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þ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


(1)	Each share of common stock, par value $0.01 per share, has an associated right to purchase our Series A junior participating preferred stock, par value $0.01 per share.

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 for which the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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 the Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). o

The aggregate market value of common stock held by non-affiliates of the registrant as of December 31, 2002 was $59,307,994.

The number of shares of Common Stock, outstanding at March 20, 2003 was 20,587,006.

Portions of the Registrant’s definitive Proxy Statement relating to the Registrant’s 2003 Annual Meeting of Shareholders are incorporated by reference into Items 10, 11, 12 and 13.

Overview — We manage a portfolio of full-service and premium limited-service hospitality properties, hold investments in some of these properties, and provide related services in the hotel, corporate housing, resort, conference center and golf markets. Our portfolio is diversified in franchise and brand affiliations. We also own one hotel property. Our two primary business segments are hotel management and corporate housing. As of December 31, 2002, we managed 393 hotel properties, with 83,053 rooms in 45 states, the District of Columbia, Canada and Russia. In addition, we had 3,054 apartments under lease in the United States, Canada, France and the United Kingdom at December 31, 2002.

Hotel Management — We manage hospitality properties for a diverse group of owners. The owners of our managed properties include several large, publicly-owned hotel companies (such as MeriStar Hospitality Corporation, Host Marriott Corporation, FelCor Lodging Trust Incorporated, Winston Hotels, Equity Inns, and RFS Hotel Investors), large institutional real estate investment companies (such as CNL Hospitality, Cornerstone Real Estate, and W.P. Carey), as well as other owners of individual or multiple hotel properties. We are the largest independent hotel management company in the United States, based on rooms under management. The hotels we manage are primarily located throughout the United States and Canada, including most major metropolitan areas and rapidly growing secondary cities. We also currently manage three hotels in Moscow, Russia. Our managed hotels include hotels operated under nationally recognized brand names such as Hilton®, Marriott®, Sheraton®, Westin®, Radisson®, Doubletree®, Embassy Suites®, and Holiday Inn®.

We manage properties primarily within the upscale, full-service and premium limited-service sectors, and provide related management services for owners of both sectors as well. We believe the combination of these two sectors provides us with a balanced mix of managed assets. The two sectors attract a wide variety of potential customers, including both business executives and upscale leisure travelers. Managing in these two sectors allows us to provide systems and services to owners on a broad scale, capitalizing on the extensive experience of our corporate operations, sales and support personnel.

Corporate Housing — Through our Corporate Housing division we are the lessor of high quality, fully furnished accommodations under our BridgeStreet brand. We lease substantially all of our Corporate Housing accommodations through flexible, short-term leasing arrangements. We strive to match our supply of accommodations with current and anticipated client demand in order to reduce our financial exposure under leases. We believe our flexible leasing strategy allows us to react to changes in market demand for particular geographic locations and types of accommodations. Our management strives to develop strong relationships with property managers to ensure that we have a reliable supply of high quality, conveniently located accommodations. In London, Toronto and other large international cities we lease some units with terms of two or more years if we believe it is necessary to acquire a critical number of apartments in a section of the city with high demand for corporate housing and low supply of apartment units. As of December 31, 2002, 643 units, representing 21% of our total apartment units under lease, had terms in excess of two years.

Formation of the Company — We were formed on August 3, 1998, as MeriStar Hotels and Resorts, Inc., when we were spun off by CapStar Hotel Company and became the lessee and manager of all of CapStar’s hotels. After the spin-off, American General Hospitality Corporation (a Maryland corporation operating as a real estate investment trust, or “REIT”) and CapStar Hotel Company merged to form MeriStar Hospitality Corporation. We then acquired the third party lessee of most of the hotels owned by American General Hospitality, and substantially all of the assets and certain liabilities of the third-party manager of most of the hotels owned by American General Hospitality. On May 31, 2000, we completed the acquisition of BridgeStreet Accommodations, Inc. to create our Corporate Housing division. On January 1, 2001, in connection with the implementation of new REIT tax laws which permit subsidiaries of a REIT to lease the real estate it owns, we assigned the leases on each of these properties to taxable subsidiaries of MeriStar Hospitality and entered into management contracts with those taxable subsidiaries for each of the hotels. On

June 30, 2002, in connection with the new REIT tax laws, we assigned the leases on each of the properties owned by subsidiaries of Winston Hotels, Inc. to taxable subsidiaries of Winston Hotels and entered into management contracts with these taxable subsidiaries for each of the hotels we formerly leased from subsidiaries of Winston Hotels.

On July 31, 2002, we merged with Interstate Hotels Corporation to create Interstate Hotels & Resorts, Inc. The transaction was a stock-for-stock merger of Interstate Hotels Corporation into us in which Interstate Hotels Corporation stockholders received 4.6 shares of common stock for each equivalent share of Interstate Hotels Corporation stock outstanding. Holders of MeriStar common stock continued to hold their stock following the merger. Immediately after the merger, we effected a one-for-five reverse split of our common stock. The merger was accounted for as a reverse acquisition, with Interstate as the accounting acquiror, and MeriStar as the surviving company for legal purposes.

Operating Approach — Following the MeriStar-Interstate merger, we have continued to capitalize on our hospitality management experience and expertise. We also are emphasizing working with the owners of the hotels we manage to improve the relative performance of our managed hotels, and reduce or control costs in the face of the present extremely difficult economic and operating environments.

Our senior hotel management team has successfully managed hotels in all sectors of the lodging industry. We attribute our management success to our ability to analyze each hotel as a unique property and to identify particular cash flow growth opportunities present at each hotel. Our principal operating objective is to continue to analyze each hotel as a unique property in order to generate higher revenue per available room and increase net operating income, while providing our hotel guests with high-quality service and value. Given the challenging operating environment that has resulted from a sluggish economy, coupled with the disruptions caused by the risk of terrorist activity and worldwide geopolitical difficulties, we believe our depth of experience and strategies are now even more valuable to the owners of the hotels we manage. Similarly, our senior corporate housing executives have extensive experience in that line of business. We believe their experience in developing and executing successful business strategies are crucial to the future expansion and success of our operations in this business segment.

At December 31, 2002, we had $25.2 million of investments in and advances to affiliates. These investments relate to 38 hospitality real estate assets throughout the United States; the investments represent equity, secured debt and unsecured debt of those properties. We manage all of these hotels. We continue to look for and evaluate potential additional hotel investment opportunities that will provide us with the opportunity to acquire management contracts that will enhance our future performance.

In our Hotel Management business segment, we generate earnings through base fees, incentive fees and other services from our existing management contracts, as well as additional management contracts. We intend to work aggressively with the owners of our managed properties to increase relative performance of their hotels and reduce or control costs in the current difficult economic and operating environment. Our Hotel Management business segment is divided into four divisions: Branded, Full-Service hotels; Independent hotels; International hotels; and Limited-Service hotels (operating under the Crossroads Hospitality name).

In our Corporate Housing business segment, we plan to improve earnings by improving our inventory management and cost control in our existing markets. We may also add additional markets in North America if the conditions are favorable. In our European markets we plan to manage shifting demand in London and expand the Paris operations. In addition, we are seeking to license the BridgeStreet name to various local corporate housing providers throughout the United States.

We continue to evaluate potential investment opportunities in the hospitality industry. We have had discussions with possible equity investors who could serve as partners in acquisitions of hotel assets. We expect to finance future acquisitions and investments through additional borrowings under our senior credit facility. We believe that facility will be sufficient to provide for our current capital needs.

We operate primarily in two segments — Hotel Management and Corporate Housing. We operate our Corporate Housing division under the trade name BridgeStreet Corporate Housing Worldwide. Each segment is managed separately because of its distinctive products and services and is a reportable operating segment. We evaluate the performance of each segment based on earnings before interest, taxes, depreciation and amortization or “EBITDA.”

Our Hotel Management division’s principal operating objectives are to generate higher revenue per available room and increase net operating income of the hotels we manage, while providing our guests with high-quality service and value. We believe that skilled management is the most critical element in maximizing revenue and cash flow in properties, especially in upscale, full-service properties.

Personnel at our Corporate Office carry out financing and investment activities and provide services to support and monitor our on-site hotel operating executives. Each of our executive departments, including Hotel Operations, Sales and Marketing, Human Resources, Food and Beverage, Technical Services, Information Technology, Development, Legal, and Corporate Finance, is headed by an executive with significant experience in that area. These departments support the hotel operating executives by providing accounting and budgeting services, property management tools and other resources that we can create, maintain and deliver efficiently and effectively using our centralized Corporate Office resources.


•	Comprehensive Budgeting and Monitoring — Our operating strategy begins with an integrated budget planning process. The budget is implemented by individual on-site managers and monitored by our Corporate Office. Our Corporate Office personnel work with the property-based managers to set targets for cost and revenue categories at each of the properties. These targets are based on historical operating performance, planned renovations, operational efficiencies and local market conditions. Through effective and timely use of our comprehensive financial information and reporting systems, we are able to monitor actual performance efficiently. As a result, we can rapidly adjust prices, staffing levels and sales efforts to take advantage of changes in the market and to improve efficient revenue yield.

•	Targeted Sales and Marketing — We employ a systematic approach toward identifying and targeting demand segments for each property in order to maximize market penetration. Executives at our Corporate Office and property-based managers divide these segments into smaller subsegments (typically ten or more for each property) and develop tailored marketing plans to suit each such segment. We support each property’s local sales efforts with Corporate Office sales executives who develop and implement new marketing programs, and monitor and respond to specific market needs and preferences. We employ revenue yield management systems to manage each property’s use of the various distribution channels in the lodging industry. Those channels include franchisor reservation systems and toll-free numbers, travel agent and airline global distribution systems, corporate travel offices and office managers and convention and visitor bureaus. Our control access to these channels enables us to maximize revenue yields on a day-to-day basis. We recruit sales teams locally and those teams receive incentive-based compensation bonuses.

•	Strategic Capital Improvements — We and the owners of our properties plan renovations primarily to enhance a property’s appeal to targeted market segments. This is designed to attract new customers and generate increased revenue and cash flow. For example, in many of our properties, the banquet and meeting spaces have been renovated, and guest rooms have been upgraded with high speed internet access and comfortable work spaces to better accommodate the needs of business travelers and to increase average daily rates. We base recommendations on capital spending decisions on both strategic needs and potential rate of return on a given capital investment. While we provide recommendations and supervision of many capital expenditure projects, the owners of the properties are responsible for funding capital expenditures.

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Selective Use of Multiple Brand Names — We believe the selection of an appropriate franchise brand is essential in positioning a hotel property optimally within its local market. We select brands based on local market factors such as local presence of the franchisor, brand recognition, target demographics and efficiencies offered by franchisors. We believe our relationships with many major hotel franchisors place us in a favorable position when dealing with those franchisors and allow us to negotiate favorable franchise agreements with franchisors. We believe our ability to acquire additional management contracts will further strengthen our relationship with franchisors.


	The following chart summarizes information on the national franchise affiliations of our properties as of December 31, 2002:


•	Emphasis on Food and Beverage — We believe popular food and beverage ideas are a critical component in the overall success of a full-service hospitality property. We utilize food and beverage operations to create local awareness of our hotel facilities, to improve the profitability of our hotel operations, and to enhance customer satisfaction. We are committed to competing for patrons with restaurants and catering establishments by offering high-quality restaurants that garner positive reviews and strong local and/or national reputations. We have engaged food and beverage experts to develop several proprietary restaurant concepts. We have also successfully placed national food franchises such as Pizza Hut®, Starbuck’s Coffee® and “TCBY”® in several of our hotels. We believe popular food concepts will strengthen our ability to attract business travelers and group meetings and improve the name recognition of our properties.

•	Commitment to Service and Value — We are dedicated to providing consistent, exceptional service and value to our customers. We conduct extensive employee training programs to ensure high-quality, personalized service. We have created and implemented programs to ensure the effectiveness and uniformity of our employee training. Our practice of tracking customer comments through guest comment cards, and the direct solicitation of guest opinions regarding specific items, allows us to target investment in services and amenities. Our focus on these areas has enabled us to attract lucrative group business.

•	Purchasing — We have spent extensive resources to create efficient purchasing programs that offer the owner of each of the hotels we manage quality products at very competitive pricing. These programs are available to all of the properties we manage. While participation in our purchasing programs is voluntary, we believe they provide each of our managed hotels with a distinct competitive and economic edge. In developing these programs, we seek to obtain the best pricing available for the quality of item or service being sourced, in order to minimize the operating expenses of the properties we manage.

•	Business Intelligence — We employ internet-based reporting systems at each of our properties and at our Corporate Office to monitor the daily financial and operating performance of the properties. We have integrated information technology services through networks at many of the properties. Corporate Office executives utilize information systems that track each property’s daily occupancy, average daily rates, and revenue from rooms, food and beverage. By having current property operating information available quickly and efficiently, we are better able to respond quickly and efficiently to changes in the market of each property.

We plan to expand our portfolio by securing additional full-service and limited service management contracts. We attempt to identify properties that are promising management candidates located in markets with economic, demographic and supply dynamics favorable to hotel operators. Through our due diligence process, we seek to select those expansion targets where we believe selected capital improvements and focused management will increase the property’s ability to attract key demand segments, demonstrate better financial performance, and increase long-term value. In order to evaluate the relative merits of each investment opportunity, senior management and individual operations teams create detailed plans covering all areas of renovation and operation. These plans serve as the basis for our expansion decisions and guide subsequent renovation and operating plans.


•	Market Criteria — We evaluate hotel markets using the following principal criteria:


	Economic Growth. We focus on metropolitan areas that are approaching, or have already entered, periods of economic growth. Such areas generally show above average growth in the business community as measured by job formation rates, population growth rates, tourism and convention activity, airport traffic volume, local commercial real estate occupancy, and retail sales volume. Markets that exhibit these characteristics typically have strong demand for hotel facilities and services.

	Supply Constraints. We seek lodging markets with favorable supply dynamics for property owners and operators. These dynamics include an absence of current new hotel development and barriers to future development such as zoning constraints, the need to undergo lengthy local development approval processes, and a limited number of suitable sites. Other factors limiting the supply of new hotels are the current lack of financing available for new development and the inability to generate adequate returns on investment to justify new development.

	Geographic Diversification. Our properties are located in 45 states across the United States, the District of Columbia, Canada and Russia. We seek to maintain a geographically diverse portfolio of managed properties to offset the effects of regional economic cycles.


•	Hotel Criteria — We evaluate hotel assets using the following principal criteria:


	Location and Market Appeal. We seek to operate hotels situated near both business and leisure centers that generate a broad base of demand for hotel accommodations and facilities. These demand generators include airports, convention centers, business parks, shopping centers and other retail areas, sports arenas and stadiums, major highways, tourist destinations, major universities and cultural and entertainment centers with nightlife and restaurants. The confluence of nearby business and leisure centers enables us to attract both weekday business travelers and weekend leisure guests. Attracting a balanced mix of business, group and leisure guests to the hotels helps to maintain stable occupancy rates and high average daily rates.

	Size and Facilities. We seek to operate additional full-service hotels with 200 to 500 guest rooms, which include accommodations and facilities that are, or can be made, attractive to key demand segments such as business, group and leisure travelers. These facilities typically include large, upscale guest rooms; food and beverage facilities; extensive meeting and banquet space; and amenities such as health clubs, swimming pools and adequate parking.

	Potential Performance Improvements. We target under performing hotels where intensive management and selective capital improvements can increase revenue and cash flow. These hotels represent opportunities where a systematic management approach and targeted renovations should result in improvements in revenue and cash flow.

We expect our relationships throughout the industry will continue to provide us with a competitive advantage in identifying, evaluating and managing hotels that meet our criteria. We have a record of successfully managing the renovation and repositioning of hotels in situations with varying levels of service, room rates and market types. We plan to continue to manage such renovation programs as we acquire new management contracts.

On May 31, 2000, we completed the acquisition of BridgeStreet Accommodations, Inc. BridgeStreet is a leading provider of corporate housing services in metropolitan markets located in the United States, Canada, the United Kingdom and Paris, France. On August 17, 2001, we expanded BridgeStreet into France through the acquisition of a Paris-based corporate housing company. As of December 31, 2002, our Corporate Housing division had 3,054 apartments under lease and hundreds more corporate housing units rented through other network partners, or through our Global Partner Licensing Program.

Accommodations — Through our BridgeStreet brand, we offer high quality, fully furnished one-, two- and three-bedroom accommodations. These accommodations, together with the specialized service we offer, are intended to provide guests with a “home away from home.” We select our BridgeStreet apartments based on location, general property condition and basic amenities, with the goal of providing accommodations that meet each guest’s particular needs. As a flexible accommodation services provider, we can satisfy client requests for accommodations in a variety of locations and neighborhoods, including requests for proximity to an office, school or area attraction, as well as requests for accommodations of specific types and sizes. The substantial majority of BridgeStreet’s accommodations are located within a quality property complex and include dedicated parking, and access to fitness facilities, including, in many cases, pools, saunas and tennis courts. We also are able to customize accommodations to a guest’s request with items such as office furniture, fax machines and computers.

We lease substantially all of our Corporate Housing accommodations through flexible, short-term leasing arrangements. We strive to match our supply of accommodations with client demand, in order to reduce our financial exposure under the leases. We believe our flexible leasing strategy allows us to react to changes in market demand for particular geographic locations and types of accommodations. Our Corporate Housing management strives to develop strong relationships with property managers to ensure that we have a reliable supply of high quality, conveniently located accommodations.

Our Corporate Housing accommodations generally are priced competitively with all-suite or upscale extended-stay hotel rooms, even though we believe our accommodations are substantially larger than those hotel rooms. We believe we generally are able to price our accommodations competitively due to our:


•	High quality accommodations;
•	Relatively lower operating cost structure; and
•	Ability to lease accommodations in accordance with demand and leave unfavorable markets quickly.

The length of a guest’s stay can range from a week, to a few months to a year, with the typical stay ranging from 30 to 45 days.

Corporate Client Services — Our goal is to provide valuable, cost-effective housing to our corporate clients. Many of these clients’ human resource directors, relocation managers or training directors have significant, national employee lodging requirements. In particular, BridgeStreet aims to relieve our clients of the logistics and administrative burden often associated with relocating employees and/or providing them with temporary housing.

We believe existing and potential clients will increasingly turn to providers such as BridgeStreet to satisfy their employee lodging requirements as their awareness of BridgeStreet and the flexible corporate housing services industry increases.

Guest Services — We strive to provide the highest quality of customer service by overseeing all aspects of a guest’s lodging experience, from preparations prior to the guest’s arrival to the moving out process. BridgeStreet maintains a representative in each city in which it operates to be responsive to guests’ needs. BridgeStreet’s guest services department offers customers comprehensive information services before and during their stays to help guests acclimate themselves to their new surroundings.

Sales and Marketing — Our Corporate Housing division focuses primarily on business-to-business selling. At the headquarters level, we focus on global accounts. These are large national companies that we believe can most benefit from our expanding national and international network. At the local level, each of BridgeStreet’s operating subsidiaries has corporate account specialists that call on local companies, including local branches of regional or national companies, to solicit business. Each account specialist focuses their efforts on the key decision makers at each company responsible for establishing and administering travel and accommodation policies. These decision makers are typically human resource directors, relocation managers or training directors. By aggressively pursuing relationships with potential clients and expanding services to existing clients, BridgeStreet seeks to become each client’s primary or sole provider of flexible accommoda-

tion services nationwide. We operate a global BridgeStreet sales force to market our worldwide capabilities to our international corporate clients. In addition, we have expanded BridgeStreet’s Internet presence to supplement traditional marketing strategies and to better serve our customers.

We tailor our marketing strategy to the needs of particular clients. For example, we may market ourselves to a corporation with relocating employees by focusing on our ability to situate large families in two and three bedroom apartments, or provide access to accommodations in both metropolitan and suburban settings, or access to accommodations that allow pets. In contrast, when marketing to potential corporate clients in need of short-term housing, we might emphasize our flexible lease terms and our ability to customize an accommodation with amenities such as office equipment, including computers, additional telephone lines and other work-related items.

We intend to continue an advertising and promotional program designed to enhance the BridgeStreet name both inside and outside the flexible accommodation services industry and broaden our client base. In addition, we promote our BridgeStreet brand name by advertising in trade publications, business publications, Chamber of Commerce listings, local visitor magazines, telephone directories and the Internet, and through periodic direct mail and e-brochure campaigns.

Local Market Share — We have offices in seventeen USA markets that offer significant opportunity for expansion. We train all of our BridgeStreet sales employees in our sales and marketing techniques. With a better-trained sales force and our management experience, we believe we will be in a better position to penetrate local markets and increase our market share.

Global Accounts — We believe global accounts have substantial growth potential for BridgeStreet. BridgeStreet’s current customers include a significant number of large national companies who utilize BridgeStreet’s services in a loyal manner. We plan to maximize sales to those existing corporate clients and to obtain new clients. We use a national sales and marketing program that promotes the BridgeStreet brand and highlights BridgeStreet’s expanding national and international network, as well as BridgeStreet’s ability to serve as a central point of contact on all issues. Many of BridgeStreet’s clients are Fortune 2000 companies with significant national and international employee lodging requirements.

Franchise Program — In 2002, BridgeStreet launched a licensing program designed to extend BridgeStreet’s established network partner properties and offer operating systems and new revenue opportunities to licensees. The licensing program is intended to transform BridgeStreet from a national corporate housing service business to a global branded enterprise capable of generating and maintaining fee streams from licensing and related added value marketing and operational programs. Called the Global Partner Licensing Program, it provides regional corporate housing providers with access to BridgeStreet’s global customers, a centralized reservation system and sales and marketing support. These services will be offered to licensees who meet BridgeStreet’s stringent operational, financial and product quality standards. We view it as an opportunity for global expansion and to provide additional enterprise brand value.

Network Partner Relationships — We have developed a network partner relationship with flexible accommodation service providers in the United States and in 39 countries worldwide. Through network partner agreements, BridgeStreet has expanded the number of locations where it can serve our clients’ needs. In some additional markets, BridgeStreet intends to enter into network partner agreements with one or more leading local or regional flexible accommodation service providers having the size and quality of operations suitable for serving BridgeStreet’s client base.

Of the 187 full-service hotels we manage, 108 properties are owned by MeriStar Hospitality, a REIT. We have historically had a close business relationship with MeriStar Hospitality. Paul W. Whetsell is the Chairman and Chief Executive Officer of both companies, and we share two other board members with MeriStar Hospitality.

Intercompany Agreement — We are a party to an intercompany agreement with MeriStar Hospitality. Because of the provisions of the intercompany agreement, we are restricted in certain aspects of the nature of our business and the opportunities we may pursue. Under the agreement, we are prohibited from making real property investments that a REIT could make unless:


•	MeriStar Hospitality is first given the opportunity but elects not to pursue the investments;
•	the investment is on land already owned or leased by us or subject to a lease or purchase option in our favor;
•	we will operate the property under a trade name owned by us; or
•	the investment is a minority investment made as part of a lease or management agreement arrangement by us.

The intercompany agreement generally grants us the right of first refusal to become the manager of any real property acquired by MeriStar Hospitality. They will make such an opportunity available to us only if MeriStar Hospitality determines that:


•	consistent with its status as a REIT, MeriStar Hospitality must enter into a management agreement with an unaffiliated third party with respect to the property;
•	we are qualified to be the manager of that property; and
•	MeriStar Hospitality decides not to have the property operated by the owner of a hospitality trade name under that trade name.

The Intercompany Agreement will terminate upon the earlier of August 3, 2008 or a future change in our ownership or control.

Management Agreements — We currently manage all 108 properties owned by MeriStar Hospitality. Under these management agreements, we receive a management fee for each hotel equal to a specified percentage of aggregate hotel operating revenues, increased or reduced, as the case may be, by 20% of the positive or negative difference between:


•	The actual excess of total operating revenues over total operating expenses; and
•	A projected excess of total operating revenues over total operating expenses.

The total management fee for a hotel in any fiscal year will not be less than the base fee of 2.5%, or greater than 4.0% (with incentive fees) of aggregate hotel operating revenues. In 2002, the fee percentage we received on the hotels we managed for MeriStar was 2.5%

The management agreements with MeriStar Hospitality generally have initial terms of ten years with three renewal periods of five years each, except for two management agreements that have initial terms of one year with additional one-year renewal periods. A renewal will go into effect unless we elect not to renew the agreement or there is a change in the federal tax laws permitting MeriStar Hospitality or one of its subsidiaries to operate the hotels directly without adversely affecting MeriStar Hospitality’s ability to qualify as a REIT.

MeriStar Hospitality’s taxable subsidiaries have the right to terminate a management agreement for a hotel upon the sale of the hotel to a third party or if the hotel is destroyed and not rebuilt after a casualty. Upon that termination, MeriStar Hospitality’s taxable subsidiary will be required to pay us the fair market value of the management agreement. That fair market value will be equal to the present value of the remaining payments (discounted using a 10% rate) under the then-existing term of the agreement, based on the operating results for the 12 months preceding the termination. The termination fee will be paid in thirty equal monthly installments, without interest, commencing the month following the termination. MeriStar Hospitality’s taxable subsidiaries will be able to credit against any termination payments the present value of projected fees (discounted using a 10% rate) under any management agreements or leases entered into between MeriStar Hospitality and us after August 3, 1998; including, without limitation, the present value of any projected fees of any management agreements executed during the thirty-month period over which payments are made.

MeriStar Hospitality may also terminate a management agreement if certain performance standards at the hotel are not met in successive calendar years.

We do not have the right to assign a management agreement without the prior written consent of the relevant taxable subsidiary of MeriStar Hospitality. A change in control of our company will require MeriStar Hospitality’s consent, and they may grant or withhold their consent at their sole discretion. MeriStar Hospitality consented to our merger with Interstate Hotels Corporation in July 2002.

Borrowings From MeriStar Hospitality — As of December 31, 2002, we had $56.1 million of borrowings outstanding under a term note we had with MeriStar Hospitality. That note was due July 31, 2007. On January 10, 2003, we completed a discounted repayment to MeriStar Hospitality of the note for $42.1 million. We financed the repayment with proceeds from a $40.0 million subordinated term loan obtained from Lehman Brothers that matures in January 2007 and carries a coupon rate of LIBOR plus 850 basis points. The remaining $2.1 million was paid out of available cash.

In connection with the merger agreement, we entered into a registration rights agreement providing our principal investor group with registration rights in respect of the approximately 6.9 million shares of our common stock they hold.

Incidental registration right — Under their registration rights agreement, if at any time we propose to file a registration statement with the SEC to register any of our common stock or other debt or equity securities that may be converted into or exchanged for shares of common stock, for sale to the public, the principal investor group will have the right to include in the registration their shares of common stock. This right will be triggered whether the sale to the public is made by us for our account, or on behalf of any of our selling stockholders.


•	not for cash consideration,
•	is being made in connection with the conversion, exchange or exercise, for shares of our common stock,
•	of shares of our common stock that are issuable upon the exercise of stock options, or issuable under the employee stock purchase plan,
•	in connection with an acquisition by us,
•	in connection with any securities exchange offer, dividend reinvestment plan, corporate reorganization, or
•	in connection with any amalgamation, merger or consolidation in which we are involved where we are the surviving corporation.

The ability of the principal investor group to include shares of common stock in our registrations is subject to customary provisions relating to the ability of underwriters to reduce the number of securities to be sold in an offering.

Demand registration right — The principal investor group will also have the right to obligate us to file a registration statement covering the resale of their common stock upon written notice to us, so long as this demand for registration is for:


•	at least 500,000 shares of our common stock;
•	securities that are convertible into 500,000 shares of our common stock; or
•	a lesser number of shares, so long as the gross proceeds of the intended sale would not be less than $2,000,000, calculated based on the average closing price of common stock over the 10 day trading period immediately preceding the date of the written demand request.

We may delay filing the demanded registration, or delay the effectiveness of the related registration statement for a period of not more than 90 days if, in the sole judgment of our board of directors:


•	a delay is necessary in light of pending financing transactions, corporate reorganizations or other major events involving us; or
•	the filing at the time requested would materially and adversely affect our business or prospects in light of the disclosures that may be required by applicable law in connection with filing the registration statement.

These principal stockholders will be entitled to make up to seven demands for registration of their common stock to the company under the registration rights agreement.

Most favorable registration rights — The registration rights agreement will also provide that if we give any person registration rights that are more favorable than those granted to these stockholders, other than the number of registrations that may be demanded, with respect to any of our securities, we will be required to provide these stockholders with notice of that event, and accord them those more favorable rights.

As provided in our charter, the composition of our board of directors will remain unchanged for the 18 months after the MeriStar-Interstate merger, which occurred on July 31, 2002. In addition, during this 18-month period, we will include five individuals specified by the principal investor group in the slate of directors recommended for election as director by our board of directors, unless, at the time of the election, the principal investor group and its affiliates and associates beneficially own less than 75% of our common stock that they beneficially owned at the effective time of the merger.

We entered into a stockholder and board composition agreement with the principal investor group, Oak Hill Capital Partners, L.P. and parties related to it, and certain senior executives of MeriStar and Interstate. The agreement provides that, during the 18 months after the merger:


•	if any of six directors designated by MeriStar or any replacement as director for any of them resigns, retires or is no longer able to serve as a director by reason of death, disqualification, removal from office or any other cause, Mr. Whetsell or his replacement as director, if any, will have the right to designate a person for nomination to be a successor to the director no longer serving;

•	if any of five directors designated by the principal investor group or any replacement as director for any of them resigns, retires or is no longer able to serve as a director by reason of death, disqualification, removal from office or any other cause, then the majority of that group of individuals, including any of their replacements, if any, will have the right to designate a person for nomination to be a successor to the director no longer serving;

•	if all of five directors designated by the principal investor group or any replacement as director for any of them resigns, retires or is no longer able to serve as a director by reason of death, disqualification, removal from office or any other cause, then Mr. Thomas Hewitt, a director and the former chief executive officer of Interstate, or his replacement as director, if any, will have the right to designate a person for nomination to be a successor to the director no longer serving;

•	if any of Mr. Hewitt or Mr. John Russell, a director designated by Interstate, or any replacement as director for either of them resigns, retires or is no longer able to serve as a director by reason of death, disqualification, removal from office or any other cause then Mr. Hewitt, in the case of Mr. Russell leaving the board, or Mr. Russell, in the case of Mr. Hewitt leaving the board, or that person’s replacement as director, if any, will have the right to designate a person for nomination to be a successor to the director no longer serving;

•	we will use our best efforts, subject to the fiduciary duties of its board of directors under applicable law, to have any such successor that is designated for nomination under the agreement to be nominated and elected; and

•	the parties to the agreement other than us will, if the matter is put to a vote of stockholders, vote their shares of our common stock in a manner to cause the election of any such successor that is designated for nomination under the agreement.

As of December 31, 2002, we employed approximately 32,384 persons, of whom approximately 27,354 were compensated on an hourly basis. Some of the employees at 33 of our hotels are represented by labor unions. We believe that labor relations with our employees are generally good.

We employ a flexible branding strategy based on each particular managed hotel’s market environment and other unique characteristics. Accordingly, we use various national trade names pursuant to licensing arrangements with national franchisors.

Generally, the third-party owners of our hotels, rather than us, are parties to the franchise agreements to use the trade names under which the hotels are operated. We are a party, however, to certain franchise agreements with Marriott and Promus Hotels, Inc. Our franchise agreements to use these trade names expire at varying times, generally ranging from 2002 to 2021. A grant of franchise licenses for our hotels is not intended as, and should not be interpreted as, an express or implied approval or endorsement by any such franchisor or licensor, or any of their respective affiliates, subsidiaries or divisions, of us or our stock.

In addition, see our discussion of the BridgeStreet franchise program under “Business — Corporate Housing — Franchise Program.”

We have registered, or have applied with the United States Patent Office for registration of, a number of trademarks and service marks incorporating the words “BridgeStreet,” “Doral” or “Colony,” as well as many other trademarks and service marks used in our business. In connection with managing hotels, we utilize our trademarks and service marks, including the “BridgeStreet,” “Doral” and “Colony” marks. We do not believe that the loss or expiration of any or all of our marks would have a material adverse effect on our business. The registrations for our marks expire at varying times, generally ranging from 2002 to 2011.

Three of our hotels are located in Moscow, Russia. Our total net management fees earned from these hotels for the year ended December 31, 2002 were $4.1 million, or 7.3 % of our total management fees in 2002. The management fees are paid in U.S. dollars. We amortize, over a five-year period, costs incurred in obtaining the management contracts on these three hotels. The balance of the unamortized costs amounted to $0.2 million at December 31, 2002. If these contracts are terminated, the balance of the unamortized costs would become due from the owner of these hotels. These costs will be fully amortized at December 31, 2003.

In addition, in connection with the management contracts for the three hotels located in Russia, we agreed to fund loans to the hotel owners. The loans outstanding to these owners at December 31, 2002 amounted to $0.6 million. We cannot be certain of the effect that changing political climates and economic conditions could have on hotel operations in those countries and on our ability to collect on those loans to third-party owners in Russia.

In addition, we have signed management agreements for upscale hotel properties under development in Praia del Rey, Portugal; St. Petersburg, Russia; Khanti-Mansiisk, Russia; and Vilnius, Lithuania. The Portugal property is scheduled to open in late 2003; the other properties are still in the planning or development stages.

Through our subsidiary, Northridge Insurance Company, we offer certain of our managed hotels reinsurance and risk management services. Northridge Insurance purchases insurance from major insurance carriers at attractive rates due to high volume purchasing and excellent claims history. Northridge reinsures a portion of the coverage from these third-party primary insurers. Northridge Insurance then provides the owner of the managed hotels the opportunity to participate in the policy at prices and coverages that we believe are more advantageous than third-party hotel owners could otherwise obtain. In conjunction with our risk management

We provide this insurance coverage to our managed hotels under the terms of each individual management agreement. The policies provide for layers of coverage with minimum deductibles and annual aggregate limits. The policies are for coverage relating to innkeepers’ losses (general/comprehensive liability), wrongful employment practices, garagekeeper’s legal liability, replacement cost automobile losses, and real and personal property insurance.

For purposes of segment reporting, we included Northridge in our hotel management segment. All accounts of Northridge are classified with assets and liabilities of a similar nature in our consolidated balance sheets. Amounts restricted due to statutory requirements consist of cash and cash equivalents of 1.1 million at both December 31, 2002 and December 31, 2001. These amounts are reflected as restricted cash in our consolidated balance sheets. Our consolidated statements of operations include the insurance revenue earned and related insurance expenses incurred by Northridge. The insurance revenue earned by Northridge is included in “other revenues” in our consolidated statements of operations, and amounted to $7.8 million and $6.3 million for the years ended December 31, 2002 and 2001, respectively.

Insurance revenues are earned through reinsurance premiums, direct premiums written and reinsurance premiums ceded. Reinsurance premiums are recognized when individual policies are written and any unearned portions of the premium are recognized to account for the unexpired term of the policy, on as-reported basis. Direct premiums written are recognized in accordance with the underlying policy, and reinsurance premiums ceded are recognized on a pro-rata basis over the life of the related policies. Unearned premiums represent the portion of premiums applicable to the unexpired term of policies in force.

We make a provision for outstanding claims, for reported claims, claims incurred but not reported and claims settlement expense at each balance sheet date. Those losses are based on management’s estimate of the ultimate cost of settlement of claims and historical loss rates. Accrued claims liabilities are carried at present value without discounting since the contracts are of a short duration and discounting would not be significant. Actual liabilities may differ from estimated amounts. Any changes in estimated losses and settlements are reflected in current earnings.

A number of states regulate the licensing of hospitality properties and restaurants, including liquor licensing, by requiring registration, disclosure statements and compliance with specific standards of conduct. We believe that we are substantially in compliance with these requirements. Managers of hospitality properties are also subject to laws governing their relationship with employees, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of our properties and could otherwise adversely affect our operations.

Under the Americans with Disabilities Act, all public accommodations are required to meet certain requirements related to access and use by disabled persons. These requirements became effective in 1992. Although significant amounts have been and continue to be invested in federally required upgrades to our properties and units leased by BridgeStreet, a determination that we are not in compliance with the Americans with Disabilities Act could result in a judicial order requiring compliance, imposition of fines or an award of damages to private litigants. We are likely to incur additional costs of complying with the Americans with Disabilities Act. Those costs, however, are not expected to have a material adverse effect on our results of operations or financial condition.

substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous or toxic substances, or the failure to remediate such property properly, may adversely affect the owner’s ability to use the property, sell the property or borrow by using such real property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of such substances at the disposal or treatment facility, whether or not such facility is or ever was owned or operated by such person. The operation and removal of underground storage tanks are also regulated by federal and state laws. In connection with the operation of our properties, we could be liable for the costs of remedial action with respect to such regulated substances and storage tanks and claims related thereto. Environmental laws and common law principles could also be used to impose liability for releases of hazardous materials, including asbestos-containing materials, into the environment, and third parties may seek recovery from owners or operators of real properties for personal injury associated with exposure to released asbestos-containing materials or other hazardous materials.

Phase I environmental site assessments have been conducted at certain of our managed hotels, and Phase II environmental site assessments have been conducted at some of these hotels by qualified independent environmental engineers. The purpose of the environmental site assessments is to identify potential sources of contamination for which we may be responsible and to assess the status of environmental regulatory compliance. These assessments have not revealed, nor are we aware of, any environmental liability or compliance concerns that we believe would have a material adverse effect on our business, assets, results of operations or liquidity. Nevertheless, it is possible that these environmental site assessments did not reveal all environmental liabilities or compliance concerns or that material environmental liabilities or compliance concerns exist of which we are currently unaware.

In addition, a significant number of the hotels we own or manage have been inspected to determine the presence of asbestos. Federal, state and local environmental laws, ordinances and regulations also require abatement or removal of asbestos-containing materials and govern emissions of and exposure to asbestos fibers in the air. Asbestos-containing materials are present in various building materials such as sprayed-on ceiling treatments, roofing materials or floor tiles at some of the hotels. Operations and maintenance programs for maintaining asbestos-containing materials have been or are in the process of being designed and implemented, or the asbestos-containing materials have been scheduled to be or have been abated, at these hotels. Any liability resulting from non-compliance or other claims relating to environmental matters could have a material adverse effect on our results of operations or financial condition.

As a lessee of its accommodations, our Corporate Housing division believes that it and its employees are either outside the purview of, exempted from or in compliance with laws in the jurisdictions in which BridgeStreet operates requiring real estate brokers to hold licenses. However, there can be no assurance that BridgeStreet’s position in any jurisdiction where it believes itself to be excepted or exempted would be upheld if challenged or that any such jurisdiction will not amend its laws to require BridgeStreet and/or one or more of its employees to be licensed brokers. Moreover, there can be no assurance that BridgeStreet will not operate in the future in additional jurisdictions requiring such licensing.

In some of the jurisdictions in which BridgeStreet operates, we believe that we are not required to charge guests the sales and “bed” taxes that are applicable to establishments furnishing rooms to transient guests. We cannot provide assurance, however, that the tax laws in particular jurisdictions will not change or that a tax collection agency will not successfully challenge BridgeStreet’s position regarding the applicability of tax laws. We believe we properly charge and remit such taxes in all jurisdictions where we are required to do so.

We compete primarily in the following segments of the lodging industry: the upscale and mid-priced sectors of the full-service segment; the limited-service segment; and resorts. We also compete with other providers of flexible accommodation services. Other full- and limited-service hotels and resorts compete with our

properties in each geographic market in which our properties are located. Competition in the United States lodging industry is based on a number of factors, most notably convenience of location, brand affiliation, price, range of services and guest amenities or accommodations offered, and quality of customer service and overall product.

In addition, we compete for hotel management contracts against numerous competitors, many of which have more financial resources than us. These competitors include the management arms of some of the major hotel brands as well as independent, non-brand affiliated hotel managers.

The following summary information is qualified in its entirety by the provisions of the MeriStar H&R Operating Company, L.P. limited partnership agreement. We have filed a copy of the agreement as an exhibit to this Form 10-K.

MeriStar H&R Operating Company, L.P., our subsidiary operating partnership, indirectly holds a substantial portion of all of our assets. We are the sole general partner of that partnership. We, one of our directors and approximately 63 independent third-parties are limited partners of that partnership. The partnership agreement gives the general partner full control over the business and affairs of the partnership. The agreement also gives us, as general partner, the right, in connection with the contribution of property to the partnership or otherwise, to issue additional partnership interests in the partnership in one or more classes or series. These interests may have such designations, preferences and participating or other special rights and powers, including rights and powers senior to those of the existing partners, as we may determine.

The partnership agreement currently has two classes of limited partnership interests: Class A units and Preferred units. As of December 31, 2002, the ownership of the limited partnership units was as follows:


•	We and our wholly-owned subsidiaries own a number of Class A units equal to the number of outstanding shares of our common stock; and
•	Other limited partners own 363,883 Class A units and 78,431 Preferred units.

We did not make any distributions during 2002, 2001 or 2000 to the holders of the Class A units. Holders of preferred units receive a 6.5% cumulative annual preferred return based on a received capital amount of $16.70 per unit compounded quarterly to the extent not paid currently. All net income and capital proceeds earned by the partnership, after payment of the annual preferred return and, if applicable, the liquidation preference, will be shared by the holders of the Class A units in proportion to the number of units owned by each holder.

The holders of each Class A unit not held by us or one of our subsidiaries is redeemable for cash equal to the value of one share of our common stock or, at our option, one share of our common stock. Until April 1, 2004, the partnership may redeem the Preferred units for cash at a price of $16.70 per unit or (with the holder’s consent) for our common stock having equivalent aggregate value. After April 1, 2004, each holder of the Preferred units may require the partnership to redeem these units for cash at a price of $16.70 per unit or, at the holder’s option, shares of our common stock having equivalent aggregate value. If we or the holders of the Preferred units chose to redeem the Preferred units for our common stock instead of cash, and if our common stock was valued at that time at less than $16.70 per share, we would have to issue more shares of our common stock than the number of Preferred units being redeemed. For example, at December 31, 2002, our stock price was $4.80 per share. If the Preferred units were redeemed for common stock at that date, we would have issued 272,874 shares of our common stock, which would have represented approximately 1.3% of our then outstanding common stock, with respect to 78,431 Preferred units then outstanding.

We will make available, free of charge, access to our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with or furnished to the SEC through our home page at www.ihrco.com.

We encounter industry risks related to operating and managing hotels that could cause our results of operations to suffer.

Various factors could adversely affect our ability to generate revenues on which our management fees are based. Our business is subject to all of the operating risks inherent in the lodging industry. These risks include, but are not limited to, the following:


•	changes in national, regional and local economic conditions;
•	cyclical overbuilding in the lodging industry;
•	varying levels of demand for rooms and related services;
•	competition from other hotels, resorts and recreational properties, some of which may have greater marketing and financial resources than we or the owners of the properties we manage have;
•	dependence on business and commercial travelers and tourism, which may fluctuate and be seasonal;
•	decreases in air travel;
•	fluctuations in operating costs;
•	the recurring costs of necessary renovations, refurbishment and improvements of hotel properties;
•	fluctuations in demand resulting from threatened or actual acts of terrorism or hostilities;
•	changes in governmental regulations that influence or determine wages, prices and construction and maintenance costs; and
•	changes in interest rates and the availability of credit.

Demographic, geographic or other changes in one or more markets could impact the convenience or desirability of the sites of some hotels or corporate housing apartments, which would in turn affect the operations of those hotels or the corporate housing division. In addition, due to the level of fixed costs required to operate mid-scale and select-service hotels, resorts and conference centers, significant expenditures necessary for the operation of these properties generally cannot be reduced when circumstances cause a reduction in revenue.

We encounter industry related risks related to our investments in and ownership of hotels and other real estate.

We, as an owner of hotels and investments in real estate, are subject to the operating risks described in the immediately preceding risk factor. In addition, we are exposed to risks and uncertainties associated with the ownership of hotels and real estate, including risks arising from:


•	changes in national, regional and local economic conditions;
•	changes in local real estate market conditions;
•	changes in the markets for particular types of assets;
•	changes in interest rates and in the availability, cost and terms of financing;
•	uninsured casualty and other losses;
•	labor disturbances or shortages of labor;
•	present or future environmental legislation;
•	adverse changes in zoning laws;
•	adverse changes in real estate tax assessments;
•	construction or renovation delays and cost overruns; and
•	limitations on our ability to quickly dispose of investments and respond to changes in the economic or competitive environment due to the relative illiquidity of real estate assets.

Many of these factors will be beyond our control. As we expand through acquisition or development of real estate, the magnitude of these risks may increase. Any of these factors could have a material and adverse impact on the value of our assets or on the revenues that can be generated from those assets.

The current economic slowdown has adversely affected the performance of hotels and, if it worsens or continues, these effects could be material.

The economic slowdown and the resulting declines in revenue per available room at the hotels we manage began in the first quarter of 2001. These trends are currently continuing. The decline in occupancy during 2001 and 2002 has led to declines in room rates as hotels compete more aggressively for guests. If the current economic slowdown worsens significantly or continues for a protracted period of time, the declines in occupancy could also lead to further declines in average daily room rates and could have a material adverse effect on EBITDA and operating results. The economic slowdown could also result in the disposition of hotels, which could result in the loss of management contracts, which could have an adverse effect of our revenues.

If we are unable to identify additional appropriate real estate acquisition or development opportunities and to arrange the financing necessary to complete these acquisitions or developments, our continued growth could be impaired.

We will continually evaluate potential real estate development and acquisition opportunities. Any future acquisitions or developments will be financed through a combination of internally generated funds, additional bank borrowings from existing and new credit facilities and public offerings or private placements of equity or debt securities. The nature of any future financing will depend on factors such as the size of the particular acquisition or development and our capital structure at the time of a project. We may not be able to identify appropriate new acquisition or development opportunities and necessary financing may not be available on suitable terms, if at all.

Acquisition growth opportunities have decreased. There has been substantial consolidation in, and capital allocated to, the U.S. lodging industry since the early 1990s. This generally has resulted in higher prices for hotels. These conditions have resulted in fewer attractive acquisition opportunities. An important part of our growth strategy will be the acquisition and, in many instances, the renovation and repositioning of hotels at less than replacement cost. Continued industry consolidation and competition for acquisitions could adversely affect our growth prospects going forward. We will compete for hotel and other investment opportunities with other companies, some of which will have greater financial or other resources than we have. Competitors may have a lower cost of capital and may be able to pay higher prices or assume greater risks than would be prudent for us to pay or assume. If we are unable to continue real estate development and acquisition, its continued growth could be impaired.

The terms of our intercompany agreement with MeriStar Hospitality will also restrict our ability to make some types of investments in real estate. For more information regarding these restrictions, please refer to the risk factor under the caption, “Our relationship with MeriStar Hospitality Corporation may lead to general conflicts of interest that adversely affect stockholders’ interests.”

Acts of terrorism, the threat of terrorism and the ongoing war against terrorism have impacted and will continue to impact the industry and all hotel companies’ results of operations.

The terrorist attacks of September 11, 2001 had a negative impact on hotel operations for the remainder of 2001 and into 2002, causing lower than expected performance in an already slowing economy. The events of September 11th have caused a significant decrease in hotels’ occupancy and average daily rate due to disruptions in business and leisure travel patterns, and concerns about travel safety. Major metropolitan area and airport hotels have been adversely affected due to concerns about air travel safety and a significant overall decrease in the amount of air travel, particularly transient business travel.

The September 11th terrorist attacks were unprecedented in scope, and in their immediate, dramatic impact on travel patterns. We have not previously experienced events like the attacks, and it is currently not possible to accurately predict if and when travel patterns will be restored to pre-September 11th levels. While there have been improvements in operating levels from the period immediately following the attacks, the uncertainty associated with subsequent incidents, threats and the possibility of future attacks may continue to hamper business and leisure travel patterns as will the potential war with Iraq.

Generally, hotel revenues are greater in the second and third calendar quarters than in the first and fourth calendar quarters. This may not be true, however, for hotels in major tourist destinations. Revenues for hotels in tourist areas generally are substantially greater during tourist season than other times of the year. Because of the September 11th events, operating results for the third and fourth quarters of 2001 and during 2002 were lower than expected. Seasonal variations in revenue at the hotels we lease, own or manage will cause quarterly fluctuations in revenues. Events beyond our control, such as extreme weather conditions, economic factors, geopolitical conflicts and other considerations affecting travel may also adversely affect earnings.

We may be adversely affected by the limitations in our franchising and licensing agreements.

We are the franchisee of some of the hotels we own and/or manage. In addition, we, with respect to hotels for which we are not the franchisee, may sign a manager acknowledgment agreement with the franchisor which details some of our rights and obligations with respect to the hotel and references the hotel’s franchise agreement. The franchise agreements generally contain specific standards for, and restrictions and limitations on, the operation and maintenance of a hotel in order to maintain uniformity within the franchisor system. Those limitations may conflict with our philosophy of creating specific business plans tailored to each hotel and to each market. Standards are often subject to change over time, in some cases at the discretion of the franchisor, and may restrict a franchisee’s ability to make improvements or modifications to a hotel without the consent of the franchisor. In addition, compliance with standards could require a hotel owner to incur significant expenses or capital expenditures. Action or inaction by us or by the owner of a hotel could result in a breach of standards or other terms and conditions of the franchise agreements, and could result in the loss or cancellation of a franchise license. Loss of franchise licenses without replacement would likely have an adverse effect on revenues. In connection with terminating or changing the franchise affiliation of a hotel, the owner of the hotel may be required to incur significant expenses or capital expenditures. Moreover, the loss of a franchise license could have a material adverse effect upon the operation or the underlying value of the hotel covered by the franchise due to the loss of associated name recognition, marketing support and centralized reservation systems provided by the franchisor. Franchise agreements covering the hotels we manage expire or terminate, without specified renewal rights, at various times and have differing remaining terms. As a condition to renewal, these franchise agreements frequently contemplate a renewal application process. This process may require an owner to make substantial capital improvements to a hotel. Although the management agreements generally require owners to make capital improvements to maintain the quality of a property, the combined company will not be able to directly control the timing or amount of those expenditures.

Some of the franchise agreements under which we operate and manage hotels restrict the franchisee’s ability to own or operate another hotel within a specified territory or with regard to specific hotels. These limitations, if found to apply to us, may limit our ability to acquire new management agreements and potentially impair its continued growth.

There is no single competitor or small number of competitors that are dominant either in the hotel management or corporate housing business. We operate in areas that contain numerous competitors, some of which may have substantially greater resources than we or the owners of properties we manage have. Competition in the lodging industry and corporate housing market is based generally on location, availability, room rates or corporate housing rates, range and quality of services and guest amenities offered. New or existing competitors could significantly lower rates; offer greater conveniences, services or amenities; or significantly expand, improve or introduce new facilities in markets in which we compete. All of these factors could adversely affect operations and the number of suitable business opportunities. In addition, we compete for hotel management contracts against numerous other companies, many of which may have more financial resources. These competitors include the management divisions of some of the major hotel brands as well as independent, non-brand affiliated hotel managers.

Costs of compliance with environmental laws could adversely affect operating results.

Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances. These laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of hazardous or toxic substances. In addition, the presence of contamination from hazardous or toxic substances, or the failure to properly remediate contaminated property, may adversely affect the owner’s ability to sell or rent the property or to borrow using the property as collateral. Persons who arrange for the disposal or treatment of hazardous or toxic substances may also be liable for the costs of removal or remediation of those substances at the disposal or treatment facility, whether or not that facility is or ever was owned or operated by that person. The operation and removal of underground storage tanks are also regulated by federal and state laws. In connection with the ownership and operation of hotels, the operators, such as us or the owners of those properties could be held liable for the costs of remedial action for regulated substances and storage tanks and related claims. Activities have been undertaken to close or remove storage tanks located on the property of several of the hotels that we own or manage.

A significant number of the hotels that we own or manage have undergone Phase I environmental site assessments, which generally provide a nonintrusive physical inspection and database search, but not soil or groundwater analyses, by a qualified independent environmental engineer. The purpose of a Phase I is to identify potential sources of contamination for which the hotels may be responsible and to assess the status of environmental regulatory compliance. The Phase I assessments have not revealed, nor are we aware of, any environmental liability or compliance concerns that we believe would have a material adverse effect on our results of operations or financial condition. Nevertheless, it is possible that these environmental site assessments did not reveal all environmental liabilities or compliance concerns or that material environmental liabilities or compliance concerns exist of which we are currently unaware.

Aspects of hotel, resort, conference center, corporate housing and restaurant operations are subject to government regulation, and changes in regulations may have significant effects on business.

A number of states regulate various aspects of hotels, resorts, conference centers, corporate housing and restaurants, including liquor licensing, by requiring registration, disclosure statements and compliance with specific standards of conduct. We believe we are substantially in compliance with these requirements or, in the case of liquor licenses, that we have or will promptly obtain the appropriate licenses. Managers of hotels and providers of corporate housing are also subject to employment laws, including minimum wage requirements, overtime, working conditions and work permit requirements. Compliance with, or changes in, these laws could reduce the revenue and profitability of hotels and corporate housing units and could otherwise adversely affect results of operations or financial condition.

Under the Americans with Disabilities Act, or ADA, all public accommodations in the U.S. are required to meet federal requirements related to access and use by disabled persons. These requirements became effective in 1992. Although owners of hotels we manage have invested significant amounts in ADA-required upgrades, a determination that the hotels they own, lease or manage or the units leased by our Corporate Housing division are not in compliance with the ADA could result in a judicial order requiring compliance, imposition of fines or an award of damages to private litigants.

A high concentration of the hotels we own or lease are luxury and upscale hotels, and our corporate housing division primarily services business travelers, so we may be particularly susceptible to an economic downturn.

Approximately 63% of the rooms our Hotel Management division manages are in hotels that are classified as luxury and upscale, full-service. These hotels generally permit higher room rates. However, in an economic downturn, these hotels may be more susceptible to a decrease in revenues, as compared to hotels in other categories that have lower room rates. This characteristic may result from hotels in this segment generally targeting business and high-end leisure travelers. In periods of economic difficulties, business and leisure travelers may seek to reduce travel costs by limiting trips or seeking to reduce costs on their trips. The Corporate Housing segment is sensitive to economic conditions for the same reasons. Adverse changes in economic conditions or continued sluggishness in the economy could have a material adverse effect on the revenues and results of operations of the combined company.

Third-party hotel owners are not required to use the ancillary services we provide.

In addition to traditional hotel management services, we will offer to third-party hotel owners several ancillary services such as purchasing, project management, insurance and risk management, information technology and telecommunication services, and centralized accounting services. We expect to derive a portion of our revenues from these services. Our management contracts will not obligate third-party hotel owners to utilize these services, and the failure of a substantial number of third-party hotel owners to utilize these services could adversely affect our overall revenues.

Three of our hotels are located in Russia. The management contracts for the three Russian hotels accounted for approximately $4.1 million in net management fees, or approximately 7.3 % of our management fees for the year ended December 31, 2002. We are amortizing, over a five-year period, the costs incurred in obtaining the management contracts for the three hotels located in Russia. Current unamortized costs amount to approximately $0.2 million. If these contracts are terminated, the unamortized costs would become due from the owner of these hotels. In addition, under the management contracts for the three hotels located in Russia, we agreed to fund loans to the hotel owners. As of December 31, 2002, we had loans outstanding in the amount of $0.6 million to these owners.

In addition, we cannot be certain of the effect that changing political and economic conditions could have on hotel operations in Russia and on our ability to collect on loans to third-party owners in Russia. Furthermore, the success of our operations in Russia depends on our ability to attract and retain qualified management personnel in Russia who are familiar not only with our business and industry but also with the commercial practices and economic environment in Russia. Recent international geopolitical events may also have a negative effect on travel to Russia and may negatively affect the results of operations of our Russian hotels.

Our relationship with MeriStar Hospitality Corporation may lead to general conflicts of interest that adversely affect stockholders’ interests.

We have historically had a close business relationship with MeriStar Hospitality, a REIT that owns 108 of the properties we manage. Paul W. Whetsell is the Chairman and Chief Executive Officer of both companies, and we share two other board members with MeriStar Hospitality. Currently, our relationship with MeriStar Hospitality is governed by an intercompany agreement. That agreement restricts each party from taking advantage of some business opportunities without first presenting those opportunities to the other party.

We and MeriStar Hospitality may have conflicting views on the manner in which we manage its hotels, as well as acquisitions and dispositions. As a result, the directors and senior executive who serve in similar capacities at MeriStar Hospitality may well be presented with several decisions which provide them the opportunity to benefit MeriStar Hospitality to our detriment or benefit us to the detriment of MeriStar Hospitality. Inherent potential conflicts of interest will be present in all of the numerous transactions among us and MeriStar Hospitality.

We have restrictions on our business and on our future opportunities that could affect our operations. Under the intercompany agreement, we will be prohibited from making real property investments that a REIT could make unless:


•	MeriStar Hospitality is first given the opportunity but elects not to pursue the investments;
•	the investment is on land already owned or leased by us or subject to a lease or purchase option in our favor;
•	we will operate the property under a trade name owned by us; or
•	the investment is a minority investment made as part of a lease or management agreement arrangement by us.

The intercompany agreement generally grants us a right of first refusal to become the manager of any real property acquired by MeriStar Hospitality. They will make this type of opportunity available to us only if MeriStar Hospitality determines that:


•	consistent with its status as a REIT, MeriStar Hospitality must enter into a management agreement with an unaffiliated third party with respect to the property;
•	we are qualified to be the manager of that property; and
•	MeriStar Hospitality decides not to have the property operated by the owner of a hospitality trade name under that trade name.

Because of the provisions of the intercompany agreement, we will be restricted in the nature of our business and the opportunities we may pursue. The terms of the intercompany agreement were not negotiated on an arm’s-length basis. Because MeriStar Hospitality and we will share some of the same directors and our Chairman and Chief Executive Officer, there is a potential conflict of interest with respect to the enforcement of the intercompany agreement to our benefit and to the detriment of MeriStar Hospitality, or to the benefit of MeriStar Hospitality and to our detriment. Furthermore, because of the independent trading of the two companies, stockholders in each company may develop divergent interests that could lead to conflicts of interest. The divergence of interests could also reduce the anticipated benefits of our close relationship with MeriStar Hospitality.

We may have conflicts relating to the sale of hotels subject to management agreements. MeriStar Hospitality will generally be required to pay a termination fee to us if it elects to sell or transfer a hotel to a person or entity that is not an affiliate of MeriStar Hospitality or if it elects to permanently close a hotel after a casualty and does not replace it with another hotel with a management fee equal to that payable under the management agreement to be terminated. Where applicable, the termination fee will equal the present value of the management fees payable during the remainder of the existing term of the management agreement (discounted using a 10% discount rate), based on fees payable during the previous twelve months. MeriStar Hospitality’s decision to sell a hotel may, therefore, have significantly different consequences for MeriStar Hospitality and us. MeriStar Hospitality’s obligation to pay a termination fee to us is reduced by an amount equal to the present value of the management fees (as calculated above) for any management opportunities it has executed with us since August 3, 1998.

If we are unable to pursue new growth opportunities through our relationship with MeriStar Hospitality, our hotel management business could be negatively affected. Because of the terms of the intercompany agreement with MeriStar Hospitality if MeriStar Hospitality in the future fails to qualify as a REIT, it could have a substantial adverse effect on those aspects of our business operations and business opportunities that depend on MeriStar Hospitality. For example, if MeriStar Hospitality ceases to qualify as a REIT, the requirement in the intercompany agreement that MeriStar Hospitality enter into management agreements with us would cease. In that case, MeriStar Hospitality would have the right to operate newly acquired properties itself. We, however, would remain subject to all of the limitations on our operations contained in the existing management agreements. In addition, although it is anticipated that the management agreements generally will be assigned to any person or entity acquiring the fee or leasehold interest in a hotel property from MeriStar Hospitality or its affiliates, we could lose our rights under any of these management agreements upon the expiration of the agreement. The likelihood of a sale of the hotel properties could possibly increase if MeriStar Hospitality fails to qualify as a REIT. In addition, if there is a change in the Internal Revenue Code that would permit MeriStar Hospitality or one of its affiliates to operate hotels without

adversely affecting MeriStar Hospitality’s status as a REIT, MeriStar Hospitality would not be required to enter into future renewals of our management agreements. Furthermore, a change in control of MeriStar Hospitality could have a negative effect on us, since our working relationship with the new owner of those hotels may not be as close as our working relationship is with MeriStar Hospitality.

Also, if we and MeriStar Hospitality do not negotiate a mutually satisfactory management arrangement within approximately 30 days after MeriStar Hospitality provides us with written notice of the management opportunity, MeriStar Hospitality may offer the opportunity to others for a period of one year before it must again offer the opportunity to us.

If we fail to retain our executive officers and key personnel, our business would be harmed.

Our ability to maintain our competitive position will depend to a significant extent on the efforts and ability of our senior management, particularly our Chairman and Chief Executive Officer, Paul W. Whetsell; our President and Chief Operating Officer, John Emery; our President — Hotel Operations, Robert B. Morse; our President — BridgeStreet, Thomas Vincent; and our Chief Financial Officer, James A. Calder. Our future success and our ability to manage future growth will depend in large part upon the efforts of Messrs. Whetsell and Emery and on our ability to attract and retain other highly qualified personnel. Competition for personnel is intense, and we may not be successful in attracting and retaining our personnel. Our inability to attract and retain other highly qualified personnel may adversely affect our results of operations and financial condition.

Recently issued accounting pronouncements that affect the accounting treatment of goodwill and other long-lived assets could cause future losses due to asset impairment.

As of December 31, 2002, the company’s unamortized intangible assets and other long-lived assets were approximately $157.8 million and $50.1 million, respectively. Intangible assets primarily include goodwill, the fair value of management contracts, the fair value of lease contracts, deferred financing fees and franchise fees. Other long-lived assets primarily include property and equipment and investments in and advances to affiliates.

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 142,“Goodwill and Other Intangible Assets”, that requires companies to cease amortizing goodwill and some other indefinite-lived intangible assets. Under SFAS 142, goodwill and some indefinite-lived intangibles are not amortized into results of operations but instead are tested for impairment at least annually, with impairment being measured as the excess of the carrying value of the goodwill or intangible over its fair value. In addition, goodwill and intangible assets are tested more often for impairment as circumstances warrant. Intangible assets that have finite useful lives continue to be amortized over their useful lives and are measured for impairment in accordance with SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” After initial adoption, any impairment losses under SFAS 142 or 144 will be recorded as operating expenses. We do not currently foresee any impairments in its assets, but circumstances may change, and we may have write-downs in the future.

In 2002, we recognized write-downs of approximately $2.7 million relating to other than temporary declines in the estimated fair value of certain investments in affiliates.

Restrictions imposed by our debt agreements may limit our ability to execute our business strategy and increase the risk of default under our debt obligations.

We are a party to a senior credit facility and a subordinated credit facility that contain restrictive covenants. These restrictions include requirements to maintain financial ratios, which may significantly limit our ability to, among other things:


•	borrow additional money;
•	make capital expenditures and other investments;


•	pay dividends;
•	merge, consolidate or dispose of assets; and
•	incur additional liens.

While we believe that our current business plan and outlook will provide sufficient liquidity to fund our operations, a significant decline in our operations could reduce our cash from operations and cause us to be in default under other covenants in our debt agreements, leaving us unable to use our senior credit facility to supply needed liquidity.

