
93,864

Equity in earnings (loss) of unconsolidated entities
(23,404
)
 
(20,833
)
 
14,528

Interest income
71

 
125

 
85

Other income
5,650

 
31,700

 
109,524

Interest expense and amortization of loan costs
(141,469
)
 
(144,796
)
 
(137,212
)
Write-off of loan costs and exit fees
(2,098
)
 
(3,998
)
 
(729
)
Unrealized gain (loss) on marketable securities
5,115

 
2,502

 
(391
)
Unrealized loss on derivatives
(8,315
)
 
(35,657
)
 
(70,286
)
Income (loss) from continuing operations before income taxes
(47,047
)
 
(56,183
)
 
9,383

Income tax expense
(1,511
)
 
(2,375
)
 
(1,620
)
Income (loss) from continuing operations
(48,558
)
 
(58,558
)
 
7,763

Loss from discontinued operations
—

 
(3,650
)
 
(7,880
)
Net loss
(48,558
)
 
(62,208
)
 
(117
)
Income from consolidated entities attributable to noncontrolling interests
(908
)
 
(868
)
 
(610
)
Net loss attributable to redeemable noncontrolling interests in operating partnership
8,183

 
9,296

 
2,836

Net income (loss) attributable to the Company
(41,283
)
 
(53,780
)
 
2,109

Preferred dividends
(33,962
)
 
(33,802
)
 
(46,876
)
Net loss available to common shareholders
$
(75,245
)
 
$
(87,582
)
 
$
(44,767
)
Loss per share – basic and diluted:
 
 
 
 
 
Loss from continuing operations attributable to common shareholders
$
(1.00
)
 
$
(1.25
)
 
$
(0.60
)
Loss from discontinued operations attributable to common shareholders
—

 
(0.05
)
 
(0.13
)
Net loss attributable to common shareholders
$
(1.00
)
 
$
(1.30
)
 
$
(0.73
)
Weighted average common shares outstanding – basic and diluted
75,155

 
67,533

 
61,954

Dividends declared per common share
$
0.48

 
$
0.44

 
$
0.40

Amounts attributable to common shareholders:
 
 
 
 
 
Income (loss) from continuing operations, net of tax
$
(41,283
)
 
$
(50,570
)
 
$
9,948

Loss from discontinued operations, net of tax
—

 
(3,210
)
 
(7,839
)
Preferred dividends
(33,962
)
 
(33,802
)
 
(46,876
)
Net loss attributable to common shareholders
$
(75,245
)
 
$
(87,582
)
 
$
(44,767
)
See Notes to Consolidated Financial Statements.


60
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
 
Year Ended December 31,
 
2013
 
2012
 
2011
Net loss
$
(48,558
)
 
$
(62,208
)
 
$
(117
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
Change in unrealized loss on derivatives
(3
)
 
(144
)
 
(78
)
Reclassification to interest expense
101

 
32

 
603

Total other comprehensive income (loss)
98

 
(112
)
 
525

Total comprehensive income (loss)
(48,460
)
 
(62,320
)
 
408

Comprehensive (income) loss attributable to noncontrolling interests in consolidated entities
(908
)
 
(868
)
 
(718
)
Comprehensive loss attributable to redeemable noncontrolling interests in operating partnership
8,170

 
9,310

 
2,785

Comprehensive income (loss) attributable to the Company
$
(41,198
)
 
$
(53,878
)
 
$
2,475

See Notes to Consolidated Financial Statements.


61
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in thousands)
 
Preferred Stock
 
 
 
 
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income/(Loss)
 
 
 
 
 
Noncontrolling Interests in Consolidated Entities
 
Total
 
Redeemable Noncontrolling Interest in Operating Partnership
 
Series A
 
Series D
 
Series E
 
Common Stock
 
 
 
 
Treasury Stock
 
 
 
 
Shares
 
Amounts
 
Shares
 
Amounts
 
Shares
 
Amounts
 
Shares
 
Amounts
 
 
 
 
Shares
 
Amounts
 
 
 
Balance at January 1, 2011
1,488

 
15

 
8,967

 
90

 
—

 
—

 
123,404

 
1,234

 
1,552,657

 
(543,788
)
 
(550
)
 
(64,404
)
 
(192,850
)
 
16,710

 
833,518

 
126,722

Purchases of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(33
)
 
(340
)
 
—

 
(340
)
 
—

Reissuance of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
58,700

 
—

 
—

 
7,300

 
27,269

 
—

 
85,969

 
—

Issuance of Series E preferred shares
—

 
—

 
—

 
—

 
4,630

 
46

 
—

 
—

 
109,580

 
—

 
—

 
—

 
—

 
—

 
109,626

 
—

Conversion of Series B-1 preferred stock
—

 
—

 
—

 
—

 
—

 
—

 
1,393

 
14

 
17,349

 
(17,363
)
 
—

 
—

 
—

 
—

 
—

 
—

Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
 
 
—

 
(1,195
)
 
—

 
—

 
285

 
1,195

 
—

 
—

 
111

Stock-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
3,180

 
—

 
—

 
—

 
—

 
—

 
3,180

 
9,240

Forfeiture of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
41

 
—

 
—

 
(12
)
 
(70
)
 
—

 
(29
)
 
—

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,691
)
 
(3,691
)
 
(7,791
)
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,109

 
—

 
—

 
—

 
610

 
2,719

 
(2,836
)
Shareholder short swing profit payments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
859

 
—

 
—

 
—

 
—

 
—

 
859

 
—

Dividends declared – Common shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(25,652
)
 
—

 
—

 
—

 
—

 
(25,652
)
 
—

Dividends declared – Preferred A shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,180
)
 
—

 
—

 
—

 
—

 
(3,180
)
 
—

Dividends declared – Preferred B-1 shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,374
)
 
—

 
—

 
—

 
—

 
(1,374
)
 
—

Dividends declared – Preferred D shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(18,940
)
 
—

 
—

 
—

 
—

 
(18,940
)
 
—

Dividends declared – Preferred E shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(6,019
)
 
—

 
—

 
—

 
—

 
(6,019
)
 
—

Restructure of consolidated joint venture
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(2,677
)
 
—

 
—

 
—

 
—

 
2,677

 
—

 
—

Change in unrealized loss on derivatives
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(69
)
 
—

 
—

 
—

 
(69
)
 
(9
)
Reclassification to interest expense
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
435

 
—

 
—

 
108

 
543

 
60

Redemption/conversion of operating partnership units
—

 
—

 
—

 
—

 
—

 
—

 
100

 
1

 
1,030

 
(66
)
 
—

 
—

 
—

 
—

 
965

 
(965
)
Operating partnership units redemption value adjustments and unvested LTIP units reclassified to equity
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6,735

 
5,001

 
—

 
—

 
—

 
—

 
11,736

 
(11,736
)
Balance at December 31, 2011
1,488

 
$
15

 
8,967

 
$
90

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,746,259

 
$
(609,272
)
 
$
(184
)
 
(56,864
)
 
$
(164,796
)
 
$
16,414

 
$
989,821

 
$
112,796

Purchases of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(55
)
 
(499
)
 
—

 
(499
)
 
—

Stock-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
2,666

 
—

 
—

 
—

 
(73
)
 
—

 
2,593

 
14,847

Forfeitures of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
72

 
—

 
—

 
(31
)
 
(72
)
 
—

 
—

 
—

Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(556
)
 
—

 
—

 
204

 
556

 
—

 
—

 
64

Issuances of preferred shares
169

 
2

 
502

 
5

 
—

 
—

 
—

 
—

 
15,975

 
—

 
—

 
—

 
—

 
—

 
15,982

 
—

Dividends Declared- Common Shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(29,993
)
 
—

 
—

 
—

 
—

 
(29,993
)
 
—

Dividends Declared- Preferred Shares- Series A
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,516
)
 
—

 
—

 
—

 
—

 
(3,516
)
 
—

Dividends Declared- Preferred Shares- Series D
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(19,869
)
 
—

 
—

 
—

 
—

 
(19,869
)
 
—

Dividends declared – Preferred shares- Series E
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,417
)
 
—

 
—

 
—

 
—

 
(10,417
)
 
—

Net unrealized loss on derivative instruments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(126
)
 
—

 
—

 
—

 
(126
)
 
(18
)
Reclassification to interest expense
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
28

 
—

 
—

 
—

 
28

 
4

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,924
)
 
(1,924
)
 
(9,086
)
Redemption value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(43,620
)
 
—

 
—

 
—

 
—

 
(43,620
)
 
43,620

Unvested operating partnership units reclassified to equity
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,752

 
—

 
—

 
—

 
—

 
—

 
1,752

 
(1,752
)

62
Table of Contents

 
Preferred Stock
 
 
 
 
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated Other Comprehensive Income/(Loss)
 
 
 
 
 
Noncontrolling Interests in Consolidated Entities
 
Total
 
Redeemable Noncontrolling Interest in Operating Partnership
 
Series A
 
Series D
 
Series E
 
Common Stock
 
 
 
 
Treasury Stock
 
 
 
 
Shares
 
Amounts
 
Shares
 
Amounts
 
Shares
 
Amounts
 
Shares
 
Amounts
 
 
 
 
Shares
 
Amounts
 
 
 
Net income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(53,780
)
 
—

 
—

 
—

 
868

 
(52,912
)
 
(9,296
)
Balance at December 31, 2012
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,766,168

 
$
(770,467
)
 
$
(282
)
 
(56,746
)
 
$
(164,884
)
 
$
15,358

 
$
847,300

 
$
151,179

Purchases of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
6,577

 
—

 
—

 
—

 
—

 
—

 
6,577

 
18,962

Forfeitures of restricted shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
5

 
—

 
—

 
(1
)
 
(5
)
 
—

 
—

 
—

Issuance of restricted shares/units
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(540
)
 
—

 
—

 
198

 
540

 
—

 
—

 
69

Issuances of preferred shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
244

 
—

 
—

 
—

 
—

 
—

 
244

 
—

Purchases of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(33
)
 
(401
)
 
—

 
(401
)
 
—

Reissuances of treasury shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
115,415

 
—

 
—

 
12,251

 
24,696

 
—

 
140,111

 
—

Dividends Declared- Common Shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(37,054
)
 
—

 
—

 
—

 
—

 
(37,054
)
 
—

Dividends Declared- Preferred Shares- Series A
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,542
)
 
—

 
—

 
—

 
—

 
(3,542
)
 
—

Dividends Declared- Preferred Shares- Series D
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(20,002
)
 
—

 
—

 
—

 
—

 
(20,002
)
 
—

Dividends declared – Preferred Shares- Series E
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(10,418
)
 
—

 
—

 
—

 
—

 
(10,418
)
 
—

Net unrealized loss on derivative instruments
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3
)
 
—

 
—

 
—

 
(3
)
 
—

Reclassification to interest expense
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
88

 
—

 
—

 
—

 
88

 
13

Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(17,390
)
 
(17,390
)
 
(10,290
)
Ashford Prime spin-off
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(233,611
)
 
—

 
—

 
—

 
—

 
2,172

 
(231,439
)
 
(34,046
)
Redemption value adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(13,344
)
 
—

 
—

 
—

 
—

 
(13,344
)
 
13,344

Unvested LTIP units adjustment
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(3,158
)
 
—

 
—

 
—

 
—

 
—

 
(3,158
)
 
3,158

Deferred compensation to be settled in shares
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1,643

 
—

 
—

 
—

 
—

 
—

 
1,643

 
$
—

Net Income (loss)
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(41,283
)
 
—

 
—

 
—

 
908

 
(40,375
)
 
(8,183
)
Balance at December 31, 2013
1,657

 
$
17

 
9,469

 
$
95

 
4,630

 
$
46

 
124,897

 
$
1,249

 
$
1,652,743

 
$
(896,110
)
 
$
(197
)
 
(44,331
)
 
$
(140,054
)
 
$
1,048

 
$
618,837

 
$
134,206

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements.


63
Table of Contents

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
Year Ended December 31,
 
2013
 
2012
 
2011
Cash Flows from Operating Activities
 
 
 
 
 
Net loss
$
(48,558
)
 
$
(62,208
)
 
$
(117
)
Adjustments to reconcile net loss to net cash flows provided by operating activities:
 
 
 
 
 
Depreciation and amortization
127,990

 
136,527

 
134,274

Impairment charges
(396
)
 
(1,229
)
 
1,396

Equity in (earnings) loss of unconsolidated entities
23,404

 
20,833

 
(14,528
)
Distributions of earnings from unconsolidated entities
—

 
—

 
—

Income from financing derivatives
(6,215
)
 
(32,040
)
 
(70,573
)
Gain on sale of properties/notes receivable, net
(193
)
 
(4,486
)
 
(2,655
)
Realized and unrealized (gain) loss on trading securities
(3,978
)
 
(1,861
)
 
1,371

Purchases of trading securities
(61,484
)
 
(46,239
)
 
(56,167
)
Sales of trading securities
61,025

 
45,252

 
35,667

Gain on insurance settlement
(270
)
 
(91
)
 
(2,035
)
Net settlement of trading derivatives
(1,694
)
 
(4,093
)
 
(1,315
)
Amortization of loan costs and write-off of loan costs and exit fees
9,870

 
10,319

 
6,325

Unrealized loss on derivatives
8,315

 
35,657

 
70,286

Equity-based compensation
25,539

 
17,440

 
12,391

Changes in operating assets and liabilities, exclusive of the effect of hotel acquisition and Ashford Prime spin-off:
 
 
 
 
 
Restricted cash
19,863

 
(1,075
)
 
(16,403
)
Accounts receivable and inventories
633

 
(8,757
)
 
(1,413
)
Prepaid expenses and other assets
(129
)
 
1,001

 
(180
)
Accounts payable and accrued expenses
4,582

 
11,671

 
2,704

Due to/from affiliates
(134
)
 
144

 
(1,312
)
Due to/from related party/Ashford Prime
(3,391
)
 
1,310

 
169

Due to/from third-party hotel managers
(5,683
)
 
13,936

 
(13,880
)
Other liabilities
(3,639
)
 
(1,376
)
 
(9,412
)
Net cash provided by operating activities
145,457

 
130,635

 
74,593

Cash Flows from Investing Activities
 
 
 
 
 
Proceeds from sale/payments of notes receivable
245

 
5,216

 
22,611

Investment in unconsolidated entities
—

 
—

 
(145,351
)
Cash contribution to Ashford Prime OP
(162,822
)
 
—

 
—

Acquisition of hotel property, net of cash acquired
(88,204
)
 
—

 
—

Acquisition of condominium properties
—

 
—

 
(12,000
)
Distribution from Ashford Prime OP
6,049

 
—

 
—

Improvements and additions to hotel properties
(96,285
)
 
(81,403
)
 
(67,797
)
Net proceeds from sale of assets/properties
654

 
7,741

 
154,015

Due from Ashford Prime
(13,635
)
 
—

 
—

Proceeds from property insurance
—

 
—

 
748

Net cash used in investing activities
(353,998
)
 
(68,446
)
 
(47,774
)
Cash Flows from Financing Activities
 
 
 
 
 
Borrowings on indebtedness
287,075

 
346,000

 
25,000

Repayments of indebtedness and capital leases
(184,815
)
 
(353,409
)
 
(235,753
)
Payments of loan costs and prepayment penalties
(5,386
)
 
(10,375
)
 
(6,048
)
Payments of dividends
(78,829
)
 
(71,564
)
 
(53,295
)
Purchases of treasury shares
(401
)
 
(499
)
 
—

Repurchase of preferred shares
—

 
—

 
(72,986
)
Payments for derivatives
(184
)
 
(184
)
 
(97
)
Cash income from derivatives
7,878

 
32,046

 
72,705

Proceeds from preferred stock offering
244

 
15,982

 
109,756

Proceeds from common stock offering
—

 
—

 
86,027

Issuances of treasury stock
140,111

 
—

 
—

Distributions to noncontrolling interests in consolidated entities
(14,376
)
 
(1,924
)
 
(3,179
)
Redemption of operating partnership units and other
69

 
64

 
970

Net cash provided by (used in) financing activities
151,386

 
(43,863
)
 
(76,900
)
Net change in cash and cash equivalents
(57,155
)
 
18,326

 
(50,081
)
Cash and cash equivalents at beginning of year
185,935

 
167,609

 
217,690

Cash and cash equivalents at end of year
$
128,780

 
$
185,935

 
$
167,609

Supplemental Cash Flow Information
 
 
 
 
 
Interest paid
$
135,452

 
$
139,382

 
$
134,668

Income taxes paid
$
1,294

 
$
836

 
$
2,366

Supplemental Disclosure of Investing and Financing Activities
 
 
 
 
 
Accrued interest added to principal of indebtedness
$
—

 
$
4,100

 
$
4,392

Noncash dividends paid to Series B-1 preferred stock holder
$
—

 
$
—

 
$
17,363

Note receivable assigned by noncontrolling interest in consolidated entity
$
—

 
$
—

 
$
8,098


64

 
Year Ended December 31,
 
2013
 
2012
 
2011
Assets transferred to receivership/lender
$
—

 
$
19,218

 
$
—

Liabilities transferred to receivership/lender
$
—

 
$
19,740

 
$
—

Note receivable contributed to unconsolidated entity
$
—

 
$
—

 
$
15,000

Net assets distributed to Ashford Prime OP (net of cash contributed)
$
102,662

 
$
—

 
$
—

Deferred compensation to be settled in shares
$
1,643

 
$
—

 
$
—

Net other liabilities acquired
$
1,691

 
$
—

 
$
—

Dividends receivable from Ashford Prime
$
249

 
$
—

 
$
—

See Notes to Consolidated Financial Statements.

65

ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2013 , 2012 and 2011

1. Organization and Description of Business
Ashford Hospitality Trust, Inc., together with its subsidiaries (“Ashford”), is a self-advised real estate investment trust (“REIT”) focused on investing in the hospitality industry across all segments and in all methods including direct real estate, securities, equity, and debt. We commenced operations in August 2003 with the acquisition of six hotels in connection with our initial public offering. We own our lodging investments and conduct our business through Ashford Hospitality Limited Partnership, our operating partnership. Ashford OP General Partner LLC, a wholly-owned subsidiary of Ashford Hospitality Trust, Inc., serves as the sole general partner of our operating partnership. In this report, the terms “the Company,” “we,” “us” or “our” mean Ashford Hospitality Trust, Inc. and all entities included in its consolidated financial statements.
On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8 -hotel portfolio, totaling 3,146 rooms ( 2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Prime, a newly formed company. We contributed the portfolio interests into Ashford Prime OP, Ashford Prime's operating partnership. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our shareholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such shareholder as of the close of business on November 8, 2013. Ashford Prime is expected to qualify as a REIT for federal income tax purposes, and is listed on the New York Stock Exchange, under the symbol “AHP.” The transaction also includes options for Ashford Prime to purchase the Crystal Gateway Marriott in Arlington, Virginia and the Pier House Resort in Key West, Florida. Ashford Hospitality Advisors LLC, our subsidiary acts as external advisor to Ashford Prime.
With respect to the eight hotel properties that are now owned by Ashford Prime, the operating results for the period from January 1, 2013 through November 18, 2013 and the years ended December 31, 2012 and 2011 are included in our consolidated statements of operations for the respective years ended December 31, 2013, 2012 and 2011, in accordance with the applicable accounting guidance. The Marriott Crystal Gateway in Arlington, Virginia and the Pier House Resort in Key West, Florida are included in "assets held and used" and continuing operations as they do not meet the requirements to be classified as "held for sale" or "discontinued operations" in accordance with the applicable accounting guidance.
As of December 31, 2013 , we directly owned 85 hotel properties and two hotel properties that we owned through a majority-owned investment in a consolidated entity. These hotels represent 17,030 total rooms, or 17,003 net rooms excluding those attributable to our joint venture partners. Currently, all of our hotel properties are located in the United States. In March 2011, we acquired 96 hotel condominium units at WorldQuest Resort in Orlando, Florida for $12.0 million . Also in March 2011, with an investment of $150.0 million , we converted our interest in a joint venture that held a mezzanine loan into a 71.74% common equity interest and a $25.0 million preferred equity interest in a new joint venture (the “PIM Highland JV”) that holds 28 high quality full-service and select-service hotel properties with 8,084 total rooms, or 5,800 net rooms excluding those attributable to our joint venture partner. At December 31, 2013 , we also wholly owned a mezzanine loan with a carrying value of $3.4 million .
For federal income tax purposes, we elected to be treated as a REIT, which imposes limitations related to operating hotels. As of December 31, 2013 , all of our 87 legacy hotel properties were leased or owned by our wholly-owned subsidiaries that are treated as taxable REIT subsidiaries for federal income tax purposes (collectively, these subsidiaries are referred to as “Ashford TRS”). Ashford TRS then engages third-party or affiliated hotel management companies to operate the hotels under management contracts. Hotel operating results related to these properties are included in the consolidated statements of operations. Through December 1, 2011, the hotel property held by a joint venture in which we previously had an ownership of 89% was leased on a triple-net lease arrangement to a third-party tenant who operated the hotel property. Rental income from this operating lease is included in the consolidated results of operations for the period from January 1, 2010 through December 1, 2011. Effective December 2, 2011, we acquired the remaining 11% ownership interest from our joint venture partner at no cost to us. The triple-net lease agreement was canceled and the operating results of this hotel property have been included in our consolidated statements of operations from December 2, 2011 through November 19, 2013, when the hotel was contributed as part of the spin-off of Ashford Prime. With respect to our unconsolidated joint venture, PIM Highland JV, the 28 hotels are leased to PIM Highland JV’s wholly-owned subsidiary, which is treated as a taxable REIT subsidiary for federal income tax purposes.
Remington Lodging & Hospitality, LLC, together with its affiliates, (“Remington Lodging”), is our primary property manager, and is beneficially wholly owned by Mr. Monty J. Bennett, our Chairman and Chief Executive Officer and Mr. Archie Bennett, Jr., our Chairman Emeritus. As of December 31, 2013 , Remington Lodging managed 54 of our 87 legacy hotel properties,

66

while third-party management companies managed the remaining 33 hotel properties. In addition, Remington Lodging managed 21 of the 28 PIM Highland JV hotel properties and the WorldQuest condominium properties.
2. Significant Accounting Policies
Basis of Presentation – The accompanying consolidated financial statements include the accounts of Ashford Hospitality Trust, Inc., its majority-owned subsidiaries and its majority-owned joint ventures in which it has a controlling interest. All significant inter-company accounts and transactions between consolidated entities have been eliminated in these consolidated financial statements.
Marriott International, Inc. (“Marriott”) manages 26 of our properties as of December 31, 2013. There were eight additional hotel properties managed by Marriott until May 31, 2013 and six properties managed by Marriott included in the Ashford Prime spin-off. For these 40 Marriott-managed hotels, the 2011 and 2012 fiscal years reflect twelve weeks of operations in each of the first three quarters of the year and sixteen weeks for the fourth quarter of the year. Beginning in 2013, the fiscal quarters end on March 31 st , June 30 th , September 30 th and December 31 st . Therefore, in any given quarterly period, period-over-period results will have different ending dates. . For Marriott-managed hotels, the fourth quarters of 2013, 2012 and 2011 ended December 31, 2013, December 28, 2012 and December 30, 2011, respectively. Prior results have not been adjusted.
Use of Estimates – The preparation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand or held in banks and short-term investments with an initial maturity of three months or less at the date of purchase.
Restricted Cash – Restricted cash includes reserves for debt service, real estate taxes, and insurance, as well as excess cash flow deposits and reserves for furniture, fixtures, and equipment replacements of approximately 4% to 6% of property revenue for certain hotels, as required by certain management or mortgage debt agreement restrictions and provisions.
Accounts Receivable – Accounts receivable consists primarily of meeting and banquet room rental and hotel guest receivables. We generally do not require collateral. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of guests to make required payments for services. The allowance is maintained at a level believed adequate to absorb estimated receivable losses. The estimate is based on past receivable loss experience, known and inherent credit risks, current economic conditions, and other relevant factors, including specific reserves for certain accounts.
Inventories – Inventories, which primarily consist of food, beverages, and gift store merchandise, are stated at the lower of cost or market value. Cost is determined using the first-in, first-out method.
Investments in Hotel Properties – Hotel properties are generally stated at cost. However, the remaining four hotel properties contributed upon Ashford’s formation in 2003 that are still owned by Ashford (the “Initial Properties”) are stated at the predecessor’s historical cost, net of impairment charges, if any, plus a noncontrolling interest partial step-up related to the acquisition of noncontrolling interests from third parties associated with four of the Initial Properties. For hotel properties owned through our majority-owned joint ventures, the carrying basis attributable to the joint venture partners’ minority ownership is recorded at the predecessor’s historical cost, net of any impairment charges, while the carrying basis attributable to our majority ownership is recorded based on the allocated purchase price of our ownership interests in the joint ventures. All improvements and additions which extend the useful life of the hotel properties are capitalized.
Impairment of Investments in Hotel Properties – Hotel properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. We test impairment by using current or projected cash flows over the estimated useful life of the asset. In evaluating the impairment of hotel properties, we make many assumptions and estimates, including projected cash flows, expected holding period and expected useful life. We may also use fair values of comparable assets. If an asset is deemed to be impaired, we record an impairment charge for the amount that the property’s net book value exceeds its estimated fair value. No impairment charges were recorded for investments in hotel properties included in our continuing operations for 2013, 2012 and 2011.
Notes Receivable – We provide mezzanine loan financing, documented by notes receivable. These loans are held for investment and are intended to be held to maturity and accordingly, are recorded at cost, net of unamortized loan origination costs and fees, loan purchase discounts and the allowance for losses when a loan is deemed to be impaired. Premiums, discounts, and net origination fees are amortized or accreted as an adjustment to interest income using the effective interest method over the life of the loan. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/

67
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


or principal is not received when contractually due. Payments received on impaired nonaccrual loans are recorded as adjustments to impairment charges. No interest income was recorded for 2013, 2012 and 2011.
Variable interest entities, as defined by authoritative accounting guidance, must be consolidated by their controlling interest beneficiaries if the variable interest entities do not effectively disperse risks among the parties involved. Our remaining mezzanine note receivable at December 31, 2013 is secured by a hotel property and is subordinate to the controlling interest in the secured hotel property. The note receivable is considered to be a variable interest in the entity that owns the related hotel. However, we are not considered to be the primary beneficiary of the hotel property as a result of holding the loan. Therefore, we do not consolidate the hotel property for which we have provided financing. We will evaluate the interests in entities acquired or created in the future to determine whether such entities should be consolidated. In evaluating the variable interest entity, our analysis involves considerable management judgment and assumptions.
Impairment of Notes Receivable – We review notes receivable for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts recorded as assets on the balance sheet. We apply normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment.
When a loan is impaired, we measure impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the balance sheet. We may also measure impairment based on a loan’s observable market price or the fair value of collateral if the loan is collateral dependent. If a loan is deemed to be impaired, we record a valuation allowance through a charge to earnings for any shortfall. Our assessment of impairment is based on considerable judgment and estimates. No impairment charges were recorded for 2013, 2012 and 2011. Valuation adjustments of $396,000 , $5.3 million and $4.8 million on previously impaired notes were credited to impairment charges during 2013, 2012 and 2011. See Notes 4 and 17.
Investments in Unconsolidated Entities – Investments in entities in which we have ownership interests ranging from 14.4% to 71.74% are accounted for under the equity method of accounting by recording the initial investment and our percentage of interest in the joint venture’s net income (loss). We review the investments in our unconsolidated entities for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. An investment is impaired when its estimated fair value is less than the carrying amount of our investment. Any impairment is recorded in equity earnings (loss) in unconsolidated entities. No such impairment was recorded in 2013, 2012 or 2011.
Our investments in certain unconsolidated entities are considered to be variable interests in the underlying entities. Variable Interest Entities (“VIE”), as defined by authoritative accounting guidance, must be consolidated by a reporting entity if the reporting entity is the primary beneficiary because it has (i) the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance, (ii) an implicit financial responsibility to ensure that a VIE operates as designed, and (iii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE. Because we do not have the power and financial responsibility to direct the unconsolidated entities’ activities and operations, we are not considered to be the primary beneficiary of these joint ventures on an ongoing basis and therefore such entities should not be consolidated. In evaluating VIEs, our analysis involves considerable management judgment and assumptions.
In 2011, we acquired a 71.74% ownership interest in PIM Highland JV through contributions made by various entities in which we had equity investments and an additional cash investment. We adopted the equity accounting method for our investment in the PIM Highland JV due to the fact that we exercise significant influence but do not control the joint venture. Although we have the majority ownership of 71.74% in the joint venture, all the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. Our investment in PIM Highland JV had a carrying value of $139.3 million and $158.7 million at December 31, 2013 and 2012 .
In connection with the previously discussed spin-off of Ashford Prime on November 19, 2013, we maintained a 20% ownership interest in Ashford Prime OP. We adopted the equity accounting method for our investment in Ashford Prime OP due to the fact that we exercise significant influence but do not control the entity. All major decisions related to Ashford Prime OP that most significantly impact Ashford Prime OP's economic performance, including but not limited to operating procedures with respect to business affairs and any acquisitions, dispositions, financings, restructurings or other transactions with sellers, purchasers, lenders, brokers, agents and other applicable representatives, are subject to the approval of Ashford Prime OP General Partner LLC, its general partner. Our investment in Ashford Prime had a carrying value of $56.2 million at December 31, 2013 .
Assets Held for Sale and Discontinued Operations – We classify assets as held for sale when management has obtained a firm commitment from a buyer, and consummation of the sale is considered probable and expected within one year. In addition,

68
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


we deconsolidate a property upon transfer of title . When deconsolidating a property/subsidiary, we recognize a gain or loss in net income measured as the difference between the fair value of any consideration received, the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated, and the carrying amount of the former property/subsidiary. The related operations of assets held for sale are reported as discontinued if a) such operations and cash flows can be clearly distinguished, both operationally and financially, from our ongoing operations, b) such operations and cash flows will be eliminated from ongoing operations once the disposal occurs, and c) we will not have any significant continuing involvement subsequent to the disposal.
In June 2012, we recorded an impairment charge of $4.1 million and in December 2010 we recorded an impairment charge of $39.9 million for a hotel property that was sold in December 2012. Additionally, we sold our Doubletree Guest Suites hotel in Columbus, Ohio in November 2012 for net proceeds of $7.7 million . We recorded net gain of $4.5 million upon disposition of these hotels. In June 2011, we recorded an impairment charge of $6.2 million for a hotel property that was sold in July 2011. During 2011, we completed the sale of four hotel properties, three of which were reclassified as assets held for sale previously, and recognized a net gain of $2.6 million .
Marketable Securities – Marketable securities include U.S. treasury bills and stocks, put and call options of certain publicly traded companies. All of these investments are recorded at fair value. Put and call options are considered derivatives. The fair value of these investments has been determined based on the closing price as of the balance sheet date and is reported as “Marketable securities” or “Liabilities associated with marketable securities and other” in the consolidated balance sheets. Net investment income, including interest income (expense), dividends, realized gains and losses, and costs of investment, is reported as a component of “Other income.” Unrealized gains and losses on these investments are reported as “Unrealized gain (loss) marketable securities” in the consolidated statements of operations.
Deferred Costs, net – Deferred loan costs are recorded at cost and amortized over the terms of the related indebtedness using the effective interest method. Deferred franchise fees are amortized on a straight-line basis over the terms of the related franchise agreements.
Intangible Asset, net – Intangible asset represents the market value related to a lease agreement obtained in connection with the CNL acquisition that was below the market rate at the date of the acquisition and is amortized over the remaining term of the lease.
Derivative Instruments and Hedging – We primarily use interest rate derivatives to hedge our risks and to capitalize on the historical correlation between changes in LIBOR and RevPAR. The interest rate derivatives include swaps, caps, floors, flooridors and corridors. Interest rate swaps (or reverse swaps) involve the exchange of fixed-rate payments for variable-rate payments (or vice versa) over the life of the derivative agreements without exchange of the underlying principal amount. Interest rate caps designated as cash flow hedges provide us with interest rate protection above the strike rate on the cap and result in us receiving interest payments when actual rates exceed the cap strike. For interest rate floors, we pay our counterparty interest when the variable interest rate index is below the strike rate. The interest rate flooridor combines two interest rate floors, structured such that the purchaser simultaneously buys an interest rate floor at a strike rate X and sells an interest rate floor at a lower strike rate Y. The purchaser of the flooridor is paid when the underlying interest rate index (for example, LIBOR) resets below strike rate X during the term of the flooridor. Unlike a standard floor, the flooridor limits the benefit the purchaser can receive as the related interest rate index falls. Once the underlying index falls below strike rate Y, the sold floor offsets the purchased floor. The interest rate corridor involves purchasing of an interest rate cap at one strike rate X and selling an interest rate cap with a higher strike rate Y. The purchaser of the corridor is paid when the underlying interest rate index resets above the strike rate X during the term of the corridor. The corridor limits the benefit the purchaser can receive as the related interest rate index rises above the strike rate Y. There is no liability to us other than the purchase price associated with the flooridor and corridor.
We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of the designated hedged item or transaction. We also use credit default swaps to hedge financial and capital market risk. All these derivatives are subject to master netting settlement arrangements and the credit default swaps are subject to credit support annexes. As the derivatives are subject to master netting settlement arrangements, we report derivatives with the same counterparty net on the consolidated balance sheets. For credit default swaps, cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral.
All derivatives are recorded at fair value in accordance with the applicable authoritative accounting guidance. Interest rate derivatives and credit default swaps are reported as “Derivative assets” or “Derivative liabilities.” Accrued interest on the non-hedge designated interest rate derivatives is included in “Accounts receivable, net” in the consolidated balance sheets. For interest rate derivatives designated as cash flow hedges, the effective portion of changes in the fair value is reported as a component of

69
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


“Accumulated Other Comprehensive Income (Loss)” (“OCI”) in the equity section of the consolidated balance sheets. The amount recorded in OCI is reclassified to interest expense in the same period or periods during which the hedged transaction affects earnings, while the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For non-hedge designated interest rate derivatives and the credit default swap derivatives, the changes in the fair value are recognized in earnings as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations. For the years ended December 31, 2013 , 2012 and 2011 there was no ineffectiveness.
Due to/from Affiliates – Due to/from affiliates represents current receivables and payables resulting primarily from advances of shared costs incurred. Both due to and due from affiliates are generally settled within a period not exceeding one year .
Due to/from Related Party – Due to/from related party represents current receivables and payables resulting from transactions related to hotel management, project management and market services with a related party. Due to/from related party is generally settled within a period not exceeding one year .
Due to/from Ashford Prime – Due to/from Ashford Prime represents current receivables and payables resulting primarily from costs associated with the spin-off of Ashford Prime as well as receivables related to advisory fees. Both due to and due from Ashford Prime will generally be settled within a period not exceeding one year .
Due to/from Third-Party Hotel Managers – Due from third-party hotel managers primarily consists of amounts due from Marriott related to cash reserves held at the Marriott corporate level related to operating, capital improvements, insurance, real estate taxes, and other items. Due to/from related party also represents current receivables and payables resulting from transactions related to hotel management.
Unfavorable Management Contract Liabilities – Certain management agreements assumed in the acquisition of a hotel in 2006 and the CNL acquisition in 2007 have terms that are more favorable to the respective managers than typical market management agreements at the acquisition dates. As a result, we recorded unfavorable contract liabilities related to those management agreements totaling $23.4 million based on the present value of expected cash outflows over the initial terms of the related agreements. The unfavorable contract liabilities are amortized as reductions to incentive management fees on a straight-line basis over the initial terms of the related agreements. In evaluating unfavorable contract liabilities, our analysis involves considerable management judgment and assumptions. An unfavorable management contract with a carrying value of $493,000 was contributed to Ashford Prime OP in connection with the Ashford Prime spin-off.
Noncontrolling Interests – The redeemable noncontrolling interests in the operating partnership represent the limited partners’ proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income attributable to the common unit holders based on the weighted average ownership percentage of these limited partners’ common unit holdings throughout the period plus distributions paid to these limited partners’ Class B unit holdings. The redeemable noncontrolling interests in our operating partnership is classified in the mezzanine section of the consolidated balance sheets as these redeemable operating units do not meet the requirements for equity classification prescribed by the authoritative accounting guidance because the redemption feature requires the delivery of cash or registered shares. The carrying value of the noncontrolling interests in the operating partnership is based on the greater of the accumulated historical cost or the redemption value.
The noncontrolling interests in consolidated entities represent ownership interests of 15% of two hotel properties held by one joint venture at December 31, 2013 . The noncontrolling interests in consolidated entities that represented ownership interest of 25% of two hotel properties held by one joint venture were contributed to Ashford Prime in connection with the previously discussed spin-off. At December 31, 2012, the noncontrolling interest in consolidated entities represented ownership interests ranging from 15% to 25% of four hotel properties held by two joint ventures. The noncontrolling interests in consolidated entities are reported in equity in the consolidated balance sheets. Through December 1, 2011, the hotel property held by a joint venture in which we previously had an ownership of 89% was leased on a triple-net lease basis to a third-party tenant who operated the hotel property. Effective December 2, 2011, we acquired the remaining 11% ownership interest from our partner as a result of a dispute resolution. The triple-net lease agreement was canceled and the operating results of this hotel property have been included in our consolidated statements of operations since December 2, 2011 through November 18, 2013, the date the property was contributed to Ashford Prime in connection with the spin-off. We recognized a gain of $9.7 million for this transaction in 2011, consisting of the assignment of an $8.1 million note receivable and an agreement to retain $1.6 million of security deposits that were originally refundable, which is included in “Other income” in the consolidated statements of operations.
Net income/loss attributable to redeemable noncontrolling interests in the operating partnership and income/loss from consolidated entities attributable to noncontrolling interests in our consolidated entities are reported as deductions/additions from/to net income/loss. Comprehensive income/loss attributable to these noncontrolling interests is reported as reductions/additions from/to comprehensive income/loss.

70
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


Guarantees – Upon acquisition of the 51 -hotel CNL Portfolio on April 11, 2007, we assumed certain guarantees, which represent funds provided by third-party hotel managers to guarantee minimum returns for certain hotel properties. As we are obligated to repay such amounts through increased incentive management fees through cash reimbursements, such guarantees are recorded as other liabilities. As of December 31, 2012, these liabilities totaled $344,000 . During 2013, payments were made to satisfy all guarantees and as a result there are no future obligations.
Revenue Recognition – Hotel revenues, including room, food, beverage, and ancillary revenues such as long-distance telephone service, laundry, parking and space rentals, are recognized when services have been rendered. Advisory services are recognized when services have been rendered. The quarterly base fee is equal to 0.70% per annum of the total enterprise value, as defined, of Ashford Prime, subject to certain minimums. The incentive fee is earned annually in each year that Ashford Prime's total shareholder return exceeds the total shareholder return for Ashford Prime's peer group, as defined. Reimbursements for overhead and internal audit services are recognized when services have been rendered. Rental income represents income from leasing hotel properties to third-party tenants on triple-net operating leases. Base rent on the triple-net lease is recognized on a straight-line basis over the lease terms and variable rent is recognized when earned. Interest income, representing interest on the mezzanine loan (including accretion of discounts on the mezzanine loan using the effective interest method), is recognized when earned. We discontinue recording interest and amortizing discounts/premiums when the contractual payment of interest and/or principal is not received when contractually due. Asset management fees are recognized when services are rendered. Taxes collected from customers and submitted to taxing authorities are not recorded in revenue. For the hotel that was leased to a third party, we reported deposits into our escrow accounts for capital expenditure reserves as income up to the point in time the lease was terminated.
Other Expenses – Other expenses include Internet, telephone charges, guest laundry, valet parking, and hotel-level general and administrative fees, sales and marketing expenses, repairs and maintenance, franchise fees and utility costs. They are expensed as incurred.
Advertising Costs – Advertising costs are charged to expense as incurred. For 2013 , 2012 and 2011 , our continuing operations incurred advertising costs of $4.1 million , $4.0 million and $3.4 million , respectively. Advertising costs related to continuing operations are included in “Other expenses” in the accompanying consolidated statement of operations.
Equity-Based Compensation – Stock/unit-based compensation is accounted for at the fair value based on the market price of the shares at the date of grant in accordance with applicable authoritative accounting guidance. The fair value is charged to compensation expense on a straight-line basis over the vesting period of the shares/units.
Depreciation and Amortization – Owned hotel properties are depreciated over the estimated useful life of the assets and leasehold improvements are amortized over the shorter of the lease term or the estimated useful life of the related assets. Presently, hotel properties are depreciated using the straight-line method over lives ranging from 7.5 to 39 years for buildings and improvements and 3 to 5 years for furniture, fixtures and equipment. While we believe our estimates are reasonable, a change in estimated useful lives could affect depreciation expense and net income (loss) as well as resulting gains or losses on potential hotel sales.
Income Taxes – As a REIT, we generally will not be subject to federal corporate income tax on the portion of our net income (loss) that does not relate to taxable REIT subsidiaries. However, Ashford TRS is treated as a taxable REIT subsidiary for federal income tax purposes. In accordance with authoritative accounting guidance, we account for income taxes related to Ashford TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective bases. In addition, the analysis utilized by us in determining our deferred tax asset valuation allowance involves considerable management judgment and assumptions.
In July 2006, the FASB issued accounting guidance that clarified the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. The guidance prescribes a financial statement recognition and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return. The guidance also provides direction on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. We classify interest and penalties related to underpayment of income taxes as income tax expense. We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and various states and cities. Tax years 2010 through 2013 remain subject to potential examination by certain federal and state taxing authorities. As more fully described in Note 13, an income tax examination of one of the TRS subsidiaries contributed to Ashford Prime OP is currently in process. We believe that the results of the completion of this examination will not have a material adverse effect on our financial condition. We have indemnified Ashford Prime for any potential losses resulting from the completion of this examination.
Income (Loss) Per Share – Basic income (loss) per common share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average common shares outstanding during the period using the two-class method

71
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


prescribed by applicable authoritative accounting guidance. Diluted income (loss) per common share is calculated using the two-class method, or the treasury stock method, if more dilutive. Diluted income/loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common shares were exercised or converted into common shares, whereby such exercise or conversion would result in lower income per share.
Recently Adopted Accounting Standards – In December 2011, the Financial Accounting Standards Board issued accounting guidance to require disclosures about offsetting assets and liabilities. Entities are required to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements that are either netted on the balance sheet or subject to an enforceable master netting agreement or similar arrangement. The new accounting guidance is effective for fiscal years, and interim periods within those years, beginning after January 1, 2013 and the disclosures should be reported retrospectively for all comparative periods presented. We adopted this accounting guidance on January 1, 2013. The adoption of this accounting guidance did not have any impact on our financial position or results of operations .
3. Investments in Hotel Properties
Investments in hotel properties consisted of the following (in thousands):
 
December 31,
 
2013
 
2012
Land
$
410,148

 
$
483,242

Buildings and improvements
2,071,811

 
2,779,589

Furniture, fixtures and equipment
166,193

 
224,907

Construction in progress
11,956

 
10,499

Condominium properties
12,442

 
12,690

Total cost
2,672,550

 
3,510,927

Accumulated depreciation
(508,161
)
 
(638,623
)
Investments in hotel properties, net
$
2,164,389

 
$
2,872,304

The cost of land and depreciable property, net of accumulated depreciation, for federal income tax purposes was approximately $2.0 billion and $2.6 billion as of December 31, 2013 and 2012 .
In March 2011, we acquired real estate and certain other rights in connection with the acquisition of the WorldQuest Resort, a condominium hotel project for $12.0 million and incurred acquisition costs of $298,000 . More specifically, we acquired 96 condominium units, hotel amenities, land and improvements, developable raw land, developer rights and Rental Management Agreements (“RMAs”) with third party owners of condominium units in the project. Units owned by third parties with RMAs and all of the 96 units we acquired participate in a rental pool program whereby the units are rented to guests similar to a hotel operation. Under the terms of the RMAs, we share in a percentage of the guest room revenues and are reimbursed for certain costs.
For the years ended December 31, 2013 , 2012 and 2011 , we recognized depreciation expense, including depreciation of assets under capital leases and discontinued hotel properties, of $127.5 million , $136.0 million and $133.5 million , respectively.
The authoritative accounting guidance requires non-financial assets be measured at fair value when events or changes in circumstances indicate that the carrying amount of an asset will not be recoverable. An asset is considered impaired if the carrying value of the hotel property exceeds its estimated undiscounted cash flows and the impairment is calculated as the amount by which the carrying value of the hotel property exceeds its estimated fair value. Our investments in hotel properties are reviewed for impairment at each reporting period, taking into account the latest operating cash flows and market conditions and their impact on future projections. Management uses considerable subjective and complex judgments in determining the assumptions used to estimate the fair value and undiscounted cash flows, and believes these are assumptions that would be consistent with the assumptions of market participants.
Acquisition of the Pier House Resort - On May 14, 2013, we acquired a 100% interest in the Pier House Resort in Key West, Florida, for a contractual purchase price of $90.0 million in cash. In connection with the acquisition, we incurred transaction costs of $901,000 , which are included in transaction costs on the consolidated statement of operations. The purchase price has been allocated to the assets acquired and liabilities assumed using the estimated fair value at the date of acquisition based on a third party appraisal. This valuation is considered a Level 3 valuation technique.

72
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table summarizes the estimated fair value of the assets acquired and liabilities assumed in the acquisition (in thousands):
 
 
Land
$
56,900

Buildings and improvements
26,924

Furniture, fixtures, and equipment
6,100

 
89,924

Net other assets and liabilities
(1,690
)
Total
$
88,234

The results of operations of the hotel property have been included in our results of operations since May 14, 2013. For the year ended December 31, 2013, we have included revenues of $11.5 million and net income of $2.7 million , in the consolidated statements of operations.
See Note 26 for pro forma financial information.
4. Notes Receivable
In December 2011, in connection with the restructuring of the joint venture in which we previously owned an 89% interest, the remaining 11% was obtained as a result of a dispute resolution. Our partner also assigned to us a note receivable of $8.1 million from the city of Philadelphia, Pennsylvania and an agreement to retain $1.6 million of security deposits that were originally refundable. This resulted in a gain of $9.7 million , which is included in "Other income" in the consolidated statements of operations. The note bears interest at a rate of 12.85% and matures in 2018. The interest income recorded on the note receivable is offset against the interest expense recorded on the TIF loan of the same amount. See Note 9. The note was contributed to Ashford Prime in connection with the previously discussed spin-off in November 2013. In addition, we had one mezzanine loan at December 31, 2013 and 2012 .
Our remaining mezzanine loan, which is secured by the Ritz Carlton Key Biscayne, had an original face amount of $38.0 million , of which our initial investment was $33.0 million . This loan was restructured in 2010 with a cash payment of $20.2 million and a $4.0 million face value note receivable which matures in June 2017, with an interest rate of 6.09% . At December 31, 2013 and 2012 , this mezzanine loan had a net carrying value of $3.4 million and $3.2 million , respectively, net of the balance in the valuation allowance of $7.9 million and $8.3 million , respectively. All required payments on this loan have been made and payments on this loan have been treated as a reduction of carrying values and the valuation allowance adjustments have been recorded as credits to impairment charges in accordance with applicable accounting guidance.
In April 2011, we entered into a settlement agreement with the borrower of a mezzanine loan which was secured by a 105 -hotel property portfolio and scheduled to mature in April 2011. The borrower paid off the loan for $22.1 million . The mezzanine loan had a carrying value of $17.9 million at March 31, 2011 and December 31, 2010, after an impairment charge of $7.8 million was recorded at December 31, 2010. The difference between the settlement amount and the carrying value of $4.2 million was recorded as a credit to impairment charges in accordance with the applicable accounting guidance.
Principal and interest payments were not made since October 2008, on the $18.2 million junior participation note receivable secured by the Four Seasons hotel property in Nevis. The underlying hotel property suffered significant damage by Hurricane Omar. In 2009, we recorded an impairment charge to fully reserve this note receivable. In May 2010, the senior mortgage lender foreclosed on the loan. As a result of the foreclosure, our interest in the senior mortgage was converted to a 14.4% subordinate beneficial interest in the equity of the trust that holds the hotel property. Due to our junior status in the trust, we have not recorded any value for our beneficial interest at December 31, 2013 and 2012 .
The borrower of a $4.0 million junior participation loan collateralized by the Sheraton hotel property in Dallas, Texas due in July 2009 had been in default since May 11, 2009. Based on a third-party appraisal, it was unlikely that we would be able to recover our full investment due to our junior status. As a result, we recorded a valuation allowance for the full amount of the note receivable during 2009. In February 2010, we and the senior note holder of the participation note receivable formed Redus JV for the purposes of holding, managing or disposing of the Sheraton hotel property in Dallas, Texas, which collateralized our $4.0 million principal amount junior participating note receivable. We had an 18% subordinated ownership interest in Redus JV that was carried at no value. This hotel was sold in May 2011, but due to our subordinated status, we did not receive any proceeds from the sale, and no gain or loss was recognized.

73
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


In June 2009, Extended Stay Hotels, LLC (“ESH”), the issuer of our $164 million principal balance mezzanine loan receivable secured by 681 hotels with an initial maturity in June 2009, filed for Chapter 11 bankruptcy protection from its creditors. This mezzanine loan was originally purchased for $98.4 million . At the time of ESH’s bankruptcy filing, a discount of $11.4 million had been amortized to increase the carrying value of the note to $109.4 million . We anticipated that ESH, through its bankruptcy filing, would attempt to impose a plan of reorganization which could extinguish our investment. Accordingly, we recorded a valuation allowance of $109.4 million in earnings for the full amount of the book value of the note. In October 2010, the ESH bankruptcy proceedings were completed and settled with new owners. The full amount of the valuation allowance was charged off in 2010. In 2012, a valuation adjustment of $5.0 million on the previously impaired note was credited to impairment charges as a result of proceeds received in a confidential settlement.
5. Investment in Unconsolidated Entities
In March 2011, we acquired a 71.74% ownership interest in the PIM Highland JV and a $25.0 million preferred equity interest earning an accrued but unpaid 15% annual return with priority over common equity distributions. Additionally, in March 2011, PIM Highland JV through a debt restructuring and consensual foreclosure, acquired a 28 -hotel portfolio. We have determined that the PIM Highland JV is a variable interest entity as its total equity at risk is not sufficient to permit it to finance its activities without additional subordinated financial support provided by any parties, including its equity holders. Although we have the majority ownership interest and can exercise significant influence over the joint venture, we do not control the activities that most significantly impact the PIM Highland JV’s economic performance. All the major decisions related to the joint venture, including establishment of policies and operating procedures with respect to business affairs, incurring obligations and expenditures, are subject to the approval of an executive committee, which is comprised of four persons with us and our joint venture partner each designating two of those persons. As a result, we are not the primary beneficiary of PIM Highland JV and our investment in the joint venture is accounted for using the equity method. We had a carrying value of $139.3 million at December 31, 2013 , and our maximum exposure of loss is limited to our investment in PIM Highland JV except as discussed below.
The mortgage and mezzanine loans securing the Highland Portfolio are nonrecourse to the borrowers, except for customary exceptions, or carve-outs, that trigger recourse liability to the borrowers in certain limited instances. The recourse obligations typically include only the payment of costs and liabilities suffered by the lenders as a result of the occurrence of certain bad acts on the part of the borrower; however, in certain cases, the carve-outs could trigger recourse obligations on the part of the borrower with respect to repayment of all or a portion of the outstanding principal amount of the loans. We have entered into customary guaranty agreements pursuant to which we guaranty payment of any recourse liabilities of the borrowers that result from the non-recourse carve-outs (which include, but are not limited to, fraud, misrepresentation, willful conduct resulting in waste, misappropriations of rents following an event of default, voluntary bankruptcy filings, unpermitted transfers of collateral and certain environmental liabilities). In the opinion of management, none of these guaranty agreements, either individually or in the aggregate, are likely to have a material adverse effect on our business, results of operations, or financial condition.
The 28 -hotel property portfolio acquired and the indebtedness assumed by the joint venture had fair values of $1.3 billion and $1.1 billion , respectively, at the date of acquisition based on third-party appraisals (after a pay-down of $170.0 million of related debt). The purchase price was the result of arms-length negotiations. In the fourth quarter of 2011, the joint venture finalized the purchase price allocation to the assets acquired and liabilities assumed. The joint venture recognized a gain of $82.1 million related to a bargain purchase and settlement of a pre-existing relationship, of which our share was $46.3 million .

74
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following tables summarize the condensed balance sheets as of December 31, 2013 and 2012 and the condensed statement of operations for the years ended December 31, 2013 and 2012 and the period from March 10, 2011 through December 31, 2011 of the PIM Highland JV (in thousands):
PIM Highland JV
Condensed Consolidated Balance Sheets
 
December 31,
 
2013
 
2012
Total assets
$
1,390,782

 
$
1,417,204

Total liabilities
1,173,841

 
1,176,298

Members’ capital
216,941

 
240,906

Total liabilities and members’ capital
$
1,390,782

 
$
1,417,204

Our ownership interest in PIM Highland JV
$
139,302

 
$
158,694

PIM Highland JV
Condensed Consolidated Statements of Operations
 
Year Ended December 31,
 
Period From March 10 to
 
2013
 
2012
 
December 31, 2011
Total revenue
$
426,760

 
$
416,892

 
$
332,205

Total expenses
(385,133
)
 
(377,453
)
 
(322,419
)
Operating income
41,627

 
39,439

 
9,786

Interest income and other
69

 
102

 
85

Interest expense, amortization and write-offs of deferred loan costs, discounts and premiums and exit fees
(64,316
)
 
(63,497
)
 
(50,021
)
Gain recognized at acquisition
—

 
—

 
82,144

Other expenses
—

 
(72
)
 
(2,020
)
Income tax expense
(1,345
)
 
(2,353
)
 
(2,687
)
Net income (loss)
$
(23,965
)
 
$
(26,381
)
 
$
37,287

Our equity in earnings (loss) of PIM Highland JV
$
(19,392
)
 
$
(20,833
)
 
$
14,528


75
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


On June 17, 2013, we announced that our Board of Directors had approved a plan to spin-off an 80% ownership interest in an 8 -hotel portfolio, totaling 3,146 rooms ( 2,912 net rooms excluding those attributable to our partners), to holders of our common stock in the form of a taxable special distribution. The distribution was comprised of common stock in Ashford Hospitality Prime, Inc. (“Ashford Prime”), a newly formed company into which we contributed the portfolio interests. The distribution was made on November 19, 2013, on a pro rata basis to holders of our common stock as of November 8, 2013, with each of our shareholders receiving one share of Ashford Prime common stock for every five shares of our common stock held by such stockholder as of the close of business on November 8, 2013. We maintained a 20% ownership interest in Ashford Prime OP. The following tables summarize the condensed combined consolidated balance sheets as of December 31, 2013 and 2012 and the condensed combined consolidated statements of operations for the years ended December 31, 2013 , 2012 and 2011 of Ashford Prime (in thousands):

Ashford Hospitality Prime Limited Partnership
Condensed Combined Consolidated Balance Sheets
 
December 31,
 
2013
 
2012
Total assets
$
961,732

 
$
847,280

Total liabilities
658,605

 
594,902

Partners' capital
303,127

 
252,378

Total liabilities and partners' capital
$
961,732

 
$
847,280

Our ownership interest in Ashford Prime OP
$
56,243

 
$
—

  Ashford Hospitality Prime Limited Partnership
Condensed Combined Consolidated Statements of Operations
 
Year Ended December 31,
 
2013
 
2012
 
2011
Total revenue
$
233,496

 
$
221,188

 
$
191,991

Total expenses
(214,086
)
 
(189,382
)
 
(167,612
)
Operating income
19,410

 
31,806

 
24,379

Interest income
23

 
29

 
24

Other income
—

 
—

 
9,673

Interest expense and amortization and write-offs of loan costs
(34,982
)
 
(31,244
)
 
(31,803
)
Unrealized loss on derivatives
(36
)
 
—

 
—

Income tax expense
(2,343
)
 
(4,384
)
 
(2,636
)
Net loss
(17,928
)
 
(3,793
)
 
(363
)
Income (loss) from consolidated entities attributable to noncontrolling interests
(934
)
 
(752
)
 
989

Net loss attributable to redeemable noncontrolling interests in operating partnership
7,080

 
—

 
—

Net income (loss) attributable to Ashford Prime OP
$
(11,782
)
 
$
(4,545
)
 
$
626

Our equity in loss of Ashford Prime OP
$
(4,012
)
 
$
—

 
$
—

Additionally, as of December 31, 2013 and 2012 , we had a 14.4% subordinated beneficial interest in a trust that holds the Four Seasons hotel property in Nevis, which had a zero carrying value. The Sheraton hotel property in Dallas, Texas was held by a joint venture in which we had an 18% subordinated ownership interest that was carried at no value. This hotel was sold in May 2011, but due to our subordinated status, we did not receive any proceeds from the sale, and no gain or loss was recognized.
6. Assets Held for Sale and Discontinued Operations
At December 31, 2010, the Hilton hotel property in Tucson, Arizona had a reasonable probability of being sold. Based on our assessment of the purchase price obtained from potential buyers, we recorded an impairment charge of $39.9 million during 2010. During the second quarter of 2012, we determined that this property was not to be held long-term as operating cash flows were not anticipated to cover principal and interest payments of the related debt secured by this hotel. In addition, regarding this loan, we ceased making principal and interest payments after July 31, 2012 . Based on our assessment, which included marketing

76
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


this hotel for sale, we concluded that the carrying value of this asset would not be recoverable. Consequently, in the second quarter of 2012, we recognized an additional impairment charge of $4.1 million related to this hotel, which reduced its carrying value to $19.7 million and represented our estimate of its fair value. The impairment charge was based on methodologies discussed in Note 2, which are considered Level 3 valuation techniques. Effective August 15, 2012 , via a consensual foreclosure with our lender, a receiver appointed by Pima County Superior Court in Arizona completed taking possession and full control of this hotel. The hotel property was disposed of and deconsolidated in December 2012 when title passed to the lender. Additionally, we sold our Doubletree Guest Suites hotel in Columbus, Ohio in November 2012 for net proceeds of $7.7 million . The operating results of these properties are reported in discontinued operations for all periods presented.
In 2011, we completed the sales of the Hampton Inn hotel in Jacksonville, Florida, the JW Marriott hotel in San Francisco, California, the Hilton hotel in Rye Town, New York, and the Hampton Inn hotel in Houston, Texas. The operating results of these hotel properties are reported as discontinued operations for 2011.
The hotel properties included in discontinued operations were carried at lower of cost or estimated fair value less cost to sell at the date they were classified as assets held for sale. In accordance with applicable accounting guidance, the inputs used in determining the fair values are categorized into three levels: level 1 inputs are inputs obtained from quoted prices in active markets for identical assets, level 2 inputs are significant other inputs that are observable for the assets either directly or indirectly, and level 3 inputs are unobservable inputs for the asset and reflect our own assumptions about the assumptions that market participants would use in pricing the asset.
The following table presents our hotel properties measured at fair value aggregated by the level in the fair value hierarchy within which measurements fall on a non-recurring basis at December 31, 2013 , 2012 and 2011 , and related impairment charges recorded (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Impairment
Charges
 
2012
 
 
 
 
 
 
 
 
 
 
Hilton Tucson, AZ
$
—

 
$
—

 
$
—

 
$
—

 
$
4,120

(1  
)  
2011
 
 
 
 
 
 
 
 
 
 
Hampton Inn Jacksonville, FL
$
—

 
$
—

 
$
—

 
$
—

 
$
6,237

(2  
)  
_________________________
(1)  
The impairment charge was taken in the quarter ended June 30, 2012, based on its estimated fair value of $19.7 million which we considered to be a level 3 fair value measure.
(2)  
The impairment charge was taken in the quarter ended June 30, 2011, based on its anticipated net sales prices of $10.0 million which we considered to be a level 3 fair value measure.

77
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


The following table summarizes the operating results of the discontinued operations (in thousands):
 
Year Ended December 31,
 
2012
 
2011
Hotel revenues
$
29,398

 
$
40,279

Hotel operating expenses
(27,722
)
 
(35,916
)
Operating income
1,676

 
4,363

Property taxes, insurance and other
(1,584
)
 
(2,486
)
Depreciation and amortization
(2,548
)
 
(3,031
)
Impairment charge
(4,120
)
 
(6,237
)
Gain on disposal/sales of properties
4,486

 
2,564

Interest expense and amortization of loan costs
(1,464
)
 
(2,020
)
Write-off of loan costs and exit fees
(119
)
 
(948
)
Loss from discontinued operations before income taxes
(3,673
)
 
(7,795
)
Income tax (expense) benefit
23

 
(85
)
Loss from discontinued operations
(3,650
)
 
(7,880
)
Income from discontinued operations of consolidated entities attributable to noncontrolling interests
—

 
(1,031
)
Loss from discontinued operations attributable to redeemable noncontrolling interests in operating partnership
440

 
1,072

Loss from discontinued operations attributable to the Company
$
(3,210
)
 
$
(7,839
)
7. Deferred Costs, net
Deferred costs, net consist of the following (in thousands):
 
December 31,
 
2013
 
2012
Deferred loan costs
$
27,049

 
$
32,974

Deferred franchise fees
4,037

 
4,024

Total costs
31,086

 
36,998

Accumulated amortization
(20,931
)
 
(19,804
)
Deferred costs, net
$
10,155

 
$
17,194

8. Intangible Asset, net
Intangible asset consist of the following (in thousands):
 
December 31,
 
2013
 
2012
Cost
$
—

 
$
3,233

Accumulated amortization
—

 
(512
)
Intangible asset, net
$
—

 
$
2,721

Intangible asset represented a favorable market-rate lease which relates to the purchase price allocated to a hotel property in the CNL Portfolio and was being amortized over the remaining lease term that expires in 2043 . This intangible asset was contributed to Ashford Prime in connection with the previously discussed spin-off.
For the years ended December 31, 2013 , 2012 and 2011, amortization expense related to intangibles was $79,000 , $89,000 and $89,000 , respectively.

78

9.     Indebtedness
Indebtedness of our continuing operations and the carrying values of related collateral were as follows at December 31, 2013 and 2012 (in thousands):
 
 
 
 
 
 
 
 
December 31, 2013
 
December 31, 2012
Indebtedness
 
Collateral
 
Maturity
 
Interest Rate
 
Debt
Balance
 
Book
Value of
Collateral
 
Debt
Balance
 
Book
Value of
Collateral
Mortgage loan  (6)
 
2 hotels
 
August 2013
 
LIBOR (1)  + 2.75%
 
$
—

 
$
—

 
$
141,667

 
$
259,496

Mortgage loan (3)
 
5 hotels
 
March 2014
 
LIBOR (1)  + 4.50%
 
164,433

 
213,501

 
173,180

 
218,647

Mortgage loan (2)
 
9 hotels
 
May 2014
 
LIBOR  (1)  + 6.50%
 
135,000

 
193,016

 
135,000

 
197,672

Mortgage loan
 
1 hotel
 
May 2014
 
8.32%
 
5,075

 
8,994

 
5,285

 
9,044

Senior credit facility (5)
 
Various
 
September 2014
 
LIBOR  (1)  + 2.75% to 3.50%
 
—

 
—

 
—

 
—

Mortgage loan (2)
 
5 hotels
 
November 2014
 
Greater of 6.40% or LIBOR (1)  + 6.15%
 
211,000

 
313,202

 
211,000

 
317,442

Mortgage loan
 
8 hotels
 
December 2014
 
5.75%
 
102,348

 
82,314

 
104,680

 
81,290

Mortgage loan
 
10 hotels
 
July 2015
 
5.22%
 
148,991

 
170,897

 
152,513

 
172,195

Mortgage loan (4)
 
1 hotel
 
September 2015
 
LIBOR  (1)  + 4.90%
 
69,000

 
88,836

 
—

 
—

Mortgage loan
 
8 hotels
 
December 2015
 
5.70%
 
94,899

 
77,733

 
96,907

 
79,146

Mortgage loan
 
5 hotels
 
February 2016
 
5.53%
 
107,737

 
127,073

 
110,169

 
121,451

Mortgage loan
 
5 hotels
 
February 2016
 
5.53%
 
89,347

 
96,248

 
91,364

 
97,678

Mortgage loan
 
5 hotels
 
February 2016
 
5.53%
 
77,394

 
102,629

 
79,140

 
102,960

Mortgage loan (7) (9)
 
1 hotel
 
April 2017
 
5.91%
 
—

 
—

 
34,735

 
91,222

Mortgage loan  (9)
 
2 hotels
 
April 2017
 
5.95%
 
—

 
—

 
127,289

 
145,275

Mortgage loan (9)
 
3 hotels
 
April 2017
 
5.95%
 
—

 
—

 
259,021

 
275,190

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
113,343

 
125,913

 
114,732

 
128,605

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
101,878

 
113,256

 
103,126

 
111,546

Mortgage loan
 
5 hotels
 
April 2017
 
5.95%
 
155,019

 
155,429

 
156,918

 
160,373

Mortgage loan
 
7 hotels
 
April 2017
 
5.95%
 
123,997

 
142,980

 
125,517

 
145,456

TIF loan (7) (8) (9)
 
1 hotel
 
June 2018
 
12.85%
 
—

 


 
8,098

 
—

Mortgage loan
 
1 hotel
 
November 2020
 
6.26%
 
101,268

 
113,927

 
102,562

 
113,860

Mortgage loan (10)
 
1 hotel
 
January 2024
 
5.49%
 
10,800

 
17,223

 
—

 
—

Mortgage loan
 
1 hotel
 
January 2024
 
5.49%
 
7,400

 
8,624

 
—

 
—

Mortgage loan
 
1 hotel
 
April 2034
 
Greater of 6.00% or Prime + 1.00%
 
—

 
—

 
6,507

 
18,024

Total
 
 
 
 
 
 
 
$
1,818,929

 
$
2,151,795

 
$
2,339,410

 
$
2,846,572

_________________________
(1)  
LIBOR rates were 0.168% and 0.209% at December 31, 2013 and 2012 , respectively.
(2)  
These mortgage loans have three one -year extension options subject to satisfaction of certain conditions.
(3)  
This mortgage loan has a one -year extension option subject to satisfaction of certain conditions.
(4)  
This mortgage loan has three one -year extension options subject to satisfaction of certain conditions in the final year.
(5)  
Our borrowing capacity under our senior credit facility is $165.0 million . We have an option, subject to lender approval, to further expand the facility to an aggregate size of $225.0 million . We may use up to $10.0 million for standby letters of credit. The senior credit facility has a one -year extension option subject to advance notice and a 0.25% extension fee.
(6)  
On February 26, 2013, we refinanced our $141.7 million loan due August 2013 with a $199.9 million loan due February 2018. The new loan provides for an interest rate of LIBOR + 3.50% , with no LIBOR floor. The new loan was assumed by Ashford Prime in connection with the previously discussed spin-off.
(7)  
These loans are collateralized by the same property.
(8)  
The interest expense from the TIF loan is offset against interest income recorded on the note receivable of the same amount. See Note 4.
(9)  
The loans were assumed by Ashford Prime in connection with the previously discussed spin-off.
(10)  
On December 20, 2013, we refinanced our $6.5 million loan due April 2034 with a $10.8 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% with no extension options.
On December 20, 2013, we refinanced our $6.5 million loan due April 2034, with a $10.8 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% . The new loan continues to be secured by the Residence Inn Jacksonville. Additionally, we completed the financing for a $7.4 million loan due January 2024. The new loan provides for a fixed interest rate of 5.49% and is secured by the Residence Inn Manchester. We have an 85% ownership interest in the property, with Interstate Hotels & Resorts holding the remaining 15% . Our share of the excess loan proceeds were added to our unrestricted cash balance.

