General Counsel Employment Agreement

EMPLOYMENT AGREEMENT


THIS EMPLOYMENT AGREEMENT (the "Agreement") is made this 24th day of October, 2003, by Highland Hospitality, L.P., a Delaware limited partnership (the "Company"), and Highland Hospitality Corporation, a Maryland corporation (the "REIT"), each with its principal place of business at 8405 Greensboro Drive, Suite 500, McLean, VA 22102 (the "Company") and Tracy M.J. Colden, residing at 1501 Van Buren Street, NW, Washington, District of Columbia 20012 (the "Executive").


WHEREAS, the REIT is the general partner of the Company; and


WHEREAS, the parties desire to enter into this agreement to reflect the Executive's executive capacities in the REIT's business and to provide for the Company's and the REIT's employment of the Executive; and


WHEREAS, the parties wish to set forth the terms and conditions of that employment;


NOW THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, the parties agree as follows:


1. Term of Employment


The Company and the REIT hereby employ the Executive, and the Executive hereby accepts employment with the Company and the REIT, upon the terms and conditions set forth in this Agreement. Unless terminated earlier pursuant to Section 5, the Executive's employment pursuant to this Agreement shall be for the two (2) year period commencing on the date of closing of the initial public offering of the REIT's common stock pursuant to the REIT's registration statement on Form S-11 filed with the Securities and Exchange Commission (the "Commencement Date") and ending on the second anniversary of the Commencement Date (the "Initial Term"). The Initial Term shall be extended for an additional twelve (12) months on each anniversary of the Commencement Date unless the Company or the Executive provides written notice to the contrary at least six (6) months before the applicable anniversary of the Commencement Date. The Initial Term, together with any such extensions, shall be referred to herein as the "Employment Period." In the event that the Board of Directors of the REIT (the "Board of Directors") determines that active efforts to complete the closing of the initial public offering have been abandoned, this Agreement shall become null and void.


2. Title; Duties


The Executive shall be employed as Executive Vice President, General Counsel and Corporate Secretary of the REIT. The Executive shall report to the Board of Directors, who shall have the authority to direct, control and supervise the activities of the Executive. The Executive shall perform such services consistent with her position as may be assigned to her from time to time by the Board of Directors and are consistent with the bylaws of the REIT and the Agreement of Limited Partnership of the Company as it may be amended from time to time, including, but not limited to, managing the affairs of the REIT and the Company.


3. Extent of Services


(a) General. The Executive agrees not to engage in any business
activities during the Employment Period except those which are for the
sole benefit of the Company or the REIT and their subsidiaries (the
Company and the REIT are hereinafter referred to as the "Company
Group"), and to devote his entire business time, attention, skill and
effort to the performance of her duties under this Agreement.
Notwithstanding the foregoing, the Executive may, without impairing or
otherwise adversely affecting the Executive's performance of her
duties to the Company Group, (i) engage in personal investments and
charitable, professional and civic activities, and (ii) with the prior
approval of the Board of Directors, serve on the boards of directors
of corporations other than the REIT, provided, however, that no such
approval shall be necessary for the Executive's continued service on
any board of directors on which she was serving on the date of this
Agreement, all of which have been previously disclosed to the Board of
Directors in writing and provided further, that in no event shall the
Executive be permitted to serve on the board of directors of any other
entity that owns, operates, acquires, sells, develops and/or manages
any hotel or similar asset in the lodging industry. The Executive
shall perform her duties to the best of her ability, shall adhere to
the Company Group's published policies and procedures, and shall use
her best efforts to promote the Company Group's interests, reputation,
business and welfare.


(b) Corporate Opportunities. The Executive agrees that she will not
take personal advantage of any business opportunities which arise
during her employment with the Company Group and which may be of
benefit to the Company Group. All material facts regarding such
opportunities must be promptly reported by the Executive to the Board
of Directors for consideration by the Company Group.


4. Compensation and Benefits


(a) Salary. The Company shall pay the Executive a gross base annual
salary ("Base Salary") of $235,000. The salary shall be payable in
arrears in approximately equal semi-monthly installments (except that
the first and last such semi-monthly installments may be prorated if
necessary) on the Company's regularly scheduled payroll dates, minus
such deductions as may be required by law or reasonably requested by
the Executive. The REIT's Compensation Policy Committee (the
"Compensation Committee") shall review her Base Salary annually in
conjunction with its regular review of employee salaries and may
increase (but not decrease) her Base Salary as in effect from time to
time as the Compensation Committee shall deem appropriate.


(b) Other Benefits. The Executive shall be entitled to paid time off
and holiday pay in accordance with the Company Group's policies in
effect from time to time and shall be eligible to participate in such
life, health, and disability insurance, pension, deferred compensation
and incentive plans, stock options and awards, performance bonuses and
other benefits as the Company Group extends, as a matter of policy, to
its executive employees. The Company Group shall maintain a disability
insurance policy or plan covering the Executive during the Employment
Period.


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(c) Reimbursement of Business Expenses. The Company shall reimburse the
Executive for all reasonable travel, entertainment and other expenses
incurred or paid by the Executive in connection with, or related to,
the performance of her duties, responsibilities or services under this
Agreement, upon presentation by the Executive of documentation, expense
statements, vouchers, and/or such other supporting information as the
Company may reasonably request.