Our senior secured credit facility matures in 2005. Our credit facility with MeriStar Hospitality, which was replaced on January 10, 2003, with a $40 million subordinated credit facility, was scheduled to mature on July 31, 2007. The new subordinated credit facility matures on January 31, 2007. As of December 31, 2002, we had approximately $74.0 million of outstanding indebtedness under our senior secured credit facility and approximately $56.1 million of outstanding indebtedness under the MeriStar Hospitality facility.

We may, in the future, be required to refinance or negotiate an extension of the maturity of our senior secured credit facility or our subordinated credit facility. However, our ability to complete a refinancing or extension is subject to a number of conditions, many of which are beyond our control. For example, if there were a disruption in the financial markets because of a terrorist attack or other event, we may be unable to access the financial markets. Failure to complete a refinancing or extension of the senior secured credit facility would have a material adverse effect on us.

A deficit in working capital may reduce funds available to us for expansion of our business.

As of December 31, 2002, we had a deficit in working capital of $13.1 million. This deficit in working capital may require us to make borrowings under the new senior secured credit facility to pay our current obligations. These borrowings will serve to reduce amounts available to us for pursuit of our business strategy of growing through securing additional management contracts and acquiring additional hotel resort and conference center properties.

Our stockholder rights plan, the anti-takeover defense provisions of our charter documents and the large ownership stake of an investor group may deter potential acquirors and depress our stock price.

Under our stockholder rights plan, holders of our common stock hold one preferred share purchase right for each outstanding share of common stock they hold, exercisable under defined circumstances involving a potential change of control. The preferred share purchase rights have the antitakeover effect of causing substantial dilution to a person or group that attempts to acquire us on terms not approved by our board of directors. Those provisions could have a material adverse effect on the premium that potential acquirors might be willing to pay in an acquisition or that investors might be willing to pay in the future for shares of our common stock.

Provisions of Delaware law and of our charter and bylaws may have the effect of discouraging a third party from making an acquisition proposal for us. These provisions could delay, defer or prevent a transaction or a change in control of us under circumstances that could otherwise give the holders of our common stock the opportunity to realize a premium over the then-prevailing market prices of our common stock. These provisions include the following:


•	we are able to issue preferred shares with rights senior to our common stock;
•	our certificate of incorporation prohibits action by written consent of our stockholders, and our stockholders are not able to call special meetings;
•	our certificate of incorporation and bylaws provide for a classified board of directors;
•	our directors are subject to removal only for cause and upon the vote of two-thirds of the outstanding shares of our common stock;
•	our bylaws require advance notice for the nomination of directors and for stockholder proposals;
•	we are subject to Section 203 of the Delaware General Corporation Law, which limits our ability to enter into business combination transactions with interested stockholders; and


•	specified provisions of our certificate of incorporation and bylaws may be amended only upon the affirmative vote of two-thirds of the outstanding shares.

Our principal investor group holds 6,968,108 shares of our common stock, representing approximately 34% of our outstanding common stock. The large stake of the principal investor group may make it more difficult for a third party to acquire, or could discourage a third party from attempting to acquire, control of us.

The sale of a substantial number of shares by our largest investor may depress our stock price.

Sales of substantial amounts of common stock or the perception that those sales could occur may adversely affect the market price for our common stock. All of our common stock is freely transferable, except for the shares of common stock held by persons deemed to be affiliates of us under Rule 145 under the Securities Act. The 6.9 million shares of our common stock that are held by our principal investor group represent approximately 34% of our outstanding common stock and are subject to a registration rights agreement providing for demand, shelf and piggyback registration rights until the time their shares can be sold without restriction under Securities Act Rule 144(k). By exercising their registration rights and selling a large number of shares, these holders could cause the price of our common stock to decline.

Any statements in this document about our expectations, beliefs, plans, objectives, assumptions or future events or performance are not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrases such as “will likely result,” “expect,” “will continue,” “anticipate,” “estimate,” “intend,” “plan,” “projection,” “would” and “outlook.” Accordingly, these statements involve estimates, assumptions and uncertainties which could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this annual report. In addition to the risks related to our business, the factors that could cause actual results to differ materially from those described in the forward-looking statements include:


•	the current slowdown of the national economy;
•	economic conditions generally and the real estate market specifically;
•	the impact of the September 11, 2001 terrorist attacks and actual or threatened future terrorist incidents or hostilities;
•	international geopolitical difficulties;
•	uncertainties associated with obtaining additional financing for future real estate projects and to undertake future capital improvements;
•	demand for, and costs associated with, real estate development and hotel rooms, market conditions affecting the real estate industry, seasonality of resort and hotel revenues and fluctuations in operating results;
•	changes in laws and regulations applicable to the companies, including federal, state or local hotel, resort, restaurant or land use regulations, employment, labor or disability laws and regulations and laws governing the taxation of real estate investment trusts;
•	legislative/regulatory changes, including changes to laws governing the taxation of REITs;
•	failure to renew essential management contracts or business leases;
•	competition from other hospitality companies, pricing pressures and variations in lease and room rental rates;
•	litigation involving antitrust, consumer and other issues; and
•	loss of any executive officer or failure to hire and retain highly qualified employees.

These factors and the risk factors referred to above could cause actual results or outcomes to differ materially from those expressed in any forward-looking statements made in this annual report. You should not place undue reliance on any of these forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we do not undertake any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible to predict which will

We maintain our corporate headquarters in Washington, D.C. We also have other corporate offices in North Carolina and Texas. We lease our offices. In addition, our Hotel Management business segment leases administrative offices in Pennsylvania, Florida, Arizona and California, and our Corporate Housing division leases administrative offices in most of the markets in which they operate in the United States, Canada, the United Kingdom and France. We manage hotel properties and golf courses throughout the United States, Russia and Canada. No one managed hotel property is material to our operations.

The full-service hotels we manage generally feature comfortable, modern guest rooms, extensive meeting and convention facilities and full-service restaurant and catering facilities. These facilities are designed to attract meeting and convention functions from groups and associations, upscale business and vacation travelers, and banquets and receptions from the local community.

The following tables set forth operating information (assuming that the merger of MeriStar Hotels & Resorts and Interstate Hotels had been completed on January 1, 2000) with respect to the properties we leased and managed as of December 31:

The following table sets forth operating information with respect to our Corporate Housing division for the year ended December 31.

In the normal course of business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against us. Based on currently available facts, we believe that the disposition of matters pending or asserted will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

We did not submit any matters to a vote of security holders during the fourth quarter of 2002.

Our common stock is listed on the NYSE under the symbol “IHR”. As of March 20, 2003, 20,587,006 shares of our common stock were listed and outstanding, held by approximately 2,953 record holders.

The following table lists, for the fiscal quarters indicated, the range of high and low closing prices per share of our common stock in U.S. dollars, as reported on the NYSE Composite Transaction Tape.

The 1:5 reverse stock split effected on July 31, 2002 was applied to prior periods for comparative purposes.

Stock prices prior to July 31, 2002 reflect the adjusted closing stock price of “MMH”, MeriStar Hotels & Resorts, the legal survivor of the merger between Interstate and MeriStar.

The last reported sale price of our common stock on the NYSE on March 20, 2003 was $4.38.

We have not paid any cash dividends on our common stock and we do not anticipate that we will do so in the foreseeable future. We intend to retain earnings to provide funds for the continued growth and development of our business. Any determination to pay cash dividends in the future will be at the discretion of the Board of Directors and will be dependent upon lender approval as well as our results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors.

The merger between us and Interstate Hotels Corporation on July 31, 2002 was accounted for as a purchase of us by Interstate Hotels using the purchase method of accounting. The merger was accounted for as a reverse acquisition with Interstate Hotels as the accounting acquiror, and us as the surviving company for legal purposes. As a result, the historical financial information we present in the table below and in the

The following table also sets forth selected historical financial data for Interstate Hotels, prior to the merger of Interstate Hotels’ predecessor into Wyndham International, Inc., as the predecessor, for the period from January 1, 1998 to June 1, 1998, and for Interstate Hotels, subsequent to the merger of Interstate Hotels’s predecessor into Wyndham, as the successor, as of December 31, 1998 and for the period from June 2, 1998 to December 31, 1998 and as of and for the years ended December 31, 1999, 2000, 2001 and 2002.


(1)	Represents the sum of the balances from the predecessor for the period from January 1, 1998 to June 1, 1998 and the successor for the period from June 2, 1998 to December 31, 1998.

(2)	Represents joint venture start-up costs of $2.1 million, net of a $0.8 million reimbursement from the joint venture, which include the legal, investment banking and other costs incurred by us in connection with the start-up of the joint venture.

(3)	For 1999, the amount represents a non-cash impairment charge on the our leased hotel intangible assets resulting from an impairment of the future profitability of 42 of the our leased hotels, which experienced lower than expected operating cash flows during 1999, primarily due to decreased occupancy rates and higher operating costs caused by a significant over-supply of mid-scale, upper economy and budget hotels in certain markets.

	For 2000, the amount represents a non-cash impairment charge on the non-monetary exchange of our hotel lease contracts for management agreements. The lease contracts for the 75 hotels previously leased from Equity Inns were terminated and we entered into management agreements for 54 of the hotels formerly leased to us effective as of January 1, 2001.

	For 2001, the amount represents a non-cash impairment loss related to our 20% non-controlling equity interest in a partnership that owns the Renaissance Worldgate Hotel in Kissimmee, Florida. The impairment loss was the result of a permanent impairment of the future profitability of this hotel.

	For 2002, the amount represents a non-cash impairment loss of $2.7 million to reduce the carrying value of our investment in FCH/ IHC Hotels, L.P. and FCH/ IHC Leasing, L.P. to its estimated fair value.


	Also in 2002, we wrote off $1.1 million of certain intangible management contract assets, due to the termination of our management contracts on certain properties.


(4)	Represents a loss resulting from the sale of our equity interests in The Charles Hotel Complex on June 18, 1999, which was allocated 100% to Wyndham through minority interest.

(5)	EBITDA represents earnings (losses) before interest, income tax expense (benefit), depreciation and amortization (which includes depreciation and amortization included in earnings (losses) from equity investments in hotel real estate), mandatorily redeemable preferred stock dividends and accretion, the loss on impairment of investment in hotel lease contracts and the loss on impairment of equity investment in hotel real estate. Historical 1999 EBITDA was calculated based on our 45% share of EBITDA from IH LLC for the period from June 18, 1999 to December 31, 1999. Historical 2000 EBITDA was calculated based on our 45% share of EBITDA from IH LLC for the period from January 1, 2000 to October 31, 2000. Management believes that EBITDA is a useful measure of operating performance because it is industry practice to evaluate hotel properties based on operating income before interest, taxes, depreciation and amortization, which is generally equivalent to EBITDA, and EBITDA is unaffected by the debt and equity structure of the property owner. EBITDA, as we calculate it, may not be consistent with computations of EBITDA by other companies. EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to net income under accounting principles generally accepted in the United States of America for purposes of evaluating our results of operations.

(6)	Represents all properties, including the previously leased hotels, for which we provide management or related services in 2002.

(7)	As of the end of the periods presented.

(8)	This information is not available for periods prior to 2000.

MeriStar Hotels & Resorts, or MeriStar, and Interstate Hotels Corporation, or Interstate, entered into an Agreement and Plan of Merger, dated May 1, 2002, as amended on June 3, 2002. In the merger transaction, Interstate merged with and into MeriStar, and MeriStar was renamed Interstate Hotels & Resorts, Inc. On July 31, 2002, after receiving the required stockholder approvals, MeriStar and Interstate completed the merger. The transaction was a stock-for-stock merger of Interstate into MeriStar in which Interstate’s stockholders received 4.6 shares of common stock for each share of Interstate stock outstanding. Holders of MeriStar’s common stock and operating partnership units continued to hold their stock and units following the merger. Immediately following the merger, the holders of Interstate’s convertible debt and preferred equity shares converted those instruments into shares of our common stock. Immediately following the merger, we effected a one-for-five reverse split of our common stock


•	Interstate repaid the outstanding balance on its promissory notes held by Wyndham International, Inc. on July 30, 2002 and repaid the remaining principal balance of its limited recourse mortgage note on July 31, 2002;
•	we entered into a new $113.0 million senior credit agreement with a group of banks; and
•	we converted MeriStar’s unsecured credit facility and term note with MeriStar Hospitality Operating Partnership, or MHOP, to a term loan and repaid $3.0 million under that loan.

In accordance with generally accepted accounting principles, the merger was treated as a purchase for financial reporting purposes. In accordance with the provisions of Statement of Financial Accounting

Standards No. 141, “Business Combinations,” Interstate was considered the acquiring enterprise for financial reporting purposes. Interstate established a new accounting basis for our assets and liabilities based upon their fair values as of July 31, 2002, the effective date of the merger. We accounted for the merger as a reverse acquisition with Interstate as the accounting acquirer and MeriStar as the surviving company for legal purposes.

The consolidated financial statements for the period January 1, 2002 through July 31, 2002, and for the years ended December 31, 2001 and 2000, include the historical results of operations of Interstate, the accounting acquiror. After the merger on July 31, 2002, the financial statements include the operating results of the combined entity, Interstate Hotels & Resorts, Inc.

Overview — The MeriStar-Interstate merger combined the two largest independent hotel management companies in the United States, measured by number of rooms under management. We now manage and operate a portfolio of hospitality properties and provide related services in the hotel, corporate housing, resort, conference center, and golf markets. Our portfolio is diversified by franchise and brand affiliations. The related services we provide include insurance and risk management services, purchasing and project management services, information technology and telecommunications services, and centralized accounting services.

As of December 31, 2002, we managed 393 properties with 83,053 rooms in 45 states, the District of Columbia, Canada, and Russia. We wholly-own one of these properties and we have non-controlling equity interests in 25 of these hotels. In addition, at December 31, 2002, our corporate housing operations had 3,054 apartments under lease in the United States, Canada, the United Kingdom and France.

Our subsidiary operating partnerships indirectly hold substantially all of our assets. We are the sole general partner of the partnerships. We, one of our directors and certain independent third parties are limited partners of the partnerships. The partnership agreements give the general partners full control over the business and affairs of the partnerships.

Outlook — The sluggish economy and delays and difficulties in travel due to heightened security measures at airports continue to have a major impact on our operating results. Since the slowdown of the economy over the past 18 months, accelerated by the terrorist attacks on September 11, 2001, our managed hotels have experienced significant short-term declines in occupancy and average rates changed. Weaker hotel performance has caused reduced management fees and also gives rise to additional losses under minority investments we have made in connection with hotels that we manage. Additionally, the weaker hotel operating environment has caused some owners of our managed hotels to sell hotels to provide the owners with additional liquidity. When a hotel is sold, we are usually replaced as the hotel’s manager. MeriStar Hospitality has announced plans to dispose of a number of non-core hotels, all of which we currently manage, and other owners may also dispose of assets. If we are terminated as manager upon the sale of one of MeriStar Hospitality’s hotels, we will receive a termination fee equal to the remaining payments (discounted using a 10% rate) under the then-existing term of the management agreement. Our management agreements with other owners generally have limited or no termination fees due to us if our management agreement is terminated upon the sale of the hotel. The termination of management contracts as a result of hotel dispositions could have an adverse effect on our revenues.

The overall weak economy has also negatively impacted the demand for corporate relocations and long-term assignments, two primary drivers of our corporate housing operations.

These events have had and are expected to continue to have an adverse impact on our financial performance. In response to this current operating environment, we are continuing to work with the owners of our managed hotel properties to implement cost reduction and control measures to improve those properties’ operating results. We are also seeking to closely monitor and control our commitments for leased rental units in our corporate housing division, in order to minimize our exposure to further declines in demand in this area.

We manage all 108 properties owned by MeriStar Hospitality Corporation, a real estate investment trust. We also have an intercompany agreement with MeriStar Hospitality. That agreement provides each of us the right to participate in certain transactions entered into by the other company. The intercompany agreement provides MeriStar Hospitality with the right of first refusal with respect to some of our hotel real estate opportunities and it also provides us with a right of first refusal with respect to some of MeriStar Hospitality’s hotel management opportunities (excluding hotels that MeriStar Hospitality elects to have managed by a hotel brand owner). We also provide each other with certain services including administrative, renovation supervision, corporate, accounting, finance, risk management, legal, tax, information technology, human resources, acquisition identification and diligence and operational services.

Historically, we have had close operating, management and governance relationships with MeriStar Hospitality. We manage all of MeriStar Hospitality’s hotel properties under long-term management contracts and have, in the past, shared several key management personnel and board members with MeriStar Hospitality. Due to our merger with Interstate Hotels and our resulting increased scale, we and MeriStar Hospitality have split the management teams of the two companies. Paul W. Whetsell is the Chairman and Chief Executive Officer of both companies and is the only Executive shared by both companies, and we share two other board members with MeriStar Hospitality.

Accounting estimates are an integral part of the preparation of our consolidated financial statements and our financial reporting process and are based on our current judgments. Certain accounting estimates are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from our current judgments.

The most significant accounting policies affecting our consolidated financial statements relate to:


•	the evaluation of impairment of certain long-lived assets;
•	the evaluation of impairment of goodwill and other intangible assets
•	estimation of valuation allowances, specifically those related to income taxes and allowance for doubtful accounts;
•	estimates of restructuring and other accruals;
•	the estimation of the fair value of our derivative instruments; and
•	revenue recognition

Impairment of long-lived assets — In accordance with FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long Lived Assets”, whenever events or changes in circumstances indicate that the carrying values of long-lived assets (intangibles with definite useful lives) may be impaired, we perform an analysis to determine the recoverability of the asset’s carrying value. We make estimates of the undiscounted cash flows from the expected future operations of the asset. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to estimated fair value and an impairment loss is recognized. Any impairment losses are recorded as operating expenses.

We review long-lived assets for impairment when one or more of the following events have occurred:


•	Current or immediate short-term (future twelve months) projected cash flows are significantly less than the most recent historical cash flows.

•	A significant loss of management contracts without the realistic expectation of a replacement.

•	The unplanned departure of an executive officer or other key personnel, which could adversely affect our ability to maintain our competitive position and manage future growth.

•	A significant adverse change in legal factors or an adverse action or assessment by a regulator, which could affect the value of the goodwill or other long-lived assets.

•	Events which could cause significant adverse changes and uncertainty in business and leisure travel patterns.

In 2001, we formed two limited partnerships (FCH/ IHC Hotels, L.P. and FCH/ IHC Leasing, L.P.) with FelCor Lodging Trust. These partnerships own eight mid-scale hotels, and we manage those eight hotels. The partnership entities are owned 50% by FelCor and 50% by us. The hotels in the FelCor partnerships have produced significantly below-budget operating results in 2002. As a result we have evaluated the carrying value of these assets. Our review as of December 31, 2002 indicated that the future projected cash flows from the partnerships’ hotels is not sufficient to allow us to recover our investment in these partnerships, and we believe the decline to be other than temporary. As a result, in the fourth quarter of 2002, we recorded an impairment charge of $2.7 million to reduce the investment to its estimated fair value of $4.0 million.

Impairment of goodwill and other intangible assets — In accordance with FASB Statement No. 142, “Goodwill and Other Intangible Assets”, at least annually, we perform an analysis to determine the impairment of the carrying value of goodwill and intangible assets with indefinite lives. Our intangible assets other than goodwill include our management contracts, finance costs and franchise fees. To test intangible assets with indefinite lives for impairment, we perform an analysis to compare the fair value of the intangible asset to its carrying value. We make estimates of the fair value of the intangible asset using discounted cash flows from the expected future operations of the assets. If the analysis indicates that the fair value is less than the carrying value, the asset is written down to the estimated fair value and an impairment loss is recognized. To test goodwill for impairment, we perform an analysis to compare the fair value of the reporting unit to which the goodwill is assigned to the carrying value of the reporting unit. We make estimates of the discounted cash flows from the expected future operations of the reporting unit. If the analysis indicates that the fair value of the reporting unit is less than its carrying value, we do an analysis to compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of the goodwill is determined by allocating the fair value of the reporting unit to all the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination. The excess of the fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of the goodwill. If the implied fair value of the goodwill is less than the carrying value, an impairment loss shall be recognized in an amount equal to that excess. Any impairment losses are recorded as operating expenses. We did not recognize any impairment losses for goodwill in 2002, 2001 or 2000.

Valuation Allowances — We use our judgment in determining our provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance recorded against our deferred tax assets. As of December 31, 2002, we recorded a $10.8 million valuation allowance to reduce our deferred tax assets to $20.2 million, the amount that we believe is more likely than not to be realized. This is an allowance against some, but not all, of our recorded deferred tax assets. We have considered estimated future taxable income and prudent and feasible ongoing tax planning strategies in assessing the need for a valuation allowance. Our estimates of taxable income require us to make assumptions about various factors that affect our operating results, such as economic conditions, consumer demand, competition and other factors. Our actual results may differ from these estimates. Based on actual results or a revision in future estimates, we might determine that we would not be able to realize additional portions of our net deferred tax assets in the future; if that occurred, we would record a charge to the income tax provision in that period. The utilization of our net operating loss carryforwards will be limited by the tax provisions of the Internal Revenue Code. The valuation allowance we recorded included the effect of the limitations on our deferred tax assets arising from net operating loss carryforwards.

We record an allowance for doubtful accounts receivable based on our judgment in determining the ability and willingness of our customers to make required payments. Our judgments in determining customers’ ability and willingness are based on past experience with customers and our assessment of the current and future operating environments for our customers. If a customer’s financial condition deteriorates or a management contract is terminated in the future, this could decrease a customer’s ability or obligation to make payments. If that occurred, we might have to make additional allowances, which could reduce our earnings.

Restructuring and Other Accruals — During 2002, we recorded restructuring charges of $12.6 million in conjunction with the MeriStar-Interstate merger. These charges include estimated severance costs for employees whose positions have been relocated or eliminated and estimates on non-cancelable lease costs at certain offices which will be closed down. We accrued the total estimated cost of the restructuring at the time

Derivative Instruments and Hedging Activities — We enter into derivative instruments for cash flow hedging purposes to limit the impact of interest rate changes on earnings and cash flows. We have designated our interest rate swap agreements as hedges against changes in future cash flows associated with the interest payments of our variable rate debt obligations. Accordingly, we reflect the interest rate swap agreements at fair value in our consolidated balance sheet and we record in stockholders’ equity the related unrealized gains and losses on these contracts. We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. During September 2002 we entered into an interest rate swap agreement with an effective date of October 1, 2002. On October 1, 2002 the swap agreement had a fair value of $0.2 million.

Revenue Recognition — We earn revenue from hotel management contracts and related services, corporate housing operations and operations from our owned hotel. Our management and other fees consist of base and incentive management fees received from third-party owners of hotel properties, and fees for other related services we provide.

Through the second quarter of 2002, we had recorded incentive management fees in accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, and Method No. 2 of Emerging Issues Task Force or EITF Topic No. D-96, “Accounting for Management Fees Based on a Formula” in which incentive management fees are accrued as earned based on the profitability of the hotel, subject to the specific terms of each individual management agreement. The application of Method No. 2 resulted in the accrual of incentive management fees during interim reporting periods throughout the annual measurement period. The accrual would be reduced or eliminated in subsequent interim reporting periods if the profitability of the hotel missed performance thresholds later in the annual measurement period. This is an acceptable method of accounting for incentive management fees because the termination provisions specified in the management contracts provide for payment of prorated incentive management fees if the contract were to be terminated at any point within the year.

In the third quarter of 2002, with an effective date of January 1, 2002, we began recording the incentive management fees in the period that it is certain the incentive management fees are earned, which for annual incentive fee measurements is typically in the last month of the annual contract period. This newly adopted accounting principle is preferable in the circumstances because the new method eliminates the potential that incentive management fee revenue will be recognized in one interim reporting period and reduced or eliminated in a future interim reporting period. This methodology is designated as Method No. 1 in EITF Topic No. D-96. Method No. 1 is the Securities and Exchange Commission Staff’s preferred method of accounting for incentive management fees.

This change in accounting method has no effect on the total annual management fees earned or amount of cash we are paid, but does affect the timing of recognizing the revenue from these fees during interim reporting periods. However, the effect of this change in accounting method for interim periods resulted in a cumulative adjustment of $3.1 million that reduced incentive management fees recognized during the first and second quarter of 2002. The effect of the change on the first quarter of 2002 was to increase the net loss by $1.4 million ($0.26 per share) to a net loss of $1.7 million ($0.32 per share); the effect of the change on the second quarter of 2002 was to increase the net loss by $1.7 million ($0.29 per share) to a net loss of $14.3 million ($2.55 per share).

The following table shows the operating statistics for our managed hotels on a same store basis for the twelve months ended December 31:

Prior to the merger on July 31, 2002, Interstate Hotels managed 141 hotels with 29,752 rooms. Subsequent to the merger, on December 31, 2002 we managed 393 properties with 83,053 rooms.

Our total revenue increased $282.3 million to $601.1 million for the year ended December 31, 2002 compared to $318.8 million in 2001. Major components of this increase were:


•	Lodging revenues consist of rooms, food and beverage and other department revenues from the Pittsburgh Airport Residence Inn by Marriott, and in 2001, from one leased hotel. These revenues decreased $1.5 million, from $4.4 million for the twelve months ended December 31, 2001 to $2.9 million for the year ended December 31, 2002. Of the decrease, $0.6 million relates to a decrease in revenue per available room in the Pittsburgh Airport Residence Inn by Marriott for the periods presented, primarily due to the slowdown of the economy and the hospitality industry. The remaining $0.9 relates to the leased hotel, which is no longer under lease in 2002 as compared to the 2001.

•	Revenue from management fees increased $15.4 million, from $24.5 million for the year ended December 31, 2001 to $39.9 million for the year ended December 31, 2002. An increase of $16.4 million, was due to the increase in number of managed hotels resulting from the merger with Interstate on July 31, 2002. This is offset by a decrease in revenue per available room as a result of the decrease in the average daily rate as noted above, which resulted in a decrease in management fee revenue of $1.0 million.

•	Corporate housing revenue was $46.8 million for the year ended December 31, 2002, compared to $0 in the same period of the previous year. Corporate housing revenue is included in the results of operations beginning August 1, 2002 as a result of the merger between Interstate and MeriStar on July 31, 2002.

•	Other revenues consist of insurance income from Northridge Insurance Company, purchasing revenue, accounting fees, technical services, IT support fees, renovation fees, freight fees, and other. Other revenues increased $2.2 million from $15.1 million for the year ended December 31, 2001 to $17.3 million for the year ended December 31, 2002. The majority of this increase, $1.5 million, is due to the merger of Interstate and MeriStar on July 31, 2002. The remainder is partially due to an increase in insurance revenues from Northridge Insurance of approximately $2.4 million, offset by a decrease in purchasing revenue by $1.1 million, and an overall decrease in other revenues by approximately $0.6 million.

•	We employ the staff at our managed properties. Pursuant to our management agreements, the hotel owners reimburse us for payroll, benefits, and certain other costs related to the operations of the managed properties. EITF No. 01-14 “Income Statement Characteristics of Reimbursements for Out-of-pocket Expenses” establishes standards for accounting for reimbursable expenses in the income statement. Under this pronouncement, the reimbursement of Other costs is recorded as revenue with a corresponding expense recorded as “other expenses from managed properties” on the statement of operations. Reimbursable costs increased by $219.4 million to $494.2 million for the year ended December 31, 2002 from $274.8 million for the year ended December 31, 2001. Substantially all of this increase is due to the increase in the number of employees at our managed properties resulting from the merger of Interstate and MeriStar.

Total operating expenses by department increased $37.5 million to $40.1 million for the year ended December 31, 2002 compared to $2.6 million for the year ended December 31, 2001. Factors primarily affecting the increase were:


•	Corporate housing expenses were $38.0 million for the year ended December 31, 2002, compared to $0 in 2001. Corporate housing expenses are included in the results of operations beginning on August 1, 2002 after the merger between Interstate and MeriStar on July 31, 2002. This was offset by the decrease in lodging expenses, discussed below.

•	Lodging expenses consist of rooms, food and beverage, other department expenses and property operating costs from the Pittsburgh Airport Residence Inn by Marriott. These expenses decreased $0.5 million, from $2.6 million for the year ended December 31, 2001 to $2.1 million for the twelve months ended December 31, 2002. This decrease is a direct result of the decrease in revenue from this hotel as described above.


•	administrative and general;
•	lease expense;
•	depreciation and amortization;
•	merger costs;
•	restructuring expenses;
•	tender offer costs; and
•	asset impairment and write-offs

Total undistributed operating expenses increased $44.0 million to $89.0 million for the year ended December 31, 2002 compared to $45.0 for the year ended December 31, 2001. Factors primarily affecting the increase were:


•	Administrative and general expenses are associated with the management of hotels and corporate housing facilities and consist primarily of expenses such as corporate payroll and related benefits, operations management, sales and marketing, finance, information technology support, human resources and other support services, as well as general corporate expenses. Administrative and general increased by $17.1 million from $31.1 million for the year ended December 31, 2001 to $48.2 million for the year ended December 31, 2002. An increase of $21.3 million is attributable to the increase in expenses resulting from our merger with Interstate Hotels on July 31, 2002. This is offset by a decrease of $4.2 million attributable to cost reductions achieved following the merger.

•	Lease expense was $0.5 million for the year ended December 31, 2001 compared to $0 for the same period of 2002. This is a result of our lease contracts being converted to management contracts during 2001.

•	Depreciation and amortization expense increased by $3.7 million from $10.4 million for the year ended December 31, 2001 to $14.1 million for the year ended December 31, 2002. This increase is primarily due to the acquisition of certain depreciable and amortizable fixed assets, as well as intangible assets, in conjunction with the merger on July 31, 2002. These assets include management contracts, franchise fees and deferred financing fees.

•	Merger costs were $9.4 million for the year ended December 31, 2002. Merger costs consist of the write off of $2.5 million of deferred financing fees related to the repayment and retirement of the Lehman senior credit facility and the repayment of the limited recourse mortgage note. Also included in merger costs is a $1.9 million charge for the forgiveness of certain employee and officer notes receivable, and a $1.0 million charge relating to the accelerated vesting of preferred stock. The remaining $4.0 million are integration costs incurred in connection with the merger.


•	Restructuring costs were $12.6 million for the year ended December 31, 2002. Restructuring costs consist of $10.5 million of estimated severance costs to be paid to employees whose positions are being relocated or eliminated as a result of the merger, and $2.3 million of restructuring costs, which are estimates of non-cancelable lease costs in certain offices that we intend to close as a result of the merger. This is offset by a $0.2 million net benefit related to the closing of operations in one corporate housing market, and an adjustment to previously recorded restructuring expenses related to the merger.

•	Tender offer costs of $1.0 million represent costs related to the commencement of a partial tender offer to purchase 2,465,322 shares of Interstate’s Class A Common Stock by Shaner Hotel Group Limited Partnership and Shaner’s unsolicited proposals to combine the operations of Interstate with Shaner prior to the commencement of the tender offer. These costs were incurred for legal and professional fees. The tender was unsuccessful and the offer expired May 31, 2002.

•	Asset impairment and write-offs increased $0.8 million from $3.0 million for the twelve months ended December 31, 2001 to $3.8 million for the twelve months ended December 31, 2002. In 2001, we recorded a loss on impairment of equity investment in hotel real estate in the amount of $3.0 million. This loss related to our 20% non-controlling interest in a partnership that owns the Renaissance Worldgate Hotel in Kissimmee, Florida. The loss represented the permanent impairment of the future profitability of this hotel. In the fourth quarter of 2002, we recorded a $2.7 million impairment charge to reduce the carrying value of our investment in FCH/ IHC Hotels, L.P. and FCH/ IHC Leasing, L.P. to its estimated fair value. Also in the fourth quarter of 2002, we wrote off $1.1 million of certain intangible management contract assets, due to the disposition of the related properties and the termination of our management contracts on these properties.

Net loss available to common stockholders increased $30.8 million to $(38.8) million for the twelve months ended December 31, 2002 from $(8.0) million for the twelve months ended December 31, 2001. This increase is due to the decrease of $14.8 million of EBITDA and the increase of $3.7 million in depreciation and amortization expense as discussed above. The following contributed to the remainder of the increase:


•	Interest expense increased $4.0 million to $5.6 million for the year ended December 31, 2002 from $1.6 million for the year ended December 31, 2001 due to the increase in outstanding debt following the merger.
•	We recorded a $9.2 million charge related to the conversion of a portion of our convertible notes and Series B Preferred Stock on June 26, 2002. We paid the investor an incentive payment of $9.2 million and issued the investor an aggregate of 5,939,140 shares of Class A Common Stock. Of the total incentive payment of $9.2 million, we allocated $7.3 million for the induced conversion of the convertible notes and $1.9 million was allocated to the induced conversion of the Preferred Stock. In addition, three members of senior management converted their Preferred Stock into an aggregate of 562,500 shares of Class A Common Stock.
•	Income tax benefit decreased by $2.2 million to $1.1 million for the year ended December 31, 2002 from $3.3 million for the year ended December 31, 2001. In 2002, we recorded a $1.7 million valuation allowance on certain deferred tax assets that are not anticipated to be realized in future periods.

•

Equity in loss of affiliates decreased $2.8 million to $2.4 million in the twelve months ended December 31, 2002 from $5.2 million in the same period in 2001. These losses consist of our proportionate share of the losses incurred through our non-controlling equity investments in various hotels. During 2001 and 2002, these losses were incurred by the hotels due to the weakness in the U.S. economy and significant declines in occupancy. Future adverse changes in the hospitality and lodging industry market conditions or poor operating results of the underlying investments could result in future losses or an inability to recover the carrying value of these investments. During 2001, we reduced to zero the carrying value of our remaining 10% non-controlling equity interest in Interconn Ponte Verde Company, L.L.C. after recording our proportionate share of the losses incurred by that entity. This contributed to the decrease in losses from


	2001 to 2002. This was partially offset by an increase in losses recognized for our proportionate share of our 50% investment in the joint ventures with FelCor during 2002.

Earnings (loss) before interest, taxes, depreciation and amortization or EBITDA, decreased $14.8 million to $(8.1) million for the year ended December 31, 2002, from $6.7 million for the year ended December 31, 2001. Major components of this decrease were:


•	Hotel Management segment’s EBITDA increased by $9.4 million to $19.2 million for the year ended December 31, 2002, from $9.8 million for the year ended December 31, 2001. This increase is due to the increase in operations as a result of our merger with Interstate Hotels on July 31, 2002.
•	Corporate Housing segment’s EBITDA was a loss of $0.5 million in the year ended December 31, 2002. Corporate housing operations are included in the results of operations beginning on August 1, 2002 after the merger between Interstate and MeriStar on July 31, 2002.
•	The remaining EBITDA decreased by $23.8 due to the merger, restructuring costs, tender offer costs, and asset impairments and write-offs described above.

Total revenues decreased $215.2 million to $318.8 million for the year ended December 31, 2001 compared to $534.0 million for the same period in 2000. Major components of this decrease were:


•	Lodging revenues consist of rooms, food and beverage and other departmental revenues from the Pittsburgh Airport Residence Inn by Marriott, and one leased hotel. Lodging revenues decreased by $199.1 million from $203.5 million in 2000 to $4.4 million in 2001. During the fourth quarter of 2001, we finalized the conversion of the Equity Inns hotel lease contracts for management agreements. As a result of the Equity Inns lease conversion, effective January 1, 2001, the operating revenues of these hotels were no longer reflected in our financial statements. Instead, we recorded revenues from management fees only. During 2000, we recorded lodging revenues of $198.2 million related to these previously leased hotels.

•	Management fees decreased by $5.0 million from $29.5 million in 2000 to $24.5 million in 2001. During 2001, we earned lower base and incentive management fee revenue on our hotels in the luxury and upscale hotel segment. Net management fees earned from hotels in this segment decreased by $7.3 million during 2001 as compared to 2000. Pursuant to the Wyndham Redemption in the fourth quarter of 2000, our management agreements for seven Wyndham-owned hotels were terminated. During 2000, we earned management fee revenue of $2.1 million from these hotels. In addition, lower incentive management fee revenue was earned from hotels in this segment due to the weakness in the U.S. economy during 2001 and significant declines in occupancy following the September 11th terrorist attacks.

	During 2001, net management fees earned from hotels in our mid-scale, upper economy and budget hotels increased by $2.3 million during 2001 as compared to 2000. This increase was primarily due to additional management fee revenue of $1.9 million during 2001 earned from previously leased hotels as a result of the Equity Inns lease conversion, as discussed above.


•	Other revenues increased by $1.9 million, from $13.2 million in 2000 to $15.1 million 2001. This increase was partially due to incremental accounting fee revenue of $0.7 million during 2001 earned from previously leased hotels as a result of the Equity Inns lease conversion, as discussed above. In addition, income earned on national purchasing contracts increased by $1.4 million during 2001 as compared to 2000.

•	We employ the staff at our managed properties. Pursuant to our management agreements, the hotel owners reimburse us for payroll, benefits, and certain other costs related to the operations of the managed properties. EITF No. 01-14 “Income Statement Characteristics of Reimbursements for Out-of-pocket Expenses” establishes standards for accounting for reimbursable expenses in the income statement. Under this pronouncement, the reimbursement of Other costs is recorded as revenue with a corresponding


	expense recorded as “other expenses from managed properties” on the statement of operations. Reimbursable costs decreased by $13.1 million to $274.8 million for the year ended December 31, 2001, from $287.9 million for the year ended December 31, 2000. This is due to the decrease in the number of managed hotels and resulting decrease in number of employees.

Total operating expenses by department decreased $113.4 million, to $2.6 million for the twelve months ended December 31, 2001 compared to $116.0 million for the twelve months ended December 31, 2000. As a result of the Equity Inns conversion, effective January 1, 2001, the operating expenses of the previously leased hotels were no longer reflected in our financial statements. Instead, we recorded revenues from management fees only. During 2000, we recorded lodging expenses of $113.0 million related to these previously leased hotels. Another factor affecting the decrease was the decrease in lodging expenses. Lodging expenses consist of rooms, food and beverage, property costs and other departmental expenses from the Pittsburgh Airport Residence Inn by Marriott and one leased hotel.


•	administrative and general;
•	lease expense;
•	depreciation and amortization;
•	joint venture start-up costs
•	asset impairment and write-offs

Total undistributed operating expenses decreased $111.9 million to $45.0 million for the twelve months ended December 31, 2001 compared to $156.9 for the twelve months ended December 31, 2000. Factors primarily affecting the decrease were:

•

General and administrative expenses are associated with the management of hotels and consist primarily of centralized management expenses such as payroll and related benefits, operations management, sales and marketing, finance and other hotel support services, as well as general corporate expenses. General and administrative expenses decreased by $6.5 million, from $37.6 million in 2000 to $31.1 million in 2001. During 2001, we incurred lower general and administrative expenses relating to business travel and relocation. Specifically, during the fourth quarter of 2001, we finalized the Equity Inns hotel lease conversion. Based on the final settlement with Equity Inns, we reversed approximately $1.0 million of estimated accrued liabilities related to the conversion that were established and recorded as a general and administrative expense in the fourth quarter of 2000. The reversal of the accrued liabilities was recorded as a reduction of general and administrative expense in 2001. We incurred $3.1 million of legal expenses during 2001 related to on-going lawsuits as compared to $1.4 million during 2000. This increase was primarily associated with the legal fees and expenses related to the Columbus Hotels Properties, LLC and Chisholm Properties South Beach, Inc. legal matters.

During 2000, we incurred $0.7 million of expenses for reserves for doubtful accounts related to notes receivable. We incurred no such expenses during 2001. In addition, we incurred expenses during 2000 for a $1.5 million deficiency between the amount of premiums received as compared to actual and estimated claims incurred under our self-insured health and welfare plan. We incurred no such deficiency during 2001. General and administrative expenses as a percentage of revenues increased to 9.8% during 2001 compared to 7.0% during 2000. This increase was due to the decrease in total revenues resulting from the Equity Inns lease conversion.

Payroll and related benefits decreased by $3.0 million, from $22.7 million in 2000 to $19.7 million in 2001. During 2001, we incurred lower expenses related to bonuses for executives and key employees. These expenses decreased by $2.4 million during 2001. In addition, overall salaries and wages decreased by $0.4 million during 2001 due to temporary pay reductions following the September 11th terrorist attacks


	and a wage freeze until 2002. Payroll and related benefits as a percentage of revenues increased to 6.2% during 2001 compared to 4.3% during 2000. This increase was due to the decrease in total revenues resulting from the Equity Inns conversion.

•	Lease expense represents base rent and participating rent that is based on a percentage of rooms and food and beverage revenues from leased hotels. Lease expense decreased by $88.1 million, from $88.6 million in 2000 to $0.5 million in 2001. As a result of the Equity Inns lease conversion effective January 1, 2001, we no longer incur lease expense related to the previously leased hotels.

•	Depreciation and amortization decreased by $5.7 million, from $16.1 million in 2000 to $10.4 million in 2001. This decrease was partially due to the Equity Inns lease conversion that resulted in a non-cash impairment loss of $12.6 million in 2000 related to the carrying value of our long-term intangible assets. This loss reduced our investment in lease contracts and resulted in decreased amortization of $1.2 million in 2001. In addition, as a result of the Wyndham Redemption in the fourth quarter of 2000, we recorded a $14.1 million reduction of the carrying value of long-term intangible assets related to our investment in management agreements and resulted in decreased amortization of $5.2 million in 2001.

•	Joint Venture start-up costs of $2.1 million in 2000 relating to our joint venture with Lehman Brothers, net of a $0.8 million reimbursement from the joint venture, include the legal, investment banking and other costs we incurred in connection with the start-up of the joint venture.

•	The impairment loss of $12.6 million in 2000 represents a non-cash impairment charge on the non-monetary exchange of our hotel lease contracts for management agreements. As discussed above, the lease contracts for 75 hotels previously leased from Equity Inns were terminated and we entered into management agreements for 54 of the hotels formerly leased to us effective January 1, 2001.

	The impairment loss of $3.0 million in 2001 represents a non-cash impairment loss related to our 20% non-controlling equity interest in a partnership that owns the Renaissance Worldgate Hotel in Kissimmee, Florida. We recorded the impairment loss in the third quarter of 2001 as a result of a permanent impairment of the future profitability of this hotel. Since its acquisition in the fourth quarter of 2000, the hotel had experienced lower than expected operating cash flows, primarily due to decreased occupancy rates and average daily room rates that affected this hotel and the Orlando lodging market in general. In addition, the weakness in the U.S. economy during 2001 coupled with the severe downturn in the Florida lodging market after the September 11th terrorist attacks had resulted in significant financial difficulties for the hotel. As a result, the hotel was unable to satisfy debt service obligations, which resulted in mortgage defaults. Consequently, on February 21, 2002, the ownership and financing for the hotel were restructured in order to address the financial difficulties of the hotel. As part of this restructuring, our 20% non-controlling equity interest was redeemed in exchange for mutual releases with respect to the obligations of the hotel. In addition, the hotel owner and we amended the management agreement for the hotel, pursuant to which, among other things, we waived our management fees for the period from July 1, 2001 through February 21, 2002 and agreed to reduce our management fee for periods following February 21, 2002.

As a result of the charges noted above, an operating loss of $3.6 million was incurred in 2001 as compared to an operating loss of $26.8 million in 2000.

Net loss available to common stockholders decreased $1.0 million to $8.0 million for the year ended December 31, 2001 from $9.0 million for the year ended December 31, 2000. The majority of the decrease relates to the decrease in revenue of $215.2 million and related expenses of $238.4 million due to the Equity Inns lease conversion as discussed above. This created a decrease in net operating loss of $23.2 million. This was partially offset by the following


•	Losses from equity investments in hotel real estate were $5.2 million in 2001, compared to $0.5 in 2000. In 2001, this consisted of our proportionate share of the losses incurred by four non-controlling equity


	investments in 11 hotels. These losses were incurred by the hotels due to the weakness in the U.S. economy during 2001 and significant declines in occupancy following the September 11th terrorist attacks.

•	Net interest income of $1.8 million was recorded in 2000 as compared to net interest expense of $1.7 million in 2001 primarily due to $1.8 million of incremental interest expense that we incurred related to the $25.0 million Subordinated Convertible Notes. Also during 2001, we incurred interest expense of $0.5 million on the long- term debt associated with the Wyndham Redemption and interest expense of $0.4 million on the long-term debt associated with the FelCor acquisition.

•	Minority Interest was $10.7 million in 2000 compared to a benefit of $0.2 in 2001. This reflects Wyndham’s 55% non-controlling interest through October 31, 2000 and adjusted to 1.6627% thereafter to reflect the reduction of Wyndham’s common interest resulting from the redemption of their non-voting ownership interest.

•	Income tax benefit decreased $2.6 million, from $5.9 million in 2000 to $3.3 million in 2001. Income tax benefit for 2000 was computed based on an effective tax rate of 40% after reduction of minority interest. Income tax benefit for 2001 was computed based on an effective tax rate of 38% after reduction of minority interest and adjusted for a full valuation allowance established on the anticipated capital loss that was generated through the impairment of the Renaissance Worldgate Hotel equity investment in hotel real estate.

Earnings (loss) before interest, taxes, depreciation and amortization or EBITDA increased $17.4 million to $6.7 million for the year ended December 31, 2001 from a loss of $10.7 million for the year ended December 31, 2000. The primary causes of this increase were:


•	Hotel Management segment’s EBITDA increased by $5.9 million to $9.8 million for the twelve months ended December 31, 2001, from $3.9 million for the twelve months ended December 31, 2000. The majority of the increase is due to the Equity Inns conversion as discussed above, resulting in increased management fee revenue from previously leased hotels, and decreased general and administrative expenses.

•	The remaining EBITDA increased by $11.6 million, from $(14.6) million in 2000 to $(3.0) million in 2001. This was due to the asset impairments and write-offs described above, and the joint venture start-up costs incurred in 2000.

Working Capital — We had $7.1 million of cash and cash equivalent assets at December 31, 2002 compared to $39.0 million at December 31, 2001, and working capital (current assets less current liabilities) of $(13.1) million at December 31, 2002 compared to $34.4 million at December 31, 2001. This decrease in working capital of $47.5 million resulted primarily from the accounts payable and accrued liabilities assumed as a result of the merger and the decrease in cash as a result of the payment of the $9.2 million conversion incentive to our principal investor group, the repayment of the Wyndham redemption notes, and the payment of the limited recourse mortgage note. This is partially offset by the accounts receivable purchased as a result of the merger.

Operating Activities — Net cash used in operating activities was $17.5 million during the year ended December 31, 2002 compared to $1.4 million during the year ended December 31, 2001. The increase of $16.1 million resulted primarily from changes in the accounts payable and accrued liabilities balances, and a $7.3 million payment to induce conversion of our convertible notes by our principal investor group, partially offset by an increase in operating income (adjusted for non-cash items).

If the continued weakness in the economy continues to negatively impact the financial results of our managed hotels and corporate housing operations, our management fee and corporate housing revenues could decrease,

Investing Activities — Our net cash used in investing activities was $5.0 million during the year ended December 31, 2002 compared to net cash used in investing activities of $1.1 million during the year ended December 31, 2001. During 2002, we paid merger-related acquisition costs of approximately $3.5 million.

On February 21, 2002, we participated in restructuring of the ownership and financing for the Renaissance Worldgate Hotel in Kissimmee, Florida in order to address the hotel’s financial difficulties. As part of this restructuring, the following occurred:


•	The majority owners of the hotel redeemed our 20% non-controlling equity interest in exchange for mutual releases with respect to the obligations of the hotel, and we received a payment of $0.9 million towards the accounts receivable owed to us by the hotel.
•	The hotel owner also issued a promissory note of $0.3 million to us for the remaining accounts receivable we were owed. This note bears interest at the rate of nine percent per annum and is payable in equal quarterly installments beginning January 1, 2003. The hotel owner did not pay the first installment when due on January 1, 2003.
•	We and the hotel owner amended the management agreement for the hotel. We waived our management fees for the period from July 1, 2001 through February 21, 2002 and agreed to reduce our base management fee for periods following February 21, 2002.

The majority owners and the principal lender for the hotel are affiliated with CGLH Partners I L.P. and CGLH Partners II L.P., which are entities affiliated with Lehman Brothers Holdings, Inc. and members of our principal investor group. They have five designees on our board of directors.

We believe our accounts and notes receivable, net of any allowances for estimated uncollectible accounts, represent accounts we ultimately expect to realize or collect. We will continue to evaluate the collectibility of the accounts receivable on a quarterly basis.

We periodically make equity investments in entities that own hotel properties we manage. We evaluate these investment opportunities based on financial and strategic factors such as the estimated potential value of the underlying hotel properties and the management fee revenues we can obtain from the investment. We are in discussions to establish a new joint venture to acquire hotel properties that we would then manage. The amount and timing of our investment, if any, in such an entity has not yet been determined.

Financing Activities — Our net cash used in financing activities was $9.6 million during the year ended December 31, 2002 compared to $9.8 million during the year ended December 31, 2001. This use of cash was due primarily to the following:


•	$1.9 million payment to induce conversion of our Series B preferred stock by our principal investor group.
•	$4.5 million of repayments of long-term debt to Wyndham.
•	$1.4 million of repayments on a limited recourse mortgage note.

We are required to distribute 1.6627% of cash flows from the operations of Interstate Hotels, LLC, one of our operating subsidiaries, to Wyndham based on Wyndham’s common interest in that entity The net distribution payable to Wyndham through December 31, 2002 was approximately $0.3 million.

Senior Credit Agreement — Effective July 31, 2002 in connection with the closing with the MeriStar-Interstate merger, we entered into a $113.0 million senior credit agreement with a group of banks. The senior credit agreement consists of a $65.0 million term loan due on July 31, 2005 and a $48.0 million revolving credit facility due on July 31, 2005 (with a one-year renewal at our option). The interest rate on the senior credit agreement is LIBOR plus 3.00% to 4.50%, depending upon our meeting certain financial tests. The senior credit facility contains certain covenants, including maintenance of financial ratios at the end of each quarter, compliance reporting requirements and other customary restrictions. At December 31, 2002, borrowings under the senior credit agreement bore interest at a rate of 5.4% per annum. We incurred $2.0 million of interest expense on the senior credit agreement in 2002. As of March 20, 2003, the total availability under our senior credit agreement was $22.0 million.

MHOP Term Loan — In January 2003, we completed a discounted repayment of the term loan extended by the subsidiary operating partnership of MeriStar Hospitality for $42.1 million, realizing a gain of $13.6 million. We financed the repayment with proceeds from a $40.0 million subordinated term loan that matures in January 2007 and carries a coupon rate of LIBOR plus 8.5%. We funded the remainder of the repayment out of available cash.

Liquidity — In 2002, we incurred approximately $22.0 million of merger and restructuring costs. Approximately $8.3 million of the restructuring costs remain to be paid as of December 31, 2002. Also, in 2003 we expect to incur additional merger-related costs (primarily related to relocation of employees and other business integration costs) in 2003. We estimate the total cash outlay for restructuring and merger-related costs in 2003 to be approximately $6.0-8.0 million.

As part of our management agreement services to a hotel owner, we generally obtain casualty insurance coverages for the hotel. In December 2002, one of the carriers we used to obtain casualty insurance coverages was downgraded significantly by rating agencies. In January 2003, we negotiated a transfer of that carrier’s current coverages to a new carrier. We are working with the prior carrier to facilitate a timely and efficient close-out of the claims outstanding under the prior carrier’s casualty policies. The prior carrier has primary responsibility for settling those claims from its assets. If the prior carrier’s assets are not sufficient to settle these outstanding claims, and the claims exceed amounts available under state guaranty funds, we may be required to settle those claims. Although we are indemnified under our management agreements for such amounts, we would be responsible contractually for claims in historical periods when we leased (in addition to managed) certain hotels. Based on the information currently available, we believe the ultimate resolution of this situation will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

We believe that cash generated by our operations, together with borrowing capacity under our senior credit agreement, will be sufficient to fund our requirements for working capital, capital expenditures and debt service. We expect to continue to seek acquisitions of hotel management businesses and management contracts, and joint venture opportunities where we can participate in the ownership of hotels we manage. We expect to finance future acquisitions through a combination of additional borrowings under our credit facility and the issuance of equity instruments (that is, common stock or operating partnership units). We believe these sources of capital will be sufficient to provide for our long-term capital needs.

The following table summarizes our contractual obligations at December 31, 2002 and the effect that those obligations are expected to have on our liquidity and cash flows in future periods (amounts in thousands):

Long-Term Debt: For principal repayment and debt service obligations with respect to our long-term debt, see note 5 to our condensed consolidated financial statements.

Lease Commitments: We lease apartments for our Corporate Housing division and office space for our corporate offices. The leases run through 2014.

Management Agreement Commitments: Under the provisions of management agreements with certain hotel owners, we have outstanding commitments to provide an aggregate of $4.1 million to these hotel owners in the form of investments or working capital loans. The loans may be forgiven or repaid based upon the specific terms of each management agreement. The timing of future investments or working capital loans to hotel owners is currently unknown.

Equity Investment Funding: In connection with our equity investments in hotel real estate, we are party to various unconsolidated partnerships or limited liability companies. The terms of such partnership or limited liability company agreements provide that we contribute capital as specified. The timing and amount of such contributions of capital is currently unknown. We have non-controlling equity interests in five hotel real estate limited partnerships and limited liability companies.

We are exposed to market risk from changes in interest rates on our credit facilities. Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs.

Our senior secured credit facility matures July 31, 2005. At December 31, 2002, we had borrowings of $74.0 million outstanding on the facility. Interest on the debt is variable, based on the 30-day London Interbank Offered Rate plus 400 basis points. The weighted average effective interest rate was 5.4% at December 31, 2002. We have determined that the fair value of the debt approximates its carrying value.

Our $56.1 million of long-term debt under the term loan by MeriStar Hospitality was due to mature on July 31, 2007. Interest on the debt was variable, based on the 30-day London Interbank Offered Rate plus 650 basis points. The weighted average effective interest rate was 7.9% at December 31, 2002. We repaid the term loan for $42.1 million in January 2003 and realized a gain of $13.6 million.

A 1.0% change in the 30-day London Interbank Offered Rate would have changed our interest expense by approximately $0.5 million for the year ended December 31, 2002.

In October 2002, we entered into a $30.0 million, two-year interest rate swap agreement with a financial institution in order to hedge against the effect future interest rate fluctuations may have on our floating rate debt. The swap agreement effectively fixes the 30-day London Interbank Offered Rate at 2.50%. The fair value of the swap agreement was ($0.4) million at December 31, 2002.

Our international operations are subject to foreign exchange rate fluctuations. We derived approximately 3.4% and 1.6% of our revenue for the years ended December 31, 2002 and December 31, 2001, respectively, from services performed in Canada, the United Kingdom, France, and Russia. Our foreign currency transaction gains and losses were not material to our results of operations for the year ended December 31, 2002. To date, since most of our foreign operations have been largely self-contained we have not been exposed to material foreign exchange risk. Therefore, we have not entered into any significant foreign currency exchange contracts or other derivative financial instruments to hedge the effects of adverse fluctuations in foreign currency exchange rates. In the event that we have large transactions requiring currency conversion we would reevaluate whether we should engage in hedging activities.

The following Consolidated Financial Statements are filed as part of this Annual Report of Form 10-K:

All Financial Statement Schedules are omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto.

We have audited the accompanying consolidated balance sheets of Interstate Hotels & Resorts, Inc. and subsidiaries (formerly Interstate Hotels Corporation) as of December 31, 2002 and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Interstate Hotels & Resorts, Inc. and subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying notes are an integral part of the consolidated financial statements.

MeriStar Hotels & Resorts, Inc., or MeriStar, and Interstate Hotels Corporation, or Interstate, entered into an Agreement and Plan of Merger, dated May 1, 2002 and as amended on June 3, 2002. In the merger transaction, Interstate merged with and into MeriStar, and MeriStar was renamed Interstate Hotels & Resorts, Inc. On July 31, 2002, after receiving the required stockholder approvals, MeriStar and Interstate completed the merger. The transaction was a stock-for-stock merger of Interstate into MeriStar in which Interstate stockholders received 4.6 shares of common stock for each share of Interstate stock outstanding. Holders of MeriStar common stock and operating partnership units continued to hold their stock and units following the merger. In connection with the merger, the holders of Interstate’s convertible debt and preferred equity shares converted those instruments into shares of common stock of the surviving company.

In accordance with generally accepted accounting principles, we treated the merger as a purchase for financial reporting purposes. In accordance with the provisions of Statement of Financial Accounting Standards No. 141, “Business Combinations,” Interstate was considered the acquiring enterprise for financial reporting purposes. Interstate established a new accounting basis for MeriStar’s assets and liabilities based upon their fair values as of July 31, 2002, the effective date of the merger. We accounted for the merger for as a reverse acquisition with Interstate as the accounting acquirer and MeriStar as the surviving company for legal purposes.

The consolidated interim financial statements for the years ended December 31, 2002 and 2001 include the historical results of operations of Interstate, the accounting acquiror. After the MeriStar-Interstate merger on July 31, 2002, the financial statements include the operating results of the combined entity, Interstate Hotels & Resorts, Inc.

The MeriStar-Interstate merger combined the two largest independent hotel management companies in the United States, measured by number of rooms under management. We manage a portfolio of hospitality properties and provide related services in the hotel, corporate housing, resort, conference center, and golf markets. We also own and operate one hotel. Our portfolio is diversified by franchise and brand affiliations. The related services we provide include insurance and risk management services, purchasing and project management services, information technology and telecommunications services, and centralized accounting services.

As of December 31, 2002, we managed 393 properties with 83,053 rooms in 45 states, the District of Columbia, Canada, and Russia. We wholly own one of these properties. We have non-controlling equity interests in 25 of these hotels. In addition, at December 31, 2002, we had 3,054 apartments under lease in the United States, Canada, the United Kingdom and France.

provides MeriStar Hospitality with the right of first refusal with respect to some of our hotel real estate opportunities and it also provides us with a right of first refusal with respect to some of MeriStar Hospitality’s hotel management opportunities (excluding hotels that MeriStar Hospitality elects to have managed by a hotel brand). We also provide each other with certain services including administrative, renovation supervision, corporate, accounting, finance, risk management, legal, tax, information technology, human resources, acquisition identification and diligence and operational services.

Principles of Consolidation — Our consolidated financial statements include our accounts and the accounts of all of our majority owned subsidiaries. As part of our consolidation process, we eliminate all significant intercompany balances and transactions. We use the equity method to account for investments in unconsolidated joint ventures and affiliated companies in which we hold a voting interest of 50% or less and we exercise significant influence. We use the cost method to account for investments in entities in which we do not have the ability to exercise significant influence.

Cash and Cash Equivalents — We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Allowance for Doubtful Accounts — We provide an allowance for doubtful accounts receivable when we determine it is more likely than not a specific account will not be collected. Although it is reasonably possible that our estimate for doubtful accounts could change in the near future, we are not aware of any events that would result in a change to our estimate that would be material to our financial position or results of operations. At December 31, 2002 and 2001 we had an allowance for doubtful accounts of $4,125 and $227 respectively.

Marketable Securities — We provide deferred compensation for certain executives and hotel general managers by depositing amounts into trusts for the benefit of the participating employees. Deposits into the trusts are expensed. Amounts in the trusts earn investment income, which serves to increase the corresponding deferred compensation obligation. Investments, which are recorded at market value, are directed by us or the participants, and consist principally of mutual funds. Unrealized gains and losses were not significant at December 31, 2002 and 2001.

Property and Equipment — We record our fixed assets at cost. We depreciate these assets using the straight-line method over lives ranging from three to seven years.

Employees Notes Receivable — We grant loans from time to time to employees. These loans are payable upon demand and generally do not bear interest until such demand is made. We may forgive certain in accordance with employment agreements, and such amounts are expensed ratably over the terms of such employment agreements.

Intangible Assets — Our intangible assets consist of goodwill, hotel management contracts, franchise fees, and deferred financing fees or costs incurred to obtain management contracts. Goodwill is the excess of the cost to acquire a business over the fair value of the net identifiable assets of that business. We amortize intangible assets with the exception of goodwill on a straight-line basis over the estimated useful lives of the underlying assets. These lives range from five to twenty-five years.

Impairment of Long-Lived Assets — Whenever events or changes in circumstances indicate that the carrying values of long-lived assets (including all intangibles) may be impaired, we perform an analysis to determine the recoverability of the asset’s carrying value. We make estimates of the undiscounted cash flows from the expected future operations of the asset. If the analysis indicates that the carrying value is not recoverable from future cash flows, the asset is written down to estimated fair value and an impairment loss is recognized. Any impairment losses are recorded as operating expenses.

We review long-lived assets for impairment when one or more of the following events occurs:


•	Current or immediate short-term (future twelve months) projected cash flows are significantly less than the most recent historical cash flows.
•	A significant loss of management contracts without the realistic expectation of a replacement.
•	The unplanned departure of an executive officer or other key personnel that could adversely affect our ability to maintain our competitive position and manage future growth.
•	A significant adverse change in legal factors or an adverse action or assessment by a regulator, which could affect the value of our long-lived assets.
•	Events that could cause significant adverse changes and uncertainty in business and leisure travel patterns.

We make estimates of the undiscounted cash flows from the expected future operations of the asset. In projecting the expected future operations of the asset, we base our estimates on projected amounts of future earnings before interest expense, income taxes, depreciation and amortization, or EBITDA. We use growth assumptions to project these estimated future EBITDA amounts over the expected life of the underlying asset. Our impairment analysis considers various factors, such as the current operating performance of the underlying assets, our future forecast for operations, funding requirements or obligations we may have to an affiliate, and the estimated fair value of our investment based on liquidation preferences and priorities within an affiliate ownership structure.

Income Taxes — We account for income taxes using Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. We have an allowance against some, but not all, of our recorded deferred tax assets. We have considered estimated future taxable income and prudent and feasible ongoing tax planning strategies in assessing the need for a valuation allowance. Our estimates of taxable income require us to make assumptions about various factors that affect our operating results, such as economic conditions, consumer demand, competition and other factors. Our actual results may differ from these estimates. Based on actual results or a revision in future estimates, we might determine that we would not be able to realize additional portions of our net deferred tax assets in the future; if that occurred, we would record a charge to the income tax provision in that period.

Foreign Currency Translation — We maintain the results of operations for our foreign locations in the local currency and translate these results using the average exchange rates during the period. We translate the assets and liabilities to U.S. dollars using the exchange rate in effect at the balance sheet date. We reflect the resulting translation adjustments in stockholders’ equity as a cumulative foreign currency translation adjustment, a component of accumulated other comprehensive income (loss).

Stock-Based Compensation — We have adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“FASB”) No. 123, “Accounting for Stock-Based Compensation.” Accordingly, when we initially issue options, we account for them under the provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.” We account for our repriced options under variable plan accounting in accordance with FASB Interpretation No. 44, “Accounting for Certain Transactions Including Stock Compensation.” We have elected to continue to follow the provisions of APB No. 25, “Accounting for Stock Issued to Employees” in accounting for the equity incentive plans.

Pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123, and has been determined as if we had accounted for our employee stock options using the fair value method. The weighted average fair value of the options granted was $2.30, $0.40

and $1.88 during 2002, 2001, and 2000, respectively. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

Had compensation cost for stock options been determined based on the fair value at the grant date for awards under out plans, our net loss and per share amounts would have been reduced to the pro forma amounts indicated as follows:

Based on the fair value of the options at the grant dates according to SFAS No. 123, our net loss would not have changed for compensation cost related to the stock options for the years ended December 31, 2001 or 2000.