79

On September 10, 2013, we completed the financing for a $69.0 million loan due September 2015 and secured by the Pier House Resort. The new financing has a two -year term and three , one -year extension options with no test requirements for the first two extensions. The loan provides for a floating interest rate of LIBOR + 4.90% , with no LIBOR Floor. The loan proceeds, net of typical closing costs and reserves, were added to our unrestricted cash balance.
On February 26, 2013, we refinanced our $141.7 million loan due August 2013, which had an outstanding balance of $141.0 million , with a $199.9 million loan due February 2018. The new loan provides for an interest rate of LIBOR + 3.50% , with no LIBOR floor. The new loan continues to be secured by the Capital Hilton in Washington, DC and the Hilton La Jolla Torrey Pines in La Jolla, California. We had a 75% ownership interest in the properties, with Hilton holding the remaining 25% . The excess loan proceeds above closing costs and reserves were distributed to the partners on a pro rata basis. Our share of the excess loan proceeds was approximately $40.5 million , which was added to our unrestricted cash balance. These properties were included in the Ashford Prime spin-off.
In November 2012, we successfully refinanced a $153.9 million non-recourse mortgage loan set to mature in December 2015 with a new $211.0 million loan with a two -year initial term and 3 one -year extension options subject to the satisfaction of certain conditions. The new loan is interest only and provides for a floating interest rate of LIBOR plus 6.15% , with a 0.25% LIBOR floor. The refinancing resulted in over $50.0 million in excess proceeds to be used for general corporate purposes. The new loan remains secured by the same five hotels.
In May 2012, we successfully refinanced a $167.2 million loan set to mature in May 2012 with a new $135.0 million loan that matures in May 2014 and contains three one -year extension options subject to the satisfaction of certain conditions. The new loan provides for a floating interest rate of LIBOR plus 6.50% , with no LIBOR floor. The new loan is secured by nine hotels.
In December 2011, we successfully restructured a $203.4 million mortgage loan and extended the maturity date from December 2011 to March 2014 . There is also a one -year extension option subject to the satisfaction of certain conditions. The restructuring provides for a new interest rate of LIBOR plus 4.5% with no LIBOR floor. At the closing of the restructuring, we paid down the loan by $25.0 million to $178.4 million .
In September 2011, we obtained a new $105.0 million senior credit facility which matures September 2014 with a one year extension option and replaces our previous credit line that was scheduled to mature in April 2012 . The new credit facility provides for a three-year revolving line of credit priced at 275 to 350 basis points over LIBOR or Base Rate , as defined in the agreement, which is the same as our previous credit line. On February 21, 2012, we expanded our borrowing capacity under our $105.0 million senior credit facility to an aggregate $145.0 million and on September 24, 2012, we further expanded our borrowing capacity to an aggregate $165.0 million . We have an option, subject to lender approval, to further expand the facility to an aggregate size of $225.0 million , provided there is no default or event of default and each representation and warranty made or deemed made by us remains true and correct in all material respects on the effective date of such increase. As part of these expansions, two additional banks have been added to the participating banks in the senior credit facility. The previous credit line was repaid in full in July 2011. The financial covenant tests with respect to fixed charge coverage ratio and leverage tests are similar to our previous credit line. On December 21, 2012, we amended the senior credit facility to reduce the minimum fixed charge coverage ratio from 1.35 x to 1.25 x through expiration in September 2014.
In March 2010, we elected to stop making payments on the $5.8 million mortgage note payable maturing January 2011, secured by a hotel property in Manchester, Connecticut. After negotiating with the special servicer, in May 2011, we obtained a three year extension on this loan to May 2014 . We paid $1.0 million at closing for the principal and interest through May 1, 2011 to bring the loan current, a 1.25% extension fee and certain deposits pursuant to the modification agreement.
Maturities and scheduled amortizations of indebtedness of our continuing operations as of December 31, 2013 for each of the five following years are as follows (in thousands):
2014
$
638,226

2015
322,508

2016
270,029

2017
475,743

2018
2,062

Thereafter
110,361

Total
$
1,818,929

We are required to maintain certain financial ratios under various debt and derivative agreements. If we violate covenants in any debt or derivative agreement, we could be required to repay all or a portion of our indebtedness before maturity at a time

80

when we might be unable to arrange financing for such repayment on attractive terms, if at all. Violations of certain debt covenants may result in us being unable to borrow unused amounts under a line of credit, even if repayment of some or all borrowings is not required. In the event of default, we are subject to restrictions on incurring additional indebtedness, limitations on investments, limitations on dividends and other payments in respect of capital stock. The assets of certain of our subsidiaries listed on Exhibit 21.2 of this filing are pledged under non-recourse indebtedness and are not available to satisfy the debts and other obligations of Ashford Hospitality Trust, Inc. or our operating partnership, Ashford Hospitality Limited Partnership and the liabilities of such subsidiaries do not constitute the obligations of Ashford Hospitality Trust, Inc. or Ashford Hospitality Limited Partnership. Presently, our existing financial covenants are non-recourse and primarily relate to maintaining minimum debt coverage ratios, maintaining an overall minimum net worth, maintaining a maximum loan to value ratio, and maintaining an overall minimum total assets. As of December 31, 2013 , we were in compliance in all material respects with all covenants or other requirements set forth in our debt and related agreements as amended.
We have derivative agreements that incorporate the loan covenant provisions of our senior credit facility requiring us to maintain certain minimum financial covenant ratios with respect to our indebtedness. Failure to comply with the covenant provisions would result in us being in default on any derivative instrument obligations covered by the applicable agreement. As of December 31, 2013 , we were in compliance with all the covenants under the senior credit facility and the fair value of derivatives that incorporate our senior credit facility covenant provisions was a liability of $73,000 .
10.   Derivative Instruments and Hedging
Interest Rate Derivatives – We are exposed to risks arising from our business operations, economic conditions and financial markets. To manage the risks, we primarily use interest rate derivatives to hedge our debt as a way to potentially improve cash flows. We also use non-hedge derivatives to capitalize on the historical correlation between changes in LIBOR and RevPAR. The interest rate derivatives include interest rate swaps, caps, flooridors and corridors. All these derivatives are subject to master netting settlement arrangements. To mitigate the nonperformance risk, we routinely rely on a third party’s analysis of the creditworthiness of the counterparties, which supports our belief that the counterparties’ nonperformance risk is limited. All derivatives are recorded at fair value.
In May 2011, we entered into an interest rate swap agreement for a notional amount of $1.18 billion to convert our existing floating-rate debt (including our 71.74% of the floating rate debt of the PIM Highland JV) to a fixed one-month LIBOR rate of 0.2675% . The swap was effective from June 13, 2011 and terminated on January 13, 2012 . There was no upfront cost to us for entering into this swap other than customary transaction costs. We made swap interest payments totaling $302,000 in 2011 under the agreement that is included in “Other income” in the accompanying consolidated statements of operations.
In October 2010, we converted our $1.8 billion interest rate swap into a fixed rate swap of 4.09% , resulting in locked-in annual interest savings of approximately $31.5 million through March 2013 at no cost to us. Under the previous swap, which we entered into in March 2008 and which expired in March 2013, we received a fixed rate of 5.84% and paid a variable rate of LIBOR plus 2.64% , subject to a LIBOR floor of 1.25% . Under the terms of the new swap transaction, we received a fixed rate of 5.84% , but paid a fixed rate of 4.09% .
Since 2008, in order to take advantage of the declining LIBOR rates, we entered into various flooridors with notional amounts totaling $11.7 billion and maturing between December 2010 and December 2011 for a total cost of $40.6 million . Income from these derivatives totaling $38.9 million was recognized in 2011.
During 2013, 2012 and 2011, we entered into interest rate caps with total notional amounts of $268.9 million , $346.0 million , and $365.3 million , respectively, to cap the interest rates on our mortgage loans with maturities between May 2012 and November 2014, and strike rates between 1.50% and 6.25% , for total costs of $184,000 , $184,000 and $97,000 , respectively. These interest rate caps were designated as cash flow hedges excluding two interest rate caps entered into in 2012 with a notional amount of $211.0 million and all of the interest rate caps entered into in 2013. At December 31, 2013 and 2012 , our floating interest rate mortgage loans, with principal balances of $280.0 million and $519.2 million , respectively, were capped by interest rate hedges. One interest rate cap entered into in 2013 with a notional amount of $199.9 million was transferred to Ashford Prime in connection with the previously discussed spin-off.
The cost basis of interest rate derivatives for federal income tax purposes was approximately $181,000 and $523,000 as of December 31, 2013 and 2012 .
Credit Default Swap Derivatives – In August 2011, we entered into credit default swap transactions for a notional amount of $100.0 million to hedge financial and capital market risk for an upfront cost of $8.2 million that was subsequently returned to us as collateral by our counterparty. A credit default swap is a derivative contract that works like an insurance policy against the credit risk of an entity or obligation. The seller of protection assumes the credit risk of the reference obligation from the buyer of protection in exchange for payments of an annual premium. If there is a default or a loss, as defined in the credit default swap

81

agreements, on the underlying bonds, then the buyer of protection, is protected against those losses. The only liability for us, the buyer of protection, is the annual premium and any change in value of the underlying CMBX index (if the trade is terminated prior to maturity). For the CMBX trades that we have completed, we were the buyer of protection in all trades. The credit default swaps are subject to master netting settlement arrangements and credit support annexes. Assuming the underlying bonds pay off at par over their remaining average life, our total exposure for these trades is approximately $8.5 million . Cash collateral is posted by us as well as our counterparty. We offset the fair value of the derivative and the obligation/right to return/reclaim cash collateral. The change in the market value of the credit default swaps is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty when the change in the market value is over $250,000 . As of December 31, 2013 and 2012 , the credit default swap had a carrying value of a net liability of $73,000 and a net asset of $170,000 , respectively, which is included in “Liabilities associated with marketable securities and other” and "Derivative assets" in the consolidated balance sheets. For the years ended December 31, 2013 , 2012 and 2011 , we have recognized an unrealized loss of $1.9 million , $3.9 million and $1.3 million , respectively, that is included in “Unrealized loss on derivatives” in the consolidated statements of operations.
Marketable Securities and Liabilities Associated with Marketable Securities and Other – We invest in public securities, including stocks and put and call options that are considered derivatives. At December 31, 2013 , we had investments in these derivatives totaling $560,000 and liabilities of $561,000 . At December 31, 2012 , we had investments in these derivatives totaling $612,000 and liabilities of $299,000 .
11.   Fair Value Measurements
Fair Value Hierarchy – Our financial instruments measured at fair value either on a recurring or a non-recurring basis are classified in a hierarchy for disclosure purposes consisting of three levels based on the observability of inputs in the market place as discussed below:
•
Level 1: Fair value measurements that are quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets.
•
Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
•
Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability.
The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts/payments and the discounted expected variable cash payments/receipts. The fair values of interest rate caps, floors, flooridors and corridors are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates fell below the strike rates of the floors or rise above the strike rates of the caps. The variable interest rates used in the calculation of projected receipts and payments on the swaps, caps, and floors are based on an expectation of future interest rates derived from observable market interest rate curves (LIBOR forward curves) and volatilities (the Level 2 inputs). We also incorporate credit valuation adjustments (the Level 3 inputs) to appropriately reflect both our own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements.
The fair value of the credit default swaps is obtained from a third party who publishes various information including the index composition and price data (the Level 2 inputs). The fair value of the credit default swaps does not contain credit-risk related adjustments as the change in the fair value is settled net through posting cash collateral or reclaiming cash collateral between us and our counterparty.
The fair value of marketable securities and liabilities associated with marketable securities and other, including stocks, put and call options and other are carried at fair market value based on their closing prices (the level 1 inputs).
We have determined that when a majority of the inputs used to value our derivatives fall within Level 2 of the fair value hierarchy, the derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy. However, when the valuation adjustments associated with our derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by us and our counter-parties, which we consider significant ( 10% or more ) to the overall valuation of our derivatives, the derivative valuations in their entirety are classified in Level 3 of the fair value hierarchy. Transfers of inputs between levels are determined at the end of each reporting period. In determining the fair values of our derivatives at December 31, 2013 , the LIBOR interest rate forward curve (the Level 2 inputs) assumed an uptrend from 0.17% to 0.19% for the remaining term

82

of our derivatives. The credit spreads (the Level 3 inputs) used in determining the fair values of the hedge and non-hedge designated derivatives assumed an uptrend in nonperformance risk for us and all of our counterparties through the maturity dates.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents our assets and liabilities measured at fair value on a recurring basis aggregated by the level within which measurements fall in the fair value hierarchy (in thousands):
 
Quoted Market Prices (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
Counter-party and Cash Collateral Netting (4)
 
Total
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives – non-hedge
$
—

 
$
19

 
$
—

 
$
—

 
$
19

(1)  
Interest rate derivatives – hedge
—

 
—

 
—

 
—

 
—

(1)  
Equity put and call options
560

 
—

 
—

 
—

 
560

(2)  
 
560

 
19

 
—

 
—

 
579

 
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Equity securities
29,041

 
—

 
—

 
—

 
29,041

(2)  
Total
29,601

 
19

 
—

 
—

 
29,620

 
Liabilities
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives – non-hedge
—

 
—

 
—

 
—

 
—

(1)  
Credit default swaps
—

 
995

 
—

 
(1,068
)
 
(73
)
(3)  
Short equity put options
(82
)
 
—

 
—

 
—

 
(82
)
(3)  
Short equity call options
(479
)
 
—

 
—

 
—

 
(479
)
(3)  
Non-derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Margin account balance
(3,130
)
 
—

 
—

 
—

 
(3,130
)
(3)  
Total
(3,691
)
 
995

 
—

 
(1,068
)
 
(3,764
)
 
Net
$
25,910

 
$
1,014

 
$
—

 
$
(1,068
)
 
$
25,856

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012:
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives – non-hedge
$
—

 
$
10,617

 
$
—

 
$
—

 
$
10,617

(1)  
Interest rate derivatives – hedge
—

 
4

 
—

 
—

 
4

(1)  
Credit default swaps
—

 
2,933

 
—

 
(2,763
)
 
170

(1)  
Equity put and call options
612

 
—

 
—

 
—

 
612

(2)  
Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
Equity and US treasury securities
23,008

 
—

 
—

 
—

 
23,008

(2)  
Total
23,620

 
13,554

 
—

 
(2,763
)
 
34,411

 
Liabilities
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives – non-hedge
—

 
(4,400
)
 
—

 
—

 
(4,400
)
(1)  
Short equity put options
(7
)
 
—

 
—

 
—

 
(7
)
(3)  
Short equity call options
(292
)
 
—

 
—

 
—

 
(292
)
(3)  
Non-derivative liabilities:
 
 
 
 
 
 
 
 

 
Margin account balance
(1,342
)
 
—

 
—

 
—

 
(1,342
)
(3)  
Total
(1,641
)
 
(4,400
)
 
—

 
—

 
(6,041
)
 
Net
$
21,979

 
$
9,154

 
$
—

 
$
(2,763
)
 
$
28,370

 
_________________________
(1)  
Reported net as “Derivative assets” in the consolidated balance sheets.
(2)  
Reported as “Marketable securities” in the consolidated balance sheets.

83

(3)  
Reported as “Liabilities associated with marketable securities and other” in the consolidated balance sheets.
(4)  
Represents cash collateral posted by our counterparty.
 
 
 
 
 
 
Effect of Fair Value Measured Assets and Liabilities on Consolidated Statements of Operations
The following table summarizes the effect of fair value measured assets and liabilities on the consolidated statement of operations (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
Reclassified from
 
Gain or (Loss)
Recognized in Income
 
Interest Savings or (Cost)
Recognized in Income
 
Accumulated OCI into Interest Expense
 
Year Ended December 31,
 
Year Ended December 31,
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
 
2013
 
2012
 
2011
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
(10,778
)
 
$
(48,827
)
 
$
(73,227
)
 
$
10,639

 
$
54,199

 
$
92,846

 
$
101

 
$
32

 
$
603

Credit default swaps
—

 
(4,014
)
 
—

 
—

 
—

 
—

 
—

 
—

 
—

Equity call options and other
(1,388
)
 
(3,644
)
 
(786
)
 
—

 
—

 
—

 
—

 
—

 
—

 
(12,166
)
 
(56,485
)
 
(74,013
)
 
10,639

 
54,199

 
92,846

 
101

 
32

 
603

Non-derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity securities
5,779

 
3,341

 
229

 
—

 
—

 
—

 
—

 
—

 
—

Total
(6,387
)
 
(53,144
)
 
(73,784
)
 
10,639

 
54,199

 
92,846

 
101

 
32

 
603

Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
4,400

  
17,091

 
4,258

 
(4,424
)
 
(22,159
)
 
(22,273
)
 
—

 
—

 
—

Credit default swaps
(2,025
)
 
—

 
(1,348
)
 
—

 
—

 
—

 
—

 
—

 
—

Short equity put options
(138
)
 
1,610

 
(1,277
)
 
—

 
—

 
—

 
—

 
—

 
—

Short equity call options
(274
)
  
393

 
89

 
—

 
—

 
—

 
—

 
—

 
—

Total
1,963

  
19,094

 
1,722

 
(4,424
)
 
(22,159
)
 
(22,273
)
 
—

 
—

 
—

Non-derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Short equity securities
—

  
64

 
375

 
—

 
—

 
—

 
—

 
—

 
—

Total
1,963

  
19,158

 
2,097

 
(4,424
)
 
(22,159
)
 
(22,273
)
 
—

 
—

 
—

Net
$
(4,424
)
 
$
(33,986
)
 
$
(71,687
)
 
$
6,215

 
$
32,040

 
$
70,573

 
$
101

 
$
32

 
$
603

Total combined
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate derivatives
$
(6,378
)
 
$
(31,736
)
 
$
(68,969
)
 
$
6,215

 
$
32,040

 
$
70,573

 
$
101

 
$
32

 
$
603

Credit default swaps
(1,937
)
 
(3,921
)
 
(1,317
)
 
—

 
—

 
—

 
—

 
—

 
—

Total derivatives
(8,315
)
(1)  
(35,657
)
(1)  
(70,286
)
(1)  
6,215

(2)  
32,040

(2)  
70,573

(2)  
101

 
32

 
603

Unrealized gain (loss) on marketable securities
5,115

(3)  
2,502

(3)  
(391
)
(3)  
—

 
—

 
—

 
—

 
—

 
—

Realized loss on marketable securities
(1,224
)
(2) (4)  
(831
)
(2) (4)  
(1,010
)
(2) (4)  
—

 
—

 
—

 
—

 
—

 
—

Net
$
(4,424
)
 
$
(33,986
)
 
$
(71,687
)
 
$
6,215

 
$
32,040

 
$
70,573

 
$
101

 
$
32

 
$
603

_________________________
(1)  
Reported as “Unrealized gain (loss) on derivatives” in the consolidated statements of operations.
(2)  
Included in “Other income” in the consolidated statements of operations.
(3)  
Reported as “Unrealized gain (loss) on marketable securities” in the consolidated statements of operations.
(4)  
Includes costs of $88 , $93 and $31 , respectively in 2013, 2012 and 2011 associated with credit default swaps.
In 2013, 2012 and 2011, the change in fair values of our interest rate derivatives that were recognized as change in other comprehensive income (loss) totaled $(3,000) , $(144,000) and $(78,000) , respectively.
During the next twelve months, we expect $100,000 of accumulated comprehensive loss will be reclassified to interest expense.

84

12. Summary of Fair Value of Financial Instruments
Financial Instruments Measured at Fair Value on a Recurring basis
The carrying amounts and estimated fair values of financial instruments measured at fair value on a recurring basis were as follows (in thousands):
 
December 31, 2013
 
December 31, 2012
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial assets:
 
 
 
 
 
 
 
Marketable securities
$
29,601

 
$
29,601

 
$
23,620

 
$
23,620

Derivative assets, net
$
19

 
$
19

 
$
6,391

 
$
6,391

Liabilities associated with marketable securities and other
$
3,764

 
$
3,764

 
$
1,641

 
$
1,641

Marketable securities. Marketable securities consist of public equity securities and equity put and call options. The fair value of these investments is based on quoted market closing prices at the balance sheet date. See Notes 2, 10, and 11 for a complete description of the methodology and assumptions utilized in determining the fair values.
Derivative assets, net and Liabilities associated with marketable securities and other. Fair value of the interest rate derivatives are determined using the net present value of the expected cash flows of each derivative based on the market-based interest rate curve and adjusted for credit spreads of Ashford and the counterparties. Fair value of the credit default swap derivatives is obtained from a third party who publishes the CMBX index composition and price data. Liabilities associated with marketable securities and other consists of a margin account balance, short public equity securities and short equity put and call options. Fair value is determined based on the quoted market closing prices at the balance sheet date. See Notes 2, 10, and 11 for a complete description of the methodology and assumptions utilized in determining the fair values.
Financial Instruments Not Measured at Fair Value
Some of our financial instruments are not measured at fair value on a recurring basis. Determining the estimated fair values of certain financial instruments such as notes receivable and indebtedness requires considerable judgment to interpret market data. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. Accordingly, the estimates presented are not necessarily indicative of the amounts at which these instruments could be purchased, sold or settled. The carrying amounts and estimated fair values of financial instruments not measured at fair value were as follows (in thousands):
 
December 31, 2013
 
December 31, 2012
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
128,780

 
$
128,780

 
$
185,935

 
$
185,935

Restricted cash
$
61,498

 
$
61,498

 
$
84,786

 
$
84,786

Accounts receivable
$
21,791

 
$
21,791

 
$
35,116

 
$
35,116

Notes receivable
$
3,384

 
$2,800 to $3,094

 
$
11,331

 
 $14,385 to $15,899

Due from affiliates
$
1,302

 
$
1,302

 
$
1,168

 
$
1,168

Due from Ashford Prime, net
$
13,042

 
$
13,042

 
$
—

 
$
—

Due from third-party hotel managers
$
33,728

 
$
33,728

 
$
48,619

 
$
48,619

Financial liabilities:
 
 
 
 
 
 
 
Indebtedness of continuing operations
$
1,818,929

 
$ 1,786,651 to $1,974,714

 
$
2,339,410

 
 $2,266,991 to $2,505,622

Accounts payable and accrued expenses
$
70,683

 
$
70,683

 
$
84,293

 
$
84,293

Dividends payable
$
20,735

 
$
20,735

 
$
18,258

 
$
18,258

Due to related party, net
$
270

 
$
270

 
$
3,725

 
$
3,725

Due to third-party hotel managers
$
958

 
$
958

 
$
1,410

 
$
1,410

Cash, cash equivalents and restricted cash. These financial assets bear interest at market rates and have maturities of less than 90 days. The carrying values approximate fair value due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.

85

Accounts receivable, accounts payable and accrued expenses, dividends payable, due to/from related party, due to/from affiliates, due to/from Ashford Prime and due to/from third-party hotel managers . The carrying values of these financial instruments approximate their fair values due to the short-term nature of these financial instruments. This is considered a Level 1 valuation technique.
Notes receivable. Fair value of the notes receivable was determined by using similar loans with similar collateral. Since there is very little to no trading activity we had to rely on our internal analysis of what we believe a willing buyer would pay for these notes at December 31, 2013 and 2012 . We estimated the fair value of the notes receivable to be approximately 8.6% to 17.3% lower than the carrying value of $3.4 million at December 31, 2013 , and approximately 27.0% to 40.3% higher than the carrying value of $11.3 million at December 31, 2012 . This is considered a Level 2 valuation technique.
Indebtedness. Fair value of indebtedness is determined using future cash flows discounted at current replacement rates for these instruments. Cash flows are determined using a forward interest rate yield curve. The current replacement rates are determined by using the U.S. Treasury yield curve or the index to which these financial instruments are tied, and adjusted for the credit spreads. Credit spreads take into consideration general market conditions, maturity and collateral. For the December 31, 2013 and 2012 indebtedness valuations, we used estimated future cash flows discounted at applicable index forward curves adjusted for credit spreads. We estimated the fair value of the total indebtedness to be approximately 98.2% to 108.6% of the carrying value of $1.8 billion at December 31, 2013 , and approximately 96.9% to 107.1% of the carrying value of $2.3 billion at December 31, 2012 . This is considered a Level 2 valuation technique.
13. Commitments and Contingencies
Restricted Cash – Under certain management and debt agreements for our hotel properties existing at December 31, 2013 , escrow payments are required for insurance, real estate taxes, and debt service. In addition, for certain properties based on the terms of the underlying debt and management agreements, we escrow 4% to 6% of gross revenues for capital improvements.
Franchise Fees – Under franchise agreements for our hotel properties existing at December 31, 2013 , we pay franchisor royalty fees between 3% and 6% of gross room revenue and, in some cases, food and beverage revenues. Additionally, we pay fees for marketing, reservations, and other related activities aggregating between 1% and 4% of gross room revenue and, in some cases, food and beverage revenues. These franchise agreements expire on varying dates between 2015 and 2035 . When a franchise term expires, the franchisor has no obligation to renew the franchise. A franchise termination could have a material adverse effect on the operations or the underlying value of the affected hotel due to loss of associated name recognition, marketing support, and centralized reservation systems provided by the franchisor. A franchise termination could also have a material adverse effect on cash available for distribution to shareholders. In addition, if we breach the franchise agreement and the franchisor terminates a franchise prior to its expiration date, we may be liable for up to three times the average annual fees incurred for that property.
For the years ended December 31, 2013 , 2012 , and 2011 , our continuing operations incurred franchise fees of $32.3 million , $29.2 million and $27.5 million , respectively, which are included in other expenses in the accompanying consolidated statements of operations.
Management Fees – Under management agreements for our hotel properties existing at December 31, 2013 , we pay a) monthly property management fees equal to the greater of $10,000 (CPI adjusted since 2003) or 3% of gross revenues, or in some cases 2% to 7% of gross revenues, as well as annual incentive management fees, if applicable, b) market service fees on approved capital improvements, including project management fees of up to 4% of project costs, for certain hotels, and c) other general fees at current market rates as approved by our independent directors, if required. These management agreements expire from 2015 through 2032 , with renewal options. If we terminate a management agreement prior to its expiration, we may be liable for estimated management fees through the remaining term, liquidated damages or, in certain circumstances, we may substitute a new management agreement.

86

Leases – We lease land and facilities under non-cancelable operating leases, which expire between 2040 and 2084 , including two ground leases related to our hotel properties. Several of these leases are subject to base rent plus contingent rent based on the related property’s financial results and escalation clauses. For the years ended December 31, 2013 , 2012 , and 2011 , our continuing operations recognized rent expense of $4.5 million , $4.7 million and $4.1 million , respectively, which included contingent rent of $898,000 , $1.4 million and $754,000 , respectively. Rent expense related to continuing operations is included in other expenses in the consolidated statements of operations. Future minimum rentals due under non-cancelable leases are as follows for each of the years ending December 31, (in thousands):
2014
$
925

2015
775

2016
669

2017
603

2018
564

Thereafter
27,963

Total
$
31,499

At December 31, 2013 , we had capital commitments of $41.4 million relating to general capital improvements that are expected to be paid in the next twelve months .
Employment Agreements – Our employment agreements with certain executive officers provide for minimum annual base salaries, other fringe benefits, and non-competition clauses as determined by the Board of Directors. The employment agreements contain automatic one year renewals effective December 31 st of each year, unless terminated by either party upon six months ’ notice, subject to severance provisions.
Litigation – We are engaged in various legal proceedings which have arisen but have not been fully adjudicated. The likelihood of loss from these legal proceedings, based on definitions within contingency accounting literature, ranges from remote to reasonably possible and to probable. Based on estimates of the range of potential losses associated with these matters, management does not believe the ultimate resolution of these proceedings, either individually or in the aggregate, will have a material adverse effect on our consolidated financial position or results of operations. However, the final results of legal proceedings cannot be predicted with certainty and if we fail to prevail in one or more of these legal matters, and the associated realized losses exceed our current estimates of the range of potential losses, our consolidated financial position or results of operations could be materially adversely affected in future periods.
Income Taxes – We and our subsidiaries file income tax returns in the federal jurisdiction and various states. Tax years 2010 through 2013 remain subject to potential examination by certain federal and state taxing authorities.
In September 2010, the Internal Revenue Service ("IRS") completed an audit of one of our taxable REIT subsidiaries that leases two of our hotel properties for the tax year ended December 31, 2007. The IRS issued a notice of proposed adjustment based on Internal Revenue Code (IRC) Section 482 that reduced the amount of rent we charged the taxable REIT subsidiary ("TRS"). We owned a 75% interest in the hotel properties and the TRS at issue. In connection with the TRS audit, the IRS selected our REIT for audit for the same tax year. In October 2011, the IRS issued an income tax adjustment to the REIT as an alternative to the TRS proposed adjustment. The REIT adjustment is based on the REIT 100% federal excise tax on our share of the amount by which the rent was held to be greater than the arm's length rate. We strongly disagreed with the IRS' position and appealed our cases to the IRS Appeals Office. In determining amounts payable by our TRS subsidiaries under our leases, we engaged a third party to prepare a transfer pricing study which concluded that the lease terms were consistent with arms' length terms as required by applicable Treasury regulations. We believe the IRS transfer pricing methodologies applied in the audits contained flaws and that the IRS adjustments to the rent charged were inconsistent with the U.S. federal tax laws related to REITs and true leases. The IRS Appeals Office reviewed our cases in 2012. In July 2013, the IRS Appeals Office issued "no-change letters" for the TRS and the REIT indicating that the 2007 tax returns were accepted as filed and the examinations resulted in no deficiencies. U.S. federal income tax assessment statutes of limitations generally limit the time the IRS has to make assessments to within three years after a return is due or filed, whichever is later. As a result, the IRS requested and we agreed to extend the assessment statute of limitations for both the TRS and the REIT for the 2007 tax year to March 31, 2014. Accordingly, the IRS has the right to reopen the cases until March 31, 2014. However, the IRS typically only reopens closed cases in very limited circumstances, none of which we believe are applicable to our cases.
In June 2012, the IRS completed audits of the same TRS and our REIT for the tax years ended December 31, 2008 and 2009. With respect to the 2009 tax year, the IRS did not propose any adjustments to the TRS or the REIT. For the 2008 tax year, the IRS issued notices of proposed adjustments for both the REIT and the TRS. The REIT adjustment is for $3.3 million of U.S.

87

federal excise taxes and represents the amount by which the IRS asserts that the rent charged to the TRS was greater than the arms' length rate pursuant to IRC Section 482. The TRS adjustment is for $1.6 million of additional income which would equate to approximately $467,000 of additional U.S. federal income taxes and potential state income taxes of $83,000 , net of federal benefit. The TRS adjustment represents the IRS' imputation of compensation to the TRS under IRC Section 482 for agreeing to be a party to the lessor entity's bank loan agreement. We owned a 75% interest in the lessor entity through November 19, 2013, when our interest was contributed to Ashford Prime in connection with the previously discussed spin-off. We strongly disagree with both of the IRS adjustments for the reasons noted under the 2007 audits, and in addition, we believe the IRS has misinterpreted certain terms of the lease, third party hotel management agreements, and bank loan agreements. We appealed our cases to the IRS Appeals Office and the IRS assigned the same Appeals team that oversaw our 2007 cases to our 2008 cases. Our representatives attended the Appeals conferences for the 2008 cases in August 2013 and February 2014. One or more additional conferences with the Appeals Office will be required to resolve our cases and we anticipate these will occur later in 2014. The IRS has requested and we have agreed to extend the assessment statute of limitations three times for both the TRS and REIT for the 2008 tax year. The most recent request was made in August 2013 and extends the statute for the 2008 tax year to September 30, 2014. We have indemnified Ashford Prime for any potential losses resulting from the completion of this examination.
With respect to the 2008 IRS audit, we believe we will substantially prevail in the eventual settlement of the audit and that the settlement will not have a material adverse effect on our financial condition and results of operations. We have concluded that the positions reported on the tax returns under audit by the IRS are, solely on their technical merits, more-likely-than-not to be sustained upon examination.
On November 19, 2013, we completed the spin-off of Ashford Prime. For federal income tax purposes, we recorded a gain as a result of the spin-off.  If Ashford Prime qualifies for taxation as a REIT for 2013, that gain will be qualifying income for purposes of our 2013 REIT income tests.  If, however, Ashford Prime were to fail to qualify as a REIT for 2013, that gain would be non-qualifying income for purposes of the 75% gross income test.
If we sell or transfer the Marriott Crystal Gateway in Arlington, Virginia prior to July 2016, we will be required to indemnify the entity from which we acquired the property if, as a result of such transactions, such entity would recognize a gain for federal tax purposes.
In general, tax indemnities equal the federal, state, and local income tax liabilities the contributor or their specified assignee incurs with respect to the gain allocated to the contributor. The contribution agreements’ terms generally require us to gross up tax indemnity payments for the amount of income taxes due as a result of such tax indemnities.
Potential Pension Liabilities – Upon our 2006 acquisition of a hotel property, certain employees of such hotel were unionized and covered by a multi-employer defined benefit pension plan. At that time, no unfunded pension liabilities existed. Subsequent to our acquisition, a majority of employees, who are employees of the hotel manager, Remington Lodging, petitioned the employer to withdraw recognition of the union. As a result of the decertification petition, Remington Lodging withdrew recognition of the union. At the time of the withdrawal, the National Retirement Fund, the union's pension fund, indicated unfunded pension liabilities existed. The National Labor Relations Board ("NLRB") filed a complaint against Remington Lodging seeking, among other things, that Remington Lodging's withdrawal of recognition was unlawful. Pending the final determination of the NLRB complaint, including appeals, the pension fund entered into a settlement agreement with Remington Lodging on November 1, 2011, providing that (a) Remington Lodging will continue to make monthly pension fund payments pursuant to the collective bargaining agreement, and (b) if the withdrawal of recognition is ultimately deemed lawful, Remington Lodging will have an unfunded pension liability equal to $1.7 million minus the monthly pension payments made by Remington Lodging since the settlement agreement. To illustrate, if Remington Lodging - as of the date a final determination occurs - has made monthly pension payments equaling $100,000 , Remington Lodging's remaining withdrawal liability shall be the unfunded pension liability of $1.7 million minus $100,000 (or $1.6 million ). This remaining unfunded pension liability shall be paid to the pension fund in annual installments of $84,000 (but may be made monthly or quarterly, at Remington Lodging's election), which shall continue for the remainder of the twenty-( 20 )-year capped period, unless Remington Lodging elects to pay the unfunded pension liability amount earlier. We agreed to indemnify Remington Lodging for the payment of the unfunded pension liability as set forth in the settlement agreement.
14. Series B-1 Convertible Redeemable Preferred Stock
At December 31, 2010, we had 7.2 million outstanding shares of Series B-1 cumulative convertible redeemable preferred stock. Series B-1 preferred stock was convertible at any time, at the option of the holder, into our common stock by dividing the preferred stock carrying value by the conversion price then in effect, which was $10.07 , subject to certain adjustments, as defined. Series B-1 preferred stock was redeemable for cash at our option at the liquidation preference, which is set at $10.07 . In 2010, 200,000 shares of our Series B-1 preferred stock with a carrying value of $2.0 million were converted to common shares, pursuant to the terms of the Series B-1 preferred stock. Series B-1 preferred stock was also redeemable for cash at the option of the holder at a specified redemption price, as defined, if certain events were to occur. Due to these redemption features that were not under

88

our control, the preferred stock was classified outside of permanent equity. Series B-1 preferred stock holders were entitled to vote, on an as-converted basis voting as a single class together with common stock holders, on all matters to be voted on by our shareholders.
In May 2011, we redeemed 5.9 million shares of the outstanding Series B-1 preferred shares at $12.4656 per share, or a total of $73.0 million , with the proceeds from issuance of 3.35 million shares of our 9% Series E cumulative preferred stock. During 2011, the remaining 1.4 million outstanding shares were converted to 1.4 million shares of our common stock, which was treated as a dividend of $17.4 million to the Series B-1 preferred shareholder in accordance with the applicable accounting guidance. During 2011, we declared dividends of $1.4 million to holders of the Series B-1 preferred stock.
15. Redeemable Noncontrolling Interests in Operating Partnership
Redeemable noncontrolling interests in the operating partnership represents the limited partners’ proportionate share of equity in earnings/losses of the operating partnership, which is an allocation of net income/loss attributable to the common unit holders based on the weighted average ownership percentage of these limited partners’ common units and the units issued under our Long-Term Incentive Plan (the “LTIP units”) that are vested throughout the period plus distributions paid to the limited partners with regard to the Class B units. Class B common units have a fixed dividend rate of 6.82% in years one to three and 7.2% thereafter, and have priority in payment of cash dividends over common units but otherwise have no preference over common units. Aside from the Class B units, all other outstanding units represent common units. Beginning one year after issuance, each common unit of limited partnership interest (including each Class B common unit) may be redeemed for either cash or, at our sole discretion, one share of our common stock, subject to contractual lock-up agreements that prevent holders of Class B common units from redeeming two-thirds of such units before 18 months and one-third of such units before two years from the issuance date of such units. Beginning ten years after issuance, each Class B unit may be converted into a common unit at either party’s discretion.
LTIP units, which are issued to certain executives and employees as compensation, have vesting periods ranging from three to five years. Additionally, certain independent members of the Board of Directors have elected to receive LTIP units as part of their compensation, which are fully vested upon grant. Upon reaching economic parity with common units, each vested LTIP unit can be converted by the holder into one common partnership unit of the operating partnership which then can be redeemed for cash or, at our election, settled in our common stock. For the years ended December 31, 2013 , 2012 and 2011 , we issued 1.4 million , 1.3 million and 2.2 million LTIP units, respectively, with grant date fair values of $16.4 million , $11.2 million and $27.4 million , respectively. During 2013 , 2012 and 2011 , respectively, 1.6 million , 1.4 million and 520,000 LTIP units vested. There were no forfeitures in 2013 , 2012 or 2011 . As of December 31, 2013 , we have issued 7.0 million LTIP units, of which all but 142,000 units issued in May 2013 and 1.2 million units issued in May 2011 had reached full economic parity with the common units and are convertible into common partnership units. During 2013 , 3.3 million LTIP units were converted to common units, leaving 3.7 million outstanding LTIP units. All LTIP units issued had an aggregate value of $69.2 million at the date of grant which is being amortized over their respective vesting periods. Compensation expense of $19.0 million , $14.8 million and $9.2 million was recognized for 2013 , 2012 and 2011 , respectively. The unamortized value of the 3.1 million unvested LTIP units was $21.2 million at December 31, 2013 , which will be amortized over periods from 0.2 years to 2.4 years . The unvested LTIP units had an aggregate intrinsic value of $25.5 million .
For 2013 and 2012 , no operating partnership units were presented for redemption or converted to shares of our common stock. For 2011 , redemptions of 100,000 units with a fair value of $1.0 million were converted to common shares at our election.

89

Redeemable noncontrolling interests in our operating partnership as of December 31, 2013 and 2012 were $134.2 million and $151.2 million , which represented ownership of 12.72% and 12.92% in our operating partnership, respectively. The carrying value of redeemable noncontrolling interests as of December 31, 2013 and 2012 had adjustments of $123.3 million and $110.0 million , respectively, to reflect the excess of redemption value over the accumulated historical costs. The carrying value of the redeemable noncontrolling interests at December 31, 2013 and 2012 also reflected reclassifications of $5.3 million and $8.5 million , respectively to equity of the historical accumulated costs of unvested LTIP units. For 2013 , 2012 and 2011 , we allocated net loss of $8.2 million , $9.3 million and $2.8 million to these redeemable noncontrolling interests, respectively. We declared cash distributions to operating partnership units of $10.3 million , $9.1 million and $7.8 million for the years ended December 31, 2013 , 2012 and 2011 respectively. A summary of the activity of the operating partnership units is as follow (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Units outstanding at beginning of year
17,611

 
16,317

 
14,195

Units issued
1,380

 
1,294

 
2,222

Units converted to common shares
—

 
—

 
(100
)
Units outstanding at end of year
18,991

 
17,611

 
16,317

Units convertible/redeemable at end of year
15,918

 
14,305

 
12,895

 
16. Equity
Equity Offering – On June 20, 2013, we commenced a follow-on public offering of 11.0 million shares of common stock at $12.00 per share for gross proceeds of $132.0 million . The aggregate proceeds net of underwriting discount and other expenses were approximately $125.9 million . The offering settled on June 26, 2013. We granted the underwriters a 30 -day option to purchase up to an additional 1.65 million shares of common stock. On July 24, 2013, the underwriters partially exercised their option and purchased an additional 1.25 million shares of our common stock at a price of $12.00 per share less the underwriting discount resulting in additional net proceeds of approximately $14.2 million .
At-the-Market Preferred Stock Offering – In September 2011, we entered into an at-the-market (“ATM”) program with an investment banking firm, pursuant to which we may issue up to 700,000 shares of 8.55% Series A Cumulative Preferred Stock and up to 700,000 shares of 8.45% Series D Cumulative Preferred Stock at market prices up to $30.0 million . The ATM program remains in effect until such time that either party elects to terminate or the share or dollar thresholds are reached. On March 2, 2012, we commenced issuances of preferred stock and during the first two quarters of the year ended December 31, 2012, we issued 169,306 shares of 8.55% Series A Cumulative Preferred Stock for gross proceeds of $4.2 million and 501,909 shares of 8.45% Series D Cumulative Preferred Stock for gross proceeds of $12.3 million . The aggregate proceeds, net of commissions and other expenses, were $16.0 million for the year ended December 31, 2012. There were no issuances for the year ended December 31, 2013 .
Reissuance of Treasury Stock – In July 2011, we reissued 7.0 million shares of our treasury stock at a gross price of $12.50 per share. We received net cash proceeds of $83.2 million . In January 2011, an underwriter purchased an additional 300,000 shares of our common shares through the partial exercise of the underwriter’s 1.1 million share over-allotment option and we received net proceeds of $2.8 million . The net proceeds received from the reissuance were used to repay a portion of our outstanding borrowings under our senior credit facility and for other general corporate purposes.
At December 31, 2013 and 2012 , there were 124.9 million shares of common stock issued, and 80.6 million and 68.2 million shares outstanding, respectively.
Potential Sale of Common Shares – In February 2010, we entered into a Standby Equity Distribution Agreement (the “SEDA”) with YA Global Master SPV Ltd. (“YA Global”) in which YA Global agreed to purchase up to $50.0 million of newly issued shares of our common stock. The SEDA terminated on February 24, 2013. No shares were issued pursuant to the SEDA.
In September 2010, we entered into an ATM program with an investment banking firm to offer for sale from time to time up to $50.0 million of our common stock at market prices. No shares were sold during 2013 , 2012 or 2011 . Proceeds from the ATM program, to the extent the program is utilized, are expected to be used for general corporate purposes including investments and reduction of debt. The ATM program remains in effect until such time that either party elects to terminate or the $50 million cap is reached.
Stock Repurchases – Beginning in November 2007, our Board of Directors has authorized management to purchase our common shares from time to time on the open market and in December 2008, we completed all of the $125.0 million repurchases

90

authorized in 2007 and 2008. In January 2009, the Board of Directors approved an additional $200.0 million authorization under the same repurchase plan (excluding fees, commissions and all other ancillary expenses) and expanded the plan to include: (i) the repurchase of shares of our common stock, Series A preferred stock, Series B-1 preferred stock and Series D preferred stock and/or (ii) the prepayment of our outstanding debt obligations, including debt secured by our hotel assets and debt senior to our mezzanine or loan investments. In February 2010, the Board of Directors expanded the repurchase program further to include the potential repurchase of units of our operating partnership. As of June 2010, we ceased all repurchases under this plan indefinitely. In September 2011, our Board of Directors authorized the reinstatement of our 2007 share repurchase program and authorized an increase in our repurchase plan authority from $58.4 million to $200.0 million (excluding fees, commissions and all other ancillary expenses). Under this plan, the board has authorized: (i) the repurchase of shares of our common stock, Series A preferred stock, Series D preferred stock and Series E preferred stock, and/or (ii) discounted purchases of our outstanding debt obligations, including debt secured by our hotel assets. We intend to fund any repurchases or discounted debt purchases with the net proceeds from asset sales, cash flow from operations, existing cash on the balance sheet, and other sources. For the years ended December 31, 2013 , 2012 and 2011, no shares of our common or preferred stock have been repurchased under the share repurchase program since its reinstatement.
In addition, we acquired 32,855 shares, 55,005 shares and 33,406 shares of our common stock in 2013 , 2012 and 2011 , respectively, to satisfy employees’ statutory minimum federal income tax obligations in connection with vesting of equity grants issued under our stock-based compensation plan.
Preferred Stock – In accordance with Ashford’s charter, we are authorized to issue 50 million shares of preferred stock, which currently includes Series A cumulative preferred stock, Series D cumulative preferred stock, and Series E cumulative preferred stock.
Series A Preferred Stock. At December 31, 2013 and 2012 , we had 1.7 million outstanding shares of 8.55% Series A cumulative preferred stock, respectively. Series A preferred stock has no maturity date, and we are not required to redeem these shares at any time. After September 22, 2009 , Series A preferred stock is redeemable at our option for cash, in whole or from time to time in part, at a redemption price of $25 per share plus accrued and unpaid dividends, if any, at the redemption date. Series A preferred stock dividends are payable quarterly, when and as declared, at the rate of 8.55%  per annum of the $25 liquidation preference (equivalent to an annual dividend rate of $2.1375 per share). In general, Series A preferred stock holders have no voting rights.
Series D Preferred Stock. At December 31, 2013 and 2012 , we had 9.5 million shares of Series D preferred stock outstanding, respectively. Series D preferred stock has no maturity date, and we are not required to redeem the shares at any time. Prior to July 18, 2012, Series D preferred stock was not redeemable, except in certain limited circumstances such as to preserve the status of our qualification as a REIT or in the event the Series D stock ceases to be listed on an exchange and we cease to be subject to the reporting requirements of the Securities Exchange Act, as described in Ashford’s charter. However, on and after July 18, 2012 , Series D preferred stock is redeemable at our option for cash, in whole or from time to time in part, at a redemption price of $25 per share plus accrued and unpaid dividends, if any, at the redemption date. Series D preferred stock quarterly dividends are set at the rate of 8.45%  per annum of the $25 liquidation preference (equivalent to an annual dividend rate of $2.1125 per share). The dividend rate increases to 9.45%  per annum if these shares are no longer traded on a major stock exchange. In general, Series D preferred stock holders have no voting rights .
Series E Preferred Stock. In April 2011, we completed the offering of 3.4 million shares (including 350,000 shares pursuant to the underwriters’ exercise of an over-allotment option) of our 9.00% Series E Cumulative Preferred Stock at a net price of $24.2125 per share, and we received net proceeds of $80.8 million after underwriting fees. Of the net proceeds from the offering, $73.0 million was used to redeem 5.9 million shares of the total 7.3 million shares of our Series B-1 convertible preferred stock outstanding. The remaining proceeds were used for other general corporate purposes. In May 2011, the remaining 1.4 million outstanding Series B-1 convertible preferred shares were converted into 1.4 million shares of our common stock.
In October 2011, we issued and sold an additional 1.3 million shares of our 9.00% Series E Cumulative Preferred Stock at a price of $23.47 per share, in an underwritten public offering pursuant to an effective registration statement. We received net proceeds of $28.9 million after underwriting fees. The proceeds from the offering were used for general corporate purposes, including, without limitation, repayment of debt or other maturing obligations, financing future hotel related investments, capital expenditures and working capital. A portion of the proceeds may also be used for repurchasing shares of our common stock under our existing repurchase program. At December 31, 2013 and 2012 , we had 4.6 million shares of Series E preferred stock outstanding. The Series E preferred stock has no maturity date, and we are not required to redeem the shares at any time. Prior to April 18, 2016, Series E preferred stock is not redeemable, except in certain limited circumstances such as to preserve the status of our qualification as a REIT or in the event a change of control occurs. If we choose not to redeem the Series E shares upon a change of control, each holder of Series E preferred stock can convert their shares into shares of our common stock based on a formula specified in the agreement. However, on and after April 18, 2016 , Series E preferred stock is redeemable at our option for cash,

91

in whole or from time to time in part, at a redemption price of $25 per share plus accrued and unpaid dividends, if any, at the redemption date. Series E preferred stock quarterly dividends are set at the rate of 9.00%  per annum of the $25 liquidation preference (equivalent to an annual dividend rate of $2.25 per share). In general, Series E preferred stock holders have no voting rights.
Dividends – A summary of dividends declared is as follows (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Common stock related:
 
 
 
 
 
Common shares
$
37,054

 
$
29,993

 
$
25,652

Preferred stocks:
 
 
 
 
 
Series A preferred stock
3,542

 
3,516

 
3,180

Series D preferred stock
20,002

 
19,869

 
18,940

Series E preferred stock
10,418

 
10,417

 
6,019

Total dividends declared
$
71,016

 
$
63,795

 
$
53,791

Noncontrolling Interests in Consolidated Entities – Our partners in our majority-owned consolidated entities had an ownership interest of 15% in two hotel properties at December 31, 2013 , with a total carrying value of $2.0 million , and ownership interests from 15% to 25% in four hotel properties at December 31, 2012 , with total carrying value of $15.4 million . The two properties in which our partners held a 25% interest were contributed to Ashford Prime OP in connection with the Ashford Prime spin-off. Through December 1, 2011, the hotel property held by a joint venture in which we previously had an ownership interest of 89% was leased on a triple-net lease basis to a third-party tenant. Rental income from this operating lease is included in the consolidated results of operations for the period from January 1, 2010 through December 1, 2011. Effective December 2, 2011, we acquired the remaining 11% ownership interest from our partner as a result of a dispute resolution. The triple-net lease agreement was canceled and the operating results of this hotel property have been included in our consolidated statements of operations since December 2, 2011 through November 18, 2013, the date the property was contributed to Ashford Prime in connection with the spin-off. We recognized a gain of $9.7 million for this transaction, consisting of the assignment of an $8.1 million note receivable and an agreement to retain $1.6 million of security deposits that were originally refundable, which is included in “Other income” in the consolidated statements of operations. Income from consolidated entities attributable to these noncontrolling interests was $908,000 , $868,000 and $610,000 for 2013, 2012 and 2011, respectively, which includes the results of the two spun-off properties through November 18, 2013.
17. Impairment Charges
Notes Receivable – Principal and interest payments were not made since October 2008, on the $18.2 million junior participation note receivable secured by the Four Seasons hotel property in Nevis. The underlying hotel property suffered significant damage by Hurricane Omar. We discontinued recording interest on this note beginning in October 2008. In 2009, we recorded an impairment charge to fully reserve this note receivable. In May 2010, the senior mortgage lender foreclosed on the loan. As a result of the foreclosure, our interest in the senior mortgage was converted to a 14.4% subordinate beneficial interest in the equity of the trust that holds the hotel property. Due to our junior status in the trust, we have not recorded any value for our beneficial interest at December 31, 2013 and 2012 .
In April 2011, we entered into a settlement agreement with the borrower of a mezzanine loan which was secured by a 105 -hotel property portfolio and scheduled to mature in April 2011. The borrower paid off the loan for $22.1 million . The mezzanine loan had a carrying value of $17.9 million at March 31, 2011 and December 31, 2010, after an impairment charge of $7.8 million was recorded at December 31, 2010. The difference between the settlement amount and the carrying value of $4.2 million was recorded as a credit to impairment charges in accordance with the applicable accounting guidance.
The borrower of a $4.0 million junior participation loan collateralized by the Sheraton hotel property in Dallas, Texas due in July 2009 has been in default since May 11, 2009. Based on a third-party appraisal, it was unlikely that we would be able to recover our full investment due to our junior status. As a result, we recorded a valuation allowance for the full amount of the note receivable during 2009. In February 2010, we and the senior note holder of the participation note receivable formed Redus JV for the purposes of holding, managing or disposing of the Sheraton hotel property in Dallas, Texas, which collateralized our $4.0 million principal amount junior participating note receivable. We had an 18% subordinated ownership interest in Redus JV that was carried at no value. This hotel was sold in May 2011, but due to our subordinated status, we did not receive any proceeds from the sale, and no gain or loss was recognized.

92

In June 2009, Extended Stay Hotels, LLC (“ESH”), the issuer of our $164 million principal balance mezzanine loan receivable secured by 681 hotels with initial maturity in June 2009, filed for Chapter 11 bankruptcy protection from its creditors. This mezzanine loan was originally purchased for $98.4 million . At the time of ESH’s bankruptcy filing, a discount of $11.4 million had been amortized to increase the carrying value of the note to $109.4 million . We anticipated that ESH, through its bankruptcy filing, would attempt to impose a plan of reorganization which could extinguish our investment. Accordingly, we recorded a valuation allowance of $109.4 million in earnings for the full amount of the book value of the note. In October 2010, the ESH bankruptcy proceedings were completed and settled with new owners. The full amount of the valuation allowance was charged off in 2010. In 2012, a valuation adjustment of $5.0 million on the previously impaired note was credited to impairment charges as a result of proceeds received from a confidential settlement.
In February 2010, the mezzanine loan secured by the Ritz-Carlton hotel property in Key Biscayne, Florida, with a principal amount of $38.0 million and a net carrying value of $23.0 million at December 31, 2009 was restructured. In connection with the restructuring, we received a cash payment of $20.2 million and a $4.0 million note receivable. We recorded a net impairment charge of $10.7 million in 2009 on the original mezzanine loan. The restructured note bears an interest rate of 6.09% and matures in June 2017 with interest only payments through maturity. The note was recorded at its net present value of $3.0 million at restructuring, based on its future cash flows. The interest payments are recorded as reductions of the principal of the note receivable, and the valuation adjustments to the net carrying amount of this note are recorded as a credit to impairment charges.
The following table summarizes the changes in allowance for losses for the years ended December 31, 2013 , 2012 and 2011 (in thousands):
 
2013
 
2012
 
2011
Balance at beginning of period
$
8,333

 
$
8,711

 
$
16,875

Impairment charges
—

 
—

 
—

Valuation adjustments (credits to impairment charges)
(396
)
 
(378
)
 
(4,841
)
Charge-offs
—

 
—

 
(3,323
)
Balance at end of period
$
7,937

 
$
8,333

 
$
8,711

Discontinued Operations – As fully discussed in Note 6, we recorded impairment charges on hotel properties included in discontinued operations of $4.1 million and $6.2 million in 2012 and 2011 , respectively, to write down those properties to their estimated fair values less cost to sell.
18. Stock-Based Compensation
Under the Amended and Restated 2003 Stock Incentive Plan approved by shareholders, we are authorized to grant 7.8 million restricted shares of our common stock as incentive stock awards. In 2011, shareholders approved the 2011 Stock Incentive Plan in the annual shareholders meeting, under which we are authorized to grant 5.8 million restricted shares as incentive stock awards. At December 31, 2013 , 1.6 million shares were available for future issuance under the 2011 Stock Incentive Plan and no shares were available under the Amended and Restated 2003 Stock Incentive Plan. A summary of our restricted stock activity is as follows (shares in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
Restricted Shares
 
Weighted Average Price at Grant
 
Restricted Shares
 
Weighted Average Price at Grant
 
Restricted Shares
 
Weighted Average Price at Grant
Outstanding at beginning of year
487

 
$
9.15

 
900

 
$
6.14

 
1,387

 
$
4.91

Restricted shares granted
198

 
$
11.87

 
204

 
$
8.87

 
285

 
$
11.39

Restricted shares vested
(266
)
 
$
8.97

 
(586
)
 
$
4.44

 
(761
)
 
$
5.82

Restricted shares forfeited
(1
)
 
$
9.81

 
(31
)
 
$
9.13

 
(11
)
 
$
7.88

Outstanding at end of year
418

 
$
10.55

 
487

 
$
9.15

 
900

 
$
6.14

At December 31, 2013 , the outstanding restricted stock had vesting schedules between January 2014 and January 2016. Stock-based compensation expense of $2.3 million , $2.7 million and $3.2 million was recognized for the years ended December 31, 2013 , 2012 and 2011 , respectively. The restricted stock that vested during 2013 had a fair value of $3.2 million at the date of


vesting. At December 31, 2013 , the unamortized cost of the unvested shares of restricted stock was $2.7 million which will be amortized over a period of 2.2 years. At December 31, 2013 , the outstanding restricted shares had an aggregate intrinsic value of $3.5 million .
19. Employee Benefit Plans
401(k) Plan – Effective January 1, 2006, we established our 401(k) Plan, a qualified defined contribution retirement plan that covers employees 21 years of age or older who have completed one year of service and work a minimum of 1,000 hours annually. The 401(k) Plan allows eligible employees to contribute subject to IRS imposed limitations, to various investment funds. We make matching cash contributions of 50% of each participant’s contributions, based on participant contributions of up to 6% of compensation. Participant contributions vest immediately whereas company matches vest 25% annually. For the years ended December 31, 2013 , 2012 and 2011 , we incurred matching expense of $211,000 , $211,000 , and $202,000 , respectively.
Employee Savings and Incentive Plan (ESIP) – Our ESIP, a nonqualified compensation plan that covers employees who work at least 25 hours per week, allows eligible employees to contribute up to 100% of their compensation to various investment funds. We match 25% of the first 10% each employee contributes. Matches are only made for employees not participating in the 401(k) Plan. Employee contributions vest immediately whereas company contributions vest 25% annually. For the years ended December 31, 2013 , 2012 and 2011 , we incurred matching expenses of $70,000 , $4,000 and $5,000 , respectively.
Deferred Compensation Plan – Effective January 1, 2008, we established a nonqualified deferred compensation plan for certain executive officers. The plan allows participants to defer up to 100% of their base salary, bonus and stock awards and select an investment fund for measurement of the deferred compensation liability. Included in the 44.3 million and 56.7 million shares of treasury stock at December 31, 2013 and 2012 , were 1.5 million and 969,000 shares under a deferred compensation plan that will be settled in our shares. During 2013, we recorded stock-based compensation expense of $4.3 million , included in "Corporate, general and administrative" expense, as a result of modifications to the deferred compensation plan in connection with the Ashford Prime spin-off in which plan participants were granted additional shares of our stock.
20. Income Taxes
For federal income tax purposes, we elected to be treated as a REIT under the Internal Revenue Code. To qualify as a REIT, we must meet certain organizational and operational stipulations, including a requirement that we distribute at least 90% of our REIT taxable income, excluding net capital gains, to our shareholders. We currently intend to adhere to these requirements and maintain our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes as well as to federal income and excise taxes on our undistributed taxable income.
At December 31, 2013 , all of our 87 legacy hotel properties were leased or owned by Ashford TRS (our taxable REIT subsidiaries). Ashford TRS recognized net book income of $22.6 million , $31.5 million and $18.8 million for the years ended December 31, 2013 , 2012 and 2011 , respectively.
The following table reconciles the income tax expense at statutory rates to the actual income tax (expense) benefit recorded (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Income tax expense at federal statutory income tax rate of 35%
$
(7,907
)
 
$
(11,508
)
 
$
(8,723
)
State income tax expense, net of federal income tax benefit
(469
)
 
(2,710
)
 
(1,278
)
Permanent differences
(761
)
 
(607
)
 
(142
)
State and local income tax (expense) benefit on pass-through entity subsidiaries
(34
)
 
10

 
(114
)
Gross receipts and margin taxes
(631
)
 
(749
)
 
40

Interest and penalties
(20
)
 
(18
)
 
(9
)
Valuation allowance
8,311

 
13,207

 
8,606

Income tax (expense) benefit for income from continuing operations
(1,511
)
 
(2,375
)
 
(1,620
)
Income tax (expense) benefit for income from discontinued operations
—

 
23

 
(85
)
Total income tax (expense) benefit
$
(1,511
)
 
$
(2,352
)
 
$
(1,705
)


The components of income tax (expense) benefit from continuing operations are as follows (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Current:
 
 
 
 
 
Federal
$
(919
)
 
$
(1,537
)
 
$
(579
)
State
(684
)
 
(757
)
 
(165
)
Total current
(1,603
)
 
(2,294
)
 
(744
)
Deferred:
 
 
 
 
 
Federal
157

 
7

 
(708
)
State
(65
)
 
(88
)
 
(168
)
Total deferred
92

 
(81
)
 
(876
)
Total income tax (expense) benefit
$
(1,511
)
 
$
(2,375
)
 
$
(1,620
)
For the years ended December 31, 2013 , 2012 and 2011 income tax expense includes interest and penalties paid to taxing authorities of $20,000 , $18,000 and $9,000 , respectively. At December 31, 2013 and 2012 , we determined that there were no amounts to accrue for interest and penalties due to taxing authorities.
At December 31, 2013 and 2012 , our deferred tax asset (liability) and related valuation allowance consisted of the following (in thousands):
 
December 31,
 
2013
 
2012
Allowance for doubtful accounts
$
94

 
$
103

Unearned income
344

 
312

Unfavorable management contract liability
2,838

 
4,338

Federal and state net operating losses
31,360

 
43,571

Accrued expenses
1,350

 
1,844

Prepaid expenses
(4,391
)
 
(5,460
)
Accrued revenue
—

 
(211
)
Alternative minimum tax credit
972

 
—

Tax property basis less than book basis
(2,175
)
 
(2,235
)
Tax derivatives basis greater than book basis
2,787

 
2,035

Deferred gain
1,685

 
—

Other
282

 
347

Deferred tax asset
35,146

 
44,644

Valuation allowance
(35,146
)
 
(45,398
)
Net deferred tax liability
$
—

 
$
(754
)
At December 31, 2013 and 2012 , we recorded a valuation allowance of $35.1 million and $45.4 million , respectively, to fully reserve our deferred tax asset. As a result of consolidated losses in 2013 , 2012 and 2011 , and the limitation imposed by the Internal Revenue Code on the utilization of net operating losses of acquired subsidiaries, we believe that it is more likely than not our deferred tax asset will not be realized, and therefore, have provided a valuation allowance to reserve against the balances. At December 31, 2013 , Ashford TRS had net operating loss carryforwards for federal income tax purposes of $82.3 million , which begin to expire in 2022 , and are available to offset future taxable income, if any, through 2032 . Approximately $10.6 million of the $82.3 million of net operating loss carryforwards is attributable to acquired subsidiaries and subject to substantial limitation on its use. At December 31, 2013 , Ashford Hospitality Trust, Inc., our REIT, had net operating loss carryforwards for federal income tax purposes of $270.3 million , which begin to expire in 2023 , and are available to offset future taxable income, if any, through 2032 .


The following table summarizes the changes in the valuation allowance (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Balance at beginning of year
$
45,398

 
$
58,081

 
$
65,249

Additions charged to other
4,315

 
4,481

 
19,255

Deductions
(14,567
)
 
(17,164
)
 
(26,423
)
Balance at end of year
$
35,146

 
$
45,398

 
$
58,081

 
21. Loss Per Share
The following table reconciles the amounts used in calculating basic and diluted loss per share (in thousands, except per share amounts):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Loss attributable to common shareholders – Basic and diluted:
 
 
 
 
 
Income (loss) from continuing operations attributable to the Company
$
(41,283
)
 
$
(50,570
)
 
$
9,948

Less: Dividends on preferred stocks
(33,962
)
 
(33,802
)
 
(46,876
)
Less: Dividends on common stock
(36,841
)
 
(29,724
)
 
(25,266
)
Less: Dividends on unvested restricted shares
(213
)
 
(269
)
 
(386
)
Undistributed loss from continuing operations allocated to common shareholders
(112,299
)
 
(114,365
)
 
(62,580
)
Add back: Dividends on common stock
36,841

 
29,724

 
25,266

Distributed and undistributed loss from continuing operations - basic and diluted
$
(75,458
)
 
$
(84,641
)
 
$
(37,314
)
 
 
 
 
 
 
Loss from discontinued operations allocated to common shareholders:
 
 
 
 
 
Loss from discontinued operations attributable to the Company
$
—

 
$
(3,210
)
 
$
(7,839
)
 
 
 
 
 
 
Weighted average common shares outstanding:
 
 
 
 
 
Weighted average common shares outstanding - basic and diluted
75,155

 
67,533

 
61,954

 
 
 
 
 
 
Loss per share – basic and diluted:
 
 
 
 
 
Loss from continuing operations allocated to common shareholders per share
$
(1.00
)
 
$
(1.25
)
 
$
(0.60
)
Loss from discontinued operations allocated to common shareholders per share
—

 
(0.05
)
 
(0.13
)
Net loss allocated to common shareholders per share
$
(1.00
)
 
$
(1.30
)
 
$
(0.73
)
Due to their anti-dilutive effect, the computation of diluted loss per share does not reflect the adjustments for the following items (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Loss from continuing operations allocated to common shareholders is not adjusted for:
 
 
 
 
 
Income allocated to unvested restricted shares
$
213

 
$
269

 
$
386

Loss attributable to redeemable noncontrolling interests in operating partnership
(8,183
)
 
(8,856
)
 
(1,764
)
Dividends to Series B-1 Preferred Stock
—

 
—

 
18,737

Total
$
(7,970
)
 
$
(8,587
)
 
$
17,359

Weighted average diluted shares are not adjusted for:
 
 
 
 
 
Effect of unvested restricted shares
128

 
195

 
563

Effect of assumed conversion of operating partnership units
18,699

 
17,353

 
15,571

Effect of assumed conversion of Series B-1 Preferred Stock
—

 
—

 
2,509

Total
18,827

 
17,548

 
18,643

 


22. Segment Reporting
We operate in two business segments within the hotel lodging industry: direct hotel investments and hotel financing. Direct hotel investments refer to owning hotels through either acquisition or new development. We report operating results of direct hotel investments on an aggregate basis as substantially all of our hotel investments have similar economic characteristics and exhibit similar long-term financial performance. Hotel financing refers to owning subordinate hotel-related mortgages through acquisition or origination. We do not allocate corporate-level accounts to our operating segments, including transaction acquisition and contract termination costs, corporate general and administrative expenses, non-operating interest income, interest expense, amortization of loan costs, write-off of premiums, loan costs and exit fees, unrealized income (loss) on investments and derivatives, and income tax expense/benefit.
Financial information related to our reportable segments is as follows (in thousands):
 
Direct Hotel
Investments
 
Hotel
Financing
 
Corporate
 
Consolidated
Year Ended December 31, 2013:
 
 
 
 
 
 
 
Total revenues
$
941,213

 
$
—

 
$
1,047

 
$
942,260

Total hotel expenses
596,313

 
—

 
—

 
596,313

Property taxes, insurance and other
47,075

 
—

 
—

 
47,075

Depreciation and amortization
127,990

 
—

 
—

 
127,990

Impairment charges
—

 
(396
)
 
—

 
(396
)
Gain on insurance settlements
(270
)
 
—

 
—

 
(270
)
Transaction costs
1,324

 
—

 
—

 
1,324

Corporate, general and administrative
—

 
—

 
52,821

 
52,821

Total expenses (income)
772,432

 
(396
)
 
52,821

 
824,857

Operating income (loss)
168,781

 
396

 
(51,774
)
 
117,403

Equity in loss of unconsolidated entities
(23,404
)
 
—

 
—

 
(23,404
)
Interest income
—

 
—

 
71

 
71

Other income
—

 
—

 
5,650

 
5,650

Interest expense and amortization of loan costs
—

 
—

 
(141,469
)
 
(141,469
)
Write-off of loan costs and exit fees
—

 
—

 
(2,098
)
 
(2,098
)
Unrealized gain on marketable securities
—

 
—

 
5,115

 
5,115

Unrealized loss on derivatives
—

 
—

 
(8,315
)
 
(8,315
)
Income (loss) from continuing operations before income taxes
145,377

 
396

 
(192,820
)
 
(47,047
)
Income tax expense


 


 
(1,511
)
 
(1,511
)
Income (loss) from continuing operations
$
145,377

 
$
396

 
$
(194,331
)
 
$
(48,558
)
As of December 31, 2013:
 
 
 
 
 
 
 
Total assets
$
2,491,275

 
$
3,384

 
$
182,343

 
$
2,677,002


97

 
Direct Hotel
Investments
 
Hotel
Financing
 
Corporate
 
Consolidated
Year Ended December 31, 2012:
 
 
 
 
 
 
 
Total revenues
$
922,606

 
$
—

 
$
—

 
$
922,606

Total hotel expenses
590,340

 
—

 
—

 
590,340

Property taxes, insurance and other
44,903

 
—

 
—

 
44,903

Depreciation and amortization
133,979

 
—

 
—

 
133,979

Impairment charges
—

 
(5,349
)
 
—

 
(5,349
)
Gain on insurance settlements
(91
)
 
—

 
—

 
(91
)
Corporate, general and administrative
—

 
—

 
44,050

 
44,050

Total expenses (income)
769,131

 
(5,349
)
 
44,050

 
807,832

Operating income (loss)
153,475

 
5,349

 
(44,050
)
 
114,774

Equity in loss of unconsolidated entities
(20,833
)
 
—

 
—

 
(20,833
)
Interest income
—

 
—

 
125

 
125

Other income
—

 
—

 
31,700

 
31,700

Interest expense and amortization of loan costs
—

 
—

 
(144,796
)
 
(144,796
)
Write-off of loan costs and exit fees
—

 
—

 
(3,998
)
 
(3,998
)
Unrealized gain on marketable securities
—

 
—

 
2,502

 
2,502

Unrealized loss on derivatives
—

 
—

 
(35,657
)
 
(35,657
)
Income (loss) from continuing operations before income taxes
132,642

 
5,349

 
(194,174
)
 
(56,183
)
Income tax expense
—

 
—

 
(2,375
)
 
(2,375
)
Income (loss) from continuing operations
$
132,642

 
$
5,349

 
$
(196,549
)
 
$
(58,558
)
As of December 31, 2012:
 
 
 
 
 
 
 
Total assets
$
3,197,695

 
$
3,701

 
$
263,333

 
$
3,464,729


98

 
Direct Hotel
Investments
 
Hotel
Financing
 
Corporate
 
Consolidated
Year ended December 31, 2011:
 
 
 
 
 
 
 
Total revenues
$
859,978

 
$
—

 
$
—

 
$
859,978

Total hotel expenses
552,933

 
—

 
—

 
552,933

Property taxes, insurance and other
45,085

 
—

 
—

 
45,085

Depreciation and amortization
131,243

 
—

 
—

 
131,243

Impairment charges
—

 
(4,841
)
 
—

 
(4,841
)
Gain on insurance settlements
(2,035
)
 
—

 
—

 
(2,035
)
Transaction costs
—

 
—

 
(793
)
 
(793
)
Corporate, general and administrative
—

 
—

 
44,522

 
44,522

Total expenses (income)
727,226

 
(4,841
)
 
43,729

 
766,114

Operating income (loss)
132,752

 
4,841

 
(43,729
)
 
93,864

Equity in earnings of unconsolidated entities
14,528

 
—

 
—

 
14,528

Interest income
—

 
—

 
85

 
85

Other income
—

 
30,000

 
79,524

 
109,524

Interest expense and amortization of loan costs
—

 
—

 
(137,212
)
 
(137,212
)
Write-off of premiums, loan costs and exit fees
—

 
—

 
(729
)
 
(729
)
Unrealized loss on marketable securities
—

 
—

 
(391
)
 
(391
)
Unrealized loss on derivatives
—

 
—

 
(70,286
)
 
(70,286
)
Income (loss) from continuing operations before income taxes
147,280

 
34,841

 
(172,738
)
 
9,383

Income tax expense
—

 
—

 
(1,620
)
 
(1,620
)
Income (loss) from continuing operations
$
147,280

 
$
34,841

 
$
(174,358
)
 
$
7,763

As of December 31, 2011:
 
 
 
 
 
 
 
Total assets
$
3,366,107

 
$
3,610

 
$
220,009

 
$
3,589,726

  As of December 31, 2013 and 2012 , all of our hotel properties were domestically located and all hotel properties securing our notes receivable were also domestically located.
23. Related Party Transactions
We have management agreements with parties owned by our Chairman and Chief Executive Officer and our Chairman Emeritus. Under the agreements, we pay the related party a) monthly property management fees equal to the greater of $10,000 (CPI adjusted since 2003) or 3% of gross revenues as well as annual incentive management fees, if certain operational criteria are met, b) project management fees of up to 4% of project costs, c) market service fees including purchasing, design and construction management not to exceed 16.5% of project budget cumulatively, including project management fees, and d) other general and administrative expense reimbursements, approved by our independent directors, including rent, payroll, office supplies, travel, and accounting. This related party allocates such charges to us based on various methodologies, including headcount and actual amounts incurred.
At December 31, 2013 , the related party managed 54 of our 87 hotels and the WorldQuest condominium properties included in continuing operations and we incurred the following fees related to the management agreements with the related party (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
Property management fees, including incentive property management fees
$
14,299

 
$
13,947

 
$
12,693

Market service fees
9,439

 
7,624

 
6,638

Corporate general and administrative expense reimbursements
4,299

 
4,075

 
4,281

Total
$
28,037

 
$
25,646

 
$
23,612

Management agreements with the related party include exclusivity clauses that require us to engage such related party, unless our independent directors either (i) unanimously vote to hire a different manager or developer or (ii) by a majority vote elect not

99

to engage such related party because either special circumstances exist such that it would be in the best interest of our Company not to engage such related party, or, based on the related party’s prior performance, it is believed that another manager or developer could perform the management, development or other duties materially better.
Upon formation, we also agreed to indemnify certain related parties, including our Chairman and Chief Executive Officer and our Chairman Emeritus, who contributed hotel properties in connection with our initial public offering in exchange for operating partnership units, against the income tax such related parties may incur if we dispose of one or more of those contributed properties under the terms of the agreement.
In addition, at December 31, 2013 , the related party managed 21 of the 28 hotels held by the PIM Highland JV in return for a base management fee of 3% of gross revenues, and an incentive management fee equal to the lesser of 1% of gross revenues or the amount by which Actual House Profit exceeds House Profit set forth in the Annual Operating Budget, as defined. During 2013 , 2012 and 2011, the related party received from PIM Highland JV base management fees of $7.8 million , $7.6 million and $4.8 million , respectively, $1.0 million , $1.7 million and 1.1 million , respectively, of incentive management fees, $7.0 million , $3.6 million and 1.6 million , respectively, of market service fees, respectively, including purchasing, design and construction management, and $1.6 million , $1.6 million and 1.2 million , respectively, of corporate general and administrative expense reimbursements.
In connection with the spin-off of Ashford Prime, our subsidiary Ashford Hospitality Advisors LLC ("Ashford Advisors") entered into an advisory agreement with Ashford Prime, in which it acts as its external advisor, and as a result, we receive advisory fees from Ashford Prime. Ashford Prime is required to pay Ashford Hospitality Advisors LLC a quarterly base fee equal to 0.70% per annum of the total enterprise value of Ashford Prime, subject to a minimum quarterly base fee, as payment for managing the day-to-day operations of Ashford Prime and its subsidiaries in conformity with Ashford Prime’s investment guidelines. Ashford Prime is also required to pay Ashford Advisors an incentive fee that is based on Ashford Prime’s total return performance as compared to Ashford Prime’s peer group as well as to reimburse Ashford Advisors for certain expenses, including employment and travel expenses of employees of Ashford Advisors providing internal audit services, as specified in the advisory agreement.
For the year ended December 31, 2013 , we received revenues of $1.0 million from Ashford Prime which was comprised of a base advisory fee of $878,000 , reimbursable overhead of $53,000 and internal audit reimbursements of $116,000 . No incentive management fee was earned for 2013. At December 31, 2013 , we have a receivable of $15.5 million , included in due from Ashford Prime, net, associated with reimbursable expenses in connection with the spin-off and the fees discussed above offset by a payable of $2.4 million associated with certain property expenses paid by Ashford Prime which related to the period prior to the spin-off.
24. Concentration of Risk
Our investments are all concentrated within the hotel industry. Our investment strategy is to acquire or develop upscale to upper-upscale hotels, acquire first mortgages on hotel properties, and invest in other mortgage-related instruments such as mezzanine loans to hotel owners and operators. At present, all of our hotels are located domestically. During 2013 , approximately 16.7% of our total hotel revenue was generated from 11 hotels located in the Washington D.C. and Baltimore areas. As of December 31, 2013, we had 10 hotels located in the Washington D.C. and Baltimore areas as one hotel property was transferred in connection with the Ashford Prime spin-off. In addition, all hotels securing our loans receivable are also located domestically at December 31, 2013 . Our remaining mezzanine loan is collateralized by income-producing real property. Accordingly, adverse conditions in the hotel industry will have a material adverse effect on our operating and investment revenues and cash available for distribution to shareholders.
Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and cash equivalents. We are exposed to credit risk with respect to cash held at various financial institutions, U.S. government treasury bill holdings, access to our credit facility, and amounts due or payable under our derivative contracts. At December 31, 2013 , our exposure risk related to our derivative contracts totaled $19,000 and the counterparties are investment grade financial institutions. Our credit risk exposure with regard to our cash and the $165.0 million available under our credit facility is spread among a diversified group of six investment grade financial institutions in accordance with each institution's commitment.