5. Termination


(a) Termination by the Company for Cause. The Company may terminate the
Executive's employment under this Agreement at any time for Cause, upon
written notice by the Company to the Executive. For purposes of this
Agreement, "Cause" for termination shall mean any of the following: (i)
the conviction of the Executive of, or the entry of a plea of guilty or
nolo contendere by the Executive to, any felony; (ii) fraud,
misappropriation or embezzlement by the Executive; (iii) the
Executive's willful failure or gross negligence in the performance of
her assigned duties for the Company Group, which failure or negligence
continues for more than fifteen (15) calendar days following the
Executive's receipt of written notice of such willful failure or gross
negligence; (iv) the Executive's breach of any of her fiduciary duties
to the Company Group; (v) any act or omission of the Executive that has
a demonstrated and material adverse impact on the Company Group's
reputation for honesty and fair dealing; or (vi) the breach by the
Executive of any material term of this Agreement.


(b) Termination by the Company Without Cause or by the Executive
Without Good Reason. Either party may terminate this Agreement at any
time without Cause (in the case of the Company) or without Good Reason
(in the case of the Executive), upon giving the other party sixty (60)
days' written notice. At the Company's sole discretion, it may
substitute sixty (60) days' salary in lieu of notice. Any salary paid
to the Executive in lieu of notice shall not be offset against any
entitlement the Executive may have to the Severance Payment pursuant to
Section 6(c).


(c) Termination by Executive for Good Reason. The Executive may
terminate her employment under this Agreement at any time for Good
Reason, upon written notice by the Executive to the Company. For
purposes of this Agreement, "Good Reason" for termination shall mean,
without the Executive's consent, (i) the assignment to the Executive of
substantial duties or responsibilities inconsistent with the
Executive's position at the Company Group, or any other action by the
Company Group which results in a substantial diminution of the
Executive's duties or responsibilities other than any such reduction
which is remedied by the Company Group within 30 days of receipt of
written notice thereof from the Executive; (ii) a requirement that the
Executive work principally from a location outside the fifty (50) mile
radius from the Company's address first written above; (iii) the
Company's failure to pay the Executive any Base Salary or other
compensation to which she becomes entitled, other than an inadvertent
failure which is remedied by the Company within thirty (30) days after
receipt of written notice thereof from the Executive (or ten (10) days
for failure to pay Base Salary); or (iv) a substantial reduction in the
Executive's aggregate Base Salary and other compensation taken as a
whole, excluding any reductions caused by the failure to achieve
performance


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targets.


(d) Executive's Death or Disability. The Executive's employment shall
terminate immediately upon her death or, upon written notice as set
forth below, her Disability. As used in this Agreement, "Disability"
shall mean such physical or mental impairment as would render the
Executive eligible to receive benefits under the long-term disability
insurance policy or plan then made available by the Company Group to
the Executive. If the Employment Period is terminated by reason of the
Executive's Disability, either party shall give thirty (30) days'
advance written notice to that effect to the other.


6. Effect of Termination


(a) General. Regardless of the reason for any termination of this
Agreement, the Executive (or the Executive's estate if the Employment
Period ends on account of the Executive's death) shall be entitled to
(i) payment of any unpaid portion of her Base Salary through the
effective date of termination; (ii) reimbursement for any outstanding
reasonable business expense she has incurred in performing her duties
hereunder; (iii) continued insurance benefits to the extent required by
law; (iv) payment of any vested but unpaid rights as required
independent of this Agreement by the terms of any bonus or other
incentive pay or stock plan, or any other employee benefit plan or
program of the Company Group; and (v) except in the case of
"Termination by the Company for Cause," any bonus or incentive
compensation that was approved but not paid.


(b) Termination by the Company for Cause or by Executive Without Good
Reason. If the Company terminates the Executive's employment for Cause
or the Executive terminates her employment without Good Reason, the
Executive shall have no rights or claims against the Company Group
except to receive the payments and benefits described in Section 6(a).


(c) Termination by the Company Without Cause or by Executive for Good
Reason. Except as provided in Section 6(d), if the Company terminates
the Executive's employment without Cause pursuant to Section 5(b), or
the Executive terminates her employment for Good Reason pursuant to
Section 5(c), the Executive shall be entitled to receive, in addition
to the items referenced in Section 6(a), the following:


(i) continued payment of her Base Salary, at the rate in effect on
her last day of employment, for a period of twelve (12) months (the
"Severance Payment"). The Severance Payment shall be paid in
approximately equal installments on the Company's regularly
scheduled payroll dates, subject to all legally required payroll
deductions and withholdings for sums owed by the Executive to the
Company Group;


(ii) continued payment by the Company for the Executive's life,
health and disability insurance coverage during the twelve (12)
month severance period referenced in Section 6(c)(i) to the same
extent that the Company paid for such coverage immediately prior to
the termination of the Executive's employment and subject to the
eligibility requirements and other terms and conditions of such


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insurance coverage, provided that if any such insurance coverage
shall become unavailable during the twelve (12) month severance
period, the Company thereafter shall be obliged only to pay to the
Executive an amount which, after reduction for income and
employment taxes, is equal to the employer premiums for such
insurance for the remainder of such severance period;


(iii) vesting as of the last day of her employment in any unvested
portion of any stock option and any restricted stock previously
issued to the Executive by the Company Group; and


(iv) a bonus equal to the greater of (x) the average of all
bonuses paid to the Executive (taking into account a payment of no
bonus or a payment of a bonus of $0) over the preceding thirty-six
(36) months (or the period of the Executive's employment if
shorter), and (y) the most recent bonus paid to the Executive. Such
bonus shall be paid to the Executive within sixty (60) days
following the end of the fiscal year in which such termination
occurs.


None of the benefits described in this Section 6(c) will be payable unless the Executive has signed a general release which has become irrevocable, satisfactory to the Company in the reasonable exercise of its discretion, releasing the Company, its affiliates, including the REIT, and their officers, directors and employees, from any and all claims or potential claims arising from or related to the Executive's employment or termination of employment.


(d) Termination Following Change in Control. If, (x) during the
Employment Period and within twelve (12) months following a Change in
Control, the Company (or its su ...