The effects of applying Statement of Financial Accounting Standards No. 123 for disclosing compensation costs may not be representative of the effects on reported net loss and loss per share for future years.

Revenue Recognition — We earn revenue from our owned hotel, management contracts and related sources, and corporate housing operations. In 2001 and 2000, we also earned revenue from certain leased hotels. We recognize revenue from our owned and leased hotels from rooms, food and beverage, and other operating departments as earned at the close of each business day. Our management and other fees consist of base and incentive management fees received from third-party owners of hotel properties, and fees for other related services we provide. We recognize base fees and fees for other services as revenue when earned in accordance with the individual management contracts. In accordance with Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”, we accrue incentive fees in the period when we are certain they are earned. For contracts with annual incentive fee measurements, we typically will record any incentive fees in the last month of the annual contract period.

Through the second quarter of 2002, we had recorded incentive management fees in accordance with Method No. 2 of Emerging Issues Task Force or EITF Topic No. D-96, “Accounting for Management Fees Based on a Formula” in which incentive management fees are accrued as earned based on the profitability of the hotel, subject to the specific terms of each individual management agreement. The application of Method No. 2 resulted in the accrual of incentive management fees during interim reporting periods throughout the annual measurement period. The accrual would be reduced or eliminated in subsequent interim reporting periods if

the profitability of the hotel missed performance thresholds later in the annual measurement period. This is an acceptable method of accounting for incentive management fees because the termination provisions specified in the management contracts provide for payment of prorated incentive management fees if the contract were to be terminated at any point within the year.

Comprehensive Loss — Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” requires companies to display comprehensive income (loss) and its components in a financial statement to be included in a company’s financial statements or in the notes to financial statements. Comprehensive income (loss) represents a measure of all changes in equity of a company that result from recognized transactions and other economic events for the period other than transactions with owners in their capacity as owners. Our comprehensive loss includes net income (loss) and other comprehensive income (loss) from foreign currency items, derivative instruments, translation adjustments, and unrealized gains (losses) from our investments.

Derivative Instruments and Hedging Activities — SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. SFAS No. 137 and No. 138 amended certain provisions of FAS No. 133. We adopted these accounting pronouncements effective January 1, 2001.

Our interest rate risk management objective is to limit the impact of interest rate changes on earnings and cash flows. We assess interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows, and by evaluating hedging opportunities. We do not enter into derivative instruments for any purpose other than cash flow hedging purposes.

Our interest rate swap agreements have been designated as hedges against changes in future cash flows associated with the interest payments of our variable rate debt obligations. Accordingly, the interest rate swap agreements are reflected at fair value in our consolidated balance sheet as of December 31, 2002 and the related unrealized gains or losses on these contracts are recorded in stockholders’ equity as a component of accumulated other comprehensive income (loss). As of December 31, 2002, the fair value of our derivative instruments represents a liability of $431.

Insurance Receivables and Reserves — We earn insurance revenues through reinsurance premiums, direct premiums written and reinsurance premiums ceded. Reinsurance premiums are recognized when policies are written and any unearned portions of the premium are recognized to account for the unexpired term of the policy. Direct premiums written are recognized in accordance with the underlying policy and reinsurance premiums ceded are recognized on a pro-rata basis over the life of the related policies. Losses, at present value, are provided for reported claims, claims incurred but not reported and claims settlement expenses. Claims incurred but not reported are estimated based on historical experience and other various factors that are believed to be reasonable under the circumstances. Actual liabilities may differ from estimated amounts and any changes in estimated losses and settlements are reflected in current earnings. All accounts are classified with assets and liabilities of a similar nature in the consolidated balance sheets. Amounts restricted

due to statutory requirements consist of cash and cash equivalents of $1,134 and $1,089 at December 31, 2002 and 2001, respectively. These amounts are included in restricted cash in the accompanying consolidated balance sheets.

Earnings per Share — We present basic and diluted earnings per share, or EPS, on the face of the income statement. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock that then shared in the earnings of the entity. Dilutive securities are excluded from the computation in periods in which they have an anti-dilutive effect.

Use of Estimates — To prepare financial statements in conformity with accounting principles generally accepted in the United States of America, we must make estimates and assumptions. These estimates and assumptions affect the reported amounts on our balance sheet and income statement, and the disclosure of contingent assets and liabilities at the date of the financial statements. Our actual results could differ from those estimates.

Reclassifications — We have reclassified certain 2001 and 2000 amounts to be consistent with the 2002 presentation.

In June 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. This statement establishes standards for accounting for obligations associated with the retirement of tangible long-lived assets. The implementation of the provisions of SFAS No. 143 is required effective January 1, 2003. We do not expect the implementation of this statement to have a significant impact on our financial position or results of operations.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement addresses financial accounting and reporting for the impairment and disposal of long-lived assets. The adoption of this statement, on January 1, 2002, did not have an impact on our financial position or results of operations.

Effective January 1, 2002, we adopted the provisions of Emerging Issues Task Force (“EITF”) Issue No. 01-14 “Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses Incurred.” This issue establishes standards for accounting for reimbursements received for out-of-pocket expenses incurred and the characterization as revenue and expense in the statement of operations. In accordance with this issue, we have included in operating revenues and expenses the reimbursement of costs we incur on behalf of the third-party owners of our managed hotels. These costs relate primarily to payroll and benefit costs at managed hotels where we are the employer. We receive reimbursements for these costs based upon our costs with no added margin. Therefore, the adoption of this issue did not impact our operating income, earnings per share, cash flows or financial position. We adopted this issue by retroactively applying it to all periods presented in our accompanying financial statements. The effect of adopting this issue was an increase in our operating revenues and expenses of $494,243, $274,801 and $287,941 for the years ended December 31, 2002, 2001 and 2000, respectively.

In April 2002, the FASB issued SFAS No. 145 “Rescission of FASB Statements No. 4, 44 and 64, Amendment of SFAS No. 13, Technical Corrections”. We adopted this statement during 2002. We do not expect the implementation of this statement to have a significant impact on our financial position or results of operations.

In July 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities.” The provisions of this statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. If we enter into these transactions after that date, we will account for those transactions in accordance with the new statement.

FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FASB Interpretation No. 34”, (“FIN 45”) was issued in November 2002. FIN 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 does not prescribe a specific approach for subsequently measuring the guarantor’s recognized liability over the term of the related guarantee. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002 irrespective of the guarantor’s fiscal year-end. The disclosure requirements in FIN 45 are effective for financial statements of interim or annual periods ending after December 15, 2002.

In January 2003, the FASB issued FASB Interpretation No. 46, “Consolidation of Variable Interest Entities”, an interpretation of Accounting Research Bulletin No. 51, “Consolidated Financial Statements”, (“FIN 46”). FIN 46 explains how to identify variable interest entities and how an enterprise assesses its interests in a variable interest entity to decide whether to consolidate the entity. This Interpretation requires existing unconsolidated variable interest entities to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved. FIN 46 is effective immediately for variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. The Interpretation applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. We do not anticipate that the adoption of FIN 46 will have a material impact on our financial position or results of operations.

Our investments in and advances to joint ventures and affiliated companies consist of the following:

The combined summarized financial information of our significant unconsolidated joint ventures, MIP Lessee L.P., and FCH/ IHC Hotels, L.P. and FCH/ IHC Leasing, L.P. is as follows:

In 2001, we acquired a non-controlling 15% limited partnership interest in a limited partnership, CNL IHC Partners, L.P. CNL Hospitality Corp. owns the remaining 85% of the partnership. The partnership owns two mid-scale hotels. Our total acquisition cost of the partnership interest, including closing costs, was $2,201.

In 2001, we formed two limited partnerships (FCH/ IHC Hotels, L.P. and FCH/ IHC Leasing, L.P.) with FelCor Lodging Trust. These partnerships purchased eight mid-scale hotels in 2001, and we manage those eight hotels. The partnership entities are owned 50% by FelCor and 50% by us. The operating results of the hotels in the FelCor partnerships were lower than what we had originally forecasted when we formed the partnership with FelCor. As a result, we have evaluated the carrying value of these assets. Our review as of December 31, 2002 indicated that the future projected cash flows from the partnerships’ hotels is not sufficient to allow us to recover our investment in these partnerships, and we believe the decline to be other than temporary.

Accordingly, in the fourth quarter of 2002, we recorded an impairment charge of $2,704 to reduce the investment to its estimated fair value. The amount is included in asset impairments and write-offs in the accompanying income statement.

Our review of our other investments in and advances to affiliates as of December 31, 2002 did not indicate that any other items were impaired. The future carrying value of our investments is, however, dependent upon operating results of our operating segments and/or the underlying real estate investments. Future adverse changes in the hospitality and lodging industry, market conditions or poor operating results of the underlying investments could result in future losses or the inability to recover the carrying value of these long-lived assets.

We incurred aggregate amortization expense of $11,004, $9,880 and $14,924 on these assets for the years ended December 31, 2002, 2001 and 2000, respectively.

During 2002, we recorded the following significant transactions that affected intangible and other assets.


•	As part of the purchase accounting for the MeriStar-Interstate merger, we recorded additions to intangible assets of $91,960 of goodwill and $58,199 of management contracts

•	As a result of the MeriStar and Interstate merger and the termination of Interstate’s previous revolving credit facility, we wrote-off $2,465 of deferred financing fees. This amount is included as part of merger costs on our consolidated statement of operations.

•	In connection with the closing of the merger and the execution of the new senior credit agreement, we incurred $1,513 of deferred financing fees.

•	We wrote off $1,087 of intangible management contract assets following the termination of our management contracts on certain hotel properties. This amount is included as part of asset impairments and write offs on our consolidated statement of operations.

During 2001, we recorded an impairment charge of $3,026. This charge represented a non-cash loss related to our 20% non-controlling equity interest in a partnership that owns the Renaissance Worldgate Hotel in Kissimmee, Florida. The charge was the result of a permanent impairment of the future profitability of this hotel, based on the hotel’s past and projected future operating results.

On February 21, 2002, we participated in the restructuring of the ownership and financing for the Renaissance Worldgate Hotel in order to address the hotel’s financial difficulties. As part of this restructuring, the majority owners of the hotel redeemed our 20% non-controlling equity interest in exchange for mutual releases with respect to the obligations of the hotel, and we received a payment of $900 towards the accounts receivable owed to us by the hotel.

Our estimated amortization expense for the next five years is expected to be as follows:

The carrying amount of goodwill by reportable segment as of December 31, 2002 is as follows:

Senior credit agreement — Effective July 31, 2002 in connection with the closing of the MeriStar-Interstate merger, we entered into a $113,000 senior credit agreement with a group of banks. The senior credit agreement consists of a $65,000 term loan and a $48,000 revolving credit facility. The term loan is payable in quarterly installments of $406 beginning January 1, 2003, with the balance due on July 31, 2005. The revolving credit facility is due on July 31, 2005 (with a one-year renewal at our option). The interest rate on the senior credit agreement is LIBOR plus 3.00% to 4.50%, depending upon our meeting certain financial tests. The senior credit facility contains certain covenants, including maintenance of financial ratios at the end of each quarter, compliance reporting requirements and other customary restrictions. At December 31, 2002, borrowings under the senior credit agreement bore interest at a rate of 5.4% per annum. We incurred $1,966 of interest expense on the senior credit agreement in 2002.

Promissory note — In March 2001, we entered into a promissory note in the amount of $4,170 with FelCor Lodging Trust Incorporated to fund the acquisition of a 50% non-controlling equity interest in two partnerships that own eight mid-scale hotels. Interest on the note is payable monthly at the rate of 12% per annum and the outstanding principal balance is due and payable on December 31, 2010. For the years ended December 31, 2002 and 2001, we incurred $500 and $382, respectively, of interest expense on the promissory note.

MHOP term loan — In connection with the closing of the merger, effective July 31, 2002, we converted a $75,000 unsecured credit facility between MeriStar and MHOP to a $56,069 term loan due July 31, 2007. Immediately preceding the conversion, we repaid $3,000 on the credit facility. The term loan is subordinate to borrowings under our senior credit agreement. The MHOP term loan contains certain covenants, including maintenance of financial ratios at the end of each quarter, compliance reporting requirements and other customary restrictions. The term loan does not permit any additional future borrowings, and does not require MHOP to provide any additional funding for borrowings by us. At December 31, 2002, the term loan bore interest at 7.9%. We incurred $1,957 of interest expense on the MHOP loan for the year ended December 31, 2002.

In January 2003, we completed a discounted repayment of the MHOP term loan for $42,100. We financed the repayment with proceeds from a $40,000 subordinate term loan that matures in January 2007 and carries a

coupon rate of LIBOR plus 850 basis points. We funded the remainder of the repayment out of available cash.

8.75% subordinate convertible notes — On October 20, 2000, we issued 8.75% subordinated convertible notes for $25,000. These securities were issued to an investor group affiliated with Lehman Brothers Holdings Inc.

Initially, the convertible notes matured on October 20, 2007, and they were convertible into our Class A common stock at a rate of $4.00 per share. In connection with the merger, our principal investor group agreed to convert their Series B Preferred Stock and convertible notes into Class A common stock. On June 26, 2002, the investor group converted 75% of the principal amount of $25 million into 4,689,165 shares of Class A common stock. As an inducement for this conversion, we paid the principal investor group $9,250. Of this amount, $7,307 was allocated to the conversion of the convertible notes. We recorded this payment as a conversion incentive payment-convertible notes on our statement of operations.

Wyndham redemption notes — The Wyndham Redemption Notes balance of $4,432 at December 31, 2001 bore interest at a fixed rate of 9.75%. Initially, principal payments of $750 and $3,682 were due on July 1, 2002 and July 1, 2004, respectively. In conjunction with negotiating the MeriStar–Interstate merger agreement, we repaid $750 to Wyndham on May 2, 2002 and agreed to repay the $3,682 remaining outstanding principal amount prior to closing the merger. We repaid this amount on July 30, 2002. For the years ended December 31, 2002 and 2001, we incurred $235 and $503 of interest expense on the Wyndham notes, respectively.

Wyndham also holds a 1.6627% non–controlling economic interest in one of our operating subsidiaries. In conjunction with negotiating the merger, we also accelerated the timing of Wyndham’s right to require us to redeem this interest. Effective July 30, 2002, Wyndham has the right to require us to redeem this interest. The estimated value of this interest at December 31, 2002 is $433.

Limited recourse mortgage note — In February 2000, we entered into a limited-recourse mortgage note with a bank. The proceeds from the note, which originally was to mature February 2003, were $7,560. Monthly payments were due based on a 25-year amortization schedule for principal, with interest based on variable rate options using the prime rate or the LIBOR rate. The note was collateralized by the Pittsburgh Airport Residence Inn by Marriott, a hotel we acquired on November 1, 1999. In connection with the merger, we repaid the $6,575 remaining principal balance of the note on July 31, 2002. For the years ended December 31, 2002 and 2001, we incurred $184 and $505, respectively, of interest expense on the mortgage note.

Fair Value — Our outstanding long-term debt is based on LIBOR rates. We have determined that the fair value of our outstanding borrowings on our senior credit facility and promissory note approximate their carrying value at December 31, 2002. As indicated above, in January 2003, we completed the discounted repayment of the MHOP term loan for $42,100.

We calculated our basic earnings per common share by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding. Our diluted earnings per common share assumes the issuance of common stock for all potentially dilutive stock equivalents outstanding. The details of basic and diluted earnings per common share were as follows:

On July 31, 2002, in the merger transaction, the Interstate shareholders received 4.6 shares of common stock for each share of Interstate stock outstanding. MeriStar stockholders continued to hold their existing stock. On August 1, 2002, we effected a one-for-five reverse stock split of all outstanding shares of common stock. The weighted average number of common shares outstanding used in the table above is presented assuming the conversion of Interstate stock and the reverse stock split occurred on January 1, 2000.

We are organized into two operating divisions: hotel management and corporate housing. Both of these divisions are reportable operating segments. Each division is managed separately because of its distinctive products and services. We evaluate the performance of each division based on EBITDA.

Prior to the MeriStar-Interstate merger on July 31, 2002, we operated in two reportable segments: (1) operations of luxury and upscale hotels and (2) operations of mid-scale, upper economy and budget hotels. Following the merger, we operate in the segments shown in the table below. For periods prior to the merger, we have combined our two previously reportable segments into the hotel management operating segment for presentation in the table shown below.

The other items in the tables above represent operating segment activity and assets for the non-reportable segments. The non-operating segment activity includes merger costs, restructuring costs, tender offer costs, asset impairments and write-offs, and joint venture start-up costs. The non-operating segment assets include deferred tax assets and deferred financing costs.

The merger between MeriStar and Interstate was completed on July 31, 2002. MeriStar issued 37,188,574 shares of its common stock with a value of $38,527. The value of the MeriStar shares issued was determined

based on the average market price of MeriStar’s common shares over the 2-day periods before and after the merger was announced. Additionally, MeriStar’s stock options with a fair value of $953 vested in connection with the merger.

We accounted for the merger as a purchase of MeriStar by Interstate. Accordingly, we have included the operating results of MeriStar in our condensed consolidated financial statements since July 31, 2002, the effective date of the merger. The following summarizes the merger:

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Of the $59,712 of intangible assets acquired, $58,199 relates to management contracts, amortized over an 18 year weighted-average useful life.

The $91,960 of goodwill was assigned to the hotel management and corporate housing segments in the amounts of $82,885 and $9,075 respectively, none of which is expected to be deductible for tax purposes.

The following pro forma information is presented assuming the merger and the one-for-five reverse stock split had been completed as of the beginning of the periods presented. In management’s opinion, all pro forma adjustments necessary to reflect the material effects of these transactions have been made. The pro forma information does not purport to present what the actual results of operations would have been if the merger had occurred on such dates, nor to project the results of operations for any future period.

The above pro forma results include the following material, non-recurring items:

Conversion incentive payments — On June 26, 2002, the investor group converted all but 10 shares of their Series B Preferred Stock and 75% of the principal amount of the convertible notes into 5,939,140 shares of Class A common stock. As inducement for the conversion of the Preferred Stock and convertible notes, we paid the principal investor group $9,250.

Gain on lease conversion — Until June 28, 2002, MeriStar had leased 47 hotels from Winston Hotels, and managed 39 of these hotels. On June 30, 2002, the leases were assigned to a subsidiary of Winston. As of September 30, 2002, we continue to manage 38 of these hotels under five-year contracts, terminable on the sale of an asset or for any reason after 12 months. In connection with the assignment of the leases, MeriStar received $15,850 of cash on June 30, 2002 and an additional $3,266 of cash as of July 31, 2002. Also, net assets of $2,116 were transferred to the subsidiary of Winston and MeriStar wrote down $9,771 of goodwill and intangibles, resulting in a gain of $7,229.

Merger costs — During 2001, MeriStar mailed a proxy to its shareholders seeking approval of a merger agreement with American Skiing Company, which the parties then mutually agreed to terminate. For the year ended December 31, 2001, $4,239 of expenses were incurred relating to the proposed merger.

On a pro forma basis, during 2002 we incurred $8,006 of costs related to the merger and integration costs between Interstate and MeriStar. These costs include professional fees, travel and other transition costs incurred by MeriStar. All merger costs incurred by Interstate are referred to as transaction costs and included in the purchase price of the acquisition.

Restructuring expenses — During 2001, MeriStar incurred $855 of restructuring costs related to the proposed merger between MeriStar and American Skiing. MeriStar also incurred $975 of restructuring costs related to closing several underperforming corporate housing markets.

During 2002, in connection with the merger, we incurred restructuring charges related to personnel changes primarily as a result of relocation and elimination of certain job functions that are no longer needed under the combined company. Restructuring costs also includes estimates for non-cancelable lease costs associated with certain offices we plan to close.

As a result of the restructuring, we recorded charges of $13,296 for the year ended December 31, 2002. At December 31, 2002, approximately $8,260 remains in the restructuring accrual.

Tender offer costs — Prior to the merger, on April 11, 2002, Shaner Hotel Group Limited Partnership commenced an unsolicited partial tender offer to purchase 2,465,322 shares of Interstate’s Class A Common Stock for $3.00 per share. The tender offer was subject to various conditions, including redemption of Interstate’s preferred stock purchase rights in accordance with Interstate’s Shareholder Rights Agreement, or Shaner being satisfied that those rights did not apply to the tender offer.

Prior to the commencement of the tender offer, Interstate received unsolicited proposals from Shaner to combine its operations with Shaner’s. These proposals also provided for Shaner’s purchase of a portion of shares of Interstate’s common stock. Interstate’s board of directors unanimously voted to reject the proposals.

On April 24, 2002, Interstate’s full board of directors and a Special Committee of its independent directors concluded that the tender offer was financially inadequate and was not in the best interests of Interstate’s stockholders. Therefore, they unanimously recommended that Interstate’s stockholders reject the tender offer and not tender their shares pursuant to the tender offer. The tender offer expired on May 31, 2002.

We incurred $1,000 of costs related to the tender offer and the unsolicited proposals during 2002. These costs are included in the accompanying consolidated statement of operations.

Asset impairments and write-offs — In 2001, we recorded a loss on impairment of equity investment in hotel real estate in the amount of $3,026. This loss related to our 20% non-controlling interest in a partnership that owns the Renaissance Worldgate Hotel in Kissimmee, Florida.

In the fourth quarter of 2002, we recorded a $2,704 impairment charge to reduce the carrying value of our investment in FCH/IHC Hotels, L.P. and FCH/IHC Leasing, L.P. to its estimated fair value. Also in the fourth quarter of 2002, we wrote off $1,083 of certain intangible management contract assets, due to the disposition of the related properties and the termination of our management contracts on these properties.

Charges to investments in and advances to affiliates, accounts and notes receivable, and other — During 2001, MeriStar recorded a charge in the amount of $16,098 to record an allowance for accounts and notes receivables and to write-off the remaining book values of impaired and abandoned assets.

Merger costs included in our statement of operations for the year ended December 31, 2002 consist of the following:

During 2002, in connection with the MeriStar–Interstate merger, we incurred restructuring charges related to personnel changes primarily as a result of relocation and elimination of certain job functions that are no longer needed under the combined company. Restructuring costs also includes estimates for non-cancelable lease costs associated with certain offices we plan to close.

As a result of the restructuring, we recorded charges of $12,614 for the year ended December 31, 2002. A detail of the costs comprising the total charges is as follows:

At December 31, 2002, approximately $8,260 remains in the restructuring accrual.

Transactions with MeriStar Hospitality — Under our intercompany agreement with MeriStar Hospitality, we each have, among other things, reciprocal rights to participate in certain transactions entered into by each party. In particular, we have a right of first refusal to become the manager of any real property MeriStar

Hospitality acquires. We also may provide each other with certain services. Those services may include administrative, renovation supervision, corporate, accounting, finance, risk management, legal, tax, information technology, human resources, acquisition identification and due diligence, and operational services. We are compensated for these services in an amount that MeriStar Hospitality would be charged by a third party for comparable services. During the year ended December 31, 2002, we were paid a net amount of $454 for such services.

We incur day to day operating costs which are reimbursed by MeriStar Hospitality. The balance due from MeriStar Hospitality as of December 31, 2002 is $10,500, and includes management fees for each hotel, and reimbursements for insurance, employee benefits, sales and marketing expenses, and other miscellaneous operating expenses. These amounts are normally paid within 30 days.

Transactions with Directors/Officers — J. Taylor Crandall, one of our directors, holds an indirect general partnership interest in Oak Hill Capital Partners, L.P. and holds an indirect limited partnership interest in Oak Hill Capital Management Partners, L.P. Oak Hill holds a ninety percent equity interest in a joint venture with us that has acquired 10 full service hotels located throughout the United States. Mr. Crandall also serves as Vice President and Chief Operating Officer of Keystone, Inc., a stockholder of ours.

Mr. Paul W. Whetsell, our chairman and chief executive officer, is an executive officer, director and stockholder of MeriStar Hospitality. Mr. Steven D. Jorns, one of our directors, is a director and stockholder of MeriStar Hospitality. In fiscal 2002, we received an aggregate of $9,475 in management fees from MeriStar Hospitality.

On August 3, 1998, we entered into an employment agreement with Mr. Jorns, which agreement was amended by a letter agreement dated December 10, 1998, for a term of 5 years, expiring on August 3, 2003. After the initial term, Mr. Jorns’ agreement renews automatically on a year-to-year basis.

Our corporate housing division leases five housing units from one of our senior officers. We paid $35 to lease these units in 2002.

Transactions with Investors — In October 2000, we entered into a management agreement with an affiliate of our principal investor group to manage the Hilton Hotel Beaumont (Texas). The net management fees earned from this hotel amounted to $164, $173 and $36 for the years ended December 31, 2002, 2001 and 2000, respectively. Accounts receivable owed from this hotel was not significant at December 31, 2002 and 2001.

During 2001, we entered into management agreements to manage the Park Central Hotel in New York, NY and the Sheraton Capital Center Hotel in Raleigh, NC. The owners of these hotels engaged us to manage these properties pursuant to the rights of the principal lender of these hotels to select a third-party management company. The principal lender of these hotels is affiliated with our largest shareholder. The net management fees earned from these hotels amounted to $1,125 and $611 for the years ended December 31, 2002 and December 31, 2001, respectively. Accounts receivable owed from these hotels, which includes the reimbursement of costs, was $204 at December 31, 2001. Accounts receivable owed from this hotel was not significant at December 31, 2002. Effective March 1, 2003, we no longer manage the Sheraton Capital Center Hotel in Raleigh, NC.

One of the former owners of the Residence Inn by Marriott Houston Astrodome/ Medical Center is currently a member of our board of directors and an officer of an affiliate of our largest shareholder. This former owner is also an affiliate of the current managing partner of this property. Accounts receivable owed from this hotel was not significant at December 31, 2002 and 2001. The net management fees earned from these hotels amounted to $218 and $260 for the year ended December 31, 2002 and December 31, 2001, respectively

The majority owners and the principal lender for the Renaissance Worldgate Hotel have representation on our board of directors and are affiliated with our largest shareholder. The net management fees earned from these hotels amounted to $68 and $240 for the year ended December 31, 2002 and December 31, 2001, respectively, and accounts receivable owed from this hotel were $334 and $1,213 at December 31, 2002 and

2001, respectively. The amount owed at December 31, 2002 was paid subsequent to year-end. The hotel’s owner has also issued a promissory note of $282 for past accounts receivable we were owed. This note bears interest at the rate of nine percent per annum and is payable in equal quarterly installments beginning January 1, 2003. The hotel owner did not pay the first installment due on January 1, 2003.

The principal lender for the eight FelCor hotels, held by FCH/IHC Hotels, L.P. and FCH/IHC Leasing, L.P., is affiliated with our largest shareholder.

1999 Equity Incentive Plan — The 1999 Equity Incentive Plan provides for long-term incentives to be awarded to eligible employees through grants of restricted stock and grants of stock options to purchase shares of common stock. The options generally vest over a three-year period and expire after ten years. During 1999, the Company issued 331,917 restricted shares of Class A Common Stock to two executives under the 1999 Equity Incentive Plan. In connection with the transactions contemplated under the Securities Purchase Agreement, these restricted shares became fully vested during the fourth quarter of 2000. The Employee Stock Purchase Plan, which was terminated by the Company in 2001, was designed to be a non-compensatory plan, whereby eligible employees elected to withhold a maximum of 8% of their salary and use such amounts to purchase common stock.

In February 2001, the Board of Directors approved the repricing of all outstanding options to purchase shares of our Class A Common Stock. Under the terms of the repricing, each optionee was given the right to elect to keep their original stock options at the stated exercise price of $4.50, or to return 40% of their original stock options and retain the 60% remaining stock options with a new exercise price of $2.00. As a result of the repricing, an aggregate of 939,500 stock options granted on July 15, 1999, August 9, 1999, September 13, 1999 and September 28, 1999 were cancelled and replaced with 563,700 stock options at an exercise price of $2.00. Therefore, the original stock options previously accounted for under the provisions of APB No. 25 are now accounted for under variable plan accounting in accordance with FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation.” Any additional stock options granted during 2001 continued to be accounted for under the provisions of APB No. 25. For the year ended December 31, 2001, we did not incur a non-cash expense under variable plan accounting for the repricing as the closing market price for our common stock at December 31, 2001 was below the exercise price of $2.00. For the year ended December 31, 2002, we incurred a non-cash expense of $823 as the closing market price for our common stock at December 31, 2002 was above the exercise price of $2.00

Employee Equity Incentive Plan — We have an equity incentive plan that authorizes us to issue and award options for up to up 15 percent of the number of outstanding shares of our common stock. We may grant awards under the plan to directors, officers, or other key employees.

Director’s Plan — We also have an equity incentive plan for non-employee directors that authorizes us to issue and award options for up to 500,000 shares of common stock. These options vest in three annual installments beginning on the date of grant and on subsequent anniversaries, provided the eligible director continues to serve as a director on each such anniversary. Options granted under the plan are exercisable for ten years from the grant date.

The Employee Equity Incentive Plan and the Director’s Plan were plans formed by MeriStar Hotels & Resorts, Inc. prior to the merger.

The following table summarizes information about stock options outstanding at December 31, 2002:

We have adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation.” Accordingly, we apply Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employee,” in accounting for the equity incentive plans and no compensation cost has been recognized as all grants have been made at fair value.

We lease apartments for our Corporate Housing division and office space for our corporate offices. Future minimum lease payments required under these operating leases as of December 31, 2002 were as follows:

In the course of normal business activities, various lawsuits, claims and proceedings have been or may be instituted or asserted against us. Based on currently available facts, we believe that the disposition of matters pending or asserted will not have a material adverse effect on our consolidated financial position, results of operations or liquidity.

For the year ended December 31, 2002 we have the following supplemental cash flow items:

In 2001, we reclassified $450 of amounts due from a related party from accounts receivable to mandatorily redeemable preferred stock. We also reduced long-term management agreement intangible assets by $915 for the resolution of contingent assets related to the spin-off of our operations from Wyndham International, Inc. in 1999 and our redemption of Wyndham’s non-voting ownership interest in 2000.

Common Stock — Prior to the merger, we had Class A, Class B and Class C Common Stock. Each holder of the Common Stock was entitled to one vote for each share. No stockholders had cumulative voting rights or preemptive, subscription or redemption rights. In 2001, we purchased and cancelled 826,000 shares of Class A Common Stock through our stock repurchase program for an aggregate purchase price of $2,000.

The following table represents the number of shares of common stock authorized, issued and outstanding at December 31, 2001:

We accounted for the MeriStar-Interstate merger on July 31, 2002 as a purchase of MeriStar by Interstate using the purchase method of accounting. The merger was accounted for as a reverse acquisition with Interstate as the accounting acquirer, and MeriStar as the surviving company for legal purposes. As a result, MeriStar’s stock is our common stock outstanding subsequent to the merger. In conjunction with the merger, we had the following transactions affecting common stock:


•	MeriStar issued 37,188,574 shares of its common stock.
•	The Preferred stock and the convertible notes were converted into MeriStar’s Class A common stock.
•	Upon completion of the merger we effected a one-for-five reverse split of our common stock.

In 2002, effective with the MeriStar-Interstate merger, the authorized common stock is 50,000,000 shares. As of December 31, 2002, 20,556,552 shares are issued and outstanding. Each holder of common stock is entitled to one vote per share on all matters submitted to a vote of stockholders.

Treasury Stock — In October 2002, we authorized the repurchase of up to 5.0 million shares. For the year ended December 31, 2002 we repurchased 11,800 shares at a total cost of $46.

Mandatorily Redeemable Preferred Stock — On October 20, 2000, we issued 725,000 shares (out of 850,000 authorized) Series B Convertible Preferred Stock, par value $.01 per share (the “Preferred Stock”). We issued 500,000 shares of the Preferred Stock to an investor group affiliated with Lehman Brothers Holding, Inc., and we issued 225,000 shares to three of our executives as deferred compensation.

The Preferred Stock accrued dividends payable in cash at 8.75% per annum and up to 25% payable in additional stock at our option. If dividends were not paid within a specified period of time additional dividends would accrue. The Preferred Stock also received dividends paid to holders of Class A Common Stock.

In addition, the Preferred Stock had certain rights regarding election of the Board of Directors, certain voting rights, and was convertible into 2.5 shares of Class A Common Stock. The Preferred Stock had a liquidation preference of $10.00 per share plus any accrued dividends and fair market value of the cash, securities and other property that the holder would have received had it converted its Preferred Stock plus accrued dividends. We had the obligation to redeem all outstanding shares of the Preferred Stock on October 20, 2007 for a redemption price of $10 per share.

Effective with the MeriStar-Interstate merger, the Preferred Stock was converted into Class A Common Stock. On June 26, 2002, the investor group converted all but 10 shares of their Preferred Stock into 1,249,975 shares of the Class A Common Stock. As inducement for the conversion of preferred and the conversion of the convertible notes into Class A Common Stock, we paid the principal investor group $9,250. Of this amount, $1,943 was allocated to the conversion of the Preferred Stock. We recorded this payment as a conversion incentive payment-preferred stock on our statement of operations.

On July 31, 2002, the merger was completed, and we completed a one-for-five reverse split of our common stock. On August 2, 2002, the investor group converted the remaining 10 shares of its Preferred Stock and the remaining principal amount of the notes, along with its 5,939,140 shares of class A common stock in exchange for 6,900,000 shares of post-split common stock. The three executives converted the Preferred Stock into 562,500 shares of class A common stock. We recorded the accelerated vesting of the Preferred Stock as a merger cost of $1,000.

Operating Partnership Units — MeriStar H&R Operating Company, L.P., our subsidiary operating partnership, indirectly holds a substantial portion of all of our assets. We are the sole general partner of that partnership. We, one of our directors, and approximately 63 independent third-parties are limited partners of that partnership. The partnership agreement gives the general partner full control over the business and affairs of the partnership. The agreement also gives us, as general partner, the right, in connection with the contribution of property to the partnership or otherwise, to issue additional partnership interests in the partnership in one or more classes or series. These interests may have such designations, preferences and participating or other special rights and powers, including rights and powers senior to those of the existing partners, as we may determine.


•	We and our wholly-owned subsidiaries own a number of Class A units equal to the number of outstanding shares of our common stock; and
•	Other limited partners own 363,883 Class A units and 78,431 Preferred units.

We did not make any distributions during 2002, 2001 or 2000 to the holders of the Class A units and Class B units. Holders of preferred units receive a 6.5% cumulative annual preferred return based on capital amount of $16.70 per unit; compounded quarterly to the extent not paid currently. All net income and capital proceeds received by the partnership, after payment of the annual preferred return and, if applicable, the liquidation preference, will be shared by the holders of the Class A units and Class B units in proportion to the number of units owned by each holder.

The holders of each Class A or Class B unit not held by us or one of our subsidiaries is redeemable for cash equal to the value of one share of our common stock or, at our option, one share of our common stock. Until April 1, 2004, the partnership may redeem the Preferred units for cash at a price of $3.34 per unit or (with the holders consent) for our common stock having equivalent aggregate value. After April 1, 2004, each holder of the Preferred units may require the partnership to redeem these units for cash at a price of $3.34 per unit or, at the holder’s option, shares of our common stock having equivalent aggregate value. If we or the holders of the Preferred units chose to redeem the Preferred units for our common stock instead of cash, and if our common stock was valued at that time at less than $16.70 per share, we would have to issue more shares of our common stock than the number of Preferred units being redeemed. For example, at December 31, 2002, our stock price was $4.80 per share. If the Preferred units were redeemed for common stock at that date, we would have issued 272,874 shares of our common stock, which would have represented approximately 0.3% of our then outstanding common stock, with respect to 78,431 Preferred units then outstanding.

We provide certain insurance coverage to our managed hotels under the terms of each individual management agreement. This insurance is generally arranged through third-party carriers. Northridge Insurance Company, our subsidiary, reinsures a portion of the coverage from these third-party primary insurers. The policies provide for layers of coverage with minimum deductibles and annual aggregate limits. The policies are for coverage relating to innkeepers’ losses (general/ comprehensive liability), wrongful employment practices, garagekeeper’s legal liability, replacement cost automobile losses, and real and personal property insurance.

We are liable for any deficiencies in the IHC Employee Health and Welfare Plan (and related Health Trust), which provides certain of our employees with group health insurance benefits. There was a deficiency of $2,673 and $3,973 in the related Health Trust as of December 31, 2002 and 2001, respectively, which was recorded as a liability in the accompanying consolidated balance sheets.

All accounts of Northridge are classified with assets and liabilities of a similar nature in the consolidated balance sheets. Amounts restricted due to statutory requirements consist of cash and cash equivalents of $1,134 and $1,089 at December 31, 2002 and 2001, respectively. These amounts are included in restricted cash in the accompanying consolidated balance sheets. The consolidated statements of operations include the insurance income earned and related insurance expenses incurred. The insurance income earned is included in other fees in the consolidated statements of operations and is comprised of the following for the years ended December 31:

In addition to the IHC Employee Health and Welfare Plan, we maintain two defined contribution savings plans for our employees. Eligibility for participation in the plans is based on an employee meeting certain minimum age and service requirements. Employer matching contributions are based on a percentage of employee contributions. Participants may make voluntary, pre-tax contributions through salary deferrals to the plan in which they participate. We incurred expenses related to employees at our corporate offices of approximately $250, $213 and $227 and for the years ended December 31, 2002, 2001 and 2000, respectively.

We maintain three deferred compensation plans for certain executives and hotel general managers by depositing amounts into trusts for the benefit of the participating employees. Deposits into the trusts are expensed and amounted to $231, $735 and $743 and for the years ended December 31, 2002, 2001 and 2000, respectively. Amounts in the trusts earn investment income, which serves to increase the corresponding deferred compensation obligation. Investments, which are recorded at market value, are directed by us or the participants, and consist principally of mutual funds. Unrealized gains and losses were not significant at December 31, 2002, 2001 and 2000.

Our effective income tax expense (benefit) rate for the years ended December 31, 2002, 2001, and 2000 differs from the federal statutory income tax rate as follows:

The tax effects of the temporary differences and carryforwards that give rise to our net deferred tax asset (liability) at December 31, 2002 and 2001 are as follows:

In 2002, we recorded the following items related to our valuation allowance against deferred tax assets:


•	In conjunction with the MeriStar-Interstate merger, we recorded a $9,040 valuation allowance to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. This was an allowance against some, but not all, of our recorded deferred tax assets. We have considered estimated future taxable income and prudent and feasible ongoing tax planning strategies in assessing the need for a valuation allowance.

•	During 2002, we had potential federal income tax benefits of $1,727 from certain tax credits that generated deferred tax assets. For financial reporting purposes, we established a valuation allowance of $1,727 due to the uncertainty associated with realizing this deferred tax asset. Also, we have not recorded any deferred tax asset for tax credits generated by MeriStar prior to the MeriStar-Interstate merger, due to statutory usage limitations.

At December 31, 2002, we had net operating loss carryforwards available from pre-merger periods of $24,230, after considering statutory usage limitations. These net operating losses begin to expire in 2018. At December 31, 2002 we had a net operating loss carryforward available of $20,124 from 2002 operations that will not expire until 2023.

The following table sets forth certain items included in our consolidated financial statements for each quarter of the years ended December 31, 2002 and 2001. For comparable purposes, all shares used in calculating earnings per share in periods prior to July 31, 2002 reflect the issuance of 4.6 shares of MeriStar stock and the 1:5 reverse stock split in connection with the MeriStar-Interstate merger.

On August 14, 2002 and November 14, 2002, we filed our quarterly reports on Form 10-Q for the interim periods ended June 30, 2002 and September 30, 2002, respectively; the financial results in those quarterly reports presented the total of the conversion incentive payments as a charge to net loss available to common stockholders in our statement of operations. Subsequent to filing those quarterly reports on Form 10-Q, we have concluded that the presentation in this Form 10-K is the appropriate way in which to present this information pursuant to the guidance in EITF D-42 and SFAS No. 84. Accordingly, in this Form 10-K we have allocated the $9,250 total of conversion incentive payments as $7,307 to the convertible notes and $1,943 to the Preferred Stock. This new presentation changes the amount of the net loss for the second quarter of 2002 by $7,307, from $(2,926) to $(10,233). This new presentation has no effect on our operating loss, net loss available to common stockholders or EPS calculations for any quarter in 2002.

The information required by this item is set forth under the caption “Election of Directors — Nominees for Election of Directors” and “— Executive Officers Who Are Not Directors” in the Company’s Proxy Statement for the 2003 Annual Meeting of Stockholders and incorporated herein by reference.

The information required by this item is set forth under the caption “Election of Directors — Executive Compensation” in our 2003 Proxy Statement and incorporated herein by reference.

The information required by this item is set forth under the caption “Election of Directors — Beneficial Ownership of Common Stock” in our 2003 Proxy Statement and incorporated herein by reference.

The information required by this item is set forth under the caption “Election of Directors — Certain Relationships and Related Transactions” in our 2003 Proxy Statement and incorporated herein by reference.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that the information is accumulated and communicated to our management, including our chief executive officer and chief accounting officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a-1(c). In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired objectives, and management was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Also, we have investments in certain unconsolidated entities. As we do not control or manage these entities, our disclosure controls and procedures with respect to these entities are substantially more limited than those we maintain with respect to our consolidated subsidiaries.

Within 90 days prior to the date of this report, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, it was concluded that our disclosure controls and procedures were effective.

The Financial Statements included in this Annual Report on Form 10-K are provided under Item 8.

Current report on Form 8-K dated and filed October 10, 2002 regarding the change in the certifying accountant of Interstate Hotels & Resorts, Inc.

Current report on Form 8-K/ A dated and filed October 11, 2002 regarding the interim, historical and pro forma financial statements in connection with the merger of Interstate Hotels Corporation and MeriStar Hotels & Resorts, Inc.

Current report on Form 8-K dated and filed November 4, 2002 regarding the press release announcing the third quarter earnings press release of Interstate Hotels & Resorts, Inc.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Interstate Hotels & Resorts, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	By:	/s/ PAUL W. WHETSELL



	Paul W. Whetsell
	Chief Executive Officer
	and Chairman

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Paul W. Whetsell and Christopher L. Bennett, such person’s true and lawful attorneys-in-fact and agents, with full power of substitution and revocation, for such person and in such person’s name, place and stead, in any and all capacities to sign any and all amendments (including post-effective amendments) to this report filed pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and things requisite and necessary to be done, as fully to all intents and purposes as such person might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report and the foregoing Power of Attorney have been signed by the following persons in the capacities and on the dates indicated.


	1.	I have reviewed this annual report on Form 10-K of Interstate Hotels & Resorts, Inc.;

	2.	Based on my knowledge, this annual 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 annual report;

	3.	Based on my knowledge, the financial statements, and other financial information included in this annual 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 annual report;

	4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:


	a.	designed such disclosure controls and procedures 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 annual report is being prepared;


	b.	evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and


	c.	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):


	a.	all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and


	b.	any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls: and


	6.	The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

SECOND AMENDMENT TO SENIOR SECURED CREDIT AGREEMENT (this “Amendment”), dated as of January 10, 2003 (the “Amendment Date”), is among MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited partnership, as the Borrower (“Borrower”); the Guarantors; SOCIÉTÉ GÉNÉRALE, as Administrative Agent (the “Administrative Agent”); and the Lenders a party hereto.

A. The Borrower; the Administrative Agent; the Lenders and certain other parties are party to that certain Senior Secured Credit Agreement dated as of July 31, 2002, as amended by First Amendment to Senior Secured Credit Agreement dated as of August 15, 2002 (as amended, the “Original Credit Agreement”).

B. The Borrower desires to enter into a Subordinate Unsecured Term Loan Agreement dated as of January 10, 2003 (the “Subordinated Credit Agreement”) pursuant to which the Borrower would borrow $40,000,000 to be used, along with Advances and/or cash, to repay in full the MHC Indebtedness (such event being referred to herein as the “MHC Indebtedness Repayment”) and pay certain fees.

C. The parties hereto desire to amend the Original Credit Agreement and the other Credit Documents (as defined in the Original Credit Agreement) as hereinafter provided.

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

1. All terms used in this Amendment, but not defined herein, shall have the meaning given such terms in the Original Credit Agreement.

2. This Amendment shall become effective as of the Amendment Date if on or prior to the close of business on January 31, 2003 (the “Termination Date”) the following conditions precedent have been satisfied:

	a.		Documentation. The Administrative Agent shall have received counterparts of this Amendment executed by the Borrower, the Guarantors and the Required Lenders.

	b.		Representations and Warranties. The representations and warranties contained in this Amendment, and in each Credit Document shall be true and correct in all material respects both as of the Amendment Date and the date the other conditions to this Amendment’s effectiveness are satisfied except for changes

			which individually or in the aggregate do not constitute a Material Adverse Change.

	c.		No Default. No Default or Event of Default shall exist as of either the Amendment Date or the date the other conditions to this Amendment’s effectiveness are satisfied.

	d.		Subordinated Credit Agreement. The Administrative Agent shall have received a copy of the executed Subordinated Credit Agreement and other documents executed in connection with the Subordinated Credit Agreement, which Subordinated Credit Agreement and other credit documents (i) shall qualify as Permitted Subordinated Refinancing Indebtedness, as such term is amended by this Amendment, and (ii) shall otherwise be in form and substance reasonably satisfactory to the Administrative Agent.

	e.		Intercreditor Agreement. The administrative agent under the Subordinated Credit Agreement, on behalf of the lenders under such agreement, shall have executed an Intercreditor Agreement with the Administrative Agent in form and substance satisfactory to the Administrative Agent in the Administrative Agent’s sole discretion.

	f.		MHC Indebtedness Repayment. The Borrower shall have provided the Administrative Agent with reasonably satisfactory evidence that the MHC Indebtedness Repayment has occurred.

	g.		Fees. The Administrative Agent shall have received for the benefit of each Lender that executes and delivers this Amendment to the Administrative Agent’s counsel by 5:00 p.m. CST on January , 2003 an amendment fee equal to ten (10) basis points times such Lender’s Commitment.

If this Amendment does not become effective prior to the Termination Date, this Amendment shall be null and void; provided however that the Borrower shall still be obligated to reimburse Société Generale for costs and expenses incurred in connection with this Amendment.

3. The term “Credit Agreement” as used in the Credit Documents, shall mean the Original Credit Agreement, as amended by this Amendment.

4. From and after the Amendment Date, the definition of Permitted Subordinate Refinancing Indebtedness is amended by (A) in clause (a) adding the phrase “or then existing Permitted Subordinate Refinancing Indebtedness” after the phrase “MHC Indebtedness”, and (B) in clause (c) adding the phrase “the greater of (i) a prime rate (or base rate based primarily on a prime rate) plus seven and one half percent (7.5%) or (ii)” after the word “exceed”.

5. From and after the Amendment Date, the definition of Subordinate Indebtedness is amended by adding in clause (a) the phrase “(or 180 days after the Term Maturity Date if the maturity date of the Subordinate Indebtedness would automatically be extended to a date 180 days or more after the Revolving Maturity Date upon the Revolving Maturity Date being extended to July 28, 2006)” after the phrase “Maturity Date”.

6. From and after the Amendment Date, Sections 4.08, 5.08 and 6.04 are amended to permit the Borrower (A) to use the Net Cash Proceeds from the issuance of the Indebtedness under the Subordinate Credit Agreement to consummate the MHC Indebtedness Repayment and (B) to use Advances and/or cash to pay for transactional costs and fees incurred in consummating the MHC Indebtedness Repayment and incurring the Indebtedness under the Subordinate Credit Agreement and to also pay for up to $2,500,000 of the amount needed to consummate the MHC Indebtedness Repayment; provided that such amendments are solely for the MHC Indebtedness Repayment and not for the repayment of any Permitted Subordinate Refinancing Indebtedness.

7. From and after the Amendment Date, Section 6.10 is amended by adding at the end of such section immediately before the period the phrase “provided further that in connection with the incurrence of Permitted Subordinate Refinancing Indebtedness, the Parent and its Subsidiaries may enter into such agreements which (x) are in form and substance acceptable to the Administrative Agent in its reasonable discretion, (y) do not prohibit or restrict the Borrower or any Guarantor from creating or incurring any Liens to secure the Obligations or refinancings of the Obligations or require any such Liens to also secure such Permitted Subordinate Refinancing Indebtedness, and (z) subject to the provisions of the preceding clause (y), would have prohibitions on Liens substantially comparable to those contained in Section 6.01”.

8. Section 4.01(d) is amended by deleting the last two sentences of such subsection.

9. Section 8.01(l) is amended by (A) deleting the “4” in clause (iii) and replacing it with a “3”, (B) deleting the phrase “2 of the same individuals” and replacing such phrase with the phrase “one (1) individual” and (C) deleting the phrase “one of such Responsible Officers” and replacing such phrase with the phrase “a Responsible Officer”.

10. Each party hereto represents to the other parties hereto that such party is authorized to execute this Amendment. In addition, the Borrower and the Guarantors represent and warrant to the Lenders and the Administrative Agent that (A) the representations and warranties contained in this Amendment, and in each Credit Document are true and correct in all material respects as of the Amendment Date except for changes which individually or in the aggregate do not constitute a Material Adverse Change, (B) no Default or Event of Default exists as of the Amendment Date except for any such Default or Event of Default as is expressly waived or eliminated by this Amendment, and (C) such Persons have no claims, offsets, or counterclaims with respect to their respective obligations under the Credit Documents as of the Amendment Date.

11. This Amendment may be executed in multiple counterparts, each of which shall be an original, but all of which shall constitute but one Amendment.

Each of the following entities (each a “Company”) which is not yet a Guarantor under the Senior Secured Credit Agreement dated as of July 31, 2002 (as amended or modified from time to time, the “Credit Agreement”) among MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P., a Delaware limited partnership, as the Borrower, SOCIÉTÉ GÉNÉRALE, as Administrative Agent (the “Administrative Agent”), the Lenders and the other parties thereto, hereby agrees with (i) the Administrative Agent and the Lenders under the Credit Agreement; (ii) the parties to the Environmental Indemnification Agreement (the “Environmental Indemnity”) dated as of even date as the Credit Agreement and executed in connection with the Credit Agreement, (iii) the parties to the Guaranty and Contribution Agreement (the “Guaranty”) dated as of even date as the Credit Agreement and executed in connection with the Credit Agreement, and (iv) the parties to the Pledge Agreement (the “Pledge Agreement”) dated as of even date as the Credit Agreement and executed in connection with the Credit Agreement, as follows:

Each Company hereby agrees and confirms that, as of the date hereof, it (a) intends to be a party to the Environmental Indemnity, the Guaranty and the Pledge Agreement and undertakes to perform all the obligations expressed therein, respectively, of an Indemnitor, a Guarantor and a Debtor (as defined in the Environmental Indemnity, the Guaranty and the Pledge Agreement, respectively), (b) agrees to be bound by all of the provisions of the Environmental Indemnity, the Guaranty and the Pledge Agreement as if it had been an original party to such agreements, (c) confirms that the representations and warranties set forth in the Environmental Indemnity, the Guaranty and the Pledge Agreement, respectively, with respect to the Company, a party thereto, are true and correct in all material respects as of the date of this Accession Agreement and (d) has received and reviewed copies of each of the Environmental Indemnity, the Guaranty and the Pledge Agreement.

For purposes of notices under the Environmental Indemnity, the Guaranty and the Pledge Agreement the address for each Company shall be the same address as the address of the Parent.

The Guarantors (including each Company and all previously existing Guarantors) join in and consent to the terms and provisions of the attached Amendment and agree that the Security Agreement, the Environmental Indemnification Agreement and the Guaranty and Contribution Agreement (the “Guaranty”) to which each of the Guarantors is a party each dated July 31, 2002 remain in full force and effect, and further that the Guaranteed Obligations (as defined in the Guaranty) include the additional obligations of the Borrower under the attached Amendment.

This Accession Agreement, Joinder, Consent and Ratification is dated as of the date of the Amendment.

THIS SUBORDINATE UNSECURED TERM LOAN AGREEMENT (this “Agreement”), dated as of January 10th, 2003 (the “Closing Date”), is among MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited partnership, as the Borrower; LEHMAN COMMERCIAL PAPER, INC., as the Administrative Agent; LEHMAN BROTHERS, INC., as Sole Lead Arranger and Book Runner; LEHMAN BROTHERS, INC., as Lender; and the Various Other Lenders (as defined below).

WHEREAS, the Borrower desires that the Lenders extend certain credit facilities, the proceeds of which will be used for the purposes set forth in Section 4.08;

WHEREAS, the Lenders have agreed to extend such credit facilities as more specifically described in this Agreement;

NOW, THEREFORE, in consideration of the foregoing recitals and the provisions contained in this Agreement, the parties hereto do hereby agree as follows:

Section 1.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (unless otherwise indicated, such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Accession Agreement” means an Accession Agreement in the form attached respectively to the Guaranty as Annex 1 thereto, which agreement causes the Person executing and delivering the same to the Administrative Agent to become a party, respectively, to the Guaranty.

“Additional Designated Senior Indebtedness” means, for the Parent and its Subsidiaries, Senior Indebtedness of the Parent and its Subsidiaries (a) which is incurred after the Closing Date, (b) for which the gross proceeds are equal to or greater than $90,000,000 but do not exceed $113,000,000, (c) which does not have a maturity date earlier than six (6) months after the Maturity Date, as the Maturity Date have been extended, (d) which does not cause a Default or Event of Default to occur, and (e) for which the Net Cash Proceeds are used to repay the Senior Obligations and the Obligations to the extent required by and in accordance with the terms of the Senior Credit Facility and this Agreement, respectively.

“Adjusted EBITDA” means, for any Person or Hospitality Property, as applicable, for any Rolling Period, the EBITDA of such Person or Hospitality Property, as applicable, for such Rolling Period plus non-cash employee compensation up to $2,000,000 per Fiscal Year in the aggregate commencing with the 2002 Fiscal Year, and other non-cash items of such Person or Hospitality Property, as applicable, for such Rolling Period; provided that for any Hospitality Property the aggregate FF&E Reserves for such Rolling Period in respect of such Hospitality

Property shall be subtracted from such Hospitality Property’s EBITDA in determining such Hospitality Property’s Adjusted EBITDA; provided further that if the Parent or any of its Subsidiaries during such Rolling Period or in the period from the end of such Rolling Period to the Status Reset Date which occurs in the Fiscal Quarter following such Rolling Period either (a) sells, disposes of or terminates any Permitted Property Agreements or (b) sells or disposes of any Investments or Non-Replaced Property with an Investment Amount in excess of $1,000,000, the EBITDA arising from such Permitted Property Agreement, Investment, or Non-Replaced Property, as applicable, for the applicable Rolling Period shall be excluded from the calculation of Adjusted EBITDA; and provided further if the Parent or any of its Subsidiaries during such Rolling Period or in the period from the end of such Rolling Period to the Status Reset Date which occurs in the Fiscal Quarter following such Rolling Period either (a) purchases or acquires any Permitted Property Agreements or (b) purchases or acquires any Investments or Non-Replaced Property with an Investment Amount in excess of $1,000,000, the EBITDA arising from such Permitted Property Agreement, Investment, or Non-Replaced Property, as applicable, for the applicable Rolling Period on a pro forma basis shall be included in the calculation of Adjusted EBITDA; and provided further that the Adjusted EBITDA for the Parent and its Subsidiaries for the Rolling Periods ending on the dates set forth in the following chart will for purposes of the financial covenants contained in Article VII be increased by the applicable amount set forth next to the ending date of each such Rolling Period:

“Adjusted Net Worth” means, for the Parent as of any date, the sum of (a) the Parent’s Net Worth on such date plus (b) the minority interest reflected as a liability on the Parent’s balance sheet on such date determined in accordance with GAAP (excluding that portion of the minority interest attributable to Ownership Interests in any Subsidiary of the Borrower which is not a Guarantor).

“Adjustment Report” means a certificate of the Borrower in substantially the form of the attached Exhibit B.

“Administrative Agent” means Lehman Commercial Paper, Inc. in its capacity as Administrative Agent for the Lenders pursuant to Article IX and any successor Administrative Agent appointed pursuant to Section 9.06.

“Administrative Agent Fee Letter” means the letter agreement dated as of January 10th, 2003, among the Borrower, the Parent, and the Administrative Agent, as the same may be amended, modified, supplemented or replaced.

“Advance” means the advance by a Lender to the Borrower of its Commitment pursuant to Section 2.01.

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such Person or any Subsidiary of such Person. The term “control” (including the terms “controlled by” or “under common control with”) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through ownership of a Control Percentage, by contract or otherwise.

“Agreement” has the meaning given such term in the initial paragraph of this agreement.

“Applicable Lending Office” means, with respect to each Lender, (a) in the case of a Base Rate Portion, such Lender’s Domestic Lending Office, (b) in the case of a Eurodollar Portion, such Lender’s Eurodollar Lending Office, and (c) in the case of any other notice or request under the Credit Documents, the office of such Lender specified as its “Credit Contact” in the questionnaire such Lender provided to the Administrative Agent, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“Applicable Margin” means, with respect to any Loan Portion at any date, the applicable percentage per annum set forth below:

“Approved Fund” means any fund that invests in commercial loans which is advised or managed by an investment advisor which has total assets under management in excess of $250,000,000.

“Approved Inter-Company Indebtedness” means the Indebtedness described on Schedule 1.01(b), which Indebtedness (a) may not exceed $50,000,000 without the approval of the Administrative Agent and may not exceed $52,500,000 without the approval of the Required Lenders, (b) is unsecured, (c) is subordinated to the Senior Obligations and to the Obligations, in a manner acceptable to the Administrative Agent, and (d) is Collateral for the Senior Credit Facility.

“Approved Inter-Company Indebtedness Loan Documents” means the documents described on Schedule 1.01(b), together with any additional promissory notes evidencing Approved Inter-Company Indebtedness.

“Approved Management Agreement” means a management agreement by and between a Person, as owner, and Borrower or Borrower’s Subsidiary or Unconsolidated Entity, as manager,

in substantially the form of an Existing Management Agreement, a form which does not include materially adverse provisions which are not customary for management agreements of Hospitality Properties or such other form as is approved by the Senior Administrative Agent, or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent, in writing (which approval shall not be unreasonably withheld).

“Approved Participating Lease” means a lease (except for a Ground Lease) by and between a Person, as lessor, and Borrower or Borrower’s Subsidiary, as lessee, in substantially the form of an Existing Participating Lease, a form which does not include materially adverse provisions which are not customary for participating leases of Hospitality Properties or such other form as is approved by the Senior Administrative Agent, or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent, in writing (which approval shall not be unreasonably withheld).

“Asset Disposition” means any conveyance, exchange, transfer, or assignment of any Investment or Non-Replaced Property by the Borrower or a Guarantor to a Person other than the Borrower or a Guarantor.

“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in substantially the form of the attached Exhibit C.

“Base Rate” shall mean for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the higher of (a) the Prime Rate in effect on such day and (b) the Federal Funds Rate in effect on such day plus 1/2 of 1%. For purposes hereof: “Prime Rate” shall mean the prime lending rate as set forth on the British Banking Association Telerate Page 5 (or such other comparable page as may, in the opinion of the Administrative Agent, replace such page for the purpose of displaying such rate), as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually available. The Administrative Agent or any Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. Changes in the Base Rate due to a change in the Prime Rate or the Federal Funds Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Rate, respectively.

“Base Rate Portion” shall mean the portion of the Loan being maintained at a rate of interest based upon the Base Rate

“Beverage Entity” means any Subsidiary or Unconsolidated Entity of the Parent for which substantially all of such Person’s Property is directly related to the sale of beverages at a Hospitality Property, and “Beverage Entities” means all such Persons.

“Borrower” means MeriStar H & R Operating Company, L.P., a Delaware limited partnership.

“Borrowing” means the borrowing consisting of the simultaneous Advance of the entire Facility Amount made by each Lender pursuant to Section 2.01(a) on the Closing Date.

“Business Day” means (a) with respect to a Base Rate Portion, a day of the year on which banks are not required or authorized to close in New York, New York, and (b) with respect to a Eurodollar Portion, a day of the year on which banks are not required or authorized to close in New York, New York, or London, England.

“Capital Expenditure” means any payment made directly or indirectly for the purpose of acquiring or constructing fixed assets, real property, improvements, equipment, or other personal property, or for replacements or substitutions therefore or additions thereto, which in accordance with GAAP would be capitalized in the fixed asset accounts of such Person making such expenditure, including, without limitation, amounts paid or payable for such purpose under any conditional sale or other title retention agreement or under any Capital Lease, but excluding repairs or maintenance of any Hospitality Property in the normal and ordinary course of business in keeping with the past practices of the Borrower, IHC or the Parent.

“Capital Lease” means, for any Person, any lease of any Property (whether real, personal or mixed) by that Person as lessee which, in accordance with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.

“Capitalization Event” means any sale or issuance by the Parent or any of its Subsidiaries of equity securities except for the issuance of the Borrower’s limited partnership interests in accordance with the provisions of Section 6.05.

“Capitalized Lease Obligations” means, as to any Person, the capitalized amount of all obligations of such Person or any of its Subsidiaries under Capitalized Leases, as determined on a consolidated basis in conformity with GAAP.

“CERCLA” means the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, all rules and regulations and requirements thereunder in each case as now or hereafter in effect.

“Change in Control” means for any Person a change in ownership or control of such Person effected through either of the following transactions:

(a) any Person or related group of Persons (other than such Person or an Affiliate of such Person) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of (i) securities possessing more than fifty percent (50%) of the total combined voting power of such Person’s outstanding securities, or (ii) with respect to the Parent or the Borrower after the date which is January 31, 2003, securities (excluding securities held by CGLH Partners I LP and CGLH Partners II LP as of the Closing Date and any transferee of such securities) possessing more than thirty five percent (35%) of the total combined voting power of such Person’s outstanding securities; or


	(b) excluding with respect to the Parent those changes to the Parent’s Board of Directors that occur as part of the consummation of the Merger, there is a change in the composition of such Person’s Board of Directors over a period of thirty-six (36) consecutive months (or less) such that a majority of Board members (rounded up to the

nearest whole number) ceases, by reason of one or more proxy contests for the election of Board members, to be comprised of individuals who either (i) have been Board members continuously since the beginning of such period or (ii) have been elected or nominated for election as Board members during such period by at least a majority of the Board members described in clause (i) who were still in office at the time such election or nomination was approved by the Board.

“Closing Date” has the meaning given such term in the initial paragraph of this agreement.

“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.

“Commitment” means, for each Lender, the amount set opposite such Lender’s name on Schedule 1.01(a) as its Commitment, as the same may be reduced as a result of prepayment of principal in accordance with the terms of this Agreement.

“Compliance Certificate” means a certificate of the Borrower in substantially the form of the attached Exhibit D.

“Consolidated” refers, with respect to any Person, to the consolidation of the accounts of such Person with such Person’s Subsidiaries in accordance with GAAP.

“Control Percentage” means, with respect to any Person, the percentage of the outstanding capital stock of such Person having ordinary voting power which gives the direct or indirect holder of such stock the power to elect a majority of the Board of Directors of such Person.

“Controlled Group” means all members of the controlled group of corporations and all trades (whether or not incorporated) under common control which, together with the Borrower, are treated as a single employer under Section 414 of the Code.

“Credit Documents” means this Agreement, the Notes, the Guaranties, the Fee Letter, the Administrative Agent Fee Letter, and each other agreement, instrument or document executed by the Borrower or any of its Subsidiaries at any time in connection with this Agreement.