100

25. Selected Quarterly Financial Data (Unaudited)
The following is a summary of the quarterly results of operations for the years ended December 31, 2013 and 2012 (in thousands, except per share data):
 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
 
Full
Year
2013
 
 
 
 
 
 
 
 
 
Total revenue
$
231,942

 
$
258,539

 
$
242,024

 
$
209,755

 
$
942,260

Total operating expenses
$
206,664

 
$
217,008

 
$
213,843

 
$
187,342

 
$
824,857

Operating income
$
25,278

 
$
41,531

 
$
28,181

 
$
22,413

 
$
117,403

Loss from continuing operations
$
(18,155
)
 
$
7,600

 
$
(19,402
)
 
$
(18,601
)
 
$
(48,558
)
Loss from continuing operations attributable to the Company
$
(14,686
)
 
$
7,106

 
$
(16,335
)
 
$
(17,368
)
 
$
(41,283
)
Loss from continuing operations attributable to common shareholders
$
(23,176
)
 
$
(1,385
)
 
$
(24,825
)
 
$
(25,859
)
 
$
(75,245
)
Diluted loss from continuing operations attributable to common shareholders per share
$
(0.34
)
 
$
(0.02
)
 
$
(0.31
)
 
$
(0.32
)
 
$
(1.00
)
Weighted average diluted common shares
67,682

 
68,489

 
79,898

 
81,383

 
75,155

2012
 
 
 
 
 
 
 
 
 
Total revenue
$
217,055

 
$
240,777

 
$
224,196

 
$
240,578

 
$
922,606

Total operating expenses
$
195,207

 
$
205,264

 
$
193,974

 
$
213,387

 
$
807,832

Operating income
$
21,848

 
$
35,513

 
$
30,222

 
$
27,191

 
$
114,774

Income (loss) from continuing operations
$
(24,719
)
 
$
(1,220
)
 
$
(15,620
)
 
$
(16,999
)
 
$
(58,558
)
Income (loss) from continuing operations attributable to the Company
$
(21,338
)
 
$
(708
)
 
$
(13,036
)
 
$
(15,488
)
 
$
(50,570
)
Income (loss) from continuing operations attributable to common shareholders
$
(29,669
)
 
$
(9,198
)
 
$
(21,526
)
 
$
(23,979
)
 
$
(84,372
)
Diluted income (loss) from continuing operations attributable to common shareholders per share
$
(0.44
)
 
$
(0.14
)
 
$
(0.32
)
 
$
(0.36
)
 
$
(1.25
)
Weighted average diluted common shares
67,152

 
67,639

 
67,659

 
67,670

 
67,533

26. Pro Forma Financial Information
As discussed in Note 3, on May 14, 2013, we acquired a 100% interest in the Pier House Resort in Key West, Florida, for a contractual purchase price of $90.0 million in cash. In connection with the acquisition, we incurred transaction costs of $901,000 , which are included in transaction costs on the consolidated statement of operations. The following table reflects the unaudited pro forma results of operations as if the acquisition had occurred on January 1, 2011, reflecting the addition of the Pier House Resort operating results for the applicable periods from January 1, 2011 through May 13, 2013 and the removal of $901,000 of transaction costs for the year ended December 31, 2013, respectively.


Also, as discussed in Note 5, on March 10, 2011, we and PREI formed the PIM Highland JV to take ownership of the Highland Portfolio through a debt restructuring and consensual foreclosure. At closing, we invested $150.0 million and PREI invested $50.0 million to fund capital expenditures and to reduce debt. We own 71.74% of the joint venture and PREI owns the remaining 28.26% . The following table also reflects the unaudited pro forma results of operations as if the transaction had occurred on January 1, 2011, reflecting the addition of the Highland Portfolio for the applicable periods from January 1, 2011 through March 9, 2011 and the elimination of $1.1 million in transaction credits for the year ended December 31, 2011 (in thousands):
 
Year Ended December 31,
 
2013
 
2012
 
2011
 
(unaudited)
Total revenue
$
950,949

 
$
941,297

 
$
877,557

Loss from continuing operations
$
(45,620
)
 
$
(56,412
)
 
$
(36,034
)
Net loss
$
(45,620
)
 
$
(60,062
)
 
$
(43,914
)
27. Subsequent Events (Unaudited)
On January 24, 2014, we refinanced our $164.4 million loan due March 2014 with a $200.0 million loan due February 2016, with three one -year extension options, subject to the satisfaction of certain conditions. The new loan provides for an interest rate of LIBOR + 4.75% , with a LIBOR floor of 0.20% . The new loan continues to be secured by the same five hotels including: the Embassy Suites Philadelphia Airport, Embassy Suites Walnut Creek, Sheraton Mission Valley San Diego, Sheraton Anchorage and the Hilton Minneapolis/St Paul Airport Mall of America. The refinance resulted in excess proceeds above typical closing costs and reserves of approximately $30.0 million , which will be added to our unrestricted cash balance.
On February 27, 2014, we announced that our Board of Directors has unanimously approved a plan to spin-off its asset management business into a separate publicly traded company in the form of a taxable distribution.  The distribution is expected to be completed in the third quarter of 2014, and we anticipate that the distribution will be comprised of common stock in Ashford Inc., a newly formed or successor company of our current subsidiary Ashford Hospitality Advisors LLC. We also expect that Ashford Inc. will file an application to list its shares on the NYSE or NYSE MKT Exchanges.  In connection with the proposed spin-off, we expect that Ashford Inc. will enter into a 20 -year advisory agreement to externally advise the Company. Ashford Inc. will continue to externally advise Ashford Prime. This distribution is anticipated to be declared during the third quarter of 2014; however, it remains subject to the filing of the required registration statement with the SEC, the review of the registration statement by the SEC, the approval of the listing of shares by the applicable exchange, and other legal requirements. The Company cannot be certain this distribution will proceed or proceed in the manner as currently anticipated.
On March 1, 2014, we closed on the sale of the Pier House Resort to Ashford Prime. The sales price was $92.7 million . Ashford Prime assumed the $69 million mortgage and paid the balance of the purchase price in cash.


102

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, our management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of December 31, 2013 (“Evaluation Date”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective (i) to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms; and (ii) to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment of the effectiveness of our internal control over financial reporting. The internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and our expenditures are being made only in accordance with authorizations of management and our directors and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013 . In making the assessment of the effectiveness of our internal control over financial reporting, management has utilized the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (1992 framework), ("COSO").
Based on management’s assessment of these criteria, we concluded that, as of December 31, 2013 , our internal control over financial reporting is effective. The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which appears in this Form 10-K.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.


103
Table of Contents

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of Ashford Hospitality Trust, Inc. and subsidiaries

We have audited Ashford Hospitality Trust, Inc. and subsidiaries’ internal control over financial reporting as of December 31, 2013, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (1992 framework), (the COSO criteria). Ashford Hospitality Trust, Inc. and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, Ashford Hospitality Trust, Inc. and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2013 consolidated financial statements and financial statement schedules of Ashford Hospitality Trust, Inc. and subsidiaries and our report dated March 3, 2014 expressed an unqualified opinion thereon.


/s/ Ernst & Young LLP
Dallas, Texas
March 3, 2014

104
Table of Contents

Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officer, and Corporate Governance
The required information is incorporated by reference from the Proxy Statement pertaining to our 2014 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2013, under the captions “Proposal Number One-Election of Directors,” “Board of Directors and Committee Membership,” “Corporate Governance Principles,” “Executive Officers” and “Security Ownership of Management and Certain Beneficial Owners - Compliance with Section 16(a) of the Securities Exchange Act of 1934.”
Item 11.
Executive Compensation
The required information is incorporated by reference from the Proxy Statement pertaining to our 2014 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2013, under the captions “Board of Directors and Committee Membership - Compensation Committee Interlocks and Insider Participation,” "Board of Directors and Committee Membership - Board Member Compensation," “Compensation Discussion & Analysis,” “Compensation Committee Report,” “Summary Compensation Table,” “Grant of Plan-Based Awards,” “Outstanding Equity Awards at Fiscal Year End,” “Equity Awards Vested During 2013,” “2013 Nonqualified Deferred Compensation” and “Potential Payments Upon Termination of Employment or Change of Control.”
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The required information is incorporated by reference from the Proxy Statement pertaining to our 2014 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2013, under the caption “Security Ownership of Management and Certain Beneficial Owners.”
Item 13. Certain Relationships and Related Transactions, and Director Independence
The required information is incorporated by reference from the Proxy Statement pertaining to our 2014 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2013, under the captions “Board of Directors and Committee Membership - Board Member Independence” and “Certain Relationships and Related Party Transactions”
Item 14. Principal Accountant Fees and Services
The required information is incorporated by reference from the Proxy Statement pertaining to our 2014 Annual Meeting of Shareholders, to be filed with the SEC within 120 days of December 31, 2013, under the caption “Proposal Number Two - Ratification of the Appointment of Ernst & Young LLP as our Independent Auditors.”
PART IV


105
Table of Contents

Item 15. Exhibits, Financial Statement and Schedules
 
(a)
Financial Statements and Schedules
See Item 8, “Financial Statements and Supplementary Data,” on pages 57 through 102 hereof, for a list of our consolidated financial statements and report of independent registered public accounting firm.
The following financial statement schedules are included herein on pages 108 through 112 hereof.
Schedule III – Real Estate and Accumulated Depreciation
Schedule IV – Mortgage Loans on Real Estate
All other financial statement schedules have been omitted because such schedules are not required under the related instructions, such schedules are not significant, or the required information has been disclosed elsewhere in the consolidated financial statements and related notes thereto.
 
(b)
Exhibits
Exhibits required by Item 601 of Regulation S-K: The exhibits filed in response to this item are listed in the Exhibit Index on pages 113 through 118.


106
Table of Contents

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 3, 2014 .  
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
By:
/s/ MONTY J. BENNETT
 
 
Monty J. Bennett
 
 
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below on behalf of the Registrant in the capacities and on the dates indicated.
Signature
  
Title
 
Date
 
 
 
/s/  MONTY J. BENNETT
  
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)
 
March 3, 2014
Monty J. Bennett
 
 
 
 
 
 
 
/s/ DOUGLAS A. KESSLER
 
President
 
March 3, 2014
Douglas A. Kessler
 
 
 
 
 
 
 
 
 
/s/  DAVID J. KIMICHIK
  
Chief Financial Officer (Principal Financial Officer)
 
March 3, 2014
David J. Kimichik
 
 
 
 
 
 
 
/s/  MARK L. NUNNELEY
  
Chief Accounting Officer (Principal Accounting Officer)
 
March 3, 2014
Mark L. Nunneley
 
 
 
 
 
 
 
/s/  BENJAMIN J. ANSELL, M.D.
  
Director
 
March 3, 2014
Benjamin J. Ansell, M.D.
 
 
 
 
 
 
 
/s/  THOMAS E. CALLAHAN
  
Director
 
March 3, 2014
Thomas E. Callahan
 
 
 
 
 
 
 
/s/  MARTIN L. EDELMAN
  
Director
 
March 3, 2014
Martin L. Edelman
 
 
 
 
 
 
 
/s/  KAMAL JAFARNIA
  
Director
 
March 3, 2014
Kamal Jafarnia
 
 
 
 
 
 
 
 
 
/s/  PHILLIP S. PAYNE
  
Director
 
March 3, 2014
Philip S. Payne
 
 
 
 
 
 
 
 
 
/s/  ALAN L. TALLIS
  
Director
 
March 3, 2014
Alan L. Tallis
 
 
 
 


107
Table of Contents

SCHEDULE III
ASHFORD HOSPITALITY TRUST, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2013
(dollars in thousands)
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
 
Column H
 
Column I
  
 
 
 
 
 
Initial Cost
 
Costs Capitalized
Since Acquisition
 
Gross Carrying Amount At Close of Period
 
 
 
 
 
 
 
 
Hotel Property
 
Location
 
Encumbrances
 
Land
 
FF&E,
Buildings and
improvements
 
Land  
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Total
 
Accumulated
Depreciation
 
Construction
Date
 
Acquisition
Date
 
Income
Statement
Embassy Suites
 
Austin, TX
 
$
13,489

 
$
1,204

 
$
9,388

 
$
193

 
$
5,349

 
$
1,397

 
$
14,737

 
$
16,134

 
$
5,867

 
08/1998
 

 
(1),(2),(3)
Embassy Suites
 
Dallas, TX
 
7,972

 
1,878

 
8,907

 
238

 
5,726

 
2,116

 
14,633

 
16,749

 
5,687

 
12/1998
 

 
(1),(2),(3)
Embassy Suites
 
Herndon, VA
 
23,995

 
1,303

 
9,837

 
277

 
5,527

 
1,580

 
15,364

 
16,944

 
5,375

 
12/1998
 

 
(1),(2),(3)
Embassy Suites
 
Las Vegas, NV
 
30,360

 
3,307

 
16,952

 
397

 
4,744

 
3,704

 
21,696

 
25,400

 
8,577

 
05/1999
 

 
(1),(2),(3)
Embassy Suites
 
Syracuse, NY
 
11,884

 
2,839

 
9,778

 
—

 
5,865

 
2,839

 
15,643

 
18,482

 
4,375

 

 
10/2003
 
(1),(2),(3)
Embassy Suites
 
Flagstaff, AZ
 
11,184

 
1,267

 
4,278

 
—

 
5,516

 
1,267

 
9,794

 
11,061

 
3,447

 

 
10/2003
 
(1),(2),(3)
Embassy Suites
 
Houston, TX
 
12,158

 
1,799

 
10,404

 
—

 
3,493

 
1,799

 
13,897

 
15,696

 
3,723

 

 
03/2005
 
(1),(2),(3)
Embassy Suites
 
West Palm Beach, FL
 
17,258

 
3,277

 
13,950

 
—

 
4,147

 
3,277

 
18,097

 
21,374

 
4,625

 

 
03/2005
 
(1),(2),(3)
Embassy Suites
 
Philadelphia, PA
 
31,338

 
5,791

 
34,819

 
—

 
6,786

 
5,791

 
41,605

 
47,396

 
8,824

 

 
12/2006
 
(1),(2),(3)
Embassy Suites
 
Walnut Creek, CA
 
27,651

 
7,452

 
25,334

 
—

 
4,888

 
7,452

 
30,222

 
37,674

 
6,478

 

 
12/2006
 
(1),(2),(3)
Embassy Suites
 
Arlington, VA
 
46,209

 
36,065

 
41,588

 
—

 
7,178

 
36,065

 
48,766

 
84,831

 
10,049

 

 
04/2007
 
(1),(2),(3)
Embassy Suites
 
Portland, OR
 
51,273

 
11,110

 
60,049

 
—

 
6,161

 
11,110

 
66,210

 
77,320

 
12,467

 

 
04/2007
 
(1),(2),(3)
Embassy Suites
 
Santa Clara, CA
 
45,365

 
8,948

 
46,238

 
—

 
3,418

 
8,948

 
49,656

 
58,604

 
9,332

 

 
04/2007
 
(1),(2),(3)
Embassy Suites
 
Orlando, FL
 
15,614

 
5,674

 
21,593

 
—

 
2,126

 
5,674

 
23,719

 
29,393

 
4,633

 

 
04/2007
 
(1),(2),(3)
Hilton Garden Inn
 
Jacksonville, FL
 
10,472

 
1,751

 
9,164

 
—

 
1,312

 
1,751

 
10,476

 
12,227

 
2,829

 

 
11/2003
 
(1),(2),(3)
Hilton
 
Ft. Worth, TX
 
22,405

 
4,539

 
13,922

 


 
11,402

 
4,539

 
25,324

 
29,863

 
7,604

 

 
03/2005
 
(1),(2),(3)
Hilton
 
Houston, TX
 
14,743

 
2,200

 
13,247

 
—

 
11,147

 
2,200

 
24,394

 
26,594

 
7,317

 

 
03/2005
 
(1),(2),(3)
Hilton
 
St. Petersburg, FL
 
18,227

 
2,991

 
13,907

 
—

 
11,358

 
2,991

 
25,265

 
28,256

 
6,152

 

 
03/2005
 
(1),(2),(3)
Hilton
 
Santa Fe, NM
 
15,565

 
7,004

 
10,689

 
—

 
12,820

 
7,004

 
23,509

 
30,513

 
6,415

 

 
12/2006
 
(1),(2),(3)
Hilton
 
Bloomington, MN
 
51,616

 
5,685

 
59,139

 
—

 
5,139

 
5,685

 
64,278

 
69,963

 
12,507

 

 
04/2007
 
(1),(2),(3)
Hilton
 
Costa Mesa, CA
 
52,539

 
12,917

 
91,791

 
—

 
15,274

 
12,917

 
107,065

 
119,982

 
20,448

 

 
04/2007
 
(1),(2),(3)
Homewood Suites
 
Mobile, AL
 
7,560

 
1,334

 
7,307

 
—

 
826

 
1,334

 
8,133

 
9,467

 
2,297

 

 
11/2003
 
(1),(2),(3)
Hampton Inn
 
Lawrenceville, GA
 
3,345

 
697

 
3,808

 
—

 
853

 
697

 
4,661

 
5,358

 
1,282

 

 
11/2003
 
(1),(2),(3)
Hampton Inn
 
Evansville, IN
 
6,751

 
1,301

 
5,034

 
—

 
3,849

 
1,301

 
8,883

 
10,184

 
2,542

 

 
09/2004
 
(1),(2),(3)
Hampton Inn
 
Terre Haute, IN
 
8,736

 
700

 
7,520

 
—

 
2,073

 
700

 
9,593

 
10,293

 
2,423

 

 
09/2004
 
(1),(2),(3)
Hampton Inn
 
Buford, GA
 
7,356

 
1,168

 
5,338

 
—

 
1,034

 
1,168

 
6,372

 
7,540

 
1,622

 

 
07/2004
 
(1),(2),(3)
Marriott
 
Durham, NC
 
25,476

 
1,794

 
25,056

 
—

 
2,965

 
1,794

 
28,021

 
29,815

 
6,065

 

 
02/2006
 
(1),(2),(3)
Marriott
 
Arlington, VA
 
101,268

 
20,637

 
101,376

 
—

 
17,229

 
20,637

 
118,605

 
139,242

 
25,315

 

 
07/2006
 
(1),(2),(3)
Marriott
 
Bridgewater, NJ
 
73,919

 
5,059

 
89,267

 
—

 
4,929

 
5,059

 
94,196

 
99,255

 
18,916

 

 
04/2007
 
(1),(2),(3)
Marriott
 
Dallas, TX
 
26,416

 
2,701

 
30,893

 
—

 
1,916

 
2,701

 
32,809

 
35,510

 
6,125

 

 
04/2007
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Jacksonville, FL
 
7,707

 
1,348

 
7,111

 
—

 
652

 
1,348

 
7,763

 
9,111

 
2,157

 

 
11/2003
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Baltimore, MD
 
13,650

 
2,502

 
13,206

 
—

 
1,137

 
2,502

 
14,343

 
16,845

 
3,784

 

 
05/2004
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Kennesaw, GA
 
5,265

 
1,106

 
5,021

 
—

 
542

 
1,106

 
5,563

 
6,669

 
1,501

 

 
07/2004
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Buford, GA
 
7,561

 
1,132

 
6,089

 
—

 
1,801

 
1,132

 
7,890

 
9,022

 
2,149

 

 
07/2004
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Gaithersburg, MD
 
14,608

 
2,200

 
19,746

 
—

 
1,175

 
2,200

 
20,921

 
23,121

 
4,763

 

 
06/2005
 
(1),(2),(3)

108
Table of Contents

Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
 
Column H
 
Column I
  
 
 
 
 
 
Initial Cost
 
Costs Capitalized
Since Acquisition
 
Gross Carrying Amount At Close of Period
 
 
 
 
 
 
 
 
Hotel Property
 
Location
 
Encumbrances
 
Land
 
FF&E,
Buildings and
improvements
 
Land  
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Total
 
Accumulated
Depreciation
 
Construction
Date
 
Acquisition
Date
 
Income
Statement
SpringHill Suites by Marriott
 
Centerville, VA
 
8,524

 
1,806

 
11,712

 
—

 
924

 
1,806

 
12,636

 
14,442

 
2,979

 

 
06/2005
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Charlotte, NC
 
5,849

 
1,235

 
6,818

 
—

 
2,108

 
1,235

 
8,926

 
10,161

 
2,384

 

 
06/2005
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Durham, NC
 
5,013

 
1,090

 
3,991

 
—

 
2,321

 
1,090

 
6,312

 
7,402

 
1,877

 

 
06/2005
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Orlando, FL
 
29,623

 
8,620

 
27,699

 
—

 
2,238

 
8,620

 
29,937

 
38,557

 
5,689

 

 
04/2007
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Manhattan Beach, CA
 
21,492

 
5,726

 
21,187

 
—

 
3,107

 
5,726

 
24,294

 
30,020

 
4,797

 

 
04/2007
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Plymouth Meeting, PA
 
19,610

 
3,210

 
24,578

 
—

 
3,173

 
3,210

 
27,751

 
30,961

 
5,472

 

 
04/2007
 
(1),(2),(3)
SpringHill Suites by Marriott
 
Glen Allen, VA
 
14,988

 
2,045

 
15,802

 
—

 
2,295

 
2,045

 
18,097

 
20,142

 
3,734

 

 
04/2007
 
(1),(2),(3)
Fairfield Inn by Marriott
 
Kennesaw, GA
 
3,100

 
840

 
4,359

 
—

 
1,521

 
840

 
5,880

 
6,720

 
1,778

 

 
07/2004
 
(1),(2),(3)
Fairfield Inn by Marriott
 
Orlando, FL
 
15,619

 
6,507

 
9,895

 
—

 
2,340

 
6,507

 
12,235

 
18,742

 
2,558

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Bloomington, IN
 
11,627

 
900

 
10,741

 
—

 
727

 
900

 
11,468

 
12,368

 
2,755

 

 
09/2004
 
(1),(2),(3)
Courtyard by Marriott
 
Columbus, IN
 
5,831

 
673

 
4,804

 
—

 
763

 
673

 
5,567

 
6,240

 
1,470

 

 
09/2004
 
(1),(2),(3)
Courtyard by Marriott
 
Louisville, KY
 
13,853

 
1,352

 
12,266

 
—

 
2,792

 
1,352

 
15,058

 
16,410

 
4,289

 

 
09/2004
 
(1),(2),(3)
Courtyard by Marriott
 
Crystal City, VA
 
32,145

 
5,411

 
38,610

 
—

 
4,434

 
5,411

 
43,044

 
48,455

 
10,394

 

 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Ft. Lauderdale, FL
 
13,974

 
2,244

 
18,520

 
—

 
2,346

 
2,244

 
20,866

 
23,110

 
4,881

 

 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Overland Park, KS
 
11,716

 
1,868

 
14,030

 
—

 
2,323

 
1,868

 
16,353

 
18,221

 
4,051

 

 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Palm Desert, CA
 
10,537

 
2,722

 
11,995

 
—

 
2,055

 
2,722

 
14,050

 
16,772

 
3,248

 

 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Foothill Ranch, CA
 
13,043

 
2,447

 
16,005

 
—

 
1,886

 
2,447

 
17,891

 
20,338

 
4,239

 

 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Alpharetta, GA
 
10,062

 
2,244

 
12,345

 
—

 
2,047

 
2,244

 
14,392

 
16,636

 
3,401

 

 
06/2005
 
(1),(2),(3)
Courtyard by Marriott
 
Orlando, FL
 
28,620

 
7,389

 
26,817

 
—

 
3,296

 
7,389

 
30,113

 
37,502

 
5,508

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Oakland, CA
 
23,534

 
5,112

 
19,429

 
—

 
2,229

 
5,112

 
21,658

 
26,770

 
4,180

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Scottsdale, AZ
 
22,593

 
3,700

 
22,134

 
—

 
2,122

 
3,700

 
24,256

 
27,956

 
4,736

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Plano, TX
 
19,304

 
2,115

 
22,360

 
—

 
3,519

 
2,115

 
25,879

 
27,994

 
4,963

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Edison, NJ
 
12,393

 
2,147

 
11,865

 
—

 
2,178

 
2,147

 
14,043

 
16,190

 
3,341

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Newark, CA
 
6,106

 
2,863

 
10,722

 
—

 
1,769

 
2,863

 
12,491

 
15,354

 
2,658

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Manchester, CT
 
5,075

 
1,301

 
7,430

 
—

 
2,374

 
1,301

 
9,804

 
11,105

 
2,111

 

 
04/2007
 
(1),(2),(3)
Courtyard by Marriott
 
Basking Ridge, NJ
 
41,808

 
5,419

 
45,304

 
—

 
2,125

 
5,419

 
47,429

 
52,848

 
8,473

 

 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Lake Buena Vista, FL
 
23,132

 
2,555

 
20,367

 
—

 
2,171

 
2,555

 
22,538

 
25,093

 
6,004

 

 
03/2004
 
(1),(2),(3)
Marriott Residence Inn
 
Evansville, IN
 
6,521

 
960

 
5,972

 
—

 
655

 
960

 
6,627

 
7,587

 
1,614

 

 
09/2004
 
(1),(2),(3)
Marriott Residence Inn
 
Orlando, FL
 
33,857

 
6,554

 
40,539

 
—

 
4,626

 
6,554

 
45,165

 
51,719

 
11,572

 

 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Falls Church, VA
 
22,219

 
2,752

 
34,979

 
—

 
2,149

 
2,752

 
37,128

 
39,880

 
8,355

 

 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
San Diego, CA
 
19,913

 
3,156

 
29,514

 
—

 
4,422

 
3,156

 
33,936

 
37,092

 
7,296

 

 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Salt Lake City, UT
 
13,647

 
1,897

 
16,357

 
—

 
4,067

 
1,897

 
20,424

 
22,321

 
4,504

 

 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Palm Desert, CA
 
10,908

 
3,280

 
10,463

 
—

 
3,407

 
3,280

 
13,870

 
17,150

 
3,319

 

 
06/2005
 
(1),(2),(3)
Marriott Residence Inn
 
Las Vegas, NV
 
25,440

 
18,177

 
39,569

 
—

 
2,244

 
18,177

 
41,813

 
59,990

 
8,021

 

 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Phoenix, AZ
 
22,698

 
4,100

 
23,187

 
—

 
1,238

 
4,100

 
24,425

 
28,525

 
4,648

 

 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Plano, TX
 
14,472

 
2,045

 
16,869

 
—

 
1,704

 
2,045

 
18,573

 
20,618

 
3,446

 

 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Newark, CA
 
10,902

 
3,272

 
11,705

 
—

 
2,357

 
3,272

 
14,062

 
17,334

 
2,675

 

 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Manchester, CT
 
7,400

 
1,462

 
8,306

 
—

 
732

 
1,462

 
9,038

 
10,500

 
1,877

 

 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Atlanta, GA
 
15,622

 
1,901

 
16,749

 
—

 
4,513

 
1,901

 
21,262

 
23,163

 
3,801

 

 
04/2007
 
(1),(2),(3)
Marriott Residence Inn
 
Jacksonville, FL
 
10,800

 
1,997

 
16,084

 
—

 
3,128

 
1,997

 
19,212

 
21,209

 
3,986

 

 
05/2007
 
(1),(2),(3)

109
Table of Contents

Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
 
Column H
 
Column I
  
 
 
 
 
 
Initial Cost
 
Costs Capitalized
Since Acquisition
 
Gross Carrying Amount At Close of Period
 
 
 
 
 
 
 
 
Hotel Property
 
Location
 
Encumbrances
 
Land
 
FF&E,
Buildings and
improvements
 
Land  
 
FF&E,
Buildings and
improvements
 
Land
 
FF&E,
Buildings and
improvements
 
Total
 
Accumulated
Depreciation
 
Construction
Date
 
Acquisition
Date
 
Income
Statement
TownePlace Suites by Marriott
 
Manhattan Beach, CA
 
19,835

 
4,805

 
17,543

 
—

 
1,375

 
4,805

 
18,918

 
23,723

 
3,570

 

 
04/2007
 
(1),(2),(3)
One Ocean
 
Atlantic Beach, FL
 
17,500

 
5,815

 
14,817

 
—

 
25,255

 
5,815

 
40,072

 
45,887

 
14,001

 

 
04/2004
 
(1),(2),(3)
Sheraton Hotel
 
Langhorne, PA
 
18,023

 
2,037

 
12,424

 
—

 
5,668

 
2,037

 
18,092

 
20,129

 
5,789

 

 
07/2004
 
(1),(2),(3)
Sheraton Hotel
 
Minneapolis, MN
 
18,173

 
2,953

 
14,280

 
—

 
4,485

 
2,953

 
18,765

 
21,718

 
4,865

 

 
03/2005
 
(1),(2),(3)
Sheraton Hotel
 
Indianapolis, IN
 
25,363

 
3,100

 
22,040

 
—

 
14,804

 
3,100

 
36,844

 
39,944

 
9,061

 

 
03/2005
 
(1),(2),(3)
Sheraton Hotel
 
Anchorage, AK
 
29,495

 
4,023

 
39,363

 
—

 
11,155

 
4,023

 
50,518

 
54,541

 
12,095

 

 
12/2006
 
(1),(2),(3)
Sheraton Hotel
 
San Diego, CA
 
24,333

 
7,294

 
36,382

 
—

 
9,865

 
7,294

 
46,247

 
53,541

 
9,710

 

 
12/2006
 
(1),(2),(3)
Hyatt Regency
 
Coral Gables, FL
 
43,575

 
4,805

 
50,820

 
—

 
5,758

 
4,805

 
56,578

 
61,383

 
10,738

 

 
04/2007
 
(1),(2),(3)
Crowne Plaza
 
Beverly Hills, CA
 
29,835

 
6,510

 
22,061

 
—

 
3,931

 
6,510

 
25,992

 
32,502

 
6,563

 

 
03/2005
 
(1),(2),(3)
Crowne Plaza
 
Key West, FL
 
27,363

 
—

 
27,513

 
—

 
12,076

 
—

 
39,589

 
39,589

 
9,710

 

 
03/2005
 
(1),(2),(3)
Annapolis Inn
 
Annapolis, MD
 
11,929

 
3,028

 
7,833

 
—

 
4,147

 
3,028

 
11,980

 
15,008

 
3,634

 

 
03/2005
 
(1),(2),(3)
Pier House Resort
 
Key West, FL
 
69,000

 
56,900

 
33,024

 


 
246

 
56,900

 
33,270

 
90,170

 
1,334

 

 
05/2013
 
(1),(2),(3)
WorldQuest Resort
 
Orlando, FL
 
—

 
1,432

 
9,870

 
(45
)
 
1,195

 
1,387

 
11,065

 
12,452

 
1,382

 

 
03/2011
 
(1),(2),(3)
Construction in Progress
 
Various
 
—

 
—

 
—

 
—

 
930

 
—

 
930

 
930

 
—

 
 
 
 
 
 
Total
 
 
 
$
1,818,929

 
$
410,476

 
$
1,881,794

 
$
1,060

 
$
377,672

 
$
411,536

 
$
2,259,466

 
$
2,671,002

 
$
507,208

 
 
 
 
 
 
_________________________
(1) Estimated useful life for buildings is 39 years .
(2) Estimated useful life for building improvements is 7.5 years .
(3) Estimated useful life for furniture and fixtures is 3 to 5 years.


110
Table of Contents

 
 
Year Ended December 31,
 
 
2013
 
2012
 
2011
Investment in Real Estate:
 
 
 
 
 
 
Beginning balance
 
$
3,509,744

 
$
3,560,198

 
$
3,649,582

Additions
 
184,106

 
81,083

 
83,288

Reclassification
 
622

 
—

 
3,368

Impairment/write-offs
 
(99,460
)
 
(95,713
)
 
(163,045
)
Sales/disposals
 
(924,010
)
 
(35,824
)
 
(12,995
)
Ending balance
 
2,671,002

 
3,509,744

 
3,560,198

Accumulated Depreciation:
 
 
 
 
 
 
Beginning balance
 
637,840

 
602,749

 
626,433

Depreciation expense
 
127,273

 
135,850

 
133,316

Reclassification
 
373

 
—

 
2,165

Impairment/write-offs
 
(99,460
)
 
(91,594
)
 
(156,808
)
Sales/disposals
 
(158,818
)
 
(9,165
)
 
(2,357
)
Ending balance
 
507,208

 
637,840

 
602,749

Investment in Real Estate, net
 
$
2,163,794

 
$
2,871,904

 
$
2,957,449




111
Table of Contents

SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE
ASHFORD HOSPITALITY TRUST, INC. AND SUBSIDIARIES
December 31, 2013
(in thousands)
Column A
 
Column B
 
Column C
 
Column D
 
Column E
 
Column F
 
Column G
Description
 
Prior Liens
 
Balance at
December 31,
2013
 
Delinquent
Principal
December 31,
2013
 
Being
Foreclosed at
December 31,
2013
 
Accrued
Interest at
December 31,
2013
 
Interest Income
During the
Year Ended
December 31,
2013
Ritz Carlton
 
Key Biscayne, FL
 
—

 
11,321

 
—

 
—

 
—

 
—

Valuation allowance
 
 
 
 
 
(7,937
)
 
—

 
 
 
 
 
 
Net carrying value
 
 
 
 
 
$
3,384

 
$
—

 
 
 
 
 
 
 
Year Ended December 31,
 
2013
 
2012
 
2011
Investment in Mortgage Loans:
 
 
 
 
 
Balance at January 1
$
3,233

 
$
3,101

 
$
20,870

Principal payments
(245
)
 
(246
)
 
(22,610
)
Amortization of discounts/deferred income
—

 
—

 
—

Valuation allowance adjustments
396

 
378

 
4,841

Balance at December 31
$
3,384

 
$
3,233

 
$
3,101



112
Table of Contents

EXHIBIT INDEX
 
Exhibit
  
Description
3.1
  
Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 of Form S-11/A, filed on July 31, 2003)
3.2
  
Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Registrant’s Form 8-K, filed on November 12, 2010)
4.1
  
Form of Certificate for Common Stock (incorporated by reference to Exhibit 4.1 of Form S-11/A, filed on August 20, 2003)
4.1.1
  
Articles Supplementary for Series A Cumulative Preferred Stock, dated September 15, 2004 (incorporated by reference to Exhibit 4.1.1 of Form 10-K, filed on February 28, 2012)
4.1.2
  
Form of Certificate of Series A Cumulative Preferred Stock (incorporated by reference to Exhibit 4.1.2 of Form 10-K, filed on February 28, 2012)
4.2.1
  
Articles Supplementary for Series D Cumulative Preferred Stock, dated July 17, 2007 (incorporated by reference to Exhibit 3.5 to the Registrant’s Form 8-A, filed July 17, 2007)
4.2.2
  
Form of Certificate of Series D Cumulative Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-A, filed July 17, 2007)
4.3.1
  
Articles Supplementary for Series E Cumulative Preferred Stock, dated April 15, 2011 (incorporated by reference to Exhibit 3.6 to the Registrant’s Form 8-A, filed April 18, 2011)
4.3.2
  
Form of Certificate of Series E Cumulative Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-A, filed April 18, 2011)
10.1
  
Fifth Amended and Restated Agreement of Limited Partnership of Ashford Hospitality Limited Partnership (incorporated by reference to Exhibit 10.1of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.2
  
Registration Rights Agreement among Ashford Hospitality Trust, Inc. and the persons named therein (incorporated by reference to Exhibit 10.2 of Form S-11/A, filed on July 31, 2003)
10.3.1*
  
Amended and Restated Ashford Hospitality Trust, Inc. Nonqualified Deferred Compensation Plan, dated March 31, 2008
10.3.1.1*
  
First Amendment to the Ashford Hospitality Trust, Inc. Nonqualified Deferred Compensation Plan, dated December 31, 2008
10.3.2
  
2011 Incentive Stock Plan of Ashford Hospitality Trust, Inc. dated May 17, 2011 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed on May 17, 2011, for the event dated May 17, 2011)
10.3.3*
  
Form of LTIP Unit Award Agreement, dated March 21, 2008
10.4*
  
Non-Compete/Services Agreement, dated as of March 21, 2008, between Ashford Hospitality Trust, Inc. and Archie Bennett, Jr.
10.5.1*
  
Employment Agreement, dated as of March 21, 2008, between Ashford Hospitality Trust, Inc. and Montgomery J. Bennett
10.5.2
  
Amendment No. 1 to Employment Agreement, dated as of January 23, 2009, between Ashford Hospitality Trust, Inc. and Montgomery J. Bennett (incorporated by reference to Exhibit 10.5.2 to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.5.3
  
Amendment to Employment Agreement, dated as of September 3, 2009 and effective January 1, 2009, between Ashford Hospitality Trust, Inc. and Montgomery J. Bennett (incorporated by reference to Exhibit 10.5.9 to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.5.4
  
Amendment to Employment Agreement, dated as of November 10, 2011, between Ashford Hospitality Trust, Inc. and Montgomery J. Bennett (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed on November 16, 2011)
10.5.5*
  
Employment Agreement, dated as of March 21, 2008, between Ashford Hospitality Trust, Inc. and Douglas A. Kessler
10.5.6
  
Amendment No. 1 to Employment Agreement, dated as of January 23, 2009, between Ashford Hospitality Trust, Inc. and Douglas Kessler (incorporated by reference to Exhibit 10.5.4 to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.5.7
  
Amendment to Employment Agreement, dated as of September 3, 2009 and effective January 1, 2009, between Ashford Hospitality Trust, Inc. and Douglas Kessler (incorporated by reference to Exhibit 10.5.10 to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.5.8
  
Amendment to Employment Agreement, dated as of November 10, 2011, between Ashford Hospitality Trust, Inc. and Douglas Kessler (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, filed on November 16, 2011)
10.5.9*
  
Employment Agreement, dated as of March 21, 2008, between Ashford Hospitality Trust, Inc. and David A. Brooks

113
Table of Contents

Exhibit
  
Description
10.5.10
  
Amendment No. 1 to Employment Agreement, dated as of January 23, 2009, between Ashford Hospitality Trust, Inc. and David A. Brooks (incorporated by reference to Exhibit 10.5.6 to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.5.11
  
Amendment to Employment Agreement, dated as of September 3, 2009 and effective January 1, 2009, between Ashford Hospitality Trust, Inc. and David A. Brooks (incorporated by reference to Exhibit 10.5.11 to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.5.12
  
Amendment to Employment Agreement, dated as of November 10, 2011, between Ashford Hospitality Trust, Inc. and David A. Brooks (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, filed on November 16, 2011)
10.5.13*
  
Employment Agreement, dated as of March 21, 2008, between Ashford Hospitality Trust, Inc. and David J. Kimichik
10.5.14
 
Amendment to Employment Agreement, dated as of November 10, 2011, between Ashford Hospitality Trust, Inc. and David J. Kimichik (incorporated by reference to Exhibit 10.2 to the Registrant’s Form 8-K, filed on November 16, 2011, for the event dated November 10, 2011)
10.5.15
 
Employment Agreement, dated as of March 24, 2011, between Ashford Hospitality Trust, Inc., Ashford Hospitality Limited Partnership, and Jeremy Welter (incorporated by reference to Exhibit 10.2.1 of Form 10-Q filed on May 9, 2013)
10.5.16
  
Amendment to Employment Agreement, dated as of November 10, 2011, between Ashford Hospitality Trust, Inc., Ashford Hospitality Limited Partnership, and Jeremy Welter (incorporated by reference to Exhibit 10.2.2 of Form 10-Q filed on May 9, 2013)
10.5.17
 
Chairman Emeritus Agreement, dated January 7, 2013, between Ashford Hospitality Trust, Inc. Ashford Hospitality Limited Partnership, and Archie Bennett, Jr. (incorporated by reference to Exhibit 10.1 of Form 8-K filed on January 9, 2013)
10.6
  
Form of Management Agreement between Remington Lodging and Ashford TRS Corporation (incorporated by reference to Exhibit 10.10 of Form S-11/A, filed on July 31, 2003)
10.6.1
  
Hotel Management Agreement between Remington Management, L.P. and Ashford TRS companies (incorporated by reference to Exhibit 10.6.1 of Form 10-K, filed on February 28, 2012)
10.6.2
  
Hotel Master Management Agreement between Remington Lodging & Hospitality, LLC and PHH TRS Corporation (incorporated by reference to Exhibit 10.6.2 of Form 10-K, filed on February 28, 2012)
10.6.3
 
First Amendment to Hotel Master Management Agreement between Remington Lodging & Hospitality, LLC and Ashford TRS Corporation dated August 29, 2003, effective November 19, 2013 (incorporated by reference to Exhibit 10.2 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.6.4
 
First Amendment to Hotel Master Management Agreement between Remington Lodging & Hospitality, LLC and Ashford TRS Corporation dated September 29, 2006, effective November 19, 2013 (incorporated by reference to Exhibit 10.3 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.7
  
Form of Lease Agreement between Ashford Hospitality Limited Partnership and Ashford TRS Corporation (incorporated by reference to Exhibit 10.11 of Form S-11/A, filed on July 31, 2003)
10.10.1
  
Mutual Exclusivity Agreement by and between Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., Remington Hotel Corporation and Remington Lodging and Hospitality, L.P. (incorporated by reference to Exhibit 10.22 of Form S-11/A, filed on July 31, 2003)
10.10.2
 
First Amendment to the Mutual Exclusivity Agreement between Ashford Hospitality Trust, Inc., Ashford Hospitality Limited Partnership and Remington Lodging and Hospitality LLC, dated November 19, 2013 (incorporated by reference to Exhibit 10.4 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.11
  
Tax Indemnification Agreement between Ashford Hospitality Trust, Inc. and the persons named therein (incorporated by reference to Exhibit 10.25 of Form S-11/A, filed on July 31, 2003)
10.12
  
Contribution and Purchase and Sale Agreement, dated December 27, 2004, between the Registrant and FGSB Master Corp. (incorporated by reference to Exhibit 10.12 of Form 10-K, filed on March 1, 2013)
10.13
  
Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13 of Form 10-K, filed on February 28, 2012)
10.13.1
  
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.1 of Form 10-K, filed on February 28, 2012)
10.13.2
  
Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.2 of Form 10-K, filed on February 28, 2012)
10.13.3
  
Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.3 of Form 10-K, filed on February 28, 2012)
10.13.4
  
Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.4 of Form 10-K, filed on February 28, 2012)
10.13.5
  
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.5 of Form 10-K, filed on February 28, 2012)

114
Table of Contents

Exhibit
  
Description
10.13.6
  
Amended and Restated Loan Agreement, dated as of October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.6 of Form 10-K, filed on February 28, 2012)
10.13.7
  
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated October 13, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.7 of Form 10-K, filed on February 28, 2012)
10.13.8
  
Amended and Restated Loan Agreement, dated as of December 20, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.8 of Form 10-K, filed on February 28, 2012)
10.13.9
  
Amended and Restated Cross-Collateralization and Cooperation Agreement, dated December 20, 2005, between the Registrant and Merrill Lynch Mortgage Lending, Inc. (incorporated by reference to Exhibit 10.13.9 of Form 10-K, filed on February 28, 2012)
10.14
  
Mortgage Loan Agreement (Pool 1), dated November 14, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.14 of Form 10-K, filed on February 28, 2012)
10.14.1
  
Mortgage Loan Agreement (Pool 2), dated November 14, 2005, between the Registrant and UBS Real Estate Investments, Inc. (incorporated by reference to Exhibit 10.14.1 of Form 10-K, filed on February 28, 2012)
10.14.2
  
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 1 (incorporated by reference to Exhibit 10.14.2 of Form 10-K, filed on February 28, 2012)
10.14.3
  
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 1 (incorporated by reference to Exhibit 10.14.3 of Form 10-K, filed on February 28, 2012)
10.14.4
  
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 2 (incorporated by reference to Exhibit 10.14.4 of Form 10-K, filed on February 28, 2012)
10.14.5
  
Guaranty of Recourse Obligations, dated November 14, 2005, by the Registrant for the benefit of UBS Real Estate Investments, Inc. with respect to Pool 2 (incorporated by reference to Exhibit 10.14.5 of Form 10-K, filed on February 28, 2012)
10.21
  
Purchase and Sale Agreement, dated May 18, 2006, between the Registrant and EADS Associates Limited Partnership (incorporated by reference to Exhibit 10.21 of Form 10-K, filed on February 28, 2012)
10.23.1
  
Loan Agreement, dated December 7, 2006, between the Registrant and Countrywide Commercial Real Estate Finance, Inc. (incorporated by reference to Exhibit 10.23.1 of Form 10-K, filed on February 28, 2012)
10.23.2
  
MIP Loan Extension Agreement, dated December 9, 2011, between the Registrant and Wells Fargo Bank, N.A. (incorporated by reference to Exhibit 10.23.2 of Form 10-K, filed on February 28, 2012)
10.25.1.1
  
Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Edison LP, as Borrower to Wachovia Bank, National Association, as Lender, dated April 11, 2007, with respect to Courtyard Edison, Edison, New Jersey (incorporated by reference to Exhibit 10.25.4.4 to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.25.1.1a*
  
Schedule of Agreements omitted pursuant to Instruction 2 to Item 601 of Regulation S-K
10.25.1.2
  
Guaranty for Fixed-Rate Pool 1, executed as of April 11, 2007 by the Registrant, for the benefit of Wachovia Bank, National Association (incorporated by reference to Exhibit 10.25.4.6 to Form 10-Q, filed on November 6, 2009)
10.25.1.2a
  
Schedule of Agreements omitted pursuant to Instruction 2 to Item 601 of Regulation S-K (incorporated by reference to Exhibit 10.25.4.6a to the Registrant’s Form 10-Q, filed on November 6, 2009)
10.25.1.3
  
Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of Wells Fargo Bank, National Association, dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.11 of Form 10-K, filed on February 28, 2012)
10.25.1.4
  
Mezzanine 1 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of BRE/HH Acquisitions LLC and Barclay Capital Real Estate Finance, Inc., dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.15 of Form 10-K, filed on February 28, 2012)
10.25.1.5
  
Mezzanine 2 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of BRE/HH Acquisitions LLC and Barclay Capital Real Estate Finance, Inc., dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.16 of Form 10-K, filed on February 28, 2012)
10.25.1.6
  
Mezzanine 3 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of BRE/HH Acquisitions LLC and Barclay Capital Real Estate Finance, Inc., dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.17 of Form 10-K, filed on February 28, 2012)
10.25.1.7
  
Mezzanine 4 Guaranty and Indemnity Agreement by Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP for the benefit of GSRE III, Ltd. dated March 10, 2011 (incorporated by reference to Exhibit 10.25.4.18 of Form 10-K, filed on February 28, 2012)
10.27*
  
ISDA Master Agreement between Ashford Hospitality Limited Partnership and Wachovia Bank, National Association, dated March 12, 2008
10.27.1*
  
Schedule to the Master Agreement between Ashford Hospitality Limited Partnership and Wachovia Bank, National Association, dated March 12, 2008

115
Table of Contents

Exhibit
  
Description
10.30.1
  
Confirmation of Amended and Restated Swap Transaction, dated November 4, 2010, related to the trade of an interest rate swap by Ashford Hospitality Limited Partnership from Wells Fargo Bank, N.A. as effected on October 13, 2010 (incorporated by reference to Exhibit 10.30.7 to the Registrant’s Form 10-K, filed on March 4, 2011)
10.30.2
  
Confirmation of Termination of Swap Transaction, dated November 4, 2010, related to the termination of an interest rate swap by Ashford Hospitality Limited Partnership from Wells Fargo Bank, N.A. as effected on October 13, 2010 (incorporated by reference to Exhibit 10.30.8 to the Registrant’s Form 10-K, filed on March 4, 2011)
10.30.3
  
Confirmation of Trade, dated November 19, 2010, related to the trade of an interest rate swap by Ashford Hospitality Limited Partnership from Credit Agricole Corporate and Investment Bank New York Branch as effected on October 13, 2010 (incorporated by reference to Exhibit 10.30.9 to the Registrant’s Form 10-K, filed on March 4, 2011)
10.32
  
Release and Waiver Agreement, Dated March 31, 2011, by and between Ashford Hospitality Trust, Inc. and Mr. Alan Tallis, former Executive Vice President of Ashford Hospitality Trust, Inc. (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed on April 6, 2011, for the event dated April 11, 2011)
10.33
  
Stock Repurchase Agreement, dated April 11, 2011, by and between Ashford Hospitality Trust, Inc. and Security Capital Preferred Growth Incorporated (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K, filed on April 11, 2011, for the event dated April 11, 2011)
10.34
  
Indemnity Agreement dated March 10, 2011, between the Registrant and Remington Lodging & Hospitality, LLC (incorporated by reference to Exhibit 10.31 to the Registrant’s Form 10-Q, filed on May 10, 2011)
10.35
  
Credit Agreement, dated September 26, 2011, by and among Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., KeyBanc Capital Markets and KeyBank, National Association (incorporated by reference to Exhibit 10 to the Registrant’s Form 8-K, filed on September 30, 2011, for the event dated September 26, 2011)

10.35.1
 
First Amendment to Credit Agreement, dated February 21, 2012, by and among Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., KeyBanc Capital Markets, and KeyBank, National Association (incorporated by reference to Exhibit 10.36.1 of Form 10-Q, filed on May 8, 2012)
10.35.2
 
Second Amendment to Credit Agreement, dated December 21, 2012, by and among Ashford Hospitality Limited Partnership, Ashford Hospitality Trust, Inc., KeyBanc Capital Markets, and KeyBank, National Association (incorporated by reference to Exhibit 10.35.2 of Form 10-K, filed on March 1, 2013)
10.36.1
  
Amended and Restated Mezzanine 1 Loan Agreement, dated March 10, 2011, between HH Swap A LLC, HH Swap C LLC, HH Swap C-1 LLC, HH Swap D LLC, HH Swap F LLC, HH Swap F-1 LLC, HH Swap G LLC, collectively as Borrower, and BRE/HH Acquisition LLC and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.1 of Form 10-K, filed on February 28, 2012)
10.36.1.1
 
Omnibus Agreement and Consent, dated December 17, 2012, by and among (i) American Equity Investment Life Insurance Company, Athene Annuity & Life Assurance Company, Newcastle CDO VIII 1, Limited, Newcastle CDO IX 1, Limited, Principal Life Insurance Company, (ii) HH SWAP A LLC, HH SWAP C LLC, HH SWAP C-1 LLC, HH SWAP D LLC, HH SWAP F LLC, HH SWAP F-1 LLC, and HH SWAP G LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.1.1 of Form 10-K, filed on March 1, 2013)
10.36.1.2
 
Consent Agreement, dated December 27, 2012, by and among (i) American Equity Investment Life Insurance Company, Athene Annuity & Life Assurance Company, Newcastle CDO VIII 1, Limited, Newcastle CDO IX 1, Limited, Principal Life Insurance Company, (ii) HH SWAP A LLC, HH SWAP C LLC, HH SWAP C-1 LLC, HH SWAP D LLC, HH SWAP F LLC, HH SWAP F-1 LLC, and HH SWAP G LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.1.2 of Form 10-K, filed on March 1, 2013)
10.36.2
  
Amended and Restated Mezzanine 2 Loan Agreement, dated March 10, 2011, between HH Mezz Borrower A-2 LLC, HH Mezz Borrower C-2 LLC, HH Mezz Borrower D-2 LLC, HH Mezz Borrower F-2 LLC, HH Mezz Borrower G-2 LLC, collectively as Borrower, and BRE/HH Acquisition LLC and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.2 of Form 10-K, filed on February 28, 2012)
10.36.2.1
 
Omnibus Amendment and Consent dated December 17, 2012, by and among (i) Starwood Property Mortgage SUB-10-A, L.L.C., (ii) HH Mezz Borrower A-2 LLC, HH Mezz Borrower C-2 LLC, HH Mezz Borrower D-2 LLC, HH Mezz Borrower F-2 LLC, and HH Mezz Borrower G-2 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.2.1 of Form 10-K, filed on March 1, 2013)
10.36.2.2
 
Consent Agreement dated December 27, 2012, by and among (i) Starwood Property Mortgage SUB-10-A, L.L.C., (ii) HH Mezz Borrower A-2 LLC, HH Mezz Borrower C-2 LLC, HH Mezz Borrower D-2 LLC, HH Mezz Borrower F-2 LLC, and HH Mezz Borrower G-2 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.2.2 of Form 10-K, filed on March 1, 2013)
10.36.3
  
Amended and Restated Mezzanine 3 Loan Agreement, dated March 10, 2011, between HH Mezz Borrower A-3 LLC, HH Mezz Borrower C-3 LLC, HH Mezz Borrower D-3 LLC, HH Mezz Borrower F-3 LLC, HH Mezz Borrower G-3 LLC, collectively as Borrower, and BRE/HH Acquisition LLC and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.3 of Form 10-K, filed on February 28, 2012)

116
Table of Contents

Exhibit
  
Description
10.36.3.1
 
Omnibus Amendment and Consent dated December 17, 2012, by and among (i) LVS I SPE II LLC, (ii) HH Mezz Borrower A-3 LLC, HH Mezz Borrower C-3 LLC, HH Mezz Borrower D-3 LLC, HH Mezz Borrower F-3 LLC, and HH Mezz Borrower G-3 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.3.1 of Form 10-K, filed on March 1, 2013)
10.36.3.2
 
Consent Agreement dated December 27, 2012, by and among (i) LVS I SPE II, LLC, (ii) HH Mezz Borrower A-3 LLC, HH Mezz Borrower C-3 LLC, HH Mezz Borrower D-3 LLC, HH Mezz Borrower F-3 LLC, and HH Mezz Borrower G-3 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.3.2 of Form 10-K, filed on March 1, 2013)
10.36.4
  
Amended and Restated Mezzanine 4 Loan Agreement, dated March 10, 2011, between HH Mezz Borrower A-4 LLC, HH Mezz Borrower C-4 LLC, HH Mezz Borrower D-4 LLC, HH Mezz Borrower F-4 LLC, HH Mezz Borrower G-4 LLC, collectively as Borrower, and GSRE III, LTD, as Lender (incorporated by reference to Exhibit 10.35.4 of Form 10-K, filed on February 28, 2012)
10.36.4.1
 
Omnibus Amendment and Consent dated December 17, 2012, by and among (i) GSR3LP, LLC, (ii) HH Mezz Borrower A-4 LLC, HH Mezz Borrower C-4 LLC, HH Mezz Borrower D-4 LLC, HH Mezz Borrower F-4 LLC, and HH Mezz Borrower G-4 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.4.1 of Form 10-K, filed on March 1, 2013)
10.36.4.2
 
Consent Agreement dated December, 2012, by and among (i) GSR3LP, LLC, (ii) HH Mezz Borrower A-4 LLC, HH Mezz Borrower C-4 LLC, HH Mezz Borrower D-4 LLC, HH Mezz Borrower F-4 LLC, and HH Mezz Borrower G-4 LLC, and (iii) Ashford Hospitality Limited Partnership and PRISA III REIT Operating LP (incorporated by reference to Exhibit 10.36.4.2 of Form 10-K, filed on March 1, 2013)
10.36.5
  
Amended and Restated Mortgage Loan Agreement, dated March 10, 2011, between Entities set forth on Schedule I and II, collectively as Borrower, and Wells Fargo Bank, National Association and Barclays Capital Real Estate Finance, Inc., collectively as Lender (incorporated by reference to Exhibit 10.35.5 of Form 10-K, filed on February 28, 2012)
10.37
 
Advisory Agreement between Ashford Hospitality Prime, Inc., Ashford Hospitality Prime Limited Partnership and Ashford Hospitality Advisors LLC, dated November 19, 2013 (incorporated by reference to Exhibit 10.5 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.38
 
Right of First Offer Agreement between Ashford Hospitality Trust, Inc. and Ashford Hospitality Prime, Inc., dated November 19, 2013 (incorporated by reference to Exhibit 10.6 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.39
 
Option Agreement Pier House Resort by and between Ashford Hospitality Prime Limited Partnership and Ashford Hospitality Limited Partnership with respect to the Properties Entities, and Ashford TRS Corporation and Ashford Prime TRS Corporation with respect to the TRS Entity, dated November 19, 2013 (incorporated by reference to Exhibit 10.7 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.40
 
Option Agreement Crystal Gateway Marriott by and between Ashford Hospitality Prime Limited Partnership and Ashford Hospitality Limited Partnership with respect to the Properties Entities, and Ashford TRS Corporation and Ashford Prime TRS Corporation with respect to the TRS Entity, dated November 19, 2013 (incorporated by reference to Exhibit 10.8 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
10.41
 
Registration Rights Agreement by and between Ashford Hospitality Prime, Inc., Ashford Hospitality Limited Partnership and Ashford Hospitality Advisors LLC, dated November 19, 2013 (incorporated by reference to Exhibit 10.9 of Form 8-K, filed on November 25, 2013, for the event dated November 19, 2013)
12.0*
 
Statement Regarding Computation of Ratios of Earnings to Combined Fixed Charges and Preferred Stock Dividends
21.1*
  
Registrant’s Subsidiaries Listing as of December 31, 2013
21.2*
  
Registrant’s Special-Purpose Entities Listing as of December 31, 2013
23.1*
  
Consent of Ernst & Young LLP
31.1*
  
Certification of the Chief Executive Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
31.2*
  
Certification of the Chief Financial Officer required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended
32.1*
  
Certification of the Chief Executive Officer required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with SEC Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)
32.2*
  
Certification of the Chief Financial Officer required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended (In accordance with SEC Release 33-8212, this exhibit is being furnished, and is not being filed as part of this report or as a separate disclosure document, and is not being incorporated by reference into any Securities Act of 1933 registration statement.)
 
 
 
 
The following materials from the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 are formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements Comprehensive Income (Loss); (iii) Consolidated Statements of Changes in Equity;(iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements. In accordance with

117
Table of Contents

Rule 402 of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, and shall not be part of any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

101.INS
  
XBRL Instance Document
  
Submitted electronically with this report.
101.SCH
  
XBRL Taxonomy Extension Schema Document.
  
Submitted electronically with this report.
101.CAL
  
XBRL Taxonomy Calculation Linkbase Document.
  
Submitted electronically with this report.
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document.
  
Submitted electronically with this report.
101.LAB
  
XBRL Taxonomy Label Linkbase Document.
  
Submitted electronically with this report.
101.PRE
  
XBRL Taxonomy Presentation Linkbase Document.
  
Submitted electronically with this report.
_________________________
*  Filed herewith.


118
EXHIBIT 10.3.1
ASHFORD HOSPITALITY TRUST, INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN

(Effective January 1, 2008)
TABLE OF CONTENTS
ASHFORD HOSPITALITY TRUST, INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN





 
 
 
CONTENTS
 
Page

PREAMBLE
 
2

ARTICLE 1
DEFINITIONS
2

ARTICLE 2
PARTICIPATION IN THE PLAN
5

ARTICLE 3
DEFERRAL ACCOUNTS
5

ARTICLE 4
INVESTMENT FUNDS
7

ARTICLE 5
DISTRIBUTION OF ACCOUNT
8

ARTICLE 6
NON-ASSIGNABILITY
1

ARTICLE 7
AMENDMENT OR TERMINATION OF THE PLAN
1

ARTICLE 8
PLAN ADMINISTRATION
12

ARTICLE 9
MISCELLANEOUS
14






ASHFORD HOSPITALITY TRUST, INC.

NONQUALIFIED DEFERRED COMPENSATION PLAN

(Effective January 1, 2008)


PREAMBLE
Ashford Hospitality Trust, Inc. (the “Company”) adopted on December 31, 2007, the Ashford Hospitality Trust, Inc. Nonqualified Deferred Compensation Plan (the “Plan”), effective January 1, 2008, for the benefit of a select group of management or highly compensated employees of the Company. The Company subsequently restated the Plan on March 31, 2008, effective as of January 1, 2008 to clarify certain provisions. The purpose of the Plan is to permit designated executives and key employees of the Company to accumulate additional retirement income on a tax deferred basis.
This Plan is intended to be a nonqualified deferred compensation plan within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended. The provisions of this Plan shall be construed consistent with the requirements of Code Section 409A and applicable regulations and other guidance issued thereunder.
ARTICLE 1

DEFINITIONS
As used in this Plan, the following capitalized words shall have the meanings indicated below, unless the context clearly requires a different meaning:
1.1
 
“Account”  means the aggregate of a Participant’s Cash Account and Stock Account.
 
 
 
1.2
 
“Allocation Date”  means each business day during the Plan Year.
 
 
 
1.3
 
“Base Salary”  means a Participant’s base salary as shown in the personnel records of the Company.
 
 
 
1.4
 
“Beneficiary”  means the person or persons designated by a Participant or otherwise entitled to receive any amount credited to his or her Account that remains undistributed at the Participant’s death.
 
 
 
1.5
 
“Bonus”  means the annual bonus payable to a Participant as incentive compensation as determined by the Company, and any other bonus, including long-term incentive bonus, which the Committee, in its sole discretion, determines is eligible for deferral under the Plan.

2



1.6
 
“Bonus Deferral Election”  means an agreement between a Participant and the Company under which the Participant agrees to defer all or a portion of his or her Bonus.
 
 
 
1.7
 
“Cash Account”  means the separate bookkeeping account established on behalf of each Participant to reflect the amounts credited to the Plan on his or her behalf that are not invested in the Stock Account. Separate sub-accounts shall be maintained in the Cash Account for deferrals attributable to each Plan Year.
 
 
 
1.8
 
“Code”  means the Internal Revenue Code of 1986, as amended from time to time.
 
 
 
1.9
 
“Committee”  means the committee appointed in accordance with Section 8.1 to administer the Plan.
 
 
 
1.10
 
“Common Stock”  means common stock of the Company, $.01 par value per share.
 
 
 
1.11
 
“Company”  means Ashford Hospitality Trust, Inc. a Maryland corporation, and any successor thereto.
 
 
 
1.12
 
“Disability”  means that a Participant: (i) is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months; or (ii) is, by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, receiving income replacement benefits for a period of not less than 3 months under an accident and health plan covering employees of the Company. For all purposes, the term “Disability” shall comply with the requirements of Section 409A.
 
 
 
1.13
 
“Eligible Employee”  means an employee of the Company who is a member of a select group of management or highly compensated employees and who is designated by the Company as eligible for participation in the Plan.
 
 
 
1.14
 
“Investment Fund”  means one or more of the measurement investment funds designated by the Committee for purposes of crediting or debiting hypothetical investment gains and losses to the Cash Accounts of Participants.
 
 
 
1.15
 
“Participant”  means any Eligible Employee who satisfies the conditions for participation in the Plan set forth in Section 2.1.

3



1.16
 
“Plan”  means the Ashford Hospitality Trust, Inc. Nonqualified Deferred Compensation Plan, as set forth herein and as from time to time amended.
 
 
 
1.17
 
“Plan Year”  means the calendar year (January 1-December 31).
 
 
 
1.18
 
“Retirement”  means Separation from Service on or after attainment of age 55 with 10 or more years of service with the Company.
 
 
 
1.19
 
“RSU Deferral Election”  means an election to defer receipt of shares of Common Stock otherwise payable to the Participant upon the vesting of restricted stock unit awards under the Stock Incentive Plan. The Committee, in its discretion, shall determine which restricted stock unit awards, if any, under the Stock Incentive Plan are eligible for deferral under the Plan.
 
 
 
1.20
 
“Salary Deferral Election”  means an agreement between a Participant and the Company under which the Participant agrees to defer a portion of his or her Base Salary.
 
 
 
1.21
 
“Separation from Service”  means the termination of a Participant’s employment with the Company which constitutes a “separation from service” as that term is defined under Code Section 409A and regulations issued thereunder.
 
 
 
1.22
 
“Specified Employee”  means a Participant who is a key employee (as defined in Code Section 416(i) without regard to Code Section 416(i)(5)) of the Company. For purpose of this definition, a Participant is a key employee if the Participant meets the requirements of Code Section 416(i)(1)(A)(i), (ii) or (iii) (applied in accordance with the regulations thereunder and disregarding Code Section 416(i)(5)) at any time during the 12-month period ending on any December 31 st . If a Participant is a key employee as of any December 31 st , then that Participant is treated as a Specified Employee for distributions during the 12-month period beginning on the April 1 st  following the relevant December 31 st .
 
 
 
1.23
 
“Stock Account”  means the separate bookkeeping account established on behalf of each Participant to reflect amounts credited to the Plan on his or her behalf with respect to deferrals of restricted stock unit awards under the Stock Incentive Plan. The Stock Account shall be maintained in the form of Stock Units and shall be payable solely in the form of shares of Common Stock from the Stock Incentive Plan. Separate sub-accounts shall be maintained in the Stock Account for deferrals attributable to each Plan Year.
1.24
 
“Stock Incentive Plan”  means the Ashford Hospitality Trust, Inc. Amended and Restated 2003 Stock Incentive Plan, and any successor thereto.
 
 
 
1.25
 
“Stock Unit”  means a unit that entitles the Participant to one share of Common Stock.
 
 
 
1.26
 
Rules of Construction
(a)
Governing law . The construction and operation of this Plan are governed by the laws of the State of Texas except to the extent pre-empted by ERISA or other applicable federal law.
(b)
Headings . The headings of Articles, Sections and Subsections are for reference only and are not to be utilized in construing the Plan.
(c)
Gender . Unless clearly inappropriate, all pronouns of whatever gender refer indifferently to persons or objects of any gender.
(d)
Singular and plural . Unless clearly inappropriate, singular items also refer to the plural and vice versa.
(e)
Severability . If any provision of this Plan is held illegal or invalid for any reason, the remaining provisions shall remain in full force and effect and be construed and enforced in accordance with the purposes of the Plan as if the illegal or invalid provision did not exist.

4



ARTICLE 2

PARTICIPATION IN THE PLAN
2.1
 
Eligibility
 
 
 
 
 
Participation in the Plan shall be limited to employees of the Company who (i) qualify for inclusion in a “select group of management or highly compensated employees” within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA and (ii) are designated by the Company as being eligible to participate in the Plan. If the Company determines that a Participant no longer qualifies as being a member of a select group of management or highly compensated employees, the Company shall have the right to suspend the Participant’s contributions for future Plan Years, except to the extent prohibited by Section 409A of the Code.
2.2
 
Commencement of Participation
 
 
 
 
 
Eligible Employees may elect to participate in the Plan, in the manner designated by and acceptable to the Company, prior to the first day of each Plan Year (or in the case of newly eligible enrollees, within 30 days of first becoming eligible to participate in the Plan).
ARTICLE 3

DEFERRAL ACCOUNTS
3.1
 
Deferral Elections
(a)
Deferral of Base Salary . After satisfaction of applicable statutory tax withholding requirements and Company mandated withholding for applicable benefits, an Eligible Employee may elect to defer up to 100% of his or her Base Salary for a Plan Year by filing a Salary Deferral Election in accordance with Section 3.2.
(b)
Deferral of Bonus . An Eligible Employee may elect to defer up to 100% of his or her Bonus for a Plan Year by filing a Bonus Deferral Election in accordance with Section 3.2.
(c)
Deferral of Restricted Stock Awards . An Eligible Employee may elect to defer payment of up to 100% of his or her restricted stock units vesting under the Stock Incentive Plan by filing an RSU Deferral Election in accordance with Section 3.2.
3.2
 
Deferral Elections . A Participant’s deferral elections shall be in writing, and shall be filed with the Committee at such time and in such manner as the Committee shall provide, subject to the following:
(a)
Salary Deferrals . A Salary Deferral Election shall be made during the election period established by the Committee, which shall end no later than the last day of the Plan Year preceding the Plan Year in which the Base Salary would otherwise be earned.
(b)
Bonus Deferrals . If the Committee determines that Bonus eligible for deferral satisfies the requirements of “performance based compensation” within the meaning of Code Section 409A, then any election to defer such Bonus must be made no later than the date which is six months prior to the end of the performance period to which the Bonus relates. If the Committee determines that any Bonus eligible for deferral under the Plan does not satisfy the requirements of performance based compensation, then any election to defer such Bonus must be made no later of the last day of the calendar year preceding the Plan Year which contains the first day of the performance period to which such Bonus relates. Any deferral of Bonus shall be made in accordance with the rules and procedures established by the Committee.

5



 
(c)
 
Restricted Stock Unit Deferrals . An RSU Deferral Election shall be made during the election period established by the Committee, which shall end no later than 30 days after the date such restricted stock units are awarded to the Eligible Employee provided that the vesting date under the Stock Incentive Plan for such RSU’s is at least 12 months after the date of such deferral election. If the Committee determines that restricted stock units eligible for deferral satisfy the requirements of performance based compensation within the meaning of Code Section 409A, then the election to defer must be made no later than the date which is six months prior to the end of the performance period with respect to such restricted stock units.
 
 
 
 
 
(d)
 
Deferral elections may be expressed as a percentage or in whole dollar amounts (or whole shares, with respect to restricted stock units), within the limits provided under the Plan.
 
 
 
 
 
(e)
 
The minimum annual deferral of Base Salary under the Plan shall be ten thousand dollars ($10,000) and any deferral election that would provide a lesser deferral for a Plan Year shall be disregarded for such Plan Year.
 
 
 
 
 
(f)
 
Notwithstanding the foregoing provisions of this Section 3.2, the Committee may provide that an employee who first becomes an Eligible Employee may make a deferral election within 30 days of first becoming an Eligible Employee, which deferral election shall relate to Base Salary, Bonus and restricted stock units earned for periods after the date such election is made.
 
 
 
Once made, the Committee may provide that a deferral election shall remain in effect for subsequent Plan Years unless changed or revoked by the Participant in accordance with rules established by the Committee. Any such modification or
 
 
 
revocation shall be effective for the Plan Year following the Plan Year in which it is made. Participants shall be fully vested in their Plan benefits at all times.
3.3
 
Account Reflecting Deferred Compensation
 
 
 
 
 
The Company shall establish and maintain a separate Account for each Participant which shall reflect the amount of a Participant’s total deferrals made under Section 3.2 and all credits or charges under Section 3.4, and applicable earnings and losses under Article IV. All amounts credited or charged to a Participant’s Account hereunder shall be in a manner and form determined within the sole discretion of the Company.
 
 
 
3.4
 
Credits or Charges
 
(a)
 
Balance of Account
 
 
 
 
 
 
 
As of each Allocation Date, the amount credited to a Participant’s Account shall be the amount credited to his or her Account as of the immediately preceding Allocation Date, plus the Participant’s deferrals since the immediately preceding Allocation Date, minus any amount that is paid to or on behalf of a Participant pursuant to this Plan subsequent to the immediately preceding Allocation Date, plus or minus any hypothetical investment gains or losses determined pursuant to Section 3.4(b) below.
 
 
 
 
 
(b)
 
Earnings or Losses
 
 
 
 
 
 
 
As of each Allocation Date, a Participant’s Cash Account shall be credited or debited with earnings, gains or losses approximately equal to the earnings, gains or losses on the Investment Funds designated by the Participant to be used for purposes of calculating his or her Cash Account balance.
3.5
 
Credits to Trust Fund
 
 
 
 
 
The Company may establish a Trust Fund and make credits to it corresponding to any or all amounts credited under this Article III with respect to Eligible Employees of the Company who participate in the Plan. Notwithstanding any other provision of this Plan, any assets of the Trust Fund shall remain the property of the Company and are subject to the claims of its creditors in accordance with the terms of the Trust. No Participant (or Beneficiary) has any priority claim on Trust assets, if any, or any security interest or other right in or to such assets superior to the rights of general unsecured creditors of the Company.

6



ARTICLE 4

INVESTMENT FUNDS
4.1
 
Designation of Preferred Investment Funds By Participants
 
 
 
 
 
Each Participant may indicate to the Company, in writing, a preference that monies in his or her Cash Account be invested by the Company in one or more of the Investment Funds selected by the Committee for use by the Plan. If the monies are invested by the Company in one or more such Investment Funds, then the value of a Participant’s Cash Account at any time shall include the current fair market value of the investment in such Investment Funds. A Participant’s investment election under this Section 4.1 may be changed as of each Allocation Date (or at such other times as permitted by the Committee) in accordance with rules determined by the Committee.
 
 
 
 
 
Notwithstanding Section 4.1 or any other provision in this Plan or any notice, statement, summary or other communication provided to a Participant that may be interpreted to the contrary, the Company shall have sole control and discretion over the investment, management and use of all amounts credited to a Participant’s Account until such amounts are distributed pursuant to Article V. The Investment Funds are to be used for measurement purposes only, and a Participant’s preference of any such Investment Fund, the determination of credits and debits to his or her Account based on such Investment Funds, the Company’s actual ownership of such Investment Funds, and any authority granted by the Company to a Participant to change the investment of the Company’s assets, if any, shall not be considered or construed in any manner as an actual investment of the Cash Account in any such Investment Fund or to constitute a funding of this Plan. The Company shall at all times retain the discretion to invest the monies credited to the Cash Accounts of Participants in any funds it may choose and shall not have a duty to notify a Participant of the identity of such funds. In such event, the credits or charges to a Cash Account shall be determined using earnings, gains or losses equivalent to the hypothetical rate of earnings, gains or losses which such Account would have experienced had the Cash Account been invested in the Investment Funds designated by the Participant, based on the Participant’s most current investment preference in accordance with Section 4.1.
 
 
 
4.2
 
Stock Account.
 
 
 
 
 
A Participant’s deferrals of shares of Common Stock payable on the vesting of restricted stock units shall be credited to the Participant’s Stock Account in the form of Stock Units. The Participant shall be credited with one Stock Unit for each share of Common Stock deferred under the Plan. All distributions from the Stock Account shall be made in shares of Common Stock, which shall be payable from the share reserve under the Stock Incentive Plan. No interest or other earnings shall accrue on such Stock Account.
Prior to distribution, Stock Units shall receive dividend equivalents, which shall entitle the Participant to an amount equal to the dividends the Participant would have received if each Stock Unit held in the Stock Account on the dividend record date for the Common Stock were a share of Common Stock held by the Participant. At the time the Participant enters into an RSU Deferral Election, the Participant shall indicate on such election the manner in which dividend equivalents with respect to the Stock Units subject to such election shall be treated. The Participant may, in any combination permitted under the Plan, elect to (i) receive such dividend equivalents as current income or (ii) have the dividend equivalents deferred under the Plan. If the Participant elects to have dividend equivalents paid as current income, the dividend equivalents shall be paid in cash (or Common Stock or other applicable property for a non-cash dividend) as of the last business day of each month. If the Participant elects to have dividend equivalents deferred under the Plan, the amount of the dividend equivalents shall be credited to the Participant’s Cash Account as of the dividend payment date and deemed invested in accordance with the Participant’s investment election then in effect for the Cash Account (or, if none, in accordance with the default deemed investment election established by the Committee). If the Participant elects to have dividend equivalents deferred under the Plan, and such dividend equivalents are payable in the form of Common Stock, then the Participant shall be credited with additional Stock Units equal to the number of shares so payable. If the dividends are deferred under the Plan, the amount attributable to the deferred dividend equivalents shall be paid in the same time and form as the underlying Stock Units to which they relate.

7



ARTICLE 5

DISTRIBUTION OF ACCOUNT
5.1
 
Distribution Upon Separation from Service
 
 
 
 
 
In the event a Participant incurs a Separation from Service for any reason other than death, Disability, or Retirement, the Participant’s Account shall be paid in a single lump-sum payment within 45 days following such Separation from Service.
 
 
 
5.2
 
Distribution Upon Retirement
(a)
Time of Payment
In the event a Participant incurs a Separation from Service due to Retirement, the Participant’s Cash Account and Stock Account shall be paid as of such Retirement date in the form designated by the Participant in accordance with Section 5.2(b) below.
 
(b)
 
Form of Payment
 
 
 
 
 
 
 
At the time a Participant makes a deferral election, the Participant shall designate the manner in which the amounts deferred shall be paid upon a Separation from Service due to Retirement. The optional forms of payment shall include: (i) a single lump-sum distribution; or (ii) annual installments of up to 15 years. If a Participant fails to elect a form of retirement distribution for a given Plan Year, payment shall automatically be made in the form of a lump-sum distribution.
 
 
 
 
 
(c)
 
Modification of Form of Payment
 
 
 
 
 
 
 
A Participant may elect to modify the form of any benefit payment made in accordance with this Section 5.2, subject to the following:
(i)
the new distribution election must be made at least 12 months in advance of the originally scheduled distribution date and may not take effect for at least 12 months after the date the new distribution election is made;
(ii)
the new distribution election must require a revised distribution date of at least five years from the date such payment would otherwise have been made; and
(iii)
the new distribution election shall not accelerate the schedule of any payment, except as permitted under the regulations under Code Section 409A.
Each subsequent election modification made under this Section 5.2 must comply with paragraphs (i), (ii) and (iii) above (as if the previously revised distribution date was the originally scheduled distribution date).
5.3
 
Distribution Upon Death
(a)
Payment of Benefit
If a Participant dies before commencing the payment of his or her Account, the unpaid Account balance shall be paid to a Participant’s designated Beneficiary. Payment to such designated Beneficiary shall begin within 45 days after the
Participant’s death. Distribution shall be made to the designated Beneficiary in accordance with the Participant’s death distribution election (or if the Participant would have been eligible for Retirement at the time of his or her death, then payment shall be made in the same manner that benefits would have been paid had the Participant retired from employment).
At the time of initial enrollment in the Plan, each Participant shall designate the manner in which his or her Account shall be paid upon death. The optional forms of payment shall include: (i) a single lump-sum distribution; or (ii) annual installments of up to 15 years. If a Participant fails to elect a form of distribution which shall apply in the event of death, payment shall be automatically made in the form of a lump-sum distribution. A Participant may elect to modify the form of any benefit payment made in accordance with this Section 5.3, provided that the new distribution election must be made at least 12 months in advance of the distribution date and may not take effect for at least 12 months after the date the new distribution election is made, in accordance with the requirements of Code Section 409A.

8



If a Participant dies before receiving the total amount of his or her Account, but after benefit payments have commenced, the Participant’s remaining installments shall be paid to the Participant’s designated Beneficiary at the same time such payments would have been made had the Participant survived.
 
(b)
 
Designation of Beneficiary
 
 
 
 
 
 
 
A Participant shall designate a Beneficiary on a form to be supplied by the Company. The Beneficiary designation may be changed by the Participant at any time, but any such change shall not be effective until the Beneficiary designation form completed by the Participant is delivered to and received by the Company. In the event that the Company receives more than one Beneficiary designation form from the Participant, the form bearing the most recent date shall be controlling. If the Participant fails to designate a Beneficiary, or no designated Beneficiary survives the Participant, then the Participant’s benefits under the Plan shall be made in the following order of priority: (1) to the Participant’s surviving spouse; (2) if there is no surviving spouse, to the Participant’s children in equal shares by right of representation (one share for each surviving child and one share for each child who predeceases the Participant but has surviving descendants); and (3) to the Participant’s estate.
5.4
 
Distribution Upon Disability
 
(a)
 
Time of Payment
 
 
 
 
 
 
 
In the event a Participant terminates employment due to Disability, the Participant’s Account shall be paid as of such date in the form designated by the Participant in accordance with Section 5.4(b) below.
 
 
 
 
 
(b)
 
Form of Payment
 
 
 
 
 
 
 
At the time of initial enrollment in the Plan, each Participant shall designate the manner in which his Account shall be paid upon Disability. The optional forms of payment shall include: (i) a single lump sum payment; or (ii) annual installments of up to 15 years. If a Participant fails to elect a Disability form of distribution, payment shall be automatically made in the form of a lump-sum distribution.
 
 
 
 
 
(c)
 
Modification of Form of Payment
 
 
 
 
 
 
 
A Participant may elect to modify the form of any benefit payment made in accordance with this Section 5.4, provided that the new distribution election must be made at least 12 months in advance of the distribution date and may not take effect for at least 12 months after the date the new distribution election is made, in accordance with the requirements of Code Section 409A.
5.5
 
Distributions Due to Unforeseeable Emergency
 
 
 
 
 
Prior to Separation from Service, a Participant may receive a distribution of all or a portion of his or her Account upon demonstrating severe financial hardship due to an unforeseeable emergency in accordance with Code Section 409A and the regulations and other guidance issued thereunder.
 
 
 
 
 
For purposes of this Plan, an “unforeseeable emergency” is an unanticipated emergency that is caused by events beyond the control of the Participant or Beneficiary and would result in severe financial hardship if early withdrawal were not permitted.
 
 
 
 
 
This definition includes, but is not limited to: sudden unexpected illness or accident of the Participant or of a dependent (as defined in Internal Revenue Code Section 152(a)) of the Participant, loss of the Participant’s property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. Expenses related to sending a Participant’s child to college or purchasing a
home are not unforeseeable emergencies for purposes of this Section 5.5. The Committee shall determine additional exclusions to the definition of an unforeseeable emergency on a case by case basis.
The Committee will determine the existence of severe financial hardship due to an unforeseeable emergency in a uniform and nondiscriminatory manner. The determination will be based on the supporting facts, circumstances, and documentation provided by the Participant. The Plan will permit early distribution only to the extent the hardship cannot be relieved by insurance, liquidation of other assets (to the extent the liquidation itself will not cause severe financial hardship), or cessation of deferrals under the Plan.

9



Withdrawals from Participants’ Accounts made in accordance with this Section 5.5 will be limited to the amount reasonably necessary to satisfy the emergency need, plus applicable taxes.
In the event that a distribution is made to a Participant in accordance with this Section 5.5, the Participant’s deferrals under the Plan shall be automatically terminated and the Participant shall not eligible to re-enroll in the Plan until the enrollment period for the Plan Year that begins at least 12 months after such distribution.
5.6
 
Distribution Prior to Separation From Service
 
(a)
 
Time of Payment
 
 
 
 
 
 
 
During the annual enrollment for each Plan Year, a Participant may designate a date or dates that any portion of his or her Base Salary, Bonus deferrals and RSU deferrals attributable to such Plan Year shall be paid prior to Separation from Service. Any such distribution date must be no earlier than January 1 of the third Plan Year following the Plan Year with respect to which the deferral election was effective. By way of example, the earliest in-service distribution date for amounts attributable to the 2008 Plan Year would be January 1, 2011. At the time a Participant makes a deferral election with respect to restricted stock units, the Participant may also designate a date in a future Plan Year prior to Separation from Service on which all or a portion of the deferred restricted stock units shall be paid. Such date must be no earlier than January 1 of the third Plan Year following the Plan Year in which the restricted stock units are credited to the Participant’s Stock Account under the Plan.
 
(b)
 
Form of Payment
 
 
 
 
 
 
 
At the time that a deferral election is made under this Section 5.6, a Participant shall elect whether the in-service distributions will be distributed in the form of: (i) a single lump-sum distribution; or (ii) a series of installment payments of a period of time not to exceed five years.
 
 
 
 
 
(c)
 
Modification of Time and/or Form of Payment
 
 
 
 
 
 
 
Subsequent to the Participant’s initial distribution election with respect to any Plan Year under this Section 5.6, the Participant may elect to modify, an unlimited number of times, the time and/or form of the payment of any benefit paid under this Section 5.6 subject to the following:
(i)
the new distribution election must be made at least 12 months in advance of the originally scheduled distribution date and may not take effect for at least 12 months after the date the new distribution election is made;
(ii)
the new distribution date must be at least five Plan Years from the date such payment would otherwise have been made; and
(iii)
the new distribution election shall not, with respect to time or form of payment, accelerate the schedule of any payment, except as permitted under the regulations under Code Section 409A.
Notwithstanding the foregoing provisions of this Section 5.6, if a Participant elects a distribution at one or more specific future dates under this Section 5.6 but becomes entitled to a distribution under Section 5.1, 5.2, 5.3 or 5.4 prior to any such date, distribution shall commence pursuant to Section 5.1, 5.2, 5.3 or 5.4, as applicable. For purposes of the preceding sentence, installment payments made to a Participant shall be treated as a right to a series of separate payments. Each subsequent election modification made under this Section 5.6 must comply with paragraphs (i), (ii) and (iii) above (as if the previously revised distribution date was the originally scheduled distribution date).
5.7
 
Distributions Made To Specified Employees
 
 
 
 
 
Notwithstanding any provision of this Article V to the contrary, if a Participant is a Specified Employee at the time the Participant is to receive any distribution due to his or her Separation from Service (including “Retirement”), such Participant’s distribution shall be made (or commence to be made) on the first day following the six (6) month anniversary of his or her Separation from Service.
5.8
 
Distribution of Small Sums
 
 
 
 
 
Notwithstanding the foregoing provisions of this Article V or any Participant election to the contrary, if at the time distribution of a Participant’s Account is to commence, the total value of the Account is less than the limitation then in effect under Code Section 402(g)(1)(B), the Participant’s Account shall be paid in a single lump sum payment.

10



ARTICLE 6

NON-ASSIGNABILITY
Neither a Participant nor any Beneficiary of a Participant shall have any right to commute, sell, assign, pledge, transfer or otherwise convey the right to receive his or her Account until his Account is actually distributed to the Participant or Beneficiary. The portion of the Account which has not been distributed shall not be subject to attachment, garnishment or execution for the payment of any debts, judgments, alimony or separate maintenance and shall not be transferable by operation of law in the event of bankruptcy or insolvency of a Participant or a Participant’s Beneficiary. Notwithstanding the foregoing or any other provision in this Plan to the contrary, the Plan will recognize a qualified domestic relations order relating to the division of a Participant’s Account and issued in connection with divorce proceeding .
ARTICLE 7

AMENDMENT OR TERMINATION OF THE PLAN
7.1
 
Amendment
 
 
 
 
 
The Company, by action of its Board of Directors or authorized committee, may, at any time and from time to time, amend, in whole or in part, any of the provisions of this Plan. Any such amendment is binding upon all Participants and their Beneficiaries, the Committee and all other parties in interest.
 
 
 
7.2
 
Termination
 
 
 
 
 
The Company reserves the right to terminate the Plan at any time by action of its Board of Directors. Upon the termination of the Plan, Participants’ Account balances shall remain in the Plan until the Participant becomes eligible for the distribution of benefits as provided in Article V. Notwithstanding the foregoing, the Board, in its discretion, may elect to distribute
Participants’ Account balances following termination of the Plan, in which case the entire vested Account balances of all Participants shall be distributed during the period beginning 12 months after such termination date and ending 24 months after such termination date, notwithstanding any installment payment elections made by Participants; provided, however, if the Plan is terminated in connection with a change in control of the Company (within the meaning of Code Section 409A), then all Account balances shall be distributed within 12 months after such change in control, and any such distributions must comply with the requirements of Treas. Reg. § 1.409A-3(i)(4)(ix).
7.3
 
When Amendments Take Effect
 
 
 
 
 
A resolution amending or terminating the Plan becomes effective as of the date specified therein.
 
 
 
7.4
 
Restriction on Retroactive Amendments
 
 
 
 
 
No amendment may be made that retroactively deprives a Participant of any benefit accrued before the date of the amendment.

11



ARTICLE 8

PLAN ADMINISTRATION
8.1
 
The Administrative Committee
 
 
 
 
 
The Plan shall be administered by a Committee appointed by the Company’s Board of Directors. The Company may remove any member of the Committee at any time, with or without cause, and may fill any vacancy. If a vacancy occurs, the remaining member or members of the Committee have full authority to act. The Company is responsible for transmitting to any trustee the names and authorized signatures of the members of the Committee and, as changes take place in membership, the names and signatures of new members. Any member of the Committee may resign by delivering his written resignation to the Company, any trustee and the Committee. Any such resignation becomes effective upon its receipt by the Company or on such other date as is agreed to by the Company and the resigning member. The Committee may adopt such rules and appoint such subcommittees as it deems desirable for the conduct of its affairs and the administration of the Plan.

8.2 Powers of the Committee
In carrying out its duties with respect to the general administration of the Plan, the Committee has, in addition to any other powers conferred by the Plan or by law, the following powers:
(a)
to conclusively determine all questions relating to eligibility to participate in the Plan;
(b)
to compute and certify to any trustee or other appropriate party the amount and kind of distributions payable to Participants and their Beneficiaries;
(c)
to maintain all records necessary for the administration of the Plan that are not maintained by the Company, record keeper or any trustee;
(d)
to conclusively construe and interpret the provisions of the Plan and to make and publish such rules for the administration of the Plan as are not inconsistent with the terms thereof;
(e)
to establish and modify the method of accounting for the Plan or any Trust;
(f)
to employ counsel, accountants and other consultants to aid in exercising its powers and carrying out its duties hereunder; and
(g)
to perform any other acts necessary and proper for the administration of the Plan, except those that are to be performed by the record keeper or trustee, if any.
8.3 Indemnification
      (a) Indemnification of Members of the Committee by the Company
The Company agrees to indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out of his or her action or failure to act in such capacity, excepting only expenses and liabilities arising out of the member’s own willful misconduct or gross negligence. This right of indemnification is in addition to any other rights to which any member of the Committee may be entitled.
      (b) Liabilities for Which Members of the Committee are Indemnified
Liabilities and expenses against which a member of the Committee is indemnified
hereunder include, without limitation, the amount of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought against him or the settlement thereof.
      (c) Company’s Right to Settle Claims
The Company may, at its own expense, settle any claim asserted or proceeding brought against any member of the Committee when such settlement appears to be in the best interests of the Company.
8.4 Claims Procedure
A Participant or Beneficiary or other person who feels he or she is being denied any benefit or right provided under the Plan (hereinafter referred to as “Claimant”) may file a written claim with the Committee or its delegate setting forth the claim. Any such claim shall be signed by the Claimant and shall be considered filed on the date the claim is received by the Company or prescribed addressee. The claim must be addressed as prescribed by the Company. If a Participant shall fail to file a request for review in accordance with the procedures described herein, such Participant shall have no right to review and shall have no right to bring action in any court and the denial of the claim shall become final and binding on all persons for all purposes.

12



      (a) Committee Action
The Committee or its delegate shall, within 90 days after its receipt of such claim make its determination. However, in the event that special circumstances require an extension of time for processing the claim, the Committee or its delegate shall provide such Claimant with its determination not later than 180 days after receipt of the Claimant’s claim, but, in such event, the Committee or its delegate shall furnish the Claimant, within 90 days after its receipt of such claim, notification of the extension explaining the circumstances requiring such extension and the date that it is anticipated that its determination will be furnished.
In the event the claim is denied, the Committee or its delegate shall provide such Claimant a statement of the Adverse Benefit Determination, as defined in subsection (d) below. The notice of Adverse Benefit Determination shall contain the following:
(i)
the specific reason or reasons for Adverse Benefit Determination;
(ii)
a reference to the specific provisions of the Plan upon which the Adverse Benefit Determination is based;
(iii)
a description of any additional material or information that is necessary for the Claimant to perfect the claim;
(iv)
an explanation of why that material or information is necessary; and
(v)
an explanation of the review procedure provided below, including applicable time limits and a notice of a Claimant’s rights to bring a legal action under ERISA after an Adverse Benefit Determination on final appeal.
      (b) Procedures for Appealing an Adverse Benefit Determination
Within 60 days after receipt of a notice of an Adverse Benefit Determination as provided above, if the Claimant disagrees with the Adverse Benefit Determination, the Claimant, or his or her authorized representative, may request, in writing, that the Committee or its delegate review the claim and may request to appear before the Committee or its delegate for such review. If the Claimant does not request a review of the Adverse Benefit Determination within such 60 day period, the Claimant shall be barred and estopped from appealing the Committee’s or its delegate’s Adverse Benefit Determination. The appeal shall be filed with the Committee or prescribed addressee at the address prescribed by the Company, and it shall be considered filed on the date it is received by the prescribed addressee.
The Claimant shall have the rights to:
(i)
submit written comments, documents, records and other information relating to the claim for benefits;
(ii)
request, free of charge, reasonable access to, and copies of all documents, records and other information relevant to the claim for benefits.
      (c) Response on Appeal
Within 60 days after receipt by the Committee or its delegate of a written application for review of a Claimant’s claim, the Committee or its delegate shall notify the Claimant of its decision; provided, however, in the event that special circumstances require an extension of time for processing such application, the Committee or its delegate shall so notify the Claimant of its decision not later than 120 days after receipt of such application.
In the event the Committee’s or its delegate’s decision on appeal is adverse to the Claimant, the Committee or its delegate shall issue a notice of an Adverse Benefit
Determination on Appeal that will contain all of the following information, in a manner calculated to be understood by the Claimant:
(i)
the specific reason(s) for the Adverse Benefit Determination on Appeal;
(ii)
reference to specific plan provisions on which the benefit determination is based; and
(iii)
a statement that the Claimant is entitled to receive, upon request and free of charge, reasonable access to and copies of all documents, records and other information relevant to the Claimant’s claim for benefits; and a statement describing any voluntary appeal procedures offered by the Plan and the Claimant’s right to obtain the information about such procedures, as well as a statement of the Claimant’s right to bring an action under ERISA Section 502(a).
      (d) Definition
As used herein, the term “Adverse Benefit Determination” shall mean a determination that results in the denial, reduction, or termination of, or a failure to provide or make payment (in whole or in part) for, a benefit.
8.5 Expenses
The members of the Committee serve without compensation for services as such. All expenses of the Committee are paid by the Company.
8.6 Conclusiveness of Action

13



Any action on matters within the discretion of the Committee will be conclusive, final and binding upon all Participants and upon all persons claiming any rights under the Plan, including Beneficiaries.
ARTICLE 9

MISCELLANEOUS
9.1 Compliance With Code Section 409A
Notwithstanding any provision in this Plan to the contrary, this Plan shall be interpreted and construed in accordance with Code Section 409A and regulations and other interpretative guidance issued thereunder, including without limitation any regulations or other guidance that may be issued after the effective date of this restatement. Notwithstanding any provision of this Plan to the contrary, the Company may adopt such amendments to the Plan or adopt other policies and procedures (including amendments, policies and procedures having a retroactive effect), or take any other actions, that the Company determines is necessary or appropriate to preserve the intended tax treatment of the benefits provided under the Plan and/or to comply with Code Section 409A.
Notwithstanding any provision of the Plan to the contrary, during the period ending December 31, 2008, the Company may allow Participants to make or change elections under the Plan in a manner that complies with the transition relief provided under Notice 2007-86 or other applicable IRS guidance.
9.2 Plan Not a Contract of Employment
The adoption and maintenance of the Plan does not constitute a contract between the Company and any Participant or to be a consideration for the employment of any person. Nothing herein contained gives any Participant the right to be retained in the employ of the Company or derogates from the right of the Company to discharge any Participant at any time without regard to the effect of such discharge upon his or her rights as a Participant in the Plan.
9.3 No Rights Under Plan Except as Set Forth Herein
Nothing in this Plan, express or implied, is intended, or shall be construed, to confer upon or give to any person, firm, association, or corporation, other than the parties hereto and their successors in interest, any right, remedy, or claim under or by reason of this Plan or any covenant, condition, or stipulation hereof, and all covenants, conditions and stipulations in this Plan, by or on behalf of any party, are for the sole and exclusive benefit of the parties hereto.

9.4 Other Benefit Plans
Deferred compensation under this Plan shall not be deemed to be compensation for purposes of determining a Participant’s benefit or credit under any plan of the Company qualified under Code Section 401(a), or any life insurance plan or disability plan established or maintained by the Company, except to the extent specifically provided in such other plan.
9.5 Withholding of Taxes
The Company shall cause taxes to be withheld from an Account distributed hereunder as required by law. For each Plan Year in which any deferral is made under Section 3.1, the Company shall withhold from that portion of the Participant’s compensation that is not being deferred, in a manner determined by the Company, the Participant’s share of FICA and other employment taxes on such deferral amount.
[The remainder of this page is intentionally left blank]

14



IN WITNESS WHEREOF , Ashford Hospitality Trust, Inc. has caused this document to be executed by its duly authorized officer this 31st day of March, 2008, to be effective as of January 1, 2008,
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ David A. Brooks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Name:
 
David A. Brooks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Title:
 
Chief Legal Officer
 
 
 
 
 
 
 
 
 


15



Exhibit 10.3.1.1

 
 
ASHFORD HOSPITALITY TRUST, INC.
NONQUALIFIED DEFERRED COMPENSATION PLAN
FIRST AMENDMENT
                WHEREAS , Ashford Hospitality Trust, Inc. (the “Company”) maintains the Ashford Hospitality Trust, Inc. Nonqualified Deferred Compensation Plan (effective January 1, 2008) (the “Plan”) for the benefit of its eligible employees; and
                WHEREAS , the Company desires to amend the Plan to comply with Code Section 409A and regulations issued thereunder; and
                WHEREAS , in Section 9.1 of the Plan, the Company reserved the right to amend the Plan to comply with Code Section 409A;
                NOW, THEREFORE , the Plan is hereby amended by this First Amendment thereto, effective as of January 1, 2008, as follows:
1.  Section 3.1(d) shall be added to the Plan to provide as follows:
“(d) Deferral of Other Amounts . An Eligible Employee may elect to defer such other amounts as determined by the Committee at such time and in such manner as the Committee shall provide in accordance with Code Section 409A and regulations issued thereunder.”
2.  Section 3.2(g) shall be added to the Plan to provide as follows:
“(g) Deferral of Other Amounts. Any election to defer other amounts shall be made during the election period established by the Committee in accordance with the requirements of Section 409A of the Code.”
3.  Section 5.1 shall be revised by deleting the phrase “, Disability,” to read as follows:
“In the event a Participant incurs a Separation from Service for any reason other than death or Retirement, the Participant’s Account shall be paid in a single lump-sum payment within 45 days following such Separation from Service.”
4.  Section 5.4(a) shall be revised to read as follows:
“In the event the Committee makes a determination that a Participant has incurred a Disability, the Participant’s Account shall be paid as of such date in the form designated by the Participant in accordance with Section 5.4(b) below.”
5.  The first sentence of Section 5.6(a) shall be amended by adding the phrase “ and any other amounts deferred under the Plan ” immediately after the phrase “Base Salary, Bonus deferrals and RSU deferrals”, to read as follows (underlined to show this clarification):
“During the annual enrollment for each Plan Year, a Participant may designate a date or dates that any portion of his or her Base Salary, Bonus deferrals and RSU deferrals and any other amounts deferred under the Plan attributable to such Plan Year shall be paid prior to Separation from Service.”
6.  Except as modified herein, the Plan is specifically ratified and affirmed.
                IN WITNESS WHEREOF, this First Amendment to the Plan is executed this 31st day of December, 2008, to be effective as herein provided.




 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
  
 
 
 
 
By:  
/s/ David A. Brooks
 
 
 
  
 
 
 
 
Printed Name:
David A. Brooks
 
 
 
  
 
 
 
 
Title:  
Chief Legal Officer
 
 
 
  
 
 
 





Exhibit 10.3.3
ASHFORD HOSPITALITY TRUST, INC.

AMENDED AND RESTATED

2003 STOCK INCENTIVE PLAN


LTIP UNIT AWARD AGREEMENT
Name of the Grantee:                                            (the “ Grantee ”)


Number of LTIP Units Awarded:                                                  

Grant Effective Date:                                                                         

Price to Grantee Per LTIP Unit: $                                                      
RECITALS
A. The Grantee is an eligible participant in the Amended and Restated 2003 Stock Incentive Plan (as amended and supplemented from time to time, the “ Plan ”) of Ashford Hospitality Trust, Inc. (the “ Company ”). The Company conducts substantially all of its operations through its indirect subsidiary Ashford Hospitality Limited Partnership (the “Partnership”), through Ashford OP General Partner, LLC (“ GP ”), a wholly-owned subsidiary of the Company and the sole general partner of the Partnership.
B. Pursuant to the Company’s Amended and Restated 2003 Stock Incentive Plan (as amended and supplemented from time to time, the “ Plan ”) and the Third Amended and Restated Limited Partnership Agreement, as amended, (the “ LP Agreement ”) of the Partnership, the Company and GP, as general partner of the Partnership, hereby grant to the Grantee an Other Stock-Based Award (as defined in the Plan, referred to herein as an “ Award ”) in the form of, and by causing the Partnership to issue to the Grantee, the number of LTIP Units (as defined in the LP Agreement) set forth above (the “ Award LTIP Units ”) having the rights, voting powers, restrictions, limitations as to distributions, qualifications and terms and conditions of redemption and conversion set forth herein and in the LP Agreement. Upon the close of business on the Grant Effective Date pursuant to this LTIP Unit Award Agreement (this “ Agreement ”), the Grantee shall receive the number of LTIP Units specified above, subject to the restrictions and conditions set forth herein, in the Plan and in the LP Agreement, including the Grantee’s payment of the price of each LTIP Unit as set forth above. Unless otherwise indicated, capitalized terms used herein shall have the meanings given to those terms in the Plan or as defined in Section 2.
      NOW, THEREFORE , the Company, the Partnership and the Grantee agree as follows:
      1.  Effectiveness of Award . The Grantee shall be admitted as a partner of the Partnership with beneficial ownership of the Award LTIP Units as of the Grant Effective Date by (i) signing and delivering to the Partnership a copy of this Agreement, (ii) if not previously admitted as a Limited Partner (as defined in the LP Agreement), signing, as a Limited Partner, and delivering to the Partnership a counterpart signature page to the LP Agreement (attached hereto as Exhibit A ) and delivering all other documentation required to be delivered upon admittance of a Limited Partner to the Partnership, as set forth in the LP Agreement and (iii) payment to the Partnership of the price for each LTIP Unit granted hereby (in the aggregate, the “ Price ”). Upon execution of this Agreement by the Grantee, the Partnership, GP and the
Company and payment to the Partnership by Grantee of the Price, the LP Agreement shall be amended to reflect the issuance to the Grantee of the Award LTIP Units. Thereupon, the Grantee shall have all the rights of a Limited Partner of the Partnership with respect to a number of LTIP Units equal to the Award LTIP Units, as set forth in the LP Agreement, subject, however, to the restrictions and conditions specified in this Agreement.




      2.  Vesting of Award LTIP Units .
(i) Except as otherwise provided in Sections 2(iii) and 2(iv) below, the Award LTIP Units shall become vested in accordance with the provisions set forth on Exhibit D .
(ii) There shall be no proportionate or partial vesting of Award LTIP Units in or during the months, days or periods prior to each date on which Award LTIP Units vest in accordance with the provisions set forth on Exhibit D (each, a “ Vesting Date ”), and all vesting of Award LTIP Units shall occur only on the applicable Vesting Date. Unless otherwise set forth in the Grantee’s Service Agreement, upon the termination or cessation of the Grantee’s Continuous Service, other than without Cause by the Company or an Affiliate of the Company or for Good Reason by the Grantee, any portion of the Award LTIP Units which is not yet then vested shall automatically and without notice or payment of any consideration by the GP, the Company or the Partnership terminate, be forfeited and be and become null and void and neither the Grantee nor any of his successors, heirs, assigns, or personal representatives will thereafter have any further rights or interests in Non-Vested LTIP Units.
(iii) Notwithstanding any other term or provision of this Agreement, unless otherwise set forth in the Grantee’s Service Agreement, if the Grantee’s Continuous Service is terminated without Cause by the Company or an Affiliate of the Company or for Good Reason by the Grantee, or if the principal class of securities for which the LTIP Award Units may be exchanged are no longer publicly traded following a Change of Control, then the Non-Vested LTIP Units subject to this Agreement that have not been previously forfeited shall immediately vest as of the date of such termination without Cause or for Good Reason or on the date of such cessation but immediately before such Change of Control.
(iv) Notwithstanding anything to the contrary in this Section 2, to the extent the Grantee is a party to another agreement or arrangement with the Company that provides accelerated vesting of the Award LTIP Units in the event of certain types of employment terminations or any other applicable vesting-related events or provides more favorable vesting provisions than provided for in this Agreement, the more favorable vesting terms of such other agreement or arrangement shall control.
(v) For purposes of this Agreement, the following terms shall have the meanings indicated:
“ Cause ” for termination of the Grantee’s employment means (A) if the Grantee is a party to an employment or other similar service agreement with the Company or an Affiliate of the Company (a “ Service Agreement ”), and “cause” is defined therein, such definition, or (B) if the Grantee is not party to a Service Agreement or the Grantee’s Service Agreement does not define “cause,” then Cause shall have the meaning set forth in the Plan.
“ Change of Control ” means (A) if the Grantee is a party to a Service Agreement with the Company or an Affiliate of the Company, and “change of control” is defined therein, such definition, or (B) if the Grantee is not party to a Service Agreement or the Grantee’s Service Agreement does not define “change of control,” then Change of Control shall have the meaning set forth in the Plan.
“ Continuous Service ” means the continuous service to the Company and any subsidiary of the Company, without interruption or termination, in any capacity of employee, member of the Board or, with the written permission of the Company, consultant. Continuous Service shall not be considered interrupted in the case of (A) any approved leave of absence, (B) transfers among the Company and any subsidiary, or any successor, in any capacity of employee, member of the Board or consultant, or (C) any change in status as long as the individual remains in the service of the Company and any subsidiary of the Company in any capacity of employee, member of the Board or (if the Company specifically agrees in writing that the Continuous Service is not uninterrupted) a consultant. An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.
“ Good Reason ” means (A) if the Grantee is a party to a Service Agreement with the Company or an Affiliate of the Company, and “good reason” is defined therein, such definition, or (B) if the Grantee is not party to a Service Agreement or the Grantee’s Service Agreement does not define “good reason,” then Good Reason shall have the meaning set forth in the Plan.
“ Non-Vested LTIP Units ” means any portion of the Award LTIP Units subject to this Agreement that has not become vested pursuant to Section 2.
“ Vested LTIP Units ” means any portion of the Award LTIP Units subject to this Agreement that is and has become vested pursuant to Section 2.
      3.  Distributions . Distributions on the Award LTIP Units, whether Non-Vested LTIP Units or Vested LTIP Units, shall be paid to the Grantee to the extent provided for in the LP Agreement.
      4.  Rights with Respect to Award LTIP Units . If (i) the Company shall at any time be involved in a merger, consolidation, dissolution, liquidation, reorganization, exchange of shares, sale of all or substantially all of the assets or capital stock of the Company or a transaction similar thereto, (ii) any stock dividend, stock split, reverse stock split, stock combination, reclassification, recapitalization, or other similar change in the capital structure of the Company, or any distribution to holders of Common Stock other than ordinary cash dividends, shall occur or (iii) any other event shall occur which in the judgment of




the Committee necessitates action by way of adjusting the terms of the Agreement, then and in that event, the Committee shall take such action as shall be necessary to maintain the Grantee’s rights hereunder so that they are substantially proportionate to the rights existing under this Agreement prior to such event, including, but not limited to, adjustments in the number of Award LTIP Units then subject to this Agreement and substitution of other Awards under the Plan or otherwise. The Grantee shall have the right to vote the Award LTIP Units if and when voting is allowed under the LP Agreement, regardless of whether vesting has occurred.
      5.  Incorporation of Plan . This Agreement is subject in all respects to the terms, conditions, limitations and definitions contained in the Plan. In the event of any discrepancy or inconsistency between this Agreement and the Plan, the terms and conditions of the Plan shall control.
      6.  Restrictions on Transfer . None of the Award LTIP Units granted hereunder shall be sold, assigned, transferred, pledged, hypothecated, given away or in any other manner disposed of, encumbered, whether voluntarily or by operation of law (each such action a “ Transfer ”), or redeemed in accordance with the LP Agreement (i) prior to vesting, (ii) for a period of two (2) years beginning on the Grant Effective Date other than in connection with a Change of Control, and (iii) unless such Transfer is in compliance with all applicable securities’ laws (including, without limitation, the Securities Act of 1933, as amended (the “ Securities Act ”)), and such Transfer is in accordance with the applicable terms and conditions of the LP Agreement; provided that, upon the approval of, and subject to the terms and conditions specified by, the Committee, Non-Vested LTIP Units that have been held for a period of at least two (2) years beginning on the Grant Effective Date specified above may be Transferred to (w) the spouse, children or grandchildren of the Grantee (“ Immediate Family Members ”), (x) a trust or trusts for the exclusive benefit of the Grantee and such Immediate Family Members, (y) a partnership in which the Grantee and such Immediate Family Members are the only partners, or (z) one or more entities in which the Grantee has a 10% or greater equity interest, provided that the transferee agrees in writing with the Company and the Partnership to be bound by all the terms and conditions of this Agreement and that subsequent transfers by such transferees of Non-Vested LTIP Units shall be prohibited except those in accordance with this Section 6. In connection with any Transfer of Award LTIP Units granted hereunder, the Partnership may require the Grantee to provide an opinion of counsel, satisfactory to the Partnership, that such Transfer is in compliance with all federal and state securities laws (including, without limitation, the Securities Act). Upon any such transfer, the Grantee’s Capital Account (as defined in the LP Agreement) in the Partnership will be reduced, and the transferee’s Capital Account in the Partnership will be credited, with such portion of the Grantee’s Capital Account as is properly allowable to the transferred Award LTIP Units. Any attempted Transfer of Award LTIP Units granted hereunder not in accordance with the terns and conditions of this Section 6 shall be null and void, and the Partnership shall not reflect on its records any change in record ownership of any Award LTIP Units as a result of any such Transfer, shall otherwise refuse to recognize any such Transfer and shall not in any way give effect to any such Transfer of any Award LTIP Units. This Agreement is personal to the Grantee, is non-assignable and is not transferable in any manner, by operation of law or otherwise, other than by will or the laws of descent and distribution.
      7.  Legend . The records of the Partnership evidencing the Award LTIP Units shall bear an appropriate legend, as determined by the Partnership in its sole discretion, to the effect that such LTIP Units are subject to restrictions as set forth herein, in the Plan and in the LP Agreement.
      8.  Tax Matters; Section 83(b) Election . The Grantee hereby agrees to make an election to include in gross income in the year of transfer the Award LTIP Units hereunder pursuant to Section 83(b) of the Internal Revenue Code substantially in the form attached hereto
as Exhibit B and to supply the necessary information in accordance with the regulations promulgated thereunder.
      9.  Withholding and Taxes . No later than the date as of which an amount first becomes includible in the gross income of the Grantee for income tax purposes or subject to the Federal Insurance Contributions Act withholding with respect to the Award LTIP Units granted hereunder, the Grantee will pay to the Company or, if appropriate, any of its subsidiaries, or make arrangements satisfactory to the Committee regarding the payment of, any United States federal, state or local or foreign taxes of any kind required by law to be withheld with respect to such amount. The obligations of the Company under this Agreement will be conditional on such payment or arrangements, and the Company and its subsidiaries shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Grantee.
      10.  Amendment, Modification . This Agreement may only be modified or amended in a writing signed by the parties hereto, provided that the Grantee acknowledges that the Plan may be amended or discontinued in accordance with Section 16 thereof and that this Agreement may be amended or canceled by the Committee, on behalf of the Company and the Partnership, for the purpose of satisfying changes in law or for any other lawful purpose, so long as no such action shall impair the Grantee’s rights under this Agreement without the Grantee’s written consent.
      11.  Complete Agreement . This Agreement (together with those agreements and documents expressly referred to herein, for the purposes referred to herein) embody the complete and entire agreement and understanding between the parties with respect to the subject matter hereof, and supersede any and all prior promises, assurances, commitments, agreements, undertakings or




representations, whether oral, written, electronic or otherwise, and whether express or implied, which may relate to the subject matter hereof in any way.
      12.  Investment Representation; Registration . The Grantee hereby makes the covenants, representations and warranties set forth on Exhibit C attached hereto as of the Grant Effective Date and as of each Vesting Date. All of such covenants, warranties and representations shall survive the execution and delivery of this Agreement by the Grantee. The Grantee shall immediately notify the Partnership upon discovering that any of the representations or warranties set forth on Exhibit C was false when made or have, as a result of changes in circumstances, become false. The Partnership will have no obligation to register under the Securities Act any of the Award LTIP Units or any other securities issued pursuant to this Agreement or upon conversion or exchange of the Award LTIP Units into other limited partnership interests of the Partnership or shares of capital stock of the Company.
      13.  No Obligation to Continue Employment or Other Service Relationship . Neither the Company nor any subsidiary is obligated by or as a result of the Plan or this Agreement to continue to have the Grantee provide services to it or to continue the Grantee in employment and neither the Plan nor this Agreement shall interfere in any way with the right of the Company or any subsidiary to terminate its service relationship with the Grantee or the employment of the Grantee at any time.
      14.  No Limit on Other Compensation Arrangements . Nothing contained in this Agreement shall preclude the Company from adopting or continuing in effect other or additional compensation plans, agreements or arrangements, and any such plans, agreements and arrangements may be either generally applicable or applicable only in specific cases or to specific persons.
      15.  Status of Award LTIP Units under the Plan . The Award LTIP Units are issued as equity securities of the Partnership and granted as “Other Stock-Based Awards” under the Plan. Subject to certain limitations set forth in the LP Agreement, the LTIP Units are convertible into Common Partnership Units (as defined in the LP Agreement), and after any such conversion, the Common Partnership Units are subject to the redemption rights set forth in the LP Agreement. In lieu of a cash redemption, the GP, at the direction of the Company, will have the right at its option to issue Common Stock in exchange for such Common Partnership Units, subject to certain limitations set forth in the LP Agreement, and such Common Stock, if issued, will be issued under the Plan. The Grantee acknowledges that the Grantee will have no right to approve or disapprove such election by the GP.
      16.  Severability . If any term or provision of this Agreement is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction or under any applicable law, rule or regulation, then such provision shall be construed or deemed amended to conform to applicable law (or if such provision cannot be so construed or deemed amended without materially altering the purpose or intent of this Agreement and the grant of Award LTIP Units hereunder, such provision shall be stricken as to such jurisdiction and the remainder of this Agreement and the award hereunder shall remain in full force and effect).
      17.  Section 409A . If any compensation provided by this Agreement may result in the application of Section 409A of the Code, the Company shall, in consultation with the Grantee, modify the Agreement in the least restrictive manner necessary in order to, where applicable, (i) exclude such compensation from the definition of “deferred compensation” within the meaning of such Section 409A or (ii) comply with the provisions of Section 409A, other applicable provision(s) of the Code and/or any rules, regulations or other regulatory guidance issued under such statutory provisions and to make such modifications, in each case, without any diminution in the value of the benefits granted hereby to the Grantee.
      18.  Law Governing . This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Maryland (without reference to the conflict of laws rules or principles thereof).
      19.  Headings . Section, paragraph and other headings and captions are provided solely as a convenience to facilitate reference. Such headings and captions shall not be deemed in any way material or relevant to the construction, meaning or interpretation of this Agreement or any term or provision hereof.
      20.  Notices . Notices hereunder shall be mailed or delivered to the Partnership at its principal place of business and shall be mailed or delivered to the Grantee at the address on file with the Partnership or, in either case, at such other address as one party may subsequently furnish to the other party in writing.
      21.  Counterparts . This Agreement may be executed in two or more separate counterparts, each of which shall be an original, and all of which together shall constitute one and the same agreement.
      22.  Successors and Assigns . The rights and obligations created hereunder shall be binding on the Grantee and his heirs and legal representatives and on the successors and assigns of the Partnership.
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned have caused this Award to be executed on the ___ day of ___, 200_.




 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
By:  
 
 
 
 
Name:  
 
 
 
 
Title:  
 
 
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
By: Ashford OP General Partner LLC,

        Its General Partner
 
 
 
 
 
 
 
 
 
By:  
 
 
 
 
Name:  
 
 
 
 
Title:  
 
 
 
 
 
 
 
 
 
ASHFORD OP GENERAL PARTNER LLC
 
 
 
By:  
 
 
 
 
Name:  
 
 
 
 
Title:  
 
 
 
 
 
 
 
The Grantee
 
 
 
 
 
 
 
 
Name:
Address:
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT A




FORM OF POWER OF ATTORNEY AND

LIMITED PARTNER SIGNATURE PAGE
The undersigned, desiring to become one of the Limited Partners of Ashford Hospitality Limited Partnership (the “ Partnership ”), hereby becomes a party to the Third Amended and Restated Agreement of Limited Partnership of Ashford Hospitality Limited Partnership, as amended (the “Partnership Agreement”). The undersigned agrees to be bound by all the terms and conditions of the Partnership Agreement and hereby grants to the general partner of the Partnership, the “Power of Attorney,” as provided and upon the terms as set forth in Article XII of the Partnership Agreement, and further agrees that this signature page may be attached to any counterpart of the Partnership Agreement.
 
 
 
 
 
 
Signature Line for Limited Partner:
 
 
 
By:  
 
 
 
 
Name:  
 
 
 
 
Date: 
 
 
 
 
 
 
 
 
Address of Limited Partner:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT B
ELECTION TO INCLUDE IN GROSS INCOME IN YEAR OF

TRANSFER OF PROPERTY PURSUANT TO SECTION 83(B)

OF THE INTERNAL REVENUE CODE
The undersigned hereby makes an election pursuant to Section 83(b) of the Internal Revenue Code with respect to the property described below and supplies the following information in accordance with the regulations promulgated thereunder:
1
The name, address and taxpayer identification number of the undersigned are:
 
 
 
 
 
Name:                                                                                          (the “Taxpayer”)
 
 
Address:                                                                                                      
 
 
 
 
 
 
 
 
 
Social Security No./Taxpayer Identification No.:




2
Description of property with respect to which the election is being made:
 
 
 
The election is being made with respect to ___LTIP Units in Ashford Hospitality Limited Partnership (the “ Partnership ”).
3
The date on which the LTIP Units were transferred is ___, 20_. The calendar taxable year to which this election relates is calendar year 20_.
 
 
4
Nature of restrictions to which the LTIP Units are subject:
(a) With limited exceptions, until the LTIP Units vest, the Taxpayer may not transfer in any manner any portion of the LTIP Units without the consent of the Partnership.
(b) The Taxpayer’s LTIP Units vest in accordance with the vesting provisions described in the Schedule attached hereto. Unvested LTIP Units are forfeited in accordance with the vesting provisions described in the Schedule attached hereto.
5
The fair market value at time of transfer (determined without regard to any restrictions other than restrictions which by their terms will never lapse) of the LTIP Units with respect to which this election is being made was $             per LTIP Unit.
 
 
6
The amount paid by the Taxpayer for the LTIP Units was $              per LTIP Unit.
7
A copy of this statement has been furnished to the Partnership and to its general partner, Ashford OP General Partner LLC.
Dated:            , 20__
 
 
 
 
 
 
 
 
Name
Schedule to Section 83(b) Election — Vesting Provisions of LTIP Units.




LTIP Units are subject to time-based vesting in accordance with the following schedule, provided that the Taxpayer remains in the continuous service of Ashford Hospitality Trust, Inc. (the “ Company ”) or its subsidiaries through such dates, subject to acceleration in the event of certain extraordinary transactions. Unvested LTIP Units are subject to forfeiture in the event of failure to vest based on the passage of time and continued service to the Company or its subsidiaries.
 
 
 
 
 
 
 
Number of
 
 
 
 
Award LTIP Units
 
Cumulative
Vesting Date
 
Becoming Vested
 
Percentage Vested
 
 
 
 
 
Before the first anniversary of
 
—%
 
—%
Grant Effective Date
 
 
 
 
 
 
 
 
 
First Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Second Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Third Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Fourth Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Fifth Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
EXHIBIT C
GRANTEE’S COVENANTS, REPRESENTATIONS AND WARRANTIES
The Grantee hereby represents, warrants and covenants as follows:
(a) The Grantee has received and had an opportunity to review the following documents (the “ Background Documents ”):
(i) The Company’s Registration Statement on Form S-3 with respect to the Company’s most recent public offering;
(ii) The latest Annual Report to Stockholders that has been provided to stockholders;
(iii) The Company’s Proxy Statement for its most recent Annual Meeting of Stockholders;
(iv) The Company’s Report on Form 10-K for the fiscal year most recently ended;
(v) The Company’s Form 10-Q for the most recently ended quarter;
(vi) Each of the Company’s Current Report(s) on Form 8-K, if any, filed since the end of the fiscal year most recently ended for which a Form 10-K has been filed by the Company;
(vii) The Third Amended and Restated Agreement of Limited Partnership and all amendments thereto of Ashford Hospitality Limited Partnership;
(viii) The Company’s Amended and Restated 2003 Stock Incentive Plan; and
(ix) The Company’s Amended and Restated Certificate of Incorporation and all amendments thereto.




The Grantee also acknowledges that any delivery of the Background Documents and other information relating to the Company and the Partnership prior to the determination by the Partnership of the suitability of the Grantee as a holder of Award LTIP Units shall not constitute an offer of Award LTIP Units until such determination of suitability shall be made.
(b) The Grantee hereby represents and warrants that
(i) The Grantee (A) is an “accredited investor” as defined in Rule 501(a) under the Securities Act of 1933, as amended (the “Securities Act”), and (B) by reason of the business and financial experience of the Grantee, together with the business and financial experience of those persons, if any, retained by the Grantee to represent or advise him or her with respect to the grant to him or her of LTIP Units, the potential conversion of LTIP Units into
common units of the Partnership (“Common Units”) and the potential redemption of such Common Units for shares of common stock in the Company (“Shares”), has such knowledge, sophistication and experience in financial and business matters and in making investment decisions of this type that the Grantee (I) is capable of evaluating the merits and risks of an investment in the Partnership and potential investment in the Company and of making an informed investment decision, (II) is capable of protecting his or her own interest or has engaged representatives or advisors to assist him or her in protecting his or her its interests, and (III) is capable of bearing the economic risk of such investment.
(ii) The Grantee understands that (A) the Grantee is responsible for consulting his or her own tax advisors with respect to the application of the U.S. federal income tax laws, and the tax laws of any state, local or other taxing jurisdiction to which the Grantee is or by reason of the award of LTIP Units may become subject, to his or her particular situation; (B) the Grantee has not received or relied upon business or tax advice from the Company, the Partnership or any of their respective employees, agents, consultants or advisors, in their capacity as such; (C) the Grantee provides or will provide services to the Partnership on a regular basis and in such capacity has access to such information, and has such experience of and involvement in the business and operations of the Partnership, as the Grantee believes to be necessary and appropriate to make an informed decision to accept this Award of LTIP Units; (D) an investment in the Partnership and/or the Company involves substantial risks; and (E) Grantee may incur federal income taxes in a year attributable to the ownership of LTIP Units greater than the distribution, if any, made by the Partnership to the Grantee with respect to such LTIP Units with respect to such year. The Grantee has been given the opportunity to make a thorough investigation of matters relevant to the LTIP Units and has been furnished with, and has reviewed and understands, materials relating to the Partnership and the Company and their respective activities (including, but not limited to, the Background Documents). The Grantee has been afforded the opportunity to obtain any additional information (including any exhibits to the Background Documents) deemed necessary by the Grantee to verify the accuracy of information conveyed to the Grantee. The Grantee confirms that all documents, records, and books pertaining to his or her receipt of LTIP Units which were requested by the Grantee have been made available or delivered to the Grantee. The Grantee has had an opportunity to ask questions of and receive answers from the Partnership and the Company, or from a person or persons acting on their behalf, concerning the terms and conditions of the LTIP Units. The Grantee has relied upon, and is making its decision solely upon, the Background Documents. The Grantee did not receive any tax, legal or financial advice from the Partnership or the Company and, to the extent it deemed necessary, has consulted with its own advisors in connection with its evaluation of the Background Documents and this Agreement and the Grantee’s receipt of LTIP Units.
(iii) The LTIP Units to be issued, the Common Units issuable upon conversion of the LTIP Units and any common stock of the Company issued in connection with the redemption of any such Common Units will be acquired for the account of the Grantee for investment only and not with a current view to, or with any intention of, a distribution or resale thereof, in whole or in part, or the grant of any participation therein, without prejudice, however, to the Grantee’s right (subject to the terms of the LTIP Units, the Plan and this Agreement) at all times to sell or otherwise dispose of all or any part of his or her LTIP Units, Common Units or
Shares in compliance with the Securities Act; and applicable state securities laws, and subject, nevertheless, to the disposition of his or her assets being at all times within his or her control.
(iv) The Grantee acknowledges that (A) neither the LTIP Units to be issued, nor the Common Units issuable upon conversion of the LTIP Units, have been registered under the Securities Act or state securities laws by reason of a specific exemption or exemptions from registration under the Securities Act and applicable state securities laws and, if such LTIP Units or Common Units are represented by certificates, such certificates will bear a legend to such effect, (B) the reliance by the Partnership and the Company on such exemptions is predicated in part on the accuracy and completeness of the representations and warranties of the Grantee contained herein, (C) such LTIP Units, or Common Units, therefore, cannot be resold unless registered under the Securities Act and applicable state securities laws, or unless an exemption from registration is available, (D) there is no public market for such LTIP Units and Common Units and (E) neither the Partnership nor the Company has any obligation or intention to register such LTIP Units or the Common Units issuable upon conversion of the LTIP Units under the Securities Act or any state securities laws or to take any action that would make available any exemption from the registration requirements of such laws, except, that, upon the redemption of the Common Units for Shares, the Company currently intends to issue such Shares under the Plan and pursuant to a Registration Statement on Form S-8 under the Securities Act, to the extent




that (I) the Grantee is eligible to receive such Shares under the Plan at the time of such issuance and (II) the Company has an effective Form S-8 Registration Statement with the Securities and Exchange Commission registering the issuance of such Shares. The Grantee hereby acknowledges that because of the restrictions on transfer or assignment of such LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units which are set forth in the Partnership Agreement and this Agreement, the Grantee may have to bear the economic risk of his or her ownership of the LTIP Units acquired hereby and the Common Units issuable upon conversion of the LTIP Units for an indefinite period of time.
(v) The Grantee has determined that the LTIP Units are a suitable investment for the Grantee.
(vi) No representations or warranties have been made to the Grantee by the Partnership or the Company, or any officer, director, shareholder, agent or affiliate of any of them, and the Grantee has received no information relating to an investment in the Partnership or the LTIP Units except the information specified in Paragraph (a) and this Paragraph (b).
(c) So long as the Grantee holds any LTIP Units, the Grantee shall disclose to the Partnership in writing such information as may be reasonably requested with respect to ownership of LTIP Units as the Partnership may deem reasonably necessary to ascertain and to establish compliance with provisions of the Internal Revenue Code of 1986, as amended (the “Code”), applicable to the Partnership or to comply with requirements of any other appropriate taxing authority.
(d) The Grantee hereby agrees to make an election under Section 83(b) of the Code with respect to the LTIP Units awarded hereunder, and has delivered with this Agreement a completed, executed copy of the election form attached to this Agreement as Exhibit B . The Grantee agrees to file the election (or to permit the Partnership to file such election on the
Grantee’s behalf) within thirty (30) days after the award of the LTIP Units hereunder with the IRS Service Center at which such Grantee files his or her personal income tax returns, and to file a copy of such election with the Grantee’s U.S. federal income tax return for the taxable year in which the LTIP Units are awarded to the Grantee.
(e) The address set forth on the signature page of this Agreement is the address of the Grantee’s principal residence, and the Grantee has no present intention of becoming a resident of any country, state or jurisdiction other than the country and state in which such residence is sited.
(f) The representations of the Grantee as set forth above are true and complete to the best of the information and belief of the Grantee, and the Partnership shall be notified promptly of any changes in the foregoing representations.
EXHIBIT D
VESTING




 
 
 
 
 
 
 
Number of
 
 
 
 
Award LTIP Units
 
Cumulative
Vesting Date
 
Becoming Vested
 
Percentage Vested
 
 
 
 
 
Before the first anniversary of
 
—%
 
—%
Grant Effective Date
 
 
 
 
 
 
 
 
 
First Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Second Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Third Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Fourth Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 
 
 
 
 
 
Fifth Anniversary of Grant
 
—%
 
—%
Effective Date
 
 
 
 





Exhibit 10.4
NON-COMPETE/SERVICES AGREEMENT
THIS NON-COMPETE/SERVICES AGREEMENT (the “Agreement”), dated March 21, 2008, effective as of January 1, 2008, is between ASHFORD HOSPITALITY TRUST, INC., a corporation organized under the laws of the State of Maryland and having its principal place of business at Dallas, Texas (hereinafter, the “REIT”), ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of Delaware and having its principal place of business at Dallas, Texas (the Operating Partnership”), and ARCHIE BENNETT, JR., an individual residing in Dallas, Texas (the “Director”).
RECITALS:
A. The REIT and the Operating Partnership (collectively, the “Company”) desire that the Director serve in the capacities and on the terms and conditions set out below; and
B. The Director and the Company have previously entered into a Non-Compete/Services Agreement dated as of August 29, 2003 (the “Previous Agreement”); and
C. The Director and the Company desire to amend and restate the Previous Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as well as certain other changes.
NOW, THEREFORE, the Company and the Director, in consideration of the respective covenants set out below, hereby agree as follows:
1. DIRECTORSHIP.
(a) SERVICE. During the Term (defined below), the Director shall serve as Chairman of the Board of Directors of the REIT (the “Board”). At the Company’s request, the Director shall serve the Company’s subsidiaries and affiliates in other offices and capacities in addition to the foregoing. If the Director, during the Term, serves in any one or more of such additional capacities, the Director’s fee shall not be increased beyond that provided in Sections 3 or 4 below. Further, if the Director’s service in one or more of such additional capacities is terminated, the Director’s compensation provided herein shall not be reduced for so long as the Director otherwise remains on the Board of Directors of the Company and subject to the terms of this Agreement.
(b) RESPONSIBILITIES. The Director’s principal duties and responsibilities shall be those duties and responsibilities customary for the Chairman of the Board of Directors and consistent with the duties and responsibilities performed by the Chairman for the Company prior to the Effective Date. The Director will be responsible for and have authority over customary duties and responsibilities of a Chairman of the Board and such other duties reasonably directed by the Board. The Director shall serve in the best interest of the Company and its Shareholders.
(c) EXTENT OF SERVICES. Except for (i) the time reasonably required to perform the Director’s duties and responsibilities as Chairman of the Board and an officer of Remington Hotel Corporation (“RHC”), Remington Management LP (“Remington Management”), Remington Lodging &
Hospitality, L.P. (“Remington Lodging”) and their affiliates (so long as such duties do not materially interfere with the performance of the Director’s duties hereunder), and (ii) illnesses, the Director shall, consistent with the Chairman’s prior practices, devote his working time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement. However, the Director may (so long as the following do not materially interfere with the performance of the Director’s duties hereunder) (i) make any passive investments where he is not obligated or required to, and shall not in fact, devote material managerial efforts (provided that the Director may make and continue investments in accordance with the terms of that certain Mutual Exclusivity Agreement, herein so called, among RHC, Remington Lodging and their affiliates (herein collectively called the “Remington Affiliates”), and the Company and its affiliates dated August 29, 2003, (ii) participate in charitable, academic or community activities or in trade or professional organizations, (iii) hold directorships in charitable or non-profit organizations, (iv) subject to Board approval (which approval shall not be unreasonably withheld or withdrawn), hold directorships in other companies, except only that the Board shall have the right to limit such services as a director or such participation whenever the Board shall reasonably believe that the time spent on such activities infringes in any material respect upon the time required by the Director for the performance of his duties under this Agreement or is otherwise incompatible with those duties, or (v) hold directorships in private companies owned by the Director (or Montgomery J. Bennett) consistent with the Mutual Exclusivity Agreement. Further it is agreed that to the extent any such activities have been conducted by the Director prior to August 29, 2003, the continued reasonable conduct of such activities (or reasonable activities similar in nature and scope thereto) subsequent to the Effective Date shall not, subject to the conditions and limitations of the Mutual Exclusivity Agreement, thereafter be deemed to interfere with the performance of the Director’s responsibilities to the




Board and to the Company and its Shareholders; provided, that no such activity that violates the non-competition provisions herein shall be permitted.
2. TERM. This Agreement shall be effective as of January 1, 2008 (the “Effective Date”) and shall continue for a Term ending on the earlier of the end of the Director’s then current term if he is not re-nominated and elected to serve as a director and December 31, 2008 (the “Initial Termination Date”) unless it is sooner terminated pursuant to Section 6; provided, however, that if the Director continues to be re-nominated and elected, this Agreement shall be automatically extended for one additional year on the Initial Termination Date and on each subsequent anniversary of the Initial Termination Date, unless the Company or the Director elect not to extend the Term of this Agreement by notifying the other party in writing of such election not less than one hundred twenty (120) days prior to the expiration of the then current Term. For purposes of this Agreement, “Term” shall mean the actual duration of the Director’s service hereunder, taking into account any extension pursuant to this Section 2 or early termination of service pursuant to Section 6 or this Section 2.
3. FEE. The Company shall pay the Director a fee which shall be payable once a month (“Director’s Fee”). Commencing as of the Effective Date, the Director’s Fee shall be THREE HUNDRED THOUSAND DOLLARS ($300,000.00) per year, provided that, at the election of the Board, the Company may pay $25,000.00 of the annual Director’s Fee in shares of common stock of the REIT. The Board or a Compensation Committee duly appointed by the Board (the “Compensation Committee”) shall thereafter review the Director’s Fee annually to determine within its sole discretion whether and to what extent the Director’s Fee may be increased (for the purposes of this Agreement, the term “Director’s Fee” shall mean the amount established and adjusted from time to time pursuant to this Section 3).
4. INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, to the extent permitted by law, the Director shall be entitled to participate in all other short- and long-term incentive plans, stock and option plans, long term incentive partnership (“LTIP”) plans, practices, policies and other programs, and all savings and retirement plans, practices, polices and programs, in each case that may be allowed from time to time by the Company’s Compensation Committee; provided, however, that the Director may not participate in any qualified employee pension benefit plan.
5. EXPENSE REIMBURSEMENTS/D&O INSURANCE.
(a) EXPENSES. The Director will be entitled to reimbursement of all reasonable expenses, including, without limitation, business class airfare and other travel expenses for board meetings, committee meetings and corporate business, telephone and facsimile expenses, and expenses for part-time secretarial support incurred by the Director in connection with the business of the Board and the Company, promptly upon the presentation by the Director of appropriate documentation. The Company shall maintain an office at the Company’s headquarters for the Director and shall provide administrative support to the Director at such office.
(b) D&O INSURANCE COVERAGE. During and for a period three (3) years after the Term, the Director shall be entitled to director and officer insurance coverage for his acts and omissions while a director of the Company on a basis no less favorable to him than the coverage provided current officers or directors.
6. TERMINATION. The services of the Director and this Agreement (except as otherwise provided herein) shall terminate upon the occurrence of any of the following:
(a) DEATH OR DISABILITY. Immediately upon death or Disability of the Director. As used in this Agreement, “Disability” shall mean an inability to perform the essential functions of his duties, with or without reasonable accommodation, for a period of 90 consecutive days or a total of 180 days, during any 365-day period, in either case as a result of incapacity due to mental or physical illness which is determined to be total and permanent. A determination of Disability shall be made by a physician satisfactory to both the Director and the Company, provided that if the Director (or his guardian) and the Company do not agree on a physician, the Director (or his guardian) and the Company shall each select a physician and these two together shall select a third physician, whose determination as to Disability shall be binding on all parties. The appointment of one or more individuals to carry out the service of the Director during a period of the Director’s inability to perform such service and pending a determination of Disability shall not be considered a breach of this Agreement by the Company.
(b) FOR CAUSE. At the election of the Company, for Cause, immediately upon written notice by the Company to the Director unless the Director fully corrects the circumstances constituting Cause within the cure periods provided below, if applicable. For purposes of this Agreement, “Cause” for termination shall be deemed to exist solely in the event of the following:
(i) The conviction of the Director of, or the entry of a plea of guilty or nolo contendere by the Director to, a felony (exclusive of a conviction, plea of guilty or nolo contendere arising solely under a statutory provision imposing criminal liability upon the Director on a PER SE basis due to the services provided under this Agreement by the Director, so long as any act or omission of the Director with
respect to such matter was not taken or omitted in contravention of any applicable policy or directive of the Board);