“Default” means (a) an Event of Default or (b) any event or condition which with notice or lapse of time or both would, unless cured or waived, become an Event of Default.

“Defaulting Lender” means any Lender which has wrongfully refused or failed to fund its portion of any unreimbursed payment under Section 9.05, or notified in writing the Borrower or the Administrative Agent that such Lender does not intend to comply with its obligations under this Agreement.

“Designated Redemption Indebtedness” means Indebtedness in the amount of approximately $1,310,000 in the form of Mandatorily Redeemable Stock consisting of 392,157 Preferred Units in the Borrower held by CapStar Management Company, LLC which are redeemable at the option of the Unit holder pursuant to the partnership agreement of Borrower on or after April 1, 2004 for, at the option of the holder, cash in the amount of $3.34 per unit or the equivalent in common stock of the Parent; provided that without the written consent of the Required Lenders and the Senior Required Lenders the Parent and the Borrower will not modify the documentation creating or evidencing the “Designated Redemption Indebtedness” in any manner which would increase the amount of such Indebtedness or accelerate the time at which such Person is obligated to repay such Indebtedness.

“Domestic Lending Office” means, with respect to any Lender, the office of such Lender specified as its “Operations Contact” for Base Rate Portions in the questionnaire such Lender provided to the Administrative Agent, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent.

“EBITDA” means for any Person or Hospitality Property, as applicable, for any period for which such amount is being determined, an amount equal to (a) the Net Income for such Person or Hospitality Property, as applicable, for such period plus (b) to the extent deducted in determining Net Income, Interest Expense, income taxes, depreciation, and amortization, as determined on a Consolidated basis in accordance with GAAP plus (c) to the extent deducted in determining Net Income, deductions for minority interest attributable to the Ownership Interests in the Borrower not owned (directly or indirectly) by the Parent.

“Effective Date” means the date all of the conditions precedent set forth in Section 3.01 have been satisfied.

“Eligible Assignee” means any of the following approved by those Persons who have approval rights pursuant to the provisions of Section 10.06, which approval will not be unreasonably withheld: (a) a commercial bank organized under the laws of the United States, or any State thereof, and having primary capital of not less than $250,000,000 (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development and having primary capital (or its equivalent) of not less than $250,000,000 (or its Dollar Equivalent), (c) an investment bank organized under the laws of the United States, or any State thereof, and having total assets in excess of $5,000,000,000, (d) an insurance company, finance company or financial institution (whether a corporation, partnership, trust or other Person) organized under the laws of the United States, or any state thereof, and having total assets in excess of $5,000,000,000, (e) any Approved Fund, (f) any “accredited investor” (as defined in Regulation D of the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder) which has total assets in excess of $100,000,000, (g) a Lender, and (h) an Affiliate of the respective assigning Lender, without approval of any Person except as set forth in Section 10.06, but otherwise meeting the eligibility requirements of (a), (b), (c), (d), (e) or (f) above.

“Environment” or “Environmental” shall have the respective meanings set forth in 42 U.S.C. §9601(8), as amended.

“Environmental Claim” means any third party (including governmental agencies and employees) action, lawsuit, claim, demand, regulatory action or proceeding, order, decree, consent agreement or notice of potential or actual responsibility or violation (including claims or proceedings under the Occupational Safety and Health Acts or similar laws or requirements relating to health or safety of employees) which seeks to impose liability under any Environmental Law.

“Environmental Law” means all Legal Requirements arising from, relating to, or in connection with the Environment, health, or safety, including without limitation CERCLA, relating to (a) pollution, contamination, injury, destruction, loss, protection, cleanup, reclamation or restoration of the air, surface water, groundwater, land surface or subsurface strata, or other natural resources; (b) solid, gaseous or liquid waste generation, treatment, processing, recycling, reclamation, cleanup, storage, disposal or transportation; (c) exposure to pollutants, contaminants, hazardous, medical, infectious, or toxic substances, materials or wastes; (d) the safety or health of employees; or (e) the manufacture, processing, handling, transportation, distribution in commerce, use, storage or disposal of hazardous, medical, infectious, or toxic substances, materials or wastes.

“Environmental Permit” means any permit, license, order, approval or other authorization under Environmental Law.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time.

“Eurocurrency Liabilities” has the meaning assigned to that term in Regulation D of the Federal Reserve Board (or any successor), as in effect from time to time.

“Eurodollar Lending Office” means, with respect to any Lender, the office or offices of such Lender specified as its “Operations Contact” for each Eurodollar Portion in the questionnaire such Lender provided to the Administrative Agent, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent for its Eurodollar Portion.

“Eurodollar Portion” shall mean the portion of the Loan made and/or being maintained at a rate of interest calculated by reference to the Eurodollar Rate. The entire Loan shall be a Eurodollar Portion unless one of the events described in Section 2.12 has occurred.

“Eurodollar Rate” means, for the Interest Period for a Eurodollar Rate Portion, an interest rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum) equal to the rate per annum at which deposits in Dollars are offered to prime banks in the London interbank market at 11:00 a.m. (London time) two Business Days before the first day of such Interest Period as shown on the display designated “British Banker’s Association Interest Settlement Rates” on Telerate at Page 3750 or Page 3740, or such other page or pages as may replace such pages on Telerate for purposes of displaying such rate, and for a period of one (1)

month; provided, however, that if such rate is not available on Telerate then such offered rate shall be otherwise independently determined by Administrative Agent from an alternate, substantially similar source available to Administrative Agent or shall be calculated by Administrative Agent by a substantially similar methodology as that theretofore used to determine such offered rate in Telerate.

“Eurodollar Rate Reserve Percentage” shall mean, on any day, that percentage (expressed as a decimal fraction) which is in effect on such date, as provided by the Federal Reserve System for determining the maximum reserve requirements generally applicable to financial institutions regulated by the Federal Reserve Board comparable in size and type to the Administrative Agent (including, without limitation, basic, supplemental, marginal and emergency reserves) under Regulation D with respect to Eurocurrency Liabilities, or under any similar or successor regulation with respect to Eurocurrency Liabilities (or other category of liabilities which includes deposits by reference to which the interest rate on a Eurodollar Portion is determined or any category or extensions of credit which includes loans by a non-United States office of the Administrative Agent to United States residents). Each determination by the Administrative Agent of the Eurodollar Rate Reserve Percentage, shall, in the absence of manifest error, be conclusive and binding upon the Borrower.

“Exchange Act” means the Securities Exchange Act of 1934,15 U.S.C., as amended, and the rules and regulations promulgated thereunder.

“Existing Management Agreements” means the management agreements listed on Schedule 1.01(e).

“Existing Owned Hospitality Property Investments” means the Owned Hospitality Property Investments set forth on Schedule 1.01(d) and other Owned Hospitality Property Investments in which the Borrower’s direct or indirect ownership in such Owned Hospitality Property Investment is equal to or less than twenty percent (20%) of the total ownership in such Owned Hospitality Property Investment.

“Existing Participating Leases” means the participating leases set forth on Schedule 1.01(f).

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for any such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it.

“Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any of its successors.

“Fee Letter” means the letter agreement dated as of January 10th, 2003, among the Borrower, the Parent, and Lehman Brothers Inc.

“FF&E Reserve” means, for any Hospitality Property for any period, a reserve equal to four percent (4%) of gross revenues from such Hospitality Property for such period, excluding, however, from such calculation for such Hospitality Property the gross revenues generated by the office, retail and garage portions of such Hospitality Property.

“Financial Statements” means the financial statements of Parent and its Subsidiaries dated as of September 30, 2002.

“Fiscal Quarter” means each of the three-month periods ending on March 31, June 30, September 30 and December 31.

“Fund,” “Trust Fund,” or “Superfund” means the Hazardous Substance Response Trust Fund, established pursuant to 42 U.S.C. §9631 (1988) and the Post-closure Liability Trust Fund, established pursuant to 42 U.S.C. §9641 (1988), which statutory provisions have been amended or repealed by the Superfund Amendments and Reauthorization Act of 1986, and the “Fund,” “Trust Fund,” or “Superfund” that are now maintained pursuant to 42 U.S.C. §9507.

“GAAP” means United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent with the requirements of Section 1.03.

“Governmental Authority” means any foreign governmental authority, the United States of America, any state of the United States of America and any subdivision of any of the foregoing, and any agency, department, commission, board, authority or instrumentality, bureau or court having jurisdiction over any Lender, the Parent, the Borrower, any Subsidiaries of the Borrower or the Parent or any of their respective Properties.

“Governmental Proceedings” means any action or proceedings by or before any Governmental Authority, including, without limitation, the promulgation, enactment or entry of any Legal Requirement.

“Ground Lease” means a lease by and between a Person, as lessor, and Borrower or Borrower’s Subsidiary, as lessee, where the term of such lease is in excess of twenty (20) years.

“Guarantor” means each of the Parent, each Subsidiary of the Parent (except the Permitted Other Subsidiaries, the Beverage Entities, Flagstone Hospitality Management LLC, and certain other non-Material Subsidiaries which are prohibited from acting as a Guarantor because of joint venture agreements, organizational documents and other contractual

arrangements to which such non-Material Subsidiary is a party and which are in effect on the Closing Date, in each case as approved by the Administrative Agent) existing as of the Closing Date, and any future Material Subsidiary, and “Guarantors” means all of such Persons. The Guarantors on the Closing Date are identified on Schedule 1.01(g).

“Guaranty” means one or more Guaranty and Contribution Agreements in substantially the form of the attached Exhibit F executed by the Guarantors, evidencing the joint and several guaranty by the signatories thereto of the obligations of Borrower in respect of the Credit Documents, and any future guaranty and contribution agreement executed to secure the Obligations, as any of such agreements may be amended hereafter in accordance with the terms of such agreements.

“Hazardous Substance” or “Hazardous Material” means the substances identified as such pursuant to CERCLA and those regulated under any other Environmental Law, including without limitation pollutants, contaminants, petroleum, petroleum products, radio nuclides, radioactive materials, and medical and infectious waste.

“Hazardous Waste” means the substances regulated as such pursuant to any Environmental Law.

“Hospitality Management Business” shall mean the management, operation or leasing as lessee of any Hospitality Property, including timeshare sales and brokerage, and the operation of any Permitted Housing Business.

“Hospitality Property” shall mean a full service or limited service hotel or resort, a condominium or timeshare resort, an extended stay property, or a conference center, and other facilities incidental to, or in support of such property, including without limitation, restaurants and other food-service facilities, golf facilities or other entertainment facilities or club, conference or meeting facilities and intellectual property related thereto; provided that such property shall not include any casino or other gaming property (even if only a part of a Hospitality Property) or senior living property.

“Improvements” for any Owned Hospitality Property means all buildings, structures, fixtures, tenant improvements and other improvements of every kind and description now or hereafter located in or on or attached to the Land for such Owned Hospitality Property; and all additions and betterments thereto and all renewals, substitutions and replacements thereof.

“Indebtedness” means (without duplication), at any time and with respect to any Person, (a) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase price of property or services purchased (other than amounts constituting trade payables or bank drafts arising in the ordinary course of business); (b) indebtedness of others in the amount which such Person has directly or indirectly assumed or guaranteed or otherwise provided credit support therefor or for which such Person is liable as a partner of such Person; (c) indebtedness of others in the amount secured by a Lien on assets of such Person, whether or not such Person shall have assumed such indebtedness unless the validity of such Lien is being contested in good faith and with due diligence by appropriate

proceedings, provided that such Lien is subordinate to the Liens created by the Senior Security Documents and such Person shall have delivered a bond or other security acceptable to the Senior Administrative Agent or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent, equal to 125% of the contested amount; (d) obligations of such Person in respect of letters of credit, acceptance facilities, or drafts or similar instruments issued or accepted by banks and other financial institutions for the account of such Person (other than trade payables or bank drafts arising in the ordinary course); (e) obligations of such Person under Capital Leases; (f) all obligations, contingent or otherwise, of such Person under any synthetic lease, tax retention operating lease, off balance sheet loan or similar off balance sheet financing arrangement if the transaction giving rise to such obligation (1) is considered indebtedness for borrowed money for U.S. federal income tax purposes but is classified as an operating lease under GAAP and (2) does not (and is not required pursuant to GAAP to) appear as a liability on the balance sheet of such Person; (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Mandatorily Redeemable Stock issued by such Person or any other Person, valued at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; (h) all obligations of such Person in respect of any take-out commitment or forward equity commitment (excluding, in the case of the Borrower and its Subsidiaries, any such obligation that can be satisfied solely by the issuance of Ownership Interests (other than Mandatorily Redeemable Stock)); and (i) to the extent treated as a liability under GAAP, obligations under interest rate swap agreements, interest rate cap agreements, interest rate collar agreements or other similar agreements or arrangements designed to protect against fluctuations in interest rates; provided that “Indebtedness” shall not include (i) any Indebtedness related to the Parent’s or the Parent’s Subsidiary’s Investment with respect to the St. Louis Radisson Hotel which is non-recourse to the Parent, the Borrower and their respective Subsidiaries except for the Ownership Interests in the Unconsolidated Entity which owns such hotel and (ii) any Designated Redemption Indebtedness.

“Insurance Annual Statement” means the annual statutory financial statements of each Insurance Company required to be filed with the insurance commissioner (or similar Governmental Authority) of its jurisdiction of incorporation, which statement shall be in the form required by the jurisdiction of incorporation of such Insurance Company or, if no specific form is so required, in the form of financial statements permitted by such insurance commissioner (or such similar Governmental Authority) to be used for filing annual statutory financial statements and shall contain the type of information permitted by such insurance commissioner (or such similar Governmental Authority) to be disclosed therein, together with all exhibits or schedules filed therewith.

“Insurance Contract” means each outstanding insurance contract of each Insurance Company.

“Insurance Company” means each of the Borrower, the Parent or their respective Subsidiaries that is or acts as an insurance company or provides a guaranty for a Person acting as an insurance company.

“Insurance License” means any license, certificate of authority, permit or other authorization which is required to be obtained from any Governmental Authority in connection with the operation, ownership or transaction of insurance business.

“Insurance Reserve Liabilities” means all reserves and other liabilities with respect to insurance and for claims and benefits incurred but not reported.

“Insurance Surplus” means an estimate of the amount by which an insurance plan’s assets exceed its expected current and future liabilities, including the amount expected to be needed to fund future benefit payments.

“Intercompany Agreement” means the Intercompany Agreement dated as of August 3, 1998, by and among the Parent, the Borrower, MHC, and MHC OP, as amended by Amendment to Intercompany Agreement dated as of January 1, 2001, and as may be further amended in accordance with the provisions of this Agreement.

“Intercompany Indebtedness Subordination Agreement” shall mean that certain Subordination Agreement dated the date hereof between IHC Holdings Inc. and Administrative Agent on behalf of the Lenders with respect to the Approved Inter Company Indebtedness, as such agreement may be amended, modified, supplemented or restated from time to time.

“Intercreditor Agreement” means that Intercreditor Agreement dated as of the Closing Date between the Senior Administrative Agent for the benefit of the Senior Lenders under the Senior Credit Facility and the Administrative Agent for the benefit of the Lenders, as the same may be modified or amended from time to time.

“Interest Coverage Ratio” means, as of the end of any Rolling Period, a ratio of (a) the Parent’s Adjusted EBITDA to (b) the Parent’s Interest Expense, for such Rolling Period.

“Interest Expense” means, for any Person for any period for which such amount is being determined, the total interest expense (including that properly attributable to Capital Leases in accordance with GAAP) and all charges incurred with respect to letters of credit determined on a Consolidated basis in conformity with GAAP, plus capitalized interest of such Person and its Subsidiaries, minus, for such periods for which all or a portion of such period occurred prior to the date of the Merger, all interest income earned for such period by such Person and its Subsidiaries prior to the date of the Merger determined on a Consolidated basis in conformity with GAAP.


	(i) the first Interest Period shall commence on the Closing Date and end on February 1, 2003;


	(ii) the second Interest Period shall commence on February 1, 2003 and each Interest Period occurring thereafter shall commence on the date on which the next preceding Interest Period expires;


	(iii) each Interest Period shall expire on the first calendar day of the immediately succeeding calendar month;


	(v) Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period.

“Interest Rate Agreements” means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement pertaining to the fluctuations in interest rates.

“Investment” means, with respect to any Person, (a) any loan or advance to any other Person, (b) the ownership, purchase or other acquisition of any Ownership Interests or Ownership Interest Equivalents in any other Person, (c) any joint venture or partnership with, or any capital contribution to, or other investment in, any other Person, (d) any Capital Expenditure, and (e) any payment, whether capitalized or not, to acquire a management agreement or lease (including, without limitation, any Permitted Property Agreement or Permitted Housing Agreement).

“Investment Amount” means (a) for any Owned Hospitality Property the sum of (i) the aggregate purchase price paid by the Borrower or its Subsidiary for such Owned Hospitality Property, and (ii) the actual cost of any Capital Expenditures for such Owned Hospitality Property made by the Borrower or its Subsidiaries after the acquisition of such Owned Hospitality Property, and (b) for any other Investment or Property the aggregate purchase price paid by the Borrower or its Subsidiary for such other Investment or Property. The Investment Amount shall include any Ownership Interests or Ownership Interest Equivalents used to purchase such Investment at their fair market value at the time of purchase; provided that any such Ownership Interests or Ownership Interest Equivalents which are convertible into the Parent’s common stock shall be valued at the price at which they could be exchanged into the Parent’s common stock assuming such exchange occurred on the date of acquiring such Investment.

“Land” for any Owned Hospitality Property means the real property upon which the Owned Hospitality Property is located, together with all rights, title and interests appurtenant to such real property, including without limitation all rights, title and interests to (a) all strips and gores within or adjoining such property, (b) the streets, roads, sidewalks, alleys, and ways adjacent thereto, (c) all of the tenements, hereditaments, easements, reciprocal easement agreements, rights-of-way and other rights, privileges and appurtenances thereunto belonging or in any way pertaining thereto, (d) all reversions and remainders, (e) all air space rights, and all water, sewer and wastewater rights, (e) all mineral, oil, gas, hydrocarbon substances and other rights to produce or share in the production of anything related to such property, and (f) all other appurtenances appurtenant to such property, including without limitation, any now or hereafter belonging or in anywise appertaining thereto.

“Legal Requirement” means any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or official interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority.

“Lenders” means the lenders listed on Schedule 1.01(a) and each Eligible Assignee that shall become a party to this Agreement pursuant to Section 10.06, and “Lender” means any such Person.

“Leverage Ratio” means the ratio on any date of (a) the Parent’s Total Indebtedness on such date to (b) the Parent’s Adjusted EBITDA for the Rolling Period immediately preceding such date.

“Lien” means any mortgage, deed of trust, lien, pledge, charge, security interest, encumbrance or other type of preferential arrangement to secure or provide for the payment of any obligation of any Person, whether arising by contract, operation of law or otherwise (including, without limitation, the interest of a vendor or lessor under any conditional sale agreement, Capital Lease or other title retention agreement).


	(a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States;

(b) (i) negotiable or nonnegotiable certificates of deposit, time deposits, or other similar banking arrangements maturing within 180 days from the date of acquisition thereof (“bank debt securities”), issued by (A) any Senior Lender with a Senior Revolving Commitment under the Senior Credit Facility or (B) any other bank or trust company which has a combined capital surplus and undivided profit of not less than $250,000,000 or the Dollar Equivalent thereof, if at the time of deposit or purchase, such bank debt securities are rated not less than “A” (or the then equivalent) by the rating service of S&P or of Moody’s, and (ii) commercial paper issued by (A) any Senior Lender with a Senior Revolving Commitment under the Senior Credit Facility or (B) any other Person if at the time of purchase such commercial paper is rated not less than “A-2” (or the then equivalent) by the rating service of S&P or not less than “P-2” (or the then equivalent) by the rating service of Moody’s, or upon the discontinuance of both of such services, such other nationally recognized rating service or services, as the case may be, as shall be selected by the Borrower with the consent of the Senior Administrative Agent, or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent,

(c) repurchase agreements relating to investments described in clauses (a) and (b) above with a market value at least equal to the consideration paid in connection therewith, with any Person who regularly engages in the business of entering into repurchase agreements and has a combined capital surplus and undivided profit of not less than $250,000,000 or the Dollar Equivalent thereof, if at the time of entering into


	such agreement the debt securities of such Person are rated not less than “A” (or the then equivalent) by the rating service of S&P or of Moody’s; and


	(d) such other instruments (within the meaning of New York’s Uniform Commercial Code) as the Borrower may request and the Senior Administrative Agent or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent, may approve in writing, which approval will not be unreasonably withheld.

“Loan” means the aggregate Advance made to the Borrower pursuant to this Agreement.

“Loan Amount” means, at any given time, the outstanding principal balance of the Loan.

“Loan Portion” shall mean the Base Rate Portion and the Eurodollar Portion of the Loan.

“Mandatorily Redeemable Stock” means, with respect to any Person, any Ownership Interest of such Person which by the terms of such Ownership Interest (or by the terms of any security into which it is convertible or for which it is exchangeable or exercisable), upon the happening of any event or otherwise (a) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise (other than an Ownership Interest which is redeemable solely in exchange for common stock or Ownership Interests Equivalent thereof), (b) is convertible into or exchangeable or exercisable for Indebtedness or Mandatorily Redeemable Stock, or (c) is redeemable at the option of the holder thereof, in whole or in part (other than an Ownership Interest which is redeemable solely in exchange for common stock or Ownership Interests Equivalent thereof), in each case on or prior to the Maturity Date, as such date may be extended pursuant to the terms of Section 2.05(b).

“Material Adverse Change” shall mean a material adverse change (a) in the business, property, condition (financial or otherwise), prospects or results of operations of the Borrower, the Parent and the other Guarantors taken as a whole, in each case since September 30, 2002, or (b) in the validity or enforceability of this Agreement or any of the other Credit Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder.

“Material Subsidiary” means any Subsidiary of the Parent having assets or annual revenues in excess of $1,000,000.

“Material Unconsolidated Entity” means any Unconsolidated Entity of the Parent for which the Investment Amount is in excess of $1,000,000.

“Maturity Date” means January 31, 2006, as the same shall be extended pursuant to Section 2.05.

“Maximum Rate” means the maximum nonusurious interest rate under applicable law.

“MHC Indebtedness” means the Subordinate Indebtedness owed by the Borrower and the Borrower’s Subsidiaries to MHC OP pursuant to that certain Revolving Credit Agreement dated as of August 3, 1998, as amended by an amendment dated as of February 27, 2000, a second amendment dated as of January , 2002, a third amendment dated as of July 31, 2002, and a fourth amendment dated as of August 15, 2002, each between Borrower and MHC OP.

“MHC OP” means MeriStar Hospitality Operating Partnership, L.P., a Delaware limited partnership.

“MHRI” means MeriStar Hotels & Resorts, Inc., a Delaware corporation prior to the Merger with IHC.

“Minimum Net Worth” means, with respect to the Parent, at any time, the sum of $75,000,000 plus (a) 75% of the aggregate net proceeds or value received by the Parent or any of its Subsidiaries after the date of this Agreement in connection with any Capitalization Events taken as a whole, including without limitation in connection with the acquisition of any Investment or other Property, plus (b) to the extent a positive number, 75% of the aggregate Net Income of the Parent and the Parent’s Subsidiaries for the period from and including July 1, 2002 to the date of testing, on a Consolidated basis, minus (c) an amount equal to the lesser of (i) $25,000,000 or (ii) the sum of (A) the Parent’s write-off under GAAP of the Parent’s or the Parent’s Subsidiary’s Investment with respect to the St. Louis Radisson Hotel up to a maximum write-off of $11,500,000 and (B) the aggregate amount of all of the Parent’s write-offs under GAAP of intangible assets that occur after March 31, 2002.

“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which the Parent, the Borrower or any member of the Controlled Group is making or accruing an obligation to make contributions.

“Net Cash Proceeds” means (a) the aggregate cash proceeds (including, without limitation, insurance proceeds) received by the Parent, the Borrower or any of their respective Subsidiaries (as applicable) in connection with any Indebtedness incurred on or after the Closing Date (excluding the Obligations and the incurrence of other Indebtedness which does not trigger a Repayment Event), Asset Disposition or Capitalization Event, minus (b) the reasonable expenses of such Person in connection with such Indebtedness incurrence, Asset Disposition or Capitalization Event, minus (c) to the extent that assets disposed of in connection with an Asset Disposition secure Indebtedness permitted pursuant to the provisions of Section 6.02(a), the amount of such Indebtedness which is required to be repaid pursuant to the terms of such Indebtedness in connection with such Asset Disposition, as reasonably evidenced by the Borrower to the Senior Administrative Agent and the Administrative Agent minus (d) any amounts required to be paid under the Senior Credit Facility.

“Net Income” means, for any Person or Hospitality Property, as applicable, for any period for which such amount is being determined, the net income or net loss of such Person (on a Consolidated basis) or Hospitality Property, as applicable, after taxes, as determined on a Consolidated basis in accordance with GAAP, excluding, however, (a) non-recurring expenses incurred in connection with the Merger and (b) extraordinary items, including but not limited to (i) any net gain or loss during such period arising from the sale, exchange, or other disposition of capital assets (such term to include all fixed assets and all securities) other than in the ordinary course of business, and (ii) any write-up or write-down of assets.

“Net Worth” means, for any Person, stockholders equity of such Person determined in accordance with GAAP.

“Non-Defaulting Lender” shall mean and include each Lender other than a Defaulting Lender.

“Non-Replaced Property” means any Property owned by the Borrower or any of the Guarantors which (a) was used in the ownership, operation or management of any Hospitality Property, (b) has been conveyed, exchanged, transferred, or assigned by the Borrower or a Guarantor to a Person other than the Borrower or a Guarantor, (c) has not been replaced in the ordinary course of business by Property of equal or better quality, and (d) was not included within the definition of “Investments”.

“Note” means a promissory note of the Borrower payable to the order of any Lender in substantially the form of the attached Exhibit A, evidencing indebtedness of the Borrower to such Lender, and “Notes” means all such Notes.

“Obligations” means all payment, performance and other obligations, liabilities and indebtedness of every nature of Borrower and the Guarantors from time to time owing to Administrative Agent or any Lender in connection with this Agreement, the Note, or any other Credit Documents.

“Owned Hospitality Property” means a Hospitality Property owned by the Parent or one of the Parent’s Subsidiaries or leased by the Parent or one of the Parent’s Subsidiaries pursuant to a Ground Lease.

“Owned Hospitality Property Investments” shall mean Investments in Owned Hospitality Properties or in Persons for which Hospitality Properties are substantially all of such Person’s Property.

“Ownership Interests” means shares of stock, other securities, partnership interests, member interests, beneficial interests or other interests in any Person, whether voting or non-voting, and participations or other equivalents (regardless of how designated) of or in a Person.

“Ownership Interest Equivalents” means all securities (other than Ownership Interests) convertible into or exchangeable for Ownership Interests and all warrants, options or other rights to purchase or subscribe for any Ownership Interests, whether or not presently convertible, exchangeable or exercisable.

“Parent” means Interstate Hotels & Resorts, Inc. (fka MeriStar Hotels & Resorts, Inc.), a Delaware corporation, the surviving entity of the merger of Interstate Hotels and Resorts, Inc., into MHRI pursuant to the Merger.

“PBGC” means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA.

“Permitted Asset Disposition” means an Asset Disposition which (a) occurs at a time in which no Default has occurred and is continuing, and (b) would not cause a Default to occur upon the consummation of such Asset Disposition.

“Permitted Encumbrances” means the Liens permitted to exist pursuant to Section 6.01.

“Permitted Hazardous Substances” means (a) Hazardous Substances, petroleum and petroleum products which are (i) used in the ordinary course of business and in typical quantities for a Hospitality Property and (ii) generated, used and disposed of in accordance with all Legal Requirements and good industry practice, and (b) non-friable asbestos to the extent (i) that no applicable Legal Requirements require removal of such asbestos from the Hospitality Property and (ii) such asbestos is encapsulated in accordance with all applicable Legal Requirements and such reasonable operations and maintenance program as may be required by the Senior Administrative Agent or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent.

“Permitted Housing Agreements” means leases of Units as part of the Permitted Housing Business (a) by the Borrower and its Subsidiaries to third parties and (b) by third parties to the Borrower and its Subsidiaries.

“Permitted Housing Business” means the business of leasing Units, subleasing such Units to another Person and providing ancillary services to such Person in connection with such Units; provided that without the written consent of the Senior Required Lenders or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent, the Borrower and the Borrower’s Subsidiaries shall not enter into new leases of Units or extend the term of existing leases of Units where the leases cause the Borrower to violate any of the Permitted Housing Business Leasing Guidelines.

“Permitted Housing Business Leasing Guidelines” means the requirement that the Borrower and the Borrower’s Subsidiaries not lease Units or renew the lease of Units if, upon consummation of such lease or renewal, (a) the aggregate number of Units which have a term which exceeds 1 year is equal to or greater than 700, (b) the aggregate number of Units which have a term which exceeds 5 years is equal to or greater than 400, and (c) the Borrower’s and the Borrower’s Subsidiaries’ aggregate lease obligations for the leases of Units outside the United States, Canada and Western Europe exceeds 15% of the Borrower’s and the Borrower’s Subsidiaries’ aggregate lease obligations for Units without the consent of the Senior Required Lenders or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent.

“Permitted Housing Company” means a Person which is primarily in the Permitted Housing Business and which is approved by the Senior Required Lenders or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent.

“Permitted New Investments” means the following Investments made after the Closing Date:


	(a) (i) to acquire Permitted Property Agreements and (ii) in Persons for which Permitted Property Agreements are substantially all of such Person’s Property, which Persons become Subsidiaries of the Borrower;

(b) (i) in Persons for which Permitted Property Agreements are substantially all of such Person’s Property, which Persons do not become Subsidiaries of the Borrower, (ii) to acquire Permitted Housing Agreements, and (iii) in Persons which are primarily in the Permitted Housing Business; provided that the aggregate amount of such Investments, excluding any such Investments existing as of the Effective Date, shall not exceed $15,000,000;

(c) in Owned Hospitality Property Investments; provided that (i) the aggregate Investment Amount in Owned Hospitality Property Investments, excluding the Investment Amount in Existing Owned Hospitality Property Investments, shall not at any time exceed $50,000,000, (ii) at least five (5) Business Days prior to acquiring an Owned Hospitality Property the Borrower shall have delivered to the Senior Administrative Agent or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent, the Property Information for such Owned Hospitality Property (except that for the Pittsburgh Property the Borrower need only provide (A) current Property Information for those items set forth in paragraphs (b), (c), (e) and (g) of the definition of “Property Information” and (B) the most recent, but not current Property Information for those items set forth in paragraphs (a), (d), and (f) of the definition of “Property Information”), (iii) any Ground Lease for an Owned Hospitality Property must be financable in the reasonable opinion of the Senior Administrative Agent or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent, and (iv) no more than twenty percent (20%) of the hotel rooms in the applicable Hospitality Property may be subject to a timeshare regime;


	(d) Investments in Persons who provide services to, among other Hospitality Properties, Hospitality Properties for which Borrower or one of Borrower’s Subsidiaries has or will enter into a Permitted Property Agreement and/or Owned Hospitality Property Investments; provided that the aggregate amount of all such Investments in Persons which provide such services shall not exceed $10,000,000; and


	(e) Investments which (i) are not otherwise covered by one of the preceding clauses (a)-(d) and (ii) are in Persons whose primary business is not the Hospitality Management Business; provided that the aggregate amount of the Investments in such Persons shall not exceed $5,000,000.

For purposes of this definition, if in connection with the acquisition of Permitted Property Agreements an Owned Hospitality Property Investment is also made or acquired and the Borrower’s direct or indirect ownership in such Owned Hospitality Property Investment exceeds twenty percent (20%) of the total ownership in such Owned Hospitality Property Investment, then a reasonable portion of the Investment Amount for such Investment shall be attributed to such Owned Hospitality Property Investment and counted toward the $50,000,000 limitation set forth in the foregoing clause (c). If such ownership percentage is equal to or less than twenty percent (20%), then such Investment shall be deemed to have been made under the foregoing clause (a) or (b), as applicable. Notwithstanding anything in this definition to the contrary, Permitted New Investments shall not include any Capital Expenditures made pursuant to the provisions of Section 6.06(e) or Restricted Payments. Notwithstanding anything in this Agreement to the contrary, (a) the Borrower shall have until the date thirty (30) days following the Closing Date to deliver the Environmental Report for the Pittsburgh Property, and (b) if such Environmental Report discloses any material Release, Environmental Claim, or violation of Environmental Law, then the Borrower shall cause such Release, Environmental Claim, or violation of Environmental Law to be remediated in accordance with the provisions of the Environmental Indemnity within thirty (30) days of delivery of such Environmental Report.

“Permitted Non-Recourse Unconsolidated Entity Indebtedness” means Indebtedness of an Unconsolidated Entity which (i) is incurred by an Unconsolidated Entity to acquire a Hospitality Property or Hospitality Management Business or refinance such acquisition Indebtedness, and (ii) is non-recourse to the Parent, the Borrower and their respective Subsidiaries except for the Interests in such Unconsolidated Entity.

(b) Indebtedness which (i) is incurred by a Permitted Other Subsidiary to (A) acquire an Owned Hospitality Property Investment which qualifies as a Permitted New Investment, (B) refinance Indebtedness (including Permitted Owned Hospitality Property Obligations) incurred to acquire a Permitted New Investment, or (C) finance the Pittsburgh Property, where the Indebtedness incurred does not exceed 70% of the Investment Amount for such Permitted New Investment or Pittsburgh Property, as applicable, and (ii) is non-recourse to the Parent, the Borrower and their respective subsidiaries except for the Property of or the Ownership Interests in such Permitted Other Subsidiary and customary recourse “carve-outs”;


	(e) Indebtedness of Interstate/Dallas GP, LLC and Interstate/Dallas Partnership, LP (the “Dallas Pledgors”) to FelCor in the amount of approximately $4,170,000, secured by the interests of the Dallas Pledgors in FCH/IHC Hotels, LP.;


	(h) minority Ownership Interests reflected on the Parent’s financial statements as Indebtedness.

“Permitted Other Subsidiary” means a Subsidiary of the Parent which (a) is a single-purpose Person, (b) has never been a Guarantor under the Senior Credit Facility or a Guarantor, nor owned any Collateral, and (c) only owns Permitted New Investments acquired in whole or in part with the proceeds of Indebtedness excluding the proceeds of the Senior Credit Facility and other Property ancillary to such Permitted New Investments.

“Permitted Owned Hospitality Property Obligations” means Senior Obligations incurred in making an Investment in an Owned Hospitality Property or the Ownership Interests in a Subsidiary which owns an Owned Hospitality Property which pursuant to the terms of this Agreement is required to be Collateral under the Senior Credit Facility; provided that with respect to the Pittsburgh Property the “Permitted Owned Hospitality Property Obligations” shall be deemed to be the greater of (a) $5,000,000 and (b) the Net Cash Proceeds from the incurrence of the Permitted Other Indebtedness to be secured by the Pittsburgh Property.

“Permitted Property Agreements” means (a) Existing Management Agreements and Existing Participating Leases and (b) Approved Management Agreements or Approved Participating Leases related to Hospitality Properties entered into after the Closing Date.

“Person” means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, limited liability company, joint venture or other entity, or a government or any political subdivision or agency thereof or any trustee, receiver, custodian or similar official.

“Pittsburgh Property” means the Pittsburgh, Pennsylvania Airport Residence Inn (Park Lane).

“Plan” means an employee benefit plan (other than a Multiemployer Plan) maintained for employees of the Parent, the Borrower or any member of the Controlled Group and covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.

“Prescribed Forms” means such duly executed form(s) or statement(s), and in such number of copies, which may, from time to time, be prescribed by law and which, pursuant to applicable provisions of (a) an income tax treaty between the United States and the country of residence of the Lender providing the form(s) or statement(s), (b) the Code, or (c) any applicable rule or regulation under the Code, permit the Borrower to make payments hereunder for the account of such Lender free of (or, upon written request of the Borrower specifying the applicable form, at a reduced rate of) deduction or withholding of income or similar taxes (except for any deduction or withholding of income or similar taxes as a result of any change in or in the interpretation of any such treaty, the Code or any such rule or regulation).

“Property” of any Person means any property or assets (whether real, personal, or mixed, tangible or intangible) of such Person, including without limitation, the Permitted Property Agreements, the Permitted Housing Agreements, and all Owned Hospitality Properties.

“Pro Rata Share” means, at any time with respect to any Lender, the ratio (expressed as a percentage) of (a) such Lender’s outstanding Commitment to (b) the outstanding Loan Amount.

“Regulation U” shall mean Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. “Reinsurance Contract” means each outstanding reinsurance, coinsurance and other similar contract of each Insurance Company.

“Related Fund” means, with respect to any Approved Fund, any other Approved Fund that invests in commercial loans which is advised or managed by the same investment advisor as such Approved Fund.

“Release” shall have the meaning set forth in CERCLA or under any other Environmental Law.

“Repayment Event” means the incurrence of any Indebtedness on or after the Closing Date by the Parent, the Borrower or one of their respective Subsidiaries (excluding (a) the Obligations, (b) Indebtedness incurred under clause (a) or clause (b) of the definition of “Permitted Other Indebtedness” which is not incurred to refinance Permitted Owned Hospitality Property Obligations), a Capitalization Event, or an Asset Disposition or the payment to the Borrower or one of the Borrower’s Subsidiaries of a termination payment under a Permitted Property Agreement or a Permitted Housing Agreement after the Closing Date, except for Asset Dispositions or any such termination payments for which the aggregate Net Cash Proceeds do not exceed $1,000,000 in any calendar year.

“Reportable Event” means any of the events set forth in Section 4043(b) of ERISA.

“Required Lenders” means Non-Defaulting Lenders the sum of whose outstanding Commitments represent at least 51% of the outstanding Loan Amount.

“Response” shall have the meaning set forth in CERCLA or under any other Environmental Law.

“Responsible Officer” means the Chief Executive Officer, President, Executive Vice President, Chief Financial Officer or Treasurer of any Person, or, with respect to a partnership, the general partner of such Person.

“Restricted Payment” means (a) any direct or indirect payment, prepayment, redemption, purchase, or deposit of funds or Property for the payment (including any sinking fund or defeasance), prepayment, redemption or purchase of any Indebtedness not permitted by this Agreement, the Senior Credit Facility or any Subordinate Indebtedness, and (b) the making by

any Person of any dividends or other distributions (in cash, property, or otherwise) on, or payment for the purchase, redemption or other acquisition of, any Ownership Interests of such Person, other than dividends or distributions payable in such Person’s Ownership Interests.

“Rolling Period” means, as of any date, the four Fiscal Quarters ending immediately preceding such date.

“S&P” means Standard & Poor’s Ratings Group, a division of McGraw-Hill, Inc., or any successor thereof.

“SAP” means, with respect to each Insurance Company, the statutory accounting practices prescribed or permitted by the insurance commissioner (or other similar Governmental Authority) in the jurisdiction of such Insurance Company for the preparation of Insurance Annual Statements and other financial reports by insurance companies of the same type in effect from time to time, applied in a manner consistent with those used in preparing the SAP Financial Statements.

“Second Amendment to the Senior Credit Facility” means that certain Second Amendment to Senior Secured Credit Agreement dated as of January 10, 2003 between Borrower, the Senior Administrative Agent and the Senior Lenders.

“SAP Financial Statements” means the audited annual and unaudited quarterly convention statements filed with the domiciliary state insurance departments of each Insurance Company.

“Senior Administrative Agent” means the Administrative Agent as defined in the Senior Credit Facility.

“Senior Commitment” means the Commitment as defined in the Senior Credit Facility.

“Senior Credit Facility” mean that certain Senior Secured Credit Agreement dated as of July 31, 2002, in the maximum amount of $113,000,000.00, as amended by that certain First Amendment to Senior Secured Credit Agreement dated as of August 15, 2002, among Meristar H & R Operating Company, L.P. as the Borrower, Société Générale as Administrative Agent, SG Cowen Securities Corporation as Joint Lead Arranger and Book Runner, Salomon Smith Barney Inc. as Joint Lead Arranger, Book Runner, and Co-Syndication Agent, Lehman Brothers, Inc. as Joint Lead Arranger, Book Runner, and Co-Syndication Agent, Credit Lyonnais New York Branch as Documentation Agent, and various other lenders, and as further amended by the Second Amendment to Senior Credit Facility, as the same may be further amended, modified, supplemented, restated, replaced or refinanced from time to time.

“Senior Indebtedness” means Total Indebtedness minus the sum of (a) Subordinate Indebtedness and (b) the outstanding principal balance of this Agreement.

“Senior Interest Coverage Ratio” means, as of the end of any Rolling Period, a ratio of (a) the Parent’s Adjusted EBITDA to (b) the Parent’s Interest Expense pertaining to Senior Indebtedness, for such Rolling Period.

“Senior Leverage Ratio” means the ratio on any date of (a) the Parent’s Senior Indebtedness on such date to (b) the Parent’s Adjusted EBITDA for the Rolling Period immediately preceding such date.

“Senior Obligations” means the Obligations as defined in the Senior Credit Facility.

“Senior Security Documents” means the Security Documents as defined in the Senior Credit Facility.

“Senior Required Lenders” means the Required Lenders as defined in the Senior Credit Facility.

“Senior Revolving Maturity Date” means the Revolving Maturity Date as defined in the Senior Credit Facility.

“Specified Change of Control Event” means that Specified Acquirer or a Subsidiary or parent of Specified Acquirer either (a) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of MHC’s outstanding securities or (b) otherwise merges with MHC.

“Status Reset Date” means the date following the end of any Fiscal Quarter which is the earlier of (a) the 50th day following the end of such Fiscal Quarter and (b) the date which is 5 days following the delivery of the reports and other documents required by (i) the provisions of Section 5.05(a) for such Fiscal Quarter (except for the Fiscal Quarter which ends on the date the Fiscal Year ends) or (ii) the provisions of Section 5.05(b) for the Fiscal Quarter which ends on the date the Fiscal Year ends; provided that the documents contemplated by the preceding clause (ii) shall never be deemed delivered prior to the 40th day following the end of the Fiscal Year.

“Subordinate Indebtedness” means Indebtedness of the Borrower, the Parent and their respective Subsidiaries which (a) shall not mature, become payable or require the payment of any principal amount thereof (or any amount in lieu thereof) or be mandatorily redeemable, pursuant to a sinking fund or otherwise redeemable at the option of the holder thereof, in any case in whole or in part, before the date that is 91 days after the Maturity Date and (b) shall be junior and subordinate to the Senior Obligations and the Obligations and subject to an intercreditor agreement or subordination provisions which is acceptable to the Senior Administrative Agent and the Administrative Agent, respectively.

“Subsidiary” means, with respect to any Person, at any date, any other Person in whom such Person holds an Investment and whose financial results would be consolidated under GAAP with the financial results of such Person if such statements were prepared as of such date.

“Termination Event” means (a) the occurrence of a Reportable Event with respect to a Plan, as described in Section 4043 of ERISA and the regulations issued thereunder (other than a Reportable Event not subject to the provision for 30-day notice to the PBGC under such regulations), (b) the withdrawal of the Borrower or any of the Controlled Group from a Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA, (c) the giving of a notice of intent to terminate a Plan under Section 4041(c) of ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC, or (e) any other event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan.

“Total Indebtedness” of any Person means the sum of the following (without duplication): (a) all Indebtedness of such Person and its Subsidiaries on a Consolidated basis, plus (b) such Person’s and such Person’s Subsidiaries’ Unconsolidated Entity Percentage of Indebtedness of such Person’s and such Person’s Subsidiaries’ Unconsolidated Entities, plus (c) to the extent not already included in the calculation of either of the preceding clauses (a) or (b), the aggregate amount of letters of credit for which such Person or any of its Subsidiaries would have a direct or contingent obligation to reimburse the issuers of such letters of credit upon a drawing under such letters of credit, minus (d) to the extent included in the calculation of either of the preceding clauses (a), (b), or (c), the amount of any minority interests.

“Unconsolidated Entity” means, with respect to any Person, at any date, any other Person in whom such Person holds an Investment and whose financial results would not be consolidated under GAAP with the financial results of such Person if such statements were prepared as of such date.

“Unconsolidated Entity Percentage” means, for any Person, with respect to a Person’s Unconsolidated Entity, the percentage of such Unconsolidated Entity’s Indebtedness for which recourse may be made against such Person.

Section 1.02 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding”.


	(a) All accounting terms not specifically defined in this Agreement shall be construed in accordance with GAAP applied on a consistent basis.


	(b) Unless otherwise indicated, all financial statements of the Borrower and the Parent, all calculations for compliance with covenants in this Agreement, and all calculations of any amounts to be calculated under the definitions in Section 1.01 shall be based upon the Consolidated accounts of the Borrower, the Parent and their respective Subsidiaries (as applicable) in accordance with GAAP.

(c) If any changes in accounting principles after March 31, 2002 required by GAAP or the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or similar agencies results in a change in the method of calculation of, or affects the results of such calculation of, any of the financial covenants, standards or terms found in this Agreement, then the parties shall enter into and diligently pursue negotiations in order to amend such financial covenants, standards or terms so as to equitably reflect such change, with the desired result that the criteria for evaluating the financial condition of Borrower and its Subsidiaries (determined on a Consolidated basis) shall be the same after such change as if such change had not been made.

Section 1.05 Miscellaneous. Article, Section, Schedule and Exhibit references are to Articles and Sections, of and Schedules and Exhibits, to this Agreement, unless otherwise specified.


	(a) Advance. Subject to the terms and conditions set forth in this Agreement, each Lender severally agrees to make an Advance to the Borrower on the Closing Date, in an aggregate amount equal to such Lender’s Commitment, so that the entire Facility Amount shall be advanced on the Closing Date. No amount of such Advance or of the Loan that has been repaid may be reborrowed.


	(a) Notes. The indebtedness of the Borrower to each Lender resulting from the Advance of the Loan Amount on the Closing Date shall be evidenced by a Note of the Borrower payable to the order of such Lender in substantially the form of Exhibit A.


	(a) Administrative Agent’s Fees. The Borrower agrees to pay to the Administrative Agent for its benefit the fees set forth in the Administrative Agent Fee Letter as and when the same are due and payable pursuant to the terms of the Administrative Agent Fee Letter.


	(b) Other Fees. The Borrower agrees to pay to Lehman Brothers Inc. for its benefit the fees set forth in the Fee Letter as and when the same are due and payable pursuant to the terms of the Fee Letter.


	(a) The Borrower shall repay the outstanding principal amount of the Loan on the Maturity Date.

(b) If Borrower has extended the original Senior Revolving Maturity Date pursuant to Section 2.05(b) of the Senior Credit Facility, then the initial Maturity Date shall be automatically extended, whether or not a Default or an Event of Default exists and is continuing, without any further action on the part of the Borrower, Administrative Agent, Senior Administrative Agent or any other party, for an additional one-year period to January 31, 2007. Borrower shall have no right, and the Lenders shall have no obligation to extend the Maturity Date in connection with any extension of the maturity date under any Additional Designated Senior Indebtedness or any other Senior Indebtedness except the Senior Credit Facility.

Section 2.06 Interest, Late Payment Fee. Subject to the terms of the Intercreditor Agreement, the Borrower shall pay interest on the unpaid principal amount of the Loan made by each Lender from the date of the Advance until such principal amount shall be paid in full, at the following rates per annum:

(a) Base Rate Portions. If any Loan Portion is a Base Rate Portion, a rate per annum (computed on the actual number of days elapsed, including the first day and excluding the last, based on a 365 day year) equal at all times to the lesser of (i) the Base Rate in effect from time to time plus the Applicable Margin and (ii) the Maximum Rate, payable in arrears on the first Business Day of each calendar month and on the date such Base Rate Portion shall be paid in full, provided that during the continuance of an Event of Default, Base Rate Portions shall bear interest at a rate per annum equal at all times to the lesser of (i) the rate required to be paid on such Base Rate Portion had such Event of Default not occurred plus three percent (3%) and (ii) the Maximum Rate.

(b) Eurodollar Portion. If any Loan Portion is a Eurodollar Portion, a rate per annum (computed on the actual number of days elapsed, including the first day and excluding the last, based on a 360 day year) equal at all times during the Interest Period for such Eurodollar Portion to the lesser of (i) the Eurodollar Rate for such Eurodollar Portion for such Interest Period plus the Applicable Margin and (ii) the Maximum Rate, payable in arrears on the first Business Day of each calendar month, and on the date such Eurodollar Portion shall be paid in full, provided that during the continuance of an Event of Default, Eurodollar Portions shall bear interest at a rate per annum equal at all times to the lesser of (i) the rate required to be paid on such Advance had such Event of Default not occurred plus three percent (3%) and (ii) the Maximum Rate.

(c) Usury Recapture. In the event the rate of interest chargeable under this Agreement or the Notes at any time is greater than the Maximum Rate, the unpaid principal amount of the Notes shall bear interest at the Maximum Rate until the total amount of interest paid or accrued on the Notes equals the amount of interest which would have been paid or accrued on the Notes if the stated rates of interest set forth in this Agreement had at all times been in effect. In the event, upon payment in full of the Notes, the total amount of interest paid or accrued under the terms of this Agreement and the Notes is less than the total amount of interest which would have been paid or accrued if the rates of interest set forth in this Agreement had, at all times, been in effect, then the Borrower shall, to the extent permitted by applicable law, pay the Administrative Agent for the account of the Lenders an amount equal to the difference between (i) the lesser of (A) the amount of interest which would have been charged on the Notes if the Maximum Rate had, at all times, been in effect and (B) the amount of interest which would have accrued on the Notes if the rates of interest set forth in this Agreement had at all times been in effect and (ii) the amount of interest actually paid or accrued under this Agreement on the Notes. In the event the Lenders ever receive, collect or apply as interest any sum in excess of the Maximum Rate, such excess amount shall, to the extent permitted by law, be applied to the reduction of the principal balance of the Notes, and if no such principal is then outstanding, such excess or part thereof remaining shall be paid to the Borrower.

(d) Other Amounts Overdue. If any amount payable under this Agreement other than the Advances is not paid when due and payable, including without limitation, accrued interest and fees, then such overdue amount shall accrue interest hereon due and payable on demand at a rate per annum equal to the Adjusted Base Rate plus three percent (3%), from the date such amount became due until the date such amount is paid in full.

(e) Late Payment Fee. Subject to the provisions of Section 10.11, if any interest payable under this Agreement is not paid when due and payable (after taking into account any applicable grace period), then the Borrower will pay to the Lenders contemporaneously with the payment of such past due interest a late payment fee equal to an amount equal to the product of (i) such overdue interest times (ii) four percent (4%).


	(a) Right to Prepay. The Borrower shall have no right to prepay any principal amount of any Advance except as provided in this Section 2.07.

(b) Optional Prepayments. After the repayment in full and termination of the Senior Credit Facility, or prior thereto, to the extent permitted under the terms of the Intercreditor Agreement or if Senior Administrative Agent consents, in writing, the Borrower may elect to prepay all or any part of the Loan, after giving by 12:00 a.m. (New York, New York time) (i) in the case of Eurodollar Portions, at least three (3) Business Days’, or (ii) in case of Base Rate Portions, at least one (1) Business Day’s prior written notice to the Administrative Agent, stating the proposed date and aggregate principal

amount of such prepayment, and if applicable, the relevant Interest Period for the Loan Portion to be prepaid. If any such notice is given, the Borrower shall prepay the Loan in an amount equal to the amount specified in such notice, and shall also pay accrued interest to the date of such prepayment on the principal amount prepaid and amounts, if any, required to be paid pursuant to Section 2.08 as a result of such prepayment being made on such date; provided, however, that each partial prepayment shall be in an aggregate principal amount not less than $500,000 and in integral multiples of $100,000.

(i) Repayment Event. Upon the occurrence of any Repayment Event, the Borrower shall prepay a portion of the Loan on the Business Day the Net Cash Proceeds from such Repayment Event are received by the Borrower or the Parent, as applicable, in an amount equal to the lesser of (A) the amount of the outstanding principal balance of the Loan on such Business Day and (B) 100% of the Net Cash Proceeds of such Repayment Event. Such prepayments shall be applied (A) first, to interest as provided in Section 2.07(c)(ii), and (B) second, to the outstanding principal balance.


	(ii) Accrued Interest. Each prepayment pursuant to this Section 2.07(c) shall be accompanied by accrued interest on the amount prepaid to the date of such prepayment and amounts, if any, required to be paid pursuant to Section 2.08 as a result of such prepayment being made on such date.


	(d) Effect of Notice. All notices given pursuant to this Section 2.07 shall be irrevocable and binding upon the Borrower.

Section 2.08 Breakage Costs. If (a) any payment of principal of any Eurodollar Portion is made other than on the last day of the Interest Period for such Eurodollar Portion as a result of any payment pursuant to Section 2.07 or the acceleration of the maturity of the Notes pursuant to Article VIII or otherwise; or (b) the Borrower fails to make a principal or interest payment with respect to any Eurodollar Portion on the date such payment is due and payable, the Borrower shall, within 10 days of any written demand sent by any Lender to the Borrower through the Administrative Agent, pay to the Administrative Agent for the account of such Lender any amounts (without duplication of any other amounts payable in respect of breakage costs) required to compensate such Lender for any additional losses, out-of-pocket costs or expenses which it may reasonably incur as a result of such payment or nonpayment, including, without limitation, any loss, cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance.


	(a) Eurodollar Portions. If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation (except with respect to Taxes or Other Taxes) following the date of this Agreement or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having

the force of law) not complied with prior to the date of this Agreement, there shall be any increase in the cost to any Lender of agreeing to make or making, funding or maintaining Eurodollar Portions (including, without limitation, (A) additional interest to compensate such Lender for reserve costs actually incurred by such Lender associated with Eurocurrency Liabilities, such additional interest to be calculated by subtracting (1) the Eurodollar Rate for such Lender’s Pro Rata Share of the Eurodollar Portion from (2) the rate obtained by dividing such applicable interest rate for such Eurodollar Portion (excluding the Applicable Margin) by a percentage equal to one minus the applicable Eurodollar Rate Reserve Percentage of such Lender for such Interest Period), then the Borrower shall from time to time, upon demand by such Lender (with a copy of such demand to the Administrative Agent), immediately pay to the Administrative Agent for the account of such Lender additional amounts (without duplication of any other amounts payable in respect of increased costs) sufficient to compensate such Lender for such increased cost; provided, however, that, before making any such demand, each Lender agrees to use commercially reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender (except that no Lender shall be required to redesignate its Applicable Lending Office to avoid the incurrence of increased costs associated with additional interest required to be paid by the Borrowers to any Lender in connection with reserve costs attributable to Eurocurrency Liabilities). A certificate as to the amount of such increased cost and detailing the calculation of such cost submitted to the Borrower and the Administrative Agent by such Lender at the time such Lender demands payment under this Section shall be conclusive and binding for all purposes, absent manifest error.

(b) Capital Adequacy. If any Lender determines in good faith that compliance with any law or regulation or any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law) implemented or effective after the date of this Agreement affects or would affect the amount of capital required or expected to be maintained by such Lender and that the amount of such capital is increased by or based upon the existence of such Lender’s Pro Rata Share of the Loan, then, upon 30 days prior written notice by such Lender (with a copy of any such demand to the Administrative Agent), the Borrower shall immediately pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts (without duplication of any other amounts payable in respect of increased costs) sufficient to compensate such Lender, in light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender’s commitment to lend under this Agreement. A certificate as to such amounts and detailing the calculation of such amounts submitted to the Borrower and the Administrative Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error.

(a) Payment Procedures. Except if otherwise set forth herein, the Borrower shall make each payment under this Agreement and under the Notes not later than 12:00 a.m. (New York, New York time) on the day when due to the Administrative Agent at the location referred to in the Notes (or such other location as the Administrative Agent shall designate in writing to the Borrower) in same day funds without set-off, deduction or counterclaim. Except for amounts payable solely to the Administrative Agent, or a specific Lender pursuant to Section 2.06(b), 2.08, 2.09, 2.11, or 2.12, but after taking into account payments effected pursuant to Section 10.04, the Administrative Agent will on the same day cause to be distributed like funds relating to the payment of principal, interest or fees ratably to the Lenders in accordance with, in the case of a payment made in respect of a Borrowing, each Lender’s Share, for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement.

(b) Computations. All computations of interest based on the Base Rate shall be made by the Administrative Agent on the basis of a year of 365 days and all computations of fees and interest based on the Eurodollar Rate shall be made by the Administrative Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day, but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate shall be conclusive and binding for all purposes, absent manifest error.

(c) Non-Business Day Payments. Whenever any payment shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fees, as the case may be; provided, however, that if such extension would cause payment of interest on or principal of Eurodollar Portions to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

(d) Administrative Agent Reliance. Unless the Administrative Agent shall have received written notice from the Borrower prior to the date on which any payment is due to the Lenders that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender, together with interest, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate for each such day.

(e) Application of Payments. Unless otherwise specified in Section 2.07 hereof, whenever any payment received by the Administrative Agent under this Agreement is insufficient to pay in full all amounts then due and payable under this Agreement and the Notes, such payment shall be distributed and applied by the Administrative Agent and the Lenders in the following order: first, to the payment of fees and expenses due and payable to the Administrative Agent under and in connection with this Agreement or any other Credit Document; second, to the payment of all expenses due and payable under Section 2.11(c), ratably among the Lenders in accordance with the aggregate amount of such payments owed to each such Lender; third, to the payment of all other fees due and payable under Section 2.03; and fourth, to the payment of the interest accrued on and the principal amount of all of the other Notes and regardless of whether any such amount is then due and payable, ratably among the Lenders in accordance with the aggregate accrued interest plus the aggregate principal amount owed to such Lender.

(f) Register. The Administrative Agent shall record in the Register the Commitment and the Advances from time to time of each Lender and each repayment or prepayment in respect to the principal amount of such Advances of each Lender. Any such recordation shall be conclusive and binding on the Borrower and each Lender, absent manifest error; provided however, that failure to make any such recordation, or any error in such recordation, shall not affect the Borrower’s obligations hereunder in respect of such Advances.

(a) No Deduction for Certain Taxes. Any and all payments by the Borrower shall be made, in accordance with Section 2.10, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, (i) in the case of each Lender and the Administrative Agent, taxes imposed on its income, and franchise taxes imposed on it, by the jurisdiction under the laws of which such Lender or the Administrative Agent (as the case may be) is organized or carries on business (other than as a result of a connection arising primarily from the Lender or the Administrative Agent (as the case may be) having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement) or any political subdivision or taxing authority of such jurisdictions (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”) and, (ii) in the case of each Lender, Taxes by the jurisdiction of such Lender’s Applicable Lending Office or any political subdivision of such jurisdiction. If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable to any Lender or the Administrative Agent, (i) the sum payable shall be increased as may be necessary so that, after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11), such Lender or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made; provided, however, that if the Borrower’s obligation to deduct or withhold Taxes is caused solely by such Lender’s or the Administrative Agent’s failure to

provide the forms described in paragraph (e) of this Section 2.11 and such Lender or the Administrative Agent could have provided such forms or if such Lender or the Administrative Agent (as the case may be) fails to comply with Section 2.11(g), no such increase shall be required; (ii) the Borrower shall make such deductions; and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable Legal Requirements.


	(b) Other Taxes. In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the Notes, or the other Credit Documents (hereinafter referred to as “Other Taxes”).

(c) Indemnification. The Borrower will indemnify each Lender and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any Governmental Authority on amounts payable under this Section 2.11) paid by such Lender or the Administrative Agent (as the case may be) and any liability (including interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. Each payment required to be made by the Borrower in respect of this indemnification shall be made to the Administrative Agent for the benefit of any party claiming such indemnification within 30 days from the date the Borrower receives written demand detailing the calculation of such amounts therefor from the Administrative Agent on behalf of itself as Administrative Agent, or any such Lender. If any Lender, or the Administrative Agent, receives a refund, offset, credit or deduction in respect of any Taxes or Other Taxes paid by the Borrower under this paragraph (c), such Lender, or the Administrative Agent, as the case may be, shall promptly pay to the Borrower the Borrower’s share of such refund, offset, credit or deduction, received by or credited to the Lender, or the Administrative Agent, as the case may be, (reduced by any Taxes imposed on the Lender, or the Administrative Agent, as the case may be, by reason of the receipt, accrual or payment of such refund, offset, credit or deduction).


	(d) Evidence of Tax Payments. The Borrower will pay prior to delinquency all Taxes and Other Taxes payable in respect of any payment. Within 30 days after the date of any payment of Taxes, the Borrower will furnish to the Administrative Agent, at its address referred to in Section 10.02, the original or a certified copy of a receipt evidencing payment of such Taxes or Other Taxes.

(e) Foreign Lender Withholding Exemption. Each Lender that is not incorporated under the laws of the United States of America or a state thereof agrees that it will deliver to the Borrower and the Administrative Agent on the date of this Agreement or upon the effectiveness of any Assignment and Acceptance two duly completed copies of the Prescribed Forms, as the case may be, certifying in each case that such Lender is entitled to receive payments under this Agreement and the Notes payable to it, without deduction or withholding of any United States federal income taxes. Each Lender which delivers to the Borrower and the Administrative Agent a Prescribed Form

further undertakes to deliver to the Borrower and the Administrative Agent on or before the date that any such form expires or becomes obsolete or after the occurrence of any event requiring a change in the most recent form previously delivered by it to the Borrower and the Administrative Agent two further copies of a replacement Prescribed Form. If an event (including without limitation any change in treaty, law or regulation) has occurred prior to the date on which any delivery required by the preceding sentence would otherwise be required which renders all such forms inapplicable or which would prevent any Lender from duly completing and delivering any such letter or form with respect to it and such Lender advises the Borrower and the Administrative Agent that it is not capable of receiving payments without any deduction or withholding of United States federal income tax, and in the case of a Prescribed Form establishing an exemption from, or a reduced rate of, United States backup withholding tax, such Lender shall not be required to deliver such forms. The Borrower shall withhold tax at the rate and in the manner required by the laws of the United States with respect to payments made to a Lender failing to timely provide the Prescribed Forms.


	(f) Nothing in this Section 2.11 shall require any Lender or the Administrative Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary, in its sole discretion).

(g) If any Lender claims any additional amounts payable pursuant to this Section 2.11, then such Lender (as the case may be) shall use its reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that would be payable or may thereafter accrue and would not be otherwise disadvantageous to such Lender.

Section 2.12 Illegality. If any Lender shall notify the Administrative Agent and the Borrower that the introduction of or any change in or in the interpretation of any Legal Requirement makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for such Lender or its Applicable Lending Office to perform its obligations under this Agreement or to maintain Lender’s Pro Rata Share of any Eurodollar Portion of such Lender then outstanding hereunder, then, notwithstanding anything herein to the contrary, if demanded by such Lender by notice to the Borrower and the Administrative Agent no later than 12:00 a.m. (New York, New York time), (a) if not prohibited by Legal Requirement to maintain such Eurodollar Portion for the duration of the Interest Period, on the last day of such Interest Period or (b) if prohibited by Legal Requirement to maintain such Eurodollar Portion for the duration of the Interest Period, on the second Business Day following its receipt of such notice from such Lender, the affected Eurodollar Portion of such Lender then outstanding shall automatically become a Base Rate Portion and Borrower shall pay the amount, if any, required to be paid pursuant to Section 2.08 as a result of such conversion being made on such date. Each Lender agrees to use commercially reasonable efforts (consistent with its internal policies and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such designation would avoid the effect of this paragraph and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender.