(ii) willful breach of duty of loyalty which is materially detrimental to the Company which is not cured to the reasonable satisfaction of the Board within fifteen (15) days following written warning to the Director from the Board describing the alleged circumstances;
(iii) willful failure to perform or adhere to explicitly stated directives of the Board which continues for fifteen (15) days after written warning to the Director that it will be deemed a basis for a “For Cause” termination;
(iv) gross negligence or willful misconduct in the performance of the Director’s duties (which is not cured by the Director within thirty (30) days after written warning from the Board);
(v) the Director’s willful commission of an act of dishonesty resulting in economic or financial injury to the Company or willful commission of fraud; or
(vi) the Director’s chronic absence from Board or committee meetings for reasons other than illness.
For purposes of this Section, no act, or failure to act, on the Director’s part will be deemed “willful” unless done, or omitted to be done, by the Director not in good faith and without a reasonable belief that the Director’s act, or failure to act, was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Director in good faith and in the best interests of the Company. The cessation of the services to be provided by the Director shall not be deemed to be for Cause until there shall have been delivered to the Director a copy of a resolution duly adopted by the affirmative vote of not less than 2/3rds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Director and the Director is given an opportunity, together with counsel for the Director, to be heard before the Board), finding that, in the good faith opinion of the Board, the Director is guilty of any of the conduct described in this Section 6(b), and specified in the particulars thereof in detail; provided that neither the Director nor any family member of the Director shall vote on such resolution nor shall they be counted in determining the “Entire Membership” of the Board.
(c) WITHOUT CAUSE OR GOOD REASON. At the election of the Company, without Cause, and at the election of the Director, without Good Reason, in either case upon sixty (60) days’ prior written notice to the Director or to the Company, as the case may be. Provided, however, that if the Director gives notice, without Good Reason, the Company may waive all or a portion of the sixty (60) days’ written notice and accelerate the effective Date of Termination.
(d) FOR GOOD REASON. At the election of the Director, for Good Reason, which is not cured by the Company within thirty (30) days after written notice from the Director to the Company setting forth a description of the circumstances constituting Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the following actions, omissions or events occurring without the Director’s prior written consent:
(i) The assignment to the Director of any duties, responsibilities, or reporting requirements inconsistent with his service as Chairman of the Board of Directors of the Company, or any material diminishment, on a cumulative basis, of the Director’s overall duties, responsibilities, or status;
(ii) a reduction by the Company in the annual Director’s Fee;
(iii) any material breach by the Company of any provision of this Agreement; or
(iv) Montgomery J. Bennett is removed without Cause in his capacity as President, Chief Executive Officer and/or director on the Board, as the term “Cause” is defined in that certain Employment Agreement (the “MJB Employment Agreement”) dated on or about the Effective Date (as amended or renewed and restated), the Company fails to renew the MJB Employment Agreement, or Montgomery J. Bennett leaves for “Good Reason” as defined in the MJB Employment Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Director for Good Reason, shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 16(a) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Director’s services under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (provided that the date specified shall not be more than thirty (30) days after the giving of the notice). The failure by the Director or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Director or the Company, respectively, hereunder or preclude the Director or the Company, respectively, from asserting such fact or circumstance in enforcing the Director’s or the Company’s rights hereunder.
(f) DATE OF TERMINATION. “Date of Termination” means (i) if the Director’s services are terminated by the Company for Cause, or by the Director for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the




notice (provided that the date specified shall not be more than thirty (30) days after the giving of the notice), as the case may be, (ii) if the Director’s services are terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Director of such termination or such later date specified in such notice, (iii) if the Director’s services are terminated by the Director without Good Reason, the Date of Termination shall be the date on which the Director notifies the Company of such termination or such later date specified in such notice, unless otherwise agreed by the Company and the Director, and (iv) if the Director’s services are terminated by reason of death or Disability or non-renewal of this Agreement, the Date of Termination shall be the date of death or Disability of the Director or the Agreement’s non-renewal date, as the case may be.
7. EFFECTS OF TERMINATION.
(a) TERMINATION FOR DEATH OR DISABILITY FOR DEATH/DISABILITY; BY THE COMPANY WITHOUT CAUSE; OR NON-RENEWAL BY THE COMPANY. If the services of the Director should terminate by reason of (i) death of the Director or Disability, (ii) termination by the Company for any reason (other than Cause) or the failure of the Company to re-nominate and elect the
Director to serve as Chairman of the Board, or (iii) the Company’s failure to renew this Agreement, then all compensation and benefits for the Director shall be as follows:
(i) The Director shall be paid, in a single lump sum payment within thirty (30) days after the Date of Termination, the aggregate amount of (A) the Director’s earned but unpaid Director’s Fee through the Date of Termination, and reimbursement of all expenses through the Date of Termination as required pursuant to Section 5(a) hereof (the “Accrued Obligations”), and (B) one (the “Severance Multiple”) Times the annual Director’s Fee in effect on the Date of Termination (the “Severance Payment”).
(ii) Any annual performance shares, restricted shares, LTIP units or options awarded under Section 4 hereof shall immediately vest. Without limiting the foregoing, it is agreed that if the Director’s services are terminated pursuant to this Section 7(a), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Director under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(b) TERMINATION BY THE DIRECTOR WITH GOOD REASON. In the event that the Director’s services are terminated by the Director with Good Reason, the Company will pay the Director the same Accrued Obligations and accelerated vesting, all as provided in Sections 7(a)(i) and (ii) above at the times as provided in such sections. In addition, the Director shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be two (2). Without limiting the foregoing, it is agreed that if the Director’s services are

terminated pursuant to this Section 7(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Director under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(c) TERMINATION BY DIRECTOR WITHOUT GOOD REASON. If the Director’s services are terminated by the Director without Good Reason including a resignation by the Director without Good Reason and including an election not to renew this Agreement by the Director, the Company will pay the Director the Accrued Obligations as provided in Section 7(a)(i) above but the Director shall not be entitled to the Severance Payment and accelerated vesting set forth in Sections 7(a)(i) and (ii) hereof. In addition, in consideration for the Director’s agreement for honoring the non-compete and non-solicitation covenants in Section 10 hereof for a period of one (1) year following the Date of Termination resulting from this Section 7(c), the Company shall pay the Director a non-compete payment (the “Non-Compete Payment”) equal to the Severance Payment determined with a Severance Multiple equal to one (1). The Non-Compete Payment shall be paid monthly over the one-year non-compete period in equal monthly installments of one-twelfth (1/12th) of the Non-Compete Payment, provided, however, that the timing of such Non-Compete payments are subject to Section 7(g) hereof.
(d) TERMINATION BY THE COMPANY FOR CAUSE. If the Director’s service is terminated by the Company for Cause, the Company will pay the Director the Accrued Obligations as provided in Section 7(a)(i) above but the Director shall not be entitled to the Severance Payment and accelerated vesting set forth in Sections 7(a)(i) and (ii) hereof.
(e) TERMINATION OF AUTHORITY. Immediately upon the Date of Termination or upon the expiration of this Agreement, notwithstanding anything else to the contrary contained herein or otherwise, the Director will resign (and shall be deemed to have resigned) his directorship and stop serving as Chairman of the Board, and shall be without any of the authority or responsibility for such position.
(f) RELEASE OF CLAIMS. As conditions of Director’s entitlement to the Severance Payment, Non-Compete Payment and benefits provided by this Agreement, the Director shall be required to execute and honor the terms of a waiver and release of




claims against the Company substantially in the form attached hereto as Exhibit “A” (as may be modified consistent with the purposes of such waiver and release to reflect changes in law following the date hereof) (the “Release”) within the applicable time period provided in the Release (the “Applicable Release Period”) and shall forfeit all payments hereunder if it is not so timely executed; provided, however, that in any case where the first and last days of the Applicable Release Period are in two separate taxable years, any payments required to be made to the Director that are treated as deferred compensation for purposes of Code Section 409A shall be made in the later taxable year, promptly following the conclusion of the Applicable Release Period.
(g) CODE SECTION 409A AND TERMINATION PAYMENTS.  All payments provided under Sections 7 and 8 hereof shall be subject to this Section 7(g). Notwithstanding anything herein to the contrary, to the extent that the Board reasonably determines, in its sole discretion, that any payment or benefit to be provided under this Agreement to or for the benefit of the Director would be subject to the additional tax imposed under Section 409A(a)(1)(B) of the Code or a successor or comparable provision, the commencement of such payments and/or benefits shall be delayed until the earlier of (i) the date that is six months following the Date of Termination or (ii) the date of the Director’s death (such date is referred to herein as the “ Distribution Date “), provided, if at such time the Director is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)) and if amounts payable under this Agreement are on account of an “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(m)), the Director shall receive payments during the six-month period immediately following the Date of Termination equal to the lesser of (x) the amount payable under this Agreement, as the case may be, or (y) two times the compensation limit in effect under Code Section 401(a)(17) for the calendar year in which the Termination Date occurs (with any amounts that otherwise would have been payable under this Agreement during such six-month period being paid on the first regular payroll date following the six-month anniversary of the Date of Termination).   Finally, for the purposes of this Agreement, amounts payable under this Agreement shall be deemed not to be a “deferral of compensation” subject to Section 409A to the extent provided in the exceptions in Treasury Regulation Sections 1.409A-1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exception under subparagraph (iii)) and other applicable provisions of Treasury Regulation Section 1.409A-1 through A-6. 
8. CHANGE OF CONTROL.
(a) CHANGE OF CONTROL. For purposes of this Agreement, a “Change of Control” will be deemed to have taken place upon the occurrence of any of the following events:
(i) any “person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as modified in Section 13(d) and 14(d) of the Exchange Act) other than (A) the Company or any of its subsidiaries, (B) any employee benefit plan of the Company or any of its subsidiaries, (C) any Remington Affiliate, (D) a company owned, directly or indirectly, by stockholders
of the Company in substantially the same proportions as their ownership of the Company, or (E) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the shares of voting stock of the Company then outstanding;
(ii) the consummation of any merger, organization, business combination or consolidation of the Company or one of its subsidiaries with or into any other company, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than 50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(iii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets; or the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(iv) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election to the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board.
(b) CERTAIN BENEFITS UPON A CHANGE OF CONTROL. If a Change in Control occurs during the Term and the Director’s service is terminated by the Company without Cause or by the Director for any reason on or before the one (1) year




anniversary of the effective date of the Change in Control, then the Director shall be entitled to the Accrued Obligations, such other benefits as may be provided in this Agreement and accelerated vesting, all as provided in Sections 7(a)(i) and (ii) above at the times as provided in such sections. In addition, the Director shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be two (2). Without limiting the foregoing, it is agreed that if the Director’s service is terminated pursuant to this Section 8(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Director under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full. All payments under this Section 8(b) are subject to the restrictions set forth in Section 7(g) and may be withheld in order to satisfy the requirements of Section 409A of the Internal Revenue Code.
(c) EXCISE TAX.
(i) In the event that any payment or benefit received or to be received by the Director in connection with a Change of Control or the termination of the Director’s service (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change of Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) will be subject (in whole or part) to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), then, subject to the provisions of Section 8(c)(ii) hereof, the Company will pay to the Director an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Director, after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 8(c)(i), will be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Director will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Director’s residence on such date, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(ii) In the event that, after giving effect to any redeterminations described in Section 8(c)(iv) hereof, a reduction in the Total Payments to the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) would produce a net amount (after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) that would be greater than the net amount of unreduced Total Payments (after deduction of the net amount of federal, state and local income tax and the amount of Excise Tax to which the Director would be subject in respect of such Total Payments), then Section 8(c)(i) hereof will not apply and the Total Payments will be so reduced.
(iii) The determination of whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax will be made by the Company’s independent auditors. The Company will provide the Director with its calculation of the amounts referred to in this Section 8(c) and such supporting materials as are reasonably necessary for the Director to evaluate the Company’s calculations. If the Director disputes the Company’s calculations (in whole or in part), the reasonable opinion of the Company’s independent auditors with respect to the matter in dispute will prevail.
(iv) In the event that (A) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of payment of the Total Payments and (B) after giving effect to such redetermination, the Total Payments are reduced pursuant to Section 8(c)(ii) hereof, the Director will repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Director to the extent that such repayment results in a reduction in the Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that (X) the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Director’s service (including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment) and (Y) after giving effect to such redetermination, the Total Payments are not reduced pursuant to Section 8(c)(ii) hereof, the Company will make an additional Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which the Company had not previously made a Gross-Up Payment (plus any taxes payable by the Director with respect to such excess and such portion) at the time that the amount of such excess is finally determined. The Company shall also reimburse the Director for any expenses (including interest and penalties) incurred in any such additional Gross-Up redetermination to the extent permitted under Section 409A. (All reimbursements of expenses incurred in connection with such additional Gross-Up redetermination shall be made within thirty (30) days after the Director incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such Gross-Up redetermination is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A)).




(v) The Director shall notify the Company in writing of any claim that, if successful, would require the payment by the Company of a Gross-Up Payment or might entitle the Company to the refund of all or part of any previous Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Director is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is required to be paid. The Director shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company. If the Company notifies the Director in writing prior to the expiration of such period that it desires to contest such claim, the Director shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney jointly selected by the Director and the Company; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim. The Company shall reimburse the Director for all costs and expenses (including legal fees and additional interest and penalties to the extent permitted under 409A) incurred in connection with such contest. All reimbursements of such expenses shall be made within thirty (30) days after the Director incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
(vi) Without limitation on the foregoing, the Company shall control all audits and proceedings taken in connection with any claim, audit or proceeding involving Excise Taxes or Gross-Up Payments and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of any such claim, audit or proceeding and may, at its sole option, either direct the Director to pay the tax claimed and sue for a refund or contest the tax in any permissible manner, and the Director agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the Company directs the Director to pay such tax and sue for a refund, the Company shall reimburse the Director within thirty (30) days after the Director pays such taxes (including interest or penalties with respect thereto to the extent permitted under 409A). All reimbursements of such expenses shall be made within thirty (30) days after the Director incurs such expense, the amounts reimbursed in a tax year will not affect such expense eligible for reimbursement in any
other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A). The Company’s control of the contest shall be limited to issues with respect to which such a Gross-Up Payment would be payable or refundable hereunder and the Director shall be entitled to settle or contest, as the case may be, any other issue.
(vii) To the extent that a Gross-Up Payment is determined to be payable pursuant to this Section 8(c), such payment must be made by the end of the taxable year immediate following the taxable year in which the taxes described above are remitted to the taxing authority.
9. CONFIDENTIAL INFORMATION. The Director recognizes and acknowledges that the Director has and will have access to confidential and proprietary information of the Company which constitute valuable, special, and unique assets of the Company. The term “Confidential Information” as used in this Agreement shall mean all proprietary information which is known only to the Director, the Company, the Remington Affiliates with respect to a Remington Transaction (as defined in the Mutual Exclusivity Agreement), other employees of the Company, or others in a confidential relationship with the Company, and relating to the Company’s business (including, without limitation, information regarding clients, customers, pricing policies, methods of operation, proprietary company programs, sales, acquisitions, products, profits, costs, conditions (financial or other), cash flows, key personnel, formulae, product applications, technical processes, and trade secrets, as such information may exist from time to time, which the Director acquired or obtained by virtue of work performed for the Company, or which the Director may acquire or may have acquired knowledge of during the performance of said work.
The Director acknowledges that the Company has put in place certain policies and practices to keep such Confidential Information secret, including disclosing the information only on a need-to-know basis. The Director further acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know such Confidential Information. Finally, the Director acknowledges that such Confidential Information, if revealed to or used for the benefit of the Company’s competitors or in a manner contrary to the Company’s interests, would cause extensive and immeasurable harm to the Company and to the Company’s competitive position.
The Director shall not, during the Term or at any time thereafter, use for personal gain or detrimentally to the Company all or part of the Confidential Information, or disclose or make available all or any part of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required for the benefit of the Company pursuant to his service hereunder, unless and until such Confidential




Information becomes publicly available other than as a consequence of the breach by the Director of his confidentiality obligations hereunder. Notwithstanding the foregoing, The Director shall not be restricted from disclosing or using Confidential Information that: (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by the Director or his agent; (ii) becomes available to the Director in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not known by the Director, after reasonable investigation, to be bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; or (iii) is required to be disclosed by law, court order or other legal process: provided, however, that in the event disclosure is required by law, court order or legal
process, the Director shall provide the Company, if legally permissible, with prompt notice of such requirement as set forth below in this Section 9.
The Director acknowledges that the Confidential Information shall remain at all times the exclusive property of the Company, and no license is granted. In the event of the termination of his service, whether Without or For Cause or Good Reason whether by the Company or the Director, or within seven (7) business days of the Company’s request under any other circumstances, the Director shall deliver to the Company all Confidential Information, in any form whatsoever, including electronic formats, and shall not take with him any Confidential Information or any reproductions (in whole or in part) or extracts of any items relating to the Confidential Information. The Company acknowledges that prior to his service with the Company, the Director has lawfully acquired extensive knowledge of the industries in which the Company engages in business including, without limitation, markets, valuation methods, and techniques, capital markets, investor relationships and similar items, and that the provisions of this Section 9 are not intended to restrict the Director’s use of such previously acquired knowledge.
In the event that the Director receives a request or is required (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose all or any part of the Confidential Information, the Director agrees, if legally permissible, to (a) promptly notify the Company of the existence, terms and circumstances surrounding such request or requirement, (b) consult with the Company on the advisability of taking legally available steps to resist or narrow such request or requirement and (c) assist the Company in seeking a protective order or other appropriate remedy; provided, however, that the Director shall not be required to take any action in violation of applicable laws. In the event that such protective order or other remedy is not obtained or that the Company waives compliance with the provisions hereof, the Director shall not be liable for such disclosure unless disclosure to any such tribunal was caused by or resulted from a previous disclosure by the Director not permitted by this Agreement.
10. NON-COMPETITION, NONSOLICITATION AND NON-INTERFERENCE.
(a) NON-COMPETITION. During the Term and any Non-Compete Period (hereinafter defined), the Director will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder, partner, or director engage in any “Competitive Business”; PROVIDED, HOWEVER, the foregoing shall not prohibit or limit the Director’s right to (i) pursue investments, transactions or businesses allowed pursuant to the terms of the Mutual Exclusivity Agreement, (ii) continue the Director’s ownership, investment, management and operation of the Remington Affiliates consistent with the terms of the Mutual Exclusivity Agreement, (iii) continue the Director’s ownership, investment, management and operation of all existing investments of the Director and the Remington Affiliates as of the Effective Date consistent with the terms of the Mutual Exclusivity Agreement, and (iv) remain an officer and/or director of all Remington Affiliates consistent with the terms of the Mutual Exclusivity Agreement.
For purposes of this Section 10(a), “Competitive Business” means acquiring, investing in or with respect to, owning, leasing, managing or developing hotel properties in the United States or originating or acquiring loans in respect of hotel properties in the United States where the Director has duties or performs services that are the same or similar to those services actually performed by the Director for the Company.
For purposes of this Section 10(a), the “Non-Compete Period” shall mean:
(i) in the case of a termination of the Director’s service as a result of Disability, or a termination by the Director without Good Reason (including, without limitation, a resignation by the Director without Good Reason or an election not to renew by the Director), a period during the Term and ending one (1) year after the Date of Termination;
(ii) in the case of a termination of the Director’s services as a result of a termination by the Company for Cause, a period during the Term and ending one (1) year after the Date of Termination;
(iii) in the case of a termination of the Director’s services as a result of (i) a Change in Control, (ii) a termination by the Director for Good Reason, or (iii) a termination by the Company for any reason other than Cause, only during the Term; or
(iv) notwithstanding the foregoing, in all cases the Non-Compete Period shall terminate effective on the termination of the REIT Exclusivity Rights (as defined in the Mutual Exclusivity Agreement) by Remington Lodging as a result of a




Remington Termination Event (and provided further that upon such termination of the Non-Compete Period, the outstanding Non-Compete Payment shall be paid by the Company within five (5) days of such termination to the Director).
The Director acknowledges that the services provided by the Director are of a special, unique, and extraordinary nature. The Director further acknowledges that his work and experience with the Company will enhance his value to a Competitive Business, and that the nature of the Confidential Information to which the Director has immediate access and will continue to have access during the course of his employment makes it difficult, if not impossible, for him to engage in any Competitive Business or work in any capacity similar to the Director’s duties or services with the Company without disclosing or utilizing the Confidential Information. The Director further acknowledges that his work and experience with the Company places him in a position of trust with the Company.
(b) NON-SOLICITATION. The Director covenants and agrees that (i) during the Term, and (ii) during the period ending on the first anniversary of his Date of Termination, he shall not, without the prior written consent of the Company, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Director’s Date of Termination, or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.
(c) NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Director understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Director’s own use or converted by Director for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Director agrees that during the Term and thereafter, Director shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
(d) REASONABLE RESTRAINTS. The Director agrees that restraints imposed upon him pursuant to this Section are necessary for the reasonable and proper protection of the Company and its subsidiaries and affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The parties further agree that, in the event that any provision of this Section shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
11. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Director’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Director may qualify, and on the terms under which he qualifies nor shall anything herein limit or otherwise affect such rights as the Director may have under any contract or agreement with the Company. Amounts which are vested benefits or which the Director is otherwise entitled to receive under any plan, policy, practice or program of or any contract agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Notwithstanding anything in this Agreement or any such plan, policy, practice or program noted above to the contrary, the timing of all payments pursuant to this Agreement or any such plan, policy, practice or program shall be subject to the timing rules specified in Section 7(g) of this Agreement.
12. FULL SETTLEMENT. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Director or others. In no event shall the Director be obligated to take any action by way of mitigation of the amounts payable to the Director under any of the provisions of this Agreement and except as expressly provided, such amounts shall not be reduced. The Company agrees to pay as incurred (within 30 days following the Company’s receipt of an invoice from the Director), to the full extent permitted by law, all reasonable legal fees and expenses which the Director or his beneficiaries may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Director or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Director or his beneficiaries about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(a) of the Code to the extent permitted by 409A. The preceding sentence shall not apply with respect to any such contest if the court having jurisdiction over such contest determines that the Director’s claim in such contest is frivolous or maintained in bad faith. This reimbursement obligation shall remain in effect following the Director’s termination of service for the applicable statute of limitations period relating to any such claims, and the amount of reimbursements hereunder during any tax year shall not affect the expenses eligible for reimbursement in any other tax year. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
13. DISPUTES.




(a) EQUITABLE RELIEF. The Director acknowledges and agrees that upon any breach by the Director of his obligations under Sections 9 or 10 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief.
(b) ARBITRATION. Excluding only requests for equitable relief by the Company under Section 13(a) of this Agreement, in the event that there is any claim or dispute arising out of or relating to this Agreement, or the breach thereof, and the parties hereto shall not have resolved such claim or dispute within 60 days after written notice from one party to the other setting forth the nature of such claim or dispute, then such claim or dispute shall be settled exclusively by binding arbitration in Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association by an arbitrator mutually agreed upon by the parties hereto or, in the absence of such agreement, by an arbitrator selected according to such Rules. Notwithstanding the foregoing, if either the Company or the Director shall request, such arbitration shall be conducted by a panel of three arbitrators, one selected by the Company, one selected by the Director and the third selected by agreement of the first two, or, in the absence of such agreement, in accordance with such Rules. Neither party shall have the right to claim or recover punitive damages. Judgment upon the award rendered by such arbitrator(s) shall be entered in any Court having jurisdiction thereof upon the application of either party.
14. INDEMNIFICATION. The Company will indemnify the Director, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by the Director, including the cost of legal counsel selected and retained by the Director in connection with any action, suit or proceeding to which the Director may be made a party by reason of the Director being or having been a director of the Company or any subsidiary or affiliate of the Company.
15. COOPERATION IN FUTURE MATTERS. The Director hereby agrees that, for a period of one (1) year following termination of his directorship, he shall cooperate with the Company’s reasonable requests relating to matters that pertain to the Director’s service as Chairman of the Board by the Company, including, without limitation, providing information or limited consultation as to such matters, participating in legal proceedings, investigations or audits on behalf of the Company, or otherwise making himself reasonably available to the Company for other related purposes. Any such cooperation shall be performed at times scheduled taking into consideration the Director’s other commitments, including business and family matters, and the Director shall be compensated at a reasonable hourly or PER DIEM rate to be agreed by the parties to the extent such cooperation is required on more than an occasional and limited basis. The Director shall not be required to perform such cooperation to the extent it conflicts with any requirements of exclusivity of services for an employer or otherwise, nor in any manner that in the good faith belief of the Director would conflict with his rights under or ability to enforce this Agreement.
16. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if sent by overnight courier or by certified mail, return receipt requested, postage prepaid or sent by written telecommunication or telecopy, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this Section 17(a).
 
 
 
 
 
 
 
 
 
If to the Company, to:
 
Ashford Hospitality Trust
14185 Dallas Parkway, Suite 1100
Dallas, Texas 75254
Attn: Board of Directors
 
 
 
 
 
 
 
 
 
 
 
with a copy to:
 
Ashford Hospitality Trust, Inc.
14185 Dallas Parkway, Suite 1100
Dallas, Texas 75254
Attn: Chief Legal Officer
 
 
 
 
 
 
 
 
 
 
 
If to the Director, at his last residence shown on the records of the Company,
 
 
 
 
 
 
 
 
 
 
 
with a copy to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




Any such notice shall be effective (i) if delivered personally, when received, (ii) if sent by overnight courier, when receipted for, and (iii) if mailed, two (2) days after being mailed as described above.
(b) SEVERABILITY. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.
(c) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.
(d) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.
(e) ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company’s successors and the Director’s personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. This Agreement shall not be assignable by the Director, it being understood and agreed that this is a contract for the Director’s personal services. This Agreement shall not be assignable by the Company except in connection with a transaction involving the succession by a third party to all or substantially all of the Company’s business and/or assets (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise), in which case such successor shall assume this Agreement and expressly agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets that executes and delivers the assumption agreement described in the immediately preceding sentence or that becomes bound by this Agreement by operation of law.
(f) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by the Director and a duly authorized representative of the Board.
(g) GOVERNING LAW. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of law. Jurisdiction and venue shall be solely in the federal or state courts of Dallas County, Texas. This provision should not be read as a waiver of any right to removal to federal court in Dallas County.
(h) CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. The headings of sections of this Agreement are for convenience of reference only and shall not affect its meaning or construction.
(i) PAYMENTS AND EXERCISE OF RIGHTS AFTER DEATH. Any amounts due hereunder after the Director’s death shall be paid to the Director’s designated beneficiary or beneficiaries, whether received as a designated beneficiary or by will or the laws of descent and distribution. The Director may designate a beneficiary or beneficiaries for all purposes of this Agreement, and may change at any time such designation, by notice to the Company making specific reference to this Agreement. If no designated beneficiary survives the Director or the Director fails to designate a beneficiary for purposes of this Agreement prior to his death, all amounts thereafter due hereunder shall be paid, as and when payable, to his spouse, if she survives the Director, and otherwise to his estate.
(j) CONSULTATION WITH COUNSEL. The Director acknowledges that he has had a full and complete opportunity to consult with counsel or other advisers of his own choosing concerning the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Director concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement.
(k) WITHHOLDING. Any payments provided for in this Agreement shall be paid net of any applicable tax withholding required under federal, state or local law.
(l) NON-DISPARAGEMENT. The Director agrees that, during the Term and thereafter (including following the Director’s termination of services for any reason) he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company, its affiliates, or its their respective officers, directors, employees, advisors, businesses or reputations. The Company agrees that, during the Term and thereafter (including following the Director’s termination of services for any reason) the Company will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may directly or indirectly, disparage the Director or his business or reputation. Notwithstanding the foregoing, nothing in this Agreement shall preclude either the Director or the Company from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.




(m) CODE SECTION 409A. It is the intention of the parties to this Agreement that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to the Director under Section 409A of the Code.  The Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company may unilaterally take any action it deems necessary or desirable to amend any provision herein to avoid the application of or excise tax under Section 409A.  Further, no effect shall be given to any provision herein in a manner that reasonably could be expected to give rise to adverse tax consequences under that provision. 
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed under seal as of the date first above written.




 
 
 
 
 
 
 
 
 
 
 
REIT:
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
 
 
Title:
 
COO & General Counsel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PARTNERSHIP:
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
Ashford OP General Partner, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
 
 
Title:
 
Vice President
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
DIRECTOR:
 
 
 
 
 
 
 
 
 
 
 
 
 
/s/ ARCHIE BENNETT, JR.
 
 
 
 
 
 
 
 
 
ARCHIE BENNETT, JR.
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 




EXHIBIT “A”
RELEASE AND WAIVER
THIS RELEASE AND WAIVER (the “Termination Release”) is made as of the 21 day of March, 2008 by ARCHIE BENNETT, JR. (the “Director”).
WHEREAS, the Director, Ashford Hospitality Trust, Inc. (the “REIT”), and Ashford Hospitality Limited Partnership (the “Operating Partnership”) have entered into a Non-Compete/Services Agreement (the “Agreement”) dated as of March 21, 2008, effective as of January 1, 2008 and providing certain compensation and severance amounts upon the Director not serving as Chairman of the Board of Directors of the REIT (the “Board”); and
WHEREAS, the Director has agreed, pursuant to the terms of the Agreement, to execute a release and waiver in the form set forth in this Termination Release in consideration of the REIT and the Operating Partnership (collectively, the “Company”) agreement to provide the Director’s Fee and severance amounts upon the Director not serving as Chairman of the Board as set out in the Agreement; and
WHEREAS, the Company and the Director desire to settle all rights, duties and obligations between them, including without limitation all such rights, duties, and obligations arising under the Agreement or otherwise out of the Director’s service as Chairman of the Board of the Company;
NOW THEREFORE, intending to be legally bound and for good and valid consideration the sufficiency of which is hereby acknowledged, the Director agrees as follows:
1. RELEASE. (a) The Director knowingly and voluntarily releases, acquits, covenants not to sue and forever discharges the Company, and its respective owners, parents, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, divisions and subsidiaries (collectively, the “Releasees”) from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, damages, causes of action, suits, rights, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, against them which the Director or any of his heirs, executors, administrators, successors and assigns ever had, now has or at any time hereafter may have, own or hold by reason of any matter, fact, or cause whatsoever from the beginning of time up to and including the date of this Termination Release, including without limitation all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, Texas Labor Code Section 21.001, et seq. (Texas Employment Discrimination); Texas Labor Code Section 61.001, et seq. (Texas Pay Day Act); Texas Labor Code Section 62.002, et seq. (Texas Minimum Wage Act); Texas Labor Code Section 201.001, et seq. (Texas Unemployment Compensation Act); Texas Labor Code Section 401.001, et seq., specifically Section 451.001 formerly codified as Article 8307c of the Revised Civil Statutes (Texas Workers’ Compensation Act and Discrimination Issues); and Texas Genetic Information and Testing Law, each as amended, or any other

federal, state or local laws, rules, regulations, ordinances, judicial decisions or public policies now or hereafter recognized.
(a) The Director represents that he has not filed or permitted to be filed against any of the Releasees, any complaints, charges or lawsuits and covenants and agrees that he will not seek or be entitled to any personal recovery in any court or before any governmental agency, arbitrator or self-regulatory body against any of the Releasees arising out of any matters set forth in Section 1(a) hereof. Nothing herein shall prevent the Director from seeking to enforce his rights under the Agreement. The Director does not hereby waive or release his rights to any benefits under the Company’s employee benefit plans to which he is or will be entitled pursuant to the terms of such plans in the ordinary course.
3. NON-SOLICITATION. The Director covenants and agrees he shall not, without the prior written consent of the Company, for a period ending one (1) year from the Date of Termination, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Director’s Date of Termination (as defined in the Agreement), or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.
4. NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Director understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Director’s own use or converted by Director for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Director agrees he shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.




5. ACKNOWLEDGMENT. The Company has advised the Director to consult with an attorney of his choosing prior to signing this Termination Release and the Director hereby represents to the Company that he has been offered an opportunity to consult with an attorney prior to signing this Termination Release. The Company has also advised the Director that Director has up to twenty-one days to consider and sign the Release and Waiver and up to seven days after signing in which to revoke acceptance by giving notice to                      at                      by personal delivery or by mail postmarked no later than the seventh day after the Director signs the Release and Waiver.
IN WITNESS WHEREOF, the Director has executed this Termination Release under seal as of the day and year first above written.
 
 
 
 
 
/s/ ARCHIE BENNETT, JR.
 
 
 
 
 
ARCHIE BENNETT, JR.





Exhibit 10.5.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of March 21, 2008, effective as of January 1, 2008 (the “Effective Date”), is between ASHFORD HOSPITALITY TRUST, INC., a corporation organized under the laws of the State of Maryland and having its principal place of business at Dallas, Texas (hereinafter, the “REIT”), ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of Delaware and having its principal place of business at Dallas, Texas (the “Operating Partnership”), and MONTGOMERY J. BENNETT, an individual residing in Dallas, Texas (the “Executive”).
RECITALS:
A. The REIT and the Operating Partnership (collectively, the “Company”) desire to employ the Executive in the capacities and on the terms and conditions set out below; and
B. The Executive and the Company have previously entered into an employment agreement dated as of August 29, 2003, as amended on March 29, 2006, but effective as of January 1, 2006 (collectively, the “Previous Agreement”); and
C. The Company and the Executive desire to amend and restate the Previous Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as well as certain other changes.
NOW, THEREFORE, the Company and the Executive, in consideration of the respective covenants set out below, hereby agree as follows:
1. EMPLOYMENT.
(a) POSITIONS. During the Term (defined below), the Executive shall be employed by the Company as President and Chief Executive Officer. At the Company’s request, the Executive shall serve the Company’s subsidiaries and affiliates in other offices and capacities in addition to the foregoing. If the Executive, during the Term, serves in any one or more of such additional capacities, the Executive’s compensation shall not be increased beyond that provided in Sections 3, 4 or 5 below. Further, if the Executive’s service in one or more of such additional capacities is terminated, the Executive’s compensation provided herein shall not be reduced for so long as the Executive otherwise remains employed by the Company under the terms of this Agreement.
(b) RESPONSIBILITIES. The Executive’s principal employment duties and responsibilities shall be those duties and responsibilities customary for the positions of President and Chief Executive Officer and such other executive duties and responsibilities as the Board of Directors of the REIT (the “Board”) shall from time to time reasonably assign to the Executive. The Executive will be responsible for and have authority over the day-to-day operational management of the Company. The Executive shall report directly to the Board. All other officers of the Company shall report to the Executive or such person(s) as the Executive may designate from time to time.
(c) EXTENT OF SERVICES. Except for (i) the time reasonably required to perform the Executive’s duties and responsibilities as Chief Executive Officer and President of Remington Hotel Corporation (“RHC”), Remington Management LP (“Remington Management), Remington Lodging &
Hospitality, L.P. (“Remington Lodging”) and their affiliates (so long as such duties do not materially interfere with the performance of the Executive’s duties hereunder), and (ii) illnesses and vacation periods, the Executive shall devote substantially all of his working time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement and shall not be otherwise employed. However, the Executive may (so long as the following do not materially interfere with the performance of the Executive’s duties hereunder) (i) make any passive investments where he is not obligated or required to, and shall not in fact, devote material managerial efforts (provided that the Executive may make and continue investments in accordance with the terms of that certain Mutual Exclusivity Agreement, herein so called, among RHC, Remington Lodging and their affiliates (herein collectively called the “Remington Affiliates”), and the Company and its affiliates dated on August 29, 2003), (ii) participate in charitable, academic or community activities or in trade or professional organizations, (iii) hold directorships in charitable or non-profit organizations, (iv) subject to Board approval (which approval shall not be unreasonably withheld or withdrawn), hold directorships in other companies, except only that the Board shall have the right to limit such services as a director or such participation whenever the Board shall reasonably believe that the time spent on such activities infringes in any material respect upon the time required by the Executive for the performance of his duties under this Agreement or is otherwise incompatible with those duties, or (v) hold directorships in private companies owned by the Executive (or Archie Bennett, Jr.) consistent with the Mutual Exclusivity Agreement. Further, it is agreed that to




the extent any such activities have been conducted by the Executive prior to August 29, 2003, the continued reasonable conduct of such activities (or reasonable activities similar in nature and scope thereto) shall not, subject to the conditions and limitations of the Mutual Exclusivity Agreement, thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company; provided, that no such activity that violates the non-competition provisions herein shall be permitted.
2. TERM.
This Agreement shall become effective as of January 1, 2008 and shall continue for a Term ending on December 31, 2008 (the “Initial Termination Date”) unless it is sooner terminated pursuant to Section 6; provided, however, that this Agreement shall be automatically extended for one additional year on the Initial Termination Date and on each subsequent anniversary of the Initial Termination Date, unless either the Company or the Executive elect not to extend the Term of this Agreement by notifying the other party in writing of such election not less than one hundred twenty (120) days prior to the expiration of the then current Term. For purposes of this Agreement, “Term” shall mean the actual duration of the Executive’s employment hereunder, taking into account any extension pursuant to this Section 2 or early termination of employment pursuant to Section 6.
3. SALARY.
The Company shall pay the Executive a Base Salary which shall be payable in periodic installments, less statutory deductions and withholdings, according to the Company’s normal payroll practices. Commencing as of the Effective Date, the Executive’s base salary shall be SEVEN HUNDRED THOUSAND Dollars ($700,000) per year. The Board or a Compensation Committee duly appointed by the Board (the “Compensation Committee”) shall thereafter review the Executive’s Base Salary annually to determine within its sole discretion whether and to what extent the Executive’s salary may be increased (for the purposes of this Agreement, the term “Base Salary” shall mean the amount established and adjusted from time to time pursuant to this Section 3).
4. ANNUAL INCENTIVE AWARDS.
(a) INCENTIVE BONUS. The Executive shall be entitled to receive an annual cash incentive bonus (the “Incentive Bonus”) for each calendar year during the Term of this Agreement based on the level of accomplishment of management and performance objectives as established by the Board or Compensation Committee. Except as otherwise provided in Section 7, if the Executive is not employed for the full calendar year, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus for the calendar year to which the Executive would have been entitled if the Executive had remained employed for the entire calendar year and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the last day of his employment and the denominator of which is the 365 days of the calendar year. The targeted Incentive Bonus for the Term is 75% to 125% of Base Salary. The Incentive Bonus shall be paid as soon as reasonably practical following each calendar year but not later than December 31st of such year.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the Executive shall be entitled to participate in all other short- and long-term incentive plans, stock and option plans, long term incentive partnership (“LTIP”) plans, practices, policies and other programs, and all savings and retirement plans, practices, polices and programs, in each case that are applicable generally to senior executives of the Company, as may be adopted or amended from time to time by the Company’s Compensation Committee.
5. BENEFITS.
(a) VACATION. The Executive will be entitled to four (4) weeks of paid vacation per calendar year. Vacation time not used within the calendar year will not carry forward. The Executive shall not be entitled to cash in lieu of any unused vacation time except as provided in this Agreement.
(b) SICK LEAVE. The Executive shall be entitled to paid sick leave in accordance with the sick leave policies of the Company in effect for other senior executive officers.
(c) EMPLOYEE BENEFITS. The Executive and his spouse and eligible dependents, if any, and their respective designated beneficiaries where applicable, will be eligible for and entitled to participate in other benefits maintained by the Company for its senior executive officers, as such benefits may be modified from time to time and for all such employees, such as, without limitation, any medical, dental, vision, pension, 401(k), accident, disability, and life insurance benefits, on a basis not less favorable than that applicable to other senior executives of the Company. The Executive will also be entitled to appropriate office space, administrative support, secretarial assistance, and such other facilities and services as are suitable to the Executive’s positions and adequate for the performance of the Executive’s duties.




(d) EXPENSES. The Executive will be entitled to reimbursement of all reasonable expenses, in accordance with the Company’s policy as in effect from time to time and on a basis not less favorable than that applicable to other senior executives of the Company, including, without limitation, telephone (including in-home office telephone and DSL costs), travel and entertainment expenses incurred by the Executive in connection with the business of the Company, promptly upon the presentation by the Executive of appropriate documentation.
(e) D&O INSURANCE COVERAGE. During and for a period three (3) years after the Term, the Executive shall be entitled to director and officer insurance coverage for his acts and omissions while an
officer and director of the Company on a basis no less favorable to him than the coverage provided current officers or directors.
6. TERMINATION.
The employment of the Executive by the Company and this Agreement (except as otherwise provided herein) shall terminate upon the occurrence of any of the following:
(a) DEATH OR DISABILITY. Immediately upon death or Disability of the Executive. As used in this Agreement, “Disability” shall mean an inability to perform the essential functions of his duties, with or without reasonable accommodation, for a period of 90 consecutive days or a total of 180 days, during any 365-day period, in either case as a result of incapacity due to mental or physical illness which is determined to be total and permanent. A determination of Disability shall be made by a physician satisfactory to both the Executive and the Company, provided that if the Executive (or his guardian) and the Company do not agree on a physician, the Executive (or his guardian) and the Company shall each select a physician and these two together shall select a third physician, whose determination as to Disability shall be binding on all parties. The appointment of one or more individuals to carry out the offices or duties of the Executive during a period of the Executive’s inability to perform such duties and pending a determination of Disability shall not be considered a breach of this Agreement by the Company.
(b) FOR CAUSE. At the election of the Company, for Cause, immediately upon written notice by the Company to the Executive unless the Executive fully corrects the circumstances constituting Cause within the cure periods provided below, if applicable. For purposes of this Agreement, “Cause” for termination shall be deemed to exist solely in the event 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, a felony (exclusive of a conviction, plea of guilty or nolo contendere arising solely under a statutory provision imposing criminal liability upon the Executive on a PER SE basis due to the Company offices held by the Executive, so long as any act or omission of the Executive with respect to such matter was not taken or omitted in contravention of any applicable policy or directive of the Board);
(ii) willful breach of duty of loyalty which is materially detrimental to the Company which is not cured to the reasonable satisfaction of the Board within fifteen (15) days following written warning to the Executive from the Board describing the alleged circumstances;
(iii) willful failure to perform or adhere to explicitly stated duties or guidelines of employment or to follow the directives of the Board which continues for fifteen (15) days after written warning to the Executive that it will be deemed a basis for a “For Cause” termination;
(iv) gross negligence or willful misconduct in the performance of the Executive’s duties (which is not cured by the Executive within 30 days after written warning from the Board);
(v) the Executive’s willful commission of an act of dishonesty resulting in economic or financial injury to the Company or willful commission of fraud; or
(vi) the Executive’s chronic absence from work for reasons other than illness.
For purposes of this Section, no act, or failure to act, on the Executive’s part will be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without a reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than 2/3rds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of any of the conduct described in this Section 6(b), and specified in the particulars thereof in detail;




provided, that if the Executive is a member of the Board, neither the Executive nor any family member of the Executive shall vote on such resolution nor shall they be counted in determining the “Entire Membership” of the Board.
(c) WITHOUT CAUSE OR GOOD REASON. At the election of the Company, without Cause, and at the election of the Executive, without Good Reason, in either case upon sixty (60) days’ prior written notice to the Executive or to the Company, as the case may be. Provided, however, that if the Executive gives notice, without Good Reason, the Company may waive all or a portion of the sixty (60) days’ written notice and accelerate the effective date of the termination.
(d) FOR GOOD REASON. At the election of the Executive, for Good Reason, which is not cured by the Company within thirty (30) days after written notice from the Executive to the Company setting forth a description of the circumstances constituting Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the following actions, omissions or events occurring without the Executive’s prior written consent:
(i) The removal without Cause from, or failure to re-elect the Executive as a Director on the Board of Directors of the Company, if the Company has not already or in connection therewith elected to terminate the Executive’s employment hereunder pursuant to Section 7(c);
(ii) the assignment to the Executive of any duties, responsibilities, or reporting requirements inconsistent with his positions as President, Chief Executive Officer, and Director on the Board of Directors of the Company, or any material diminishment, on a cumulative basis, of the Executive’s overall duties, responsibilities, or status;
(iii) a reduction by the Company in the Executive’s annual Base Salary;
(iv) the requirement by the Company that the principal place of business at which the Executive performs his duties be changed to a location outside the greater Dallas metropolitan area;
(v) any material breach by the Company of any provision of this Agreement; or
(vi) Archie Bennett, Jr. is removed without Cause in his capacity as Chairman of the Board, as the term “Cause” is defined in that certain Non-Compete/Services Agreement (the “ABJ Non-Compete/Services Agreement”) dated on or about August 29, 2003 (as amended or renewed and restated), the Company fails to renew the ABJ Non-Compete/Services Agreement; or Archie Bennett, Jr. leaves for “Good Reason” as defined in the ABJ Non-Compete/ Services Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 16(a) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (provided that the date specified shall not be more than thirty (30) days after the giving of the notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
(f) DATE OF TERMINATION. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice (provided that the date specified shall not be more than thirty (30) days after the giving of the notice), as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination or such later date specified in such notice, (iii) if the Executive’s employment is terminated by the Executive without Good Reason, the Date of Termination shall be the date on which the Executive notifies the Company of such termination or such later date specified in such notice, unless otherwise agreed by the Company and the Executive, and (iv) if the Executive’s employment is terminated by reason of death or Disability or non-renewal of this Agreement, the Date of Termination shall be the date of death or Disability of the Executive or the Agreement’s non-renewal date, as the case may be.
7. EFFECTS OF TERMINATION.
(a) TERMINATION FOR DEATH OR DISABILITY; BY THE COMPANY WITHOUT CAUSE; OR NON-RENEWAL BY THE COMPANY. If the employment of the Executive should terminate by reason of (i) death of the Executive or Disability, (ii) termination by the Company for any reason (other than Cause)or (iii) the Company’s failure to renew this Agreement, then all compensation and benefits for the Executive shall be as follows:
(i) The Executive shall be paid, in a single lump sum payment within thirty (30) days after the Date of Termination, the aggregate amount of (A) the Executive’s earned but unpaid Base Salary and accrued but unpaid vacation through the Date of




Termination, and any Incentive Bonus required to be paid to the Executive pursuant to Section 4(a) above for the prior calendar year to the extent not previously paid, and reimbursement of all expenses through the Date of Termination as required pursuant to Section 5(d) hereof (the “Accrued Obligations”), and (B) one (the “Severance Multiple”) times the sum of (x) the Base Salary in effect on the Termination Date plus (y) the average Incentive Bonus received by the Executive for the three complete calendar years or such lesser number of calendar years as the Executive has been employed by the Company) immediately prior to the Termination Date (the “Severance Payment”).
(ii) At the time when incentive bonuses are paid to the Company’s other senior executives for the calendar year of the Company in which the Date of Termination occurs, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus to
which the Executive would have been entitled if the Executive ’s employment had not been terminated and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the Date of Termination and the denominator of which is the 365 days of the calendar year (a “Pro-Rated Bonus”).
(iii) The Company will allow the Executive and his dependents, at the Company’s cost, to continue to participate for a period of eighteen (18) months following the Date of Termination in the Company’s medical, dental and vision plan in effect as of the Date of Termination. The Company’s payment of this medical coverage will be made monthly during this period of coverage. To the extent such medical benefits are taxable to the Executive, such benefits will not affect benefits to be provided in any other taxable year, and such amounts are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A) as “in-kind benefits”. In addition, the Company will reimburse the Executive for a period of eighteen (18) months following the Date of Termination for the cost of coverage for life insurance and long-term disability insurance, based upon the level of such benefits that were provided to the Executive under the Company’s life insurance and long-term disability plans in effect as of the Date of Termination, which reimbursements will be paid with seven (7) days after the Executive pays any applicable premium. The amount of any such reimbursements may not affect the expenses eligible for reimbursement in any other year. Such reimbursements are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A). (Collectively, these welfare benefits under (iii) are referred to as the “Other Benefits”). If the Executive engages in regular employment after his termination of employment with any organization other than a Remington Affiliate, any employee welfare benefits received by the Executive in consideration of such employment which are similar in nature to the Other Benefits provided by the Company will relieve the Company of its obligation under this Section 7(a)(iii) to provide comparable benefits to the extent of the benefits so received, and such benefit hereunder shall be forfeited.
(iv) Any annual performance shares, restricted shares, LTIP units or options awarded under Section 4(b) hereof shall immediately vest. Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(a), all outstanding stock options, restricted stock and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(b) TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the event that the Executive’s employment is terminated by the Executive with Good Reason, the Company will pay the Executive the same Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i) (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be three (3). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(c) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. If the Executive’s employment is terminated by the Executive without Good Reason including a resignation by the Executive without Good Reason and including an election not to renew this Agreement by the Executive, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive shall
not be entitled to the Severance Payment, Pro-rated Bonus, the Other Benefits and accelerated vesting set forth in Sections 7(a)(i), (ii), (iii) and (iv) hereof. In addition, in consideration for the Executive’s agreement for honoring the non-compete and non-solicitation covenants in Section 10 hereof for a period of one (1) year following the Date of Termination resulting from this Section 7(c), the Company shall pay the Executive a non-compete payment (the “Non-Compete Payment”) equal to the Severance Payment determined with a Severance Multiple equal to one (1). The Non-Compete Payment shall be paid monthly over the one-year non-compete period in equal monthly installments of one-twelfth (1/12th) of the Non-Compete Payment, provided, however, that the timing of such Non-Compete payments are subject to Section 7(g) hereof.
(d) TERMINATION BY THE COMPANY FOR CAUSE. If the Executive’s employment is terminated by the Company for Cause, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive




shall not be entitled to the Severance Payment, Pro-Rated Bonus, the Other Benefits and accelerated vesting set forth in Sections 7(a)(i), (ii), (iii) and (iv) hereof.
(e) TERMINATION OF AUTHORITY. Immediately upon the Date of Termination or upon the expiration of this Agreement, notwithstanding anything else to the contrary contained herein or otherwise, the Executive will stop serving the functions of his terminated or expired positions, and shall be without any of the authority or responsibility for such positions. On request of the Board at any time following the termination of the Executive’s employment by the Company for Cause or by the Executive without Good Reason (including Executive’s termination of his employment after a Change in Control (as defined herein) or an election by the Executive not to renew this Agreement), the Executive agrees to resign immediately from the Board, if then a member.
(f) RELEASE OF CLAIMS. As a condition of Executive’s entitlement to the Severance Payment, Pro-Rated Bonus, Non-Compete Payment and Other Benefits provided by this Agreement, the Executive shall be required to execute the terms of a waiver and release of claims against the Company substantially in the form attached hereto as Exhibit “A” (as may be modified consistent with the purposes of such waiver and release to reflect changes in law following the date hereof)(the “Release”) within the applicable time period provided in the Release (the “Applicable Release Period”); and shall forfeit all payments hereunder if it is not so timely executed; provided, however, that in any case where the first and last days of the Applicable Release Period are in two separate taxable years, any payments required to be made to Executive that are treated as deferred compensation for purposes of Code Section 409A shall be made in the later taxable year, promptly following the conclusion of the Applicable Release Period.
(g) CODE SECTION 409A AND TERMINATION PAYMENTS. All payments provided under this Agreement shall be subject to this Section 7(g). Notwithstanding anything herein to the contrary, to the extent that the Board reasonably determines, in its sole discretion, that any payment or benefit to be provided under this Agreement for the benefit of Executive would be subject to the additional tax imposed under Section 409A(a)(1)(B) of the Code or a successor or comparable provision, the commencement of such payments and/or benefits shall be delayed until the earlier of (i) the date that is six months following the Date of Termination or (ii) the date of Executive’s death (such date is referred to herein as the “ Distribution Date”), provided, if at such time Executive is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)) and if amounts payable under this Agreement are on account of an “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(m)), Executive shall receive payments during the six-month period immediately following the Date of Termination equal to the lesser of (x) the amount payable under this Agreement, as the case may be, or (y) two times the
compensation limit in effect under Code Section 401(a)(17) for the calendar year in which the Termination Date occurs (with any amounts that otherwise would have been payable under this Agreement during such six-month period being paid on the first regular payroll date following the six-month anniversary of the Date of Termination). In the event that the Board determines that the commencement of any of the employee benefits to be provided under this Agreement are to be delayed pursuant to the preceding sentence, the Company shall require Executive to bear the full cost of such employee benefits until the Distribution Date at which time the Company shall reimburse Executive for all such costs. Finally, for the purposes of this Agreement, amounts payable under this Agreement shall be deemed not to be a “deferral of compensation” subject to Section 409A to the extent provided in the exceptions in Treasury Regulation Sections 1.409A-1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exception under subparagraph (iii)) and other applicable provisions of Treasury Regulation Section 1.409A-1 through A-6.
8. CHANGE OF CONTROL.
(a) CHANGE OF CONTROL. For purposes of this Agreement, a “Change of Control” will be deemed to have taken place upon the occurrence of any of the following events:
(i) any “person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as modified in Section 12(d) and 14(d) of the Exchange Act) other than A) the Company or any of its subsidiaries, (B) any employee benefit plan of the Company or any of its subsidiaries, (C) any Remington Affiliate, (D) a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, or (E) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the shares of voting stock of the Company then outstanding;
(ii) the consummation of any merger, reorganization, business combination or consolidation of the Company or one of its subsidiaries with or into any other company, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than




50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(iii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets; or the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(iv) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election to the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the
election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board.
(b) CERTAIN BENEFITS UPON A CHANGE OF CONTROL. If a Change of Control occurs during the Term and the Executive’s employment is terminated by the Company without Cause or by the Executive for any reason on or before the one (1) year anniversary of the effective date of the Change of Control, then the Executive shall be entitled to the Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i), (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be three (3). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 8(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full. All payments under this Section 8(b) are subject to the restrictions set forth in Section 7(g) and may be delayed as set forth in Section 7(g) in order to satisfy the requirements of Section 409A of the Internal Revenue Code.
(c) EXCISE TAX.
(i) In the event that any payment or benefit received or to be received by the Executive in connection with a Change of Control or the termination of the Executive’s employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change of Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) will be subject (in whole or part) to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), then, subject to the provisions of Section 8(c)(ii) hereof, the Company will pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 8(c)(i), will be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on such date, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(ii) In the event that, after giving effect to any redeterminations described in Section 8(c)(iv) hereof, a reduction in the Total Payments to the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) would produce a net amount (after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) that would be greater than the net amount of unreduced Total Payments (after deduction of the net amount of federal, state and local income tax and the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments), then Section 8(c)(i) hereof will not apply and the Total Payments will be so reduced.
(iii) The determination of whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax will be made by the Company’s independent auditors. The Company will provide the Executive with its calculation of the amounts referred to in this Section 8(c) and such supporting materials as are reasonably necessary for the Executive to evaluate the Company’s calculations. If the Executive disputes the Company’s calculations (in whole or in part), the reasonable opinion of the Company’s independent auditors with respect to the matter in dispute will prevail.
(iv) In the event that (A) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of payment of the Total Payments and (B) after giving effect to such redetermination, the Total Payments




are reduced pursuant to Section 8(c)(ii) hereof, the Executive will repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in the Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that (X) the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment) and (Y) after giving effect to such redetermination, the Total Payments are not reduced pursuant to Section 8(c)(ii) hereof, the Company will make an additional Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which the Company had not previously made a Gross-Up Payment (plus any additional taxes payable by the Executive with respect to such excess and such portion) at the time that the amount of such excess is finally determined. The Company shall also reimburse the Executive for any expenses (including interest and penalties) incurred in any such additional Gross-Up redetermination to the extent permitted under Section 409A. (All reimbursements of expenses incurred in connection with such additional Gross-Up redetermination shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such Gross-Up redetermination is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A)).
(v) The Executive shall notify the Company in writing of any claim that, if successful, would require the payment by the Company of a Gross-Up Payment or might entitle the Company to the refund of all or part of any previous Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is required to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney jointly selected by the Executive and the Company; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim. The Company shall reimburse the Executive for all costs and expenses (including legal fees and additional interest and penalties to the extent permitted under 409A) incurred in connection with such
contest. All reimbursements of such expenses shall be made within 30 days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
(vi) Without limitation on the foregoing, the Company shall control all audits and proceedings taken in connection with any claim, audit or proceeding involving Excise Taxes or Gross-Up Payments and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of any such claim, audit or proceeding and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the tax in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the Company directs the Executive to pay such tax and sue for a refund, the Company shall reimburse the Executive within thirty (30) days after the Executive pays such taxes (including interest or penalties with respect thereto to the extent permitted under 409A). All reimbursements of such expenses shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A). The Company’s control of the contest shall be limited to issues with respect to which such a Gross-Up Payment would be payable or refundable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue.
(vii) To the extent that a Gross-Up Payment is determined to be payable pursuant to this Section 8(c), such payment must be made no later than the end of the taxable year immediate following the taxable year in which the taxes described above are remitted by the Executive to the taxing authority.
9. CONFIDENTIAL INFORMATION.




The Executive recognizes and acknowledges that the Executive has and will have access to confidential and proprietary information of the Company which constitute valuable, special, and unique assets of the Company. The term “Confidential Information” as used in this Agreement shall mean all proprietary information which is known only to the Executive, the Company, the Remington Affiliates with respect to a Remington Transaction (as defined in the Mutual Exclusivity Agreement), other employees of the Company, or others in a confidential relationship with the Company, and relating to the Company’s business (including, without limitation, information regarding clients, customers, pricing policies, methods of operation, proprietary company programs, sales, acquisitions, products, profits, costs, conditions (financial or other), cash flows, key personnel, formulae, product applications, technical processes, and trade secrets, as such information may exist from time to time, which the Executive acquired or obtained by virtue of work performed for the Company, or which the Executive may acquire or may have acquired knowledge of during the performance of said work.
The Executive acknowledges that the Company has put in place certain policies and practices to keep such Confidential Information secret, including disclosing the information only on a need-to-know basis. The Executive further acknowledges that the Confidential Information has been developed or acquired by the
Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know such Confidential Information. Finally, the Executive acknowledges that such Confidential Information, if revealed to or used for the benefit of the Company’s competitors or in a manner contrary to the Company’s interests, would cause extensive and immeasurable harm to the Company and to the Company’s competitive position.
The Executive shall not, during the Term or at any time thereafter, use for personal gain or detrimentally to the Company all or any part of the Confidential Information, or disclose or make available all or any part of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by the Executive of his confidentiality obligations hereunder. Notwithstanding the foregoing, Executive shall not be restricted from disclosing or using Confidential Information that: (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (ii) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not known by Executive, after reasonable investigation, to be bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; or (iii) is required to be disclosed by law, court order or other legal process: provided, however, that in the event disclosure is required by law, court order or legal process, Executive shall provide the Company, if legally permissible, with prompt notice of such requirement as set forth below in this Section 9.
The Executive acknowledges that the Confidential Information shall remain at all times the exclusive property of the Company, and no license is granted. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or the Executive, or within seven (7) business days of the Company’s request under any other circumstances, the Executive shall deliver to the Company all Confidential Information, in any form whatsoever, including electronic formats, and shall not take with him any Confidential Information or any reproductions (in whole or in part) or extracts of any items relating to the Confidential Information. The Company acknowledges that prior to his employment with the Company, the Executive has lawfully acquired extensive knowledge of the industries in which the Company engages in business including, without limitation, markets, valuation methods and techniques, capital markets, investor relationships and similar items, and that the provisions of this Section 9 are not intended to restrict the Executive’s use of such previously acquired knowledge.
In the event that the Executive receives a request or is required (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose all or any part of the Confidential Information, the Executive agrees, if legally permissible, to (a) promptly notify the Company of the existence, terms and circumstances surrounding such request or requirement, (b) consult with the Company on the advisability of taking legally available steps to resist or narrow such request or requirement and (c) assist the Company in seeking a protective order or other appropriate remedy; provided, however, that the Executive shall not be required to take any action in violation of applicable laws. In the event that such protective order or other remedy is not obtained or that the Company waives compliance with the provisions hereof, the Executive shall not be liable for such disclosure unless disclosure to any such tribunal was caused by or resulted from a previous disclosure by the Executive not permitted by this Agreement.
10. NON-COMPETITION, NONSOLICITATION AND NON-INTERFERENCE.
(a) NON-COMPETITION. During the Term and any Non-Compete Period (hereinafter defined), the Executive will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder or partner engage in any “Competitive Business”; PROVIDED, HOWEVER, the foregoing shall not prohibit or limit the Executive’s right to (i) pursue investments, transactions or businesses allowed pursuant to the terms of the Mutual Exclusivity Agreement, (ii) continue the Executive’s ownership, investment, management and operation of the Remington Affiliates consistent with the terms of the Mutual




Exclusivity Agreement, (iii) continue the Executive’s ownership, investment, management and operation of all existing investments of the Executive and the Remington Affiliates as of the Effective Date consistent with the terms of the Mutual Exclusivity Agreement, and (iv) remain an officer and/or director of all Remington Affiliates consistent with the terms of the Mutual Exclusivity Agreement.
For purposes of this Section 10(a), “Competitive Business” means acquiring, investing in or with respect to, owning, leasing, managing or developing hotel properties in the United States or originating or acquiring loans in respect of hotel properties in the United States where the Executive has duties or performs services that are the same or similar to those services actually performed by the Executive for the Company.
For purposes of this Section 10(a), the “Non-Compete Period” shall mean:
(i) In the case of a termination of the Executive’s employment as a result of Disability, or a termination by the Executive without Good Reason (including, without limitation, a resignation by the Executive without Good Reason or an election not to renew by the Executive), a period during the Term and ending one (1) year after the Date of Termination;
(ii) in the case of a termination of the Executive’s employment as a result of a termination by the Company for Cause, a period during the Term and ending eighteen (18) months after the Date of Termination;
(iii) in the case of a termination of the Executive’s employment as a result of (i) a Change in Control, (ii) a termination by the Executive for Good Reason, or (iii) a termination by the Company for any reason other than Cause, only during the Term; or
(iv) notwithstanding the foregoing, in all cases the Non-Compete Period shall terminate effective on the termination of the REIT Exclusivity Rights (as defined in the Mutual Exclusivity Agreement) by Remington Lodging as a result of a Remington Termination Event (and provided further that upon such termination of the Non-Compete Period, the outstanding Non-Compete Payment shall be paid by the Company within five (5) days of such termination to the Executive).
The Executive acknowledges that the services provided by the Executive are of a special, unique, and extraordinary nature. The Executive further acknowledges that his work and experience with the Company will enhance his value to a Competitive Business, and that the nature of the Confidential Information to which the Executive has immediate access and will continue to have access during the course of his employment makes it difficult, if not impossible, for him to engage in any Competitive Business or work in any capacity similar to the Executive’s duties or services with the Company without disclosing or utilizing the Confidential Information. The Executive further acknowledges that his work and experience with the Company places him in a position of trust with the Company.
(b) NON-SOLICITATION. The Executive covenants and agrees that (i) during the Term, and (ii) during the period ending on the first anniversary of his Date of Termination, he shall not, without the prior written consent of the Company, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination, or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.
(c) NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees that during the Term and thereafter, Executive shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
(d) REASONABLE RESTRAINTS. The Executive agrees that restraints imposed upon him pursuant to this Section are necessary for the reasonable and proper protection of the Company and its subsidiaries and affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The parties further agree that, in the event that any provision of this Section shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
11. NON-EXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company. Amounts which are




vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Notwithstanding anything in this Agreement or any such plan, policy, practice or program noted above to the contrary, the timing of all payments pursuant to this Agreement or any such plan, policy, practice or program shall be subject to the timing rules specified in Section 7(g) of this Agreement.
12. FULL SETTLEMENT.
The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred (within 30 days following the Company’s receipt of an invoice from the Executive), to the full extent permitted by law, all reasonable legal fees and expenses which the Executive or his beneficiaries may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive or his beneficiaries about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(a) of the Code to the extent permitted by 409A. The preceding sentence shall not apply with respect to any such contest if the court having jurisdiction over such contest determines that the Executive’s claim in such contest is frivolous or maintained in bad faith. This reimbursement obligation shall remain in effect following the Executive’s termination of employment for the applicable statute of limitations period relating to any such claim, and the amount of reimbursements hereunder during any tax year shall not affect the expenses eligible for reimbursement in any other tax year. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
13. DISPUTES.
(a) EQUITABLE RELIEF. The Executive acknowledges and agrees that upon any breach by the Executive of his obligations under Sections 9 or 10 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief.
(b) ARBITRATION. Excluding only requests for equitable relief by the Company under Section 13(a) of this Agreement, in the event that there is any claim or dispute arising out of or relating to this Agreement, or the breach thereof, and the parties hereto shall not have resolved such claim or dispute within 60 days after written notice from one party to the other setting forth the nature of such claim or dispute, then such claim or dispute shall be settled exclusively by binding arbitration in Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association by an arbitrator mutually agreed upon by the parties hereto or, in the absence of such agreement, by an arbitrator selected according to such Rules. Notwithstanding the foregoing, if either the Company or the Executive shall request, such arbitration shall be conducted by a panel of three arbitrators, one selected by the Company, one selected by the Executive and the third selected by agreement of the first two, or, in the absence of such agreement, in accordance with such Rules. Neither party shall have the right to claim or recover punitive damages. Judgment upon the award rendered by such arbitrator(s) shall be entered in any Court having jurisdiction thereof upon the application of either party.
14. INDEMNIFICATION.
The Company will indemnify the Executive, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by the Executive, including the cost of legal counsel selected and retained by the Executive in connection with any action, suit or proceeding to which the Executive may be made a party by reason of the Executive being or having been an officer, director, or employee of the Company or any subsidiary or affiliate of the Company.
15. COOPERATION IN FUTURE MATTERS.
The Executive hereby agrees that, for a period of one (1) year following his termination of employment, he shall cooperate with the Company’s reasonable requests relating to matters that pertain to the Executive’s employment by the Company, including, without limitation, providing information or limited consultation as to such matters, participating in legal proceedings, investigations or audits on behalf of the Company, or otherwise making himself reasonably available to the Company for other related purposes. Any such cooperation shall be performed at times scheduled taking into consideration the Executive’s other commitments, including business and family matters, and the Executive shall be compensated at a reasonable




hourly or PER DIEM rate to be agreed by the parties to the extent such cooperation is required on more than an occasional and limited basis. The Executive shall not be required to perform such cooperation to the extent it conflicts with any requirements of exclusivity of services for another employer or otherwise, nor in any manner that in the good faith belief of the Executive would conflict with his rights under or ability to enforce this Agreement.
16. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if sent by overnight courier or by certified mail, return receipt requested, postage prepaid or sent by written telecommunication or telecopy, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this Section 16(a).
 
 
 
 
 
 
 
 
 
If to the Company, to:
 
Ashford Hospitality Trust
14185 Dallas Parkway, Suite 1100
Dallas, Texas 75254
Attn: Board of Directors
 
 
 
 
 
 
 
 
 
 
 
with a copy to:
 
Ashford Hospitality Trust, Inc.
14185 Dallas Parkway, Suite 1100
Dallas, Texas 75254
Attn: Chief Legal Officer
 
 
 
 
 
 
 
 
 
 
 
If to the Director, at his last residence shown on the records of the Company,
 
 
 
 
 
 
 
 
 
 
 
with a copy to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Any such notice shall be effective (i) if delivered personally, when received, (ii) if sent by overnight courier, when receipted for, and (iii) if mailed, two (2) days after being mailed as described above.
(b) SEVERABILITY. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.
(c) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.
(d) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.
(e) ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company’s successors and the Executive’s personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. This Agreement shall not be assignable by the Executive, it being understood and agreed that this is a contract for the Executive’s personal services. This Agreement shall not be assignable by the Company except in connection with a transaction involving the succession by a third party to all or substantially all of the Company’s business and/or assets (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise), in which case such successor shall assume this Agreement and expressly agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets that executes and delivers the assumption agreement described in the immediately preceding sentence or that becomes bound by this Agreement by operation of law.




(f) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by the Executive and a duly authorized representative of the Board.
(g) GOVERNING LAW. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of law. Jurisdiction and venue shall be solely in the federal or state courts of Dallas County, Texas. This provision should not be read as a waiver of any right to removal to federal court in Dallas County.
(h) CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. The headings of sections of this Agreement are for convenience of reference only and shall not affect its meaning or construction.
(i) PAYMENTS AND EXERCISE OF RIGHTS AFTER DEATH. Any amounts due hereunder after the Executive’s death shall be paid to the Executive’s designated beneficiary or beneficiaries, whether received as a designated beneficiary or by will or the laws of descent and distribution. The Executive may designate a beneficiary or beneficiaries for all purposes of this Agreement, and may change at any time such designation, by notice to the Company making specific reference to this Agreement. If no designated beneficiary survives the Executive or the Executive fails to designate a beneficiary for purposes of this Agreement prior to his death, all amounts thereafter due hereunder shall be paid, as and when payable, to his spouse, if she survives the Executive, and otherwise to his estate.
(j) CONSULTATION WITH COUNSEL. The Executive acknowledges that he has had a full and complete opportunity to consult with counsel or other advisers of his own choosing concerning the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement.
(k) WITHHOLDING. Any payments provided for in this Agreement shall be paid net of any applicable tax withholding required under federal, state or local law.
(l) NON-DISPARAGEMENT. The Executive agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. The Company agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) the Company will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may directly or indirectly, disparage Executive or his business or reputation. Notwithstanding the foregoing, nothing in this Agreement shall preclude either Executive or the Company from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
(m) CODE SECTION 409A. It is the intention of the parties to this Agreement that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code. The Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company may unilaterally take any action it deems necessary or desirable to amend any provision herein to avoid the application of or excise tax under Section 409A. Further, no effect shall be given to any provision herein in a manner that reasonably could be expected to give rise to adverse tax consequences under that provision.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed under seal as of the date first above written.




 
 
 
 
 
 
 
 
 
REIT:
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
Title:
 
COO & General Counsel
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PARTNERSHIP:
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
 
 
 
 
 
 
 
 
 
 
 
By: Ashford OP General Partner, LLC
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
Title:
 
Vice President
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXECUTIVE:
 
 
 
 
 
 
 
 
 
 
 
/s/ MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 




EXHIBIT “A”
RELEASE AND WAIVER
THIS RELEASE AND WAIVER (the “Termination Release”) is made as of the 21 day of March, 2008 by MONTGOMERY J. BENNETT (the “Executive”).
WHEREAS, the Executive, Ashford Hospitality Trust, Inc. (the “REIT”), and Ashford Hospitality Limited Partnership (the “Operating Partnership”) have entered into an Employment Agreement (the “Agreement”) dated as of March 21, 2008, effective as of January 1, 2008 and providing certain compensation and severance amounts upon the Executive’s termination of employment; and
WHEREAS, the Executive has agreed, pursuant to the terms of the Agreement, to execute a release and waiver in the form set forth in this Termination Release in consideration of the REIT and the Operating Partnership (collectively, the “Company”) agreement to provide the compensation and severance amounts upon the Executive’s termination of employment set out in the Agreement; and
WHEREAS, the Company and the Executive desire to settle all rights, duties and obligations between them, including without limitation all such rights, duties, and obligations arising under the Agreement or otherwise out of the Executive’s employment by the Company;
NOW THEREFORE, intending to be legally bound and for good and valid consideration the sufficiency of which is hereby acknowledged, the Executive agrees as follows:
1. RELEASE. (a) The Executive knowingly and voluntarily releases, acquits, covenants not to sue and forever discharges the Company, and its respective owners, parents, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, divisions and subsidiaries (collectively, the “Releasees”) from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, damages, causes of action, suits, rights, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, against them which the Executive or any of his heirs, executors, administrators, successors and assigns ever had, now has or at any time hereafter may have, own or hold by reason of any matter, fact, or cause whatsoever from the beginning of time up to and including the date of this Termination Release, including without limitation all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, Texas Labor Code Section 21.001, et seq. (Texas Employment Discrimination); Texas Labor Code Section 61.001, et seq. (Texas Pay Day Act); Texas Labor Code Section 62.002, et seq. (Texas Minimum Wage Act); Texas Labor Code Section 201.001, et seq. (Texas Unemployment Compensation Act); Texas Labor Code Section 401.001, et seq., specifically Section 451.001 formerly codified as Article 8307c of the Revised Civil Statutes (Texas Workers’ Compensation Act and Discrimination Issues); and Texas Genetic Information and Testing Law, each as amended, or any other federal, state or local laws, rules, regulations, judicial decisions or public policies now or hereafter recognized.
(b) The Executive represents that he has not filed or permitted to be filed against any of the Releasees, any complaints, charges or lawsuits and covenants and agrees that he will not seek or be entitled to any personal recovery in any court or before any governmental agency, arbitrator or self-regulatory body against any of the Releasees arising out of any matters set forth in Section 1(a) hereof. Nothing herein shall prevent the Executive from seeking to enforce his rights under the Agreement. The Executive does not
hereby waive or release his rights to any benefits under the Company’s employee benefit plans to which he is or will be entitled pursuant to the terms of such plans in the ordinary course.
2. NON-DISPARAGEMENT. The Executive covenants and agrees he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing herein or in the Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
3. NON-SOLICITATION. The Executive covenants and agrees he shall not, without the prior written consent of the Company, for a period ending one (1) year from the Date of Termination (as defined in the Agreement), directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination (as defined in the Agreement), or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.




4. NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees he shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
5. ACKNOWLEDGMENT. The Company has advised the Executive to consult with an attorney of his choosing prior to signing this Termination Release and the Executive hereby represents to the Company that he has been offered an opportunity to consult with an attorney prior to signing this Termination Release. The Company has also advised the Executive that Executive has up to twenty-one days to consider and sign the Release and Waiver and up to seven days after signing in which to revoke acceptance by giving notice to                      at                      by personal delivery or by mail postmarked no later than the seventh day after the Executive signs the Release and Waiver.
IN WITNESS WHEREOF, the Executive has executed this Termination Release under seal as of the day and year first above written.
 
 
 
 
 
 
 
/s/ MONTGOMERY J. BENNETT
 
 
 
 
 
MONTGOMERY J. BENNETT
 
 





Exhibit 10.5.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of March 21, 2008, effective as of January 1, 2008 (the “Effective Date”), is between ASHFORD HOSPITALITY TRUST, INC., a corporation organized under the laws of the State of Maryland and having its principal place of business at Dallas, Texas (hereinafter, the “REIT”), ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of Delaware and having its principal place of business at Dallas, Texas (the “Operating Partnership”), and MONTGOMERY J. BENNETT, an individual residing in Dallas, Texas (the “Executive”).
RECITALS:
A. The REIT and the Operating Partnership (collectively, the “Company”) desire to employ the Executive in the capacities and on the terms and conditions set out below; and
B. The Executive and the Company have previously entered into an employment agreement dated as of August 29, 2003, as amended on March 29, 2006, but effective as of January 1, 2006 (collectively, the “Previous Agreement”); and
C. The Company and the Executive desire to amend and restate the Previous Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as well as certain other changes.
NOW, THEREFORE, the Company and the Executive, in consideration of the respective covenants set out below, hereby agree as follows:
1. EMPLOYMENT.
(a) POSITIONS. During the Term (defined below), the Executive shall be employed by the Company as President and Chief Executive Officer. At the Company’s request, the Executive shall serve the Company’s subsidiaries and affiliates in other offices and capacities in addition to the foregoing. If the Executive, during the Term, serves in any one or more of such additional capacities, the Executive’s compensation shall not be increased beyond that provided in Sections 3, 4 or 5 below. Further, if the Executive’s service in one or more of such additional capacities is terminated, the Executive’s compensation provided herein shall not be reduced for so long as the Executive otherwise remains employed by the Company under the terms of this Agreement.
(b) RESPONSIBILITIES. The Executive’s principal employment duties and responsibilities shall be those duties and responsibilities customary for the positions of President and Chief Executive Officer and such other executive duties and responsibilities as the Board of Directors of the REIT (the “Board”) shall from time to time reasonably assign to the Executive. The Executive will be responsible for and have authority over the day-to-day operational management of the Company. The Executive shall report directly to the Board. All other officers of the Company shall report to the Executive or such person(s) as the Executive may designate from time to time.
(c) EXTENT OF SERVICES. Except for (i) the time reasonably required to perform the Executive’s duties and responsibilities as Chief Executive Officer and President of Remington Hotel Corporation (“RHC”), Remington Management LP (“Remington Management), Remington Lodging &
Hospitality, L.P. (“Remington Lodging”) and their affiliates (so long as such duties do not materially interfere with the performance of the Executive’s duties hereunder), and (ii) illnesses and vacation periods, the Executive shall devote substantially all of his working time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement and shall not be otherwise employed. However, the Executive may (so long as the following do not materially interfere with the performance of the Executive’s duties hereunder) (i) make any passive investments where he is not obligated or required to, and shall not in fact, devote material managerial efforts (provided that the Executive may make and continue investments in accordance with the terms of that certain Mutual Exclusivity Agreement, herein so called, among RHC, Remington Lodging and their affiliates (herein collectively called the “Remington Affiliates”), and the Company and its affiliates dated on August 29, 2003), (ii) participate in charitable, academic or community activities or in trade or professional organizations, (iii) hold directorships in charitable or non-profit organizations, (iv) subject to Board approval (which approval shall not be unreasonably withheld or withdrawn), hold directorships in other companies, except only that the Board shall have the right to limit such services as a director or such participation whenever the Board shall reasonably believe that the time spent on such activities infringes in any material respect upon the time required by the Executive for the performance of his duties under this Agreement or is otherwise incompatible with those duties, or (v) hold directorships in private companies owned by the Executive (or Archie Bennett, Jr.) consistent with the Mutual Exclusivity Agreement. Further, it is agreed that to




the extent any such activities have been conducted by the Executive prior to August 29, 2003, the continued reasonable conduct of such activities (or reasonable activities similar in nature and scope thereto) shall not, subject to the conditions and limitations of the Mutual Exclusivity Agreement, thereafter be deemed to interfere with the performance of the Executive’s responsibilities to the Company; provided, that no such activity that violates the non-competition provisions herein shall be permitted.
2. TERM.
This Agreement shall become effective as of January 1, 2008 and shall continue for a Term ending on December 31, 2008 (the “Initial Termination Date”) unless it is sooner terminated pursuant to Section 6; provided, however, that this Agreement shall be automatically extended for one additional year on the Initial Termination Date and on each subsequent anniversary of the Initial Termination Date, unless either the Company or the Executive elect not to extend the Term of this Agreement by notifying the other party in writing of such election not less than one hundred twenty (120) days prior to the expiration of the then current Term. For purposes of this Agreement, “Term” shall mean the actual duration of the Executive’s employment hereunder, taking into account any extension pursuant to this Section 2 or early termination of employment pursuant to Section 6.
3. SALARY.
The Company shall pay the Executive a Base Salary which shall be payable in periodic installments, less statutory deductions and withholdings, according to the Company’s normal payroll practices. Commencing as of the Effective Date, the Executive’s base salary shall be SEVEN HUNDRED THOUSAND Dollars ($700,000) per year. The Board or a Compensation Committee duly appointed by the Board (the “Compensation Committee”) shall thereafter review the Executive’s Base Salary annually to determine within its sole discretion whether and to what extent the Executive’s salary may be increased (for the purposes of this Agreement, the term “Base Salary” shall mean the amount established and adjusted from time to time pursuant to this Section 3).
4. ANNUAL INCENTIVE AWARDS.
(a) INCENTIVE BONUS. The Executive shall be entitled to receive an annual cash incentive bonus (the “Incentive Bonus”) for each calendar year during the Term of this Agreement based on the level of accomplishment of management and performance objectives as established by the Board or Compensation Committee. Except as otherwise provided in Section 7, if the Executive is not employed for the full calendar year, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus for the calendar year to which the Executive would have been entitled if the Executive had remained employed for the entire calendar year and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the last day of his employment and the denominator of which is the 365 days of the calendar year. The targeted Incentive Bonus for the Term is 75% to 125% of Base Salary. The Incentive Bonus shall be paid as soon as reasonably practical following each calendar year but not later than December 31st of such year.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the Executive shall be entitled to participate in all other short- and long-term incentive plans, stock and option plans, long term incentive partnership (“LTIP”) plans, practices, policies and other programs, and all savings and retirement plans, practices, polices and programs, in each case that are applicable generally to senior executives of the Company, as may be adopted or amended from time to time by the Company’s Compensation Committee.
5. BENEFITS.
(a) VACATION. The Executive will be entitled to four (4) weeks of paid vacation per calendar year. Vacation time not used within the calendar year will not carry forward. The Executive shall not be entitled to cash in lieu of any unused vacation time except as provided in this Agreement.
(b) SICK LEAVE. The Executive shall be entitled to paid sick leave in accordance with the sick leave policies of the Company in effect for other senior executive officers.
(c) EMPLOYEE BENEFITS. The Executive and his spouse and eligible dependents, if any, and their respective designated beneficiaries where applicable, will be eligible for and entitled to participate in other benefits maintained by the Company for its senior executive officers, as such benefits may be modified from time to time and for all such employees, such as, without limitation, any medical, dental, vision, pension, 401(k), accident, disability, and life insurance benefits, on a basis not less favorable than that applicable to other senior executives of the Company. The Executive will also be entitled to appropriate office space, administrative support, secretarial assistance, and such other facilities and services as are suitable to the Executive’s positions and adequate for the performance of the Executive’s duties.




(d) EXPENSES. The Executive will be entitled to reimbursement of all reasonable expenses, in accordance with the Company’s policy as in effect from time to time and on a basis not less favorable than that applicable to other senior executives of the Company, including, without limitation, telephone (including in-home office telephone and DSL costs), travel and entertainment expenses incurred by the Executive in connection with the business of the Company, promptly upon the presentation by the Executive of appropriate documentation.
(e) D&O INSURANCE COVERAGE. During and for a period three (3) years after the Term, the Executive shall be entitled to director and officer insurance coverage for his acts and omissions while an
officer and director of the Company on a basis no less favorable to him than the coverage provided current officers or directors.
6. TERMINATION.
The employment of the Executive by the Company and this Agreement (except as otherwise provided herein) shall terminate upon the occurrence of any of the following:
(a) DEATH OR DISABILITY. Immediately upon death or Disability of the Executive. As used in this Agreement, “Disability” shall mean an inability to perform the essential functions of his duties, with or without reasonable accommodation, for a period of 90 consecutive days or a total of 180 days, during any 365-day period, in either case as a result of incapacity due to mental or physical illness which is determined to be total and permanent. A determination of Disability shall be made by a physician satisfactory to both the Executive and the Company, provided that if the Executive (or his guardian) and the Company do not agree on a physician, the Executive (or his guardian) and the Company shall each select a physician and these two together shall select a third physician, whose determination as to Disability shall be binding on all parties. The appointment of one or more individuals to carry out the offices or duties of the Executive during a period of the Executive’s inability to perform such duties and pending a determination of Disability shall not be considered a breach of this Agreement by the Company.
(b) FOR CAUSE. At the election of the Company, for Cause, immediately upon written notice by the Company to the Executive unless the Executive fully corrects the circumstances constituting Cause within the cure periods provided below, if applicable. For purposes of this Agreement, “Cause” for termination shall be deemed to exist solely in the event 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, a felony (exclusive of a conviction, plea of guilty or nolo contendere arising solely under a statutory provision imposing criminal liability upon the Executive on a PER SE basis due to the Company offices held by the Executive, so long as any act or omission of the Executive with respect to such matter was not taken or omitted in contravention of any applicable policy or directive of the Board);
(ii) willful breach of duty of loyalty which is materially detrimental to the Company which is not cured to the reasonable satisfaction of the Board within fifteen (15) days following written warning to the Executive from the Board describing the alleged circumstances;
(iii) willful failure to perform or adhere to explicitly stated duties or guidelines of employment or to follow the directives of the Board which continues for fifteen (15) days after written warning to the Executive that it will be deemed a basis for a “For Cause” termination;
(iv) gross negligence or willful misconduct in the performance of the Executive’s duties (which is not cured by the Executive within 30 days after written warning from the Board);
(v) the Executive’s willful commission of an act of dishonesty resulting in economic or financial injury to the Company or willful commission of fraud; or
(vi) the Executive’s chronic absence from work for reasons other than illness.
For purposes of this Section, no act, or failure to act, on the Executive’s part will be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without a reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than 2/3rds of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel for the Executive, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of any of the conduct described in this Section 6(b), and specified in the particulars thereof in detail;




provided, that if the Executive is a member of the Board, neither the Executive nor any family member of the Executive shall vote on such resolution nor shall they be counted in determining the “Entire Membership” of the Board.
(c) WITHOUT CAUSE OR GOOD REASON. At the election of the Company, without Cause, and at the election of the Executive, without Good Reason, in either case upon sixty (60) days’ prior written notice to the Executive or to the Company, as the case may be. Provided, however, that if the Executive gives notice, without Good Reason, the Company may waive all or a portion of the sixty (60) days’ written notice and accelerate the effective date of the termination.
(d) FOR GOOD REASON. At the election of the Executive, for Good Reason, which is not cured by the Company within thirty (30) days after written notice from the Executive to the Company setting forth a description of the circumstances constituting Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the following actions, omissions or events occurring without the Executive’s prior written consent:
(i) The removal without Cause from, or failure to re-elect the Executive as a Director on the Board of Directors of the Company, if the Company has not already or in connection therewith elected to terminate the Executive’s employment hereunder pursuant to Section 7(c);
(ii) the assignment to the Executive of any duties, responsibilities, or reporting requirements inconsistent with his positions as President, Chief Executive Officer, and Director on the Board of Directors of the Company, or any material diminishment, on a cumulative basis, of the Executive’s overall duties, responsibilities, or status;
(iii) a reduction by the Company in the Executive’s annual Base Salary;
(iv) the requirement by the Company that the principal place of business at which the Executive performs his duties be changed to a location outside the greater Dallas metropolitan area;
(v) any material breach by the Company of any provision of this Agreement; or
(vi) Archie Bennett, Jr. is removed without Cause in his capacity as Chairman of the Board, as the term “Cause” is defined in that certain Non-Compete/Services Agreement (the “ABJ Non-Compete/Services Agreement”) dated on or about August 29, 2003 (as amended or renewed and restated), the Company fails to renew the ABJ Non-Compete/Services Agreement; or Archie Bennett, Jr. leaves for “Good Reason” as defined in the ABJ Non-Compete/ Services Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 16(a) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (provided that the date specified shall not be more than thirty (30) days after the giving of the notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
(f) DATE OF TERMINATION. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice (provided that the date specified shall not be more than thirty (30) days after the giving of the notice), as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination or such later date specified in such notice, (iii) if the Executive’s employment is terminated by the Executive without Good Reason, the Date of Termination shall be the date on which the Executive notifies the Company of such termination or such later date specified in such notice, unless otherwise agreed by the Company and the Executive, and (iv) if the Executive’s employment is terminated by reason of death or Disability or non-renewal of this Agreement, the Date of Termination shall be the date of death or Disability of the Executive or the Agreement’s non-renewal date, as the case may be.
7. EFFECTS OF TERMINATION.
(a) TERMINATION FOR DEATH OR DISABILITY; BY THE COMPANY WITHOUT CAUSE; OR NON-RENEWAL BY THE COMPANY. If the employment of the Executive should terminate by reason of (i) death of the Executive or Disability, (ii) termination by the Company for any reason (other than Cause)or (iii) the Company’s failure to renew this Agreement, then all compensation and benefits for the Executive shall be as follows:
(i) The Executive shall be paid, in a single lump sum payment within thirty (30) days after the Date of Termination, the aggregate amount of (A) the Executive’s earned but unpaid Base Salary and accrued but unpaid vacation through the Date of




Termination, and any Incentive Bonus required to be paid to the Executive pursuant to Section 4(a) above for the prior calendar year to the extent not previously paid, and reimbursement of all expenses through the Date of Termination as required pursuant to Section 5(d) hereof (the “Accrued Obligations”), and (B) one (the “Severance Multiple”) times the sum of (x) the Base Salary in effect on the Termination Date plus (y) the average Incentive Bonus received by the Executive for the three complete calendar years or such lesser number of calendar years as the Executive has been employed by the Company) immediately prior to the Termination Date (the “Severance Payment”).
(ii) At the time when incentive bonuses are paid to the Company’s other senior executives for the calendar year of the Company in which the Date of Termination occurs, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus to
which the Executive would have been entitled if the Executive ’s employment had not been terminated and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the Date of Termination and the denominator of which is the 365 days of the calendar year (a “Pro-Rated Bonus”).
(iii) The Company will allow the Executive and his dependents, at the Company’s cost, to continue to participate for a period of eighteen (18) months following the Date of Termination in the Company’s medical, dental and vision plan in effect as of the Date of Termination. The Company’s payment of this medical coverage will be made monthly during this period of coverage. To the extent such medical benefits are taxable to the Executive, such benefits will not affect benefits to be provided in any other taxable year, and such amounts are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A) as “in-kind benefits”. In addition, the Company will reimburse the Executive for a period of eighteen (18) months following the Date of Termination for the cost of coverage for life insurance and long-term disability insurance, based upon the level of such benefits that were provided to the Executive under the Company’s life insurance and long-term disability plans in effect as of the Date of Termination, which reimbursements will be paid with seven (7) days after the Executive pays any applicable premium. The amount of any such reimbursements may not affect the expenses eligible for reimbursement in any other year. Such reimbursements are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A). (Collectively, these welfare benefits under (iii) are referred to as the “Other Benefits”). If the Executive engages in regular employment after his termination of employment with any organization other than a Remington Affiliate, any employee welfare benefits received by the Executive in consideration of such employment which are similar in nature to the Other Benefits provided by the Company will relieve the Company of its obligation under this Section 7(a)(iii) to provide comparable benefits to the extent of the benefits so received, and such benefit hereunder shall be forfeited.
(iv) Any annual performance shares, restricted shares, LTIP units or options awarded under Section 4(b) hereof shall immediately vest. Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(a), all outstanding stock options, restricted stock and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(b) TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the event that the Executive’s employment is terminated by the Executive with Good Reason, the Company will pay the Executive the same Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i) (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be three (3). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(c) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. If the Executive’s employment is terminated by the Executive without Good Reason including a resignation by the Executive without Good Reason and including an election not to renew this Agreement by the Executive, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive shall
not be entitled to the Severance Payment, Pro-rated Bonus, the Other Benefits and accelerated vesting set forth in Sections 7(a)(i), (ii), (iii) and (iv) hereof. In addition, in consideration for the Executive’s agreement for honoring the non-compete and non-solicitation covenants in Section 10 hereof for a period of one (1) year following the Date of Termination resulting from this Section 7(c), the Company shall pay the Executive a non-compete payment (the “Non-Compete Payment”) equal to the Severance Payment determined with a Severance Multiple equal to one (1). The Non-Compete Payment shall be paid monthly over the one-year non-compete period in equal monthly installments of one-twelfth (1/12th) of the Non-Compete Payment, provided, however, that the timing of such Non-Compete payments are subject to Section 7(g) hereof.
(d) TERMINATION BY THE COMPANY FOR CAUSE. If the Executive’s employment is terminated by the Company for Cause, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive




shall not be entitled to the Severance Payment, Pro-Rated Bonus, the Other Benefits and accelerated vesting set forth in Sections 7(a)(i), (ii), (iii) and (iv) hereof.
(e) TERMINATION OF AUTHORITY. Immediately upon the Date of Termination or upon the expiration of this Agreement, notwithstanding anything else to the contrary contained herein or otherwise, the Executive will stop serving the functions of his terminated or expired positions, and shall be without any of the authority or responsibility for such positions. On request of the Board at any time following the termination of the Executive’s employment by the Company for Cause or by the Executive without Good Reason (including Executive’s termination of his employment after a Change in Control (as defined herein) or an election by the Executive not to renew this Agreement), the Executive agrees to resign immediately from the Board, if then a member.
(f) RELEASE OF CLAIMS. As a condition of Executive’s entitlement to the Severance Payment, Pro-Rated Bonus, Non-Compete Payment and Other Benefits provided by this Agreement, the Executive shall be required to execute the terms of a waiver and release of claims against the Company substantially in the form attached hereto as Exhibit “A” (as may be modified consistent with the purposes of such waiver and release to reflect changes in law following the date hereof)(the “Release”) within the applicable time period provided in the Release (the “Applicable Release Period”); and shall forfeit all payments hereunder if it is not so timely executed; provided, however, that in any case where the first and last days of the Applicable Release Period are in two separate taxable years, any payments required to be made to Executive that are treated as deferred compensation for purposes of Code Section 409A shall be made in the later taxable year, promptly following the conclusion of the Applicable Release Period.
(g) CODE SECTION 409A AND TERMINATION PAYMENTS. All payments provided under this Agreement shall be subject to this Section 7(g). Notwithstanding anything herein to the contrary, to the extent that the Board reasonably determines, in its sole discretion, that any payment or benefit to be provided under this Agreement for the benefit of Executive would be subject to the additional tax imposed under Section 409A(a)(1)(B) of the Code or a successor or comparable provision, the commencement of such payments and/or benefits shall be delayed until the earlier of (i) the date that is six months following the Date of Termination or (ii) the date of Executive’s death (such date is referred to herein as the “ Distribution Date”), provided, if at such time Executive is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)) and if amounts payable under this Agreement are on account of an “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(m)), Executive shall receive payments during the six-month period immediately following the Date of Termination equal to the lesser of (x) the amount payable under this Agreement, as the case may be, or (y) two times the
compensation limit in effect under Code Section 401(a)(17) for the calendar year in which the Termination Date occurs (with any amounts that otherwise would have been payable under this Agreement during such six-month period being paid on the first regular payroll date following the six-month anniversary of the Date of Termination). In the event that the Board determines that the commencement of any of the employee benefits to be provided under this Agreement are to be delayed pursuant to the preceding sentence, the Company shall require Executive to bear the full cost of such employee benefits until the Distribution Date at which time the Company shall reimburse Executive for all such costs. Finally, for the purposes of this Agreement, amounts payable under this Agreement shall be deemed not to be a “deferral of compensation” subject to Section 409A to the extent provided in the exceptions in Treasury Regulation Sections 1.409A-1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exception under subparagraph (iii)) and other applicable provisions of Treasury Regulation Section 1.409A-1 through A-6.
8. CHANGE OF CONTROL.
(a) CHANGE OF CONTROL. For purposes of this Agreement, a “Change of Control” will be deemed to have taken place upon the occurrence of any of the following events:
(i) any “person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as modified in Section 12(d) and 14(d) of the Exchange Act) other than A) the Company or any of its subsidiaries, (B) any employee benefit plan of the Company or any of its subsidiaries, (C) any Remington Affiliate, (D) a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, or (E) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the shares of voting stock of the Company then outstanding;
(ii) the consummation of any merger, reorganization, business combination or consolidation of the Company or one of its subsidiaries with or into any other company, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than




50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(iii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets; or the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(iv) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election to the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the
election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board.
(b) CERTAIN BENEFITS UPON A CHANGE OF CONTROL. If a Change of Control occurs during the Term and the Executive’s employment is terminated by the Company without Cause or by the Executive for any reason on or before the one (1) year anniversary of the effective date of the Change of Control, then the Executive shall be entitled to the Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i), (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be three (3). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 8(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full. All payments under this Section 8(b) are subject to the restrictions set forth in Section 7(g) and may be delayed as set forth in Section 7(g) in order to satisfy the requirements of Section 409A of the Internal Revenue Code.
(c) EXCISE TAX.
(i) In the event that any payment or benefit received or to be received by the Executive in connection with a Change of Control or the termination of the Executive’s employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change of Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) will be subject (in whole or part) to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), then, subject to the provisions of Section 8(c)(ii) hereof, the Company will pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 8(c)(i), will be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on such date, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(ii) In the event that, after giving effect to any redeterminations described in Section 8(c)(iv) hereof, a reduction in the Total Payments to the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) would produce a net amount (after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) that would be greater than the net amount of unreduced Total Payments (after deduction of the net amount of federal, state and local income tax and the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments), then Section 8(c)(i) hereof will not apply and the Total Payments will be so reduced.
(iii) The determination of whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax will be made by the Company’s independent auditors. The Company will provide the Executive with its calculation of the amounts referred to in this Section 8(c) and such supporting materials as are reasonably necessary for the Executive to evaluate the Company’s calculations. If the Executive disputes the Company’s calculations (in whole or in part), the reasonable opinion of the Company’s independent auditors with respect to the matter in dispute will prevail.
(iv) In the event that (A) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of payment of the Total Payments and (B) after giving effect to such redetermination, the Total Payments




are reduced pursuant to Section 8(c)(ii) hereof, the Executive will repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in the Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that (X) the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment) and (Y) after giving effect to such redetermination, the Total Payments are not reduced pursuant to Section 8(c)(ii) hereof, the Company will make an additional Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which the Company had not previously made a Gross-Up Payment (plus any additional taxes payable by the Executive with respect to such excess and such portion) at the time that the amount of such excess is finally determined. The Company shall also reimburse the Executive for any expenses (including interest and penalties) incurred in any such additional Gross-Up redetermination to the extent permitted under Section 409A. (All reimbursements of expenses incurred in connection with such additional Gross-Up redetermination shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such Gross-Up redetermination is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A)).
(v) The Executive shall notify the Company in writing of any claim that, if successful, would require the payment by the Company of a Gross-Up Payment or might entitle the Company to the refund of all or part of any previous Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is required to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney jointly selected by the Executive and the Company; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim. The Company shall reimburse the Executive for all costs and expenses (including legal fees and additional interest and penalties to the extent permitted under 409A) incurred in connection with such
contest. All reimbursements of such expenses shall be made within 30 days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
(vi) Without limitation on the foregoing, the Company shall control all audits and proceedings taken in connection with any claim, audit or proceeding involving Excise Taxes or Gross-Up Payments and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of any such claim, audit or proceeding and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the tax in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the Company directs the Executive to pay such tax and sue for a refund, the Company shall reimburse the Executive within thirty (30) days after the Executive pays such taxes (including interest or penalties with respect thereto to the extent permitted under 409A). All reimbursements of such expenses shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A). The Company’s control of the contest shall be limited to issues with respect to which such a Gross-Up Payment would be payable or refundable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue.
(vii) To the extent that a Gross-Up Payment is determined to be payable pursuant to this Section 8(c), such payment must be made no later than the end of the taxable year immediate following the taxable year in which the taxes described above are remitted by the Executive to the taxing authority.
9. CONFIDENTIAL INFORMATION.




The Executive recognizes and acknowledges that the Executive has and will have access to confidential and proprietary information of the Company which constitute valuable, special, and unique assets of the Company. The term “Confidential Information” as used in this Agreement shall mean all proprietary information which is known only to the Executive, the Company, the Remington Affiliates with respect to a Remington Transaction (as defined in the Mutual Exclusivity Agreement), other employees of the Company, or others in a confidential relationship with the Company, and relating to the Company’s business (including, without limitation, information regarding clients, customers, pricing policies, methods of operation, proprietary company programs, sales, acquisitions, products, profits, costs, conditions (financial or other), cash flows, key personnel, formulae, product applications, technical processes, and trade secrets, as such information may exist from time to time, which the Executive acquired or obtained by virtue of work performed for the Company, or which the Executive may acquire or may have acquired knowledge of during the performance of said work.
The Executive acknowledges that the Company has put in place certain policies and practices to keep such Confidential Information secret, including disclosing the information only on a need-to-know basis. The Executive further acknowledges that the Confidential Information has been developed or acquired by the
Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know such Confidential Information. Finally, the Executive acknowledges that such Confidential Information, if revealed to or used for the benefit of the Company’s competitors or in a manner contrary to the Company’s interests, would cause extensive and immeasurable harm to the Company and to the Company’s competitive position.
The Executive shall not, during the Term or at any time thereafter, use for personal gain or detrimentally to the Company all or any part of the Confidential Information, or disclose or make available all or any part of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by the Executive of his confidentiality obligations hereunder. Notwithstanding the foregoing, Executive shall not be restricted from disclosing or using Confidential Information that: (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (ii) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not known by Executive, after reasonable investigation, to be bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; or (iii) is required to be disclosed by law, court order or other legal process: provided, however, that in the event disclosure is required by law, court order or legal process, Executive shall provide the Company, if legally permissible, with prompt notice of such requirement as set forth below in this Section 9.
The Executive acknowledges that the Confidential Information shall remain at all times the exclusive property of the Company, and no license is granted. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or the Executive, or within seven (7) business days of the Company’s request under any other circumstances, the Executive shall deliver to the Company all Confidential Information, in any form whatsoever, including electronic formats, and shall not take with him any Confidential Information or any reproductions (in whole or in part) or extracts of any items relating to the Confidential Information. The Company acknowledges that prior to his employment with the Company, the Executive has lawfully acquired extensive knowledge of the industries in which the Company engages in business including, without limitation, markets, valuation methods and techniques, capital markets, investor relationships and similar items, and that the provisions of this Section 9 are not intended to restrict the Executive’s use of such previously acquired knowledge.
In the event that the Executive receives a request or is required (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose all or any part of the Confidential Information, the Executive agrees, if legally permissible, to (a) promptly notify the Company of the existence, terms and circumstances surrounding such request or requirement, (b) consult with the Company on the advisability of taking legally available steps to resist or narrow such request or requirement and (c) assist the Company in seeking a protective order or other appropriate remedy; provided, however, that the Executive shall not be required to take any action in violation of applicable laws. In the event that such protective order or other remedy is not obtained or that the Company waives compliance with the provisions hereof, the Executive shall not be liable for such disclosure unless disclosure to any such tribunal was caused by or resulted from a previous disclosure by the Executive not permitted by this Agreement.
10. NON-COMPETITION, NONSOLICITATION AND NON-INTERFERENCE.
(a) NON-COMPETITION. During the Term and any Non-Compete Period (hereinafter defined), the Executive will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder or partner engage in any “Competitive Business”; PROVIDED, HOWEVER, the foregoing shall not prohibit or limit the Executive’s right to (i) pursue investments, transactions or businesses allowed pursuant to the terms of the Mutual Exclusivity Agreement, (ii) continue the Executive’s ownership, investment, management and operation of the Remington Affiliates consistent with the terms of the Mutual




Exclusivity Agreement, (iii) continue the Executive’s ownership, investment, management and operation of all existing investments of the Executive and the Remington Affiliates as of the Effective Date consistent with the terms of the Mutual Exclusivity Agreement, and (iv) remain an officer and/or director of all Remington Affiliates consistent with the terms of the Mutual Exclusivity Agreement.
For purposes of this Section 10(a), “Competitive Business” means acquiring, investing in or with respect to, owning, leasing, managing or developing hotel properties in the United States or originating or acquiring loans in respect of hotel properties in the United States where the Executive has duties or performs services that are the same or similar to those services actually performed by the Executive for the Company.
For purposes of this Section 10(a), the “Non-Compete Period” shall mean:
(i) In the case of a termination of the Executive’s employment as a result of Disability, or a termination by the Executive without Good Reason (including, without limitation, a resignation by the Executive without Good Reason or an election not to renew by the Executive), a period during the Term and ending one (1) year after the Date of Termination;
(ii) in the case of a termination of the Executive’s employment as a result of a termination by the Company for Cause, a period during the Term and ending eighteen (18) months after the Date of Termination;
(iii) in the case of a termination of the Executive’s employment as a result of (i) a Change in Control, (ii) a termination by the Executive for Good Reason, or (iii) a termination by the Company for any reason other than Cause, only during the Term; or
(iv) notwithstanding the foregoing, in all cases the Non-Compete Period shall terminate effective on the termination of the REIT Exclusivity Rights (as defined in the Mutual Exclusivity Agreement) by Remington Lodging as a result of a Remington Termination Event (and provided further that upon such termination of the Non-Compete Period, the outstanding Non-Compete Payment shall be paid by the Company within five (5) days of such termination to the Executive).
The Executive acknowledges that the services provided by the Executive are of a special, unique, and extraordinary nature. The Executive further acknowledges that his work and experience with the Company will enhance his value to a Competitive Business, and that the nature of the Confidential Information to which the Executive has immediate access and will continue to have access during the course of his employment makes it difficult, if not impossible, for him to engage in any Competitive Business or work in any capacity similar to the Executive’s duties or services with the Company without disclosing or utilizing the Confidential Information. The Executive further acknowledges that his work and experience with the Company places him in a position of trust with the Company.
(b) NON-SOLICITATION. The Executive covenants and agrees that (i) during the Term, and (ii) during the period ending on the first anniversary of his Date of Termination, he shall not, without the prior written consent of the Company, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination, or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.
(c) NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees that during the Term and thereafter, Executive shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
(d) REASONABLE RESTRAINTS. The Executive agrees that restraints imposed upon him pursuant to this Section are necessary for the reasonable and proper protection of the Company and its subsidiaries and affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The parties further agree that, in the event that any provision of this Section shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
11. NON-EXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company. Amounts which are




vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Notwithstanding anything in this Agreement or any such plan, policy, practice or program noted above to the contrary, the timing of all payments pursuant to this Agreement or any such plan, policy, practice or program shall be subject to the timing rules specified in Section 7(g) of this Agreement.
12. FULL SETTLEMENT.
The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred (within 30 days following the Company’s receipt of an invoice from the Executive), to the full extent permitted by law, all reasonable legal fees and expenses which the Executive or his beneficiaries may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive or his beneficiaries about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(a) of the Code to the extent permitted by 409A. The preceding sentence shall not apply with respect to any such contest if the court having jurisdiction over such contest determines that the Executive’s claim in such contest is frivolous or maintained in bad faith. This reimbursement obligation shall remain in effect following the Executive’s termination of employment for the applicable statute of limitations period relating to any such claim, and the amount of reimbursements hereunder during any tax year shall not affect the expenses eligible for reimbursement in any other tax year. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
13. DISPUTES.
(a) EQUITABLE RELIEF. The Executive acknowledges and agrees that upon any breach by the Executive of his obligations under Sections 9 or 10 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief.
(b) ARBITRATION. Excluding only requests for equitable relief by the Company under Section 13(a) of this Agreement, in the event that there is any claim or dispute arising out of or relating to this Agreement, or the breach thereof, and the parties hereto shall not have resolved such claim or dispute within 60 days after written notice from one party to the other setting forth the nature of such claim or dispute, then such claim or dispute shall be settled exclusively by binding arbitration in Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association by an arbitrator mutually agreed upon by the parties hereto or, in the absence of such agreement, by an arbitrator selected according to such Rules. Notwithstanding the foregoing, if either the Company or the Executive shall request, such arbitration shall be conducted by a panel of three arbitrators, one selected by the Company, one selected by the Executive and the third selected by agreement of the first two, or, in the absence of such agreement, in accordance with such Rules. Neither party shall have the right to claim or recover punitive damages. Judgment upon the award rendered by such arbitrator(s) shall be entered in any Court having jurisdiction thereof upon the application of either party.
14. INDEMNIFICATION.
The Company will indemnify the Executive, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by the Executive, including the cost of legal counsel selected and retained by the Executive in connection with any action, suit or proceeding to which the Executive may be made a party by reason of the Executive being or having been an officer, director, or employee of the Company or any subsidiary or affiliate of the Company.
15. COOPERATION IN FUTURE MATTERS.
The Executive hereby agrees that, for a period of one (1) year following his termination of employment, he shall cooperate with the Company’s reasonable requests relating to matters that pertain to the Executive’s employment by the Company, including, without limitation, providing information or limited consultation as to such matters, participating in legal proceedings, investigations or audits on behalf of the Company, or otherwise making himself reasonably available to the Company for other related purposes. Any such cooperation shall be performed at times scheduled taking into consideration the Executive’s other commitments, including business and family matters, and the Executive shall be compensated at a reasonable




hourly or PER DIEM rate to be agreed by the parties to the extent such cooperation is required on more than an occasional and limited basis. The Executive shall not be required to perform such cooperation to the extent it conflicts with any requirements of exclusivity of services for another employer or otherwise, nor in any manner that in the good faith belief of the Executive would conflict with his rights under or ability to enforce this Agreement.
16. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if sent by overnight courier or by certified mail, return receipt requested, postage prepaid or sent by written telecommunication or telecopy, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this Section 16(a).
 
 
 
 
 
 
 
 
 
If to the Company, to:
 
Ashford Hospitality Trust
14185 Dallas Parkway, Suite 1100
Dallas, Texas 75254
Attn: Board of Directors
 
 
 
 
 
 
 
 
 
 
 
with a copy to:
 
Ashford Hospitality Trust, Inc.
14185 Dallas Parkway, Suite 1100
Dallas, Texas 75254
Attn: Chief Legal Officer
 
 
 
 
 
 
 
 
 
 
 
If to the Executive, at his last residence shown on the records of the Company,
 
 
 
 
 
 
 
 
 
 
 
with a copy to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

Any such notice shall be effective (i) if delivered personally, when received, (ii) if sent by overnight courier, when receipted for, and (iii) if mailed, two (2) days after being mailed as described above.
(b) SEVERABILITY. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.
(c) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.
(d) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.
(e) ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company’s successors and the Executive’s personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. This Agreement shall not be assignable by the Executive, it being understood and agreed that this is a contract for the Executive’s personal services. This Agreement shall not be assignable by the Company except in connection with a transaction involving the succession by a third party to all or substantially all of the Company’s business and/or assets (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise), in which case such successor shall assume this Agreement and expressly agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets that executes and delivers the assumption agreement described in the immediately preceding sentence or that becomes bound by this Agreement by operation of law.




(f) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by the Executive and a duly authorized representative of the Board.
(g) GOVERNING LAW. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of law. Jurisdiction and venue shall be solely in the federal or state courts of Dallas County, Texas. This provision should not be read as a waiver of any right to removal to federal court in Dallas County.
(h) CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. The headings of sections of this Agreement are for convenience of reference only and shall not affect its meaning or construction.
(i) PAYMENTS AND EXERCISE OF RIGHTS AFTER DEATH. Any amounts due hereunder after the Executive’s death shall be paid to the Executive’s designated beneficiary or beneficiaries, whether received as a designated beneficiary or by will or the laws of descent and distribution. The Executive may designate a beneficiary or beneficiaries for all purposes of this Agreement, and may change at any time such designation, by notice to the Company making specific reference to this Agreement. If no designated beneficiary survives the Executive or the Executive fails to designate a beneficiary for purposes of this Agreement prior to his death, all amounts thereafter due hereunder shall be paid, as and when payable, to his spouse, if she survives the Executive, and otherwise to his estate.
(j) CONSULTATION WITH COUNSEL. The Executive acknowledges that he has had a full and complete opportunity to consult with counsel or other advisers of his own choosing concerning the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement.
(k) WITHHOLDING. Any payments provided for in this Agreement shall be paid net of any applicable tax withholding required under federal, state or local law.
(l) NON-DISPARAGEMENT. The Executive agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. The Company agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) the Company will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may directly or indirectly, disparage Executive or his business or reputation. Notwithstanding the foregoing, nothing in this Agreement shall preclude either Executive or the Company from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
(m) CODE SECTION 409A. It is the intention of the parties to this Agreement that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code. The Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company may unilaterally take any action it deems necessary or desirable to amend any provision herein to avoid the application of or excise tax under Section 409A. Further, no effect shall be given to any provision herein in a manner that reasonably could be expected to give rise to adverse tax consequences under that provision.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed under seal as of the date first above written.




 
 
 
 
 
 
 
 
 
REIT:
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
Title:
 
COO & General Counsel
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PARTNERSHIP:
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
 
 
 
 
 
 
 
 
 
 
 
By: Ashford OP General Partner, LLC
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
Title:
 
Vice President
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXECUTIVE:
 
 
 
 
 
 
 
 
 
 
 
/s/ MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 




EXHIBIT “A”
RELEASE AND WAIVER
THIS RELEASE AND WAIVER (the “Termination Release”) is made as of the 21 day of March, 2008 by MONTGOMERY J. BENNETT (the “Executive”).
WHEREAS, the Executive, Ashford Hospitality Trust, Inc. (the “REIT”), and Ashford Hospitality Limited Partnership (the “Operating Partnership”) have entered into an Employment Agreement (the “Agreement”) dated as of March 21, 2008, effective as of January 1, 2008 and providing certain compensation and severance amounts upon the Executive’s termination of employment; and
WHEREAS, the Executive has agreed, pursuant to the terms of the Agreement, to execute a release and waiver in the form set forth in this Termination Release in consideration of the REIT and the Operating Partnership (collectively, the “Company”) agreement to provide the compensation and severance amounts upon the Executive’s termination of employment set out in the Agreement; and
WHEREAS, the Company and the Executive desire to settle all rights, duties and obligations between them, including without limitation all such rights, duties, and obligations arising under the Agreement or otherwise out of the Executive’s employment by the Company;
NOW THEREFORE, intending to be legally bound and for good and valid consideration the sufficiency of which is hereby acknowledged, the Executive agrees as follows:
1. RELEASE. (a) The Executive knowingly and voluntarily releases, acquits, covenants not to sue and forever discharges the Company, and its respective owners, parents, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, divisions and subsidiaries (collectively, the “Releasees”) from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, damages, causes of action, suits, rights, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, against them which the Executive or any of his heirs, executors, administrators, successors and assigns ever had, now has or at any time hereafter may have, own or hold by reason of any matter, fact, or cause whatsoever from the beginning of time up to and including the date of this Termination Release, including without limitation all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, Texas Labor Code Section 21.001, et seq. (Texas Employment Discrimination); Texas Labor Code Section 61.001, et seq. (Texas Pay Day Act); Texas Labor Code Section 62.002, et seq. (Texas Minimum Wage Act); Texas Labor Code Section 201.001, et seq. (Texas Unemployment Compensation Act); Texas Labor Code Section 401.001, et seq., specifically Section 451.001 formerly codified as Article 8307c of the Revised Civil Statutes (Texas Workers’ Compensation Act and Discrimination Issues); and Texas Genetic Information and Testing Law, each as amended, or any other federal, state or local laws, rules, regulations, judicial decisions or public policies now or hereafter recognized.
(b) The Executive represents that he has not filed or permitted to be filed against any of the Releasees, any complaints, charges or lawsuits and covenants and agrees that he will not seek or be entitled to any personal recovery in any court or before any governmental agency, arbitrator or self-regulatory body against any of the Releasees arising out of any matters set forth in Section 1(a) hereof. Nothing herein shall prevent the Executive from seeking to enforce his rights under the Agreement. The Executive does not
hereby waive or release his rights to any benefits under the Company’s employee benefit plans to which he is or will be entitled pursuant to the terms of such plans in the ordinary course.
2. NON-DISPARAGEMENT. The Executive covenants and agrees he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing herein or in the Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
3. NON-SOLICITATION. The Executive covenants and agrees he shall not, without the prior written consent of the Company, for a period ending one (1) year from the Date of Termination (as defined in the Agreement), directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination (as defined in the Agreement), or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.




4. NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees he shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
5. ACKNOWLEDGMENT. The Company has advised the Executive to consult with an attorney of his choosing prior to signing this Termination Release and the Executive hereby represents to the Company that he has been offered an opportunity to consult with an attorney prior to signing this Termination Release. The Company has also advised the Executive that Executive has up to twenty-one days to consider and sign the Release and Waiver and up to seven days after signing in which to revoke acceptance by giving notice to                      at                      by personal delivery or by mail postmarked no later than the seventh day after the Executive signs the Release and Waiver.
IN WITNESS WHEREOF, the Executive has executed this Termination Release under seal as of the day and year first above written.
 
 
 
 
 
 
 
/s/ MONTGOMERY J. BENNETT
 
 
 
 
 
MONTGOMERY J. BENNETT
 
 





Exhibit 10.5.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of March 21, 2008, effective as of January 1, 2008 (the “Effective Date”), is between ASHFORD HOSPITALITY TRUST, INC., a corporation organized under the laws of the State of Maryland and having its principal place of business at Dallas, Texas (hereinafter, the “REIT”), ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of Delaware and having its principal place of business at Dallas, Texas (the “Operating Partnership”), and DAVID BROOKS, an individual residing in Dallas, Texas (the “Executive”).
RECITALS:
A. The REIT and the Operating Partnership (collectively, the “Company”) desire to employ the Executive in the capacities and on the terms and conditions set out below; and
B. The Executive and the Company have previously entered into an employment agreement dated as of August 29, 2003, as amended on March 29, 2006, but effective as of January 1, 2006, (collectively, the “Previous Agreement”); and
C. The Company and the Executive desire to amend and restate the Previous Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as well as certain other changes.
NOW, THEREFORE, the Company and the Executive, in consideration of the respective covenants set out below, hereby agree as follows:
1. EMPLOYMENT.
(a) POSITIONS. During the Term (defined below), the Executive shall be employed by the Company as Chief Legal Officer, Head of Transactions and Secretary. At the Company’s request, the Executive shall serve the Company’s subsidiaries and affiliates in other offices and capacities in addition to the foregoing. If the Executive, during the Term, serves in any one or more of such additional capacities, the Executive’s compensation shall not be increased beyond that provided in Sections 3, 4 or 5 below. Further, if the Executive’s service in one or more of such additional capacities is terminated, the Executive’s compensation provided herein shall not be reduced for so long as the Executive otherwise remains employed by the Company under the terms of this Agreement.
(b) RESPONSIBILITIES. The Executive’s principal employment duties and responsibilities shall be those duties and responsibilities customary for the positions of Chief Legal Officer, Head of Transactions and Secretary and such other executive duties and responsibilities as the Chief Executive Officer of the Company (“CEO”) or Board of Directors of the REIT (the “Board”) shall from time to time reasonably assign to the Executive. The Executive shall report directly to the CEO or such person(s) as the CEO may designate from time to time.
(c) EXTENT OF SERVICES. Except for illnesses and vacation periods, the Executive shall devote substantially all of his working time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement and shall not be otherwise employed. However, the Executive may (so long as the following do not materially interfere with the performance of the Executive’s duties hereunder) (i) make any passive investments (including, without limitation, continuing existing investments with Remington Hotel Corporation or its affiliates) where he is not obligated or required to, and shall not in fact, devote material managerial efforts, (ii) participate in charitable, academic or community activities or in trade or professional organizations, (iii) hold directorships in charitable or non-profit organizations, or (iv) subject to CEO and Board approval (which approval shall not be unreasonably withheld or withdrawn), hold

directorships in for profit companies, except only that the CEO or the Board shall have the right to limit such services as a director or such participation whenever the CEO or the Board shall reasonably believe that the time spent on such activities infringes in any material respect upon the time required by the Executive for the performance of his duties under this Agreement or is otherwise incompatible with those duties.
2. TERM. This Agreement shall become effective as of January 1, 2008 (the “Effective Date”) and shall continue for a Term ending on December 31, 2008 (the “Initial Termination Date”) unless it is sooner terminated pursuant to Section 6; provided, however, that this Agreement shall be automatically extended for one additional year on the Initial Termination Date and on each subsequent anniversary of the Initial Termination Date, unless either the Company or the Executive elect not to extend the Term of this Agreement by notifying the other party in writing of such election not less than one hundred twenty (120) days prior to the expiration of the then current Term. For purposes of this Agreement, “Term” shall mean the actual duration of the




Executive’s employment hereunder, taking into account any extension pursuant to this Section 2 or early termination of employment pursuant to Section 6.
3. SALARY. The Company shall pay the Executive a Base Salary which shall be payable in periodic installments, less statutory deductions and withholdings, according to the Company’s normal payroll practices. Commencing as of the Effective Date, the Executive’s base salary shall be THREE HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($375,000) per year. The Board or a Compensation Committee duly appointed by the Board (the “Compensation Committee”) shall thereafter review the Executive’s Base Salary annually to determine within its sole discretion whether and to what extent the Executive’s salary may be increased (for the purposes of this Agreement, the term “Base Salary” shall mean the amount established and adjusted from time to time pursuant to this Section 3).
4. ANNUAL INCENTIVE AWARDS.
(a) INCENTIVE BONUS. The Executive shall be entitled to receive an annual cash incentive bonus (the “Incentive Bonus”) for each calendar year, during the Term of this Agreement based on the level of accomplishment of management and performance objectives as established by the CEO, the Board or Compensation Committee. Except as otherwise provided in Section 7, if the Executive is not employed for the full calendar year, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus for the calendar year to which the Executive would have been entitled if the Executive had remained employed for the entire calendar year and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the last day of his employment and the denominator of which is the 365 days of the calendar year. The targeted Incentive Bonus for the Term is 30% to 90% of Base Salary. The Incentive
Bonus shall be paid as soon as reasonably practical following each calendar year but not later than December 31 st of such year.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the Executive shall be entitled to participate in all other short- and long-term incentive plans, stock and option plans, long term incentive partnership (“LTIP”) plans, practices, policies and other programs, and all savings and retirement plans, practices, polices and programs, in each case that are applicable generally to senior executives of the Company, as may be adopted, or amended from time to time, by the Company’s Compensation Committee.
5. BENEFITS.
(a) VACATION. The Executive will be entitled to four (4) weeks of paid vacation per calendar year. Vacation time not used within the calendar year will not carry forward. The Executive shall not be entitled to cash in lieu of any unused vacation time except as provided herein.
(b) SICK LEAVE. The Executive shall be entitled to paid sick leave in accordance with the sick leave policies of the Company in effect for other senior executive officers.
(c) EMPLOYEE BENEFITS. The Executive and his spouse and eligible dependents, if any, and their respective designated beneficiaries where applicable, will be eligible for and entitled to participate in other benefits maintained by the Company for its senior executive officers, as such benefits may be modified from time to time and for all such employees, such as, without limitation, any medical, dental, vision, pension, 401(k), accident, disability, and life insurance benefits, on a basis not less favorable than that applicable to other senior executives of the Company. The Executive will also be entitled to appropriate office space, administrative support, secretarial assistance, and such other facilities and services as are suitable to the Executive’s positions and adequate for the performance of the Executive’s duties.
(d) EXPENSES. The Executive will be entitled to reimbursement of all reasonable expenses, in accordance with the Company’s policy as in effect from time to time and on a basis not less favorable than that applicable to other senior executives of the Company, including, without limitation, telephone (including in-home office telephone and DSL costs), travel and entertainment expenses incurred by the Executive in connection with the business of the Company, promptly upon the presentation by the Executive of appropriate documentation.
(e) D&O INSURANCE COVERAGE. During and for a period three (3) years after the Term, the Executive shall be entitled to director and officer insurance coverage for his acts and omissions while an officer of the Company on a basis no less favorable to him than the coverage provided current officers or directors.
6. TERMINATION. The employment of the Executive by the Company and this Agreement (except as otherwise provided herein) shall terminate upon the occurrence of any of the following:
(a) DEATH OR DISABILITY. Immediately upon death or Disability of the Executive. As used in this Agreement, “Disability” shall mean an inability to perform the essential functions of his duties, with or without reasonable accommodation, for a period of 90 consecutive days or a total of 180 days, during




any 365-day period, in either case as a result of incapacity due to mental or physical illness which is determined to be total and permanent. A determination of Disability shall be made by a physician satisfactory to both the Executive (or his guardian) and the Company, provided that if the Executive and the Company do not agree on a physician, the Executive (or his guardian) and the Company shall each select a physician and these two together shall select a third physician, whose determination as to Disability shall be binding on all parties. The appointment of one or more individuals to carry out the offices or duties of the Executive during a period of the Executive’s inability to perform such duties and pending a determination of Disability shall not be considered a breach of this Agreement by the Company.
(b) FOR CAUSE. At the election of the Company, for Cause, immediately upon written notice by the Company to the Executive unless the Executive fully corrects the circumstances constituting Cause within the cure periods provided below, if applicable. For purposes of this Agreement, “Cause” for termination shall be deemed to exist solely in the event 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, a felony (exclusive of a conviction, plea of guilty or nolo contendere arising solely under a statutory provision imposing criminal liability upon the Executive on a PER SE basis due to the Company offices held by the Executive, so long as any act or omission of the Executive with respect to such matter was not taken or omitted in contravention of any applicable policy or directive of the CEO or the Board);
(ii) willful breach of duty of loyalty which is materially detrimental to the Company which is not cured to the reasonable satisfaction of the CEO or the Board within fifteen (15) days following written warning to the Executive from the CEO or the Board describing the alleged circumstances provided that if there is an inconsistency in directives given by the Board as compared to a directive from the CEO, the Board directives shall control;
(iii) willful failure to perform or adhere to explicitly stated duties or guidelines of employment or to follow the directives of the CEO which continues for fifteen (15) days after written warning to the Executive that it will be deemed a basis for a “For Cause” termination;
(iv) gross negligence or willful misconduct in the performance of the Executive’s duties (which is not cured by the Executive within 30 days after written warning from the CEO);
(v) the Executive’s willful commission of an act of dishonesty resulting in economic or financial injury to the Company or willful commission of fraud; or
(vi) the Executive’s chronic absence from work for reasons other than illness.
For purposes of this Section, no act, or failure to act, on the Executive’s part will be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without a reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, a directive of the CEO, or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.
(c) WITHOUT CAUSE OR GOOD REASON. At the election of the Company, without Cause, and at the election of the Executive, without Good Reason, in either case upon sixty (60) days’ prior written notice to the Executive or to the Company, as the case may be. Provided, however, that if the Executive gives notice, without Good Reason, the Company may waive all or a portion of the sixty (60) days’ written notice and accelerate the effective date of the termination.
(d) FOR GOOD REASON. At the election of the Executive, for Good Reason, which is not cured by the Company within thirty (30) days after written notice from the Executive to the Company setting forth a description of the circumstances constituting Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the following actions, omissions or events occurring without the Executive’s prior written consent:
(i) The assignment to the Executive of any duties, responsibilities, or reporting requirements inconsistent with his positions as Chief Legal Officer, Head of Transactions and Secretary of the Company, or any material diminishment, on a cumulative basis, of the Executive’s overall duties, responsibilities, or status;
(ii) a reduction by the Company in the Executive’s annual Base Salary;
(iii) the requirement by the Company that the principal place of business at which the Executive performs his duties be changed to a location outside the greater Dallas metropolitan area; or
(iv) any material breach by the Company of any provision of this Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 16(a) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific




termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (provided that the date specified shall not be more than thirty (30) days after the giving of the notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
(f) DATE OF TERMINATION. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice (provided that the date specified shall not be more than thirty (30) days after the giving of the notice), as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination or such later date specified in such notice, (iii) if the Executive’s employment is terminated by the Executive without Good Reason, the Date of Termination shall be the date on which the Executive notifies the Company of such termination or such later date specified in such notice, unless otherwise agreed by the Company and the
Executive, and (iv) if the Executive’s employment is terminated by reason of death or Disability or non-renewal of this Agreement, the Date of Termination shall be the date of death or Disability of the Executive or the Agreement’s non-renewal date, as the case may be.
7. EFFECTS OF TERMINATION.
(a) TERMINATION FOR DEATH OR DISABILITY; BY THE COMPANY WITHOUT CAUSE; OR NON-RENEWAL BY THE COMPANY. If the employment of the Executive should terminate by reason of (i) death of the Executive or Disability, (ii) termination by the Company for any reason (other than Cause), or (iii) the Company’s failure to renew this Agreement, then all compensation and benefits for the Executive shall be as follows:
(i) The Executive shall be paid, in a single lump sum payment within thirty (30) days after the Date of Termination, the aggregate amount of (A) the Executive’s earned but unpaid Base Salary through the Date of Termination, and any Incentive Bonus required to be paid to the Executive pursuant to Section 4(a) above for the prior calendar year to the extent not previously paid, and reimbursement of all expenses through the Date of Termination as required pursuant to Section 5(d) hereof (the “Accrued Obligations”), and (B) one (the “Severance Multiple”) times the sum of (x) the Base Salary in effect on the Termination Date plus (y) the average Incentive Bonus received by the Executive for the three complete calendar years (or such lesser number of calendar years as the Executive has been employed by the Company) immediately prior to the Termination Date (the “Severance Payment”).
(ii) At the time when incentive bonuses are paid to the Company’s other senior executives for the calendar year of the Company in which the Date of Termination occurs, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus to which the Executive would have been entitled if the Executive’s employment had not been terminated, and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the Date of Termination and the denominator of which is the 365 days of the calendar year (a “Pro-Rated Bonus”).
(iii) The Company will allow the Executive and his dependents, at the Company’s cost, to continue to participate for a period of eighteen (18) months following the Date of Termination in the Company’s medical, dental and vision plan in effect as of the Date of Termination. The Company’s payment of this medical coverage will be made monthly during this period of coverage. To the extent such medical benefits are taxable to the Executive, such benefits will not affect benefits to be provided in any other taxable year, and such amounts are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A) as “in-kind benefits”. In addition, the Company will reimburse the Executive for a period of eighteen (18) months following the Date of Termination for the cost of coverage for life insurance and long-term disability insurance, based upon the level of such benefits that were provided to the Executive under the Company’s life insurance and long-term disability plans in effect as of the Date of Termination, which reimbursements will be paid with seven (7) days after the Executive pays any applicable premium. (The amount of any such reimbursements may not affect the expenses eligible for reimbursement in any other year. Such reimbursements are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).) (Collectively, these welfare benefits under (iii) are referred to as the “Other Benefits”). If the Executive engages in regular employment after his termination of employment with any organization, any employee welfare benefits received by the Executive in consideration of such employment which are similar
in nature to the Other Benefits provided by the Company will relieve the Company of its obligation under this Section 7(a)(iii) to provide comparable benefits to the extent of the benefits so received, and such benefit hereunder shall be forfeited.