(a) In the event that Administrative Agent shall have determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate, then Administrative Agent shall forthwith give notice by telephone of such determination, to Borrower at least one (1) Business Day prior to the last day of the related Interest Period, with a written confirmation of such determination promptly thereafter. If such notice is given, the Loan shall convert to a Base Rate Portion and shall bear interest at the Base Rate plus the Applicable Margin beginning on the first day of the next succeeding Interest Period. If, pursuant to the terms of this Section 2.13, the Loan is a Base Rate Portion and Administrative Agent shall determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Administrative Agent shall give notice thereof to Borrower by telephone of such determination, confirmed in writing, to Borrower as soon as reasonably practical, but in no event later than one (1) Business Day prior to the last day of the then current Interest Period. If such notice is given, the Loan shall convert to a Eurodollar Portion and shall bear interest at the Eurodollar Rate plus the Applicable Margin beginning on the first day of the next succeeding Interest Period.

Section 2.14 Determination of Leverage Ratio and Senior Leverage Ratio. In addition to the determination of the Leverage Ratio and the Senior Leverage Ratio in a Compliance Certificate, the Leverage Ratio and the Senior Leverage Ratio shall be determined by the Administrative Agent, as follows:

(a) Adjustments. Following each making, acquisition or disposition by the Parent or its Subsidiary of an Investment or any Non-Replaced Property with an Investment Amount in excess of $5,000,000 or the incurrence by the Parent or its Subsidiary of additional Indebtedness (excluding any Obligations) in excess of $5,000,000 (an “Adjustment Event”), and the Administrative Agent’s receipt of an Adjustment Report with respect thereto, the Administrative Agent shall adjust the Leverage Ratio and the Senior Leverage Ratio accordingly.


	(b) Notice of Leverage Ratio and Senior Leverage Ratio Change. Promptly following any date the Leverage Ratio and the Senior Leverage Ratio is determined in accordance with the preceding paragraph, the Administrative Agent shall give notice to the Lenders and the Borrower of the new Leverage Ratio and Senior Leverage Ratio.

(a) Right to Replace. The Borrower shall have the right to replace each Lender either (i) affected by a condition under Section 2.09, 2.11, or 2.12 for more than 60 days or (ii) that refuses to consent to a proposed change, waiver, discharge or termination with respect to this Agreement which has been approved by 51% or more of the Non-Defaulting Lenders entitled to vote on such proposed change, waiver, discharge


	or termination, as (and to the extent) provided in Section 10.01 (each such affected or non-consenting Lender, an “Affected Lender”) in accordance with the procedures in this Section 2.15 and provided that no reduction of the total Commitments occurs as a result thereof.

(i) Upon the occurrence of any condition permitting the replacement of a Lender, the Administrative Agent in its sole discretion shall have the right to reallocate the amount of the Commitments of the Affected Lenders, including without limitation to Persons which are not already party to this Agreement but which qualify as Eligible Assignees, which election shall be made by written notice within 30 days after the date such condition occurs.

(ii) If the aggregate amount of the reallocated Commitments is less than the Commitments of the Affected Lenders, (A) the respective Commitments of the Lenders which have received such reallocated Commitments shall be increased by the respective amounts of their proposed reallocations, and (B) the Borrower shall have the right to add additional Lenders which are Eligible Assignees to this Agreement to replace such Affected Lenders, which additional Lenders would have aggregate Commitments no greater than those of the Affected Lenders minus the amounts of the Commitments already reallocated.


	(iii) Notwithstanding any provision in this Section 2.15 to the contrary, no Lender except for an Affected Lender may have such Lender’s Commitment increased or decreased pursuant to the provisions of this Section 2.15 without such Lender’s written consent.

(c) Procedure. Any assumptions of Commitments pursuant to this Section 2.15 shall be (i) made by the purchasing Lender or Eligible Assignee and the selling Lender entering into an Assignment and Assumption and by following the procedures in Section 10.06 for adding a Lender. In connection with the reallocation of the Commitments of any Lender pursuant to the foregoing paragraph (b), each Lender with a reallocated Commitment shall purchase from the Affected Lenders at par such Lender’s Pro Rata Share, of the outstanding Loan Amount.

Section 2.16 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off or otherwise) on account of the Advances made by it in excess of its Pro Rata Share, as applicable, of payments or collateral on account of the Advances obtained by all the Lenders, such Lender shall notify the Administrative Agent and forthwith purchase from the other Lenders such participations in the Advances, as applicable, made by them as shall be necessary to cause such purchasing Lender to share the excess payment or benefits of such collateral or proceeds ratably in accordance with the requirements of this Agreement with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the

purchase price to the extent of such Lender’s ratable share (according to the proportion of (a) the amount of the participation sold by such Lender to the purchasing Lender as a result of such excess payment to (b) the total amount of such excess payment) of such recovery, together with an amount equal to such Lender’s ratable share (according to the proportion of (a) the amount of such Lender’s required repayment to the purchasing Lender to (b) the total amount of all such required repayments to the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.16 may, to the fullest extent permitted by Legal Requirement, unless and until rescinded as provided above, exercise all its rights of payment (including the right of set-off) with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

Section 2.17 Agreement to Subordinate. Administrative Agent and the Lenders agree that Indebtedness for Borrowings under this Agreement represented by the Notes shall be subordinated in right of payment, to the extent and in the manner provided in the Intercreditor Agreement, to the prior payment in full of the Senior Credit Facility. The Administrative Agent and the Lenders further agree that in connection with any replacement or refinancing of the Senior Credit Facility or any Additional Designated Senior Indebtedness which is permitted by this Agreement, it shall enter into a new intercreditor or subordination agreement on terms substantially similar to the Intercreditor Agreement.

Section 3.01 Conditions Precedent to the Initial Advance. The obligation of each Lender to make the initial Advance of the Loan Amount hereunder is subject to the following conditions precedent being satisfied on or prior to January 10, 2003:


	(a) Documentation. The Administrative Agent shall have received counterparts of this Agreement executed by the Borrower and the Lenders, and the following duly executed by all the parties thereto, in form and substance satisfactory to the Administrative Agent, and, with respect to this Agreement, all Guaranties and Environmental Indemnities, in sufficient copies for each Lender:

(iii) a certificate from a Responsible Officer of the Parent on behalf of the Borrower dated as of the Closing Date stating that as of the Closing Date (A) all representations and warranties of the Borrower set forth in this Agreement and the Credit Documents are true and correct in all material respects; (B) no Default has occurred and is continuing; (C) the conditions in this Section 3.01 have been met or waived in writing; and (D) to the best of the Borrower’s knowledge there


	are no claims, defenses, counterclaims or offsets against the Lenders under the Credit Documents;

(iv) a certificate of the Secretary or an Assistant Secretary of the Parent on behalf of the Borrower and each corporation that is either a Guarantor or a general partner or manager of a Guarantor dated as of the date of this Agreement certifying as of the Closing Date (A) the names and true signatures of officers or authorized representatives of the Parent and such other Persons authorized to sign the Credit Documents to which such Person is a party in the capacity therein indicated, (B) resolutions of the Board of Directors or the members of the Parent and such other Persons with respect to the transactions herein contemplated, and (C) a true and correct copy of the Intercompany Agreement;

(v) (A) one or more favorable written opinions of DeCampo, Diamond & Ash, special counsel for the Borrower, the Parent, and their Subsidiaries, in a form reasonably acceptable to the Administrative Agent, in each case dated as of the Closing Date and with such changes as the Administrative Agent may approve, and (B) such other legal opinions as either of the Administrative Agent shall reasonably request, in each case dated as of the Closing Date and with such changes as the Administrative Agent may approve, provided that in the Administrative Agent’s discretion certain legal opinions related to Guarantors which are domiciled outside the United States may not be required;


	(vi) a Compliance Certificate dated as of the Closing Date reflecting for the financial tests covered therein the financial performance for the Borrower for the Rolling Period ended September 30, 2002;


	(viii) the Inter-Company Indebtedness Subordination Agreement with respect to Approved Inter-Company Indebtedness; and


	(ix) such other documents, governmental certificates, agreements, lien searches as the Administrative Agent may reasonably request.

(b) Prepayment of MHC Indebtedness. Borrower shall have delivered evidence satisfactory to the Administrative Agent that (i) the proceeds of the Loan to be advanced are, together with the sums permitted to be paid by Borrower pursuant to the Second Amendment to the Senior Credit Facility, sufficient to prepay the MHC Indebtedness in full and that the MHC indebtedness shall be terminated upon such prepayment and (ii) Borrower has paid such sums described in the preceding clause (i) to MHC OP.


	(c) Representations and Warranties. The representations and warranties contained in Article IV hereof, the Guaranties shall be true and correct in all material respects.


	(d) Certain Payments. The Borrower shall have paid the fees required to be paid as of the execution of this Credit Agreement pursuant to (i) the Fee Letter and (ii) the Administrative Agent Fee Letter.


	(e) Compliance with Senior Credit Facility. Borrower shall have delivered evidence reasonably satisfactory to the Administrative Agent that all of the conditions precedent to the effectiveness of the Second Amendment to the Senior Credit Facility (including, without limitation, the payment of all required fees) have been complied with.


	(a) The Borrower is a limited partnership duly organized, validly existing, and in good standing under the laws of Delaware and in good standing and qualified to do business in each jurisdiction where its ownership or lease of property or conduct of its business requires such qualification, except where the failure to so qualify would not cause a Material Adverse Change to the Borrower.


	(b) The Parent is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and in good standing and qualified to do business in each jurisdiction where its ownership or lease of property or conduct of its business requires such qualification, except where the failure to so qualify would not cause a Material Adverse Change to the Parent.


	(c) The Parent is duly listed on the New York Stock Exchange, Inc. and the Parent has timely filed all reports required to be filed by it with the New York Stock Exchange, Inc. and the Securities and Exchange Commission.


	(d) The Parent owns approximately 97% of the partnership interest in the Borrower and is the sole general partner of the Borrower.


	(e) The entire authorized capital stock of the Parent consists of (i) 50,000,000 shares of Parent common stock of which approximately 20,127,000 shares of Parent common stock are duly and validly issued and outstanding, fully paid and nonassessable as of December 31, 2002 and (ii) 1,000,000 shares of Parent preferred stock of which no shares are issued or outstanding.

(f) Each Subsidiary of the Borrower is a limited partnership, general partnership or limited liability company duly organized, validly existing, and in good standing under the laws of its jurisdiction of formation and in good standing and qualified to do business in each jurisdiction where conduct of its business requires such qualification, except where the failure to so qualify would not cause a Material Adverse Change to such Subsidiary. Except for the Beverage Entities and the Dissolving

Subsidiaries, the Parent has no Subsidiaries on the date of this Agreement other than the Borrower and the Subsidiaries listed on the attached Schedule 4.01, and Schedule 4.01 lists the jurisdiction of formation, and the address of the principal office of each such Subsidiary existing on the date of this Agreement. As of the date of this Agreement, the Parent or the Borrower owns, directly or indirectly, at least the percentage interests in each such Subsidiary listed on the attached Schedule 4.01.


	(g) Except for those Material Subsidiaries domiciled in a jurisdiction outside the United States, each of the Borrower, the Parent and each of the Material Subsidiaries is domiciled in the State of Delaware.


	(h) There has been no material change in any of the organizational documents of Borrower, Parent or any Guarantor since July 31, 2002.

Section 4.02 Partnership and Corporate Power. The execution, delivery, and performance by the Borrower and each Guarantor of the Credit Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby (a) are within such Persons’ partnership, limited liability company and corporate powers, as applicable, (b) have been duly authorized by all necessary corporate, limited liability company and partnership action, as applicable, (c) do not contravene (i) such Person’s certificate or articles, as the case may be, of incorporation or by-laws, operating agreement or partnership agreement, as applicable, or (ii) any law or any contractual restriction binding on or affecting any such Person, the contravention of which could reasonably be expected to cause a Material Adverse Change, and (d) will not result in or require the creation or imposition of any Lien prohibited by this Agreement. At the time of each Borrowing, such Borrowing and the use of the proceeds of such Borrowing will be within the Borrower’s partnership powers, will have been duly authorized by all necessary partnership action, (a) will not contravene (i) the Borrower’s partnership agreement or (ii) any law or any contractual restriction binding on or affecting the Borrower (including without limitation, the Senior Credit Facility), the contravention of which could reasonably be expected to cause a Material Adverse Change, and (b) will not result in or require the creation or imposition of any Lien prohibited by this Agreement.

Section 4.03 Authorization and Approvals. No authorization or approval or other action by, and no notice to or filing with, any Governmental Authority is required for the due execution, delivery and performance by the Borrower or any Guarantor of the Credit Documents to which it is a party or the consummation of the transactions contemplated thereby. At the time of each Borrowing, no authorization or approval or other action by, and no notice to or filing with, any Governmental Authority will be required for such Borrowing or the use of the proceeds of such Borrowing the absence of which could reasonably be expected to cause a Material Adverse Change.

Section 4.04 Enforceable Obligations. This Agreement, the Notes, and the other Credit Documents to which the Borrower is a party have been duly executed and delivered by the Borrower; each Guaranty and the other Credit Documents to which each Guarantor and the Parent is a party have been duly executed and delivered by such Guarantor. Each Credit Document is the legal, valid, and binding obligation of the Borrower, the Parent, and each

Guarantor which is a party to it enforceable against the Borrower, the Parent, and each such Guarantor in accordance with its terms, except as such enforceability may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium, or similar law affecting creditors’ rights generally and by general principles of equity (whether considered in proceeding at law or in equity).

Section 4.05 Financial Statements. The respective Consolidated balance sheets, statements of operations, shareholders’ equity and cash flows of Parent and its Subsidiaries contained in its Financial Statements, and the corresponding financial statements for the Parent and its Subsidiaries, fairly present the financial condition in all material respects and reflects the Indebtedness of such Person and such Person’s Subsidiaries on a Consolidated basis as of the dates indicated in the Financial Statements and the respective results of the operations for the periods indicated, and such balance sheets and statements were prepared in accordance with GAAP, subject to year-end adjustments. Since the date of such statements, no Material Adverse Change has occurred.

Section 4.06 True and Complete Disclosure. No representation, warranty, or other statement made by the Borrower (or on behalf of the Borrower) in this Agreement or any other Credit Document contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made as of the date of this Agreement. There is no fact known to any Responsible Officer of the Borrower or the Parent on the date of this Agreement that has not been disclosed to the Administrative Agent which could reasonably be expected to cause a Material Adverse Change. All projections, estimates, and financial information furnished by the Borrower and/or the Parent or on behalf of the Borrower were prepared on the basis of assumptions, data, information, tests, or conditions believed to be reasonable at the time such projections, estimates, and pro forma financial information were furnished. No representation, warranty or other statement made in Parent’s latest 10K, 10Q or annual report or the Registration Statements contains any untrue statement of material fact or omits to state any material fact necessary to make the statements contained therein not misleading in light of the circumstances in which they were made as of the date same were made. Borrower and/or Parent has made all filings required by the Exchange Act.

Section 4.07 Litigation. Except as set forth in the attached Schedule 4.07, there is no pending or, to the best knowledge of the Borrower, threatened investigation, action or proceeding affecting the Borrower or the Parent or any of their respective Subsidiaries by or before any court, Governmental Authority or arbitrator either (a) in which in Borrower’s good faith judgment the anticipated loss is over $500,000 (provided that with respect to the giving of this representation after the date of this Agreement, the representation shall only be deemed to apply to those matters for which Administrative Agent would have been entitled to notice under Section 5.05(k)) or (b) which in Borrower’s good faith judgment would result in criminal penalties against the Parent, the Borrower or their respective Subsidiaries which could reasonably be expected to cause a Material Adverse Change.


	(a) Advances. The proceeds of the Advance shall be used by the Borrower for the repayment of the MHC Indebtedness on the Closing Date.

(b) Regulations. No proceeds of the Loan will be used to purchase or carry any Margin Stock or be used in violation of Regulations T, U or X of the Federal Reserve Board, as the same is from time to time in effect, and all official rulings and interpretations thereunder or thereof. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock.

Section 4.09 Investment Company Act. Neither the Borrower, the Parent nor any of their respective Subsidiaries is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

Section 4.10 Taxes. All federal, state, local and foreign tax returns, reports and statements required to be filed (after giving effect to any extension granted in the time for filing) by the Parent, the Borrower, their respective Subsidiaries, or any member of a Controlled Group have been filed with the appropriate governmental agencies in all jurisdictions in which such returns, reports and statements are required to be filed, and where the failure to file could reasonably be expected to cause a Material Adverse Change, except where contested in good faith and by appropriate proceedings; and all taxes and other impositions due and payable (which are material in amount) have been timely paid prior to the date on which any fine, penalty, interest, late charge or loss (which are material in amount) may be added thereto for non-payment thereof except where contested in good faith and by appropriate proceedings. As of the date of this Agreement, neither the Parent, the Borrower, any of their respective Subsidiaries nor any member of a Controlled Group has given, or been requested to give, a waiver of the statute of limitations relating to the payment of any federal, state, local or foreign taxes or other impositions. None of the Property owned by the Parent, the Borrower, any of their respective Subsidiaries or any other member of a Controlled Group is Property which the Parent, the Borrower, any of their respective Subsidiaries or any member of a Controlled Group is required to be treated as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Code. Proper and accurate amounts have been withheld by the Parent, the Borrower, their respective Subsidiaries and all members of each Controlled Group from their employees for all periods to comply in all material respects with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law. Timely payment of all material sales and use taxes required by applicable law have been made by the Parent, the Borrower, their respective Subsidiaries and all other members of each Controlled Group, the failure to timely pay of which could reasonably be expected to cause a Material Adverse Change. The amounts shown on all tax returns to be due and payable have been paid in full or adequate provision therefor is included on the books of the appropriate members of the applicable Controlled Group.

Section 4.11 Pension Plans. All Plans are in compliance in all material respects with all applicable provisions of ERISA. No Termination Event has occurred with respect to any Plan, and each Plan has complied with and been administered in all material respects in accordance with applicable provisions of ERISA and the Code. No “accumulated funding deficiency” (as

defined in Section 302 of ERISA) has occurred and there has been no excise tax imposed under Section 4971 of the Code. No Reportable Event has occurred with respect to any Multiemployer Plan, and to the Borrower’s actual knowledge each Multiemployer Plan has complied with and been administered in all material respects with applicable provisions of ERISA and the Code. Neither the Borrower, nor any member of a Controlled Group has had a complete or partial withdrawal from any Multiemployer Plan for which there is any material withdrawal liability. As of the most recent valuation date applicable thereto, neither the Borrower nor any member of a Controlled Group has received notice that any Multiemployer Plan is insolvent or in reorganization.

Section 4.12 Insurance. The Borrower and each of its Subsidiaries carry the insurance required pursuant to the provisions of Section 5.07.

(a) Except in connection with Indebtedness which is either (i) permitted pursuant to the provisions of Section 6.02, or (ii) being repaid with the proceeds of the initial Borrowing, neither the Borrower nor any of its Subsidiaries is a party to any indenture, loan or credit agreement. Neither the Borrower, the Parent nor any of their respective Subsidiaries is a party to any agreement or instrument or subject to any charter or corporate restriction or provision of applicable law or governmental regulation which could reasonably be expected to cause a Material Adverse Change. Neither the Borrower, nor the Parent, nor their respective Subsidiaries has entered into or suffered to exist any agreement (other than the Senior Credit Facility, this Agreement and the Credit Documents and as set forth in the Permitted Property Agreements and the Permitted Housing Agreements) (i) prohibiting the creation or assumption of any Lien upon the Properties of the Parent, the Borrower or any of their respective Subsidiaries (except for Properties of and Ownership Interests in the Permitted Other Subsidiaries), whether now owned or hereafter acquired, or (ii) requiring an obligation to be secured if some other obligation is or becomes secured.

(b) Neither the Borrower, the Parent nor any of their Subsidiaries is in default under or with respect to any contract or agreement which could reasonably be expected to cause a Material Adverse Change. Neither the Borrower, the Parent nor any of their Subsidiaries has received any notice of default under any material contract or agreement which is continuing and which, if not cured, could reasonably be expected to cause a Material Adverse Change.


	(c) No Default has occurred and is continuing (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

(a) Except as disclosed in Schedule 4.14 (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given), to the knowledge of the Borrower, the Borrower, the Parent and their respective Subsidiaries (i) have obtained all Environmental Permits material for the operation of their respective Properties and the conduct of their respective businesses; (ii) have been and are in material compliance with all terms and conditions of such Environmental Permits and with all other requirements of applicable Environmental Laws; (iii) have not received notice of any violation or alleged violation of any Environmental Law or Environmental Permit; and (iv) are not subject to any actual or contingent Environmental Claim.

(b) Except as disclosed in Schedule 4.14, to the knowledge of Borrower, no Property which is presently or previously owned or operated by the Borrower, the Parent or of any of their respective present or former Subsidiaries, wherever located, (i) has been placed on or proposed to be placed on the National Priorities List, the Comprehensive Environmental Response Compensation Liability Information System list, or their state or local analogs, or have been otherwise investigated, designated, listed, or identified as a potential site for removal, remediation, cleanup, closure, restoration, reclamation, or other response activity under any Environmental Laws which could reasonably be expected to cause a Material Adverse Change; (ii) is subject to a Lien, arising under or in connection with any Environmental Laws, that attaches to any revenues or to any Property operated by the Borrower, the Parent or any of their respective Subsidiaries, wherever located; (iii) has been the site of any Release, use or storage of Hazardous Substances or Hazardous Wastes from present or past operations except for Permitted Hazardous Substances, which Permitted Hazardous Substances have not caused at the site or at any third-party site any condition that has resulted in or could reasonably be expected to result in the need for Response or (iv) none of the Improvements are constructed on land designated by any Governmental Authority having land use jurisdiction as wetlands.

Section 4.15 Legal Requirements, Zoning. Except as set forth on Schedule 4.15 attached hereto, the current use and operation of each Property which is presently owned or operated by the Borrower, the Parent or of any of their respective Subsidiaries, wherever located, (a) constitutes a legal use under applicable zoning regulations (as the same may be modified by special use permits or the granting of variances) and (b) complies in all material respects with all Legal Requirements, and does not violate in any material respect any material approvals, material restrictions of record or any material agreement affecting any such Property (or any portion thereof) except for non-legal use or non-compliance which in the aggregate would not cause a Material Adverse Change. The Borrower, the Parent and their respective Subsidiaries possess all certificates of public convenience, authorizations, permits, licenses, patents, patent rights or licenses, trademarks, trademark rights, trade names rights and copyrights (collectively “Permits”) required by Governmental Authority to own or operate Properties, as applicable, the Properties they own or operate, except for those Permits that if not obtained would not cause a Material Adverse Change. The Borrower, the Parent and their respective Subsidiaries own and operate their business in material compliance with all applicable Legal Requirements except for non-compliance which in the aggregate would not cause a Material Adverse Change.

(a) Except for the Obligations, the only Indebtedness or Interest Rate Agreements of the Borrower or any of its Subsidiaries existing as of the Effective Date is the Senior Credit Facility and those set forth on Schedule 4.16 attached hereto. No “default” or “event of default”, however defined, has occurred and is continuing under the Senior Credit Facility or any such Indebtedness or Interest Rate Agreement (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

(b) To the best of the Borrower’s knowledge, (i) the fair value and present fair saleable value on a going concern basis of the Property of the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, exceeds the amount that will be required to pay the probable liabilities of such Persons, on a Consolidated basis, on their Indebtedness, as such Indebtedness becomes absolute and matured, (ii) the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, will have sufficient cash flow to enable them to pay their debts as they mature, and (iii) the Parent, the Borrower and their respective Subsidiaries, on a Consolidated basis, are able to pay their Indebtedness as it matures in the normal course of business.

Section 4.17 Leasing Arrangements. The only material leases for which either the Borrower or a Guarantor is a lessee are the Existing Participating Leases and office leases. The Existing Participating Leases are in full force and effect; no monetary defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder; and no other defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder which could reasonably be expected to cause a Material Adverse Change (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

Section 4.18 Management Agreements. The only management agreements for which either the Borrower or a Guarantor is a manager are the Existing Management Agreements. The Existing Management Agreements are in full force and effect; no monetary defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder; and no other defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder which could reasonably be expected to cause a Material Adverse Change (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given). The Existing Management Agreements with MHC and MHC’s Subsidiaries do not provide for any performance standards for the year 2002.

Section 4.19 Intercompany Agreement. The Intercompany Agreement is in full force and effect and no material defaults by the Borrower or any Guarantor, or to the actual knowledge of the Borrower by any other party thereto, exist thereunder (or with respect to the giving of this

representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

Section 4.20 Franchise Agreements. The only franchise agreements or license agreements to which the Borrower or a Guarantor are a party are those certain agreements disclosed to the Administrative Agent in writing. Any such franchise and license agreements are in full force and effect and no material defaults by the Borrower or any Subsidiary exist thereunder (or with respect to the giving of this representation after the date of this Agreement, as otherwise disclosed to the Administrative Agent in writing after the date of this Agreement and prior to the date such representation is deemed given).

Section 4.21 Owned Hospitality Properties. Except as set forth on Schedule 4.21 attached hereto, neither the Borrower, the Parent nor of any of their respective Subsidiaries owns any Owned Hospitality Properties; provided that such Persons do own Ownership Interests in Unconsolidated Entities which own Owned Hospitality Properties. None of the Owned Hospitality Properties have been or are subject to a condemnation proceeding or a casualty which individually or in the aggregate could cause a Material Adverse Change.

Section 4.22 Approved Inter-Company Indebtedness. The only inter-company Indebtedness between the Parent, the Borrower and any of their respective Subsidiaries is the Approved Inter-Company Indebtedness. The Approved Inter-Company Indebtedness Loan Documents listed on Schedule 1.01(b) are all of the documents evidencing or securing the Approved Inter-Company Indebtedness or executed by the applicable parties in connection with the Approved Inter-Company Indebtedness. The Borrower has provided the Administrative Agent with a true, correct and complete copy of the Approved Inter-Company Indebtedness Loan Documents and such documents have not been amended or modified except as set forth in Schedule 1.01(b). The outstanding amount of the Approved Inter-Company Indebtedness as of the date hereof is set forth on Schedule 1.01(b).

(a) Insurance Companies, Insurance Licenses and Deposited Securities. Each Insurance Company as of July 31, 2002, is listed in Schedule 4.23(a). Schedule 4.23(a) hereto lists, as of July 31, 2002, all of the jurisdictions in which each Insurance Company holds a Insurance License and is authorized to transact insurance business as of the Closing Date and the line or lines of insurance in which each Insurance Company is engaged. No Insurance License held by any Insurance Company, the loss of which could reasonably be expected to cause a Material Adverse Change, is the subject of a proceeding for suspension or revocation. To the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, there is not a sustainable basis for such suspension or revocation, and no such suspension or revocation has been threatened by any Governmental Authority. Each of the Insurance Companies has filed all reports, statements, documents, registrations, filings or submissions required to be filed by it with any applicable Governmental Authority, which filings conform in all material respects to any applicable Legal Requirements, except where the failure to so file or conform could

not, individually or in the aggregate, be reasonably expected to cause a Material Adverse Change. Schedule 4.23(a) sets forth a true, correct and complete listing of all securities deposited with state insurance departments and other Governmental Authority, which deposits have been completed in accordance with the schedule of deposits set forth in each Insurance Company’s September 30, 2002 Insurance Annual Statement. There have been no changes in or additions to the information set forth on Schedule 4.23(c) since July 31, 2002 or September 30, 2002, as applicable, that could reasonably be expected to cause a Material Adverse Change.

(b) SAP Financial Statements, Examination Reports and Loss Runs. The Borrower has previously delivered to the Administrative Agent for distribution to each of the Lenders true and complete copies of the SAP Financial Statements as filed with the domiciliary state insurance departments of each Insurance Company as of and for the years ended December 31, 2001, 2000 and 1999, prepared in compliance with GAAP. Each of the SAP Financial Statements fairly presents in all material respects the results of operations of the applicable Insurance Company for the period therein set forth, in each case in accordance with SAP. The schedules included in the SAP Financial Statements, when considered in relation to the basic statutory financial statements included therein, present fairly in all material respects the information shown therein. Each of the SAP Financial Statements was correct in all material respects when filed and did not omit to state any material facts required to be stated or necessary in order to make the SAP Financial Statements not misleading.

(c) Investment Portfolios. The Borrower has previously delivered to the Administrative Agent for distribution to each of the Lenders true and complete lists as of December 31, 2001 of all assets held in the investment portfolios of the Insurance Companies. None of the investments included in such investment portfolios is in default with respect to the payment of principal, interest or dividends thereon or is materially impaired. All such investments comply with all applicable Legal Requirements except for non-compliance which in the aggregate would not cause a Material Adverse Change. Each Insurance Company owns assets which qualify as admitted assets under applicable state insurance Legal Requirements in an amount at least equal to the sum of all of its Insurance Reserve Liabilities and minimum statutory capital and Insurance Surplus reflected on the latest SAP Financial Statements.

(d) Insurance Reserve Liabilities and Adequate Provisions. All Insurance Reserve Liabilities as established or reflected in the SAP Financial Statements (i) were determined in accordance with generally accepted actuarial standards consistently applied, (ii) are fairly stated in accordance with sound actuarial principles, (iii) are based on actuarial assumptions that are in accordance with those called for by the relevant Insurance Contract and the related Reinsurance Contract and (iv) meet in all material respects the requirements of all applicable insurance Legal Requirements. Adequate provision for such Insurance Reserve Liabilities has been made (under generally accepted actuarial principles consistently applied) to cover the total amount of all reasonably anticipated matured and unmatured benefits, dividends, claims and other liabilities of the Insurance Companies under all Insurance Contracts and Reinsurance Contracts on the

date of such SAP Financial Statement based on then current information that forms a reasonable basis for such determination. Each of the Insurance Companies owns assets that qualify as legal reserve assets under applicable insurance Legal Requirements in an amount at least equal to all of such Insurance Company’s Insurance Reserve Liabilities. Adequate provision has been made for all estimated losses, settlements, costs and expenses from pending suits, actions and proceedings contemplated by the SAP Financial Statements.

(e) Insurance Contracts and Reinsurance Contracts. Each outstanding Insurance Contract issued, reinsured or underwritten by an Insurance Company as of July 31, 2002 is listed in Schedule 4.23(e), together with the maximum amount payable by an Insurance Company thereunder. All outstanding Reinsurance Contracts with respect to such Insurance Contracts as of July 31, 2002 are listed in Schedule 4.23(e), together with the maximum amount payable by an Insurance Company thereunder. All Insurance Contracts, Reinsurance Contracts and any and all marketing materials are, to the extent required under applicable Legal Requirements, on forms approved by the insurance regulatory authority of the jurisdiction where issued or filed and have not been objected to by such authority within the period provided for objection and have been filed or registered as required with all other applicable Governmental Authorities. As to premium rates established by each Insurance Company and required to be filed or approved, the premiums charged comply with the applicable Legal Requirements. In addition, there is no pending or, to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, threatened charge by any insurance regulatory authority that any of the Insurance Companies has violated, nor any pending or, to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, threatened investigation by any insurance regulatory authority with respect to possible violations of, any applicable Legal Requirements where such violations would, individually or in the aggregate, cause a Material Adverse Change. All Insurance Contracts and Reinsurance Contracts have been marketed, sold and issued in compliance with all applicable Legal Requirements, except as could not reasonably be expected to cause a Material Adverse Change, including, without limitation, in compliance with (i) all applicable prohibitions against “redlining” or withdrawal of business lines, (ii) all applicable requirements relating to the disclosure of the nature of insurance products as policies of insurance and (iii) all applicable requirements relating to insurance product projections and illustrations. There have been no changes in or additions to the information set forth in Schedule 4.23(e) that could reasonably be expected to cause Material Adverse Change.

(f) Payment of Benefits. All benefits payable with respect to each Insurance Contract by a Insurance Company or, to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, by any other person that is a party to or bound by such Insurance Contract, have in all material respects been paid in accordance with the terms of such Insurance Contract. All benefits payable with respect to each Reinsurance Contract, have in all material respects been paid in accordance with the terms of such Reinsurance Contract.

(g) Notice of Likely Defaults. No Insurance Company has received any written, or to the knowledge of the Borrower, the Parent or any of their respective Subsidiaries, oral information that would cause it to believe that the financial condition of any other party to any Insurance Contract or Reinsurance Contract is so impaired as to be reasonably likely to result in a default by such party under such contract which could reasonably be expected to cause a Material Adverse Change.

Section 4.24 Permitted Housing Business Leasing. Schedule 4.24 sets forth a true and accurate summary of the Units currently leased by the Parent and the Parent’s Subsidiaries’ as of July 31, 2002, together with (a) a description of the market for such Units, (b) the breakdown of whether the term of the applicable lease of such Units is less than or equal to 1 year, greater than 1 year but less than 5 years, or equal to or greater than 5 years, and (c) the occupancy level by market for such Units as of the Effective Date. There have been no changes in or additions to the information set forth in Schedule 4.24 that could reasonably be expected to cause Material Adverse Change.

So long as any Note or any amount under any Credit Document shall remain unpaid, the Borrower agrees to comply with the following covenants.

Section 5.01 Compliance with Laws. The Borrower will comply, and cause the Parent and each of its Subsidiaries to comply, in all material respects with all Legal Requirements.

(a) The Borrower will preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its partnership, limited liability company or corporate (as applicable) existence, rights, franchises and privileges in the jurisdiction of its formation, and qualify and remain qualified, and cause each such Subsidiary to qualify and remain qualified, as a foreign partnership, corporation or limited liability company, as applicable in each jurisdiction in which qualification is necessary or desirable in view of its business and operations or the ownership of its properties, and, in each case, where failure to qualify or preserve and maintain its rights and franchises could reasonably be expected to cause a Material Adverse Change.


	(b) The Parent common stock shall at all times be duly listed on the New York Stock Exchange, Inc. and (ii) the Parent shall timely file all reports required to be filed by it with the New York Stock Exchange, Inc. and the Securities and Exchange Commission.

(c) The Borrower shall cause the Permitted Other Subsidiaries which have Indebtedness to, (i) maintain financial statements, accounting records and other corporate records and other documents separate from all non-Permitted Other Subsidiaries, (ii) maintain their own bank accounts in their own name, separate from all non-Permitted Other Subsidiaries, (iii) pay their own expenses and other liabilities from their own assets


	and incur (or endeavor to incur) obligations to other Persons based solely upon their own assets and creditworthiness and not upon the creditworthiness of each other or any other Person, and (iv) file their own tax returns or, if part of a consolidated group, join in the consolidated tax return of such group as a separate member thereof.

(d) The Borrower shall, and shall cause the Permitted Other Subsidiaries which have Indebtedness to, take all actions necessary to keep such Permitted Other Subsidiaries, separate from the Borrower and the Borrower’s other Subsidiaries, including, without limitation, (i) the taking of action under the direction of the Board of Directors, members or partners, as applicable, of such Permitted Other Subsidiaries and, if so required by the Certificate of Incorporation or the Bylaws, operating agreement or partnership agreement, as applicable, of such Permitted Other Subsidiaries or by any Legal Requirement, the approval or consent of the stockholders, members or partners, as applicable, of such Permitted Other Subsidiaries, (ii) the preparation of corporate, partnership or limited liability company minutes for or other appropriate evidence of each significant transaction engaged in by such Permitted Other Subsidiaries, (iii) the observance of separate approval procedures for the adoption of resolutions by the Board of Directors or consents by the partners, as applicable, of such Permitted Other Subsidiaries, on the one hand, and of the Borrower and the Borrower’s other Subsidiaries, on the other hand, and (iv) preventing the cash, cash equivalents, credit card receipts or other revenues of the Hospitality Properties owned by such Permitted Other Subsidiaries or any other assets of such Permitted Other Subsidiaries from being commingled with the cash, cash equivalents, credit card receipts or other revenues collected by the Borrower or the Borrower’s other Subsidiaries.


	(e) The Borrower shall take all steps reasonably necessary to avoid (i) misleading any other Person as to the identity of the entity with which such Person is transacting business or (ii) implying that the Borrower is, directly or indirectly, absolutely or contingently, responsible for the Indebtedness or other obligations of the Permitted Other Subsidiaries or any other Person.

Section 5.03 Payment of Taxes, Etc. The Borrower will pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent (a) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or Property that are material in amount, prior to the date on which penalties attach thereto and (b) all lawful claims that are material in amount which, if unpaid, might by Legal Requirement become a Lien upon its Property; provided, however, that neither the Borrower nor any such Subsidiary shall be required to pay or discharge any such tax, assessment, charge, levy, or claim (a) which is being contested in good faith and by appropriate proceedings, (b) with respect to which reserves in conformity with GAAP have been provided, (c) such charge or claim does not constitute and is not secured by any choate Lien on any portion of any Owned Hospitality Property and no portion of any Owned Hospitality Property is in jeopardy of being sold, forfeited or lost during or as a result of such contest, (d) neither the Administrative Agent nor any Lender could become subject to any civil fine or penalty or criminal fine or penalty, in each case as a result of non-payment of such charge or claim and (e) such contest does not, and could not reasonably be expected to, result in a Material Adverse Change.

Section 5.04 Visitation Rights; Lender Meeting. Subject to the rights of the owners of the Hospitality Properties for which there are Permitted Property Agreements, at any reasonable time and from time to time and so long as any visit or inspection will not unreasonably interfere with the Borrower’s or any of its Subsidiary’s operations, upon reasonable notice, the Borrower will permit the Administrative Agent and any Lender or any of its agents or representatives thereof, to examine and make copies of and abstracts from the records and books of account of, and visit and inspect at its reasonable discretion the Properties owned or operated by the Borrower and any of its Subsidiaries, to discuss the affairs, finances and accounts of such Persons with any of their respective officers or directors. Without in any way limiting the foregoing, the Borrower will, upon the request of the Administrative Agent, participate in a meeting with the Administrative Agent and the Lenders once during each calendar year to be held at the Borrower’s office in the District of Columbia or Dallas, Texas (or such other location as may be agreed to by the Borrower and the Administrative Agent) at such time as may be agreed to by the Borrower and the Administrative Agent.

Section 5.05 Reporting Requirements. The Borrower will furnish to the Administrative Agent, with respect to those items set forth in clauses (a)-(c) and (i), and each Lender:

(a) Quarterly Financials. As soon as available and in any event not later than 50 days after the end of each Fiscal Quarter of the Parent (except for the Fiscal Quarter which ends on the date the Fiscal Year ends), the unaudited Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and the related unaudited statements of income, shareholders’ equity and cash flows of the Parent and its Subsidiaries for such Fiscal Quarter and the period commencing at the end of the previous year and ending with the end of such Fiscal Quarter, and the corresponding figures as at the end of, and for, the corresponding periods in the preceding Fiscal Year, all duly certified with respect to such statements (subject to year-end audit adjustments) by a Responsible Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a Compliance Certificate duly executed by a Responsible Officer of the Parent; provided that the Parent’s Total Indebtedness used to calculate the Leverage Ratio and the Senior Leverage Ratio in such Compliance Certificate shall be the Parent’s Total Indebtedness as of the Status Reset Date during the Fiscal Quarter in which such Compliance Certificate was delivered, and (ii) a report certified by a Responsible Officer of the Parent setting forth for each Hospitality Property owned or operated by the Parent or any of its Subsidiaries as of the end of such Fiscal Quarter the Adjusted EBITDA for such Hospitality Property for the Rolling Period then ended, both in total and by Fiscal Quarter for such Rolling Period; provided that for those Hospitality Properties for which the Parent or any of its Subsidiaries is only a manager, the Borrower shall only be obligated to use the Borrower’s commercially reasonable efforts to provide the information required by this clause (ii) and shall not be obligated to disclose any confidential information.


	(b) Annual Financials. As soon as available and in any event not later than 95 days after the end of each Fiscal Year of the Parent, a copy of the Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such Fiscal Year and the related Consolidated statements of income, shareholders’ equity and cash flows of the Parent and

its Subsidiaries for such Fiscal Year, and the corresponding figures as at the end of, and for, the preceding Fiscal Year, and audited and certified by KPMG, L.L.P. or other independent certified public accountants of nationally recognized standing reasonably acceptable to the Administrative Agent in an opinion, without qualification as to the scope, and including, if requested by the Administrative Agent, any management letters delivered by such accountants to the Parent in connection with such audit, together with (i) the documents required in clauses (i) and (ii) of the preceding Section 5.05(a) and (ii) a certificate duly executed by a Responsible Officer of the Parent which reflects in detail reasonably acceptable to the Administrative Agent the financial performance of the applicable Person related to the financial covenants contained in the documentation for any Permitted Other Indebtedness. As soon as available and in any event not later than 50 days after the end of each Fiscal Year of the Parent, the Borrower will furnish to the Administrative Agent a draft Compliance Certificate duly executed by a Responsible Officer of the Parent for such end of Fiscal Year financial statements.


	(c) Securities Law Filings. Promptly and in any event within 15 days after the sending or filing thereof, copies of all proxy material, reports and other information which the Borrower, the Parent or any of their respective Subsidiaries sends to or files with the United States Securities and Exchange Commission or sends to all of the shareholders of the Parent or partners of the Borrower.

	(d) Defaults. As soon as possible and in any event within five days after the occurrence of each Default known to a Responsible Officer of the Parent, the Borrower or any of their respective Subsidiaries, a statement of an authorized financial officer or Responsible Officer of the Borrower setting forth the details of such Default and the actions which the Borrower has taken and proposes to take with respect thereto.

	(e) ERISA Notices. As soon as possible and in any event (i) within 30 days after the Parent, the Borrower or any of a Controlled Group knows to know that any Termination Event described in clause (a) of the definition of Termination Event with respect to any Plan has occurred, (ii) within 10 days after the Parent, the Borrower or any of a Controlled Group knows that any other Termination Event with respect to any Plan has occurred, a statement of the Chief Financial Officer of the Parent describing such Termination Event and the action, if any, which the Parent, the Borrower or such member of such Controlled Group proposes to take with respect thereto; (iii) within 10 days after receipt thereof by the Parent, the Borrower or any of a Controlled Group from the PBGC, copies of each notice received by the Parent, the Borrower or any such member of such Controlled Group of the PBGC’s intention to terminate any Plan or to have a trustee appointed to administer any Plan; and (iv) within 10 days after receipt thereof by the Parent, the Borrower or any member of a Controlled Group from a Multiemployer Plan sponsor, a copy of each notice received by the Parent, the Borrower or any member of such Controlled Group concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA.

	(f) Environmental Notices. Promptly upon the knowledge of any Responsible Officer of the Borrower of receipt thereof by the Borrower or any of its Subsidiaries, a


	copy of any form of notice, summons or citation received from the United States Environmental Protection Agency, or any other Governmental Authority concerning (i) violations or alleged violations of Environmental Laws, which seeks to impose liability therefor, (ii) any action or omission on the part of the Parent or the Borrower or any of their present or former Subsidiaries in connection with Hazardous Waste or Hazardous Substances which, based upon information reasonably available to the Borrower, could reasonably be expected to cause a Material Adverse Change or an Environmental Claim in excess of $1,000,000, (iii) any notice of potential responsibility under CERCLA, or (iv) concerning the filing of a Lien upon, against or in connection with the Parent, Borrower, their present or former Subsidiaries, or any of their leased, owned or operated Property, wherever located.

	(g) Other Governmental Notices or Actions. Promptly and in any event within five Business Days after receipt thereof by the Parent, Borrower or any of their respective Subsidiaries, (i) a copy of any notice, summons, citation, or proceeding seeking to adversely modify in any material respect, revoke, or suspend any license, permit, or other authorization from any Governmental Authority, which action could reasonably be expected to cause a Material Adverse Change, and (ii) any revocation or involuntary termination of any license, permit or other authorization from any Governmental Authority, which revocation or termination could reasonably be expected to cause a Material Adverse Change.

	(h) Reports Affecting the Leverage Ratio and the Senior Leverage Ratio. On or prior to the 15th day following any Adjustment Event, an Adjustment Report with respect to such Adjustment Event.

	(i) Press Releases. Promptly and in any event within 5 days after the sending or releasing thereof, copies of all press releases or other releases of information to the public by the Borrower, the Parent or any of their respective Subsidiaries or releases of information to the Parent’s shareholders.

	(j) Corporate Activity. Promptly following any merger or dissolution of any Subsidiary of the Borrower which is permitted hereunder or event which would make any of the representations in Section 4.01-4.04 untrue, notice thereof.

	(k) Material Litigation. As soon as possible and in any event within five days of any Responsible Officer of the Borrower, the Parent or any of their respective Subsidiaries having knowledge thereof, notice of any litigation, claim or any other event which could reasonably be expected to cause a Material Adverse Change.

	(l) Operating Information. As soon as available and in any event not later than 50 days after the end of each Fiscal Quarter of the Parent, the Borrower shall provide the Administrative Agent (for distribution to the Lenders) liquidity, cash flow and summary operating information for such fiscal month and detailed information related to the Borrower’s Permitted Housing Business and Permitted Property


	Agreements, with all such information prepared by the Borrower in a form reasonably satisfactory to the Required Lenders.

	(m) Insurance Information. As soon as available and in any event not later than 95 days after the end of each Fiscal Year of the Parent, the Borrower shall provide the Administrative Agent copies of the unaudited Insurance Annual Statement of each Insurance Company, certified by a Responsible Officer of the Parent as fairly presenting the financial condition and results of operations of such Insurance Company in accordance with SAP consistently applied throughout the periods reflected therein. As soon as available and in any event not later than 50 days after the end of each Fiscal Quarter of the Parent, the Borrower shall provide the Administrative Agent with a schedule of the Insurance Contracts and Reinsurance Contracts existing as of the last day of such Fiscal Quarter, together with the maximum amount payable by the Insurance Company thereunder. Within 10 days of request by the Administrative Agent, the most recent examination reports and loss run sheets of the Insurance Companies.

	(n) Budget. On or prior to January 31st of each Fiscal Year, the Borrower shall provide the Administrative Agent (for distribution to the Lenders) an operating budget for the Parent and its Subsidiaries on a Consolidated basis for such Fiscal Year, including without limitation pro forma balance sheet, income statement, cash flow and financial covenant compliance.

	(o) Other Information. Such other information respecting the business or Properties, or the condition or operations, financial or otherwise, of the Borrower, the Parent or any of their respective Subsidiaries, as any Lender through the Administrative Agent may from time to time reasonably request.

Section 5.06 Maintenance of Property. The Borrower will, and will cause each of the Parent and its Subsidiaries to (a) maintain their Owned Hospitality Properties in a manner consistent for Hospitality Properties and related property of the same quality and character and shall keep or cause to be kept every part thereof and its other properties in good condition and repair, reasonable wear and tear excepted, and make all reasonably necessary repairs, renewals or replacements thereto as may be reasonably necessary to conduct the business of the Borrower and its Subsidiaries, (b) not knowingly or willfully permit the commission of waste or other injury, or the occurrence of pollution, contamination or any other condition in, on or about any of their Owned Hospitality Properties, (c) substantially maintain and repair each of their Owned Hospitality Properties as required by any franchise agreement, license agreement, management agreement or ground lease for such Owned Hospitality Property, and (d) perform such Person’s obligations under the Permitted Property Agreements and the Permitted Housing Agreements to which such Person is a party except where the non-performance thereof in the aggregate would not reasonably be expected to cause a Material Adverse Change.

Section 5.07 Insurance. The Borrower will maintain, and cause each of its Subsidiaries to maintain, the insurance required pursuant to Schedule 5.07.

Section 5.08 Use of Proceeds. The proceeds of the Loan shall be used by the Borrower for the purposes set forth in Section 4.08.

Section 5.10 New Subsidiaries. Except with respect to a Permitted Other Subsidiary that has incurred or issued Permitted Other Indebtedness, within ten (10) Business Days after either (a) the date that any Subsidiary of the Parent that was not a Material Subsidiary becomes a Material Subsidiary, or (b) the purchase by the Parent or any of its Subsidiaries of the Ownership Interests of any Person, which purchase results in such Person becoming a Material Subsidiary the Parent shall, in each case, cause (i) such Material Subsidiary to execute and deliver to the Administrative Agent a Guaranty or an Accession Agreement and (ii) the Persons who are party to the documents delivered pursuant to the provisions of this Section 5.10 to provide such evidence of authority to enter into such documents as the Administrative Agent may reasonably request.

(a) The Borrower will cause each of the Insurance Companies to (i) carry on and conduct its business only in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted, (ii) only engage in the insurance business or the business of a holding company owning entities engaged in the insurance business or the business of insurance or reasonably incidental activities, (iii) do all things necessary to renew, extend and continue in effect all Insurance Licenses which may at any time and from time to time be necessary for each Insurance Company to conduct business in compliance with all applicable Legal Requirements, including, if applicable, the filing of all appropriate Insurance Annual Statements and SAP Financial Statements; provided, that each Insurance Company may withdraw from one or more states (other than its state of domicile) as an admitted insurer if such withdrawal is determined by the Insurance Company’s Board of Directors to be in the best interest of the Insurance Companies and could not reasonably be expected to cause a Material Adverse Change.


	(b) The Borrower will not permit the Insurance Surplus, as of the last day of each Fiscal Quarter, to be less than that required by applicable Legal Requirements. The Borrower will not permit the maximum amount payable by all Insurance Companies under Insurance Contracts or Reinsurance Contracts, as of the last day of each Fiscal Quarter, to be greater than $10,000,000.

Section 5.12 Interest Rate Agreements. From the Closing Date until the Maturity Date, the Borrower shall cause the Parent to obtain and thereafter maintain Interest Rate Agreements reasonably satisfactory to the Administrative Agent, sufficient to ensure that 50% of the Parent’s Total Indebtedness, measured as of each day during such period, shall be covered by such Interest Rate Agreements or shall have a fixed rate of interest. Any Interest Rate Agreements for the Parent shall be provided by either a Senior Lender (to the extent permitted under and as provided in the Senior Credit Facility or a bank or other financial institution whose long-term debt rating is equal to or greater than “A”.

So long as any Note or any amount under any Credit Document shall remain unpaid, or any Lender shall have any Commitment, the Borrower agrees to comply with the following covenants.

Section 6.01 Liens, Etc. The Borrower, the Parent and their respective Subsidiaries will not create, assume, incur or suffer to exist, any Lien on or in respect of any of its Property whether now owned or hereafter acquired, or assign any right to receive income, except that the Borrower and its Subsidiaries may create, incur, assume or suffer to exist Liens:


	(a) securing the Senior Obligations under the Senior Credit Facility in accordance with its terms or the obligations under any Additional Designated Senior Indebtedness;

	(b) for taxes, assessments or governmental charges or levies on Property of the Borrower or any Guarantor to the extent not required to be paid pursuant to Sections 5.03;

	(c) imposed by law (such as landlords’, carriers’, warehousemen’s and mechanics’ liens or otherwise arising from litigation) (i) which are being contested in good faith and by appropriate proceedings, (ii) with respect to which reserves in conformity with GAAP have been provided, (iii) which have not resulted in any Collateral being in jeopardy of being sold, forfeited or lost during or as a result of such contest, (iv) neither the Administrative Agent nor any Lender could become subject to any civil fine or penalty or criminal fine or penalty, in each case, as a result of non-payment of such charge or claim and (v) such contest does not, and could not reasonably be expected to, result in a Material Adverse Change;

	(d) on leased personal property to secure solely the lease obligations associated with such property;

	(e) on the Property of or Ownership Interests in a Permitted Other Subsidiary securing Indebtedness set forth in paragraph (b) of the definition of “Permitted Other Indebtedness” incurred by such Permitted Other Subsidiary to the extent such Indebtedness is permitted pursuant to the provisions of Section 6.02;

	(f) on the Ownership Interests in an Unconsolidated Entity securing Permitted Non-Recourse Unconsolidated Entity Indebtedness incurred by such Unconsolidated Entity;

	(g) granted to the owner of a Hospitality Property subject to a Permitted Property Agreement on the accounts receivable, inventory, cash or other property owned by the Borrower or the Borrower’s Subsidiary in connection with such Hospitality Property;


	(h) on the Collateral (or on other assets of the Parent and its Subsidiaries which are approved by the Senior Administrative Agent as additional security for the Senior Obligations) to secure Additional Designated Senior Indebtedness, provided that such Liens (i) also secure the Senior Obligations on an equal and ratable basis with such Indebtedness, and (ii) if not already granted by the Senior Security Document, then are granted pursuant to documentation (including documentation granting Liens to secure the Senior Obligations on an equal and ratable basis) reasonably acceptable to the Senior Administrative Agent and the Borrower; and

	(i) easements, rights of way, covenants, restrictions, zoning and similar restrictions and other similar charges or encumbrances not interfering with the ordinary conduct of the business of the Borrower or its Subsidiaries and which do not detract materially from the value of any of the Owned Hospitality Properties to which they attach or impair materially the use thereof by the Borrower or the Borrower’s Subsidiaries.

Section 6.02 Indebtedness. The Borrower, the Parent and their respective Subsidiaries will not incur or permit to exist any Indebtedness other than the Obligations and the following:


	(a) Permitted Other Indebtedness in an amount that does not cause a breach at any time of the covenants contained in Article VII;

	(b) Capital Leases for Personal Property;

	(c) Interest Rate Agreements; provided that (i) such agreements shall be unsecured except as provided in the Senior Credit Facility and the Senior Security Documents, (ii) the dollar amount of indebtedness subject to such agreements and the indebtedness subject to Interest Rate Agreements in the aggregate shall not exceed the sum of the amount of the Senior Commitments and the amount of the other Indebtedness of the Borrower or its Affiliates which bears interest at a variable rate, and (iii) the agreements shall be at such interest rates and otherwise in form and substance reasonably acceptable to the Senior Administrative Agent or, if the Senior Credit Facility has been repaid in full and has been terminated, the Administrative Agent;

	(d) Any of the following Indebtedness incurred by the Parent or the Borrower:


	(i) guaranties in connection with Permitted Other Indebtedness secured by an Owned Hospitality Property or interest in a Person owning a Hospitality Property of (A) if the Hospitality Property is subject to a ground lease, the payment of rent and performance of obligations under such ground lease, (B) real estate taxes relating to such Hospitality Property, and (C) capital reserves required under such Indebtedness;

	(ii) customary indemnities for acts of malfeasance, misappropriation and misconduct and an environmental indemnity for the lender under Indebtedness permitted under this Agreement;


	(iii) guaranties of franchise and license agreements in connection with Hospitality Properties; and

	(iv) guaranties of obligations of the Parent’s Subsidiaries or Unconsolidated Entities with respect to Permitted Property Agreements and Permitted Housing Agreements; and


	(e) extensions, renewals and refinancing of any of the Indebtedness specified in paragraphs (a)-(d) above so long as the principal amount of such Indebtedness is not thereby increased.

Section 6.03 Agreements Restricting Distributions From Subsidiaries. The Borrower will not, nor will it permit any of its Subsidiaries (other than Permitted Other Subsidiaries) to, enter into any agreement (other than a Credit Document) which limits distributions to or any advance by any of the Borrower’s Subsidiaries to the Borrower.

Section 6.04 Restricted Payments. Neither the Parent, nor the Borrower, nor any of their respective Subsidiaries, will make any Restricted Payment, except that:


	(a) provided that no Default has occurred and is continuing or would result therefrom, the Borrower shall be entitled to make cash distributions to its partners, including the Parent, which distributions for partners other than the Parent and the Parent’s Subsidiaries do not in the aggregate in any Fiscal Year exceed $100,000;

	(b) a Subsidiary of the Borrower may make a Restricted Payment to the Borrower;

	(c) the limited partners of the Borrower shall be entitled to exchange limited partnership interests in the Borrower for the Parent’s common stock;

	(d) the Parent or the Borrower shall be entitled to make a one-time payment to Wyndham of approximately $450,000 to redeem Wyndham’s interest in Interstate Hotels, LLC;

	(e) provided that no Default has occurred and is continuing or would result therefrom, the Parent or the Borrower shall be entitled to make payments to repay the Designated Redemption Indebtedness if such Person is contractually obligated to make such repayment at such time;

	(f) the Borrower shall be entitled to issue limited partnership interests in the Borrower in exchange for Ownership Interests in Subsidiaries and Unconsolidated Entities to the extent such Investment is permitted pursuant to the provisions of Section 6.06;

	(g) provided that no monetary Default or Default in the covenants set forth in Article VII has occurred and is continuing or would result therefrom, then the Borrower shall be entitled to pay (i) interest, but not principal (except only as permitted by clause


	(ii) of this subsection (g)), of Subordinate Indebtedness permitted pursuant to this Agreement, and (ii) principal of Approved Inter-Company Indebtedness; provided that any such principal payments (A) are made to a Guarantor, (B) are either retained by such Guarantor or distributed to the Borrower, the Parent or another Guarantor and (C) are used in accordance with the provisions of this Agreement; and

	(h) provided that (i) no monetary Default or Default in the covenants set forth in Article VII has occurred and is continuing or would result therefrom, (ii) on the date of such Restricted Payment after taking into account such Restricted Payment (A) the Leverage Ratio shall be less than 4.50 to 1.00 and (B) the Senior Leverage Ratio shall be less than 2.75 to 1.00, and (iii) no Material Adverse Change has occurred, the Parent shall be entitled to repurchase up to $5,000,000 in the aggregate of the Parent’s currently outstanding common stock. Within ten (10) Business Days of any such Restricted Payments in the aggregate reaching increments of $250,000 (i.e. $250,000, $500,000, $750,000) the Borrower shall execute and deliver to the Administrative Agent an Adjustment Report dated as of the date of reaching such Restricted Payment increment which takes into account such Restricted Payments. To the extent that the Parent reaches multiple $250,000 increments over any ten (10) Business Day period, then an Adjustment Report need only be provided as of the date of the reaching of the last such $250,000 increment in such ten (10) Business Day period. In addition, any Compliance Certificate delivered by the Borrower shall state the dollar amount of such Restricted Payments made in the Rolling Period covered by such Compliance Certificate and the amount of all such Restricted Payments in the aggregate.

Section 6.05 Fundamental Changes; Asset Dispositions. Neither the Parent, the Borrower, nor any of their respective Subsidiaries (other than the Permitted Other Subsidiaries), will (a) merge or consolidate with or into any other Person, unless (i) a Guarantor is merged into the Borrower and the Borrower is the surviving Person or a Subsidiary (other than a Permitted Other Subsidiary which has Indebtedness other than the Obligations) is merged into any Subsidiary (other than a Permitted Other Subsidiary which has Indebtedness other than the Obligations), and (ii) immediately after giving effect to any such proposed transaction no Default would exist; (b) sell, transfer, or otherwise dispose of all or any of such Person’s material Property except for a Permitted Asset Disposition, or dispositions or replacements of personal property in the ordinary course of business; (c) enter into, as lessor, a lease (other than a lease which qualifies as a Permitted Asset Disposition) of all or substantially all of any Owned Hospitality Property with any Person without the consent of the Administrative Agent; (d) sell or otherwise dispose of any material Ownership Interests of any Subsidiary (except for a Permitted Other Subsidiary or a sale which qualifies as a Permitted Asset Disposition); (e) except for (i) Capitalization Events for which the consideration is principally cash or cash equivalents and for which the Net Cash Proceeds are applied in accordance with the provisions of Section 2.07(c) and (ii) the issuance of limited partnership interests in the Borrower in exchange for Ownership Interests in Subsidiaries and Unconsolidated Entities to the extent permitted pursuant to the provisions of Section 6.04, materially alter the corporate, capital or legal structure of any such Person (except for a Permitted Other Subsidiary); (f) enter into any forward sales of the Parent common stock or Ownership Interests in the Borrower; (g) liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution) provided that nothing herein shall prohibit the Borrower

from dissolving any Subsidiary which has no assets on the date of dissolution, (h) enter into any leases of Property or management agreements for any Property except (1) Permitted Property Agreements, (2) Permitted Housing Agreements, (3) leases of office space for the use of the Parent’s and the Parent’s Subsidiaries’ employees, and (4) the leases of personal property permitted by this Agreement or (i) materially alter the character of their respective businesses from that conducted as of the date of this Agreement or otherwise engage in any material business activity outside of the Hospitality Management Business.

Section 6.06 Investments and other Property. Neither the Parent, the Borrower, nor any of their respective Subsidiaries, shall acquire by purchase or otherwise any Investments or other Property, except the following:


	(a) investments or Properties owned by such Persons as of the Closing Date;

	(b) Liquid Investments;

	(c) trade and customer accounts receivable which are for goods furnished or services rendered in the ordinary course of business and are payable in accordance with customary trade terms, and receivables purchased in connection with the acquisition of an Owned Hospitality Property;

	(d) Investments in Permitted New Investments or Subsidiaries making Permitted New Investments;

	(e) other assets, including Capital Expenditures, acquired or made in the ordinary course of (i) owning the Parent’s and the Parent’s Subsidiaries’ existing Investments and Properties and any Permitted New Investments and (ii) operating a Hospitality Management Business; and

	(f) loans to employees of the Parent or its Subsidiaries which in the aggregate do not exceed $100,000.

Notwithstanding the foregoing, neither the Borrower, nor the Parent, nor their respective Subsidiaries shall make an Investment, acquire any other Property, or enter into any Permitted Property Agreement or Permitted Housing Agreement which would (a) cause a Default, (b) cause or result in the Borrower or the Parent failing to comply with any of the financial covenants contained herein, or (c) cause or result in the aggregate Adjusted EBITDA in any Rolling Period derived from all Permitted Property Agreements, Permitted Housing Agreements or other Investments related to Hospitality Properties which are not full-service or limited service hotels to exceed 35% of the Parent’s Adjusted EBITDA for such Rolling Period. In addition, neither the Borrower, nor the Parent, nor their respective Subsidiaries shall enter into any agreements to purchase Investments or other Property, unless with respect to such purchase such Person at all times has available sources of funds equal to pay in full the cost of the purchase of such Investments or other Property (to the extent that the payment of such cost of purchase constitutes a recourse obligation of the Parent, the Borrower or its Subsidiary), which available sources of funds may include Advances to the extent that the Borrower may borrow the same for the purposes required or other Indebtedness permitted by the terms of this Agreement.

Section 6.07 Affiliate Transactions. Except for certain liquor license agreements, the Borrower will not, and will not permit any of its Subsidiaries to, make, directly or indirectly: (a) any transfer, sale, lease, assignment or other disposal of any assets to any Affiliate of the Borrower which is not a Guarantor or any purchase or acquisition of assets from any such Affiliate except for purchases of new personal property (i) which in any calendar year do not exceed $1,000,000 in the aggregate and (ii) for which the sales price is the actual cost to the party selling; or (b) any arrangement or other transaction directly or indirectly with or for the benefit of any such Affiliate (including without limitation, guaranties and assumptions of obligations of an Affiliate), other than in the ordinary course of business and at market rates.

Section 6.08 Sale or Discount of Receivables. The Borrower will not, and will not permit any of its Subsidiaries to, directly or indirectly, sell with recourse, or discount or otherwise sell for less than the face value thereof, any of its notes or accounts receivable.