(iv) Any annual performance shares, restricted shares, LTIP units or options awarded under Section 4(b) hereof shall immediately vest. Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(a), all outstanding stock options, restricted stock and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(b) TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the event that the Executive’s employment is terminated by the Executive with Good Reason, the Company will pay the Executive the same Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i) (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be two (2). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(c) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. If the Executive’s employment is terminated by the Executive without Good Reason including a resignation by the Executive without Good Reason and including an election not to renew this Agreement by the Executive, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive shall not be entitled to the Severance Payment, Pro-rated Bonus and accelerated vesting set forth in Sections 7(a)(i), (ii) and (iv) hereof; provided, however, the Company shall allow the Executive and his dependents, at the Company’s cost, during the Non-Compete Period (hereinafter defined), to continue to participate in the Company’s Other Benefits in effect as of the Date of Termination as provided and paid in the manner set forth in Section 7(a)(iii), but only through the expiration of the Non-Compete Period. If the Executive engages in regular employment after his Date of Termination with any organization, any employee welfare benefits received by the Executive in consideration of such employment which are similar in nature to the Other Benefits provided by the Company will relieve the Company of its obligation under this Section 7(c) to provide comparable benefits to the extent of the benefits so received, and such benefit hereunder shall be forfeited. In addition, in consideration for the Executive’s agreement for honoring the non-compete covenant in Section 10(a) hereof for the Non-Compete Period as a result of a termination of this Agreement under this Section 7(c), the Company shall pay the Executive a non-compete payment (the “ Non-Compete Payment ”) equal to the Severance Payment determined with a Severance Multiple equal to one (1). The Non-Compete Payment shall be paid monthly over the one-year Non-Compete Period following the Date of Termination in equal monthly installments of one-twelfth (1/12 th ) of the Non-Compete Payment.
(d) TERMINATION BY THE COMPANY FOR CAUSE. If the Executive’s employment is terminated by the Company for Cause, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive shall not be entitled to the Severance Payment, Pro-Rated Bonus, the Other Benefits and accelerated vesting set forth in Sections 7(a)(i), (ii), (iii) and (iv) hereof.
(e) TERMINATION OF AUTHORITY. Immediately upon the Date of Termination or upon the expiration of this Agreement, notwithstanding anything else to the contrary contained herein or otherwise, the Executive will stop serving the functions of his terminated or expired positions, and shall be without any of the authority or responsibility for such positions.
(f) RELEASE OF CLAIMS. As a condition of Executive’s entitlement to the Severance Payment, Pro-Rated Bonus, Non-Compete Payment and Other Benefits provided by this Agreement, the Executive shall be required to execute the terms of a waiver and release of claims against the Company substantially in the form attached hereto as Exhibit “A” (as may be modified consistent with the purposes of such waiver and release to reflect changes in law following the date hereof) (the “Release”) within the applicable time period provided in the Release (the “Applicable Release Period”); and shall forfeit all payments hereunder if it is not so timely executed; provided, however, that in any case where the first and last days of the Applicable Release Period are in two separate taxable years, any payments required to be made to Executive that are treated as deferred compensation for purposes of Code Section 409A shall be made in the later taxable year, promptly following the conclusion of the Applicable Release Period.
(g) CODE SECTION 409A AND TERMINATION PAYMENTS.  All payments provided under this Agreement shall be subject to this Section 7(g). Notwithstanding anything herein to the contrary, to the extent that the Board reasonably determines, in its sole discretion, that any payment or benefit to be provided under this Agreement to or for the benefit of Executive would be subject to the additional tax imposed under Section 409A(a)(1)(B) of the Code or a successor or comparable provision, the commencement of such payments and/or benefits shall be delayed until the earlier of (i) the date that is six months following the Date of Termination or (ii) the date of Executive’s death (such date is referred to herein as the “Distribution Date”), provided, if at such time Executive is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)) and if amounts payable under this Agreement are on account of an “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(m)), Executive shall receive payments during the six-month




period immediately following the Date of Termination equal to the lesser of (x) the amount payable under this Agreement, as the case may be, or (y) two times the compensation limit in effect under Code Section 401(a)(17) for the calendar year in which the Termination Date occurs (with any amounts that otherwise would have been payable under this Agreement during such six-month period being paid on the first regular payroll date following the six-month anniversary of the Date of Termination).   In the event that the Board determines that the commencement of any of the employee benefits to be provided under this Agreement are to be delayed pursuant to the preceding sentence, the Company shall require Executive to bear the full cost of such employee benefits until the Distribution Date at which time the Company shall reimburse Executive for all such costs. Finally, for the purposes of this Agreement, amounts payable under this Agreement shall be deemed not to be a “deferral of compensation” subject to Section 409A to the extent provided in the exceptions in Treasury Regulation Sections 1.409A-1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exception under subparagraph (iii)) and other applicable provisions of Treasury Regulation Section 1.409A-1 through A-6.
8. CHANGE OF CONTROL.
(a) CHANGE OF CONTROL. For purposes of this Agreement, a “Change of Control” will be deemed to have taken place upon the occurrence of any of the following events:
(i) any “person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as modified in Section 12(d) and 14(d) of the Exchange Act) other than (A) the Company or any of its subsidiaries, (B) any employee benefit plan of the Company or any of its subsidiaries, (C) any Remington Affiliate, (D) a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, or (E) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the shares of voting stock of the Company then outstanding;
(ii) the consummation of any merger, reorganization, business combination or consolidation of the Company or one of its subsidiaries with or into any other company, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than 50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(iii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets; or the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(iv) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election to the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board.
(b) CERTAIN BENEFITS UPON A CHANGE OF CONTROL. If a Change of Control occurs during the Term and the Executive’s employment is terminated by the Company without Cause or by the Executive for any reason on or before the one (1) year anniversary of the effective date of the Change of Control, then the Executive shall be entitled to the Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i), (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be two (2). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 8(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full. All
payments under this Section 8(b) are subject to the restrictions set forth in Section 7(g) and may be delayed as set forth in Section 7(g)in order to satisfy the requirements of Section 409A of the Internal Revenue Code.
(c) EXCISE TAX.
(i) In the event that any payment or benefit received or to be received by the Executive in connection with a Change of Control or the termination of the Executive’s employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change of Control or any person affiliated




with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) will be subject (in whole or part) to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), then, subject to the provisions of Section 8(c)(ii) hereof, the Company will pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 8(c)(i), will be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on such date, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(ii) In the event that, after giving effect to any redeterminations described in Section 8(c)(iv) hereof, a reduction in the Total Payments to the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) would produce a net amount (after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) that would be greater than the net amount of unreduced Total Payments (after deduction of the net amount of federal, state and local income tax and the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments), then Section 8(c)(i) hereof will not apply and the Total Payments will be so reduced.
(iii) The determination of whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax will be made by the Company’s independent auditors. The Company will provide the Executive with its calculation of the amounts referred to in this Section 8(c) and such supporting materials as are reasonably necessary for the Executive to evaluate the Company’s calculations. If the Executive disputes the Company’s calculations (in whole or in part), the reasonable opinion of the Company’s independent auditors with respect to the matter in dispute will prevail.
(iv) In the event that (A) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of payment of the Total Payments and (B) after giving effect to such redetermination, the Total Payments are reduced pursuant to Section 8(c)(ii) hereof, the Executive will repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in the Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that (X) the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment) and (Y) after giving effect to such redetermination, the Total Payments are not reduced pursuant to Section 8(c)(ii) hereof, the Company will make an additional Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which the Company had not previously made a Gross-Up Payment (plus any additional taxes payable by the Executive with respect to such excess and such portion) at the time that the amount of such excess is finally determined. The Company shall also reimburse the Executive for any expenses (including interest and penalties) incurred in any such additional Gross-Up redetermination to the extent permitted under Section 409A. (All reimbursements of expenses incurred in connection with such additional Gross-Up redetermination shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such Gross-Up redetermination is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A)).
(v) The Executive shall notify the Company in writing of any claim that, if successful, would require the payment by the Company of a Gross-Up Payment or might entitle the Company to the refund of all or part of any previous Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is required to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney jointly selected by the Executive and the Company; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim. The Company shall reimburse the Executive for all costs and expenses (including legal fees and additional interest and penalties to the extent permitted under 409A) incurred in connection with such contest. All reimbursements of such expenses




shall be made within 30 days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
(vi) Without limitation on the foregoing, the Company shall control all audits and proceedings taken in connection with any claim, audit or proceeding involving Excise Taxes or Gross-Up Payments and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of any such claim, audit or proceeding and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the tax in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the Company directs the Executive to pay such
tax and sue for a refund, the Company shall reimburse the Executive within thirty (30) days after the Executive pays such taxes (including interest or penalties with respect thereto to the extent permitted under 409A). All reimbursements of such expenses shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A). The Company’s control of the contest shall be limited to issues with respect to which such a Gross-Up Payment would be payable or refundable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue.
(vii) To the extent that a Gross-Up Payment is determined to be payable pursuant to this Section 8(c), such payment must be made no later than the end of the taxable year immediate following the taxable year in which the taxes described above are remitted by the Executive to the taxing authority.
9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that the Executive has and will have access to confidential and proprietary information of the Company which constitute valuable, special, and unique assets of the Company. The term “Confidential Information” as used in this Agreement shall mean all proprietary information which is known only to the Executive, the Company, other employees of the Company, or others in a confidential relationship with the Company, and relating to the Company’s business (including, without limitation, information regarding clients, customers, pricing policies, methods of operation, proprietary company programs, sales, acquisitions, products, profits, costs, conditions (financial or other), cash flows, key personnel, formulae, product applications, technical processes, and trade secrets, as such information may exist from time to time, which the Executive acquired or obtained by virtue of work performed for the Company, or which the Executive may acquire or may have acquired knowledge of during the performance of said work.
The Executive acknowledges that the Company has put in place certain policies and practices to keep such Confidential Information secret, including disclosing the information only on a need-to-know basis. The Executive further acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know such Confidential Information. Finally, the Executive acknowledges that such Confidential Information, if revealed to or used for the benefit of the Company’s competitors or in a manner contrary to the Company’s interests, would cause extensive and immeasurable harm to the Company and to the Company’s competitive position.
The Executive shall not, during the Term or at any time thereafter, use for personal gain or detrimentally to the Company all or any part of the Confidential Information, or disclose or make available all or any part of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by the Executive of his confidentiality obligations hereunder. Notwithstanding the foregoing, Executive shall not be restricted from disclosing or using Confidential Information that: (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (ii) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not known by Executive, after reasonable investigation, to be bound by a confidential relationship with the Company or its affiliated entities or by a
confidentiality or other similar agreement; or (iii) is required to be disclosed by law, court order or other legal process: provided, however, that in the event disclosure is required by law, court order or legal process, Executive shall provide the Company, if legally permissible, with prompt notice of such requirement as set forth below in this Section 9.
The Executive acknowledges that the Confidential Information shall remain at all times the exclusive property of the Company, and no license is granted. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or the Executive, or within seven (7) business days of the Company’s request under any other




circumstances, the Executive shall deliver to the Company all Confidential Information, in any form whatsoever, including electronic formats, and shall not take with him any Confidential Information or any reproductions (in whole or in part) or extracts of any items relating to the Confidential Information. The Company acknowledges that prior to his employment with the Company, the Executive has lawfully acquired extensive knowledge of the industries in which the Company engages in business including, without limitation, markets, valuation methods and techniques, capital markets, investor relationships and similar items, and that the provisions of this Section 9 are not intended to restrict the Executive’s use of such previously acquired knowledge.
In the event that the Executive receives a request or is required (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose all or any part of the Confidential Information, the Executive agrees, if legally permissible, to (a) promptly notify the Company of the existence, terms and circumstances surrounding such request or requirement, (b) consult with the Company on the advisability of taking legally available steps to resist or narrow such request or requirement and (c) assist the Company in seeking a protective order or other appropriate remedy; provided, however, that the Executive shall not be required to take any action in violation of applicable laws. In the event that such protective order or other remedy is not obtained or that the Company waives compliance with the provisions hereof, the Executive shall not be liable for such disclosure unless disclosure to any such tribunal was caused by or resulted from a previous disclosure by the Executive not permitted by this Agreement.
10. NON-COMPETITION, NONSOLICITATION AND NON-INTERFERENCE.
(a) NON-COMPETITION. During the Term and any Non-Compete Period (hereinafter defined), the Executive will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder or partner engage in any “Competitive Business”; PROVIDED, HOWEVER, the foregoing shall not prohibit or limit the Executive’s right to pursue and maintain passive investments allowed pursuant to Section 1(c) hereof.
For purposes of this Section 10(a), “Competitive Business” means acquiring, investing in or with respect to, owning, leasing, managing or developing hotel properties in the United States or originating or acquiring loans in respect of hotel properties in the United States where the Executive has duties or performs services that are the same or similar to those services actually performed by the Executive for the Company.
For purposes of this Section 10(a), the “Non-Compete Period” shall mean:
(i) in the case of a termination of the Executive’s employment as a result of Disability, or a termination by the Executive without Good Reason (including, without limitation, a resignation by the
Executive without Good Reason), or an election by the Executive not to renew this Agreement, a period during the Term and ending one (1) year after the Date of Termination; and
(ii) in the case of a termination of the Executive’s employment for any other reason, including, without limitation, as a result of (a) a Change in Control, (b) a termination by the Executive for Good Reason, or (c) a termination by the Company for Cause or without Cause (including non-renewal by the Company), the Non-Compete Period shall expire on the Date of Termination.
The Executive acknowledges that the services provided by the Executive are of a special, unique, and extraordinary nature. The Executive further acknowledges that his work and experience with the Company will enhance his value to a Competitive Business, and that the nature of the Confidential Information to which the Executive has immediate access and will continue to have access during the course of his employment makes it difficult, if not impossible, for him to engage in any Competitive Business or work in any capacity similar to the Executive’s duties or services with the Company without disclosing or utilizing the Confidential Information. The Executive further acknowledges that his work and experience with the Company places him in a position of trust with the Company.
(b) NON-SOLICITATION. The Executive covenants and agrees that (i) during the Term, and (ii) during the period ending on the first anniversary of his Date of Termination, he shall not, without the prior written consent of the Company, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination, or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.
(c) NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees that during the Term and thereafter, Executive shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation,




partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
(d) REASONABLE RESTRAINTS. The Executive agrees that restraints imposed upon him pursuant to this Section are necessary for the reasonable and proper protection of the Company and its subsidiaries and affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The parties further agree that, in the event that any provision of this Section shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
11. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. Notwithstanding anything in this Agreement or any such plan, policy, practice or program noted above to the contrary, the timing of all payments pursuant to this Agreement or any such plan, policy, practice or program shall be subject to the timing rules specified in Section 7(g) of this Agreement. 
12. FULL SETTLEMENT. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred (within 30 days following the Company’s receipt of an invoice from the Executive), to the full extent permitted by law, all reasonable legal fees and expenses which the Executive or his beneficiaries may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive or his beneficiaries about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(a) of the Code to the extent permitted by 409A. The preceding sentence shall not apply with respect to any such contest if the court having jurisdiction over such contest determines that the Executive’s claim in such contest is frivolous or maintained in bad faith. This reimbursement obligation shall remain in effect following the Executive’s termination of employment for the applicable statute of limitations period relating to any such claim, and the amount of reimbursements hereunder during any tax year shall not affect the expenses eligible for reimbursement in any other tax year. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
13. DISPUTES.
(a) EQUITABLE RELIEF. The Executive acknowledges and agrees that upon any breach by the Executive of his obligations under Sections 9 or 10 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief.
(b) ARBITRATION. Excluding only requests for equitable relief by the Company under Section 13(a) of this Agreement, in the event that there is any claim or dispute arising out of or relating to this Agreement, or the breach thereof, and the parties hereto shall not have resolved such claim or dispute within 60 days after written notice from one party to the other setting forth the nature of such claim or dispute, then such claim or dispute shall be settled exclusively by binding arbitration in Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association by an arbitrator mutually agreed upon by the parties hereto or, in the absence of such agreement, by an arbitrator selected according to such Rules. Notwithstanding the foregoing, if either the Company or the Executive shall request, such arbitration shall be conducted by a panel of three arbitrators, one selected by the Company, one
selected by the Executive and the third selected by agreement of the first two, or, in the absence of such agreement, in accordance with such Rules. Neither party shall have the right to claim or recover punitive damages. Judgment upon the award rendered by such arbitrator(s) shall be entered in any Court having jurisdiction thereof upon the application of either party.
14. INDEMNIFICATION. The Company will indemnify the Executive, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by the Executive, including the cost of legal counsel selected and retained by the Executive in connection with any action, suit or proceeding to which the Executive may be made a party by reason of the Executive being or having been an officer, director, or employee of the Company or any subsidiary or affiliate of the Company.




15. COOPERATION IN FUTURE MATTERS. The Executive hereby agrees that, for a period of one (1) year following his termination of employment, he shall cooperate with the Company’s reasonable requests relating to matters that pertain to the Executive’s employment by the Company, including, without limitation, providing information or limited consultation as to such matters, participating in legal proceedings, investigations or audits on behalf of the Company, or otherwise making himself reasonably available to the Company for other related purposes. Any such cooperation shall be performed at times scheduled taking into consideration the Executive’s other commitments, including business and family matters, and the Executive shall be compensated at a reasonable hourly or PER DIEM rate to be agreed by the parties to the extent such cooperation is required on more than an occasional and limited basis. The Executive shall not be required to perform such cooperation to the extent it conflicts with any requirements of exclusivity of services for another employer or otherwise, nor in any manner that in the good faith belief of the Executive would conflict with his rights under or ability to enforce this Agreement.
16. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if sent by overnight courier or by certified mail, return receipt requested, postage prepaid or sent by written telecommunication or telecopy, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this Section 16(a).
 
 
 
If to the Company, to:
 
Ashford Hospitality Trust, Inc.
 
 
14185 Dallas Parkway, Suite 1150
 
 
Dallas, Texas 75254
 
 
Attn: Chairman of the Board of Directors
 
 
 
with a copy to:
 
Ashford Hospitality Trust, Inc.
 
 
14185 Dallas Parkway, Suite 1100
 
 
Dallas, Texas 75254
 
 
Attn: Chief Legal Officer
If to the Executive, at his last residence shown on the records of the Company,
 
 
 
 
 
with a copy to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Any such notice shall be effective (i) if delivered personally, when received, (ii) if sent by overnight courier, when receipted for, and (iii) if mailed, two (2) days after being mailed as described above.
(b) SEVERABILITY. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.
(c) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.
(d) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.
(e) ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company’s successors and the Executive’s personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. This Agreement shall not be assignable by the Executive, it being understood and agreed that this is a contract for the Executive’s personal services. This Agreement shall not be assignable by the Company except in connection with a transaction involving




the succession by a third party to all or substantially all of the Company’s business and/or assets (whether direct or indirect and whether by purchase, merger, consolidation, liquidation or otherwise), in which case such successor shall assume this Agreement and expressly agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets that executes and delivers the assumption agreement described in the immediately preceding sentence or that becomes bound by this Agreement by operation of law.
(f) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by the Executive and a duly authorized representative of the Board.
(g) GOVERNING LAW. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of law. Jurisdiction and venue shall be solely in the federal or state courts of Dallas County, Texas. This provision should not be read as a waiver of any right to removal to federal court in Dallas County.
(h) CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. The headings of sections of this Agreement are for convenience of reference only and shall not affect its meaning or construction.
(i) PAYMENTS AND EXERCISE OF RIGHTS AFTER DEATH. Any amounts due hereunder after the Executive’s death shall be paid to the Executive’s designated beneficiary or beneficiaries, whether received as a designated beneficiary or by will or the laws of descent and distribution. The Executive may designate a beneficiary or beneficiaries for all purposes of this Agreement, and may change at any time such designation, by notice to the Company making specific reference to this Agreement. If no designated beneficiary survives the Executive or the Executive fails to designate a beneficiary for purposes of this Agreement prior to his death, all amounts thereafter due hereunder shall be paid, as and when payable, to his spouse, if she survives the Executive, and otherwise to his estate.
(j) CONSULTATION WITH COUNSEL. The Executive acknowledges that he has had a full and complete opportunity to consult with counsel or other advisers of his own choosing concerning the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement.
(k) WITHHOLDING. Any payments provided for in this Agreement shall be paid net of any applicable tax withholding required under federal, state or local law.
(l) NON-DISPARAGEMENT. The Executive agrees that, during the Term and thereafter including following Executive’s termination of employment for any reason) he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. The Company agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) the Company will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may directly or indirectly, disparage Executive or his business or reputation. Notwithstanding the foregoing, nothing in this Agreement shall preclude either Executive or the Company from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
(m) CODE SECTION 409A. It is the intention of the parties to this Agreement that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code.  The Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company may unilaterally take any action it deems necessary or desirable to amend any provision herein to avoid the application of or excise tax under Section 409A.  Further, no effect shall be given to any provision herein in a manner that reasonably could be expected to give rise to adverse tax consequences under that provision. 
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed under seal as of the date first above written.




 
 
 
 
 
 
 
 
 
 
 
REIT:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
 
 
Name:
 
MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
 
 
Title:
 
President
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PARTNERSHIP:
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
 
 
 
 
 
 
 
 
 
 
 
By:
 
Ashford OP General Partner, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Name:
 
MONTGOMERY J. BENNETT
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Title:
 
President
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXECUTIVE:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
/s/ DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 




EXHIBIT “A”
RELEASE AND WAIVER
THIS RELEASE AND WAIVER (the “Termination Release”) is made as of the 21 day of March, 2008 by DAVID BROOKS (the “Executive”).
WHEREAS, the Executive, Ashford Hospitality Trust, Inc. (the “REIT”), and Ashford Hospitality Limited Partnership (the “Operating Partnership”) have entered into an Employment Agreement (the “Agreement”) dated as of March 21, 2008, effective as of January 1, 2008 and providing certain compensation and severance amounts upon the Executive’s termination of employment; and
WHEREAS, the Executive has agreed, pursuant to the terms of the Agreement, to execute a release and waiver in the form set forth in this Termination Release in consideration of the REIT and the Operating Partnership (collectively, the “Company”) agreement to provide the compensation and severance amounts upon the Executive’s termination of employment set out in the Agreement; and
WHEREAS, the Company and the Executive desire to settle all rights, duties and obligations between them, including without limitation all such rights, duties, and obligations arising under the Agreement or otherwise out of the Executive’s employment by the Company;
NOW THEREFORE, intending to be legally bound and for good and valid consideration the sufficiency of which is hereby acknowledged, the Executive agrees as follows:
1. RELEASE.
(a) The Executive knowingly and voluntarily releases, acquits, covenants not to sue and forever discharges the Company, and its respective owners, parents, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, divisions and subsidiaries (collectively, the “Releasees”) from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, damages, causes of action, suits, rights, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, against them which the Executive or any of his heirs, executors, administrators, successors and assigns ever had, now has or at any time hereafter may have, own or hold by reason of any matter, fact, or cause whatsoever from the beginning of time up to and including the date of this Termination Release, including without limitation all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, Texas Labor Code Section 21.001, et seq. (Texas Employment Discrimination); Texas Labor Code Section 61.001, et seq. (Texas Pay Day Act); Texas Labor Code Section 62.002, et seq. (Texas Minimum Wage Act); Texas Labor Code Section 201.001, et seq. (Texas Unemployment Compensation Act); Texas Labor Code Section 401.001, et seq., specifically Section 451.001 formerly codified as Article 8307c of the Revised Civil Statutes (Texas Workers’ Compensation Act and Discrimination Issues); and Texas Genetic Information and Testing Law, each as amended, or any other federal, state or local laws, rules, regulations, judicial decisions or public policies now or hereafter recognized.
(b) The Executive represents that he has not filed or permitted to be filed against any of the Releasees, any complaints, charges or lawsuits and covenants and agrees that he will not seek or be entitled to any personal recovery in any court or before any governmental agency, arbitrator or self-regulatory body against any of the Releasees arising out of any matters set forth in Section 1(a) hereof. Nothing herein shall prevent the Executive from seeking to enforce his rights under the Agreement. The Executive does not hereby waive or release his rights to any benefits under the Company’s employee benefit plans to which he is or will be entitled pursuant to the terms of such plans in the ordinary course.
2. NON-DISPARAGEMENT. The Executive covenants and agrees he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing herein or in the Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
3. NON-SOLICITATION. The Executive covenants and agrees he shall not, without the prior written consent of the Company, for a period ending one (1) year from the Date of Termination (as defined in the Agreement), directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination (as defined in the Agreement), or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.




4. NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees he shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
5. ACKNOWLEDGMENT. The Company has advised the Executive to consult with an attorney of his choosing prior to signing this Termination Release and the Executive hereby represents to the Company that he has been offered an opportunity to consult with an attorney prior to signing this Termination Release. The Company has also advised the Executive that Executive has up to twenty-one days to consider and sign the Release and Waiver and up to seven days after signing in which to revoke acceptance by giving notice to                                  at                                           by personal delivery or by mail postmarked no later than the seventh day after the Executive signs the Release and Waiver.
IN WITNESS WHEREOF, the Executive has executed this Termination Release under seal as of the day and year first above written.
 
 
 
 
 
 
 
/s/ DAVID A. BROOKS
 
 
 
 
 
DAVID A. BROOKS
 
 





Exhibit 10.5.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), dated as of March 21, 2008, effective as of January 1, 2008 (the “Effective Date”), is between ASHFORD HOSPITALITY TRUST, INC., a corporation organized under the laws of the State of Maryland and having its principal place of business at Dallas, Texas (hereinafter, the “REIT”), ASHFORD HOSPITALITY LIMITED PARTNERSHIP, a limited partnership organized under the laws of the State of Delaware and having its principal place of business at Dallas, Texas (the “Operating Partnership”), and DAVID KIMICHIK, an individual residing in Dallas, Texas (the “Executive”).
RECITALS:
A. The REIT and the Operating Partnership (collectively, the “Company”) desire to employ the Executive in the capacities and on the terms and conditions set out below; and
B. The Executive and the Company have previously entered into an employment agreement dated as of August 29, 2003, as amended on March 29, 2006, but effective as of January 1, 2006 (collectively, the “Previous Agreement”); and
C. The Company and the Executive desire to amend and restate the Previous Agreement in order to make changes to comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), as well as certain other changes.
NOW, THEREFORE, the Company and the Executive, in consideration of the respective covenants set out below, hereby agree as follows:
1. EMPLOYMENT.
(a) POSITIONS. During the Term (defined below), the Executive shall be employed by the Company as Chief Financial Officer and Treasurer. At the Company’s request, the Executive shall serve the Company’s subsidiaries and affiliates in other offices and capacities in addition to the foregoing. If the Executive, during the Term, serves in any one or more of such additional capacities, the Executive’s compensation shall not be increased beyond that provided in Sections 3, 4 or 5 below. Further, if the Executive’s service in one or more of such additional capacities is terminated, the Executive’s compensation provided herein shall not be reduced for so long as the Executive otherwise remains employed by the Company under the terms of this Agreement.
(b) RESPONSIBILITIES. The Executive’s principal employment duties and responsibilities shall be those duties and responsibilities customary for the positions of Chief Financial Officer and Treasurer and such other executive duties and responsibilities as the Chief Executive Officer of the Company (“CEO”) or Board of Directors of the REIT (the “Board”) shall from time to time reasonably assign to the Executive. The Executive shall report directly to the CEO or such person(s) as the CEO may designate from time to time.
(c) EXTENT OF SERVICES. Except for illnesses and vacation periods, the Executive shall devote substantially all of his working time and attention and his best efforts to the performance of his duties and responsibilities under this Agreement and shall not be otherwise employed. However, the Executive may
(so long as the following do not materially interfere with the performance of the Executive’s duties hereunder) (i) make any passive investments (including, without limitation, continuing existing investments with Remington Hotel Corporation or its affiliates) where he is not obligated or required to, and shall not in fact, devote material managerial efforts, (ii) participate in charitable, academic or community activities or in trade or professional organizations, (iii) hold directorships in charitable or non-profit organizations, or (iv) subject to CEO and Board approval (which approval shall not be unreasonably withheld or withdrawn), hold directorships in for profit companies, except only that the CEO or the Board shall have the right to limit such services as a director or such participation whenever the CEO or the Board shall reasonably believe that the time spent on such activities infringes in any material respect upon the time required by the Executive for the performance of his duties under this Agreement or is otherwise incompatible with those duties.
2. TERM. This Agreement shall become effective as of January 1, 2008 (the “Effective Date”) and shall continue for a Term ending on December 31, 2008 (the “Initial Termination Date”) unless it is sooner terminated pursuant to Section 6; provided, however, that this Agreement shall be automatically extended for one additional year on the Initial Termination Date and on each subsequent anniversary of the Initial Termination Date, unless either the Company or the Executive elect not to extend the Term of this Agreement by notifying the other party in writing of such election not less than one hundred twenty (120) days prior to the expiration of the then current Term. For purposes of this Agreement, “Term” shall mean the actual duration of the Executive’s employment hereunder, taking into account any extension pursuant to this Section 2 or early termination of employment pursuant to Section 6.




3. SALARY. The Company shall pay the Executive a Base Salary which shall be payable in periodic installments, less statutory deductions and withholdings, according to the Company’s normal payroll practices. Commencing as of the Effective Date, the Executive’s base salary shall be THREE HUNDRED SEVENTY FIVE THOUSAND DOLLARS ($375,000) per year. In addition, the Company shall pay the Executive a one-time payment of THIRTEEN THOUSAND FOUR HUNDRED SIXTY EIGHT DOLLARS ($13,468.00), less statutory deductions and withholdings, on or about March 21, 2008. The Board or a Compensation Committee duly appointed by the Board (the “Compensation Committee”) shall thereafter review the Executive’s Base Salary annually to determine within its sole discretion whether and to what extent the Executive’s salary may be increased (for the purposes of this Agreement, the term “Base Salary” shall mean the amount established and adjusted from time to time pursuant to this Section 3).
4. ANNUAL INCENTIVE AWARDS.
(a) INCENTIVE BONUS. The Executive shall be entitled to receive an annual cash incentive bonus (the “Incentive Bonus”) for each calendar year during the Term of this Agreement based on the level of accomplishment of management and performance objectives as established by the CEO, the Board or Compensation Committee. Except as otherwise provided in Section 7, if the Executive is not employed for the full calendar year, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus for the calendar year to which the Executive would have been entitled if the Executive had remained employed for the entire calendar year and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the last day of his employment and the denominator of which is the 365 days of the calendar year. The targeted Incentive Bonus for the Term is 30% to 90% of Base Salary. The Incentive Bonus shall be paid as soon as reasonably practical following each calendar year but not later than December 31 st of such year.
(b) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the Executive shall be entitled to participate in all other short- and long-term incentive plans, stock and option plans, long term incentive partnership (“LTIP”) plans, practices, policies and other programs, and all savings and retirement plans, practices, polices and programs, in each case that are applicable generally to senior executives of the Company, as may be adopted, or amended from time to time, by the Company’s Compensation Committee.
5. BENEFITS.
(a) VACATION. The Executive will be entitled to four (4) weeks of paid vacation per calendar year. Vacation time not used within the calendar year will not carry forward. The Executive shall not be entitled to cash in lieu of any unused vacation time except as provided herein.
(b) SICK LEAVE. The Executive shall be entitled to paid sick leave in accordance with the sick leave policies of the Company in effect for other senior executive officers.
(c) EMPLOYEE BENEFITS. The Executive and his spouse and eligible dependents, if any, and their respective designated beneficiaries where applicable, will be eligible for and entitled to participate in other benefits maintained by the Company for its senior executive officers, as such benefits may be modified from time to time and for all such employees, such as, without limitation, any medical, dental, vision, pension, 401(k), accident, disability, and life insurance benefits, on a basis not less favorable than that applicable to other senior executives of the Company. The Executive will also be entitled to appropriate office space, administrative support, secretarial assistance, and such other facilities and services as are suitable to the Executive’s positions and adequate for the performance of the Executive’s duties.
(d) EXPENSES. The Executive will be entitled to reimbursement of all reasonable expenses, in accordance with the Company’s policy as in effect from time to time and on a basis not less favorable than that applicable to other senior executives of the Company, including, without limitation, telephone (including in-home office telephone and DSL costs), travel and entertainment expenses incurred by the Executive in connection with the business of the Company, promptly upon the presentation by the Executive of appropriate documentation.
(e) D&O INSURANCE COVERAGE. During and for a period three (3) years after the Term, the Executive shall be entitled to director and officer insurance coverage for his acts and omissions while an officer of the Company on a basis no less favorable to him than the coverage provided current officers or directors.
6. TERMINATION. The employment of the Executive by the Company and this Agreement (except as otherwise provided herein) shall terminate upon the occurrence of any of the following:
(a) DEATH OR DISABILITY. Immediately upon death or Disability of the Executive. As used in this Agreement, “Disability” shall mean an inability to perform the essential functions of his duties, with or without reasonable accommodation, for a period of 90 consecutive days or a total of 180 days, during any 365-day period, in either case as a result of incapacity due to mental or physical illness which is




determined to be total and permanent. A determination of Disability shall be made by a physician satisfactory to both the Executive (or his guardian) and the Company, provided that if the Executive and the Company do not agree on a physician, the Executive (or his guardian) and the Company shall each select a physician and these two together shall select a third physician, whose determination as to Disability shall be binding on all parties. The appointment of one or more individuals to carry out the offices or duties of the Executive during a period of the Executive’s inability to perform such duties and pending a determination of Disability shall not be considered a breach of this Agreement by the Company.
(b) FOR CAUSE. At the election of the Company, for Cause, immediately upon written notice by the Company to the Executive unless the Executive fully corrects the circumstances constituting Cause within the cure periods provided below, if applicable. For purposes of this Agreement, “Cause” for termination shall be deemed to exist solely in the event 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, a felony (exclusive of a conviction, plea of guilty or nolo contendere arising solely under a statutory provision imposing criminal liability upon the Executive on a PER SE basis due to the Company offices held by the Executive, so long as any act or omission of the Executive with respect to such matter was not taken or omitted in contravention of any applicable policy or directive of the CEO or the Board);
(ii) willful breach of duty of loyalty which is materially detrimental to the Company which is not cured to the reasonable satisfaction of the CEO or the Board within fifteen (15) days following written warning to the Executive from the CEO or the Board describing the alleged circumstances provided that if there is an inconsistency in directives given by the Board as compared to a directive from the CEO, the Board directives shall control;
(iii) willful failure to perform or adhere to explicitly stated duties or guidelines of employment or to follow the directives of the CEO which continues for fifteen (15) days after written warning to the Executive that it will be deemed a basis for a “For Cause” termination;
(iv) gross negligence or willful misconduct in the performance of the Executive’s duties (which is not cured by the Executive within 30 days after written warning from the CEO);
(v) the Executive’s willful commission of an act of dishonesty resulting in economic or financial injury to the Company or willful commission of fraud; or
(vi) the Executive’s chronic absence from work for reasons other than illness.
For purposes of this Section, no act, or failure to act, on the Executive’s part will be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without a reasonable belief that the Executive’s act, or failure to act, was in the best interest of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board, a directive of the CEO, or based upon the advise of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company.
(c) WITHOUT CAUSE OR GOOD REASON. At the election of the Company, without Cause, and at the election of the Executive, without Good Reason, in either case upon sixty (60) days’ prior
written notice to the Executive or to the Company, as the case may be. Provided, however, that if the Executive gives notice, without Good Reason, the Company may waive all or a portion of the sixty (60) days’ written notice and accelerate the effective date of the termination.
(d) FOR GOOD REASON. At the election of the Executive, for Good Reason, which is not cured by the Company within thirty (30) days after written notice from the Executive to the Company setting forth a description of the circumstances constituting Good Reason. For purposes of this Agreement, “Good Reason” shall mean any of the following actions, omissions or events occurring without the Executive’s prior written consent:
(i) The assignment to the Executive of any duties, responsibilities, or reporting requirements inconsistent with his positions as Chief Financial Officer and Treasurer of the Company, or any material diminishment, on a cumulative basis, of the Executive’s overall duties, responsibilities, or status;
(ii) a reduction by the Company in the Executive’s annual Base Salary;
(iii) the requirement by the Company that the principal place of business at which the Executive performs his duties be changed to a location outside the greater Dallas metropolitan area; or
(iv) any material breach by the Company of any provision of this Agreement.
(e) NOTICE OF TERMINATION. Any termination by the Company for Cause, or by the Executive for Good Reason, shall be communicated by Notice of Termination to the other parties hereto given in accordance with Section 16(a) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a written notice which (i) indicates the specific




termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated, and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (provided that the date specified shall not be more than thirty (30) days after the giving of the notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
(f) DATE OF TERMINATION. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified in the notice (provided that the date specified shall not be more than thirty (30) days after the giving of the notice), as the case may be, (ii) if the Executive’s employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination or such later date specified in such notice, (iii) if the Executive’s employment is terminated by the Executive without Good Reason, the Date of Termination shall be the date on which the Executive notifies the Company of such termination or such later date specified in such notice, unless otherwise agreed by the Company and the
Executive, and (iv) if the Executive’s employment is terminated by reason of death or Disability or non-renewal of this Agreement, the Date of Termination shall be the date of death or Disability of the Executive or the Agreement’s non-renewal date, as the case may be.
7. EFFECTS OF TERMINATION.
(a) TERMINATION FOR DEATH OR DISABILITY; BY THE COMPANY WITHOUT CAUSE; OR NON-RENEWAL BY THE COMPANY. If the employment of the Executive should terminate by reason of (i) death of the Executive or Disability, (ii) termination by the Company for any reason (other than Cause) , or (iii) the Company’s failure to renew this Agreement, then all compensation and benefits for the Executive shall be as follows:
(i) The Executive shall be paid, in a single lump sum payment within thirty (30) days after the Date of Termination, the aggregate amount of (A) the Executive’s earned but unpaid Base Salary through the Date of Termination, and any Incentive Bonus required to be paid to the Executive pursuant to Section 4(a) above for the prior calendar year to the extent not previously paid, and reimbursement of all expenses through the Date of Termination as required pursuant to Section 5(d) hereof (the “Accrued Obligations”), and (B) one (the “Severance Multiple”) times the sum of (x) the Base Salary in effect on the Termination Date plus (y) the average Incentive Bonus received by the Executive for the three complete calendar years (or such lesser number of calendar years as the Executive has been employed by the Company) immediately prior to the Termination Date (the “Severance Payment”).
(ii) At the time when incentive bonuses are paid to the Company’s other senior executives for the calendar year of the Company in which the Date of Termination occurs, the Executive shall be paid a pro-rated Incentive Bonus in an amount equal to the product of (x) the amount of the Incentive Bonus to which the Executive would have been entitled if the Executive’s employment had not been terminated, and (y) a fraction, the numerator of which is the number of days in the applicable calendar year for which the Executive was employed through the Date of Termination and the denominator of which is the 365 days of the calendar year (a “Pro-Rated Bonus”).
(iii) The Company will allow the Executive and his dependents, at the Company’s cost, to continue to participate for a period of eighteen (18) months following the Date of Termination in the Company’s medical, dental and vision plan in effect as of the Date of Termination. The Company’s payment of this medical coverage will be made monthly during this period of coverage. To the extent such medical benefits are taxable to the Executive, such benefits will not affect benefits to be provided in any other taxable year, and such amounts are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A) as “in-kind benefits”. In addition, the Company will reimburse the Executive for a period of eighteen (18) months following the Date of Termination for the cost of coverage for life insurance and long-term disability insurance, based upon the level of such benefits that were provided to the Executive under the Company’s life insurance and long-term disability plans in effect as of the Date of Termination, which reimbursements will be paid with seven (7) days after the Executive pays any applicable premium. (The amount of any such reimbursements may not affect the expenses eligible for reimbursement in any other year. Such reimbursements are intended to meet the requirements of Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).) (Collectively, these welfare benefits under (iii) are referred to as the “Other Benefits”). If the Executive engages in regular employment after his termination of employment with any organization, any employee welfare benefits received by the Executive in consideration of such employment which are similar in nature to the Other Benefits provided by the Company will relieve the Company of its obligation under
this Section 7(a)(iii) to provide comparable benefits to the extent of the benefits so received, and such benefit hereunder shall be forfeited.




(iv) Any annual performance shares, restricted shares, LTIP units or options awarded under Section 4(b) hereof shall immediately vest. Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(a), all outstanding stock options, restricted stock and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(b) TERMINATION BY THE EXECUTIVE WITH GOOD REASON. In the event that the Executive’s employment is terminated by the Executive with Good Reason, the Company will pay the Executive the same Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i) (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be two (2). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 7(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full.
(c) TERMINATION BY EXECUTIVE WITHOUT GOOD REASON. If the Executive’s employment is terminated by the Executive without Good Reason including a resignation by the Executive without Good Reason, and including an election not to renew this Agreement by the Executive, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive shall not be entitled to the Severance Payment, Pro-rated Bonus and accelerated vesting set forth in Sections 7(a)(i), (ii) and (iv) hereof; provided, however, the Company shall allow the Executive and his dependents, at the Company’s cost, during the Non-Compete Period (hereinafter defined), to continue to participate in the Company’s Other Benefits in effect as of the Date of Termination as provided and paid in the manner set forth in Section 7(a)(iii), but only through the expiration of the Non-Compete Period. If the Executive engages in regular employment after his Date of Termination with any organization, any employee welfare benefits received by the Executive in consideration of such employment which are similar in nature to the Other Benefits provided by the Company will relieve the Company of its obligation under this Section 7(c) to provide comparable benefits to the extent of the benefits so received, and such benefit hereunder shall be forfeited. In addition, in consideration for the Executive’s agreement for honoring the non-compete covenant in Section 10(a) hereof for the Non-Compete Period as a result of a termination of this Agreement under this Section 7(c), the Company shall pay the Executive a non-compete payment (the “ Non-Compete Payment ”) equal to the Severance Payment determined with a Severance Multiple equal to one (1). The Non-Compete Payment shall be paid monthly over the one-year Non-Compete Period following the Date of Termination in equal monthly installments of one-twelfth (1/12 th ) of the Non-Compete Payment.
(d) TERMINATION BY THE COMPANY FOR CAUSE. If the Executive’s employment is terminated by the Company for Cause, the Company will pay the Executive the Accrued Obligations as provided in Section 7(a)(i) above but the Executive shall not be entitled to the Severance Payment, Pro-Rated Bonus, the Other Benefits and accelerated vesting set forth in Sections 7(a)(i), (ii), (iii) and (iv) hereof.
(e) TERMINATION OF AUTHORITY. Immediately upon the Date of Termination or upon the expiration of this Agreement, notwithstanding anything else to the contrary contained herein or otherwise, the Executive will stop serving the functions of his terminated or expired positions, and shall be without any of the authority or responsibility for such positions.
(f) RELEASE OF CLAIMS. As a condition of Executive’s entitlement to the Severance Payment, Pro-Rated Bonus, Non-Compete Payment and Other Benefits provided by this Agreement, the Executive shall be required to execute the terms of a waiver and release of claims against the Company substantially in the form attached hereto as Exhibit “A” (as may be modified consistent with the purposes of such waiver and release to reflect changes in law following the date hereof) (the “Release”) within the applicable time period provided in the Release (the “Applicable Release Period”); and shall forfeit all payments hereunder if it is not so timely executed; provided, however, that in any case where the first and last days of the Applicable Release Period are in two separate taxable years, any payments required to be made to Executive that are treated as deferred compensation for purposes of Code Section 409A shall be made in the later taxable year, promptly following the conclusion of the Applicable Release Period.
(g) CODE SECTION 409A AND TERMINATION PAYMENTS.  All payments provided under this Agreement shall be subject to this Section 7(g). Notwithstanding anything herein to the contrary, to the extent that the Board reasonably determines, in its sole discretion, that any payment or benefit to be provided under this Agreement to or for the benefit of Executive would be subject to the additional tax imposed under Section 409A(a)(1)(B) of the Code or a successor or comparable provision, the commencement of such payments and/or benefits shall be delayed until the earlier of (i) the date that is six months following the Date of Termination or (ii) the date of Executive’s death (such date is referred to herein as the “Distribution Date”), provided, if at such time Executive is a “specified employee” of the Company (as defined in Treasury Regulation Section 1.409A-1(i)) and if amounts payable under this Agreement are on account of an “involuntary separation from service” (as defined in Treasury Regulation Section 1.409A-1(m)), Executive shall receive payments during the six-month




period immediately following the Date of Termination equal to the lesser of (x) the amount payable under this Agreement, as the case may be, or (y) two times the compensation limit in effect under Code Section 401(a)(17) for the calendar year in which the Termination Date occurs (with any amounts that otherwise would have been payable under this Agreement during such six-month period being paid on the first regular payroll date following the six-month anniversary of the Date of Termination).   In the event that the Board determines that the commencement of any of the employee benefits to be provided under this Agreement are to be delayed pursuant to the preceding sentence, the Company shall require Executive to bear the full cost of such employee benefits until the Distribution Date at which time the Company shall reimburse Executive for all such costs. Finally, for the purposes of this Agreement, amounts payable under this Agreement shall be deemed not to be a “deferral of compensation” subject to Section 409A to the extent provided in the exceptions in Treasury Regulation Sections 1.409A-1(b)(4) (“short-term deferrals”) and (b)(9) (“separation pay plans,” including the exception under subparagraph (iii)) and other applicable provisions of Treasury Regulation Section 1.409A-1 through A-6. 
8. CHANGE OF CONTROL.
(a) CHANGE OF CONTROL. For purposes of this Agreement, a “Change of Control” will be deemed to have taken place upon the occurrence of any of the following events:
(i) any “person” (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as modified in Section 12(d) and 14(d) of the Exchange Act)
other than (A) the Company or any of its subsidiaries, (B) any employee benefit plan of the Company or any of its subsidiaries, (C) any Remington Affiliate, (D) a company owned, directly or indirectly, by stockholders of the Company in substantially the same proportions as their ownership of the Company, or (E) an underwriter temporarily holding securities pursuant to an offering of such securities, becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 30% or more of the shares of voting stock of the Company then outstanding;
(ii) the consummation of any merger, reorganization, business combination or consolidation of the Company or one of its subsidiaries with or into any other company, other than a merger, reorganization, business combination or consolidation which would result in the holders of the voting securities of the Company outstanding immediately prior thereto holding securities which represent immediately after such merger, reorganization, business combination or consolidation more than 50% of the combined voting power of the voting securities of the Company or the surviving company or the parent of such surviving company;
(iii) the consummation of the sale or disposition by the Company of all or substantially all of the Company’s assets, other than a sale or disposition if the holders of the voting securities of the Company outstanding immediately prior thereto hold securities immediately thereafter which represent more than 50% of the combined voting power of the voting securities of the acquiror, or parent of the acquiror, of such assets; or the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company; or
(iv) individuals who, as of the Effective Date, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date whose election to the Board was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an election contest with respect to the election or removal of directors or other solicitation of proxies or consents by or on behalf of a person other than the Board.
(b) CERTAIN BENEFITS UPON A CHANGE OF CONTROL. If a Change of Control occurs during the Term and the Executive’s employment is terminated by the Company without Cause or by the Executive for any reason on or before the one (1) year anniversary of the effective date of the Change of Control, then the Executive shall be entitled to the Accrued Obligations, Pro-Rated Bonus, Other Benefits and accelerated vesting, all as provided in Sections 7(a)(i), (ii), (iii) and (iv) above at the times as provided in such sections. In addition, the Executive shall be entitled to a Severance Payment determined and paid in accordance with Section 7(a)(i) above; PROVIDED, HOWEVER, the Severance Multiple shall be two (2). Without limiting the foregoing, it is agreed that if the Executive’s employment is terminated pursuant to this Section 8(b), all outstanding stock options, restricted stock, LTIP units and other equity awards granted to the Executive under any of the Company’s equity incentive plans (or awards substituted therefore covering the securities of a successor company) shall become immediately vested and exercisable in full. All payments under this Section 8(b) are subject to the restrictions set forth in Section 7(g) and may be delayed as set forth in Section 7(g) in order to satisfy the requirements of Section 409A of the Internal Revenue Code. 
(c) EXCISE TAX.
(i) In the event that any payment or benefit received or to be received by the Executive in connection with a Change of Control or the termination of the Executive’s employment (whether pursuant to the terms of this Agreement or any other




plan, arrangement or agreement with the Company, any person whose actions result in a Change of Control or any person affiliated with the Company or such person) (all such payments and benefits being hereinafter called “Total Payments”) will be subject (in whole or part) to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), then, subject to the provisions of Section 8(c)(ii) hereof, the Company will pay to the Executive an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Executive, after deduction of any Excise Tax on the Total Payments and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 8(c)(i), will be equal to the Total Payments. For purposes of determining the amount of the Gross-Up Payment, the Executive will be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of the Executive’s residence on such date, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(ii) In the event that, after giving effect to any redeterminations described in Section 8(c)(iv) hereof, a reduction in the Total Payments to the largest amount that would result in no portion of the Total Payments being subject to the Excise Tax (after taking into account any reduction in the Total Payments provided by reason of Section 280G of the Code in such other plan, arrangement or agreement) would produce a net amount (after deduction of the net amount of federal, state and local income tax on such reduced Total Payments) that would be greater than the net amount of unreduced Total Payments (after deduction of the net amount of federal, state and local income tax and the amount of Excise Tax to which the Executive would be subject in respect of such Total Payments), then Section 8(c)(i) hereof will not apply and the Total Payments will be so reduced.
(iii) The determination of whether any of the Total Payments will be subject to the Excise Tax and the amount of such Excise Tax will be made by the Company’s independent auditors. The Company will provide the Executive with its calculation of the amounts referred to in this Section 8(c) and such supporting materials as are reasonably necessary for the Executive to evaluate the Company’s calculations. If the Executive disputes the Company’s calculations (in whole or in part), the reasonable opinion of the Company’s independent auditors with respect to the matter in dispute will prevail.
(iv) In the event that (A) the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of payment of the Total Payments and (B) after giving effect to such redetermination, the Total Payments are reduced pursuant to Section 8(c)(ii) hereof, the Executive will repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus that portion of the Gross-Up Payment attributable to the Excise Tax and federal, state and local income tax imposed on the Gross-Up Payment being repaid by the Executive to the extent that such repayment results in a reduction in the Excise Tax and/or a federal, state or local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that (X) the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of the Executive’s employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment) and (Y) after giving effect to such redetermination, the Total Payments are not reduced pursuant to Section 8(c)(ii) hereof, the Company will make an additional
Gross-Up Payment in respect of such excess and in respect of any portion of the Excise Tax with respect to which the Company had not previously made a Gross-Up Payment (plus any additional taxes payable by the Executive with respect to such excess and such portion) at the time that the amount of such excess is finally determined. The Company shall also reimburse the Executive for any expenses (including interest and penalties) incurred in any such additional Gross-Up redetermination to the extent permitted under Section 409A. (All reimbursements of expenses incurred in connection with such additional Gross-Up redetermination shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such Gross-Up redetermination is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A)).
(v) The Executive shall notify the Company in writing of any claim that, if successful, would require the payment by the Company of a Gross-Up Payment or might entitle the Company to the refund of all or part of any previous Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is required to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) day period following the date on which he gives such notice to the Company. If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim; (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney jointly selected by the Executive and the Company; (iii) cooperate with the Company in good faith in order to effectively contest such claim; and (iv) permit the Company to participate in any proceedings relating to such claim. The Company shall reimburse the Executive for all costs and expenses (including legal fees and additional




interest and penalties to the extent permitted under 409A) incurred in connection with such contest. All reimbursements of such expenses shall be made within 30 days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
(vi) Without limitation on the foregoing, the Company shall control all audits and proceedings taken in connection with any claim, audit or proceeding involving Excise Taxes or Gross-Up Payments and, at its sole option, may pursue or forego any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of any such claim, audit or proceeding and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the tax in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; PROVIDED, HOWEVER, that if the Company directs the Executive to pay such tax and sue for a refund, the Company shall reimburse the Executive within thirty (30) days after the Executive pays such taxes (including interest or penalties with respect thereto to the extent permitted under 409A). All reimbursements of such expenses shall be made within thirty (30) days after the Executive incurs such expense, the amounts reimbursed in a tax year will not affect such expenses eligible for reimbursement in any other tax year, and such reimbursement period shall be effective so long as the applicable statute of limitations for such claim is open. Such reimbursements are intended to comply with Treasury Regulation
Section 1.409A-3(i)(1)(iv)(A). The Company’s control of the contest shall be limited to issues with respect to which such a Gross-Up Payment would be payable or refundable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue.
(vii) To the extent that a Gross-Up Payment is determined to be payable pursuant to this Section 8(c), such payment must be made no later than the end of the taxable year immediate following the taxable year in which the taxes described above are remitted by the Executive to the taxing authority.
9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges that the Executive has and will have access to confidential and proprietary information of the Company which constitute valuable, special, and unique assets of the Company. The term “Confidential Information” as used in this Agreement shall mean all proprietary information which is known only to the Executive, the Company, other employees of the Company, or others in a confidential relationship with the Company, and relating to the Company’s business (including, without limitation, information regarding clients, customers, pricing policies, methods of operation, proprietary company programs, sales, acquisitions, products, profits, costs, conditions (financial or other), cash flows, key personnel, formulae, product applications, technical processes, and trade secrets, as such information may exist from time to time, which the Executive acquired or obtained by virtue of work performed for the Company, or which the Executive may acquire or may have acquired knowledge of during the performance of said work.
The Executive acknowledges that the Company has put in place certain policies and practices to keep such Confidential Information secret, including disclosing the information only on a need-to-know basis. The Executive further acknowledges that the Confidential Information has been developed or acquired by the Company through the expenditure of substantial time, effort, and money and provides the Company with an advantage over competitors who do not know such Confidential Information. Finally, the Executive acknowledges that such Confidential Information, if revealed to or used for the benefit of the Company’s competitors or in a manner contrary to the Company’s interests, would cause extensive and immeasurable harm to the Company and to the Company’s competitive position.
The Executive shall not, during the Term or at any time thereafter, use for personal gain or detrimentally to the Company all or any part of the Confidential Information, or disclose or make available all or any part of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by the Executive of his confidentiality obligations hereunder. Notwithstanding the foregoing, Executive shall not be restricted from disclosing or using Confidential Information that: (i) is or becomes generally available to the public other than as a result of an unauthorized disclosure by Executive or his agent; (ii) becomes available to Executive in a manner that is not in contravention of applicable law from a source (other than the Company or its affiliated entities or one of its or their officers, employees, agents or representatives) that is not known by Executive, after reasonable investigation, to be bound by a confidential relationship with the Company or its affiliated entities or by a confidentiality or other similar agreement; or (iii) is required to be disclosed by law, court order or other legal process: provided, however, that in the event disclosure is required by law, court order or legal process, Executive shall provide the Company, if legally permissible, with prompt notice of such requirement as set forth below in this Section 9.
The Executive acknowledges that the Confidential Information shall remain at all times the exclusive property of the Company, and no license is granted. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Company or the Executive, or within seven (7) business days of the Company’s request under any other




circumstances, the Executive shall deliver to the Company all Confidential Information, in any form whatsoever, including electronic formats, and shall not take with him any Confidential Information or any reproductions (in whole or in part) or extracts of any items relating to the Confidential Information. The Company acknowledges that prior to his employment with the Company, the Executive has lawfully acquired extensive knowledge of the industries in which the Company engages in business including, without limitation, markets, valuation methods and techniques, capital markets, investor relationships and similar items, and that the provisions of this Section 9 are not intended to restrict the Executive’s use of such previously acquired knowledge.
In the event that the Executive receives a request or is required (by deposition, interrogatory, request for documents, subpoena, civil investigative demand or similar process) to disclose all or any part of the Confidential Information, the Executive agrees, if legally permissible, to (a) promptly notify the Company of the existence, terms and circumstances surrounding such request or requirement, (b) consult with the Company on the advisability of taking legally available steps to resist or narrow such request or requirement and (c) assist the Company in seeking a protective order or other appropriate remedy; provided, however, that the Executive shall not be required to take any action in violation of applicable laws. In the event that such protective order or other remedy is not obtained or that the Company waives compliance with the provisions hereof, the Executive shall not be liable for such disclosure unless disclosure to any such tribunal was caused by or resulted from a previous disclosure by the Executive not permitted by this Agreement.
10. NON-COMPETITION, NONSOLICITATION AND NON-INTERFERENCE.
(a) NON-COMPETITION. During the Term and any Non-Compete Period (hereinafter defined), the Executive will not, directly or indirectly, either as a principal, agent, employee, employer, stockholder or partner engage in any “Competitive Business”; PROVIDED, HOWEVER, the foregoing shall not prohibit or limit the Executive’s right to pursue and maintain passive investments allowed pursuant to Section 1(c) hereof.
For purposes of this Section 10(a), “Competitive Business” means acquiring, investing in or with respect to, owning, leasing, managing or developing hotel properties in the United States or originating or acquiring loans in respect of hotel properties in the United States where the Executive has duties or performs services that are the same or similar to those services actually performed by the Executive for the Company.
For purposes of this Section 10(a), the “Non-Compete Period” shall mean:
(i) in the case of a termination of the Executive’s employment as a result of Disability, or a termination by the Executive without Good Reason (including, without limitation, a resignation by the Executive without Good Reason), or an election by the Executive not to renew this Agreement, a period during the Term and ending one (1) year after the Date of Termination; and
(ii) in the case of a termination of the Executive’s employment for any other reason, including, without limitation, as a result of (a) a Change in Control, (b) a termination by the Executive for
Good Reason, or (c) a termination by the Company for Cause or without Cause (including non-renewal by the Company), the Non-Compete Period shall expire on the Date of Termination..
The Executive acknowledges that the services provided by the Executive are of a special, unique, and extraordinary nature. The Executive further acknowledges that his work and experience with the Company will enhance his value to a Competitive Business, and that the nature of the Confidential Information to which the Executive has immediate access and will continue to have access during the course of his employment makes it difficult, if not impossible, for him to engage in any Competitive Business or work in any capacity similar to the Executive’s duties or services with the Company without disclosing or utilizing the Confidential Information. The Executive further acknowledges that his work and experience with the Company places him in a position of trust with the Company.
(b) NON-SOLICITATION. The Executive covenants and agrees that (i) during the Term, and (ii) during the period ending on the first anniversary of his Date of Termination, he shall not, without the prior written consent of the Company, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination, or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.
(c) NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees that during the Term and thereafter, Executive shall not, directly or indirectly, whether for his own account or on behalf of any person,




firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
(d) REASONABLE RESTRAINTS. The Executive agrees that restraints imposed upon him pursuant to this Section are necessary for the reasonable and proper protection of the Company and its subsidiaries and affiliates, and that each and every one of the restraints is reasonable in respect to subject matter, length of time and geographic area. The parties further agree that, in the event that any provision of this Section shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law.
11. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Executive’s continuing or future participation in any plan, program, policy or practice provided by the Company and for which the Executive may qualify, nor shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement. Notwithstanding anything in this Agreement or any such plan, policy, practice or program noted above to the contrary, the timing of all payments pursuant to this Agreement or any such plan, policy, practice or program shall be subject to the timing rules specified in Section 7(g) of this Agreement.
12. FULL SETTLEMENT. The Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and except as expressly provided, such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred (within 30 days following the Company’s receipt of an invoice from the Executive), to the full extent permitted by law, all reasonable legal fees and expenses which the Executive or his beneficiaries may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive or his beneficiaries about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(a) of the Code to the extent permitted by 409A. The preceding sentence shall not apply with respect to any such contest if the court having jurisdiction over such contest determines that the Executive’s claim in such contest is frivolous or maintained in bad faith. This reimbursement obligation shall remain in effect following the Executive’s termination of employment for the applicable statute of limitations period relating to any such claim, and the amount of reimbursements hereunder during any tax year shall not affect the expenses eligible for reimbursement in any other tax year. Such reimbursements are intended to comply with Treasury Regulation Section 1.409A-3(i)(1)(iv)(A).
13. DISPUTES.
(a) EQUITABLE RELIEF. The Executive acknowledges and agrees that upon any breach by the Executive of his obligations under Sections 9 or 10 hereof, the Company will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief.
(b) ARBITRATION. Excluding only requests for equitable relief by the Company under Section 13(a) of this Agreement, in the event that there is any claim or dispute arising out of or relating to this Agreement, or the breach thereof, and the parties hereto shall not have resolved such claim or dispute within 60 days after written notice from one party to the other setting forth the nature of such claim or dispute, then such claim or dispute shall be settled exclusively by binding arbitration in Dallas, Texas in accordance with the Commercial Arbitration Rules of the American Arbitration Association by an arbitrator mutually agreed upon by the parties hereto or, in the absence of such agreement, by an arbitrator selected according to such Rules. Notwithstanding the foregoing, if either the Company or the Executive shall request, such arbitration shall be conducted by a panel of three arbitrators, one selected by the Company, one selected by the Executive and the third selected by agreement of the first two, or, in the absence of such agreement, in accordance with such Rules. Neither party shall have the right to claim or recover punitive damages. Judgment upon the award rendered by such arbitrator(s) shall be entered in any Court having jurisdiction thereof upon the application of either party.
14. INDEMNIFICATION. The Company will indemnify the Executive, to the maximum extent permitted by applicable law, against all costs, charges and expenses incurred or sustained by the Executive, including the cost of legal counsel selected and retained by the Executive in connection with any action, suit or proceeding to which the Executive may be made a party by reason of the Executive being or having been an officer, director, or employee of the Company or any subsidiary or affiliate of the Company.




15. COOPERATION IN FUTURE MATTERS. The Executive hereby agrees that, for a period of one (1) year following his termination of employment, he shall cooperate with the Company’s reasonable requests relating to matters that pertain to the Executive’s employment by the Company, including, without limitation, providing information or limited consultation as to such matters, participating in legal proceedings, investigations or audits on behalf of the Company, or otherwise making himself reasonably available to the Company for other related purposes. Any such cooperation shall be performed at times scheduled taking into consideration the Executive’s other commitments, including business and family matters, and the Executive shall be compensated at a reasonable hourly or PER DIEM rate to be agreed by the parties to the extent such cooperation is required on more than an occasional and limited basis. The Executive shall not be required to perform such cooperation to the extent it conflicts with any requirements of exclusivity of services for another employer or otherwise, nor in any manner that in the good faith belief of the Executive would conflict with his rights under or ability to enforce this Agreement.
16. GENERAL.
(a) NOTICES. All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if sent by overnight courier or by certified mail, return receipt requested, postage prepaid or sent by written telecommunication or telecopy, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this Section 16(a).
 
 
 
 
 
 
 
 
 
If to the Company, to:
 
Ashford Hospitality Trust, Inc.
 
 
 
 
 
 
14185 Dallas Parkway, Suite 1150
 
 
 
 
 
 
Dallas, Texas 75254
 
 
 
 
 
 
Attn: Chairman of the Board of Directors
 
 
 
 
 
 
 
 
 
 
 
with a copy to:
 
Ashford Hospitality Trust, Inc.
 
 
 
 
 
 
14185 Dallas Parkway, Suite 1100
 
 
 
 
 
 
Dallas, Texas 75254
 
 
 
 
 
 
Attn: Chief Legal Officer
 
 
 
 
 
 
 
 
 
 
 
If to the Executive, at his last residence shown on the records of the Company, with a copy to:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Any such notice shall be effective (i) if delivered personally, when received, (ii) if sent by overnight courier, when receipted for, and (iii) if mailed, two (2) days after being mailed as described above.
(b) SEVERABILITY. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.
(c) WAIVERS. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.
(d) COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.
(e) ASSIGNS. This Agreement shall be binding upon and inure to the benefit of the Company’s successors and the Executive’s personal or legal representatives, executors, administrators, heirs, distributees, devisees and legatees. This Agreement shall not be assignable by the Executive, it being understood and agreed that this is a contract for the Executive’s personal services. This Agreement shall not be assignable by the Company except in connection with a transaction involving the succession by a third party to all or substantially all of the Company’s business and/or assets (whether direct or indirect and




whether by purchase, merger, consolidation, liquidation or otherwise), in which case such successor shall assume this Agreement and expressly agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it in the absence of a succession. For all purposes under this Agreement, the term “Company” shall include any successor to the Company’s business and/or assets that executes and delivers the assumption agreement described in the immediately preceding sentence or that becomes bound by this Agreement by operation of law.
(f) ENTIRE AGREEMENT. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter hereof and may not be amended except by a written instrument hereafter signed by the Executive and a duly authorized representative of the Board.
(g) GOVERNING LAW. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Texas, without giving effect to principles of conflicts of law. Jurisdiction and venue shall be solely in the federal or state courts of Dallas County, Texas. This provision should not be read as a waiver of any right to removal to federal court in Dallas County.
(h) CONSTRUCTION. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction will be applied against any party. The headings of sections of this Agreement are for convenience of reference only and shall not affect its meaning or construction.
(i) PAYMENTS AND EXERCISE OF RIGHTS AFTER DEATH. Any amounts due hereunder after the Executive’s death shall be paid to the Executive’s designated beneficiary or beneficiaries, whether received as a designated beneficiary or by will or the laws of descent and distribution. The Executive may designate a beneficiary or beneficiaries for all purposes of this Agreement, and may change at
any time such designation, by notice to the Company making specific reference to this Agreement. If no designated beneficiary survives the Executive or the Executive fails to designate a beneficiary for purposes of this Agreement prior to his death, all amounts thereafter due hereunder shall be paid, as and when payable, to his spouse, if she survives the Executive, and otherwise to his estate.
(j) CONSULTATION WITH COUNSEL. The Executive acknowledges that he has had a full and complete opportunity to consult with counsel or other advisers of his own choosing concerning the terms, enforceability and implications of this Agreement, and that the Company has not made any representations or warranties to the Executive concerning the terms, enforceability and implications of this Agreement other than as are reflected in this Agreement.
(k) WITHHOLDING. Any payments provided for in this Agreement shall be paid net of any applicable tax withholding required under federal, state or local law.
(l) NON-DISPARAGEMENT. The Executive agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. The Company agrees that, during the Term and thereafter (including following Executive’s termination of employment for any reason) the Company will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may directly or indirectly, disparage Executive or his business or reputation. Notwithstanding the foregoing, nothing in this Agreement shall preclude either Executive or the Company from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
(m) CODE SECTION 409A. It is the intention of the parties to this Agreement that no payment or entitlement pursuant to this Agreement will give rise to any adverse tax consequences to the Executive under Section 409A of the Code.  The Agreement shall be interpreted to that end and, consistent with that objective and notwithstanding any provision herein to the contrary, the Company may unilaterally take any action it deems necessary or desirable to amend any provision herein to avoid the application of or excise tax under Section 409A.  Further, no effect shall be given to any provision herein in a manner that reasonably could be expected to give rise to adverse tax consequences under that provision. 

[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed under seal as of the date first above written.




 
 
 
 
 
 
 
 
 
 
 
REIT:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY TRUST, INC.
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
 
 
Title:
 
COO & General Counsel
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
OPERATING PARTNERSHIP:
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
 
 
 
 
 
 
 
 
 
 
 
By:
 
Ashford OP General Partner, LLC
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Name:
 
DAVID A. BROOKS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Title:
 
Vice President
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
EXECUTIVE:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
/s/ DAVID KIMICHIK
 
 
 
 
 
 
 
 
 
DAVID KIMICHIK
 
 
 
 
 
 
 
 
 
 
 
 
 
Dated:
 
March 21, 2008
 
 
 
 
 
 
 
 
 






EXHIBIT “A”
RELEASE AND WAIVER
THIS RELEASE AND WAIVER (the “Termination Release”) is made as of the 21 day of March, 2008 by DAVID KIMICHIK (the “Executive”).
WHEREAS, the Executive, Ashford Hospitality Trust, Inc. (the “REIT”), and Ashford Hospitality Limited Partnership (the “Operating Partnership”) have entered into an Employment Agreement (the “Agreement”) dated as of March 21, 2008, effective as of January 1, 2008 and providing certain compensation and severance amounts upon the Executive’s termination of employment; and
WHEREAS, the Executive has agreed, pursuant to the terms of the Agreement, to execute a release and waiver in the form set forth in this Termination Release in consideration of the REIT and the Operating Partnership (collectively, the “Company”) agreement to provide the compensation and severance amounts upon the Executive’s termination of employment set out in the Agreement; and
WHEREAS, the Company and the Executive desire to settle all rights, duties and obligations between them, including without limitation all such rights, duties, and obligations arising under the Agreement or otherwise out of the Executive’s employment by the Company;
NOW THEREFORE, intending to be legally bound and for good and valid consideration the sufficiency of which is hereby acknowledged, the Executive agrees as follows:
1. RELEASE.
(a) The Executive knowingly and voluntarily releases, acquits, covenants not to sue and forever discharges the Company, and its respective owners, parents, stockholders, predecessors, successors, assigns, agents, directors, officers, employees, representatives, divisions and subsidiaries (collectively, the “Releasees”) from any and all charges, complaints, claims, liabilities, obligations, promises, agreements, damages, causes of action, suits, rights, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, against them which the Executive or any of his heirs, executors, administrators, successors and assigns ever had, now has or at any time hereafter may have, own or hold by reason of any matter, fact, or cause whatsoever from the beginning of time up to and including the date of this Termination Release, including without limitation all claims arising under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Family and Medical Leave Act of 1993, the Employee Retirement Income Security Act of 1974, Texas Labor Code Section 21.001, et seq. (Texas Employment Discrimination); Texas Labor Code Section 61.001, et seq. (Texas Pay Day Act); Texas Labor Code Section 62.002, et seq. (Texas Minimum Wage Act); Texas Labor Code Section 201.001, et seq. (Texas Unemployment Compensation Act); Texas Labor Code Section 401.001, et seq., specifically Section 451.001 formerly codified as Article 8307c of the Revised Civil Statutes (Texas Workers’ Compensation Act and Discrimination Issues); and Texas Genetic Information and Testing Law, each as amended, or any other federal, state or local laws, rules, regulations, judicial decisions or public policies now or hereafter recognized.
(b) The Executive represents that he has not filed or permitted to be filed against any of the Releasees, any complaints, charges or lawsuits and covenants and agrees that he will not seek or be entitled to any personal recovery in any court or before any governmental agency, arbitrator or self-regulatory body against any of the Releasees arising out of any matters set forth in Section 1(a) hereof. Nothing herein shall prevent the Executive from seeking to enforce his rights under the Agreement. The Executive does not hereby waive or release his rights to any benefits under the Company’s employee benefit plans to which he is or will be entitled pursuant to the terms of such plans in the ordinary course.
2. NON-DISPARAGEMENT. The Executive covenants and agrees he will not make statements or representations, or otherwise communicate, directly or indirectly, in writing, orally, or otherwise, or take any action which may, directly or indirectly, disparage the Company or its affiliates or their respective officers, directors, employees, advisors, businesses or reputations. Notwithstanding the foregoing, nothing herein or in the Agreement shall preclude the Executive from making truthful statements or disclosures that are required by applicable law, regulation, or legal process.
3. NON-SOLICITATION. The Executive covenants and agrees he shall not, without the prior written consent of the Company, for a period ending one (1) year from the Date of Termination (as defined in the Agreement), directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, solicit, recruit, hire or cause to be hired any employees of the Company or any of its affiliates, or any person who was an employee of the Company during the six months preceding the Executive’s Date of Termination (as defined in the Agreement), or solicit or encourage any employee of the Company or any of its affiliates to leave the employment of the Company or any of such affiliates, as applicable.




4. NON-INTERFERENCE WITH COMPANY OPPORTUNITIES. The Executive understands and agrees that all business opportunities with which he is involved during his employment with the Company constitute valuable assets of the Company and its affiliated entities, and may not be converted to Executive’s own use or converted by Executive for the use of any person, firm, corporation, partnership, association or other entity or enterprise. Accordingly, Executive agrees he shall not, directly or indirectly, whether for his own account or on behalf of any person, firm, corporation, partnership, association or other entity or enterprise, interfere with, solicit, pursue, or in any manner make use of any such business opportunities.
5. ACKNOWLEDGMENT. The Company has advised the Executive to consult with an attorney of his choosing prior to signing this Termination Release and the Executive hereby represents to the Company that he has been offered an opportunity to consult with an attorney prior to signing this Termination Release. The Company has also advised the Executive that Executive has up to twenty-one days to consider and sign the Release and Waiver and up to seven days after signing in which to revoke acceptance by giving notice to                                          at                                           by personal delivery or by mail postmarked no later than the seventh day after the Executive signs the Release and Waiver.
IN WITNESS WHEREOF, the Executive has executed this Termination Release under seal as of the day and year first above written.
 
 
 
 
 
 
 
 
 
/s/ DAVID KIMICHIK
 
 
DAVID KIMICHIK 
 
 
 
 
 





Exhibit 10.25.1.1a
Schedule of Omitted Mortgage Agreements
(Fixed Rate Pools)
The agreements listed below are substantially identical in all material respects to the Mortgage Security Agreement, Assignment of Rents and Fixture Filing from Ashford Edison LP, as Borrower to Wachovia Bank, National Association, as Lender, filed as Exhibit 10.25.4.4 o the Ashford Hospitality Trust, Inc.’s Form 10-Q, filed on November 6, 2009), except as to the name of the borrower, the name and legal description of the property and certain state-specific requirements or conventions related to the name of the document, the mechanics of perfection of a security interest in real property in the applicable state and state-specific remedies available to lender. These agreements are not being filed as exhibits in reliance on Instruction 2 to Item 601 of Regulation S-K.
• Deed to Secure Debt, Security Agreement and Assignment of Rents from Ashford Atlanta Buckhead LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Basking Ridge LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Bridgewater Hotel Partnership LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Open-End Mortgage, Security Agreement, Financing Statement and Assignment of Rents from Ashford Bucks County LLC, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Market Center LP, as Borrower to William D. Cleveland, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Flagstaff LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Richmond LP, as Borrower to Alexander Title Agency Incorporated, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Manhattan Beach LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Hawthorne LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Newark LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007




• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford San Jose LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Oakland LP, as Borrower to Chicago Title Insurance Company, as Trustee for the benefit of Wachovia Bank, National Association, as Lender dated April 11, 2007
• Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford LLB C-Hotel Management, LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford LLB F-Inn Management, LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Mortgage, Security Agreement, Assignment of Rents and Fixture Filing from Ashford LLB SHS Management, LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Phoenix Airport LP, as Borrower to Chicago Title Insurance Company as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Plano-C LP, as Borrower to William D. Cleveland, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Plano-R LP, as Borrower to William D. Cleveland, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
• Open-End Mortgage, Security Agreement, Financing Statement and Assignment of Rents from Ashford Plymouth Meeting LP, as Borrower to Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Durham I LLC and Ashford Durham II LLC, as tenants-in-common collectively, as Borrower to Chicago Title Insurance Company as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007
• Deed of Trust, Security Agreement, Assignment of Rents and Fixture Filing from Ashford Scottsdale LP, as Borrower to Chicago Title Insurance Company, as Trustee and Wachovia Bank, National Association, as Lender dated April 11, 2007




Exhibit 10.27
(Multicurrency — Cross Border)
International Swap Dealers Association, Inc.
MASTER AGREEMENT
dated as of March 12, 2008
WACHOVIA BANK, NATIONAL ASSOCIATION and ASHFORD HOSPITALITY LIMITED PARTNERSHIP
have entered and/or anticipate entering into one or more transactions (each a “Transaction”) that are or will be governed by this Master Agreement, which includes the schedule (the “Schedule”), and the documents and other confirming evidence (each a “Confirmation”) exchanged between the parties confirming those Transactions.
Accordingly, the parties agree as follows: —
1. Interpretation
(a) Definitions . The terms defined in Section 14 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement.
(b) Inconsistency . In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction.
(c) Single Agreement . All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the parties would not otherwise enter into any Transactions.
2. Obligations
(a) General Conditions .
(i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement.
(ii) Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. Where settlement is by delivery (that is, other than by payment), such delivery will be made for receipt on the due date in the manner customary for the relevant obligation unless otherwise specified in the relevant Confirmation or elsewhere in this Agreement.
(iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement.
(b) Change of Account . Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change.
(c) Netting . If on any date amounts would otherwise be payable:—
(i) in the same currency; and
(ii) in respect of the same Transaction,
by each party to the other, then, on such date, each party’s obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount.
The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of Offices through which the parties make and receive payments or deliveries.
(d) Deduction or Withholding for Tax.
(i) Gross-Up . All payments under this Agreement will be made without any deduction or withholding for or on account of any Tax unless such deduction or withholding is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, then in effect. If a party is so required to deduct or withhold, then that party (“X”) will:—
(1) promptly notify the other party (“Y”) of such requirement;
(2) pay to the relevant authorities the full amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid by X to Y under this Section 2(d)) promptly upon the earlier of determining that such deduction or withholding is required or receiving notice that such amount has been assessed against Y;
(3) promptly forward to Y an official receipt (or a certified copy), or other documentation reasonably acceptable to Y, evidencing such payment to such authorities; and
(4) if such Tax is an Indemnifiable Tax, pay to Y, in addition to the payment to which Y is otherwise entitled under this Agreement, such additional amount as is necessary to ensure that the net amount actually received by Y (free and clear of Indemnifiable Taxes, whether assessed against X or Y) will equal the full amount Y would have received had no such deduction or withholding been required. However, X will not be required to pay any additional amount to Y to the extent that it would not be required to be paid but for:—
(A) the failure by Y to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d); or
(B) the failure of a representation made by Y pursuant to Section 3(f) to be accurate and true unless such failure would not have occurred but for (I) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (II) a Change in Tax Law.
(ii) Liability . If: —
(1) X is required by any applicable law, as modified by the practice of any relevant governmental revenue authority, to make any deduction or withholding in respect of which X would not be required to pay an additional amount to Y under Section 2(d)(i)(4);
(2) X does not so deduct or withhold; and
(3) a liability resulting from such Tax is assessed directly against X,
then, except to the extent Y has satisfied or then satisfies the liability resulting from such Tax, Y will promptly pay to X the amount of such liability (including any related liability for interest, but including any related liability for penalties only if Y has failed to comply with or perform any agreement contained in Section 4(a)(i), 4(a)(iii) or 4(d)).
(e) Default Interest ; Other Amounts . Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement.
3. Representations
Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:—
(a) Basic Representations .
(i) Status . It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing;

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



(ii) Powers . It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance;
(iii) No Violation or Conflict . Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets;
(iv) Consents . All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and
(v) Obligations Binding . Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)).
(b) Absence of Certain Events . No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support Document to which it is a party.
(c) Absence of Litigation . There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.
(d) Accuracy of Specified Information . All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect.
(e) Payer Tax Representation . Each representation specified in the Schedule as being made by it for the purpose of this Section 3(e) is accurate and true.
(f) Payee Tax Representations . Each representation specified in the Schedule as being made by it for the purpose of this Section 3(f) is accurate and true.
4. Agreements
Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party:—
(a) Furnish Specified Information . It will deliver to the other party or, in certain cases under subparagraph (iii) below, to such government or taxing authority as the other party reasonably directs:—
(i) any forms, documents or certificates relating to taxation specified in the Schedule or any Confirmation;
(ii) any other documents specified in the Schedule or any Confirmation; and
(iii) upon reasonable demand by such other party, any form or document that may be required or reasonably requested in writing in order to allow such other party or its Credit Support Provider to make a payment under this Agreement or any applicable Credit Support Document without any deduction or withholding for or on account of any Tax or with such deduction or withholding at a reduced rate (so long as the completion, execution or submission of such form or document would not materially prejudice the legal or commercial position of the party in receipt of such demand), with any such form or document to be accurate and completed in a manner reasonably satisfactory to such other party and to be executed and to be delivered with any reasonably required certification,
in each case by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable.
(b) Maintain Authorisations . It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future.