Section 6.09 Material Documents. The Borrower will not, nor will it permit any of its Subsidiaries to (a) amend the Borrower’s partnership agreement in any material respect, (b) admit a new general partner to the Borrower, (c) enter into any termination or material modification or amendment of Permitted Property Agreements which singly or in the aggregate could reasonably be expected to cause a Material Adverse Change, (d) enter into any modification or amendment of any of the Permitted Property Agreements with MHC or MHC’s Subsidiaries which would provide in any such Permitted Property Agreements performance standards for the year 2002, or (e) modify the Approved Inter-Company Indebtedness Loan Documents in any way that is materially adverse to the Lenders.

Any termination, modification or amendment prohibited under this Section 6.09 without the Required Lender’s written consent shall, to the extent permitted by applicable law, be void and of no force and effect.

Section 6.10 No Further Negative Pledges. Neither the Borrower, nor the Parent, nor their respective Subsidiaries shall enter into or suffer to exist any agreement (other than the Senior Credit Facility, this Agreement and the Credit Documents and as set forth in the Permitted Property Agreements and the Permitted Housing Agreements) (a) prohibiting the creation or assumption of any Lien upon the Properties of the Parent, the Borrower or any of their respective Subsidiaries (except for Properties of and Ownership Interests in the Permitted Other Subsidiaries), whether now owned or hereafter acquired, or (b) requiring an obligation to be secured if some other obligation is or becomes secured; provided that in connection with the incurrence of Additional Designated Senior Indebtedness, the Parent and its Subsidiaries may enter into such agreements which (y) are in form and substance acceptable to the Senior Administrative Agent in its reasonable discretion, and (z) would require that assets of the Parent and its Subsidiaries which secure the Senior Obligations also secure on an equal and ratable basis such Additional Designated Senior Indebtedness.

So long as any Note or any amount under any Credit Document shall remain unpaid, unless the Required Lenders shall otherwise consent in writing, the Borrower agrees to comply and cause the Parent and the Parent’s Subsidiaries to comply with the following covenants:

Section 7.01 Interest Coverage Ratio. The Parent shall maintain at the end of each Rolling Period (a) for the Rolling Period ending on September 30, 2002, an Interest Coverage Ratio of not less than 1.75 to 1.0, (b) for the Rolling Periods ending on December 31, 2002 through September, 2003, an Interest Coverage Ratio of not less than 2.25 to 1.00, and (c) for any Rolling Period thereafter, an Interest Coverage Ratio of not less than 2.50 to 1.00.

Section 7.02 Senior Interest Coverage Ratio. The Parent shall maintain at the end of each Rolling Period (a) for the Rolling Period ending on September 30, 2002, a Senior Interest Coverage Rating of not less than 3.00 to 1.00 and (b) for any Rolling Period thereafter, a Senior Interest Coverage Ratio of not less than 3.50 to 1.00.

Section 7.03 Leverage Ratio. (a) The Parent shall not on any date permit the Leverage Ratio to exceed during the applicable period indicated in the following chart the amount set forth in such chart for such period:



Beginning Date of Applicable Period	Ending Date of Applicable Period	Leverage Ratio

Closing Date	The day immediately prior to the Status Reset Date during the Fiscal Quarter commencing October 1, 2002	6.00 to 1.00

The Status Reset Date during the Fiscal Quarter commencing October 1, 2002	The day immediately prior to the Status Reset Date during the Fiscal Quarter commencing January 1, 2003	5.50 to 1.00

The Status Reset Date during the Fiscal Quarter commencing January 1, 2003	The day immediately prior to the Status Reset Date during the Fiscal Quarter commencing July 1, 2003	5.25 to 1.00

The Status Reset Date during the Fiscal Quarter commencing July 1, 2003	The day immediately prior to the Status Reset Date during the Fiscal Quarter commencing October 1, 2003	4.75 to 1.00



The Status Reset Date during the Fiscal Quarter commencing October 1, 2003	The day immediately prior to the Status Reset Date during the Fiscal Quarter commencing January 1, 2004	4.50 to 1.00

The Status Reset Date during the Fiscal Quarter commencing January 1, 2004	No ending date	4.00 to 1.00


	(a) For so long as the Senior Credit Facility is outstanding, a breach of the covenant set forth in this Section 7.03 shall not be an Event of Default unless such breach exists on two consecutive Status Reset Dates.

Section 7.04 Senior Leverage Ratio. The Parent shall not on any date permit the Senior Leverage Ratio to exceed during the applicable period indicated in the following chart the amount set forth in such chart for such period:



Beginning Date of Applicable Period	Ending Date of Applicable Period	Senior Leverage Ratio

Closing Date	The day immediately prior to the Status Reset Date during the Fiscal Quarter commencing January 1, 2003	4.00 to 1.00

The Status Reset Date during the Fiscal Quarter commencing January 1, 2003	The day immediately prior to the Status Reset Date during the Fiscal Quarter commencing January 1, 2004	3.25 to 1.00

The Status Reset Date during the Fiscal Quarter commencing January 1, 2004	No ending date	2.50 to 1.00

Section 7.05 Maintenance of Net Worth. The Parent shall at all times maintain an Adjusted Net Worth of not less than the Minimum Net Worth.

Section 7.06 Waivers. Notwithstanding the foregoing, in the event that the financial covenants in the Senior Credit Facility are modified or amended, or compliance with such financial covenants are waived, by the Senior Lenders, and such modification, amendment or

waiver results in financial covenants under the Senior Credit Facility that are less onerous than the financial covenants contained in this Article VII , the Administrative Agent and the Lenders shall be deemed to have modified or amended, or waived compliance with, the applicable financial covenants contained in this Article VII to conform to the financial covenants as modified, amended or waived under the Senior Credit Facility for so long as such modification, amendment or waiver is in effect or the Senior Credit Facility is outstanding.

Section 8.01 Events of Default. The occurrence of any of the following events shall constitute an “Event of Default” under any Credit Document:


	(a) Principal Payment. The Borrower or any Guarantor shall fail to pay any principal of any Note when the same becomes due and payable as set forth in this Agreement;

	(b) Interest or Other Obligation Payment. The Borrower or any Guarantor shall fail to pay any interest on any Note or any fee or other amount payable hereunder or under any other Credit Document when the same becomes due and payable as set forth in this Agreement or such other Credit Document, as applicable, provided however that the Borrower and the Guarantors will have a grace period of five (5) days after the payments covered by this Section 8.01(b) becomes due and payable for the first two defaults of such Persons collectively under this Section 8.01(b) in every calendar year;

	(c) Representations and Warranties. Any representation or warranty made or deemed to be made (i) by the Borrower in this Agreement or in any other Credit Document, (ii) by the Borrower (or any of its officers) in connection with this Agreement or any other Credit Document, or (iii) by any Guarantor in any Credit Document shall prove to have been incorrect in any material respect when made or deemed to be made;

	(d) Covenant Breaches. (i) The Borrower shall fail to perform or observe any covenant contained in Section 5.02, Article VI or Article VII of this Agreement, (ii) the Borrower shall fail to perform or observe, or shall fail to cause any Guarantor to perform or observe any covenant in any Credit Document beyond any notice and/or cure period for such default expressly provided in such Credit Document or (iii) the Borrower or any Guarantor shall fail to perform or observe any term or covenant set forth in any Credit Document which is not covered by clause (i) or (ii) above or any other provision of this Section 8.01, in each case if such failure shall remain unremedied for thirty (30) days after the earlier of the date written notice of such default shall have been given to the Borrower or such Guarantor by the Administrative Agent or any Lender or the date a Responsible Officer of the Borrower or any Guarantor has actual knowledge of such default, unless such default in this clause (iii) cannot be cured in such thirty (30) day period and the Borrower is diligently proceeding to cure such default, in which event the cure period shall be extended to ninety (90) days; provided that the Borrower shall not be


	entitled to more than the aforementioned thirty (30) day period to cure a default under Section 5.09 of this Agreement;

	(e) Cross-Defaults. With respect to any Indebtedness of the Borrower, the Parent or any of their respective Subsidiaries, including, without limitation, the Senior Credit Facility (but excluding Indebtedness evidenced by the Notes) which is outstanding in a principal amount of at least $5,000,000 individually or when aggregated with all such Indebtedness of the Borrower, the Parent or any of their respective Subsidiaries any of the following:


	(i) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof,

	(ii) such Person shall fail to pay any principal of or premium or interest of any of such Indebtedness (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness, or

	(iii) any other event shall occur or condition shall exist under any agreement or instrument relating to such Indebtedness, and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to permit the holders of such Indebtedness to accelerate the maturity of such Indebtedness;


	(f) Insolvency. The Borrower, the Parent or any of their respective Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower, the Parent or any of their respective Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against the Borrower, the Parent or any of their respective Material Subsidiaries, either such proceeding shall remain undismissed for a period of 60 days or any of the actions sought in such proceeding shall occur; or the Borrower, the Parent or any of their respective Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this paragraph (f);

	(g) Judgments. Any judgment or order for the payment of money in excess of $2,500,000 or the Dollar Equivalent thereof (reduced for purposes of this paragraph for the amount in respect of such judgment or order that a reputable insurer has acknowledged being payable under any valid and enforceable insurance policy) shall be


	rendered against the Borrower, the Parent or any of their respective Subsidiaries which, within 30 days from the date such judgment is entered, shall not have been discharged or execution thereof stayed pending appeal;

	(h) ERISA. (i) Any Person shall engage in any “prohibited transaction” (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any “accumulated funding deficiency” (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is likely to result in the termination of such Plan for purposes of Title IV of ERISA, unless such Reportable Event, proceedings or appointment are being contested by the Borrower in good faith and by appropriate proceedings, (iv) any Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any member of a Controlled Group shall incur any liability in connection with a withdrawal from a Multiemployer Plan or the insolvency (within the meaning of Section 4245 of ERISA) or reorganization (within the meaning of Section 4241 of ERISA) of a Multiemployer Plan, unless such liability is being contested by the Borrower in good faith and by appropriate proceedings, or (vi) any other event or condition shall occur or exist, with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could subject the Borrower or any Guarantor to any tax, penalty or other liabilities in the aggregate exceeding $10,000,000;

	(i) Guaranty. Any provision of any Guaranty shall for any reason cease to be valid and binding on any Guarantor or any Guarantor shall so state in writing;

	(j) Intentionally Deleted;

	(k) Parent Common Stock; Repayment Event. The Parent at any time hereafter fails to (i) cause the Parent common stock to be duly listed on the New York Stock Exchange, Inc. and (ii) file timely all reports required to be filed by the Parent with the New York Stock Exchange, Inc. and the Securities and Exchange Commission and, with respect to a failure under clause (ii), such failure remains uncured on the date which is the earlier of (A) the date 30 days following the initial occurrence of such failure and (B) the date specified by the New York Stock Exchange, Inc. or the Securities and Exchange Commission as the date such failure needs to be cured by. Upon the receipt by the Parent of any Net Cash Proceeds from a Repayment Event, (a) the Parent fails to immediately make a capital contribution or advance to the Borrower or a Subsidiary of the Borrower in the aggregate amount of such Net Cash Proceeds, or otherwise apply the Net Cash Proceeds from such Repayment Event in accordance with the provisions of this Agreement or (b) the Borrower fails to apply such Net Cash Proceeds in accordance with the provisions of this Agreement;

	(l) Change in Ownership or Management. Any of the following occur without the written consent of the Required Lenders: (i) a Change in Control occurs for either the


	Parent or the Borrower; (ii) the Parent and any wholly-owned Subsidiary of the Parent collectively owns less than 70% of the legal or beneficial interest in the Borrower; (iii) unless a Specified Change of Control Event shall have occurred, the Parent and MHC shall cease to have at least 3 of the same individuals serving on their respective Boards of Directors; or (iv) unless a Specified Change of Control Event shall have occurred, the Parent and MHC shall cease to have at least one (1) individual serving as a Responsible Officer of the Parent and MHC, and, within 120 days following such occurrence for any reason, another person acceptable to the Required Lenders in their sole discretion is not employed as a Responsible Officers by the Parent and MHC; or

	(m) Permitted Property Agreements. Any of the following occur: (i) sufficient Permitted Property Agreements shall for any reason cease to be valid and binding on MHC, MHC OP or other Person party thereto, or MHC, MHC OP or such other Person party thereto shall so state in writing, that it could reasonably be expected to cause a Material Adverse Change; or (ii) a default by the Parent, the Borrower or any of their respective Subsidiaries shall occur under sufficient Permitted Property Agreements that such default could reasonably be expected to cause a Material Adverse Change.

Section 8.02 Optional Acceleration of Maturity; Other Actions. If any Event of Default (other than an Event of Default pursuant to paragraph (f) of Section 8.01) shall have occurred and be continuing, then, and in any such event,

(a) the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Notes, all such interest, and all such amounts shall become and be forthwith due and payable in full, without presentment, demand, protest or further notice of any kind (including, without limitation, any notice of intent to accelerate or notice of acceleration), all of which are hereby expressly waived by the Borrower, and


	(b) the Administrative Agent shall at the request of, or may with the consent of, the Required Lenders proceed to enforce its rights and remedies under the Credit Documents for the ratable benefit of the Lenders by appropriate proceedings.

Section 8.03 Automatic Acceleration of Maturity. If any Event of Default pursuant to paragraph (f) of Section 8.01 shall occur, the obligation of each Lender to make Advances and shall immediately and automatically be terminated and the Notes, all interest on the Notes, and all other amounts payable under this Agreement shall immediately and automatically become and be due and payable in full, without presentment, demand, protest or any notice of any kind (including, without limitation, any notice of intent to accelerate or notice of acceleration), all of which are hereby expressly waived by the Borrower.

Section 8.05 Non-exclusivity of Remedies. No remedy conferred upon the Administrative Agent or the Lenders is intended to be exclusive of any other remedy, and each remedy shall be cumulative of all other remedies existing by contract, at law, in equity, by statute or otherwise.

(a) Upon (i) the occurrence and during the continuance of any Event of Default pursuant to paragraph (f) of Section 8.01 or (ii) the making of the request or the granting of the consent, if any, specified by Section 8.02 to authorize the Administrative Agent to declare the Notes and any other amount payable hereunder due and payable pursuant to the provisions of Section 8.02 or the automatic acceleration of the Notes and all amounts payable under this Agreement pursuant to Section 8.03, each Lender and Affiliate thereof is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender or any Affiliate thereof to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Note held by such Lender, and the other Credit Documents, irrespective of whether or not such Lender shall have made any demand under this Agreement, such Note, or such other Credit Documents, and although such obligations may be unmatured. Each Lender agrees to promptly notify the Borrower after any such set-off and application made by such Lender or its Affiliate, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Lender under this Section are in addition to any other rights and remedies (including, without limitation, other rights of set-off) which such Lender may have.


	(b) The Borrower waives any right of set-off, defense or counterclaim the Borrower has or may have against any Lender to apply any amounts owed the Borrower by such Lender or any Affiliate thereof against the Obligations hereunder.

Section 9.01 Authorization and Action. Each Lender hereby appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under this Agreement and the other Credit Documents as are delegated to the Administrative Agent by the terms hereof and of the other Credit Documents, together with such powers as are reasonably incidental thereto. As to any matters not expressly provided for by this Agreement or any other Credit Document (including, without limitation, enforcement or collection of the Notes), the Administrative Agent shall not be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that the Administrative Agent shall not be required to take any action which exposes the Administrative Agent to personal liability or which is contrary to this Agreement, any other

Credit Document, or applicable law. The functions of the Administrative Agent are administerial in nature and in no event shall the Administrative Agent have a fiduciary or trustee relation in respect of any Lender by reason of this Agreement or any other Credit Document. Within five (5) Business Days of the Administrative Agent receiving actual knowledge (without any duty to investigate) of a Default, the Administrative Agent will provide written notice of such Default to the Lenders.

Section 9.02 Administrative Agent’s Reliance, Etc. Neither the Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or omitted to be taken (including such Person’s own negligence) by it or them under or in connection with this Agreement or the other Credit Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, the Administrative Agent: (a) may treat the payee of any Note as the holder thereof until the Administrative Agent receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Administrative Agent; (b) may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations made in or in connection with this Agreement or the other Credit Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or any other Credit Document on the part of the Borrower, the Parent or their respective Subsidiaries or to inspect the property (including the books and records) of the Borrower, the Parent or their respective Subsidiaries; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Credit Document other than with respect to the Administrative Agent’s execution of the documents to which the Administrative Agent is a party; and (f) shall incur no liability under or in respect of this Agreement or any other Credit Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopier, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties.

Section 9.03 Each Agent and Its Affiliates. With respect to its Commitment, the Advances made by it and the Notes issued to it, the Administrative Agent shall have the same rights and powers under this Agreement as any other Lender and may exercise the same as though it were not an Agent. The term “Lender” or “Lenders” shall, unless otherwise expressly indicated, include the Administrative Agent in its individual capacity as a Lender. The Administrative Agent, the Lenders and their respective Affiliates may accept deposits from, lend money to, act as trustee under indentures of, and generally engage in any kind of business with, the Borrower or any of its Subsidiaries, and any Person who may do business with or own securities of the Borrower or any such Subsidiary, all as if the Administrative Agent were not an Administrative Agent hereunder or the Lenders were not Lenders hereunder and without any duty to account therefor to the Lenders.

Section 9.04 Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and

based on the financial statements referred to in Section 4.07 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement.

Section 9.05 Indemnification. The Lenders severally agree to indemnify the Administrative Agent, (to the extent not reimbursed by the Borrower), according to its Pro Rata Share from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Administrative Agent, in any way relating to or arising out of this Agreement or any action taken or omitted by the Administrative Agent, under this Agreement or any other Credit Document (including the Administrative Agent’s own negligence), provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Administrative Agent’s gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its Pro Rata Share of any out-of-pocket expenses (including counsel fees) incurred by the Administrative Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement or any other Credit Document, to the extent that the Administrative Agent is not reimbursed for such expenses by the Borrower.

Section 9.06 Successor Agent. The Administrative Agent, may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with cause by the Required Lenders upon receipt of written notice from the Required Lenders to such effect. Upon receipt of notice of any such resignation or removal, the Required Lenders shall have the right to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent’s giving of notice of resignation or the Required Lenders’ removal of the retiring Administrative Agent, then the retiring Administrative Agent, may, on behalf of the Lenders and the Borrower, appoint a successor Administrative Agent, which shall be a commercial bank meeting the financial requirements of an Eligible Assignee. Upon the acceptance of any appointment as Administrative Agent, by a successor Administrative Agent, such successor Administrative Agent, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent, shall be discharged from its duties and obligations under this Agreement and the other Credit Documents. After any retiring Administrative Agent’s resignation or removal hereunder as Administrative Agent, the provisions of this Article IX shall inure to its benefit as to any actions taken or omitted to be taken by it while it was such Administrative Agent, under this Agreement and the other Credit Documents.

(a) No amendment or waiver of any provision of this Agreement, the Notes, or any other Credit Document, nor consent to any departure by the Borrower or any Guarantor therefrom, shall in any event be effective unless the same shall be in writing and signed by the Administrative Agent, as specified in the particular provisions of the Credit Documents, and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment shall: (i) increase the aggregate Commitments of the Lenders, (ii) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder or under any other Credit Document or otherwise release the Borrower from any Obligations, (iii) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, (iv) amend this Section 10.01, (v) amend the definition of “Required Lenders”, or (vi) release the Parent or any Subsidiary of the Parent or the Borrower having Property or annual revenues in excess of $7,500,000 from its obligations under the Guaranty except as contemplated by the provisions of Section 5.09, and provided, further, that no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent, in addition to the Lenders required above to take such action, affect the rights or duties of the Administrative Agent, under this Agreement or any other Credit Document.


	(b) In addition, none of the following decisions shall be made without the prior written consent of the Required Lenders:


	(i) release any Guarantor (except the Parent or any Subsidiary of the Parent or the Borrower having Property or annual revenues in excess of $7,500,000) from its obligations under any of the Guaranties except as contemplated by the provisions of Section 5.09, provided that the Administrative Agent can, if no Default then exists, release any Subsidiary of the Borrower which no longer is a party to any Permitted Property Agreement or any Permitted Housing Agreement or no longer owns any Investments or other Property;

	(ii) any (A) determination to send notice to the Borrower of, or otherwise declare, an Event of Default pursuant to Section 8.01 of this Agreement, (B) determination to accelerate the Obligations pursuant to Section 8.02 of this Agreement, (C) exercise of remedies under any Credit Document;

	(iii) any waiver or any amendment to the financial covenants contained in Article VII of this Agreement or any definitions used therein;

	(iv) any amendment of any of the definitions that are used in the definition of “Leverage Ratio” or “Senior Leverage Ratio;”


	(v) any other material waiver or modification of the Credit Documents not referred to in this Section 10.01, provided that if within ten (10) Business Days of the Administrative Agent’s approval of a non-material waiver or modification of the Credit Documents the Required Lenders object in writing to such waiver or modification, then such waiver or modification shall then not be effective and shall be subject to the written consent of the Required Lenders; and

	(vi) any amendment of any other provision of a Credit Document which expressly requires the consent of the Required Lenders.


	(c) Any amendment to a covenant of the Parent or any of its Subsidiaries or amendment to a definition shall require the Borrower’s written consent.

(d) If, in connection with any proposed change, waiver, discharge or termination to any of the provisions of this Agreement which requires unanimous consent of the Lenders the consent of 51% or more of the Non-Defaulting Lenders entitled to vote on such proposed change, waiver, discharge or termination is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained, then the Borrower shall have the right, so long as all non-consenting Lenders whose individual consent is required are treated as described below, to replace each such non-consenting Lender or Lenders with one or more Eligible Assignees pursuant to Section 2.15 so long as at the time of such replacement, each such Eligible Assignee consents to the proposed change, waiver, discharge or termination, provided further, that in any event the Borrower shall not have the right to replace a Lender solely as a result of the exercise of such Lender’s rights (and the withholding of any required consent by such Lender) to increase any of such Lender’s Commitments.


	(e) Notwithstanding the foregoing, the Administrative Agent and the Borrower (without the consent of any other Lender) may enter into amendments of any Credit Document solely with respect to corrections of formal defects not having any economic impact.

Section 10.02 Notices, Etc. All notices and other communications shall be in writing (including telecopy or telex) and mailed, telecopied, telexed, hand delivered or delivered by a nationally recognized overnight courier, (a) if to the Borrower, at its address at 1010 Wisconsin Avenue, N.W., Washington, D.C. 20007, Attn: Mr. John Emery; (b) if to any Lender, at its Applicable Lending Office; (c) if to the Administrative Agent, at its address at 399 Park Avenue, 8th floor, New York, new York 10022, Attention Mr. Thomas Buffa, Telephone : (212) 526- 5153, Facsimile: (646) 758-4672; or, (d) as to each party, at such other address or teletransmission number as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telecopied, telexed or hand delivered or delivered by overnight courier, be effective three days after deposited in the mails, when telecopy transmission is completed, when confirmed by telex answer-back or when delivered, respectively, except that notices and communications to the Administrative Agent pursuant to Article II or Article IX shall not be effective until received by the Administrative Agent.

Section 10.03 No Waiver; Remedies. No failure on the part of any Lender, or any Agent, to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in this Agreement and the other Credit Documents are cumulative and not exclusive of any remedies provided by law.

Section 10.04 Costs and Expenses. The Borrower agrees to pay on demand all out-of-pocket costs and expenses of the Administrative Agent in connection with the preparation, execution, delivery, due diligence, administration, modification and amendment of this Agreement, the Notes and the other Credit Documents and syndication of the Obligations including, without limitation, (a) the reasonable fees and out-of-pocket expenses of counsel for the Administrative Agent, and (b) all reasonable out-of-pocket costs and expenses, if any, of the Administrative Agent, and each Lender (including, without limitation, reasonable counsel fees and expenses of the Administrative Agent, and each Lender) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of this Agreement and the other Credit Documents, and (d) to the extent not included in the foregoing, the costs of any local counsel, travel expenses, and any title or Uniform Commercial Code search costs, any flood plain search costs, insurance consultant costs and other costs usual and customary in connection with a credit facility of this type.

Section 10.05 Binding Effect. This Agreement shall become effective when it shall have been executed by the Borrower and the Administrative Agent, and when the Administrative Agent shall have, as to each Lender, either received a counterpart hereof executed by such Lender or been notified by such Lender that such Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, the Administrative Agent, and each Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or delegate its duties under this Agreement or any interest in this Agreement without the prior written consent of each Lender.


	(a) Assignments. Any Lender may assign to one or more banks or other entities all or any portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, its Pro Rata Share of the Loan Amount owing to it, and the Notes held by it; provided, however, that:


	(i) each such assignment shall be of a constant, and not a varying, percentage of all of such Lender’s rights and obligations under this Agreement,

(ii) the amount of the resulting Commitments of the assigning Lender (unless it is assigning all its Commitments) and the assignee Lender pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 in total, shall in no event be less than $1,000,000 for each Class assigned and shall be an integral multiple of $1,000,000,


	(iv) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with the Notes subject to such assignment,


	(v) the Administrative Agent shall consent to such assignment, which consent shall not be unreasonably withheld or delayed, and

(vi) each Eligible Assignee (other than an Eligible Assignee which is an Affiliate of the assigning Lender) shall pay to the Administrative Agent a $3,500 administrative fee; provided that, in the case of contemporaneous assignments by a Lender to more than one Related Fund (which Related Funds are not then Lenders hereunder), only a single $3,500 such fee shall be payable for all such contemporaneous assignments.

Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least three Business Days after the execution thereof or earlier such earlier date as agreed to by the Administrative Agent, (A) the assignee thereunder shall be a party hereto for all purposes and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (B) such Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of such Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto). Notwithstanding anything herein to the contrary, (i) any Lender may assign or pledge, as collateral or otherwise, any of its rights under the Credit Documents to any Federal Reserve Bank and (ii) any Lender that is an Approved Fund or Related Fund may, without the consent of the Administrative Agent or the Borrower, pledge all or any portion of its Advances and Notes to any trustee for, or any other representative of, holders of obligations owed, or securities issued, by such Approved Fund or Related Fund, as security for such obligations or securities; provided that (A) any foreclosure or similar action by such trustee or representative shall be subject to the provisions of this Section 10.06(a) concerning assignments, including without limitation the requirement that any assignee of such Notes and Advances must qualify as an Eligible Assignee and (B) such Lender shall not require such trustee’s or representative’s consent to any matter under this Agreement, except (1) for a change in the principal amount of any Note which has been so pledged, reductions in fees or interest, or extending the Maturity Date except as permitted in this Agreement or (2) as otherwise consented to by the Administrative Agent.

(b) Term of Assignments. By executing and delivering an Assignment and Acceptance, the Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) other than as provided in such Assignment and Acceptance, such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations

made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency of value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the Guarantors or the performance or observance by the Borrower or the Guarantors of any of their obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Sections 4.06 and 5.05, if applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Administrative Agent, such Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender.

(c) The Register. The Administrative Agent shall maintain at its address referred to in Section 10.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and the Commitments of, and principal amount of the Advances owing to, each Lender from time to time (the “Register”). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Administrative Agent, and the Lenders may treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Lender at any reasonable time and from time to time upon reasonable prior notice.

(d) Procedures. Upon its receipt of an Assignment and Acceptance executed by a Lender and an Eligible Assignee, together with the Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of the attached Exhibit C, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register, and (iii) give prompt notice thereof to the Borrower. Within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes, a new Note or Notes payable to the order of such Eligible Assignee in amount equal to, Commitment and the Pro Rata Shares of the Loan Amount assumed by it pursuant to such Assignment and Acceptance, and if the assigning Lender has retained any Commitment hereunder, a new Note or Notes payable to the order of such Lender in an amount equal to, respectively, the Commitments and the Pro Rata Shares of outstanding Loan Amount retained by it hereunder. Such new Notes shall be dated the date of the original Notes


	executed pursuant to this Agreement and shall otherwise be in substantially the form of the attached Exhibit A.

(e) Participations. Each Lender may sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitments, the Pro Rata Shares of the Loan Amount owing to it, and the Notes held by it); provided, however, that (i) such Lender’s obligations under this Agreement (including, without limitation, its Commitments to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Notes for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement, (v) such Lender shall not require the participant’s consent to any matter under this Agreement, except for change in the principal amount of any Note in which the participant has an interest, reductions in fees or interest, or extending the Maturity Date except as permitted in this Agreement, and (vi) such Lender shall give prompt notice to the Borrower of each such participation sold by such Lender. The Borrower hereby agrees that participants shall have the same rights under Sections 2.08, 2.09, 2.11(c), and 10.07 hereof as the Lender to the extent of their respective participations.

(f) Confidentiality. Each Lender agrees to preserve the confidentiality of any confidential information relating to the Parent, the Borrower and their respective Subsidiaries received by Lender; provided that each Lender may furnish any such confidential information in the possession of such Lender from time to time to (i) assignees and participants (including prospective assignees and participants), (ii) its attorneys, accountants, regulators, the National Association of Insurance Commissioners, governmental authorities and any self-governing organization to which is a member, (iii) any direct or indirect contractual counterparty to such Lender in swap agreements or such contractual counterparty’s professional advisor and (iv) the Related Funds, Affiliates, directors, partners, officers, employees of such Person or its Affiliates or Related Funds; provided that, prior to any such disclosure, such Person shall agree in writing to preserve the confidentiality of any confidential information relating to the Borrower and its Subsidiaries received by it from or on behalf of such Lender.

Section 10.07 Indemnification. The Borrower shall indemnify the Administrative Agent, the Lenders (including any lender which was a Lender hereunder prior to any full assignment of its Commitment), any assignees and participants permitted hereunder, and each affiliate thereof and their respective directors, officers, employees and agents from, and discharge, release, and hold each of them harmless against, any and all losses, liabilities, claims or damages to which any of them may become subject, insofar as such losses, liabilities, claims or damages arise out of or result from (i) any actual or proposed use by the Borrower or any Affiliate of the Borrower of the proceeds of any Advance, (ii) any breach by the Borrower or any Guarantor of any provision of this Agreement or any other Credit Document, (iii) any investigation, litigation or other proceeding (including any threatened investigation or proceeding) relating to the foregoing,

or (iv) any Environmental Claim or requirement of Environmental Laws concerning or relating to the present or previously-owned or operated properties, or the operations or business, of the Borrower or any of its Subsidiaries, and the Borrower shall reimburse the Administrative Agent, and each Lender, and each affiliate thereof and their respective directors, officers, employees and agents, upon demand for any reasonable out-of-pocket expenses (including legal fees) incurred in connection with any such investigation, litigation or other proceeding; and expressly including any such losses, liabilities, claims, damages, or expense incurred by reason of such indemnified Person’s own negligence, but excluding any such losses, liabilities, claims, damages or expenses incurred by reason of the gross negligence or willful misconduct of the Person to be indemnified.

Section 10.08 Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

Section 10.09 Survival of Representations, Indemnifications, etc. All representations and warranties contained in this Agreement or made in writing by or on behalf of the Borrower in connection herewith shall survive the execution and delivery of this Agreement and the Credit Documents, the making of the Advances and any investigation made by or on behalf of the Lenders, none of which investigations shall diminish any Lender’s right to rely on such representations and warranties. All obligations of the Borrower provided for in Sections 2.08, 2.09, 2.11(c), 9.05 and 10.07 shall survive any termination of this Agreement and repayment in full of the Obligations.

Section 10.10 Severability. In case one or more provisions of this Agreement or the other Credit Documents shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not be affected or impaired thereby.

Section 10.11 Usury Not Intended. It is the intent of the Borrower and each Lender in the execution and performance of this Agreement and the other Credit Documents to contract in strict compliance with applicable usury laws, including conflicts of law concepts, governing the Advances of each Lender including such applicable laws of the State of New York and the United States of America from time to time in effect. In furtherance thereof, the Lenders and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement or the other Credit Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Rate and that for purposes hereof “interest” shall include the aggregate of all charges which constitute interest under such laws that are contracted for, charged or received under this Agreement; and in the event that, notwithstanding the foregoing, under any circumstances the aggregate amounts taken, reserved, charged, received or paid on the Advances, include amounts which by applicable law are deemed interest which would exceed the Maximum Rate, then such excess shall be deemed to be a mistake and each Lender receiving same shall credit the same on the principal of its Notes (or if such Notes shall have been paid in full, refund said excess to the Borrower). In the event that the maturity of the Notes is accelerated by reason of any election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in

the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the Maximum Rate and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the applicable Notes (or, if the applicable Notes shall have been paid in full, refunded to the Borrower). In determining whether or not the interest paid or payable under any specific contingencies exceeds the Maximum Rate, the Borrower and the Lenders shall to the maximum extent permitted under applicable law amortize, prorate, allocate and spread in equal parts during the period of the full stated term of the Notes all amounts considered to be interest under applicable law at any time contracted for, charged, received or reserved in connection with the Obligations. The provisions of this Section shall control over all other provisions of this Agreement or the other Credit Documents which may be in apparent conflict herewith.

Section 10.12 GOVERNING LAW. THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS SHALL BE GOVERNED BY, CONSTRUED AND ENFORCED, AND ANY DISPUTE BETWEEN THE BORROWER, THE ADMINISTRATIVE AGENT, ANY LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (INCLUDING, WITHOUT LIMITATION, SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW, BUT OTHERWISE WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF NEW YORK.

(A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.


	(B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT ANY AGENT, ANY LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR ITS PROPERTY IN A

COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B).

(C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS, PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY ANY AGENT OR THE LENDERS BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.

(D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.


	(E) WAIVER OF BOND. THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN


	CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT.


	(F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 10.13 AND SECTION 10.20, WITH ITS COUNSEL.

Section 10.14 Knowledge of Borrower. For purposes of this Agreement, “knowledge of the Borrower” means the actual knowledge of any of the executive officers and all other Responsible Officers of the Parent.

Section 10.15 Lenders Not in Control. None of the covenants or other provisions contained in the Credit Documents shall or shall be deemed to, give the Lenders the rights or power to exercise control over the affairs and/or management of the Borrower, any of its Subsidiaries or any Guarantor, the power of the Lenders being limited to the right to exercise the remedies provided in the Credit Documents; provided, however, that if any Lender becomes the owner of any Ownership Interests in any Person, whether through foreclosure or otherwise, such Lender shall be entitled (subject to requirements of law) to exercise such legal rights as it may have by being owner of such Ownership Interests in such Person.

Section 10.16 Headings Descriptive. The headings of the several Sections and paragraphs of the Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.

Section 10.17 Time is of the Essence. Time is of the essence under the Credit Documents.

Section 10.19 Judgment Currency. The obligations of the Borrowers hereunder and under the Notes to make payments in Dollars, shall not be discharged or satisfied by any tender or recovery pursuant to any judgment expressed in or converted into any currency other than Dollar.

Section 10.20 No Consequential Damages. NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, EACH PERSON PARTY HERETO FOR ITSELF AND ON BEHALF OF ITS AFFILIATES AGREES THAT THE RECOVERY OF ANY DAMAGES SUFFERED OR INCURRED AS A RESULT OF ANY BREACH BY ANY PERSON OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS UNDER THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED OR INCURRED AS A RESULT OF THE BREACH BY THE BREACHING PARTY OF ITS

REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT AND IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO ANY NON-BREACHING PARTY FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES OR LOST OR DELAYED PRODUCTION) SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF THE BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES OR OBLIGATIONS HEREUNDER OR UNDER ANY OTHER CREDIT DOCUMENT.

EXECUTED as of the date first referenced above.


	BORROWER:

	MERISTAR H & R OPERATING COMPANY, L.P.

	By:	Interstate Hotels & Resorts, Inc. (fka MeriStar Hotels & Resorts, Inc.), its general partner

		By:

		Name:

		Title:

For value received, the undersigned MeriStar H & R Operating Company, L.P., a Delaware limited partnership, as the Borrower, hereby promises to pay to the order of , as the Lender, the principal amount of and /100 Dollars ($ ), together with interest on the unpaid principal amount of this Note from the date advanced until such principal amount is paid in full, at such interest rates, and at such times, as are specified in the Credit Agreement.

This Note is one of the Notes referred to in, and is entitled to the benefits of, and is subject to the terms of, the Subordinate Unsecured Term Loan Agreement dated as of January 10, 2003 (as the same may be amended or modified from time to time, the “Credit Agreement”), among the Borrower, the Lenders, Lehman Commercial Paper, Inc., as Administrative Agent, and Lehman Brothers, Inc., as Lead Arranger and Book Runner. Capitalized terms used in this Note that are defined in the Credit Agreement and not otherwise defined in this Note have the meanings assigned to such terms in the Credit Agreement. The Credit Agreement, among other things, contains provisions for acceleration of the maturity of this Note upon the happening of certain events stated in the Credit Agreement and for prepayments of principal prior to the maturity of this Note upon the terms and conditions specified in the Credit Agreement.

Both principal and interest are payable in Dollars, the lawful money of the United States of America, to the Administrative Agent at 745 Seventh Avenue, 16th Floor, New York, New York 10019, Fax No. 212-526-6643, Phone No. 212-526-6590, Attn: Diane Albanese, (or at such other location or address as may be specified by the Administrative Agent to the Borrower) in same day funds without set-off, deduction or counterclaim. The Lender shall record all payments of principal made under this Note, but no failure of the Lender to make such recordings shall affect the Borrower’s repayment obligations under this Note.

Except as specifically provided in the Credit Agreement, the Borrower hereby waives presentment, demand, protest, notice of intent to accelerate, notice of acceleration, and any other notice of any kind. No failure to exercise, and no delay in exercising, any rights hereunder on the part of the holder of this Note shall operate as a waiver of such rights.

This Note shall be governed by, and construed and enforced in accordance with, the laws of the state of New York.

This Adjustment Report (“Adjustment Report”) is executed this day of , 20 and is prepared pursuant to Section 2.14 of that certain Subordinate Unsecured Term Loan Agreement (as amended or modified from time to time, the “Credit Agreement”) between MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited partnership (the “Borrower”); LEHMAN COMMERCIAL PAPER, INC., as the Administrative Agent, LEHMAN BROTHERS, INC., as Lead Arranger and Book Runner; and the other lenders party thereto. Capitalized terms used herein but not otherwise defined herein shall have the meanings specified by the Agreement.

This Report is issued following the [making, acquisition, disposition or incurrence] by the [Parent, Borrower or its Subsidiary] (the “Adjustment Event”) of the following Investment or Indebtedness:

Pursuant to Section 2.14 of the Credit Agreement, following each making, acquisition or disposition by the Parent or its Subsidiary of an Investment with an Investment Amount in excess of $5,000,000 or the incurrence by the Parent or its Subsidiary of additional Indebtedness (excluding any Obligations) in excess of $5,000,000, the Leverage Ratio and the Senior Leverage Ratio shall be adjusted accordingly.

The Borrower has caused this Adjustment Report to be executed this day of , 20 .

Reference is made to the Subordinate Unsecured Term Loan Agreement dated as of January [10], 2003 (as the same may be amended or modified from time to time, the “Credit Agreement”) among MeriStar H & R Operating Company, L.P., a Delaware limited partnership (the “Borrower”), the Lenders; LEHMAN COMMERCIAL PAPER, INC., as the Administrative Agent, LEHMAN BROTHERS, INC., as Lead Arranger and Book Runner; and the other lenders party thereto. Capitalized terms not otherwise defined in this Assignment and Acceptance shall have the meanings assigned to them in the Credit Agreement.

Pursuant to the terms of the Credit Agreement, (“Assignor”) wishes to assign and delegate certain of its rights and obligations under the Credit Agreement. Therefore, Assignor, (“Assignee”), and the Administrative Agent agree as follows:

1.		As of the Effective Date (as defined below), the Assignor hereby sells and assigns and delegates to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, without recourse to the Assignor and without representation or warranty except for the representations and warranties specifically set forth in clauses (i)-(v) of Section 2, a [ ] %¹ interest in and to all of the Assignor’s rights and obligations under the Credit Agreement in connection with Assignor’s Commitment, the Advance owing to the Assignor, and the Note held by the Assignor (if Assignor possesses a Note)].

2.		The Assignor (i) represents and warrants that, prior to executing this Assignment and Acceptance, its Commitment is $ and the aggregate outstanding principal amount of the Loan owed to it by the Borrower is $ ; (ii) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (iv) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties, or representations made in or in connection with the Credit Agreement or any other Credit Document or the execution, legality, validity, enforceability, genuineness, sufficiency, or value of the Credit Agreement or any other Credit Document or any other instrument or document furnished pursuant thereto; (v) makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or any Guarantor or the performance or observance by the Borrower or any Guarantor of any of its obligations under the Credit Agreement or any other Credit Document or any other instrument or document furnished pursuant thereto; [and (vi) attaches the Note referred to in paragraph 1 above and requests that the Administrative Agent exchange such note for a new Note, dated ]. 200 in the principal amount of $ , payable to the order of the Assignee.

3.		The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 5.05 thereof and such other documents and

		information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement or any other Credit Document; (iii) appoints and authorizes the Administrative Agent to take such action as administrative agent on its behalf and to exercise such powers under the Credit Agreement and any other Credit Document as are delegated to the Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement or any other Credit Document are required to be performed by it as a Lender; (v) specifies as its Domestic Lending Office, Eurodollar Lending Office and credit contact address the offices set forth beneath its name on the signature pages hereof; (vi) attaches the forms prescribed by the Internal Revenue Service of the United States certifying as to the Assignee’s status for purposes of determining exemption from United States withholding taxes with respect to all payments to be made to the Assignee under the Credit Agreement and its Notes or such other documents as are necessary to indicate that all such payments are subject to such rates at a rate reduced by an applicable tax treaty², and (viii) represents that it is an Eligible Assignee.

4.		The effective date for this Assignment and Acceptance shall be (the “Effective Date”)³ and following the execution of this Assignment and Acceptance, the Administrative Agent will record it in the Register pursuant to Section 10.06 of the Credit Agreement.

5.		Upon such recording, and as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement for all purposes, and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights (other than rights against the Borrower pursuant to Sections 2.09, 2.11(c) and 9.07 of the Credit Agreement, which shall survive this assignment) and be released from its obligations under the Credit Agreement.

6.		Upon such recording, from and after the Effective Date, the Administrative Agent shall make all payments under the Credit Agreement and the Notes in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest, and commitment fees) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement and the Notes for periods prior to the Effective Date directly between themselves.

7.		This Assignment and Acceptance shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.

The parties hereto have caused this Assignment and Acceptance to be duly executed as of the date first above written.

This Compliance Certificate is executed this of , 200 and is prepared pursuant to that certain Subordinate Unsecured Term Loan Agreement (as amended or modified from time to time, the “Agreement”) between MERISTAR H & R OPERATING COMPANY, L.P., a Delaware limited partnership (the “Borrower”); LEHMAN COMMERCIAL PAPER, INC., as the Administrative Agent, LEHMAN BROTHERS, INC., as Lead Arranger and Book Runner; and the other lenders party thereto. Capitalized terms used herein but not otherwise defined herein shall have the meanings specified by the Agreement.

Representations, Covenants, Defaults: Borrower hereby certifies to the Administrative Agent and the Lenders, effective as of the date of execution of this Compliance Certificate, as follows:

	1.1		Covenants. All covenants of Borrower set forth in Articles V and VI of the Agreement required to be performed as of the date hereof have been performed and maintained in all material respects, and such covenants continue to be performed and maintained as of the execution date of this certificate, except as follows:

	1.2		Representations and Warranties. All representations and warranties of Borrower set forth in Article IV of the Agreement are true and correct in all material respects as of the execution date of this certificate, except as follows:

	1.3		Event of Default. There exists no Event of Default except as follows:

Operating Covenants. Borrower hereby certifies to the Administrative Agent and the Lenders that the amounts and calculations made hereunder pursuant to Article VII of the Agreement are true and correct.

The Interest Coverage Ratio for the Parent, for the Rolling Period ending on , 200 is as set forth in (c) below, based on the ratio of:

			Required by the Agreement:

			The Parent shall maintain at the end of each Rolling Period (a) for the Rolling Period ending on September 30, 2002, an Interest Coverage Ratio of not less than 1.75 to 1.00, (b) for the Rolling Periods ending on December 31, 2002 through September, 2003, an Interest Coverage Ratio of not less than 2.25 to 1.00, and (c)

			for any Rolling Period thereafter, an Interest Coverage Ratio of not less than 2.50 to 1.00.

	2.2		Senior Interest Coverage Ratio (Section 7.02 of the Agreement).

			The Senior Interest Coverage Ratio for the Parent, for the Rolling Period ending on , 200 , is as set forth in (c) below, based on the ratio of:

			Required by the Agreement:

			The Parent shall maintain at the end of each Rolling Period, (a) for the Rolling Period ending on September 30, 2002, a Senior Interest Coverage Ratio of not less than 3.00 to 1.00 and (b) for any Rolling Period thereafter, a Senior Interest Coverage Ratio of not less than 3.50 to 1.00.

	2.3		Leverage Ratio (Section 7.03 of the Agreement).

			The Leverage Ratio for the Parent, as of , 200 (the Status Reset Date for the current Fiscal Quarter) based on the Parent’s Total Indebtedness as of such Status Reset Date and the Parent’s Adjusted EBITDA for the Rolling Period ending on , 200 , is set forth in (c) below, based on the

			ratio of:

	2.4		Senior Leverage Ratio (Section 7.04 of the Agreement).

			The Senior Leverage Ratio for the Parent, as of , 200 (the Status Reset Date for the current Fiscal Quarter) based on the Parent’s Total Indebtedness as of such Status Reset Date and the Parent’s Adjusted EBITDA for the Rolling Period ending on , 200 , is set forth in (c) below, based on the

			ratio of:

	2.5		Maintenance of Net Worth (Section 7.05 of the Agreement).

			The Adjusted Net Worth for the Parent, as of the Rolling Period ending on , 200 , is as set forth in (d) below, based on the sum of:

			Required by the Agreement:

			The Parent shall at all times maintain an Adjusted Net Worth of not less than the Minimum Net Worth.

	2.6		Insurance Business (Section 5.11 of the Agreement).

			Required by the Agreement:

			The Borrower will not permit the maximum amount payable by all Insurance Companies under Insurance Contracts or Reinsurance Contracts, as of the last day of each Fiscal Quarter, to be greater than $10,000,000.

Other Covenants. Borrower hereby certifies to the Administrative Agent and the Lenders, effective as of the Rolling Period ending , 200 , that the following amounts and calculations made pursuant to the Agreement are true and correct:

	3.1		Investments and other Property (Section 6.06 of the Agreement)

			Required by the Agreement:

			Neither the Parent, the Borrower, nor any of their respective Subsidiaries, shall acquire by purchase or otherwise any Investments or other Property, except as provided in Section 6.06 of the Agreement.

Attach schedule for any transaction or Investment not in compliance with Section 6.06.

	3.2		Indebtedness (Section 6.02 of the Agreement)

			Required by the Agreement:

The Borrower, the Parent and their respective Subsidiaries will not incur or permit to exist any Indebtedness other than as provided in Section 6.02 of the Agreement.


	Loan Agreement, dated as of September 10, 1999 (the “IHC Loan Agreement”), among IHC Holdings, Inc., as lender, Interstate Hotels Corporation, Interstate Hotels Company, Crossroads Hospitality Management Company and certain other designated subsidiaries, as borrowers. Currently the borrowers (including the other designated borrowers) are:

	•		Interstate Hotels Corporation (no amounts outstanding);

	•		Interstate Hotels Company (no amounts outstanding);

	•		Crossroads Hospitality Management Company (no amounts outstanding);

•		Interstate Property Corporation ($375,000 principal amount outstanding as of 3/28/01);

•		Interstate Partner Corporation ($12,000,000 principal amount outstanding as of 3/28/01);

•		Interstate Pittsburgh Hotel Holdings, LLC ($5,700,000 principal amount outstanding as of 3/28/01).

Fairfield Inn Houston/I-10 East — Houston, TX
Hampton Inn Houston/I-10 East — Houston, TX

1.		Master Fee Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., MeriStar SPE Leasing Corp., MeriStar SPE California Corp., MeriStar SPE Colorado Corp., MeriStar SPE North Carolina Corp., MeriStar SPE Wisconsin Corp. and MeriStar Management Company, L.L.C. (“MMC”).

2.		Hotel Management Agreement, dated as of October 14, 1999, between MIP Lessee, LP, and MMC, with respect to the Sheraton Anchorage Hotel, located at 401 East 6th Avenue, Anchorage, AK.

3.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone Hospitality Management LLC (“Flagstone”), with respect to Sheraton Hotel – Birmingham South, located at 8 Perimeter Park Drive, Birmingham, AL.

4.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Sheraton Mesa Hotel, located at 200 N. Centennial Way, Mesa, AZ, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

5.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., as Owner, and MMC, as Operator, with respect to the Crowne Plaza Phoenix, located at 2532 W. Peoria Avenue, Phoenix, AZ, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

6.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., as Owner, and MMC, as Operator, with respect to the Embassy Suites International Airport, located at 7051 S. Tucson Blvd., Tucson, AZ, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

7.		Hotel Management Agreement, dated as of November 30, 1999, between Triple Tree Corporation and MMC, with respect to Radisson Poco Diablo Resort, located at 1752 South Highway 179, Sedona, AZ.

8.		Hotel Management Agreement, dated December 14, 1999, between Champion Investment Corporation and MMC, with respect to Hilton East Tucson, located at 7600 East Broadway, Tucson, AZ.

9.		Hotel Management Agreement, dated as of March 31, 1999, between MIP Lessee, LP and MMC, with respect to Radisson Resort & Spa Scottsdale, located at 7171 North Scottsdale Road, Scottsdale, AZ.

10.		Hotel Management Agreement, dated as of December 24, 1999, between Massachusetts Mutual Like Insurance Company and MMC, with respect to Hilton Phoenix Airport, located at 2435 South 47th Street, Phoenix, AZ.

11.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Chandler, located at 7333 West Detroit Street, Chandler, AZ.

12.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Homewood Suites Chandler, located at 7373 West Detroit Street, Chandler, AZ.

13.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Courtyard by Marriott Century City, located at 10320 W. Olympic Blvd., Century City, CA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

14.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE California Corp., and MMC, with respect to the Courtyard by Marriott Marina del Rey, located at 13480 Maxella Avenue, Marina del Rey, CA.

15.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hilton Port of Los Angeles/San Pedro, located at 2800 Via Cabrillo Marina, San Pedro, CA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

16.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE California Corp., and MMC, with respect to the Hilton Irvine/Orange County Airport, located at 18800 MacArthur Blvd., Irvine, CA.

17.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE California Corp., and MMC, with respect to the Hilton Sacramento Arden West, located at 2200 Harvard Street, Sacramento, CA.

18.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Los Angeles Marriott Downtown, located at 333. S. Figueroa Street, Los Angeles, CA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

19.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Doral Palm Springs Resort, located at 67-967 Vista Chino, Cathedral City, CA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

20.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Wyndham Hotel San Jose, located at 1350 North 1st Street, San Jose, CA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

21.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE California Corp., and MMC, with respect to the Crowne Plaza San Jose, located at 282 Almaden Blvd., San Jose, CA.

22.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE California Corp., and MMC, with respect to the Sheraton Fisherman’s Wharf Hotel, located at 2500 Mason Street, San Francisco, CA.

23.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hilton Monterey, located at 1000 Aguajito Road, Monterey, CA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

24.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Santa Barbara Inn, located at 901 East Cabrillo Blvd., Santa Barbara, CA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

25.		Hotel Management Agreement, dated as of June 10, 1998, between SD Bridgeworks, LLC and MMC, with respect to Hilton San Diego – Gaslamp Quarter, located at 401 K Street, San Diego, CA, as amended by that certain First Amendment to Hotel Management Agreement, dated as of July 20, 1998.

26.		Hotel Management Agreement, dated , between and MMC, with respect to Quality Suites John Wayne Airport Santa Ana, located at 2701 Hotel Terrace Drive, Santa Ana, CA.

27.		Hotel Management Agreement, dated December 27, 1993, between Dr. Michael Perley and MMC, with respect to Residence Inn Orange/Disneyland, located at 3101 West Chapman Avenue, Orange, CA.

28.		Hotel Management Agreement, dated as of March 31, 1999, between MIP Lessee, LP and MMC, with respect to Radisson Hotel San Diego, located at 1433 Camino Del Rio South, San Diego, CA.

29.		Hotel Management Agreement, dated as of December 1, 1999, between MIP Lessee, LP and MMC with respect to Hilton Newark/Fremont, located at 3990 Balentine Drive, Newark, CA.

30.		Hotel Management Agreement, dated as of April 27, 2000, between MIP Lessee, LP and MMC with respect to Embassy Suites Walnut Creek, located at 1345 Treat Boulevard, Walnut Creek, CA.

31.		Hotel Management Agreement, dated March 16, 1999, between Wave Crest Resorts, LLC and MMC, with respect to Hilton Garden Inn Carlsbad Beach, 6450 Carlsbad Boulevard, Carlsbad, CA.

32.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Sheraton Hotel Bakersfield, located at 5101 California Avenue, Bakersfield, CA.

33.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Sheraton San Jose/Milpitas, located at 1801 Barber Lane, Milpitas, CA.

34.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Beverly Heritage Hotel, located at 1820 Barber Lane, Milpitas, CA.

35.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Four Points by Sheraton Pleasanton, located at 5115 Hopyard Road, Pleasanton, CA.

36.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Sacramento, located at 1530 Howe Avenue, Sacramento, CA.

37.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hilton Fisherman’s Wharf, located at 2620 Jones Street, San Francisco, CA.

38.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Sheraton Hotel Sunnyvale, located at 1100 North Mathilda Avenue, Sunnyvale, CA.

39.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Torrance, located at 3701 Torrance Blvd., Torrance, CA.

40.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Doubletree Hotel Del Mar, located at 11915 El Camino Real, San Diego, CA.

41.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Holiday Inn Garden of the Gods, located at 505 Popes Bluff Trail, Colorado Springs, CO, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

42.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Colorado Corp., and MMC, with respect to the Sheraton Colorado Springs Hotel, located at 2886 South Circle Drive, Colorado Springs, CO.

43.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Colorado Corp., and MMC, with respect to the Embassy Suites Denver South, located at 10250 E. Costilla Avenue, Englewood, CO.

44.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Northwest/I-70 Denver, located at 4685 Quebec Street, Denver, CO.

45.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Southwest Denver, located at 3605 South Wadsworth Blvd., Lakewood, CO.

46.		Hotel Management Agreement, dated October 23, 1996, between Orchard Park Associates, L.P. and MMC (as successor-in-interest to CapStar Management Company, L.P.), with respect to Comfort Suites Norwich, located at 275 Otrobando Avneue, Norwich, CT.

47.		Hotel Management Agreement, dated as of May 26, 1999, between MIP Lessee, LP and MMC, with respect to Marriot Trumbull, located at 180 Hawley Lane, Trumbull, CT.

48.		Hotel Management Agreement, dated as of March , 2000, between Campus Associates Limited Partnership and MMC, with respect to Nathan Hale Inn & Conference Center at the University of Connecticut, located at P.O. Box 364, Storrs, CT.

49.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Doubletree Hotel Bradley International Airport, located at 16 Ella Grasso Turnpike, Windsor Locks, CT, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

50.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hilton Hartford, located at 315 Trumbull Street, Hartford, CT, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

51.		Hotel Management Agreement, dated as of May 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Ramada Plaza Hotel Shelton, located at 780 Bridgeport Avenue, Shelton, CT, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

52.		Hotel Management Agreement, dated as of December 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to Ramada Plaza Meriden, located at 275 Research Parkway, Meriden, CT, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

53.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Wilmington, located at 240 Chapman Road, Newark, DE.

54.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Georgetown Inn, located at 1310 Wisconsin Ave, N.W., Washington, DC, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

55.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hilton Washington Embassy Row, located at

		2015 Massachusetts Avenue, N.W., Washington, DC, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

56.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to The Latham Hotel Georgetown, located at 3000 M Street, N.W., Washington, DC, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

57.		Hotel Management Agreement, dated January 1, 1994, between Newco Management Company and MMC, with respect to Best Western New Hampshire Suites, located at 1121 New Hampshire Avenue, NW, Washington, DC.

58.		Hotel Management Agreement, dated June 30, 1997, between Massachusetts Mutual Life Insurance Company and MMC, with respect to Crowne Plaza Hotel Washington, located at 1001 14th Street, NW, Washington, DC.

59.		Hotel Management Agreement, dated as of December 23, 1998, between Franklin Fourteen, L.L.C. and MMC, with respect to Hilton Garden Inn Washington, located at 815 14th Street, NW (Franklin Square), Washington, DC.

60.		Hotel Management Agreement, dated as of April 24, 2001, between Whitewood, LLC and MMC, with respect to The Churchill Hotel, located at 1914 Connecticut Avenue, N.W., Washington, DC.

61.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Sheraton Safari Hotel, located at 12205 Apopka Vineland Road, Lake Buena Vista, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

62.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Courtyard by Marriott Walt Disney World Village, located at 1805 Hotel Plaza Blvd., Lake Buena Vista, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

63.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Radisson Universal Hotel, located at 5780 Major Blvd., Orlando, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

64.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hilton Cocoa Beach, located at 1550 N. Atlantic Avenue, Cocoa Beach, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

65.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hilton Clearwater, located at 400 Mandalay Avenue, Clearwater, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

66.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Doubletree Hotel Westshore, located at 4500 W. Cypress St., Tampa, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

67.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Holiday Inn Ft. Lauderdale, located at 999 Ft. Lauderdale Beach Blvd., Ft. Lauderdale, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

68.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Holiday Inn Madeira Beach, located at 15208 Gulf Blvd., Madeira Beach, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

69.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Ramada Inn Clearwater, located at 521 S. Gulfview Blvd., Clearwater, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

70.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Howard Johnson Resort Key Largo, located at 102400 Overseas Highway, Key Largo, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

71.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to The Westin Beach Resort Key Largo, located at 97000 S. Overseas Highway, Key Largo, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

72.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., as Owner, and MMC, as Operator, with respect to the South Seas Resort, located at 5400 Plantation Road, Captiva, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

73.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., as Owner, and MMC, as Operator, with respect to the Radisson Suites Beach Resort, located at 600 South Collier Blvd., Marco Island, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

74.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Safety Harbor Resort & Spa, located at 105 North Bayshore Drive, Safety Harbor, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

75.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., as Owner, and MMC, as Operator, with respect to the Sanibel Inn, located at

		937 East Gulf Drive, Sanibel Island, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

76.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to The Dunes Golf & Tennis Club, located at 949 Sandcastle Road, Sanibel Island, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

77.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Seaside Inn, located at 541 East Gulf Drive, Sanibel Island, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

78.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Song of the Sea, located at 863 East Gulf Drive, Sanibel Island, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

79.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Sundial Beach Resort, located at 1451 Middle Gulf Drive, Sanibel Island, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

80.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Best Western Sanibel Island, located at 3287 West Gulf Drive, Sanibel Island, FL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

81.		Hotel Management Agreement, dated January , 1999, between AGL Investments No. 2 Limited Partnership and MMC, with respect to Doubletree Hotel Palm Beach Gardens, located at 4431 PGA Boulevard, Palm Beach Gardens, FL.

82.		Hotel Management Agreement, dated as of November 30, 2001, between BeachBoy, LLC and MMC, with respect to Best Western Pink Shell Resort, located at 275 Estero Boulevard, Ft. Myers Beach, FL.

83.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Ft. Lauderdale, located at 720 E. Cypress Creek, Ft. Lauderdale, FL.

84.		Hotel Management Agreement, dated as of , 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Orlando, located at 7975 Canada Avenue, Orlando, FL.

85.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Doubletree Guest Suites Atlanta, located at 2780 Windy Ridge Parkway, Atlanta, GA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

86.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to The Westin Atlanta Airport, located at 4736 Best Road, Atlanta, GA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

87.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Wyndham Garden Marietta, located at 1775 Parkway Place, N.W., Marietta, GA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

88.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Jekyll Inn, located at 975 North Beachview Drive, Jekyll Island, GA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

89.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Comfort Inn Marietta Atlanta, located at 2100 Northwest Parkway, Marietta, GA.

90.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Perimeter West Atlanta, located at 6096 Barfield Road, Atlanta, GA.

91.		Hotel Management Agreement, dated as of , between Broadmoor Joint Venture and MMC (as successor to American General Hospitality, Inc.), with respect to Courtyard by Marriott Boise, located at 222 South Broadway Avenue, Boise, ID.

92.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Holiday Inn Chicago O’Hare International, located at 5440 North River Road, Rosemont, IL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

93.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Radisson Hotel Arlington Heights, located at 75 West Algonquin Road, Arlington Heights, IL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

94.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Radisson Hotel & Suites Chicago Downtown, located at 160 East Huron Street, Chicago, IL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

95.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Radisson Hotel Schaumburg, located at 1725 East Algonquin Road, Schaumburg, IL, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

96.		Hotel Management Agreement, dated March 10, 2000, between AGL Investments No. 17 Limited Partnership and MMC, with respect to Doral Chicago (f/k/a Nordic Hills Resort & Conference Center), located at 1401 Nordic Road, Itasca, IL.

97.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Express Arlington Heights, located at 2120 South Arlington Heights Road, Arlington Heights, IL.

98.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Crystal Lake, located at 800 South Route 31, Crystal Lake, IL.

99.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Express Downers Grove, located at 3031 Finley Road, Downers Grove, IL.

100.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Doubletree Guest Suites, located at 11355 North Meridian, Carmel, IN, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

101.		Hotel Management Agreement, dated as of , 2000, between Massachusetts Mutual Life Insurance Company and MMC, with respect to Omni Hotel Indianapolis North, located at 8181 North Shadeland Avenue, Indianapolis, IN.

102.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Airport, located at 5601 Fortune Circle West, Indianapolis, IN.

103.		Hotel Management Agreement, dated as of March 31, 1999, between MIP Lessee, LP and MMC, with respect to Sheraton Hotel Iowa City, located at 210 South Dubuque Street, Iowa City, IA.

104.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Seelbach Hilton Louisville, located at 500 Fourth Avenue, Louisville, KY, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

105.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp. and MMC, with respect to the Radisson Plaza Hotel, located at 369 West Vine Street, Lexington, KY.

106.		Hotel Management Agreement, dated as of January 10, 1996, between DJONT Operations, L.L.C. and MMC (as successor to American General Hospitality, Inc.), with respect to Hilton Suites of Lexington Green, located at 245 Lexington Green Circle, Lexington, KY.

107.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Southwest Louisville, located at 4110 Dixie Highway, Louisville, KY.

108.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hotel Maison dé Villé, located at 727 Rue Toulouse, New Orleans, LA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

109.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp. and MMC, with respect to the Holiday Inn Select New Orleans Airport, located at 2929 Williams Blvd., New Orleans, LA.

110.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp. and MMC, with respect to the Hilton Lafayette & Towers, located at 1521 West Pinhook Road, Lafayette, LA.

111.		Hotel Management Agreement, dated as of , between and MMC, with respect to Quality Inn Bossier City, located at 4300 Industrial Drive, Bossier City, LA.

112.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Central Lafayette, located at 2032 North Evangeline Thruway, Lafayette, LA.

113.		Management Agreement, dated as of December 16, 2002, between LHO New Orleans One Lessee, LLC and MeriStar Management Company, L.L.C., with respect to the New Orleans Grande Hotel, located at 614 Canal Street, New Orleans, LA.

114.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to Radisson Hotel Annapolis, located at 210 Holiday Court, Annapolis, MD, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

115.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to Radisson Hotel Cross Keys, located at 5100 Falls Road, Baltimore, MD, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

116.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., as Owner, and MMC, as Operator, with respect to Sheraton Columbia Hotel, located at 10207 Wincopin Circle, Columbia, MD, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

117.		Hotel Management Agreement, dated as of March 21, 1995, between Congressional Plaza Hotel, Inc. and MMC, with respect to Ramada Inn Rockville-Congressional Park, located at 1775 Rockville Pike, Rockville, MD.

118.		Hotel Management Agreement, dated as of June 1, 2000, between Laurel Suite Limited Partnership and MMC, with respect to Comfort Suites Laurel Lakes, located at 14402 Laurel Lakes Place, Laurel, MD.

119.		Hotel Management Agreement, dated as of October 29, 1997, between BWI Hotel Associated Limited Partnership and MMC (successor-in-interest to CapStar Management Company, L.P.), as amended by that certain Amendment to Hotel Management Agreement, dated as of , 2000, with respect to Microtel Inn & Suites at BWI Airport, located at 1170 Winterson Road, Linthicum, MD.

120.		Country Club Management Agreement, dated as of March 19, 2001, between Swan Point Yacht & Country Club, Inc. and MMC d/b/a Doral® Golf, with respect to Swan Point Yacht and Country Club, located at 11550 Swan Point Boulevard, Issue, MD.

121.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Hilton Metro Airport & Suites, located at 8600 Wickham Road, Romulus, MI, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

122.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp. and MMC, with respect to the Hilton Grand Rapids Airport, located at 4747 28th Street, S.E., Grand Rapids, MI.

123.		Hotel Management Agreement, dated as of October 31, 2000, between Corporate Property Associates 5 – A California Limited Partnership (CPA:5), Corporate Property Associates 6 – A California Limited Partnership (CPA:6), jointly and severally, and MMC, with respect to Holiday Inn Alpena, located at 1000 U.S. 23 North, Alpena, MI.

124.		Hotel Management Agreement, dated as of October 31, 2000, between Corporate Property Associates 5 – A California Limited Partnership (CPA:5), Corporate Property Associates 6 – A California Limited Partnership (CPA:6), jointly and severally, and MMC, with respect to Holiday Inn Petoskey, located at 1444 U.S. 131 South, Petoskey, MI.

125.		Hotel Management Agreement, dated as of October 31, 2000, between between Corporate Property Associates 6 – A California Limited Partnership (CPA:6), Corporate Property Associates 7 – A California Limited Partnership (CPA:7), jointly and severally, and MMC, with respect to Holiday Inn Detroit West Livonia, located at 17123 Laurel Park Drive North, Livonia, MI.

126.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Ann Arbor, located at 800 Victors Way, Ann Arbor, MI.

127.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Courtyard by Marriott Flint, located at 5205 Gateway Center, Flint, MI.

128.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Gateway Center, located at 5353 Gateway Center, Flint, MI.

129.		Hotel Management Agreement, dated as of March 31, 1999, between MIP Lessee, LP and MMC, with respect to Hilton Minneapolis/St. Paul Airport, located at 3800 East 80th Street, Bloomington, MN.

130.		Hotel Management Agreement, dated as of November 30, 2001, between Minneapolis Leasing, L.L.C. and MMC, with respect to the Holiday Inn Minneapolis West, located at 9970 Wayzata Blvd., St. Louis Park, MN.

131.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Airport, located at 4201 West 80th Street, Bloomington, MN.

132.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Express Bloomington, located at 814 East 79th Street, Bloomington, MN.

133.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Minnetonka, located at 10420 Wayzata Blvd., Minnetonka, MN.

134.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Hattiesburg, located at 4301 Hardy Street, Hattiesburg, MS.

135.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to the Holiday Inn Sports Complex, located at 4011 Blue Ridge Cut-off, Kansas City, MO, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

136.		Hotel Management Agreement, dated as of , between CapStar Hallmark Company, L.L.C. and MMC, with respect to Radisson Hotel & Suites Downtown, located at 200 North 4th Street, St. Louis, MO.

137.		Hotel Management Agreement, dated as of November 30, 2001, between Boykin Kansas City, L.L.C and MMC, with respect to Doubletree Hotel Kansas City, located at 1301 Wyandotte Street, Kansas City, MO.

138.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Sheraton Hotel Clayton Plaza, located at 7730 Bonhomme Avenue, Clayton, MO.

139.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Kansas City, located at 2975 Main Street – Union Hill, Kansas City, MO.

140.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Airport I-80 Lincoln, located at 1301 West Bond Circle, Lincoln, NE.

141.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Westroads Mall Omaha, located at 9720 West Dodge Road, Omaha, NE.

142.		Hotel Management Agreement, dated as of December 1, 2001, between MeriStar Hotel Lessee, Inc. and MMC, with respect to St. Tropez Hotel, located at 455 East Harmon Avenue, Las Vegas, NV, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002. (Note: Scheduled to be terminated on or before January 15, 2003.)

143.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Courtyard by Marriott Meadowlands, located at 455 Harmon Meadow Blvd., Secaucus, NJ, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

144.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to The Westin Morristown, located at 2 Whippany Road, Morristown, NJ, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

145.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Doral Forrestal Hotel & Conference Center, located at 100 College Road, Princeton, NJ, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

146.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp., and MMC, with respect to the Somerset Marriott Hotel, located at 110 Davidson Avenue, Somerset, NJ.

147.		Hotel Management Agreement, dated as of May 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Sheraton Crossroads Hotel, located at Crossroads Corporate Center, Mahwah, NJ, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

148.		Hotel Management Agreement, dated as of May 24, 2000, between Household Commercial Financial Services, Inc. and MMC with respect to Comfort Inn West Atlantic City, located at 7095 Black Horse Pike, West Atlantic City, NJ.

149.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp., and MMC, with respect to the Doubletree Hotel Albuquerque, located at 201 Marquette NW, Albuquerque, NM.

150.		Hotel Management Agreement, dated as of January 1, 2001, MeriStar Hotel Lessee, Inc., and MMC, with respect to the Wyndham Hotel Albuquerque, located at 2910 Yale Blvd.,

		S.E., Albuquerque, NM, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

151.		Hotel Management Agreement, dated as of January 1, 2001, MeriStar Hotel Lessee, Inc., and MMC, with respect to the Radisson Hotel Rochester Airport, located at 175 Jefferson Road, Rochester, NY, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

152.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Fishkill, located at 14 Schuyler Boulevard, Fishkill, NY.

153.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Courtyard by Marriott Durham, located at 1815 Front Street, Durham, NC, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

154.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Durham, located at 3800 Hillsborough Road, Durham, NC, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

155.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE North Carolina Corp., and MMC, with respect to the Sheraton Airport Plaza Hotel, located at 3315 I-85 Billy Graham Parkway, Charlotte, NC.

156.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Burlington, located at 2444 Maple Avenue, Burlington, NC.

157.		Hotel Management Agreement, dated as of January 1, 2001, MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Toledo, located at 3100 Glendale Avenue, Toledo, OH, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

158.		Hotel Management Agreement, dated as of January 1, 2001, MeriStar Hotel Lessee, Inc., and MMC, with respect to the Radisson Hotel Cleveland Southwest, located at 7230 Engle Road, Middleburg Heights, OH, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

159.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to The Westin Oklahoma City, located at One North Broadway, Oklahoma City, OK, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

160.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Oklahoma City Airport, located at 1905 South Meridian Avenue, Oklahoma City, OK.

161.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Tulsa, located at 3209 South 79th Avenue, Tulsa, OK.

162.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to Crowne Plaza Portland, located at 14811 Kruse Oaks Blvd., Lake Oswego, OR, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

163.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Holiday Inn Select Bucks County, located at 4700 Street Road, Trevose, PA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

164.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Sheraton Great Valley Hotel, located at 707 Lancaster Pike, Frazer, PA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

165.		Hotel Management Agreement, effective date February 1, 1993, between HFC Commercial Realty, Inc., Center Realty, Inc. and COM Realty, Inc., and MMC, with respect to Sheraton Hotel Bucks County, located at 400 Oxford Valley Road, Langhorne, PA.

166.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp., and MMC, with respect to the Embassy Suites Center City, located at 1776 Ben Franklin Parkway, Philadelphia, PA.

167.		Hotel Management Agreement, dated as of June 27, 2000, between MIP Lessee, LP and MMC, with respect to Embassy Suites Philadelphia International Airport, located at 9000 Bartram Avenue, Philadelphia, PA.

168.		Hotel Management Agreement, dated as of , 2000, between HJ & VJ, LLC and MMC, with respect to Staybridge Suites Lehigh Valley Airport, located at 1811 Airport Road, Allentown, PA.

169.		Hotel Management Agreement, dated as of , 2001, between HJ & VJ, LLC and MMC, with respect to Hilton Garden Inn Lehigh Valley Airport, located at 1787 Airport Road, Allentown, PA.

170.		Hotel Management Agreement, dated as of , 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to MainStay Suites Pittsburgh, located at 1000 Park Lane Drive, Pittsburgh, PA.

171.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Providence, located at 500 Kilvert Street, Warwick, RI.

172.		Amended and Restated Hotel Management Agreement, dated as of December 2, 1996, between FMH, L.P. and MMC (successor-in-interest to CapStar Management Company, L.P.) with respect to The Westin Francis Marion, located at 387 King Street, Charleston, SC.

173.		Hotel Management Agreement, dated as of February 19, 1998, between Newco Management Company, as agent for Whitney Properties, L.P., and MMC, with respect to The Whitney Hotel, located at 700 Woodrow Street, Columbia, SC.

174.		Hotel Management Agreement, dated as of September 2, 1999, between Poinsett Hotel Company, LLC and MMC, with respect to The Westin Poinsett, located at 220 South Main Street, Greenville, SC.

175.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Coliseum, located at 630 Assembly Street, Columbia, SC.

176.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Comfort Inn Carowinds, located at 3725 Avenue of the Carolinas, Ft. Mill, SC.

177.		Hotel Management Agreement, dated as of , 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to MainStay Suites Greenville, located at 2671 Dry Pocket Road, Greenville, SC.

178.		Hotel Management Agreement, dated as of February , 2001, between West End Hotel Partners, LLC and MMC, with respect to Stadium Club Marriott at Vanderbilt University, located at 2525 West End, Nashville, TN.

179.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Walnut Grove Memphis, located at 33 Humphrey Center Drive, Memphis, TN.

180.		Hotel Management Agreement, dated as of , 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to MainStay Suites Brentwood, located at 107 Brentwood Blvd., Brentwood, TN.

181.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Holiday Inn DFW Airport West, located at 3005 Airport Freeway, Bedford, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

182.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Holiday Inn Select DFW Airport South, located at 4440 West Airport Freeway, Irving, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

183.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Austin North & Towers, located at 6000 Middle Fiskville Road, Austin, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

184.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp., and MMC, with respect to the Hilton Houston Westchase & Towers, located at 9999 Westheimer, Houston, TX.

185.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Midland & Towers, located at 117 West Wall Avenue, Midland, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

186.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp., and MMC, with respect to the Hilton Arlington, located at 2401 East Lamar Blvd., Arlington, TX.

187.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp., and MMC, with respect to the Doubletree Hotel Austin, located at 6505 I-35 North, Austin, TX.

188.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Sheraton Houston Hotel Brookhollow, located at 3000 North Loop West, Houston, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

189.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Sheraton Dallas Hotel Brookhollow, located at 1241 West Mockingbird Lane, Dallas, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002

190.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Radisson Hotel Dallas, located at 1893 West Mockingbird Lane, Dallas, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

191.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Renaissance Hotel North Dallas, located at 4099 Valley View Lane, Dallas, TX, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

192.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Leasing Corp., and MMC, with respect to the Houston Marriott Hotel West Loop by the Galleria, located at 1750 West Loop South, Houston, TX.

193.		Management Agreement, dated as of March 29, 1995, between DJONT Operations, L.L.C. and MMC (as successor to American General Hospitality, Inc.), with respect to

		the Embassy Suites Hotel Love Field, located at 3880 West Northwest Highway, Dallas, TX.

194.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Express I-35 Airport Austin, located at 7622 I-35 North, Austin, TX.

195.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn River Plaza, located at 1701 South University Drive, Ft. Worth, TX.

196.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to TownePlace Suites Ft. Worth, located at 4200 International Plaza, Ft. Worth, TX.

197.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Hobby Airport Houston, located at 8620 Airport Boulevard, Houston, TX.

198.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Hampton Inn Laredo, located at 7903 San Dario, Laredo, TX.

199.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Residence Inn Tyler, located at 3303 Troup Highway, Tyler, TX.

200.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Salt Lake City Airport, located at 5151 Wiley Post Way, Salt Lake City, UT, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

201.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Radisson Hotel Old Town, located at 901 North Fairfax Street, Alexandria, VA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

202.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Holiday Inn & Suites Historic District, located at 625 First Street, Alexandria, VA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

203.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Arlington & Towers, located at 950 North Stafford Street, Arlington, VA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

204.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Crystal City at National Airport, located at 2399 Jefferson Davis Highway, Arlington, VA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

205.		Hotel Management Agreement, dated as of February , 2000, between National Hospitality Corporation and MMC, with respect to the Sheraton National Hotel, located at 900 South Orme Street, Arlington, VA.

206.		Hotel Management Agreement, dated as of December 5, 2000, between JBG/Rockwood Gateway Plaza Operator, L.L.C. and MMC, with respect to the Sheraton Reston Hotel, located at 11810 Sunrise Valley Drive, Reston, VA.

207.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Hilton Bellevue, located at 100 112th Avenue, N.E., Bellevue, WA, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

208.		Hotel Management Agreement, dated as of , between and MMC, with respect to Holiday Inn Beckley, located at 1924 Harper Road, Beckley, WV.

209.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Holiday Inn Madison, located at 3841 East Washington Avenue, Madison, WI, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

210.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar SPE Wisconsin Corp., and MMC, with respect to the Crowne Plaza Madison, located at 4402 East Washington Avenue, Madison, WI.

211.		Hotel Management Agreement, dated as of February 2, 2000, between MIP Lessee, LP and MMC, with respect to Wyndham Milwaukee Center, 139 Kilbourn Avenue, Milwaukee, WI.

212.		Hotel Management Agreement, dated as of January 1, 2001, by and between RFS Leasing II, Inc. and Flagstone, with respect to Holiday Inn Express Mayfair Mall-Milwaukee, located at 11111 West North Avenue, Wauwatosa, WI.

213.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Holiday Inn Calgary Airport, located at 1250 McKinnon Drive, N.E., Calgary, Alberta, Canada, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

214.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Holiday Inn Metrotown, located at 4405 Central Blvd., Burnaby, British Columbia, Canada, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

215.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Sheraton Guildford Hotel, located at 15269 104th Avenue, Surrey, British Columbia, Canada, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

216.		Hotel Management Agreement, dated as of January 1, 2001, between MeriStar Hotel Lessee, Inc., and MMC, with respect to the Ramada Vancouver Centre, located at 898 West Broadway, Vancouver, British Columbia, Canada, as amended by that certain Amendment to Management Agreement, dated as of January 1, 2002.

217.		Hotel Management Agreement, dated as of April 15, 1999, among Crystal Square Development Corp., Crystal Square Management Inc., TYBA Crystal Investment Corp., Dong Ah Canada Development Corp., MeriStar Management (Vancouver Metrotown) Ltd., and MMC, with respect to Hilton Vancouver Metrotown, located at 6083 McKay Avenue, Burnaby, British Columbia, Canada.

218.		Management Consulting Agreement, dated August 6, 2001, between American Ski Company and certain of its subsidiaries and MMC, with respect to: (a) Steamboat Grand Resort Hotel & Conference Center, located at 2300 Mount Werner Circle, Steamboat Springs, CO; (b) Sunday River Grand Summit Hotel & Conference Center, located at Sunday River Resort, Sunday River Access Road, Bethel, ME; (c) Sugarloaf/USA Resort & Conference Center, located at Sugarloaf, Rural Route One, Carrabassett Valley, ME (d) Attitash Resort, Grand Summit Hotel and Conference Center, Route 302, Bartlett, NH; (e) The Canyons Resort, located at 4000 The Canyons Resort Drive, Park City, UT; (f) Killington Resort & Conference Center, located at 225 East Mountain Road, Killington, VT; (g) Mount Snow Resort, located at 89 Mountain Road, West Dover, VT.

219.		Services Agreement, dated as of December 21, 2001, between United Golf LLC and MMC, with respect to (i) Blackhawk Golf Club, St. Charles, IL, (ii) Cleghorn Plantation Golf Club, Rutherfordton, NC (iii) Lake Breeze Golf Club, Winneconne, WI and (iv) Serenoa Golf Club, Sarasota, FL.

1.		Management Agreement, dated October 30, 1996, between City Square Associates, LLC and Interstate Hotels Company (“Interstate”), as amended by that certain First Amendment to Management Agreement, dated March 24, 1999, with respect to The Lexington Hotel, located at 4000 North Central Avenue, Phoenix, AZ.

2.		Management Agreement, dated January 1, 2001, between FCH/Interstate Leasing, L.L.C. and Crossroads Hotel Management Company, L.L.C. (“Crossroads”) with respect to Fairfield Inn by Marriott Downtown Scottsdale, located at 5101 N. Scottsdale Road, Scottsdale, AZ.

3.		Management Agreement, dated as of January 1, 2001 with ENN Leasing Company, Inc. (“Equity”) and Crossroads, with respect to Hampton Inn Scottsdale-Old Town, located at 4415 N. Civic Center Plaza, Scottsdale, AZ.

4.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company II, LLC and Crossroads, with respect to Residence Inn by Marriott Tucson, located at 6477 East Speedway Boulevard, Tucson, AZ.

5.		Management Agreement, dated December 19, 1997, between Pacifica Hotel and Conference Center Partnership and Interstate, with respect to Radisson Los Angeles Westside, located at 6161 Centinela Avenue, Culver City, CA.

6.		Management Agreement, dated May 1, 1995, between Connecticut General Life Insurance Company and Interstate Hotels LLC, as amended by that certain Letter Amendment to Management Agreement, dated December 11, 1995, as further amended by that certain Amendment to Management Agreement, dated April 6, 1999, with respect to Marriott’s Laguna Cliff Resort (Dana Point), located at 25135 Park Lantern, Dana Point, CA 92629.

7.		Management Agreement, dated June 30, 1995, between Today’s IV, Inc. and Interstate Hotels, LLC, as amended by that certain Letter Agreement, dated December 15, 1995, as further amended by that certain Letter Agreement, dated October 24, 1997, that certain Amendment to Management Agreement, dated August 10, 1999, and that certain Letter Agreement November 18, 2001, with respect to The Westin Bonaventure, located at 404 S. Figueroa Street, Los Angeles, CA.

8.		Food and Beverage Operations Management Agreement, dated as of June 30, 1995, between FIT Investment Corporation d/b/a FIT Texas Investment Corporation and Interstate Hotels, LLC, with respect to The Westin Bonaventure, located at 404 S. Figueroa Street, Los Angeles, CA.

9.		Management Agreement dated as of August 11, 2000, between Amcor Investments and Crossroads, with respect to Hampton Inn Milpitas, located at 215 Barber Court, Milpitas, CA.

10.		Operation Agreement, dated September 29, 1997, between HMC/Interstate Ontario, LP and Interstate Hotels LLC, as amended by that certain Consent, Assignment and Assumption and Amendment of Operation Agreement, dated December 31, 1998, with respect to the Marriott Ontario Airport, located 2200 East Holt Boulevard, Ontario, CA.

11.		Management Agreement, dated December 14, 1998, between Today’s VI, LLC and Interstate Hotels Company, as amended by that certain Letter Agreement re: Amendment to Management Agreement, dated November 18, 2001, with respect to Ontario Amerisuites Hotel, located at 4760 East Mills Circle, Ontario, CA.

12.		Operation Agreement, dated December 15, 1994, between Host Marriott, L.P. and Interstate Hotels, LLC, as amended by that certain First Amendment to Operation Agreement, dated November 1, 1996, as further amended by that certain Second Amendment to Operation Agreement, dated January 31, 1997, and that certain Consent, Assignment and Assumption and Amendment of Operation Agreement December 31, 1998, with respect to the Marriott Fisherman’s Wharf, located at 1250 Columbus Avenue, San Francisco, CA.

13.		Management Agreement, dated May 30, 1992, between Today’s Hotel Corporation and Interstate Hotels LLC, as amended by that certain Letter Agreement re: Amendment to Management Agreement, dated November 18, 2001, as further amended by that certain Second Amendment to Management Agreement, dated September 14, 2001, and that certain Second Addendum to Management Agreement and Related Agreements, dated August 2000, with respect to the Holiday Inn San Francisco Golden Gateway, located at 1500 Van Ness Avenue, San Francisco, CA.

14.		Management Agreement, dated as of July 24, 2001, between SSF Investments, LLC and Crossroads, with respect to the Comfort Suites South San Francisco, located at 121 East Grand Avenue, South San Francisco, CA.

15.		Management Agreement, dated December 15, 1995, between Interstone/CGL WC Partners, LP and Interstate Hotels, LLC, as amended by that certain Side Letter re: sale of hotels, dated December 28, 1995, as further amended by that certain Letter Notice, dated January 1, 1999, that certain Cash Flow Letter, dated January 1, 1999, that certain Cash Flow Letter dated May 12, 1999, and that certain Letter re: Interstone/CGL WC Partners, LP, dated January 1, 1999, with respect to the Marriott Warner Center, located at 21850 Oxnard Street, Woodland Hills, CA.

16.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IV, LLC and Crossroads, with respect to the Hampton Inn Denver/Aurora, located at 1500 South Abilene, Aurora, CO.

17.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn Colorado Springs/I-25 North, located at 7245 Commerce Center Drive, Colorado Springs, CO.

18.		Management Agreement, dated as of February 12, 1999, between Colorado Springs Hotel Partners, LLC and Crossroads with respect to the Hilton Garden Inn Colorado Springs, located at 1810 Briargate Parkway, Colorado Springs, CO.

19.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to Residence Inn by Marriott Colorado Springs, located at 3880 North Academy Boulevard, Colorado Springs, CO.

20.		Management Agreement dated as of April 25, 2002, between Briad Lodging Group Danbury, LLC and Crossroads Hospitality Management Company, with respect to the Spring Hill Suites Danbury, located at 30 Old Ridgebury Road, Danbury, Connecticut.

21.		Management Agreement, dated November 19, 2001, between CY Manchester Tenant Corporation and Crossroads, with respect to the Courtyard By Marriott Hartford/Manchester, located at 225 Slater Street, Manchester, CT.

22.		Management Agreement, dated November 19, 2001, between RI Manchester Tenant Corporation and Crossroads, with respect to the Residence Inn by Marriott Hartford/Manchester, located at 210 Hale Road, Manchester, CT.

23.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn Meriden, located at 10 Bee Street, Meriden, CT 06450.

24.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn Milford, located at 129 Plains Road, Milford, CT.

25.		Management Agreement, dated as of January 1, 2001, between Orange Hotel Development, LP and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Management Agreement dated January 1, 2001, with respect to the Courtyard by Marriott Orange, located at 136 Marsh Hill Road, Orange, CT.

26.		Management Agreement, dated as of August , 2002, between FCLC Shleton, LLC and Crossroads Hospitality Management Company, with respect to the AmeriSuites Hotel Shelton, 695 Bridgeport Avenue, Shelton, CT.

27.		Management Agreement, dated July 24, 2001, between Delaware Hotel Associates, L.P. and Crossroads with respect to the Holiday Inn Select Wilmington, located at 630 Naamans Road, Claymont, DE.

28.		Management Agreement April 16, 2001, between AGL Investments No. 3 Limited Partnership and Interstate Hotels Company, as amended by that certain Addendum to Management Agreement April 16, 2001, with respect to the Washington Terrace Hotel (f/k/a Washington Park Terrace Doubletree Hotel), located at 1515 Rhode Island Avenue NW, Washington, DC.

29.		Amended and Restated Management Agreement, dated January 1, 2001, between Massachusetts Mutual Life Insurance Company and Interstate Hotel Company, with respect to the Sheraton Biscayne Bay Hotel, located at 495 Brickell Ave., Miami, FL.

30.		Management Agreement, dated May 22, 1985, between Crocker Center Associates III, Ltd. and , as amended by that certain Amendment to Management Agreement, December 20, 1994, and as further amended by that certain First Amendment to Management Agreement, November 8, 1985; Third Amendment to Management Agreement January 17, 2001; Extensions of Management Agreement May 1998 through August 31, 1999, with respect to the Marriott Boca Raton Hotel, located at 5150 Town Center Circle, Boca Raton, FL.

31.		Management Agreement, dated December 21, 1996, between Don Cesar Resort Hotel Ltd. and Interstate Hotels, LLC, as amended by that certain First Amendment to Management Agreement, dated January 14, 1997, and as further amended by that certain letter agreement, dated April 6, 1999, and that certain letter agreement, dated February 8, 2002, with respect to the Don Cesar Resort Hotel & Spa, located at 3400 Gulf Boulevard, St. Pete Beach, FL.

32.		Primary Management Agreement, dated as of June 10, 1999, between Wyndham International Operating Partnership, LP and IHC II, LLC; Submanagement Agreement, dated as of June 10, 1999, between IHC II, LLC and Marriott, both with respect to the Marriott Indian River Plantation, located at 555 N.E. Ocean Blvd., Stuart, FL.

33.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Comfort Inn Jacksonville Beach, located at 1515 North 1st Street, Jacksonville, FL.

34.		Management Agreement, dated as of January 1, 2001, between with ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Jacksonville/Orange Park, located at 6135 Youngerman Circle, Jacksonville, FL.

35.		Management Agreement, dated March 13, 1998, between Kendall Resort Hotel Limited Partnership and Crossroads, as supplemented by that certain Pre-Opening Activities Agreement, dated March 13, 1998, with respect to the Radisson Suites Kendall, located at 9100 N. Kendall Drive, Miami, FL.

36.		Management Agreement February 20, 2002, effective April 1, 2002, as amended April 29, 2002, Holiday Inn Key West Beachside, located at 3841 N. Roosevelt Blvd., Key West, FL (Notice of termination of this agreement pending sale of the hotel has been received).

37.		Management Agreement October 20, 2000, between Maingate Hospitality, L.P. and Interstate Hotels Company, as amended by that certain Amendment, dated February 21, 2002, with respect to the Renaissance Worldgate Hotel, located at 3011 Maingate Lane, Kissimmee, FL.

38.		Management Agreement, dated October 25, 1988, between Teachers Retirement System of the State of Illinois and Interstate Hotels LLC, as amended by that certain Amendment to Management Agreement, dated September 26, 2001, with respect to the Marriott Orlando Airport, located at 7499 Augusta National Drive, Orlando, FL.

39.		Management Agreement, dated January 31, 2002, between Ganesh Hospitality Inc. and Crossroads, with respect to the Best Western Universal Orlando, located at 3618 Vineland Road, Orlando, FL.

40.		Management Agreement January 31, 2002, between Sita Resorts and Crossroads, with respect to the Comfort Inn International, located at 8134 International Drive, Orlando, FL.

41.		Management Agreement January 15, 2001, between Universal Towers Construction, Inc. and Interstate Hotels Company, with respect to the Crowne Plaza Orlando, located at 7800 Universal Blvd., Orlando, FL.

42.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Homewood Suites Orlando Convention Center, located at 8745 International Drive, Orlando, FL.

43.		Management Agreement, dated December 8, 2000, between Interconn Ponte Vedra Company, LLC and Interstate Hotels Company, with respect to the Marriott at Sawgrass, located at 1000 PGA Tour Boulevard, Ponte Vedra Beach, FL.

44.		Management Agreement, dated January 1, 2001, between FCH/Interstate Leasing, L.L.C. and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Agreements re: Lease and Management Agreement, dated March 26, 2001, with respect to the Fairfield Inn Atlanta/Downtown, located at 175 Piedmont Avenue NE, Atlanta, GA.

45.		Primary Management Agreement, dated as of June 10, 1999, by and between Wyndham International Operating Partnership, LP and IHC II, LLC; Submanagement Agreement, dated as of June 10, 1999, by and between IHC II, LLC and Marriott, both with respect to the Marriott Atlanta/North Central, located at 2000 Century Blvd., N.E., Atlanta, GA.

46.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn Atlanta/Northlake, located at 3400 Northlake Parkway, Atlanta, GA.

47.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Homewood Suites Augusta, located at 1049 Stevens Creek Road, Augusta, GA.

48.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Columbus Airport, located at 5585 Whitesville Road, Columbus, GA.

49.		Management Agreement, dated January 31, 2000, between Forward One, LLC and Interstate Hotels Company; Food and Beverage Operations Management Agreement January 31, 2000, as amended by that certain Letter Agreement, dated November 18, 2001, both with respect to the Renaissance Ilikai Waikiki Hotel, located at 1777 Ala Moana Blvd., Honolulu, HI.

50.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect o the Boise Residence Inn by Marriott, located at 1401 S. Lusk Ave., Boise, ID.

51.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Homewood Suites Chicago Downtown, located at 40 East Grand, Chicago, IL.

52.		Management Agreement, dated as of January 1, 2001, between State and Grand Hotel Partners LLC and Interstate Hotels, LLC, with respect to the Hilton Garden Inn Chicago Downtown North, located at Ten East Grand Avenue, Chicago, IL; Management Services Agreement, dated as of January 1, 2001, between the same parties with respect to the same party.

53.		Management Agreement, dated as of January 1, 2001, with ENN Leasing Company I, LLC and Crossroads, Hampton Inn Chicago/Naperville, located at 1087 Diehl Road, Naperville, IL.

54.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Indianapolis Northeast/Castleton, located at 6817 East 82nd Street, Indianapolis, IN.

55.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company II, LLC and Crossroads, with respect to the Hampton Inn Kansas City/Overland Park, located 10591 Metcalf Frontage Road, Overland Park, KS.

56.		Management Agreement, dated as of January 1, 2001 with ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Louisville East (I-64), located at 1902 Embassy Square Boulevard, Louisville, KY.

57.		Management Agreement dated February 20, 2002, between HIM Portland, LLC and Crossroads, with respect to the Portland Travelodge, located at 1200 Brighton Avenue, Portland, ME.

58.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IV, LLC and Crossroads, with respect to the Hampton Inn Baltimore/Glen Burnie, located at 6617 Gov. Ritchie Highway, Glen Burnie, MD.

59.		Management Agreement, dated January 18, 1984, between Charles Square Cambridge LLC and Cambridge Hotel Associates, as amended by that certain First Amendment to Management Agreement, dated June 18, 1999, Letter Agreement dated December 4, 1991; Assignment of Owner’s Interest dated August 9, 2001, with respect to The Charles Hotel, located at One Bennett Street, Cambridge, MA.

60.		Management Agreement, dated January 1, 2001, between Syracuse/Westborough Hotel Associates and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Management Agreement, dated January 1, 2001, with respect to the Westborough Courtyard by Marriott, located at 3 Technology Drive, Westborough, MA.

61.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Ann Arbor South, located at 925 Victors Way, Ann Arbor, MI.

62.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company III, LLC and Crossroads, with respect to the Hampton Inn Detroit/Madison Heights, located at 32420 Stephenson Highway, Madison Heights, MI.

63.		Management Agreement April 1, 2002, between Massachusetts Mutual Life Insurance Company and Interstate Hotels Company, with respect to the Marriott at Eagle Crest, located at 1275 S. Huron Street, Ypsilanti, MI.

64.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company II, LLC and Crossroads, with respect to the Residence Inn by Marriott Minneapolis/St. Paul, located at 3040 Eagandale Place, Eagan, MN.

65.		Management Agreement, dated September 4, 1997, between Lakeland Income Properties, LLC and Crossroads, as amended by letter, dated January 14, 1999, as further amended by that certain Amendment to Management Agreement, dated as of June 29, 2001, with respect to the Jackson Sleep Inn, located at 4351 Lakeland Drive, Jackson, MS.

66.		Management Agreement, dated as of , 2002, between Oxford Asset Partners, LLC and Crossroads Hospitality Management Company, with respect to the Downtown Inn of Oxford, located in Oxford, MS.

67.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company II, LLC and Crossroads, with respect to the Hampton Inn Kansas City Airport, located at 11212 North Newark Circle, Kansas City, MO.

68.		Management Agreement, dated April 6, 1990, between Maryville Center Joint Venture and Interstate Hotels Corporation, as amended by that certain Amendment to Management Agreement, dated March 18, 1997, with respect to the Marriott St. Louis West, located at 660 Maryville Centre Drive, St. Louis, MO.

69.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IV, LLC and Crossroads, with respect to the Hampton Inn St. Louis/Westport, located at 2454 Old Dorsett Road, Maryland Heights, MO.

70.		Management Agreement, dated as of January 1, 2001, between Maryville Center CBM Joint Venture and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Management Agreement, January 1, 2001, with respect to the Courtyard by Marriott St. Louis/Maryville, located at 511 Maryville University Drive, St. Louis, MO.

71.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Residence Inn by Marriott Omaha Central, located at 6990 Dodge Street, Omaha, NE.

72.		Management Agreement, dated May 20, 2002, between Cal-Neva Lodge, Inc. and Interstate Hotels Company, with respect to the Cal-Neva Resort, Spa & Casino, located at 2 Stateline Road, Crystal Bay, NV.

73.		Management Agreement, dated as of April 25, 2002, between Briad Lodging Group Cranbury, LLC and Crossroads Hospitality Management Company, with respect to Residence Inn by Marriott Cranbury, located at 2662 Route 130 Cranbury, NJ.

74.		Management Agreement, dated as of April 25, 2002, between Briad Lodging Group Franklin, LLC and Crossroads Hospitality Management Company, with respect to Residence Inn by Marriott Franklin, located at 37 World Fair Drive, Somerset, NJ.

75.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Residence Inn by Marriott Princeton, located at 4225 Route 1, P.O. Box 8388, Princeton, NJ.

76.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company II, LLC and Crossroads, with respect to the Residence Inn by Marriott Tinton Falls, located at 90 Park Road, Tinton Falls, NJ.

77.		Management Agreement, dated as of May 15, 2000, between Vail Mansion LLC and Interstate Hotels Company, as amended by that certain Amendment, dated as of August 17, 2001, with respect to The Inn at Vail Mansion, located in Morristown, NJ.

78.		Management Agreement, dated as of September 16, 2002, between CNL GA Tenant Corp. and Crossroads Hospitality Management Company, with respect to the Courtyard by Marriott Edison-Raritan Center, located at 3105 Woodbridge Boulevard, Edison, NJ.

79.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IV, LLC and Crossroads, with respect to the Hampton Inn Albany – Wolf Road, located at 10 Ulenski Drive, Albany, NY.

80.		Management Agreement, dated May 14, 1997, between Med Inn Centers of America, LLC and Crossroads, with respect to The Pillars Hotel, located at 125 High Street, Buffalo, NY.

81.		Management Agreement, dated March 31, 1995, between University Inn Corporation and Crossroads, as amended by letter, dated August 31, 1995, Canton Best Western University Inn, located at 90 East Main Street, Canton, NY.

82.		Management Agreement, dated as of October 5, 2001, between Briad Lodging Group Hauppauge, LLC and Crossroads Hospitality Management Company, as amended by that certain First Amendment to Management Agreement, dated as of April 25, 2002, with respect to Residence Inn Long Island/ Hauppauge/Islandia, located at 850 Veterans Memorial Highway, Hauppauge, NY.

83.		Management Agreement January 11, 2000, between Granite JFK LLC and Crossroads, as supplemented by Letter re: Loan Amount and Terms, dated January 11, 2000, as amended by Letter, dated March 20, 2000, with respect to the Courtyard by Marriott JFK International Airport, located at 145-11 North Conduit Avenue, Jamaica, NY.

84.		Management Agreement, dated June 20, 1996, between Granite Park LLC and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Agreements July 31, 1997, with respect to the Times Square South Courtyard by Marriott, located at 114 West 40th Street, New York, NY.

85.		Management Agreement, dated October 10, 1995, between Jetport Hotel Corporation and Crossroads, as amended by that certain Amendment to Management Agreement, dated January 1, 1998, as further amended by that certain Second Amendment to Management Agreement, dated May 27, 1999, and that certain Third Amendment to Management Agreement, dated December 31, 2000, with respect to the Comfort Inn Murray Hill, located at 42 West 35th Street, New York, NY.

86.		anagement Agreement, dated August 21, 2000, between Massachusetts Mutual Life Insurance Company and Interstate Hotels Company, with respect to The Muse Hotel, located at 130 West 46th Street New York, NY.

87.		Management Agreement June 6, 2001, between Unigroup Hotel LLC and Crossroads, as supplemented by that certain Pre-Opening Activities Agreement June 1, 2001, with respect to the Best Western New York City, located at 522 West 38th Street, New York, NY.

88.		Management Agreement, dated as of June 27, 2001, between H. Park Central Hotel and Interstate Hotels Company, as amended by that certain First Amendment dated January 1, 2002, with respect to the Park Central Hotel, located at 870 Seventh Avenue, New York, NY.

89.		Management Agreement, dated February 21, 1997, between Roosevelt Hotel Corporation, N.V. and Interstate Hotels LLC, as amended by that certain Amendment to Management Agreement, dated February 22, 1997, as further amended by that certain First Amendment of Management Agreement, dated July 21, 1997, with respect to The Roosevelt Hotel, located at 45 East 45th Street, New York, NY.

90.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn Chapel Hill, located at 1740 US15 and Highway 501, Chapel Hill, NC.

91.		Operation Agreement, dated January 5, 1995, between Host Marriott, L.P. and Interstate Hotels, LLC, as amended by that certain First Amendment to Operation Agreement, dated December 29, 1999, with respect to the Marriott Charlotte Executive Park, located at 5700 Westpark Drive, Charlotte, NC.

92.		Management Agreement, dated as of January 1, 2001, ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Fayetteville/I-95, located at 1922 Cedar Creek Road, Fayetteville, NC.

93.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Gastonia, located at 1859 Remount Road, Gastonia, NC.

94.		Management Agreement, dated November 28, 2001, between Raleigh Prism One Limited Partnership and Interstate Hotels Company, with respect to the Sheraton Raleigh Capital Center Hotel, located at 421 South Salisbury Street, Raleigh, NC.

95.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Holiday Inn Express Wilkesboro, located at 1700 Winkler Street, Wilkesboro, NC.

96.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Holiday Inn Winston-Salem, located at 2008 S. Hawthorne Road, Winston-Salem, NC.

97.		Management Agreement, dated as of May 4, 1999, between Wyndham International Operating Partnership, L.P. and Crossroads, with respect to the Courtyard by Marriott Cleveland East, located at 3695 Orange Place, Beachwood, OH.

98.		Management Agreement dated as of April 1, 2002, effective April 25, 2002, between 5901 Pfeiffer Road Hotel and Suites, LLC and Crossroads, with respect to the Clarion Hotel & Suites Cincinnati/ Blue Ash, located at 5901 Pfeiffer Road, Blue Ash, OH.

99.		Management Agreement, dated as of March 25, 1997, between 1460 Ninth Street Associates Limited Partnership and Crossroads, with respect to the Hampton Inn Cleveland Downtown, located at 1460 E. 9th Street, Cleveland, OH.

100.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn Cleveland/Westlake, located at 29690 Detroit Road, Westlake, OH.

101.		Management Agreement, dated as of July 10, 1998, between Connecticut General Life Insurance Company and , as amended by that certain Amendment to Management Agreement, dated December 31, 1999, as further amended by that certain Second Amendment to Management Agreement December 31, 2002, with respect to the Embassy Suite Columbus, located at 2700 Corporate Exchange Drive, Columbus, OH.

102.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company III, LLC and Crossroads, with respect to the Hampton Inn Columbus/Dublin, located at 3920 Tuller Road, Dublin, OH.

103.		Management Agreement, dated as of January 1, 2001, between with ENN Leasing Company II, LLC and Crossroads, with respect to the Homewood Suites Cincinnati North, located at 2670 East Kemper Road, Sharonville, OH.

104.		Management Agreement, dated November 19, 1999, supplemented by that certain Supplement to Management Agreement, dated January , 2001, as amended by that certain Amendment to Management Agreement, dated May , 2001, and that certain Amendment, dated April 11, 2002, and effective May 1, 2002, with respect to the Quartz Mountain Resort, located at Route #1, Box 37, Lone Wolf, OK.

105.		Management Agreement, dated as of January 1, 2001, between with ENN Leasing Company IV, LLC and Crossroads, with respect to the Residence Inn by Marriott Oklahoma City, located 4361 West Reno, Oklahoma City, OK.

106.		Operation Agreement, dated February 10, 1997, between HMC/Interstate Waterford, L.P. and , as amended by that certain Consent, Assignment and Assumption and Amendment of Operation Agreement, dated December 31, 1998, with respect to The Waterford Hotel, located at 6300 Waterford Boulevard, Oklahoma City, OK.

107.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Residence Inn by Marriott Portland Downtown, located at 1710 NE Multnomah St., Portland, OR.

108.		Primary Management Agreement, dated as of June 10, 1999, between Wyndham International Operating Partnership, LP and IHC II, LLC; Submanagement Agreement, dated as of June 10, 1999, between IHC II, LLC and Marriott, both with respect to the Marriott Harrisburg, located at 4650 Lindle Road, Harrisburg, PA.

109.		Management Agreement, dated November 2, 2001, between Tanjabal Inc. and Crossroads, with respect to the Fairfield Inn Harrisburg/New Cumberland, located at 175 Beacon Hill Blvd., New Cumberland, PA.

110.		Management Agreement dated January 23, 2002, between Lancaster County Convention Center Authority and , with respect to the Lancaster County Convention Center, to be located in Downtown Lancaster, PA.

111.		Management Agreement, dated January 5, 2001, between Penn Square Partners and , as amended by that certain First Amendment to Management Agreement, dated July 11, 2001, with respect to the Marriott Lancaster Hotel, to be located at Two East King Street, Lancaster, PA.

112.		Management Agreement September 22, 1997, between Majestic Holdings, LLC and Crossroads, wit respect to the Holiday Inn Philadelphia Airport, located at 45 Industrial Highway, Philadelphia, PA.

113.		Primary Management Agreement, dated as of June 10, 1999, between Wyndham International Operating Partnership, LP and IHC II, LLC; Submanagement Agreement, dated as of June 10, 1999, between IHC II, LLC and Marriott, both with respect to the Marriott Philadelphia West, located at 111 Crawford Avenue, West Conshohocken, PA.

114.		Management Agreement November 1, 1999, between Interstate Pittsburgh Hotel Holdings, LLC and Crossroads, with respect to the Residence Inn by Marriott Pittsburgh Airport, located at 1500 Park Lane, North Fayette Township, PA.

115.		Management Agreement, July 28, 2000, between Three Marquis Partners and Crossroads, with respect to the Pittsburgh Country Inn & Suites, located at 5311 Campbells Run Road, Pittsburgh, Pennsylvania.

116.		Management Agreement March 25, 1998, between Schenley Center Associates LP and Crossroads, as amended by that certain First Amendment to Management Agreement, dated September 29, 1998, as supplemented by that certain Pre-Opening Activities Agreement, dated March 25, 1998, with respect to the Residence Inn by Marriott Pittsbrugh/Oakland, located at 3896 Bigelow Blvd., Pittsburgh, PA.

117.		Management Agreement, dated as of January 1, 2001, between State College BBQ/Concord Joint Venture and Crossroads, with respect to the Hampton Inn State College, located at 1101 East College Avenue, State College, PA.

118.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IV, LLC and Crossroads, with respect to the Hampton Inn Scranton at Montage Mountain, located at Montage Mountain Rd. & David St., Scranton, PA.

119.		Management Agreement, dated April l, 2000, between FFC/Providence Hotel Partnership and Crossroads, with respect to the Courtyard by Marriott Downtown Providence, located at 32 Exchange Terrace, Providence, RI.

120.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IIII, LLC and Crossroads, with respect to the Hampton Inn Charleston Airport/Coliseum, located at 4701 Saul White Blvd., North Charleston, SC.

121.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn Columbia/I-26 Airport Area, located at 1094 Chris Drive, West Columbia, SC.

122.		Management Agreement, dated August 18, 1996, between Massachusetts Mutual Life Insurance Company and , as amended by that certain Amendment to Management Agreement, dated January 1, 1994, with respect to the Marriott Memphis Hotel, located at 2625 Thousand Oaks Boulevard, Memphis, TN.

123.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Comfort Inn Arlington South, located at 121 East I-20, Arlington, TX.

124.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company, I, LLC and Crossroads, with respect to the Hampton Inn Austin North, located at 7619 IH-35N, Austin, TX.

125.		Management Agreement, dated as of October 3, 2000, between LB Beaumont LLC and Crossroads, with respect to the Hilton Beaumont, located at 2335 I-10 South, Beaumont, TX.

126.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company I, LLC and Crossroads, with respect to the Hampton Inn College Station, located at 320 Texas Avenue South, College Station, TX.

127.		Management Agreement, dated January 1, 2001, between FCH/Interstate Leasing, L.L.C. and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Agreements re: Lease and Management Agreement, dated March 26, 2001, with respect to the Fairfield Inn by Marriott Dallas/Stemmons Freeway, located at 1575 Regal Row at Stemmons Freeway, Dallas, TX.

128.		Management Agreement, dated as of August 18, 2000, between MRI Houston Hospitality, L.P. and Crossroads, with respect to the Residence Inn by Marriott Houston Astrodome/Medical Center, located at 7710 S. Main St., Houston, TX.

129.		Management Agreement, dated September 28, 2000, between HHG Partners, LLC and Crossroads, with respect to the Hilton Garden Inn Houston/Bush Intercontinental Airport, located at 15400 John F. Kennedy Boulevard, Houston, TX 77032.

130.		Management Agreement, dated January 1, 2001, between FCH/Interstate Leasing, L.L.C. and Crossroads, as assigned pursuant to that certain Assignment and Assumption of

		Agreements re: Lease and Management Agreement, dated March 26, 2001, with respect to the Courtyard by Marriott Houston/Galleria, located at 3131 West Loop South, Houston, TX.

131.		Management Agreement, dated January 1, 2001, between FCH/Interstate Leasing, L.L.C. and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Agreements re: Lease and Management Agreement, dated March 26, 2001, with respect to the Fairfield Inn Houston/Galleria, located at 3131 West Loop South, Houston, TX.

132.		Management Agreement, dated January 1, 2001, between FCH/Interstate Leasing, L.L.C. and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Agreements re: Lease and Management Agreement, dated March 26, 2001, with respect to the Fairfield Inn Houston/I-10 East, located at 10155 I-10 East Freeway, Houston, TX.

133.		Management Agreement, dated January 1, 2001, between FCH/Interstate Leasing, L.L.C. and Crossroads, as assigned pursuant to that certain Assignment and Assumption of Agreements re: Lease and Management Agreement, dated March 26, 2001, with respect to the Hampton Inn Houston/I-10 East, located at 828 Mercury Drive, Houston, TX.

134.		Management Agreement, dated as of September 4, 2002, between HI Galleria Tenant Corporation and Crossroads Hospitality Management Company, with respect to the Hampton Inn Houston Near the Galleria, located at 4500 Post Oak Highway, Houston, TX.

135.		Primary Management Agreement, dated as of June 10, 1999, between Wyndham International Operating Partnership, LP and IHC II, LLC; Submanagement Agreement, dated as of June 10, 1999, between IHC II, LLC and Marriott, both with respect to the Marriott Houston/Greenspoint, located at 255 N. Sam Houston Parkway East, Houston, TX.

136.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn San Antonio Downtown, , located at 414 Bowie Street, San Antonio, TX.

137.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company III, LLC and Crossroads, with respect to the Comfort Inn Rutland/Trolley Square, located at 19 Allen Street, Rutland, VT.

138.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IV, LLC and Crossroads, with respect to the Hampton Inn Norfolk Naval Base, located at 8501 Hampton Blvd., Norfolk, VA.

139.		Management Agreement, dated May 30, 1992, between Today’s Hotel Seattle Corporation and Interstate Hotels, LLC, as amended by that certain First Amendment to Management Agreement, dated July 8, 1992, as further amended by that certain Second Amendment to Management Agreement, dated August 18, 1992, that certain Third Amendment to Management Agreement, dated November , 1992, and that certain Fourth Amendment to Management Agreement, dated September 14, 2001, and by letter,

		dated November 18, 2001, with respect to the Crowne Plaza Seattle, located at 1113 Sixth Avenue, Seattle, WA.

140.		Management Agreement, dated as of January 1, 2001, between with Equity and Crossroads, with respect to Homewood Suites Seattle Downtown, located at 206 Western Avenue West, Seattle, WA.

141.		Management Agreement, dated as of January 1, 2001, between ENN Leasing Company IV, LLC and Crossroads, with respect to the Hampton Inn Beckley, located at 110 Harper Park Drive, Beckley, WV.

142.		Management Agreement and Addendum, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Holiday Inn Bluefield, located at Route 460, Bluefield, WV.

143.		Management Agreement, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Hampton Inn Morgantown, located at 1053 Van Voorhis Road, Morgantown, WV.

144.		Management Agreement, dated January 5, 2000, between Platinum Properties LLC and , as assigned pursuant to that certain Assignment and Assumption dated August 8, 2001, with respect to the Radisson Morgantown Hotel, located at University Avenue, Morgantown, WV.

145.		Management Agreement and Addendum, dated as of January 1, 2001, between Equity and Crossroads, with respect to the Holiday Inn Oak Hill, located 340 Oyler Avenue, Oak Hill, WV.

146.		Management Agreement, dated December 29, 1993, between Singdeer Investments Limited and , as amended by that certain First Amendment to Management Agreement, dated November 15, 1999, with respect to the Toronto Colony Hotel, located at 89 Chestnut Street, Toronto, Ontario, Canada.

147.		Operation Agreement January 29, 1996, between HMC AP Canada Inc. and , as amended by that certain Consent, Assignment and Assumption and Amendment of Operation Agreement, dated December 31, 1998, with respect to the Toronto Delta Meadowvale, located at 6750 Mississauga Road, Mississauga, Ontario, Canada.

148.		Management Agreement, dated February 9, 1998, between Hotel da Praia-Gestao e Exploracao de Hoteis and Interstate Hotels Corporation, with respect to the Marriott Praia d’el Rey Hotel, located at Plots 78 and 79, Praia d’el Rey Golf & Country Club, Vale de Janeles Obidos, Portugal.

149.		Management Agreement and Memorandum, dated December 7, 2001, between 1,000 Y graluxservice and , with respect to a hotel property to be located at Gagarina Street, Khanti-Mansiisk, Russia.

150.		Management Agreement, dated October 3, 1994, between Mospromstoi, Inc. and with respect to the Moscow Marriott Grand Hotel, located at 26 Tverskaya Street, Moscow, Russia.

151.		Management Agreement, dated September 6, 1997, between Mospromstoi, Inc. and Interstate Hotels Corporation with respect to Moscow Marriott Royal Hotel (f/k/a The Westin Astoria and Aurora-Lux), located at 11/20 Petrovka Street, Moscow, Russia.

152.		Management Agreement, dated April , 1995, between Mospromstoi, Inc. and Interstate Hotels Corporation, with respect to the Moscow Marriott Tverskaya (f/k/a Colony Tverskaya), located at 34 First Tverskaya Yamskaya St., Moscow, Russia.

153.		Management Agreement, dated June 14, 2001, between Eco Phoenix Holding, PLC and Interstate Hotels Corporation, supplemented by that certain Pre-Opening Consulting Services Agreement, dated July 25, 2001, that certain Technical Services Agreement, dated July 25, 2001, with respect to the Courtyard by Marriott St. Petersburg, located at 4 Goncharnaya Street, St. Petersburg, Russia 193036 RF.

154.		Management Agreement dated as of December 4, 2000, between UAB Baltic Mansion Hotels and Interstate Hotels Company, as amended by that certain Letter, dated December 4, 2000, as further amended by that certain Letter dated December 5, 2000, with respect to Marriott Vilnius, located at A. Gostavto & Gyneju Streets, Vilnius, Lithuania.

Doubletree Norfolk-Norfolk, VA – Hotel Lease Agreement, dated as of December 15, 1994, between Military Circle Hotel Limited Partnership and CapStar Hotels of Norfolk, Inc., as amended by that certain First Amendment to Hotel Lease Agreement, dated as of December 31, 1997, as assigned by CapStar Hotels of Norfolk, Inc. to MeriStar H & R Operating Company, L.P. pursuant to that certain Assignment of Lease, dated as of January 1, 1999, as further amended by that certain Second Amendment to Hotel Lease Agreement, dated as of .

Interstate Hotels & Resorts, Inc.
MeriStar Management Company, L.L.C.
MeriStar AGH Company, L.L.C.
CapStar Winston Company, L.L.C.
CapStar BK Company, L.L.C.
CapStar KCII Company, L.L.C.
CapStar Wyandotte Company, L.L.C.
CapStar St. Louis Company, L.L.C.
MeriStar Laundry, LLC
MeriStar Preston Center, L.L.C.
MeriStar Management (Canmore) Ltd.
MeriStar Management (Vancouver-Metrotown) Ltd.
MeriStar HGI Company, L.L.C.
MeriStar Storrs Company, L.L.C.
MeriStar Vacations, L.L.C.
The Net Effect Strategic Alliance, LLC
MeriStar Flagstone, LLC
BridgeStreet Corporate Housing Worldwide, Inc.
BridgeStreet Maryland, LLC
BridgeStreet Minneapolis, LLC
BridgeStreet Midwest, LLC
BridgeStreet Arizona, LLC
BridgeStreet Nevada, LLC
BridgeStreet Texas, L.P.
BridgeStreet Southwest, LLC
BridgeStreet Ohio, LLC
BridgeStreet California, LLC
BridgeStreet Colorado, LLC
BridgeStreet North Carolina, LLC
BridgeStreet Raleigh, LLC
BridgeStreet Canada, Inc.
BridgeStreet Accommodations, Ltd.
BridgeStreet Accommodations London Limited
Loryt(1), Ltd.
BridgeStreet Wardrobe Place Limited
Apalachee Bay SAS
Interstate Property Corporation

Interstate Property Partnership, L.P.
Interstate Partner Corporation
Interstate Investment Corporation
Interstate Hotels Company
Interstate Member, Inc.

Northridge Holdings, Inc.
Crossroads Hospitality Management Company
IHC Holdings, Inc.
Interstate Hotels, LLC
Interstate/Dallas GP, LLC
Interstate/Dallas Partnership, L.P.
Interstate Pittsburgh Hotel Holdings, LLC
Interstate Manchester Company, L.L.C.
Interstate Houston Partner, L.P.
Interstate/KP Holding Corporation
Interstate Kissimmee Partner, L.P.
Continental Design and Supplies Company, L.L.C.
IHC Moscow Services, L.L.C.
PAH-Hilltop GP, LLC
Hilltop Equipment Leasing Company, L.P.
PAH-Cambridge Holdings, LLC
Crossroads Hospitality Company, L.L.C.
IHC International Development (U.K.), L.L.C.
Northridge Insurance Company
Colony Hotels and Resorts Company
IHC Services Company, L.L.C.
Crossroads Hospitality Tenant Company, L.L.C.
IHC/Moscow Corporation
Future Financing Member Corporation
Crossroads Memphis Financing Corporation
Crossroads Memphis Financing II Corporation
Crossroads/Memphis Partnership, L.P.
Crossroads/Memphis Company, L.L.C.
Crossroads Future Company, L.L.C.
Crossroads Future Financing Company, L.L.C.
Crossroads/Memphis Financing Company, L.L.C.
Crossroads/Memphis Financing Company II, L.L.C.

1.		Park Cities Hotel LP v. MeriStar Management Co. LLC; District Court of Dallas County, TX, No. 01-08447.

		This action was commenced on October 5, 2001 and alleges mismanagement and breach of contract. A counterclaim was filed in late October, alleging breach of contract for failure to pay management fees and reimbursable expenses, and an action by MeriStar to seek repayment of its loan.

2.		Review by Office of Federal Contract Compliance Programs (OFCCP)

		Interstate’s corporate office has been involved in an Office of Federal Contract Compliance Programs (OFCCP) corporate management review since December 1999. The OFCCP has deemed Interstate to be a federal government contractor because some of Interstate’s hotels have contracts with the government that exceed $50,000. The OFCCP requested substantial information regarding compensation for property officials selected by the corporate office, specifically, General Managers, Directors of Sales, and Controllers for various hotels throughout the country.

		In October 2001, the OFCCP made its preliminary findings of the review, and determined that the Agency has compensation “concerns” regarding for certain women and minorities in the GM, DOS and Controller positions at a sampling of hotels. The OFCCP proposed salary adjustments, back pay and interest payments to 46 individuals totaling 1.8 million dollars. In November 2001, the OFCCP issued a formal Notice of Violation outlining their position.

		In December 2002, the OFCCP recommended enforcement by the Department of Labor Solicitor’s office and has forwarded the case file to the Solicitor’s office for its review. At this time no Administrative Complaint has been issued by the Solicitor’s office. Interstate’s counsel has contacted the Solicitor’s office to engage them in discussion about the resolution of this matter.

3.		Interstate Hotels Corporation (Stanley H. Trezevant, Jr. v. Interstate Hotels Corporation, Interstate Hotels Corporation #112, Interstate Inns, Inc., Massachusetts Mutual Life Insurance Company, Interstate/Memphis Associates, Ltd., Milton Fine, Milton Fine Associates, and Inter Intermass Memphis Associates, filed August 1, 1994).

		The plaintiff was a partner with affiliates of the Company in a partnership (the, “Partnership”) that developed the Memphis Marriott and ultimately became a joint venture partner with Massachusetts Mutual Life Insurance Company (“Mass Mutual”). In 1991, the joint venture could not meet its cash obligations. When the Partnership failed to fulfill its contribution obligations, Mass Mutual exercised its fights reader the joint venture agreement to take over the Partnership’s interest in the hotel. The plaintiff claims that representatives of the Company made representations to him to the effect that he would not be required to make capital contributions and, instead, capital contributions

		would be made on his behalf by the Company or its affiliates. The plaintiff also claims that the Company and its affiliates charged excessive management fees for managing the hotel and has received reimbursement for certain expenses which the plaintiff alleges were improper, In February, 2001, the judge in this case granted Mass Mutual’s motion for summary judgment and dismissed all claims pending against Mass Mutual. Pending Trezevant’s appeal of that summary judgment. Mass Mutual participated in a mediation in August, 2001 and settled all of the appealed claims. The Company has engaged Glanker Brown to represent the Company and its affiliates in this matter, and, despite the Company’s participation in the August, 2001 mediation, the claim against the Company remain outstanding. In addition, pursuant to that certain Distribution Agreement, dated as of June 18, 1999, by and among Patriot American Hospitality, Inc., (now known as Wyndham International, Inc.), Wyndham International, Inc. (“Wyndham”), Interstate Hotels, LLC and Interstate Hotels Corporation, Wyndham agreed to indemnify the Company for up to $500,000 of costs, expenses, judgments, settlements and attorneys’ fees in connection with this matter.

4.		Crossroads Hospitality Company, LLC.

		The owner of the Surfcomber Hampton Inn in Miami Beach, Florida has filed with the American Arbitration Association a Demand for Arbitration alleging a breach of hotel management agreement which the owner terminated effective September 30, 1999. On August 8, 2000, Crossroads finally received a specific description of the plaintiff’s claims, alleging claims for breach of the management agreement as well as for lost business, including damages of approximately $1.6 million of which more than $1,000,000 is alleged as lost profits. The owner alleges that, among other things, Crossroads (a) failed to properly market the hotel; (b) committed egregious accounting and management errors; and (c) wrongfully retained a termination fee. Crossroads’ initial response to the claims was filed August 28, 2000. Crossroads considers these claims to be invalid and frivolous and intends to vigorously defend them. The arbitration panel has heard approximately six weeks of argument and testimony, and recently entered an award in which the panel (x) did not award to either party attorneys’ fees as the prevailing party and (y) directed Crossroads to return to the owner of the hotel the $50,000 termination fee retained by Crossroads at the time the owner terminated the management agreement. In response to this, Crossroads has petitioned the Florida Circuit Court (11th Circuit) to vacate the award by the arbitration panel and grant to Crossroads attorneys’ fees and expenses on the basis that Crossroads prevailed on the substantial issues in the dispute.

5.		Crossroads/Memphis Partnership, LP Carla J. Manley (Executrix of the Estate of Kim N. Fisher) v. Damon’s, et al.

		To comply with Pennsylvania liquor licensing requirements, Crossroads/Memphis Partnership, L.P, was a joint venturer with an unaffiliated franchisee of Damon’s, Inc. (which operates a Damon’s restaurant adjacent to the Hampton Inn). The plaintiff has sued for damages arising out of the wrongful death of a pedestrian who was struck and killed by an intoxicated driver who was allegedly served alcoholic beverages by the Damon’s franchise. Although all of the Crossroads entities named in the complaint are

		entitled to indemnification from the Damon’s franchisee and insurance coverage for the claim, a punitive damages claim exists.

6.		Sawgrass Country Inn and Suites:

		On , 2002, Sawgrass Hotel Partners, Ltd. filed a complaint in Florida Circuit Court (11th Judicial Circuit) against Crossroads Hospitality Company, L.L.C. and Interstate Hotels Corporation relating to the Sawgrass Country Inn and Suites. The action alleges, inter alia, breach of contract, breach of fiduciary duty, negligent misrepresentation and breach of implied covenant of good faith and fair dealing. Crossroads and Interstate have jointly moved the Circuit Court to dismiss the complaint on the bases of both substantive and procedural defects. The motion is still pending.

1.		Promissory Note, dated , made by Interstate/Dallas GP, LLC and Interstate/Dallas Partnership, LP (the “Dallas Pledgors”) in favor of FelCor Lodging Limited Partnership, in the original principal amount of $4,170,000, and secured by a pledge of the interests of the Dallas Pledgors in FCH/IHC Hotels, LP.

2.		IHC Holdings, Inc. loans (unsecured inter-company lending arrangements):

		Loan Agreement, dated as of September 10, 1999 (the “IHC Loan Agreement”), among IHC Holdings, Inc., as lender, Interstate Hotels Corporation, Interstate Hotels Company, Crossroads Hospitality Management Company and certain other designated subsidiaries, as borrowers. Currently the borrowers (including the other designated borrowers) are:

	•		Interstate Hotels Corporation (no amounts outstanding);

	•		Interstate Hotels Company (no amounts outstanding);

	•		Crossroads Hospitality Management Company (no amounts outstanding);

	•		Interstate Property Corporation ($375,000 principal amount outstanding as of 3/28/01);

	•		Interstate Partner Corporation ($12,000,000 principal amount outstanding as of 3/28/01);

	•		Interstate Pittsburgh Hotel Holdings, LLC ($5,700,000 principal amount outstanding as of 3/28/01).

	•		Sociètè Gènèrale, New York Branch, dated April 10, 2002 – Notional Amount: $30,000,000.

	•		Credit Lyonnais New York, dated September 17, 2002 – Notional Amount: $40,000,000.

Pittsburgh Airport Residence Inn by Marriott
1500 Park Lane
North Fayette Township, Pennsylvania 15275

	•		Jurisdictions in which Northridge holds a license to transact business: Cayman Islands only.

	•		Lines of insurance in which it is engaged: see Schedule 4.23(e).

	•		Securities deposited with state insurance departments and other governmental authorities: None.