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



(c) Comply with Laws . It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party.
(d) Tax Agreement . It will give notice of any failure of a representation made by it under Section 3(f) to be accurate and true promptly upon learning of such failure.
(e) Payment of Stamp Tax . Subject to Section 11, it will pay any Stamp Tax levied or imposed upon it or in respect of its execution or performance of this Agreement by a jurisdiction in which it is incorporated, organised, managed and controlled, or considered to have its seat, or in which a branch or office through which it is acting for the purpose of this Agreement is located (“Stamp Tax Jurisdiction”) and will indemnify the other party against any Stamp Tax levied or imposed upon the other party or in respect of the other party’s execution or performance of this Agreement by any such Stamp Tax Jurisdiction which is not also a Stamp Tax Jurisdiction with respect to the other party.
5. Events of Default and Termination Events
(a) Events of Default . The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an “Event of Default”) with respect to such party:—
(i) Failure to Pay or Deliver . Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party;
(ii) Breach of Agreement . Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 2(e) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party;
(iii) Credit Support Default .
(1) Failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed;
(2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or
(3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document;
(iv) Misrepresentation. A representation (other than a representation under Section 3(e) or (f)) made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated;
(v) Default under Specified Transaction . The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf);
(vi) Cross Default . If “Cross Default” is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



(individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period);
(vii) Bankruptcy . The party, any Credit Support Provider of such party or any applicable Specified Entity of such party: —
(1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or
(viii) Merger Without Assumption . The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer: —
(1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or
(2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement.
(b) Termination Events . The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, a Tax Event if the event is specified in (ii) below or a Tax Event Upon Merger if the event is specified in (iii) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (iv) below or an Additional Termination Event if the event is specified pursuant to (v) below:—
(i) Illegality . Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party): —
(1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or
(2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction;
(ii) Tax Event . Due to (x) any action taken by a taxing authority, or brought in a court of competent jurisdiction, on or after the date on which a Transaction is entered into (regardless of whether such action is taken or brought with respect to a party to this Agreement) or (y) a Change in Tax Law, the party (which will be the Affected Party) will, or there is a substantial likelihood that it will, on the next succeeding Scheduled Payment Date (1) be required to pay to the other party an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount is required to be deducted or withheld for or on account of a Tax (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) and no additional amount is required to be paid in respect of such Tax under Section 2(d)(i)(4) (other than by reason of Section 2(d)(i)(4)(A) or (B));
(iii) Tax Event Upon Merger . The party (the “Burdened Party”) on the next succeeding Scheduled Payment Date will either (1) be required to pay an additional amount in respect of an Indemnifiable Tax under Section 2(d)(i)(4) (except in respect of interest under Section 2(e), 6(d)(ii) or 6(e)) or (2) receive a payment from which an amount has been deducted or withheld for

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



or on account of any Indemnifiable Tax in respect of which the other party is not required to pay an additional amount (other than by reason of Section 2(d)(i)(4)(A) or (B)), in either case as a result of a party consolidating or amalgamating with, or merging with or into, or transferring all or substantially all its assets to, another entity (which will be the Affected Party) where such action does not constitute an event described in Section 5(a)(viii);
(iv) Credit Event Upon Merger . If “Credit Event Upon Merger” is specified in the Schedule as applying to the party, such party (“X”), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or
(v) Additional Termination Event . If any “Additional Termination Event” is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation).
(c) Event of Default and Illegality . If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an Illegality, it will be treated as an Illegality and will not constitute an Event of Default.
6. Early Termination
(a) Right to Terminate Following Event of Default . If at any time an Event of Default with respect to a party (the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, “Automatic Early Termination” is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereto, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8).
(b) Right to Terminate Following Termination Event .
(i) Notice . If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require.
(ii) Transfer to Avoid Termination Event . If either an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there is only one Affected Party, or if a Tax Event Upon Merger occurs and the Burdened Party is the Affected Party, the Affected Party will, as a condition to its right to designate an Early Termination Date under Section 6(b)(iv), use all reasonable efforts (which will not require such party to incur a loss, excluding immaterial, incidental expenses) to transfer within 20 days after it gives notice under Section 6(b)(i) all its rights and obligations under this Agreement in respect of the Affected Transactions to another of its Offices or Affiliates so that such Termination Event ceases to exist.
If the Affected Party is not able to make such a transfer it will give notice to the other party to that effect within such 20 day period, whereupon the other party may effect such a transfer within 30 days after the notice is given under Section 6(b)(i).
Any such transfer by a party under this Section 6(b)(ii) will be subject to and conditional upon the prior written consent of the other party, which consent will not be withheld if such other party’s policies in effect at such time would permit it to enter into transactions with the transferee on the terms proposed.
(iii) Two Affected Parties . If an Illegality under Section 5(b)(i)(1) or a Tax Event occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event.


Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



(iv) Right to Terminate . If: —
(1) a transfer under Section 6(b)(ii) or an agreement under Section 6(b)(iii), as the case may be, has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or
(2) an Illegality under Section 5(b)(i)(2), a Credit Event Upon Merger or an Additional Termination Event occurs, or a Tax Event Upon Merger occurs and the Burdened Party is not the Affected Party,
either party in the case of an Illegality, the Burdened Party in the case of a Tax Event Upon Merger, any Affected Party in the case of a Tax Event or an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions.
(c) Effect of Designation.
(i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing.
(ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(e) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e).
(d) Calculations.
(i) Statement . On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation.
(ii) Payment Date . An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment) in the Termination Currency, from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed.
(e) Payments on Early Termination . If an Early Termination Date occurs, the following provisions shall apply based on the parties’ election in the Schedule of a payment measure, either “Market Quotation” or “Loss”, and a payment method, either the “First Method” or the “Second Method”. If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that “Market Quotation” or the “Second Method”, as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off.
(i) Events of Default . If the Early Termination Date results from an Event of Default: —
(1) First Method and Market Quotation . If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the
Unpaid Amounts owing to the Non-defaulting Party over (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party.
(2) First Method and Loss . If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party’s Loss in respect of this Agreement.
(3) Second Method and Market Quotation . If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number,

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.
(4) Second Method and Loss . If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party’s Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party.
(ii) Termination Events . If the Early Termination Date results from a Termination Event: —
(1) One Affected Party . If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions.
(2) Two Affected Parties . If there are two Affected Parties: —
(A) if Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount (“X”) and the Settlement Amount of the party with the lower Settlement Amount (“Y”) and (b) the Termination Currency Equivalent of the Unpaid Amounts owing to X less (II) the Termination Currency Equivalent of the Unpaid Amounts owing to Y; and
(B) if Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss (“X”) and the Loss of the party with the lower Loss (“Y”).
If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y.
(iii) Adjustment for Bankruptcy . In circumstances where an Early Termination Date occurs because “Automatic Early Termination” applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii).
(iv) Pre-Estimate . The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses.
7. Transfer
Subject to Section 6(b)(ii), neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that: —
(a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and
(b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e).
Any purported transfer that is not in compliance with this Section will be void.
8. Contractual Currency
(a) Payment in the Contractual Currency . Each payment under this Agreement will be made in the relevant currency specified in this Agreement for that payment (the “Contractual Currency”). To the extent permitted by applicable law, any obligation to make payments under this Agreement in the Contractual Currency will not be discharged or satisfied by any tender in any currency other than the Contractual Currency, except to the extent such tender results in the actual receipt by the party to which payment is owed, acting in a reasonable manner and in good faith in converting the currency so tendered into the Contractual Currency, of the full amount in the Contractual Currency of all amounts payable in respect of this Agreement. If for any reason the amount in the Contractual Currency so received falls short of the amount in the Contractual Currency payable in respect of this Agreement, the party required to make the payment will, to the extent permitted by applicable law, immediately pay such

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



additional amount in the Contractual Currency as may be necessary to compensate for the shortfall. If for any reason the amount in the Contractual Currency so received exceeds the amount in the Contractual Currency payable in respect of this Agreement, the party receiving the payment will refund promptly the amount of such excess.
(b) Judgments . To the extent permitted by applicable law, if any judgment or order expressed in a currency other than the Contractual Currency is rendered (i) for the payment of any amount owing in respect of this Agreement, (ii) for the payment of any amount relating to any early termination in respect of this Agreement or (iii) in respect of a judgment or order of another court for the payment of any amount described in (i) or (ii) above, the party seeking recovery, after recovery in full of the aggregate amount to which such party is entitled pursuant to the judgment or order, will be entitled to receive immediately from the other party the amount of any shortfall of the Contractual Currency received by such party as a consequence of sums paid in such other currency and will refund promptly to the other party any excess of the Contractual Currency received by such party as a consequence of sums paid in such other currency if such shortfall or such excess arises or results from any variation between the rate of exchange at which the Contractual Currency is converted into the currency of the judgment or order for the purposes of such judgment or order and the rate of exchange at which such party is able, acting in a reasonable manner and in good faith in converting the currency received into the Contractual Currency, to purchase the Contractual Currency with the amount of the currency of the judgment or order actually received by such party. The term “rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the Contractual Currency.
(c) Separate Indemnities . To the extent permitted by applicable law, these indemnities constitute separate and independent obligations from the other obligations in this Agreement, will be enforceable as separate and independent causes of action, will apply notwithstanding any indulgence granted by the party to which any payment is owed and will not be affected by judgment being obtained or claim or proof being made for any other sums payable in respect of this Agreement.
(d) Evidence of Loss . For the purpose of this Section 8, it will be sufficient for a party to demonstrate that it would have suffered a loss had an actual exchange or purchase been made.
9. Miscellaneous
(a) Entire Agreement . This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto.
(b) Amendments . No amendment, modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidenced by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electronic messaging system.
(c) Survival of Obligations . Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction.
(d) Remedies Cumulative . Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law.
(e) Counterparts and Confirmations .
(i) This Agreement (and each amendment, modification and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original.
(ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall he entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation.
(f) No Waiver of Rights . A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.
(g) Headings . The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement.

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



10. Offices; Multibranch Parties
(a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to the other party that, notwithstanding the place of booking office or jurisdiction of incorporation or organisation of such party, the obligations of such party are the same as if it had entered into the Transaction through its head or home office. This representation will be deemed to be repeated by such party on each date on which a Transaction is entered into.
(b) Neither party may change the Office through which it makes and receives payments or deliveries for the purpose of a Transaction without the prior written consent of the other party.
(c) If a party is specified as a Multibranch Party in the Schedule, such Multibranch Party may make and receive payments or deliveries under any Transaction through any Office listed in the Schedule, and the Office through which it makes and receives payments or deliveries with respect to a Transaction will be specified in the relevant Confirmation.
11. Expenses
A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection.
12. Notices
(a) Effectiveness . Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:—
(i) if in writing and delivered in person or by courier, on the date it is delivered;
(ii) if sent by telex, on the date the recipient’s answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender’s facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic message is received,
unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day.
(b) Change of Addresses . Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it.
13. Governing Law and Jurisdiction
(a) Governing Law . This Agreement will be governed by and construed in accordance with the law specified in the Schedule.
(b) Jurisdiction . With respect to any suit, action or proceedings relating to this Agreement (“Proceedings”), each party irrevocably:—
(i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and
(ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party.
Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction.
(c) Service of Process . Each party irrevocably appoints the Process Agent (if any) specified opposite its name in the Schedule to receive, for it and on its behalf, service of process in any Proceedings. If for any reason any party’s Process Agent is unable to act as such, such party will promptly notify the other party and within 30 days appoint a substitute process agent acceptable to the other party. The parties irrevocably consent to service of process given in the manner provided for notices in Section 12. Nothing in this Agreement will affect the right of either party to serve process in any other manner permitted by law.
(d) Waiver of Immunities . Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings.
14. Definitions
As used in this Agreement:—
“Additional Termination Event” has the meaning specified in Section 5(b).
“Affected Party” has the meaning specified in Section 5(b).
“Affected Transactions” means (a) with respect to any Termination Event consisting of an Illegality, Tax Event or Tax Event Upon Merger, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions.
“Affiliate” means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, “control” of any entity or person means ownership of a majority of the voting power of the entity or person.
“Applicable Rate” means:—
(a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate;
(b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate;
(c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and
(d) in all other cases, the Termination Rate.
“Burdened Party” has the meaning specified in Section 5(b).
“Change in Tax Law” means the enactment, promulgation, execution or ratification of, or any change in or amendment to, any law (or in the application or official interpretation of any law) that occurs on or after the date on which the relevant Transaction is entered into.
“consent” includes a consent, approval, action, authorisation, exemption, notice, filing, registration or exchange control consent.
“Credit Event Upon Merger” has the meaning specified in Section 5(b).
“Credit Support Document” means any agreement or instrument that is specified as such in this Agreement.
“Credit Support Provider” has the meaning specified in the Schedule.
“Default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum.
“Defaulting Party” has the meaning specified in Section 6(a).
“Early Termination Date” means the date determined in accordance with Section 6(a) or 6(b)(iv).
“Event of Default” has the meaning specified in Section 5(a) and, if applicable, in the Schedule.

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



“Illegality” has the meaning specified in Section 5(b).
“Indemnifiable Tax” means any Tax other than a Tax that would not be imposed in respect of a payment under this Agreement but for a present or former connection between the jurisdiction of the government or taxation authority imposing such Tax and the recipient of such payment or a person related to such recipient (including, without limitation, a connection arising from such recipient or related person being or having been a citizen or resident of such jurisdiction, or being or having been organised, present or engaged in a trade or business in such jurisdiction, or having or having had a permanent establishment or fixed place of business in such jurisdiction, but excluding a connection arising solely from such recipient or related person having executed, delivered, performed its obligations or received a payment under, or enforced, this Agreement or a Credit Support Document).
“law” includes any treaty, law, rule or regulation (as modified, in the case of tax matters, by the practice of any relevant governmental revenue authority) and “lawful” and “unlawful” will be construed accordingly.
“Local Business Day” means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located and, if different, in the principal financial centre, if any, of the currency of such payment, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction.
“Loss” means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, the Termination Currency Equivalent of an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party’s legal fees and out-of-pocket expenses referred to under Section 11. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets.
“Market Quotation” means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the “Replacement Transaction”) that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined.

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



“Non-default Rate” means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount.
“Non-defaulting Party” has the meaning specified in Section 6(a).
“Office” means a branch or office of a party, which may be such party’s head or home office.
“Potential Event of Default” means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default.
“Reference Market-makers” means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city.
“Relevant Jurisdiction” means, with respect to a party, the jurisdictions (a) in which the party is incorporated, organised, managed and controlled or considered to have its seat, (b) where an Office through which the party is acting for purposes of this Agreement is located, (c) in which the party executes this Agreement and (d) in relation to any payment, from or through which such payment is made.
“Scheduled Payment Date” means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction.
“Set-off” means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer.
“Settlement Amount” means, with respect to a party and any Early Termination Date, the sum of: —
(a) the Termination Currency Equivalent of the Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and
(b) such party’s Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result.
“Specified Entity” has the meanings specified in the Schedule.
“Specified Indebtedness” means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money.
“Specified Transaction” means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation.
“Stamp Tax” means any stamp, registration, documentation or similar tax.
“Tax” means any present or future tax, levy, impost, duty, charge, assessment or fee of any nature (including interest, penalties and additions thereto) that is imposed by any government or other taxing authority in respect of any payment under this Agreement other than a stamp, registration, documentation or similar tax.
“Tax Event” has the meaning specified in Section 5(b).
“Tax Event Upon Merger” has the meaning specified in Section 5(b).
“Terminated Transactions” means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if “Automatic Early Termination” applies, immediately before that Early Termination Date).
“Termination Currency” has the meaning specified in the Schedule.

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



“Termination Currency Equivalent” means, in respect of any amount denominated in the Termination Currency, such Termination Currency amount and, in respect of any amount denominated in a currency other than the Termination Currency (the “Other Currency”), the amount in the Termination Currency determined by the party making the relevant determination as being required to purchase such amount of such Other Currency as at the relevant Early Termination Date, or, if the relevant Market Quotation or Loss (as the case may be), is determined as of a later date, that later date, with the Termination Currency at the rate equal to the spot exchange rate of the foreign exchange agent (selected as provided below) for the purchase of such Other Currency with the Termination Currency at or about 11:00 a.m. (in the city in which such foreign exchange agent is located) on such date as would be customary for the determination of such a rate for the purchase of such Other Currency for value on the relevant Early Termination Date or that later date. The foreign exchange agent will, if only one party is obliged to make a determination under Section 6(e), be selected in good faith by that party and otherwise will be agreed by the parties.
“Termination Event” means an Illegality, a Tax Event or a Tax Event Upon Merger or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event.
“Termination Rate” means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts.
“Unpaid Amounts” owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the Termination Currency Equivalents of the fair market values reasonably determined by both parties.

Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document.
 
 
 
 
 
 
 
 
 
WACHOVIA BANK, NATIONAL ASSOCIATION
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
 
 
(Name of Party)
 
 
 
(Name of Party)
 
 
 
 
By:
 
Ashford OP General Partner LLC, its general partner
 
 
 
 
 
 
 
 
 
By:
 
/s/ John Miechkowski
 
By:
 
 
 
/s/ David A. Brooks
 
 
 
 
 
 
 
 
 
 
 
Name: John Miechkowski
 
 
 
 
 
Name: David A. Brooks
 
 
Title: Director
 
 
 
 
 
Title: Vice President
 
 
 
 
 
 
 
 
 
 
 
Date: March 12, 2008
 
 
 
 
 
Date: March 12, 2008
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



Copyright © 1992 by International Swap Dealers Association, Inc      ISDA ® 1992



Exhibit 10.27.1
Execution copy
SCHEDULE

to the

MASTER AGREEMENT

dated as of March 12, 2008 between

WACHOVIA BANK, NATIONAL ASSOCIATION (“Party A”)


and ASHFORD HOSPITALITY LIMITED PARTNERSHIP (“Party B”)




Part 1. Termination Provisions
(a)
 
“Specified Entity”  means, with respect to Party A, its Affiliates for purposes of Section 5(a)(v) only, and, with respect to Party B, none..
 
 
 
(b)
 
“Specified Transaction”  has its meaning as defined in Section 14.
 
 
 
(c)
 
“Cross Default”  applies to both parties.
 
 
 
 
 
“Specified Indebtedness”  means any obligation (whether present, future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money, other than indebtedness in respect of any bank deposits received in the ordinary course of business by any foreign branch of a party the repayment of which is prevented, hindered or delayed by any governmental or regulatory action or law unrelated to the financial condition or solvency of such party or that foreign branch.
 
 
 
 
 
“Threshold Amount”  means, with respect to Party A, an amount (including its equivalent in another currency) equal to the higher of $10,000,000 or 2% of its stockholders’ equity as reflected on its most recent financial statements or call reports, and with respect to Party B, $25,000,000.
 
 
 
(d)
 
“Credit Event Upon Merger”  applies to both parties.
 
 
 
(e)
 
“Automatic Early Termination”  does not apply to either party.
 
 
 
(f)
 
Payments on Early Termination.  Except as otherwise provided herein, “Market Quotation” and the “Second Method” apply, provided that with respect to the following types of Transactions, a Market Quotation shall not be determined or included under clause (a) of the definition of Settlement Amount, and instead a “Loss” shall be determined and included under clause (b) of the definition of Settlement Amount with respect to the following types of Transactions: (i) any FX Transactions and Currency Option Transactions, and (ii) any Transactions which are commodity swaps, commodity options, commodity forwards or any other commodity derivative transactions.
 
 
 
(g)
 
“Termination Currency”  means U.S. Dollars.
 
 
 
(h)
 
Additional Termination Event.  It shall be an Additional Termination Event hereunder with respect to Party B (and Party B shall be the Affected Party) if either:
 
 
 
 
 
(x) Party B’s obligations under this Agreement fail to be secured on the same terms in all relevant respects with the other Secured Obligations (as defined in the respective Security Documents) or (y) the liens granted under the Security Documents securing the obligations of Party B hereunder shall have terminated (other than as contemplated by Section 7.13 of the Credit Agreement) and have not been replaced by liens of equal priority or other collateral reasonably acceptable to Party A to secure such obligations pursuant to documentation reasonably satisfactory to Party A.
 
 
“Credit Agreement”  means the Credit Agreement dated as of April 10, 2007 by and among Party B, as Borrower, Ashford Hospitality Trust, Inc., as Parent, Wachovia Capital Markets, LLC, as Arranger, Morgan Stanley Senior Funding, Inc., and Merrill Lynch Bank USA, as Co-Syndication Agents, Bank of America, N.A., and Calyon New York Branch, as Co-Documentation Agents, Wachovia Bank National Association, as Agent, and The Financial Institutions Initially Signatory thereto And Their Assignees Pursuant To Section 12.5, as Lenders, as may be amended or modified from time to time.
 
 
 
(i)
 
Events of Default . An Event of Default shall not occur with respect to a party under Section 5(a)(v)(1) or (2) or Section 5(a)(vi) when the failure to pay or deliver, or the default, event of default or other similar condition or event, as the case may be, arises solely (i) out of a wire transfer problem or an operational or administrative error or omission (so long as the required funds or property required to make that payment or delivery were otherwise available to that party), or (ii) from the general unavailability of the relevant currency due to exchange controls or other similar governmental action, but in either case only if the payment or delivery is made within three Local Business Days after the problem has been corrected, the error or omission has been discovered or the currency becomes generally available.
Part 2. Tax Representations




(a)
 
Payer Tax Representations.  For the purpose of Section 3(e) of this Agreement, each party makes the following representation:
 
 
 
 
 
It is not required by any applicable law, as modified by the practice of any relevant governmental revenue authority, of any Relevant Jurisdiction to make any deduction or withholding for or on account of any Tax from any payment (other than interest under Section 2(e), 6(d)(ii) or 6(e) of this Agreement) to be made by it to the other party under this Agreement.
 
 
 
 
 
In making this representation, a party may rely on (i) the accuracy of any representations made by the other party pursuant to Section 3(f) of this Agreement, (ii) the satisfaction of the agreement contained in Section 4(a)(i) or 4(a)(iii) of this Agreement, and the accuracy and effectiveness of any document provided by the other party pursuant to Section 4(a)(i) or 4(a)(iii) of this Agreement, and (iii) the satisfaction of the agreement of the other party contained in Section 4(d) of this Agreement, provided that it shall not be a breach of this representation where reliance is placed on clause (ii) above and the other party does not deliver a form or document under Section 4(a)(iii) by reason of material prejudice to its legal or commercial position.
 
 
 
(b)
 
Payee Tax Representations.  For the purpose of Section 3(f) of this Agreement:
 
 
 
 
 
(i) Party A makes the following representation(s):
(A) It is a national banking association organized or formed under the laws of the United States and is a United States resident for United States federal income tax purposes.
(B) Party A makes no other Payee Tax Representations.
(ii) Party B makes the following representation(s):
(A) It is organized or formed under the laws of a state within the United States, and it is (or, if Party B is disregarded for United States federal income tax purposes, its beneficial owner is) a United States resident for United States federal income tax purposes.
(B) Party B makes no other Payee Tax Representations.
Part 3. Documents
(a)
 
Tax Forms .
 
 
 
 
 
(i)  Delivery of Tax Forms . For the purpose of Section 4(a)(i), and without limiting Section 4(a)(iii), each party agrees to duly complete, execute and deliver to the other party the tax forms specified below with respect to it (A) before the first Payment Date under this Agreement, (B) promptly upon reasonable demand by the other party and (C) promptly upon learning that any such form previously provided by the party has become obsolete or incorrect.
 
 
 
 
 
(ii)  Tax Forms to be Delivered by Party A :
None specified.
(iii)  Tax forms to be Delivered by Party B :
A correct, complete and duly executed U.S. Internal Revenue Service Form W-9 (or successor thereto) that eliminates U.S. federal backup withholding tax on payments to Party B under this Agreement.




(b)
 
Delivery of Documents.  When it delivers this Agreement, each party shall also deliver its Closing Documents to the other party in form and substance reasonably satisfactory to the other party. For each Transaction, a party shall deliver, promptly upon request, a duly executed incumbency certificate for the person(s) executing the Confirmation for that Transaction on behalf of that party.
 
 
 
 
 
(i) For Party A, “Closing Documents” means (A) a copy, certified by the secretary or assistant secretary of Party A, of the resolutions of Party A’s board of directors authorizing the execution, delivery and performance by Party A of this Agreement and authorizing Party A to enter into Transactions hereunder and (B) a duly executed certificate of the secretary or assistant secretary of Party A certifying the name, true signature and authority of each person authorized to execute this Agreement and enter into Transactions for Party A.
 
 
 
 
 
(ii) For Party B, “Closing Documents” means an opinion of counsel covering Party B’s Basic Representations under Section 3(a) as they relate to this Agreement, or in lieu thereof, (A) a copy of Party B’s [ partnership agreement, including any amendments thereto, (B) a certified copy of the resolutions of Party B duly adopted by or on behalf of the general partners of Party B (and separate resolutions of the board of directors of each of Party B’s general partners that is a corporate entity) authorizing the execution, delivery and performance by Party B of this Agreement and authorizing Party B to enter into Transactions hereunder, and (C) a duly executed incumbency certificate of Party B certifying the name, true signature and authority of each person authorized to execute this Agreement and enter into Transactions for Party B, together with, if this Agreement or any Transaction for Party B is being executed through any of Party B’s general partners that is a corporate entity, an incumbency certificate of each such general partner certifying the name, true signature and authority of each such person.
(c)
Financial Statements . Unless provided to Party A pursuant to the provisions of the Credit Agreement or otherwise, Party B will furnish to Party A (i) within 120 days after the close of each of Party B’s fiscal years, an audit report certified by independent certified public accountants of recognized standing prepared in accordance with generally accepted accounting principles (including balance sheets as of the end of such period, related profit and loss and reconciliation of surplus statements, and a statement of cash flows), and (ii) within 90 days after the close of each of the first three quarterly periods of each of its fiscal years unaudited balance sheets as at the close of each such period and profit and loss and reconciliation of surplus statements and a statement of cash flows for the period from the beginning of such fiscal year to the end of such quarter, all certified by its chief financial officer.
Part 4. Miscellaneous




(a)
 
Addresses for Notices.
 
 
 
 
 
(i) For purposes of Section 12(a) of this Agreement, all notices to Party A shall, with respect to any particular Transaction, be sent to the address, telex number or facsimile number specified by Party A in the relevant Confirmation (or as specified below if not specified in the relevant Confirmation), provided that any notice under Section 5 or 6 of this Agreement shall be sent to Party A at its head office address specified below.
 
 
 
 
 
Head Office
WACHOVIA BANK, N.A.
301 South College Street, DC-8
Charlotte, NC 28202-0600
 
 
 
 
 
Attention: Derivatives Documentation Group
 
 
 
 
 
Fax: (704) 383-0575
Phone: (704) 383-8778
 
 
 
 
 
(ii) For purposes of Section 12(a) of this Agreement, all notices to Party B shall, with respect to any particular Transaction, be sent to the address, telex number or facsimile number specified by Party B in the relevant Confirmation (or as specified below if not specified in the relevant Confirmation), provided that any notice under Section 5 or 6 of this Agreement shall be sent to Party B at its head office address specified below.
 
 
 
 
 
Head Office
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
14185 Dallas Parkway, Suite 1100
Dallas, TX 75254
 
 
 
 
 
Attention: David A. Brooks
               Chief Legal Officer/Head of Transactions
 
 
 
 
 
Fax: 972-490-9605
Phone: 972-778-9207
 
 
 
(b)
 
Process Agent.  For the purpose of Section 13(c) of this Agreement, neither party appoints a Process Agent hereunder.
 
 
 
(c)
 
Offices.  Section 10(a) applies.




(d)
 
Multibranch Party.
 
 
 
 
 
(i) Party A is a Multibranch Party and may act through the following Offices: its Charlotte Head Office and its London Branch. If any Confirmation for a Transaction is sent or executed by Party A without specifying its Office, it will be presumed that Party A’s Office for that Transaction is its Charlotte Head Office.
 
 
 
 
 
(ii) Party B is not a Multibranch Party.
 
 
 
(e)
 
“Calculation Agent”  means Party A, unless Party A is a Defaulting Party, in which case the Calculation Agent will be a Reference Market-maker that is selected by Party B independent of either party (and their Affiliates) and is approved by Party A (such approval not to be unreasonably withheld).
 
 
 
(f)
 
“Credit Support Document”  means, with respect to Party B, (i) each Security Document, and (ii) the Guaranty, in each case, as such term is defined in the Credit Agreement.
 
 
 
 
 
“Credit Support Default”  is amended by adding at the end of Section 5(a)(iii)(1):
 
 
 
 
 
“, any default, event of default or other similar condition or event (however described) exists under any Credit Support Document, any action is taken to realize upon any collateral provided to secure such party’s obligations hereunder or under any Transaction, or the other party fails at any time to have a valid and perfected first priority security interest in any such collateral;”
 
 
 
(g)
 
“Credit Support Provider”  means, with respect to Party B, each Guarantor, as such term is defined in the Credit Agreement.
 
 
 
(h)
 
Governing Law.  To the extent not otherwise preempted by U.S. Federal law, this Agreement will be governed by and construed in accordance with the law of the State of New York (without giving effect to any provision of New York law that would cause another jurisdiction’s laws to be applied).
 
 
 
(i)
 
Waiver of Jury Trial.  To the extent permitted by applicable law, each party irrevocably waives any and all right to trial by jury in any legal proceeding in connection with this Agreement, any Credit Support Document to which it is a party, or any Transaction.
 
 
 
(j)
 
Netting of Payments.  Section 2(c)(ii) will apply in respect of all Transactions from the date of this Agreement, provided that Section 2(c)(ii) will not apply with respect to any Transactions or group of Transactions for which the parties mutually agree shall be netted operationally.
 
 
 
(k)
 
“Affiliate”  has its meaning as defined in Section 14.
Part 5. Other Provisions
(a)
 
ISDA Publications.
 
 
 
 
 
(i)  2006 ISDA Definitions . This Agreement and each Transaction are subject to the 2006 ISDA Definitions published by the International Swaps and Derivatives Association, Inc. (the “2006 ISDA Definitions”) and will be governed by the provisions of the 2006 ISDA Definitions. The provisions of the 2006 ISDA Definitions are incorporated by reference in, and shall form part of, this Agreement and each Confirmation. Any reference to a “Swap Transaction” in the 2006 ISDA Definitions is deemed to be a reference to a “Transaction” for purposes of this Agreement or any Confirmation, and any reference to a “Transaction” in this Agreement or any Confirmation is deemed to be a reference to a “Swap Transaction” for purposes of the 2006 ISDA Definitions. The provisions of this Agreement (exclusive of the 2006 ISDA Definitions) shall prevail in the event of any conflict between such provisions and the 2006 ISDA Definitions.




 
 
(ii)  EMU Protocol . If a present or future European Union member state adopts the euro as its lawful currency to replace its national currency (including, without limitation, Sterling, Danish Krone and Swedish Krona), then Annexes 1 through 5 (inclusive) and Section 6 of the EMU Protocol published on May 6, 1998 by the International Swaps and Derivatives Association, Inc. (i) shall be deemed to apply to any Transaction involving that member state’s national currency (which shall be considered a Legacy Transaction under the EMU Protocol), (ii) shall be construed in a manner consistent with the purpose of the EMU Protocol notwithstanding that the start of the third stage of European Economic and Monetary Union has already occurred, and (iii) are hereby incorporated by reference in, and shall form part of, this Agreement. References in the EMU Protocol to “ISDA Master Agreement” will be deemed references to this Agreement.
 
 
 
(b)
 
Scope of Agreement . Any Specified Transaction now existing or hereafter entered into between the parties (whether or not evidenced by a Confirmation) shall constitute a “Transaction” under this Agreement and shall be subject to, governed by, and construed in accordance with the terms of this Agreement, unless the confirming document(s) for that Specified Transaction provide(s) otherwise. For any such Specified Transaction not evidenced by a Confirmation, Section 2(a)(i) of this Agreement is amended to read as follows: “(i) Each party will make each payment or delivery to be made by it under each Transaction, as specified in each Confirmation (or otherwise in accordance with the terms of that Transaction if not evidenced by a Confirmation), subject to the other provisions of this Agreement.”
 
 
 
(c)
 
Additional Representations.  In addition to the representations under Section 3, the following representations will apply:
 
 
 
 
 
(i)  Relationship Between Parties.  Each party will be deemed to represent to the other party on the date on which it enters into a Relevant Agreement that:
(1)
Non-Reliance.    It is acting for its own account, and it has made its own independent decisions to enter into the Relevant Agreement and as to whether the Relevant Agreement is appropriate or proper for it based solely upon its own judgment and upon advice from such advisers as it has deemed necessary. It is not relying on any communication (written or oral) of the other party or any of its affiliates (or its respective representatives) as investment advice or as a recommendation to enter into the Relevant Agreement, it being understood that information and explanations related to the terms and conditions of any Relevant Agreement will not be considered investment advice or a recommendation to enter into the Relevant Agreement. No communication (written or oral) received from the other party or any of its affiliates (or its respective representatives) will be deemed to be an assurance or guarantee as to the expected results of the Relevant Agreement.
(2)
Assessment and Understanding.    It is capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of the Relevant Agreement based solely upon its own evaluation of the Relevant Agreement (including the present and future results, consequences, risks, and benefits thereof, whether financial, accounting, tax, legal, or otherwise) or that of its own advisers. It is also capable of assuming, and assumes, the risks of the Relevant Agreement. It also understands that the terms under which any Transaction may be terminated early are set forth in this Agreement (or in the relevant Confirmation), and any early termination of a Transaction other than pursuant to such terms is subject to mutual agreement of the parties confirmed in writing, the terms of which may require one party to pay an early termination fee to the other party based upon market conditions prevailing at the time of early termination.
(3)
Status of Parties.   The other party is not acting as a fiduciary for or an adviser to it in respect of the Relevant Agreement, and any agency, brokerage, advisory or fiduciary services that the other party (or any of its affiliates) may otherwise provide to the party (or to any of its affiliates) excludes the Relevant Agreement.




 
 
“Relevant Agreement” means this Agreement, each Transaction, each Confirmation, any Credit Support Document, or any agreement (including any amendment, modification, transfer or early termination) between the parties relating to this Agreement or to any Transaction, Confirmation or Credit Support Document.
 
 
 
 
 
(ii)  Eligibility.  Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that it is an “eligible contract participant” within the meaning of the Commodity Exchange Act.
 
 
 
 
 
(iii)  ERISA.  Each party represents to the other party at all times hereunder that it is not (i) an employee benefit plan as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), or a plan as defined in Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), subject to Title I of ERISA or Section 4975 of the Code, or a plan as so defined but which is not subject to Title I of ERISA or Section 4975 of the Code but is subject to another law materially similar to Title I of ERISA or Section 4975 of the Code (each of which, an “ERISA Plan”), (ii) a person or entity acting on behalf of an ERISA Plan, or (iii) a person or entity the assets of which constitute assets of an ERISA Plan.
 
 
 
 
 
(iv)  Authorized Persons.  Party B represents, warrants and agrees that: (i) each Authorized Person, acting singly, is authorized from time to time on behalf of and in the name of Party B to negotiate, enter into, amend, transfer and terminate Transactions with Party A on such terms as such Authorized Person may agree; (ii) Party B will be bound by the terms of each Transaction, and any amendment, transfer or termination thereof, as and when that Authorized Person enters into (whether orally by telephone or in writing) any such Transaction for Party B or any agreement with Party A to amend, transfer or terminate any Transaction; and (iii) Party A may rely and act upon any instruction, order, agreement or document purporting to be from an Authorized Person and relating to any proposed or existing Transaction, whether the instruction, order, agreement or document is in writing (signed or unsigned) or is communicated by telephone, facsimile transmission or other electronic means, and once Party A has acted or relied upon it, then that instruction, order, agreement or document may not be rescinded, canceled, terminated, modified or amended without Party A’s prior written consent.
 
 
 
 
 
“Authorized Person” means any person whose signature is set forth below Party B’s name on the signature pages hereof and each other person who is a director, officer, partner (or general partner), manager (or general manager), member (or managing member) or any other person holding any office or position in Party B or in any of its partners (or general partners), managers (or general managers) or members (or managing members).
 
 
 
(d)
 
Set-off.  Any amount (“Early Termination Amount”) payable to one party (“Payee”) by the other party (“Payer”) under Section 6(e), in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b)(iv) has occurred, will, at the option of the party (“X”) other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by means of set off against any amount(s) (“Other Agreement Amount”) payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer or to any Affiliate of the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreement(s) between the Payee and the Payer (or between the Payee and any Affiliate of the Payer) or instrument(s) or undertaking(s) issued or executed by the Payee to, or in the favor of, the Payer or any Affiliate of the Payer (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this paragraph.
 
 
 
 
 
For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency. The term “rate of exchange” includes, without limitation, any premiums and costs of exchange payable in connection with the purchase of or conversion into the relevant currency.




 
 
Nothing in this paragraph shall be effective to create a charge or other security interest. This paragraph shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which any party is at any time otherwise entitled (whether by operation of law, contract or otherwise).
 
 
 
(e)
 
Escrow.  If payments denominated in different currencies are due hereunder by both parties on the same day and a party has reasonable cause to believe that the other party will not meet its payment obligation, then as reasonable assurance of performance the party may notify the other party that payments on that date are to be made in escrow. In this case, deposit of the payment due earlier on that date shall be made by 2.00 p.m. (local time at the place for the earlier payment) on that date with any escrow agent selected by the party giving the notice from among major commercial banks independent of either party (and its affiliates), accompanied by irrevocable payment instructions (i) to release the deposited payment to the intended recipient upon receipt by the escrow agent of the required deposit of the corresponding payment from the other party on the same date accompanied by irrevocable payment instructions to the same effect or (ii) if the required deposit of the corresponding payment is not made on the same date, to return the payment deposited to the party that paid in escrow. The party that elects to have payments made in escrow shall pay the costs of the escrow arrangements and shall make arrangements to provide that the intended recipient of the amount due to be deposited first shall be entitled to interest on the deposited payment for each day in the period of its deposit at the rate offered by the escrow agent for that day for overnight deposits in the relevant currency in the office where it holds that deposited payment (at 11.00 a.m. local time on that day) if that payment is not released by 5.00 p.m. local time on the date it is deposited for any reason other than the intended recipient’s failure to make the escrow deposit it is required to make hereunder in a timely fashion.
 
 
 
(f)
 
Recording of Conversations.   Each party (i) consents to the recording of telephone conversations between the trading, marketing and other relevant personnel of the parties or any of their Affiliates in connection with this Agreement or any Transaction or potential Transaction, (ii) agrees to obtain any necessary consent of, and give any necessary notice of such recording to, its relevant personnel and those of its Affiliates and (iii) agrees, to the extent permitted by applicable law, that such recordings may be submitted in evidence in any Proceedings.
 
 
 
(g)
 
Confirmation Procedures.  Upon receipt thereof, Party B shall examine the terms of each Confirmation sent by Party A, and unless Party B objects to the terms within five New York business days after receipt of that Confirmation, those terms shall be deemed accepted and correct absent manifest error, in which case that Confirmation will be sufficient to form a binding supplement to this Agreement notwithstanding Section 9(e)(ii) of this Agreement.
 
 
 
(h)
 
Covenants of Credit Agreement.
 
 
 
 
 
(i) Party B shall provide Party A at all times hereunder with the same covenant protection as Party B provides Party A (or any of its Affiliates) under Article IX under the Credit Agreement (“Negative Covenants”). Therefore, in addition to the Cross Default provisions of this Agreement, and notwithstanding the satisfaction of any obligation or promise to pay money to its lenders or creditors under the Credit Agreement, or the termination or cancellation of the Credit Agreement, Party B hereby agrees to perform, comply with and observe for the benefit of Party A hereunder all Negative Covenants contained in the Credit Agreement applicable to Party B (excluding any obligation or promise to pay money under the Credit Agreement) at any time Party B has any obligation (whether absolute or contingent) under this Agreement.
 
 
 
 
 
(ii) For purposes hereof: (A) the Negative Covenants of the Credit Agreement applicable to Party B (together with related definitions and ancillary provisions, but in any event excluding any obligation or promise to pay money under the Credit Agreement) are incorporated by reference herein (mutatis mutandis); (B) if lenders or




 
 
creditors other than Party A are parties to the Credit Agreement, then references therein to the lenders or creditors shall be deemed references to Party A; and (C) for any such covenant applying only when any loan, other extension of credit, obligation or commitment under the Credit Agreement is outstanding, that covenant shall be deemed to apply hereunder at any time Party B has any obligation (whether absolute or contingent) under this Agreement. 
 
 
 
 
 
(iii) Notwithstanding the foregoing, if the incorporation of any provision by reference from the Credit Agreement would result in the violation by Party B of the terms of the Credit Agreement, or be in violation of any law, rule or regulation (as interpreted by any court of competent jurisdiction), then this Agreement shall not incorporate that provision.
 
 
 
 
 
Solely for purposes of this Part 5(h) of the Schedule, “Credit Agreement”  means the Credit Agreement as it exists as of the date hereof, including any amendments or modifications thereto (so long as Party A is a Lender), but without regard to any termination or cancellation thereof or Party A (or any of its Affiliates) ceasing to be a party thereto (whether as a result of repayment thereof or otherwise).
 
 
 
(i)
 
Limitation of Liability.  WITH RESPECT TO CLAIMS UNDER THIS AGREEMENT, NO PARTY SHALL BE REQUIRED TO PAY OR BE LIABLE FOR EXEMPLARY, PUNITIVE, INCIDENTAL, CONSEQUENTIAL OR INDIRECT DAMAGES (WHETHER OR NOT ARISING FROM ITS NEGLIGENCE) TO ANY OTHER PARTY EXCEPT TO THE EXTENT THAT THE PAYMENTS REQUIRED TO BE MADE PURSUANT TO THIS AGREEMENT ARE DEEMED TO BE SUCH DAMAGES. IF AND TO THE EXTENT ANY PAYMENT REQUIRED TO BE MADE PURSUANT TO THIS AGREEMENT IS DEEMED TO CONSTITUTE LIQUIDATED DAMAGES, THE PARTIES ACKNOWLEDGE AND AGREE THAT SUCH DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE AND THAT SUCH PAYMENT IS INTENDED TO BE A REASONABLE APPROXIMATION OF THE AMOUNT OF SUCH DAMAGES AND NOT A PENALTY.
 
 
 
(j)
 
Transfer.   If a party is requested to give its prior written consent to a transfer referred to in Section 7, such consent shall not be unreasonably withheld or delayed, and among the reasons it shall be considered reasonable for a party to withhold its consent are the following: (i) its credit department is unwilling to credit approve the transfer to the transferee; (ii) when fewer than all Transactions are transferred, its credit exposure to the transferring party would increase as a result of the transfer; (iii) it would be exposed to any increased legal, bankruptcy, regulatory or tax risks, liabilities or requirements as the result of such transfer, or such transfer would cause it to be in noncompliance with any such requirements; (iv) an Event of Default or Termination Event would exist before or after the transfer, (v) settlement netting and close-out netting would not be enforceable under the bankruptcy or insolvency laws applicable to the transferee, or (vi) collateral arrangements acceptable to it would not be in place at the time of such transfer to cover all existing and future obligations of the transferee for the Transactions being transferred.





IN WITNESS WHEREOF , the parties have executed this Schedule by their duly authorized signatories as of the date hereof.
 
 
 
 
 
 
 
 
 
 
 
WACHOVIA BANK, NATIONAL ASSOCIATION
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ John Miechkowski
 
 
 
 
 
 
 
 
 
 
 
Name:
 
John Miechkowski
 
 
 
 
Title:
 
Director
 
 
 
 
 
 
 
 
 
 
 
 
 
ASHFORD HOSPITALITY LIMITED PARTNERSHIP
 
 
 
 
By: Ashford OP General Partner LLC, its general partner
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
By:
 
/s/ David A. Brooks
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Name:
 
David A. Brooks
 
 
 
 
 
 
Title:
 
Vice President
 
 






EXHIBIT 12.0

ASHFORD HOSPITALITY TRUST, INC.
STATEMENT REGARDING COMPUTATION OF RATIOS OF EARNINGS TO COMBINED FIXED CHARGES
(dollars in thousands)

 
 Year Ended December 31,
 
2013
 
2012
 
2011
 
2010
 
2009
 Earnings
 
 
 
 
 
 
 
 
 
 Income (loss) from continuing operations before provision for income taxes and redeemable noncontrolling interests
$
(47,047
)
 
$
(56,183
)
 
$
9,383

 
$
(26,280
)
 
$
(182,933
)
 Amount recorded for (income) loss in unconsolidated joint venture
23,404

 
20,833

 
(14,528
)
 
20,265

 
(2,486
)
 Add:
 
 
 
 
 
 
 
 
 
 Distributions from equity investment in joint venture
—

 
—

 
—

 
492

 
873

 Interest on indebtedness
133,697

 
140,066

 
134,585

 
143,264

 
139,390

 Amortization of debt expense and premium
7,772

 
6,194

 
4,648

 
5,838

 
7,700

 Interest component of operating leases
341

 
354

 
385

 
525

 
598

 
$
118,167

 
$
111,264

 
$
134,473

 
$
144,104

 
$
(36,858
)
 
 
 
 
 
 
 
 
 
 
 Fixed charges
 
 
 
 
 
 
 
 
 
 Interest on indebtedness
$
133,697

 
$
140,066

 
$
134,585

 
$
143,264

 
$
139,390

 Amortization of debt expense and premium
7,772

 
6,194

 
4,648

 
5,838

 
7,700

 Interest component of operating leases
341

 
354

 
385

 
525

 
598

 Dividends to Class B unit holders
2,943

 
2,943

 
2,943

 
2,943

 
2,827

 
$
144,753

 
$
149,557

 
$
142,561

 
$
152,570

 
$
150,515

 Preferred stock dividends
 
 
 
 
 
 
 
 
 
 Preferred Series A
$
3,542

 
$
3,516

 
$
3,180

 
$
3,180

 
$
3,180

 Preferred Series B-1
—

 
—

 
1,374

 
4,143

 
4,171

 Preferred Series D
20,002

 
19,869

 
18,940

 
13,871

 
11,971

 Preferred Series E
10,418

 
10,417

 
6,019

 
—

 
—

 
$
33,962

 
$
33,802

 
$
29,513

 
$
21,194

 
$
19,322

 
 
 
 
 
 
 
 
 
 
 Combined fixed charges and preferred stock dividends
$
178,715

 
$
183,359

 
$
172,074

 
$
173,764

 
$
169,837

 
 
 
 
 
 
 
 
 
 
 Deficit (Fixed charges)
$
26,586

 
$
38,293

 
$
8,088

 
$
8,466

 
$
187,373

 
 
 
 
 
 
 
 
 
 
 Deficit (Combined fixed charges and preferred stock dividends)
$
60,548

 
$
72,095

 
$
37,601

 
$
29,660

 
$
206,695

 
 
 
 
 
 
 
 
 
 




EXHIBIT 21.1
SUBSIDIARIES LISTING AS OF DECEMBER 31, 2013
All the subsidiaries listed below are incorporated in Delaware except that Ashford Hospitality Trust, Inc. is incorporated in Maryland
AH Tenant Corporation
APHM - ND, L.P.
APHM North Dallas - GP, LLC
Ashford 1031 GP LLC
Annapolis Hotel GP LLC
Annapolis Maryland Hotel Limited Partnership
Ashford Alpharetta Limited Partnership
Ashford Anchorage GP LLC
Ashford Anchorage LP
Ashford Atlanta Buckhead LP
Ashford Atlantic Beach LP
Ashford Austin LP
Ashford Basking Ridge LP
Ashford Birmingham LP
Ashford Bloomington LP
Ashford Bridgewater Hotel Partnership, LP
Ashford Bucks County LLC
Ashford Buena Vista LP
Ashford Buford I LP
Ashford Buford II LP
Ashford BWI Airport LP
Ashford Canada Trust
Ashford Capital Advisors LLC
Ashford Centerville Limited Partnership
Ashford Charlotte Limited Partnership
Ashford CM GP LLC
Ashford CM Partners LP
Ashford Columbus GP LLC
Ashford Columbus LP
Ashford Coral Gables LP
Ashford Credit Holding LLC
Ashford Crystal City Limited Partnership
Ashford Crystal City GP LLC
Ashford Crystal City Partners LP
Ashford Crystal Gateway GP LLC
Ashford Crystal Gateway LP
Ashford Dallas LP
Ashford Dearborn GP LLC
Ashford Dulles LP
Ashford Durham I LLC
Ashford Durham II LLC
Ashford Edison LP




Ashford Evansville I LP
Ashford Evansville III LP
Ashford Falls Church Limited Partnership
Ashford Five Junior Mezz LLC
Ashford Five Senior Mezz LLC
Ashford Flagstaff LP
Ashford Ft. Lauderdale Weston I LLC
Ashford Ft. Lauderdale Weston II LLC
Ashford Ft. Lauderdale Weston III LLC
Ashford Gaithersburg Limited Partnership
Ashford Gateway TRS Corporation
Ashford GCH Beverage, Inc.
Ashford Hawthorne LP
Ashford HHC LLC
Ashford HHC II LLC
Ashford HHC Partners LP
Ashford HHC Partners II LP
Ashford HI Beverage, Inc.
Ashford Hospitality Advisors LLC
Ashford Hospitality Finance General Partner LLC
Ashford Hospitality Finance LP
Ashford Hospitality Prime Limited Partnership
Ashford Hospitality Limited Partnership
Ashford Hospitality Servicing LLC
Ashford Hospitality Trust, Inc.
Ashford IHC LLC
Ashford IHC Partners, LP
Ashford Investment Management GP LLC
Ashford Investment Management LP
Ashford Irvine Spectrum Foothill Ranch Limited Partnership
Ashford Jacksonville I LP
Ashford Jacksonville II LP
Ashford Jacksonville III GP LLC
Ashford Jacksonville III LP
Ashford Jacksonville IV GP LLC
Ashford Jacksonville IV LP
Ashford Kennesaw I LP
Ashford Kennesaw II LP
Ashford Las Vegas LP
Ashford Lawrenceville LP
Ashford Lee Vista GP LLC
Ashford Lee Vista Partners LP
Ashford LLB C-Hotel Management, LP
Ashford LLB SHS Management, LP
Ashford LLB F-Inn Management, LP
Ashford LMND LLC




Ashford Louisville LP
Ashford LV Hughes Center LP
Ashford Manhattan Beach LP
Ashford Market Center LP
Ashford Mezz Borrower LLC
Ashford Minneapolis Airport GP LLC
Ashford Minneapolis Airport LP
Ashford Mira Mesa San Diego Limited Partnership
Ashford Mobile LP
Ashford MV San Diego GP LLC
Ashford MV San Diego LP
Ashford Newark LP
Ashford Oakland LP
Ashford OP General Partner LLC
Ashford OP Limited Partner LLC
Ashford Orlando Sea World Limited Partnership
Ashford Overland Park Limited Partnership
Ashford PH GP LLC
Ashford PH Partners LP
Ashford Philly GP LLC
Ashford Philly LP
Ashford Phoenix Airport LP
Ashford Pier House GP LLC
Ashford Pier House LP
Ashford Pier House Mezz A LLC
Ashford Pier House Mezz B LLC
Ashford Plano-C LP
Ashford Plano-R LP
Ashford Plymouth Meeting LP
Ashford Pool I GP LLC
Ashford Pool II GP LLC
Ashford Properties General Partner LLC
Ashford Raleigh Limited Partnership
Ashford Richmond LP
Ashford Ruby Palm Desert I Limited Partnership
Ashford Salt Lake Limited Partnership
Ashford San Jose LP
Ashford Santa Clara GP LLC
Ashford Santa Clara Partners LP
Ashford Santa Fe LP
Ashford Sapphire I GP LLC
Ashford Sapphire II GP LLC
Ashford Sapphire V GP LLC
Ashford Sapphire VI GP LLC
Ashford Sapphire Acquisition LLC
Ashford Sapphire GP LLC




Ashford Sapphire Junior Holder I LLC
Ashford Sapphire Junior Holder II LLC
Ashford Sapphire Junior Mezz I LLC
Ashford Sapphire Junior Mezz II LLC
Ashford Sapphire Senior Mezz I LLC
Ashford Sapphire Senior Mezz II LLC
Ashford Scottsdale LP
Ashford Senior General Partner LLC
Ashford Senior General Partner I LLC
Ashford Senior General Partner II LLC
Ashford Senior General Partner III LLC
Ashford Senior General Partner IV LLC
Ashford Syracuse LP
Ashford Terre Haute LP
Ashford Tipton Lakes LP
Ashford Torrance LP
Ashford TRS V LLC
Ashford TRS VI Corporation
Ashford TRS Anaheim LLC
Ashford TRS Canada Corporation
Ashford TRS CM LLC
Ashford TRS Columbus LLC
Ashford TRS Corporation
Ashford TRS Crystal City LLC
Ashford TRS Five Junior Mezz I LLC
Ashford TRS Five Junior Mezz II LLC
Ashford TRS Five Junior Mezz III LLC
Ashford TRS Five Junior Mezz IV LLC
Ashford TRS Five Senior Mezz I LLC
Ashford TRS Five Senior Mezz II LLC
Ashford TRS Five Senior Mezz III LLC
Ashford TRS Five Senior Mezz IV LLC
Ashford TRS Investment Management GP LLC
Ashford TRS Investment Management LP
Ashford TRS Jacksonville III LLC
Ashford TRS Jacksonville IV LLC
Ashford TRS Lee Vista LLC
Ashford TRS Lessee LLC
Ashford TRS Lessee I LLC
Ashford TRS Lessee II LLC
Ashford TRS Lessee III LLC
Ashford TRS Lessee IV LLC
Ashford TRS Nickel LLC
Ashford TRS PH LLC
Ashford TRS Pier House LLC
Ashford TRS Pier House Mezz A LLC




Ashford TRS Pier House Mezz B LLC
Ashford TRS Pool I LLC
Ashford TRS Pool II LLC
Ashford TRS Santa Clara LLC
Ashford TRS Sapphire LLC
Ashford TRS Sapphire I LLC
Ashford TRS Sapphire II LLC
Ashford TRS Sapphire V LLC
Ashford TRS Sapphire VI LLC
Ashford TRS Sapphire GP LLC
Ashford TRS Sapphire Junior Holder LLC
Ashford TRS Sapphire Junior Mezz LLC
Ashford TRS Sapphire Senior Mezz LLC
Ashford TRS WQ LLC
Ashford Walnut Creek GP LLC
Ashford Walnut Creek LP
Ashford WQ Hotel GP LLC
Ashford WQ Hotel LP
Ashford WQ Licensee LLC
Austin Embassy Beverage, Inc.
Bucks County Member LLC
CHH Crystal City Hotel GP, LLC
CHH Crystal City Hotel, LP
CHH Lee Vista Hotel GP, LLC
CHH Lee Vista Hotel, LP
CHH Santa Clara Hotel GP, LLC
CHH Santa Clara Hotel, LP
CHH Tucson Parent, LLC
CHH Tucson Partnership, LP
CIH Galleria Parent, LLC
CM Hotel GP, LLC
CM Hotel Partners, LP
Commack New York Hotel Limited Partnership
Coral Gables Florida Hotel Limited Partnership
Crystal City Tenant Corp.
CY-CIH Manchester Parent, LLC
CY Manchester Hotel Partners, LP
CY Manchester Tenant Corporation
Dearborn Hotel Partners, LP
Dearborn Tenant Corp.
DLC 2 Tree Tenant Corp.
EC Tenant Corp.
FL/NY GP LLC
Galleria Hotel Partners, LP
Galleria Tenant Corporation
HH Annapolis Holding LLC




HH Annapolis LLC
HH Atlanta LLC
HH Austin Hotel Associates, L.P.
HH Baltimore Holdings LLC
HH Baltimore LLC
HH Chicago LLC
HH Churchill Hotel Associates, L.P.
HH Denver LLC
HH DFW Hotel Associates, L.P.
HH FP Portfolio LLC
HH Gaithersburg Borrower LLC
HH Gaithersburg LLC
HH LC Portfolio LLC
HH Melrose Hotel Associates, L.P.
HH Mezz Borrower A-2 LLC
HH Mezz Borrower A-3 LLC
HH Mezz Borrower A-4 LLC
HH Mezz Borrower C-2 LLC
HH Mezz Borrower C-3 LLC
HH Mezz Borrower C-4 LLC
HH Mezz Borrower D-2 LLC
HH Mezz Borrower D-3 LLC
HH Mezz Borrower D-4 LLC
HH Mezz Borrower F-2 LLC
HH Mezz Borrower F-3 LLC
HH Mezz Borrower F-4 LLC
HH Mezz Borrower G-2 LLC
HH Mezz Borrower G-3 LLC
HH Mezz Borrower G-4 LLC
HH Palm Springs LLC
HH Princeton LLC
HH San Antonio LLC
HH Savannah LLC
HH Swap A LLC
HH Swap C LLC
HH Swap C-1 LLC
HH Swap D LLC
HH Swap F LLC
HH Swap F-1 LLC
HH Swap G LLC
HH Tampa Westshore LLC
HH Texas Hotel Associates, L.P.
HHC Texas GP LLC
HHC TRS Atlanta LLC
HHC TRS Austin LLC
HHC TRS Baltimore LLC




HHC TRS Chicago LLC
HHC TRS FP Portfolio LLC
HHC TRS Highland LLC
HHC TRS LC Portfolio LLC
HHC TRS Melrose LLC
HHC TRS Portsmouth LLC
HHC TRS Princeton LLC
HHC TRS Savannah LLC
HHC TRS Tampa LLC
Hyannis Massachusetts Hotel Limited Partnership
Key West Florida Hotel Limited Partnership
Key West Hotel GP LLC
Lee Vista Tenant Corp.
Minnetonka Hotel GP LLC
Minnetonka Minnesota Hotel Limited Partnership
New Beverly Hills GP LLC
New Beverly Hills Hotel Limited Partnership
New Clear Lake GP LLC
New Clear Lake Hotel Limited Partnership
New Fort Tower I GP LLC
New Fort Tower I Hotel Limited Partnership
New Houston GP LLC
New Houston Hotel Limited Partnership
New Indianapolis Downtown GP LLC
New Indianapolis Downtown Hotel Limited Partnership
Non-REIT GP LLC
Palm Beach Florida Hotel and Office Building Limited Partnership
Palm Beach GP LLC
PH Hotel GP, LLC
PH Hotel Partners, LP
PIM Ashford Mezz 4 LLC
PIM Ashford Subsidiary I, LLC
PIM Ashford Venture I, LLC
PIM Boston Back Bay LLC
PIM Nashville LLC
PIM Highland Holding LLC
PIM Highland TRS Corporation
PIM TRS Boston Back Bay LLC
PIM TRS Nashville LLC
Portsmouth Hotel Associates LLC
REDUS SH ND, LLC
RFS SPE 2000 LLC
RI-CIH Manchester Parent, LLC
RI Manchester Hotel Partners, LP
RI Manchester Tenant Corporation
Rye Town Tenant Corp.




Santa Clara Tenant Corp.
South Yarmouth Massachusetts Hotel Limited Partnership
St. Petersburg Florida Hotel Limited Partnership
St. Petersburg GP LLC
Westbury New York Hotel Limited Partnership





EXHIBIT 21.2
SPECIAL PURPOSE ENTITIES LIST AS OF DECEMBER 31, 2013
                                    
Annapolis Maryland Hotel Limited Partnership
Ashford Alpharetta Limited Partnership
Ashford Anchorage LP
Ashford Atlanta Buckhead LP     
Ashford Atlantic Beach LP
Ashford Austin LP
Ashford Basking Ridge LP
Ashford Bloomington LP
Ashford Bridgewater Hotel Partnership, LP
Ashford Bucks County LLC
Ashford Buena Vista LP
Ashford Buford I LP
Ashford Buford II LP
Ashford BWI Airport LP
Ashford Centerville Limited Partnership
Ashford Charlotte Limited Partnership
Ashford CM Partners LP
Ashford Coral Gables LP
Ashford Crystal City Partners LP
Ashford Crystal City Limited Partnership
Ashford Crystal Gateway LP
Ashford Dallas LP
Ashford Dulles LP
Ashford Durham I LLC
Ashford Durham II LLC
Ashford Edison LP
Ashford Evansville I LP
Ashford Evansville III LP
Ashford Falls Church Limited Partnership
Ashford Flagstaff LP
Ashford Irvine Spectrum Foothill Ranch Limited Partnership
Ashford Ft. Lauderdale Weston I LLC
Ashford Ft. Lauderdale Weston II LLC
Ashford Ft. Lauderdale Weston III LLC
Ashford Gaithersburg Limited Partnership
Ashford Gateway TRS Corporation
Ashford Hawthorne LP
Ashford Jacksonville I LP
Ashford Jacksonville II LP
Ashford LLB SHS Management, LP
Ashford Jacksonville IV LP
Ashford Kennesaw I LP
Ashford Kennesaw II LP
Ashford LLB C-Hotel Management, LP




Ashford LLB F-Inn Management, LP
Ashford Las Vegas LP
Ashford Lawrenceville LP
Ashford Lee Vista Partners LP
Ashford Louisville LP
Ashford LV Hughes Center LP
Ashford Manhattan Beach LP
Ashford Market Center LP
Ashford Minneapolis Airport LP
Ashford Mira Mesa San Diego Limited Partnership
Ashford MV San Diego LP
Ashford Mobile LP
Ashford Newark LP
Ashford Oakland LP
Ashford Orlando Sea World Limited Partnership
Ashford Overland Park Limited Partnership
Ashford Philly LP
Ashford Phoenix Airport LP
Ashford PH Partners LP
Ashford Plano-C LP
Ashford Plano-R LP
Ashford Plymouth Meeting LP
Ashford Raleigh Limited Partnership
Ashford Richmond LP
Ashford Ruby Palm Desert I Limited Partnership
Ashford Salt Lake Limited Partnership
Ashford San Jose LP
Ashford Santa Clara Partners LP
Ashford Santa Fe LP
Ashford Scottsdale LP
Ashford Syracuse LP
Ashford Terre Haute LP
Ashford Tipton Lakes LP
Ashford Walnut Creek LP
Bucks County Member LLC
CY Manchester Hotel Partners, LP
Key West Florida Hotel Limited Partnership
Minnetonka Minnesota Hotel Limited Partnership
New Beverly Hills Hotel Limited Partnership
New Clear Lake Hotel Limited Partnership
New Fort Tower I Hotel Limited Partnership
New Houston Hotel Limited Partnership
New Indianapolis Downtown Hotel Limited Partnership
Palm Beach Florida Hotel and Office Building Limited Partnership
St. Petersburg Florida Hotel Limited Partnership
Ashford Sapphire GP LLC
Ashford Sapphire I GP LLC




Ashford Sapphire II GP LLC
Ashford Sapphire V GP LLC
Ashford Sapphire VI GP LLC
Ashford Sapphire Junior Holder I LLC
Ashford Sapphire Junior Mezz I LLC
Ashford Sapphire Senior Mezz I LLC
Ashford TRS CM LLC
Ashford TRS Crystal City LLC
Ashford TRS Jacksonville IV LLC
Ashford TRS Lee Vista LLC
Ashford TRS Lessee I LLC
Ashford TRS Lessee II LLC
Ashford TRS Lessee III LLC
Ashford TRS Lessee IV LLC
Ashford TRS Nickel LLC
Ashford TRS PH LLC
Ashford TRS Pool I LLC
Ashford TRS Pool II LLC
Ashford TRS Santa Clara LLC
Ashford TRS Sapphire LLC
Ashford TRS Sapphire I LLC
Ashford TRS Sapphire II LLC
Ashford TRS Sapphire V LLC
Ashford TRS Sapphire VI LLC
Ashford TRS Sapphire Senior Mezz LLC
Ashford TRS Sapphire Junior Mezz LLC
Ashford TRS Sapphire Junior Holder LLC
CY Manchester Tenant Corporation
Annapolis Hotel GP LLC
Ashford Anchorage GP LLC
Ashford CM GP LLC
Ashford Crystal City GP LLC
Ashford Crystal Gateway GP LLC
Ashford Jacksonville IV GP LLC
Ashford Lee Vista GP LLC
Ashford Minneapolis Airport GP LLC
Ashford MV San Diego GP LLC
Ashford Philly GP LLC
Ashford PH GP LLC
Ashford Pool I GP LLC
Ashford Pool II GP LLC
Ashford Santa Clara GP LLC
Ashford Senior General Partner I LLC
Ashford Senior General Partner II LLC
Ashford Senior General Partner III LLC
Ashford Senior General Partner IV LLC
Ashford Walnut Creek GP LLC




CY-CIH Manchester Parent LLC
Key West Hotel GP LLC
Minnetonka Hotel GP LLC
New Beverly Hills GP LLC
New Clear Lake GP LLC
New Fort Tower I GP LLC
New Houston GP LLC
New Indianapolis Downtown Hotel GP LLC
Palm Beach GP LLC
St. Petersburg GP LLC
Ashford Five Junior Mezz LLC
Ashford Five Senior Mezz LLC
Ashford TRS Five Junior I LLC
Ashford TRS Five Junior II LLC
Ashford TRS Five Junior III LLC
Ashford TRS Five Junior IV LLC
Ashford TRS Five Senior I LLC
Ashford TRS Five Senior II LLC
Ashford TRS Five Senior III LLC
Ashford TRS Five Senior IV LLC
Ashford Pier House LP
Ashford Pier House GP LLC
Ashford TRS Pier House LLC
Ashford Pier House Mezz B LLC
Ashford Pier House Mezz A LLC
Ashford TRS Pier House Mezz B LLC
Ashford TRS Pier House Mezz A LLC








EXHIBIT 23.1
Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Forms S-3 No. 333-118746, No. 333-124105, No. 333-125423 and No. 333-181499 and Forms S-8 No. 333-164428 and No. 333-174448) of Ashford Hospitality Trust, Inc., and in the related Prospectuses of our reports dated March 3, 2014, with respect to the consolidated financial statements and schedules of Ashford Hospitality Trust, Inc. and subsidiaries, and the effectiveness of internal control over financial reporting of Ashford Hospitality Trust, Inc. and subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2013.
 
/s/ Ernst & Young LLP
Dallas, Texas
March 3, 2014





EXHIBIT 31.1
CERTIFICATION
I, Monty J. Bennett, certify that:
1.
I have reviewed this annual report on Form 10-K of Ashford Hospitality Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
 
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 3, 2014

/s/ MONTY J. BENNETT
 
Monty J. Bennett
 
Chief Executive Officer
 




EXHIBIT 31.2
CERTIFICATION
I, David J. Kimichik, certify that:
1.
I have reviewed this annual report on Form 10-K of Ashford Hospitality Trust, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
 
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 3, 2014

/s/  DAVID J. KIMICHIK
 
David J. Kimichik
 
Chief Financial Officer
 




EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ashford Hospitality Trust, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2013 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Monty J. Bennett, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 5(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2014

/s/  MONTY J. BENNETT
 
Monty J. Bennett
 
Chief Executive Officer
 




EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ashford Hospitality Trust, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2013 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J. Kimichik, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
 
(1)
The Report fully complies with the requirements of Section 13(a) or 5(d) of the Securities Exchange Act of 1934, as amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 3, 2014

/s/  DAVID J. KIMICHIK
 
David J. Kimichik
 
Chief Financial Officer