(a) Insurance Policies Required. While any obligation of the Borrower or any Guarantor under any Credit Document remains outstanding, the Borrower shall procure and maintain or shall cause to be procured and maintained continuously in effect policies of insurance in form and amounts and issued by companies, associations or organizations licensed to do business in the states the Hospitality Properties are located, with a Best’s Rating of no less than A-, XI and otherwise satisfactory to the Administrative Agent covering such casualties, risks, perils, liabilities and other hazards required by the Administrative Agent. All original policies, or certificates thereof, and endorsements and renewals thereof shall be delivered to and retained by the Administrative Agent unless the Administrative Agent waives this requirement in writing. Without limiting the generality of the foregoing, the Borrower shall provide or cause to be provided the following types of insurance coverage:

i. until repayment of the Notes and satisfaction of all obligations under the Credit Documents: (i) for Owned Hospitality Properties only, property insurance on an “all risks” (or “special form”) full replacement cost basis without deduction for depreciation (or fire, extended coverage and difference in conditions basis), including flood, earthquake (for any Hospitality Property located in the State of California, or in any other location that, according to determination by a Governmental Authority, has an above average risk of seismic activity) and sinkhole coverages in an amount equal to the replacement cost of the Improvements (except for earthquake insurance which for each required Hospitality Property shall be in an amount which is equal to or greater than the maximum probable loss determined pursuant to a written report by a seismic engineer, which report and engineer are acceptable to the Administrative Agent, provided, however, that the aggregate amount of such earthquake insurance coverage and the deductibles thereunder may be modified at the request of the Borrower based upon industry standards, subject to approval of the Administrative Agent); (ii) Commercial General Liability Insurance (including contractual liability, owners and contractors protective coverages, products & completed operations, personal & advertising injury liability, fire damage legal liability and alienated premises coverage) and Comprehensive Auto Liability Insurance in a minimum amount of $25,000,000 each occurrence; (iii) Statutory Workers’ Compensation and Employer’s Liability Insurance in the minimum amounts of $500,000 each accident, $500,000 each employee - disease, $500,000 policy limit - disease; and (iv) for Owned Hospitality Properties only, Rent loss insurance against loss of income by reason of any hazard covered under the insurance required under this subparagraph (a) in an amount sufficient to avoid any co-insurance penalty, but in any event for not less than one (1) year’s income from all sources from the Hospitality Property. Each such policy of property insurance shall contain a replacement cost endorsement and such other endorsements as are sufficient to prevent the Borrower, the Administrative Agent and/or the Borrower’s Subsidiaries from becoming a co-insurer with respect to such buildings and improvements.


	ii. During the renovation or expansion of any Hospitality Property the Borrower will (i) additionally provide: for Owned Hospitality Properties only, Builder’s

Risk Insurance on an “all risks” (or “special form”) and non-reporting basis including flood, earthquake (if required pursuant to the provisions of and in the amount stated in clause (a)) and sinkhole coverages, and also including stored materials and materials while in transit, and (ii) in addition to the Statutory Workers’ Compensation and Employer’s Liability Insurance required of the Borrower in the foregoing paragraph i, require each contractor and or subcontractor who may have occasion to be at the job site to provide evidence of Statutory Workers’ Compensation and Employer’s Liability Insurance in the minimum amounts of $100,000 each accident, $100,000 each employee - disease, $100,000 policy limit - disease.


	iii. Such additional insurance as may be reasonably required by the Administrative Agent from time to time in the event that any Hospitality Property is exposed to hazards and risks with respect to which the Administrative Agent deems the existing insurance inadequate to properly protect its interests.

All policies of liability insurance shall name the Administrative Agent, the Lenders and their respective directors, officers, representatives, agents and employees (the “Lenders’ Parties”) as additional insureds. The Borrower shall furnish the Administrative Agent with a certified copy of an original or a certificate of insurance of all policies of insurance required. All policies or certificates, as the case may be, of insurance shall set forth the coverage, the limits of liability, the name of the carrier, the policy number, and the period of coverage. In addition, all policies of insurance required under the terms hereof shall contain an endorsement or agreement by the insurer that any loss shall be payable in accordance with the terms of such policy notwithstanding any act or negligence of the Borrower, or any other party holding under any such Person which might otherwise result in a forfeiture of said insurance and the further agreement of the insurer waiving all rights of setoff, counterclaim or deductions against the Borrower. At least 15 days prior to the expiration of each required policy, the Borrower shall deliver to the Administrative Agent evidence of the renewal or replacement of such policy, continuing such insurance in the form as required by this Agreement. All such policies shall contain a provision that notwithstanding any contrary agreement between the Borrower and the applicable insurance company, such policies will not be canceled, allowed to lapse without renewal, surrendered or amended (which provision shall include any reduction in the scope or limits of coverage) without at least 15 days’ prior written notice to the Administrative Agent.

EX-10.12.1 5 w84565exv10w12w1.htm AMENDMENT TO PAUL W WHETSELLS EMPLOYMENT 7/31/2002 exv10w12w1

This AMENDMENT to the EXECUTIVE EMPLOYMENT AGREEMENT effective as of November 1, 2001, (“Employment Agreement”), by and among MeriStar Hotels & Resorts, Inc. (the “Company”), MeriStar Management Company L.L.C. (the “LLC”), and Paul W. Whetsell (the “Executive”), is hereby entered into on this 31st day of July, 2002 by and among the parties.

For good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by Executive, the Company, and the LLC, the parties each agree to amend the Employment Agreement as follows:

(v) A Change of Control; provided that a Change of Control shall only constitute Good Reason if (i) the Executive terminates this Agreement within the six month period following a Change of Control, (ii) the Company terminates the Executive within two years following a Change of Control or (iii) the Company changes the Executive’s job title, responsibilities or decreases Executive’s compensation within two years following a Change of Control and Executive within six months after such change (but not later than two years following the Change of Control) terminates the Term of this Agreement. This Section 6(h)(v) shall not be triggered, however, by the merger between Interstate Hotels Corporation and MeriStar Hotels & Resorts, Inc. that occurred on August 1, 2002.

IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of the date first above written.

EX-10.12.2 6 w84565exv10w12w2.htm AMENDMENT TO PAUL WHETSELLS EMPLOYMENT 12 2002 exv10w12w2

This AMENDMENT to the EXECUTIVE EMPLOYMENT AGREEMENT effective as of November 1, 2001, (“Employment Agreement”), by and among Interstate Hotels & Resorts, Inc. (successor in interest to MeriStar Hotels & Resorts, Inc., the “Company”), MeriStar Management Company L.L.C. (the “LLC”), and Paul W. Whetsell (the “Executive”), is hereby entered into on this 13th day of December, 2002 by and among the parties.

I. Section 4(a) of the Employment Agreement is hereby deleted and replaced, in its entirety, as follows:

“(a) During the Term, the Company and the LLC will pay the Executive a base salary at an aggregate annual rate of not less than $350,000 per annum, subject to annual review by the Compensation Committee of the Board (the “Compensation Committee”), and in the discretion of such Committee, increased from time to time. Once increased, such base salary may not be decreased. Such salary shall be paid in periodic installments in accordance with the Company’s standard practice, but not less frequently than semi-monthly.”

II. Section 4(b) of the Employment Agreement is hereby deleted and replaced, in its entirety, as follows:

“(b) For each fiscal year during the Term, the Executive will be eligible to receive a bonus from the Company. The award and amount of such bonus shall be based upon the achievement of predefined operating or performance goals and other criteria established by the Compensation Committee, which goals shall give the Executive the opportunity to earn a bonus of 150% of base salary. However, such bonus amount will be completely at the Board’s discretion and, unless the Company performs exceptionally, is expected to be in the 40% of base salary range.”

III. Section 4(d) of the Employment Agreement is hereby deleted and replaced, in its entirety, as follows:

“(d) The Executive shall be granted 150,000 stock options in the Company on December 13, 2002 at the then current market price. The options will vest equally on the first, second and third anniversary of the date of grant. Annual stock option grants thereafter shall be at the discretion of the Board. The Executive shall also be granted 150,000 restricted stock shares in the Company on December 13, 2002 at the then current market price. The restricted stock shares will vest equally on the first, second and third anniversary of the date of grant. Annual restricted stock share grants thereafter shall be at the discretion of the Board.”

IN WITNESS WHEREOF, the parties hereto have executed this Amendment effective as of the date first above written.

EX-10.13.1 7 w84565exv10w13w1.htm AMENDMENT TO STEVEN JORNS EMPLOYMENT 12/10/1998 exv10w13w1

Reference is hereby made to that certain Executive Employment Agreement, made as of August 3, 1998, by and between you and the undersigned (the “Employment Agreement”). Unless otherwise indicated, each capitalized term used herein shall have the meaning ascribed thereto in the Employment Agreement.

This letter, when executed and returned by you, shall constitute an amendment to the Employment Agreement in the following respects:

1.		Effective January 1, 1999, you will no longer serve as the Chief Operating Officer of either the Company or the Partnership although you will continue to serve as the Vice-Chairman of the Company and the Partnership and you will devote such of your business time to the business and affairs of the Company and the Partnership as shall be required to perform the duties of such office.

2.		Effective January 1, 1999, your annual base salary shall be reduced to $90,000.

3.		The Company or the Partnership will no longer be required under the terms of the Employment Agreement (i) to pay you an annual bonus, (ii) to grant you stock option grants pursuant to the Company’s Incentive Plan or (iii) to permit you to participate in any profit-sharing, bonus, stock option or other incentive compensation plans now or hereafter adopted by the Company or the Partnership for any fiscal year ending after December 31, 1998. You shall retain all the rights presently granted you under the Employment Agreement with respect to any stock options or restricted stock which you presently hold or which may be awarded to you with respect to the fiscal year ending December 31, 1998.

Except as specifically set forth above, the Employment Agreement shall remain in full force and effect without amendment or modification.

In addition, you hereby agree (i) prior to January 1, 1999, to execute and deliver to the Company and the Partnership resignations from the position of Chief Operating Officer and (ii) to execute and deliver to the company and the Partnership such other documents as they, from time to time, may reasonably request to further effect the amendments to the Employment Agreement set forth above.

Please execute and return to the undersigned two copies of this letter to evidence your agreement with the terms hereof.

EX-10.14 8 w84565exv10w14.htm EMPLOYMENT AGREEMENT DATED NOVEMBER 1, 2002 exv10w14

EXECUTIVE EMPLOYMENT AGREEMENT, effective as of November 1, 2002 by and between INTERSTATE HOTELS & RESORTS, INC., a Delaware corporation (the “Company”), MERISTAR MANAGEMENT COMPANY, L.L.C., a Delaware limited liability company (the “LLC”) and any successor employer, and JOHN EMERY (the “Executive”), an individual residing at 8262 Private Lane, Annandale, VA 22003.

The Company and the LLC desire to employ the Executive in the capacities of President and Chief Operating Officer, and the Executive desires to be so employed, on the terms and subject to the conditions set forth in this agreement (the “Agreement”);

Now, Therefore, in consideration of the mutual covenants set forth herein and other good and valuable consideration the parties hereto hereby agree as follows:

1. Employment; Term. The Company and the LLC each hereby employ the Executive, and the Executive agrees to be employed by the Company and the LLC, upon the terms and subject to the conditions set forth herein, for a term of three (3) years, commencing on November 1, 2002 (the “Commencement Date”), and ending on November 1, 2005 unless terminated earlier in accordance with Section 5 of this Agreement; provided that such term shall automatically be extended from time to time for additional periods of one calendar year from the date on which it would otherwise expire unless the Executive, on the one hand, or the Company and the LLC, on the other, give notice to the other party and parties prior to such date that it elects to permit the term of this Agreement to expire without extension on such date. (The initial term of this Agreement as the same may be extended in accordance with the terms of this Agreement is hereinafter referred to as the “Term”).

(a) During the Term, the Executive will hold the titles and offices of, and serve in the positions of, President and Chief Operating Officer of the Company and the LLC. The Executive shall undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons situated in a similar executive capacity, and shall perform such other specific duties and services (including service as an officer, director or equivalent position of any direct or indirect subsidiary without additional compensation) as they shall reasonably request consistent with the Executive’s positions.

(b) During the Term, the Executive agrees to devote his full business time and attention to the business and affairs of the Company and the LLC and to faithfully and diligently perform, to the best of his ability, all of his duties and responsibilities hereunder. Nothing in this Agreement shall preclude the Executive from devoting reasonable time and attention to (i) serving, with the approval of the Board, as a director, trustee or member of any committee of any organization, (ii) engaging in charitable and community activities and (iii) managing his personal investments and affairs; provided that such activities do not involve any material conflict of interest with the interests of the Company or, individually or collectively, interfere materially with the

performance by the Executive of his duties and responsibilities under this Agreement. Notwithstanding the foregoing and except as expressly provided herein, during the Term, the Executive may not accept employment with any other individual or entity, or engage in any other venture which is directly or indirectly in conflict or competition with the business of the Company or the LLC.

(c) The Executive’s office and place of rendering his services under this Agreement shall be in the principal executive offices of the Company which shall be in the Washington, D.C. metropolitan area. Under no circumstances shall the Executive be required to relocate from the Washington, D.C. metropolitan area or provide services under this Agreement in any other location other than in connection with reasonable and customary business travel. During the Term, the Company shall provide the Executive with executive office space, and administrative and secretarial assistance and other support services consistent with his positions as President and Chief Operating Officer and with his duties and responsibilities hereunder.

3. Board of Directors. While it is understood that the right to elect directors of the Company is by law vested in the stockholders and directors of the Company, it is nevertheless mutually contemplated that, subject to such rights, during the Term the Executive will serve as a member of the Company’s Board of Directors.

(a) During the Term, the Company and the LLC will pay the Executive a base salary at an aggregate annual rate of not less than $525,000 per annum, subject to annual review by the Compensation Committee of the Board (the “Compensation Committee”), and in the discretion of such Committee, increased from time to time. Once increased, such base salary may not be decreased. Such salary shall be paid in periodic installments in accordance with the Company’s standard practice, but not less frequently than semi-monthly.

(b) For each fiscal year during the Term, the Executive will be eligible to receive a bonus from the Company. The award and amount of such bonus shall be based upon the achievement of predefined operating or performance goals and other criteria established by the Compensation Committee, which goals shall give the Executive the opportunity to earn a cash bonus equal to an amount between 0% and 175% of base salary.

(c) During the Term, the Executive will participate in all plans now existing or hereafter adopted by the Company or the LLC for their management employees or the general benefit of their employees, such as any pension, profit-sharing, bonuses, stock option or other incentive compensation plans, life and health insurance plans, or other insurance plans and benefits on the same basis and subject to the same qualifications as other senior executive officers. Notwithstanding the foregoing, the Company and the LLC may, in their sole discretion, discontinue or eliminate any such plans.

(d) The Executive shall be eligible for stock option grants from time to time pursuant to the Company’s Incentive Plan in accordance with the terms

thereof. All stock option grants shall be at the discretion of the Board. Executive shall receive a separate option agreement governing any such grants.

(e) The Company and the LLC will reimburse the Executive, in accordance with its standard policies from time to time in effect, for all out-of-pocket business expenses as may be incurred by the Executive in the performance of his duties under this Agreement.

(f) The Executive shall be entitled to vacation time to be credited and taken in accordance with the Company’s policy from time to time in effect for senior executives, which in any event shall not be less than a total of four weeks per calendar year. Such vacation time shall not be carried over year to year, and shall not be paid out upon termination of employment, or upon expiration of this Agreement.

(g) The Company, at its sole cost, shall pay (i) up to $10,000 annually (to be increased annually by the prior year’s consumer price index, “CPI”) toward the premium of a life insurance policy with a death benefit of at least $3,000,000 payable to a beneficiary designated by the Executive and (ii) up to $15,000 annually (to be increased annually by the prior year’s CPI) toward the premium of a disability policy which, upon a determination of the Executive’s Disability (as hereinafter defined), pays at least $3,000,000 to the Executive.

(i) To the fullest extent permitted by applicable law, the Executive shall be indemnified and held harmless by the Company and the LLC against any and all judgments, penalties, fines, amounts paid in settlement, and other reasonable expenses (including, without limitation, reasonable attorneys’ fees and disbursements) actually incurred by the Executive in connection with any threatened, pending or completed action, suit or proceeding (whether civil, criminal, administrative, investigative or other) for any action or omission in his capacity as a director, officer or employee of the Company or the LLC.

Indemnification under this Section 4(i) shall be in addition to, and not in substitution of, any other indemnification by the Company or the LLC of its officers and directors. Expenses incurred by the Executive in defending an action, suit or proceeding for which he claims the right to be indemnified pursuant to this Section 4(i) shall be paid by the Company or the LLC, as the case may be, in advance of the final disposition of such action, suit or proceeding upon the Company’s or the LLC’s receipt of (x) a written affirmation by the Executive of his good faith belief that the standard of conduct necessary for his indemnification hereunder and under the provisions of applicable law has been met and (y) a written undertaking by or on behalf of the Executive to repay the amount advanced if it shall ultimately be determined by a court that the Executive engaged in conduct, including fraud, theft, misfeasance, or malfeasance against the Company or the LLC, which precludes indemnification under the provisions of such applicable law. Such written undertaking in clause (y) shall be accepted by the Company or the LLC, as the case may be, without security therefor and without reference to the financial ability of the Executive to make repayment thereunder.

The Company and the LLC shall use commercially reasonable efforts to maintain in effect for the Term of this Agreement a directors’ and officers’ liability insurance policy, with a policy limit of at least $25,000,000, subject to customary exclusions, with respect to claims made against officers and directors of the Company or the LLC; provided, however, the Company or the LLC, as the case may be, shall be relieved of this obligation to maintain directors’ and officers’ liability insurance if, in the good faith judgment of the Company or the LLC, it cannot be obtained at a reasonable cost.

(a) The Term will terminate immediately upon the Executive’s death, Disability, or, upon thirty (30) days’ prior written notice by the Company, in the case of a Determination of Disability. As used herein the term “Disability” means the Executive’s inability to perform his duties and responsibilities under this Agreement for a period of more than 120 consecutive days, or for more than 180 days, whether or not continuous, during any 365-day period, due to physical or mental incapacity or impairment. A “Determination of Disability” shall occur when a physician, reasonably satisfactory to both the Executive and the Company and paid for by the Company or the LLC, finds that the Executive will likely be unable to perform his duties and responsibilities under this Agreement for the above-specified period due to a physical or mental incapacity or impairment. Such decision shall be final and binding on the Executive and the Company; provided that if they cannot agree as to a physician, then each shall select and pay for a physician and these two together shall select a third physician whose fee shall be borne equally by the Executive and either the Company or the LLC and whose Determination of Disability shall be binding on the Executive and the Company. Should the Executive become incapacitated, his employment shall continue and all base and other compensation due the Executive hereunder shall continue to be paid through the date upon which the Executive’s employment is terminated for Disability or Determination of Disability in accordance with this section.

(b) The Term may be terminated by the Company upon notice to the Executive and with or without “Cause” as defined herein.

(c) The Term may be terminated by the Executive upon notice to the Company and with or without “Good Reason” as defined herein.

(b) If the Term is terminated by the Executive other than because of death, Disability or for Good Reason,

(d) Subject to Section 6(e) hereof, if the Term is terminated by the Company without Cause or other than by reason of Executive’s death or Disability, in

addition to any other remedies available, or if the Executive terminates the Term for Good Reason,

(e) If, within twenty-four (24) months following a Change in Control, the Term is terminated by the Executive for Good Reason or by the Company without Cause, in addition to any other rights which the Executive may have under law or otherwise, the Executive shall receive the same payments and benefits provided for under Section 6(d) hereof; provided, that the amount of the multiplier described in clause (d)(i)(y)(A) of Section 6 hereof shall be increased from two (2) times to three (3) times.

(f) If at any time the Term is not extended pursuant to the proviso to Section 1 hereof as a result of the Company giving notice thereunder that it elects to permit the term of this Agreement to expire without extension, the Company shall be deemed to have terminated the Executive’s employment without Cause.


	(i) the Executive’s willful and intentional failure or refusal to perform or observe any of his material duties, responsibilities or obligations set forth in this Agreement; provided, however, that the Company shall not be deemed to have Cause pursuant to this clause (i) unless the Company gives the Executive written notice that the specified conduct has occurred and making specific reference to this Section 6(g)(i) and the Executive fails to cure the conduct within thirty (30) days after receipt of such notice;

	(ii) any willful and intentional act of the Executive involving malfeasance, fraud, theft, misappropriation of funds, or embezzlement affecting the Company or the LLC;

	(iv) the Executive’s conviction of, or a plea of guilty or nolo contendere to, an offense which is a felony;

	(v) Executive’s material breach of this Agreement; or

	(vi) Gross misconduct by Executive that is of such a serious or substantial nature that a substantial likelihood exists that such misconduct would injure the reputation of the Company if the Executive were to remain employed by the Company or LLC.

Termination of the Executive for Cause shall be communicated by a Notice of Termination. For purposes of this Agreement, a “Notice of Termination” shall mean delivery to the Executive of a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Company’s Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and reasonable opportunity for the Executive, together with the Executive’s counsel, to be heard before the Board prior to such vote) of finding that in the good faith opinion of the Board, the Executive was guilty of conduct constituting Cause and specifying the particulars thereof in detail, including, with respect to any termination based upon conduct described in clause (i) above that the Executive failed to cure such conduct during the thirty-day period following the date on which the Company gave written notice of the conduct referred to in such clause (i). For purposes of this Agreement, no

such purported termination of the Executive’s employment shall be effective without such Notice of Termination;

(h) As used herein, the term “Good Reason” means the occurrence of any of the following, without the prior written consent of the Executive:


	(i) assignment to the Executive of duties materially inconsistent with the Executive’s positions as described in Section 2(a) hereof, or any significant diminution in the Executive’s duties or responsibilities, other than in connection with the termination of the Executive’s employment for Cause, Disability or as a result of the Executive’s death or by the Executive other than for Good Reason;

	(ii) the failure of the Company to nominate the Executive to the Board or the failure of the Executive to be elected to the Board;

	(iii) the change in the location of the Company’s principal executive offices or of the Executive’s principal place of employment to a location outside the Washington, D.C. metropolitan area;

	(iv) any material breach of this Agreement by the Company or the LLC which is continuing;

	(v) a Change in Control; provided that a Change of Control shall only constitute Good Reason if (i) the Executive terminates this Agreement within the six month period following a Change of Control, (ii) the Company terminates the Executive within two years following a Change of Control or (iii) the Company changes the Executive’s job title, responsibilities or decreases Executive’s compensation or Sections 6h(ii) or 6(h)(iii) occur within two years following a Change of Control and Executive within six months after such change (but not later than two years following the Change of Control) terminates the Term of this Agreement; or

	provided, however, that the Executive shall not be deemed to have Good Reason pursuant to clauses (h)(i), (ii) or (iv) above unless the Executive gives the Company or the LLC, as the case may be, written notice that the specified conduct or event has occurred and the Company or the LLC fails to cure such conduct or event within thirty (30) days of the receipt of such notice.

(i) As used herein, the term “Change in Control” shall have the following meaning:


	(i) the acquisition (other than from the Company) by any “Person” (as the term is used for purposes of Sections 13(d) or 14(d) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of thirty (30%) percent or more of the combined voting power of the Company’s then outstanding voting securities;

	(ii) the individuals who were members of the Board (the “Incumbent Board”) during the previous twelve (12) month period, cease for


	any reason to constitute at least a majority of the Board; provided, however, that if the election, or nomination for election by the Company’s stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of this Agreement, be considered as a member of the Incumbent Board;

	(iii) approval by the stockholders of the Company of (a) merger or consolidation involving the Company if the stockholders of the Company, immediately before such merger or consolidation do not, as a result of such merger or consolidation, own, directly or indirectly, more than fifty (50%) percent of the combined voting power of the then outstanding voting securities of the corporation resulting from such merger or consolidation in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such merger or consolidation or (b) a complete liquidation or dissolution of the Company or an agreement for the sale or other disposition of all or substantially all of the assets of the Company; or

	(iv) approval by the stockholders of the Company of any transaction (including without limitation a “going private transaction”) involving the Company if the stockholders of the Company, immediately before such transaction, do not as a result of such transaction, own directly or indirectly, more than fifty (50%) percent of the combined voting power of the then outstanding voting securities of the corporation resulting from such transaction in substantially the same proportion as their ownership of the combined voting power of the voting securities of the Company outstanding immediately before such transaction.

Notwithstanding the foregoing, a Change in Control shall not be deemed to occur pursuant to clause (i)(i) above solely because thirty (30%) percent or more of the combined voting power of the Company’s then outstanding securities is acquired by (a) a trustee or other fiduciary holding securities under one or more employee benefit plans maintained by the Company or any of its subsidiaries or (b) any corporation which, immediately prior to such acquisition, is owned directly or indirectly by the stockholders of the Company in the same proportion as their ownership of stock in the Company immediately prior to such acquisition.

(j) The amounts required to be paid and the benefits required to be made available to the Executive under this Section 6 are absolute. Under no circumstances shall the Executive, upon the termination of his employment hereunder, be required to seek alternative employment and, in the event that the Executive does secure other employment, no compensation or other benefits received in respect of such employment shall be set-off or in any other way limit or reduce the obligations of the Company under this Section 6.


	(i) Gross-Up Payment. If it shall be determined that any payment or distribution of any type to or in respect of the Executive, by the


	Company, the LLC, or any other person, whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise (the “Total Payments”), is or will be subject to the excise tax imposed by Section 4999 of the Internal Code of 1986, as amended (the “Code”) or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes) imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments.

	(ii) Determination by Accountant.

	(A) All computations and determinations relevant to this Section 6(k) shall be made by a national accounting firm selected by the Company from among the five (5) largest accounting firms in the United States (the “Accounting Firm”) which firm may be the Company’s accountants. Such determinations shall include whether any of the Total Payments are “parachute payments” (within the meaning of Section 280G of the Code). In making the initial determination hereunder as to whether a Gross-Up Payment is required the Accounting Firm shall determine that no Gross-Up Payment is required, if the Accounting Firm is able to conclude that no “Change of Control” has occurred (within the meaning of Section 280G of the Code) on the basis of “substantial authority” (within the meaning of Section 6230 of the Code) and shall provide opinions to that effect to both the Company and the Executive. If the Accounting Firm determines that a Gross-Up Payment is required, the Accounting Firm shall provide its determination (the “Determination”), together with detailed supporting calculations regarding the amount of any Gross-Up Payment and any other relevant matter both to the Company and the Executive by no later than ten (10) days following the Termination Date, if applicable, or such earlier time as is requested by the Company or the Executive (if the Executive reasonably believes that any of the Total Payments may be subject to the Excise Tax). If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive and the Company with a written statement that such Accounting Firm has concluded that no Excise Tax is payable (including the reasons therefor) and that the Executive has substantial authority not to report any Excise Tax on his federal income tax return.

	(B) If a Gross-Up Payment is determined to be payable, it shall be paid to the Executive within twenty (20) days after the later of (i) the Determination (and all accompanying calculations and other material supporting the Determination) is delivered to the Company by the Accounting Firm or (ii) the date of the event which leads to the Gross-up Payment. Any determination by the Accounting Firm shall be binding upon the Company and the Executive, absent manifest error.


	(C) As a result of uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments not made by the Company should have been made (“Underpayment”), or that Gross-Up Payments will have been made by the Company which should not have been made (“Overpayments”). In either such event, the Accounting Firm shall determine the amount of the Underpayment or Overpayment that has occurred. In the case of an Underpayment, the amount of such Underpayment (together with any interest and penalties payable by the Executive as a result of such Underpayment) shall be promptly paid by the Company to or for the benefit of the Executive.

	(D) In the case of an Overpayment, the Executive shall, at the direction and expense of the Company, take such steps as are reasonably necessary (including the filing of returns and claims for refund), follow reasonable instructions from, and procedures established by, the Company, and otherwise reasonably cooperate with the Company to correct such Overpayment, provided, however, that (i) the Executive shall not in any event be obligated to return to the Company an amount greater than the net after-tax portion of the Overpayment that he has retained or has recovered as a refund from the applicable taxing authorities and (ii) this provision shall be interpreted in a manner consistent with the intent of Section 6(k)(i), which is to make the Executive whole, on an after-tax basis, from the application of the Excise Taxes, it being acknowledged and understood that the correction of an Overpayment may result in the Executive repaying to the Company an amount which is less than the Overpayment.

	(E) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service relating to the possible application of the Excise Tax under Section 4999 of the Code to any of the payments and amounts referred to herein and shall afford the Company, at its expense, the opportunity to control the defense of such claim.

7. Cooperation with Company. Following the termination of the Executive’s employment for any reason, Executive shall fully cooperate with the Company in all matters relating to the winding up of his pending work on behalf of the Company including, but not limited to, any litigation in which the Company is involved and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company. The Company agrees to reimburse the Executive for any out-of-pocket expense he incurs in performing any work on behalf of the Company following the termination of his employment.

(a) The Executive acknowledges that the Company and its subsidiaries or affiliated ventures (“Company Affiliates”) own and have developed and compiled, and will in the future own, develop and compile, certain Confidential

Information and that during the course of his rendering services hereunder Confidential Information will be disclosed to the Executive by the Company Affiliates. The Executive hereby agrees that, during the Term and for a period of three years thereafter, he will not use or disclose, furnish or make accessible to anyone, directly or indirectly, any Confidential Information of the Company Affiliates. In particular, Executive covenants and agrees that Executive shall not, directly or indirectly, communicate or divulge, or use for the benefit of Executive or for any other person, or to the disadvantage of the Company, the Confidential Information or any information in any way relating to the Confidential Information, without prior written consent from the Company.

(b) As used herein, the term “Confidential Information” means any trade secrets, confidential or proprietary information, or other knowledge, know-how, information, documents, materials, owned, developed or possessed by a Company Affiliate pertaining to its businesses, including, but not limited to, records, memoranda, computer files and disks, audio and video tapes, CD’s, and property in any form containing information generally not known in the hospitality industry, including but not limited to trade secrets, techniques, know-how (including designs, plans, procedures, processes and research records), operations, market structure, formulas, data, programs, licenses, prices, costs, software, computer programs, innovations, discoveries, improvements, research, developments, test results, reports, specifications, data, formats, marketing data and business plans and strategies, customer lists, client lists and client contact lists, agreements and other forms of documents, expansion plans, budgets, projections, and salary, staffing and employment information. Notwithstanding the foregoing, Confidential Information shall not in any event include information which (i) was generally known or generally available to the public prior to its disclosure to the Executive, (ii) becomes generally known or generally available to the public subsequent to its disclosure to the Executive through no wrongful act of the Executive, (iii) is or becomes available to the Executive from sources other than the Company Affiliates which sources are not known to the Executive to be under any duty of confidentiality with respect thereto or (iv) the Executive is required to disclose by applicable law or regulation or by order of any court or federal, state or local regulatory or administrative body (provided that the Executive provides the Company with prior notice of the contemplated disclosure and reasonably cooperates with the Company, at the Company’s sole expense, in seeking a protective order or other appropriate protection of such information).

(c) Upon demand by the Company and/or upon termination of employment with the Company for any reason, Executive shall promptly deliver to the Company all property and materials, whether written, descriptive, or maintained in some other form belonging to or relating to the Company, its business affairs and those of its Affiliates, including all Confidential Information. If Executive desires to retain copies of any forms or other materials developed by Executive during his employment with the Company, he may request permission to do so from the Chief Executive Officer, which permission shall not be unreasonably withheld.

(d) The Executive agrees that during his employment hereunder and for a period of twelve (12) months thereafter he will not solicit or accept the business of, or assist any other person to solicit or accept the business of, any persons or entities who were customers of the Company, as of, or within one (1) year prior to, the

Executive’s termination of employment, for the purposes of providing products or services competitive with the products or services of the Company or to cause such customers to reduce or end their business with the Company.

(e) The Executive agrees that for a period of six (6) months after his employment terminates, he will not directly or indirectly solicit any employee who directly reported to Executive within one (1) year prior to Executive’s termination of employment. Executive will not be prohibited from soliciting any person who has been terminated by the Company, and any employee (whether a direct report or not) may voluntarily seek employment with Executive or Executive’s new company after Executive employment terminates.

(a) The Executive acknowledges that the services to be rendered by him hereunder are of a special, unique, extraordinary and personal character and that the Company Affiliates would sustain irreparable harm in the event of a violation by the Executive of Section 8 hereof. Therefore, in addition to any other remedies available, the Company shall be entitled to specific enforcement and/or an injunction from any court of competent jurisdiction restraining the Executive from committing or continuing any such violation of this Agreement without proving actual damages or posting a bond or other security. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of damages.

(b) If any of the restrictions on activities of the Executive contained in Section 8 hereof shall for any reason be held by a court of competent jurisdiction to be excessively broad, such restrictions shall be construed so as thereafter to be limited or reduced to be enforceable to the maximum extent compatible with the applicable law as it shall then appear; it being understood that by the execution of this Agreement the parties hereto regard such restrictions as reasonable and compatible with their respective rights.

(c) Notwithstanding anything in this Agreement to the contrary, in the event that the Company fails to make any payment of any amounts or provide any of the benefits to the Executive when due as called for under Section 6 of this Agreement and such failure shall continue for twenty (20) days after written notice thereof from the Executive, all restrictions on the activities of the Executive under Section 8 hereof shall be immediately and permanently terminated.

10. Withholding. The parties agree that all payments to be made to the Executive by the Company pursuant to the Agreement shall be subject to all applicable withholding obligations of such company.

11. Notices. All notices required or permitted hereunder shall be in writing and shall be deemed given and received when delivered personally, four (4) days after being mailed if sent by registered or certified mail, postage pre-paid, or by one (1) day after delivery if sent by air courier (for next-day delivery) with evidence of receipt

thereof or by facsimile with receipt confirmed by the addressee. Such notices shall be addressed respectively:

Interstate Hotels & Resorts, Inc.
1010 Wisconsin Avenue, N.W.
Washington, D.C. 20007
Attention: Legal Department

or to any other address of which such party may have given notice to the other parties in the manner specified above.

(a) This Agreement is a personal contract calling for the provision of unique services by the Executive, and the Executive’s rights and obligations hereunder may not be sold, transferred, assigned, pledged or hypothecated by the Executive. The rights and obligations of the Company and the LLC hereunder will be binding upon and run in favor of their respective successors and assigns. The Company will not be deemed to have breached this Agreement if any obligations of the Company to make payments to the Executive are satisfied by the LLC.

(b) This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Delaware, without regard to conflict of laws principles.

(c) The headings of the various sections of this Agreement are for convenience of reference only and shall not define or limit any of the terms or provisions hereof.

(d) The provisions of this Agreement which by their terms call for performance subsequent to the expiration or termination of the Term shall survive such expiration or termination.

(e) The Company and the LLC shall reimburse the Executive for all costs incurred by the Executive in any proceeding for the successful enforcement of the terms of this Agreement, including without limitation all costs of investigation and reasonable attorneys fees and expenses.

(f) This Agreement constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all other prior agreements and undertakings, both written and oral, among the parties with respect to the subject matter hereof (other than previously executed option agreements, restricted stock agreements executed by the Executive and the Company and/or the LLC, the “Grant Agreements”), all of which shall be terminated on the Commencement Date. In addition, the parties hereto hereby waive all rights such party may have under all other prior agreements (other then the Grant Agreements), including without limitation, the Executive Employment Agreement entered into as of August 3, 1998 and the Executive Employment Agreement entered into as of April 1, 2000, between the Executive and MeriStar Hotels & Resorts, Inc. and the Amendment thereto executed on March 26, 2002, all of which shall be terminated on the Commencement Date. In addition, the parties hereto hereby waive all rights such party may have under all other prior agreements and undertakings, both written and oral, among the parties hereto (other than the Grant Agreements).

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

We consent to incorporation by reference in the registration statement (No. 333-60545) on Form S-8 (for the Non-Employee Directors’ Incentive Plan), the registration statement (No. 333-60539) on Form S-8 (for the Incentive Plan), the registration statement (No. 333-61731) on Form S-8 (for The Employee Stock Purchase Plan), the registration statement (No. 333-89740) on Form S-8 (for the 1999 Employee Stock Option Plan), and the registration statement (No. 333-84531) on Form S-3 of Interstate Hotels & Resorts, Inc. of our report dated February 11, 2003, with respect to the consolidated balance sheets of Interstate Hotels & Resorts, Inc. and subsidiaries as of December 31, 2002, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for the year ended December 31, 2002; which report appears in the December 31, 2002 annual report on Form 10-K of Interstate Hotels & Resorts, Inc.

EX-99.1 11 w84565exv99w1.htm SARBARNES-OXLEY ACT CHIEF EXECUTIVE OFFICER exv99w1

In connection with this annual report on Form 10-K of Interstate Hotels & Resorts, Inc. (the “Issuer”) for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Paul W. Whetsell, Chief Executive Officer of the Issuer, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


	1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

	2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.

A signed original of this written statement required by Section 906 has been provided to Interstate Hotels & Resorts, Inc. and will be retained by Interstate Hotels & Resorts, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

In connection with this annual report on Form 10-K of Interstate Hotels & Resorts, Inc. (the “Issuer”) for the year ended December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James A. Calder, Chief Financial Officer of the Issuer, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:


	1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and

	2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Issuer.


Delaware		52-2101815
(State of Incorporation)		(IRS Employer Identification No.)


		Page

PART I
Item 1.	Business		2
Item 2.	Properties		26
Item 3.	Legal Proceedings		26
Item 4.	Submission of Matters to a Vote of Security Holders		26
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters		26
Item 6.	Selected Financial Data		27
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		30
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk		44
Item 8.	Financial Statements and Supplementary Data		45
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		75
PART III
Item 10.	Directors and Executive Officers of the Registrant		75
Item 11.	Executive Compensation		75
Item 12.	Security Ownership of Certain Beneficial Owners and Management		75
Item 13.	Certain Relationships and Related Transactions		75
Item 14.	Controls and Procedures		75
PART IV
Item 15.	Exhibits, Financial Statement Schedules and Reports on Form 8-K		76
Signatures			80


	Guest				% of
Franchise	Rooms		Hotels		Rooms

Staybridge Suites®		108		1		0.1	%
Springhill Suites®		106		1		0.1	%
Howard Johnson®		100		1		0.1	%
TownePlace Suites®		95		1		0.1	%
Sleep Inn®		90		1		0.1	%

Total		83,053		393


	Number		Average
	of		Number
Year	Markets		of Units		ADR		Occupancy

2002		22		3,054	$	87.76		82.3	%
2001		21		3,589	$	84.47		85.3	%
2000		22		3,231	$	83.80		88.4	%



		Stock Price

		High		Low

Fiscal 2001:
	First Quarter		13.55		8.00
	Second Quarter		10.70		7.45
	Third Quarter		9.25		4.35
	Fourth Quarter		4.90		2.70
Fiscal 2002:
	First Quarter		4.25		3.15
	Second Quarter		6.05		3.85
	Third Quarter		4.40		2.45
	Fourth Quarter		4.87		3.90
Fiscal 2003
	First Quarter Through March 20, 2003		5.05		4.21


Year	Properties		Guest Rooms

2002		393		83,053
2001		376		72,513
2000		333		62,542


ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS



			Successor												Predecessor			Successor


			Year Ended December 31,												Jan. 1, 1998			June 2, 1998
															through			through			Combined
			2002			2001			2000			1999			June 1, 1998			Dec. 31, 1998			1998(1)

																					(unaudited)
Statement of Operations Data:
Revenue:
	Lodging revenue		$	2,908		$	4,426		$	203,472		$	194,388		$	78,769		$	115,153		$	193,922
	Management fees			39,888			24,525			29,481			33,275			18,018			22,763			40,781
	Corporate housing			46,818			—			—			—			—			—			—
	Other revenue			17,313			15,074			13,159			12,691			9,976			10,478			20,454

				106,927			44,025			246,112			240,354			106,763			148,394			255,157
	Other revenue from managed properties(8)			494,243			274,801			287,941			—			—			—			—

		Total revenue		601,170			318,826			534,053			240,354			106,763			148,394			255,157

Operating expenses by department:
	Lodging expenses			2,139			2,647			116,019			107,470			39,834			60,790			100,624
	Corporate housing			37,990			—			—			—			—			—			—
Undistributed operating expenses:
	Administrative and general			48,166			31,123			37,598			33,688			17,097			16,261			33,358
	Lease expense			—			482			88,594			89,174			34,515			51,165			85,680
	Depreciation and amortization			14,058			10,394			16,091			20,833			2,152			10,659			12,811
	Merger costs			9,363			—			—			—			—			—			—
	Restructuring expenses			12,614			—			—			—			—			—			—
	Tender offer costs			1,000			—			—			—			—			—			—
	Joint Venture start-up costs(2)			—			—			2,096			—			—			—			—
	Asset impairment and write-offs(3)			3,787			3,026			12,550			16,406			—			—			—

				129,117			47,672			272,948			267,571			93,598			138,875			232,473
	Other expenses from managed properties(8)			494,243			274,801			287,941			—			—			—			—

Total operating expenses				623,360			322,473			560,889			267,571			93,598			138,875			232,473
Net operating income (loss)				(22,190	)		(3,647	)		(26,836	)		(27,217	)		13,165			9,519			22,684
	Interest expense (benefit), net			5,595			1,635			(1,801	)		(1,359	)		(165	)		(255	)		(420	)
Equity in (earnings) loss of affiliates				2,409			5,169			522			(1,525	)		(513	)		(1,526	)		(2,039	)
	Loss on sale of investment in hotel real estate(4)			—			—			—			876			—			—			—
	Conversion incentive payment — convertible notes			7,307			—			—			—			—			—			—

Income (loss) before minority interest and income taxes				(37,501	)		(10,451	)		(25,557	)		(25,209	)		13,843			11,300			25,143
Minority interest expense (benefit)				(197	)		194			(10,719	)		(12,514	)		24			209			233
Income tax expense (benefit)				(1,133	)		(3,295	)		(5,935	)		(5,078	)		5,528			4,436			9,964

Net income (loss)				(36,171	)		(7,350	)		(8,903	)		(7,617	)		8,291			6,655			14,946


ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	2002			2001			Change

Revenue per available room	$	63.89		$	68.10		$	(4.21	)
Average daily rate	$	98.04		$	103.43		$	(5.39	)
Occupancy		65.2	%		65.8	%		1	%


			MeriStar
	Senior Credit		Hospitality		Promissory		Non-Cancelable
	Facility		Term Loan		Note		Leases		Total


2003	$	1,625	$	—	$	—	$	24,115	$	25,740
2004		1,625		—		—		10,406		12,031
2005		61,750		—		—		9,199		70,949
2006		9,000		—		—		8,032		17,032
2007		—		56,069		—		6,982		63,051
thereafter		—		—		4,170		17,419		21,589

Total	$	74,000	$	56,069	$	4,170	$	76,153	$	210,392


Independent Auditors’ Report			46
Consolidated Balance Sheets as of December 31, 2002 and 2001			47
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2002, 2001 and 2000			48
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000			49
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000			50
Notes to the Consolidated Financial Statements			51



			December 31,

			2002			2001

ASSETS
Current assets:
	Cash and cash equivalents		$	7,054		$	39,040
	Restricted cash			1,366			1,348
	Accounts receivable, net of allowance for doubtful accounts of $4,125 in 2002 and $227 in 2001			13,532			4,931
	Insurance premiums receivable			5,638			4,149
	Due from MeriStar Hospitality			10,500			—
	Deferred income taxes			—			2,204
	Prepaid expenses and other current assets			11,783			1,941

		Total current assets		49,873			53,613
Marketable securities				2,413			2,548
Property and equipment, net				24,894			14,390
Officers and employees notes receivable				373			2,028
Investments in and advances to affiliates				25,199			12,938
Deferred income taxes				20,174			5,479
Goodwill				91,960			—
Intangible and other assets, net				65,795			17,673

		Total assets	$	280,681		$	108,669

LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable and accrued expenses		$	60,363		$	17,602
	Income taxes payable			1,000			—
	Current portion of long-term debt			1,625			1,601

		Total current liabilities		62,988			19,203
Deferred compensation				2,413			2,548
Long-term debt				132,614			39,380

		Total liabilities		198,015			61,131
Minority interests				6,242			433
Mandatorily redeemable preferred stock				—			5,070
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized; 725,000 shares issued and outstanding and classified as mandatorily redeemable preferred stock at December 31, 2001				—			—
Common stock, $.01 par value; 50,000,000 shares authorized; 20,556,552 and 5,730,440 shares issued and outstanding at December 31, 2002 and 2001, respectively				205			57
	Treasury stock			(46	)		—
	Paid-in capital			138,268			64,955
	Accumulated other comprehensive loss			(249	)		—
	Accumulated deficit			(61,754	)		(22,977	)

		Total stockholders’ equity		76,424			42,035

		Total liabilities, minority interests and stockholders’ equity	$	280,681		$	108,669


														Accumulated									Mandatorily
														Other									Redeemable
		Common			Treasury			Paid-in			Retained			Comprehensive			Unearned						Preferred
		Stock			Stock			Capital			Deficit			Loss			Compensation			Total			Stock


Balance at January 1, 2000		$	64			—		$	66,705		$	(5,889	)		—		$	(874	)	$	60,006			—
	Issuance of common stock		2			—			615			—			—			—			617			—
	Common stock repurchased and retired		(2	)		—			(595	)		—			—			—			(597	)		—
	Issuance of mandatorily redeemable preferred stock		—			—			—			—			—			—			—			7,250
	Unearned compensation related to the issuance of mandatorily redeemable preferred stock		—			—			—			—			—			—			—			(2,250	)
	Mandatorily redeemable preferred stock issuance costs		—			—			—			—			—			—			—			(429	)
	Mandatorily redeemable preferred stock accretion		—			—			—			—			—			—			—			12
	Receivable from related party		—			—			—			—			—			—			—			(450	)
	Amortization of unearned compensation		—			—			—			—			—			874			874			125
	Net loss available to common stockholders		—			—			—			(9,042	)		—			—			(9,042	)		—

Balance at December 31, 2000			64			—			66,725			(14,931	)		—			—			51,858			4,258

	Issuance of common stock		1			—			214			—			—			—			215			—
	Options exercised		—			—			8			—			—			—			8			—
	Common stock repurchased and retired		(8	)		—			(1,992	)		—			—			—			(2,000	)		—
	Mandatorily redeemable preferred stock accretion		—			—			—			—			—			—			—			62
	Amortization of unearned compensation		—			—			—			—			—			—			—			750
	Net loss available to common stockholders		—			—			—			(8,046	)		—			—			(8,046	)		—

Balance at December 31, 2001			57			—			64,955			(22,977	)		—			—			42,035			5,070

	Conversion of convertible securities		65			—			31,735			—			—			—			31,800			—
	Options exercised		2			—			525			—			—			—			527			—
	Effect of options accounted for using variable plan accounting		—			—			823			—			—			—			823			—
	Shares issued in connection with the merger and conversion of Interstate shares		871			—			37,653			—			—			—			38,524			—
	Reverse stock-split		(792	)		—			792			—			—			—			—			—
	Vesting of MeriStar stock options		—			—			953			—			—			—			953			—
	Issuance of restricted stock		2			—			832			—			—			—			834			—
	Treasury shares repurchased		—			(46	)		—			—			—			—			(46	)		—
	Redemption of preferred stock		—			—			—			—			—			—			—			(5,070	)
	Net loss available to common stockholders		—			—			—			(38,777	)		—			—			(38,777	)		—
	Other comprehensive loss		—			—			—			—			(249	)		—			(249	)		—

Balance at December 31, 2002		$	205		$	(46	)	$	138,268		$	(61,754	)	$	(249	)	$	—		$	76,424		$	—


Year ending December 31, 2003	$	7,068
Year ending December 31, 2004		3,305
Year ending December 31, 2005		3,106
Year ending December 31, 2006		2,874
Year ending December 31, 2007		2,722


ITEM 1.	BUSINESS


	Guest				% of
Franchise	Rooms		Hotels		Rooms

Independent		11,038		44		13.3	%
Hilton®		8,377		31		10.1	%
Hampton Inn®		8,239		65		9.9	%
Sheraton®		7,252		23		8.7	%
Marriott®		6,155		19		7.4	%
Holiday Inn®		5,498		27		6.6	%
Radisson®		4,674		16		5.6	%
Residence Inn®		3,675		27		4.4	%
Courtyard by Marriott®		3,416		20		4.1	%
Westin®		3,066		7		3.7	%
Doubletree®		2,043		7		2.5	%
Crowne Plaza®		2,009		7		2.4	%
Embassy Suites®		1,710		7		2.1	%
Comfort Inn®		1,704		11		2.1	%
Renaissance®		1,638		3		2.0	%
Homewood Suites®		1,608		12		1.9	%
Holiday Inn Select®		1,358		5		1.6	%
Hilton Garden Inn®		1,255		8		1.5	%
Wyndham®		1,069		4		1.3	%
Fairfield Inn®		1,041		6		1.3	%
Holiday Inn Express®		945		8		1.1	%
Ramada®		877		5		1.1	%
Doral®		870		3		1.0	%
Comfort Suites®		449		3		0.5	%
Best Western®		373		5		0.4	%
MainStay Suites®		300		3		0.4	%
Doubletree Guest Suites®		292		2		0.4	%
AmeriSuites®		256		2		0.3	%
Omni®		215		1		0.3	%
Four Points®		214		1		0.3	%
Quality Suites®		177		1		0.2	%
Clarion Hotel & Suites®		177		1		0.2	%
Quality Inn®		165		1		0.2	%
Country Inn & Suites®		152		1		0.2	%
Hampton Inn & Suites®		136		1		0.2	%
Travel Lodge®		131		1		0.2	%


		2002			2001

Senior credit agreement		$	74,000		$	—
Promissory note			4,170			4,170
MHOP term loan			56,069			—
8.75% subordinate convertible notes			—			25,000
Wyndham redemption notes			—			4,432
Limited recourse mortgage note			—			7,379

			134,239			40,981
	Less current portion		(1,625	)		(1,601	)

		$	132,614		$	39,380


	Hotel		Corporate						Financial
	Management		Housing			Other			Statements

Year ended December 31, 2002
Revenue	$	554,352	$	46,818		$	—		$	601,170
EBITDA	$	19,158	$	(526	)	$	(26,764	)	$	(8,132	)
Total assets	$	247,865	$	16,197		$	16,619		$	280,681
Year Ended December 31, 2001
Revenues	$	318,826	$	—		$	—		$	318,826
EBITDA	$	9,773	$	—		$	(3,026	)	$	6,747
Total assets	$	97,199	$	—		$	11,470		$	108,669
Year Ended December 31, 2000
Revenues	$	534,053	$	—		$	—		$	534,053
EBITDA	$	3,901	$	—		$	(14,646	)	$	(10,745	)
Total assets	$	136,251	$	—		$	7,272		$	143,523


Value of MeriStar common stock issued		$	38,527
Value of MeriStar stock options			953
Transaction costs			3,663

	Total cost of acquisition		43,143
Fair value of liabilities assumed			184,712
Fair value of assets acquired			(135,895	)

Goodwill		$	91,960


Current Assets	$	34,686
Intangible Assets		59,712
Other Long-Term Assets		41,497

Fair value of assets acquired	$	135,895

Current Liabilities	$	(52,399	)
Long term debt		(126,069	)
Minority interest		(6,244	)

Fair value of liabilities assumed	$	(184,712	)


	2002			2001

Conversion incentive payments	$	9,250		$	—
Gain on lease conversion	$	(7,229	)	$	—
Merger costs	$	8,006		$	4,239
Restructuring expenses	$	13,296		$	3,479
Tender offer costs	$	1,000		$	—
Asset impairment and write-offs	$	3,787		$	3,026
Charges to investments in and advances to affiliates, accounts and notes receivable, and other	$	—		$	16,098


Write-off of deferred financing fees		$	2,465
Write-off of officer and employee notes receivable			1,866
Accelerated Vesting of preferred stock			1,000
Write-off of fixed assets			1,860
Integration costs			2,172

	Total	$	9,363



		1999 Equity					Employee Equity
		Incentive Plan					Incentive Plan					Directors’ Plan

					Average					Average					Average
		Number of			Option		Number of			Option		Number of			Option
		Shares			Price		Shares			Price		Shares			Price

Balance, January 1, 2000			1,598,960		$	4.89		598,949		$	16.80		17,000		$	18.55
	Granted		—			—		194,750			15.05		7,000			14.70
	Exercised		—			—		(9,993	)		11.85		—			—
	Cancelled		(621,000	)		4.89		(57,036	)		17.10		(4,500	)		18.05
Balance, December 31, 2000			977,960			4.89		726,670			16.25		19,500			17.30
	Granted		546,204			2.18		366,850			3.55		6,000			10.00
	Exercised		(3,680	)		2.17		(400	)		11.80		—			—
	Cancelled		(918,344	)		4.86		(102,556	)		16.95		—			—
Balance, December 31, 2001			602,140			2.51		990,564			11.50		25,500			15.60
	Granted		—			—		331,966			4.00		55,500			3.25
	Exercised		(241,132	)		2.17		—			—		—			—
	Cancelled		(46,368	)		2.98		(156,659	)		15.09		—			—
Balance, December 31, 2002			314,640			2.66		1,165,871			8.92		81,000			7.13
Shares exercisable at December 31, 2002			314,640			2.66		845,871			10.79		28,500			14.27
Shares exercisable at December 31, 2001			2,441,218			3.55		417,535			2.31		67,506			3.50



	Options Outstanding
							Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
Range of	Number		Contractual		Exercise		Number		Exercise
exercise prices	Outstanding		Life		Price		Exercisable		Price

$2.17 to $2.80		329,100		7.03	$	2.31		329,100	$	2.31
$3.05 to $3.45		324,850		9.03		3.37		272,350		3.39
$3.75 to $3.99		321,500		9.79		3.99		1,500		3.75
$4.00 to $15.30		324,799		6.29		11.73		324,799		11.73
$15.70 to $23.70		261,262		5.36		18.65		261,262	$	18.65

$2.17 to $23.70		1,561,511		7.58	$	7.57		1,189,011	$	8.72


Cash paid for interest and income taxes:
	Interest		$	6,572
	Income taxes		$	539
Operating assets and liabilities acquired in connection with the merger:
	Cash and cash equivalents		$	1,766
	Accounts receivable, net			15,080
	Due from MeriStar Hospitality			7,873
	Prepaid expenses			7,593
	Deposits and other			2,374
	Fixed assets, net			14,841
	Investment in and advances to affiliates			16,956
	Intangible assets, net			59,712
	Deferred tax assets			9,700

		Total operating assets acquired	$	135,895

	Accounts payable & accrued expenses		$	(52,399	)
	Long-term debt			(126,069	)
	Minority interests			(6,244	)

		Total liabilities acquired	$	(184,712	)


					Issued and
	Par		Authorized		Outstanding


Class A common stock	$	.01		62,000,000		5,487,885
Class B common stock	$	.01		1,500,000		242,555
Class C common stock	$	.01		1,439,361		—

				64,939,361		5,730,440


			2002			2001

Deferred tax assets:
Minority interest temporary difference			$	1,934		$	—
Net operating loss carryforward				28,683			812
Accrued expenses				4,925			1,511
Tax credits				1,727			—
Equity in investee earnings				1,029			1,963
Other				7			(41	)

Total gross deferred tax assets				38,305			4,245
Less: valuation allowance				(10,767	)		(395	)

	Net deferred tax assets			27,538			3,850

Deferred tax liabilities:
Allowance for doubtful accounts				(142	)		—
Depreciation and amortization expense				(4,800	)		3,833
Prepaid expense				(607	)		—
Intangible assets basis differences				(1,403	)		—
Other				(412	)		—

		Total gross deferred tax liabilities		(7,364	)		3,833

Net deferred tax asset			$	20,174		$	7,683


	First			Second			Third			Fourth

2001:
Total revenues	$	80,490		$	82,718		$	77,876		$	77,742
Operating income (loss)		(594	)		259			(3,830	)		518
Net income (loss)		(312	)		118			4,191			(11,347	)
Net loss available to common stockholders		(486	)		(56	)		(4,365	)		(3,139	)
Basic and diluted earnings per common share		(.08	)		(.01	)		(.78	)		(.60	)

2002:
Total revenues	$	72,788		$	84,440		$	196,595		$	247,347
Operating income (loss)		1,033			(1,467	)		(18,954	)		(2,802	)
Net loss		(115	)		(10,233	)		(19,377	)		(6,446	)
Net loss available to common stockholders		(289	)		(12,664	)		(22,428	)		(3,396	)
Basic and diluted earnings per common share		(.05	)		(2.26	)		(1.30	)		(.17	)


ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT


ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K


Exhibit
No.

	3.1	Amended and Restated Certificate of Incorporation of the Company, formerly MeriStar Hotels & Resorts, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Form S-1/ A filed with the Securities and Exchange Commission on July 23, 1998 (Registration No. 333-49881)).
	3.1.1	Certificate of Amendment of the Restated Certificate of Incorporation of the Company dated June 30, 2001 (incorporated by reference to Exhibit 3.1.1 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 15, 2002).
	3.1.2	Certificate of Merger of Interstate Hotels Corporation into MeriStar Hotels & Resorts, Inc. (incorporated by reference to Exhibit 3.1.2 to the Company’s Form 8-A/ A filed with the Securities and Exchange Commission on August 2, 2002).
	3.1.3	Certificate of Amendment of the Restated Certificate of Incorporation of the Company dated July 31, 2002 (incorporated by reference to Exhibit 3.1.3 to the Company’s Form 8-A/ A filed with the Securities and Exchange Commission on August 2, 2002).
	3.2	By-laws of the Company, formerly MeriStar Hotels & Resorts, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Form S-1/ A filed with the Securities and Exchange Commission on July 23, 1998 (Registration No. 333-49881)).
	3.2.1	Amendment to the By-laws of the Company (incorporated by reference to Exhibit 3.3 to the Company’s Form 8-A/ A filed with the Securities and Exchange Commission on August 2, 2002).
	4.1	Form of Common Stock Certificate of the Company (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-A/ A filed with the Securities and Exchange Commission on August 2, 2002).
	4.2	Preferred Share Purchase Rights Agreement, dated July 23, 1998, between the Company, formerly MeriStar Hotels & Resorts, Inc., and the Rights Agent (incorporated by reference to Exhibit 4.4 to the Company’s Form S-1/ A filed with the Securities and Exchange Commission on July 23, 1998(Registration No. 333-49881)).


	4.2.1			Amendment to Rights Agreement, dated December 8, 2000, between the Company, formerly MeriStar Hotels & Resorts, Inc., and the Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 12, 2000).
	4.2.2			Second Amendment to Rights Agreement, dated May 1, 2002, between the Company, formerly MeriStar Hotels & Resorts, Inc., and the Rights Agent (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on May 3, 2002).
	4.3			Form of Rights Certificate (incorporated by reference to Exhibit 4.3 to the Company’s Form S-1/ A filed with the Securities and Exchange Commission on July 23, 1998 (Registration No. 333-49881)).
	4.4			Registration Rights Agreement, dated March 31, 1999, between the Company (formerly MeriStar Hotels & Resorts, Inc.), Oak Hill Capital Partners, L.P. and Oak Hill Capital Management Partners, L.P. (incorporated by reference to Exhibit 4.7 to the Company’s Form 10-Q filed with the Securities and Exchange Commission for the three months ended March 31, 1999).
	9.1			Board Composition Agreement, dated as of July 31, 2002, among the Company. and certain stockholders of the Registrant specified therein (incorporated by reference to Exhibit 9.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
	10.1			Amended and Restated Agreement of Limited Partnership of MeriStar H&R Operating Company, L.P. dated as of August 3, 1998 (incorporated by reference to Exhibit 10.11 to the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998).
	10.2			Senior Credit Agreement (“Senior Credit Agreement”), dated as of July 31, 2002, among the Registrant, MeriStar H&R Operating Company, L.P., Societe Generale, SG Cowen Securities Corporation, Salomon Smith Barney Inc., Lehman Brothers, Inc., Credit Lyonnais New York Branch and various other lenders (incorporated by reference to Exhibit 10.3 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
	10.2.1			First Amendment to the Senior Credit Agreement, dated as of August 15, 2002, among the Registrant, MeriStar H&R Operating Company, L.P., Societe Generale, SG Cowen Securities Corporation, Salomon Smith Barney Inc., Lehman Brothers, Inc., Credit Lyonnais New York Branch and various other lenders (incorporated by reference to Exhibit 10.18.1 to the Registrant’s Form 10-Q filed with the Securities and Exchange Commission on November 14, 2002).
	10.2.2			Second Amendment to the Senior Credit Agreement dated January 10, 2003.
	10.3			Intercompany Agreement between MeriStar Hospitality Corporation, MeriStar Hospitality Operating Partnership, L.P., MeriStar Hotel Lessee, Inc., the Company (formerly MeriStar Hotels & Resorts, Inc.) and MeriStar H&R Operating Company L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 15, 2002).
	10.3.1			Amendment to the Intercompany Agreement (incorporated by reference to Exhibit 10.15 to the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 2000).
	10.4			Revolving Credit Agreement (the “Revolving Credit Agreement”), dated as of August 3, 1998, by and between MeriStar H&R Operating Company, L.P. and MeriStar Hospitality Operating Partnership, L.P. (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998).
	10.4.1			Amendment to Revolving Credit Agreement (incorporated by reference to Exhibit 10.13 to the Company’s Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1999).
	10.4.2			Second Amendment to Revolving Credit Agreement (incorporated by reference to Exhibit 10.4.2 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 15, 2002).


	10.4.3			Third Amendment to Revolving Credit Agreement, dated as of July 31, 2002 (incorporated by reference to Exhibit 10.4 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
	10.4.4			Fourth Amendment to Revolving Credit Agreement, dated as of August 15, 2002 (incorporated by reference to Exhibit 10.19.4 to the Registrant’s Form 10-Q filed with the Securities and Exchange Commission on November 14, 2002).
	10.5			Term Note by MeriStar H&R Operating Company, L.P. to MeriStar Hospitality Operating Partnership, L.P. (incorporated by reference to Exhibit 10.5 to the Company’s Form 10-K filed with the Securities and Exchange Commission on April 15, 2002).
	10.6			Subordinated Unsecured Term Loan, dated as of January 10, 2003, made by Lehman Commercial Paper, Inc., as Administrative Agent, to MeriStar H&R Operating Company, L.P.
	10.7			Agreement of Limited Partnership of MIP Lessee, L.P. (incorporated by reference to Exhibit 10.12 to the Company’s Form 10-Q filed with the Securities and Exchange Commission for the three months ended March 31, 1999).
	10.8			Amended and Restated Employee Incentive Plan of the Company (incorporated by reference to Exhibit 10.5 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
	10.9			The Non-Employee Directors’ Incentive Plan of the Company, formerly MeriStar Hotels & Resorts, Inc incorporated by reference to Exhibit 10.7 to the Company’s Form S-1/ A filed with the Securities and Exchange Commission on June 19, 1998 (Registration No. 333-49881)).
	10.9.1			Amendment to the Non-Employee Directors’ Incentive Plan (incorporated by reference to Exhibit 10.8.1 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 8, 2002).
	10.9.2			Amendments to the Registrant’s Non-Employee Directors’ Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
	10.10			The Employee Stock Purchase Plan of the Company, formerly MeriStar Hotels & Resorts, Inc. (incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K filed with the Securities and Exchange Commission on March 8, 2002).
	10.10.1			Amendments to the Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
	10.11			Registration Rights Agreement, dated as of July 31, 2002, among the Registrant and certain stockholders of the Registrant specified therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed with the Securities and Exchange Commission on August 7, 2002).
	10.12			Employment Agreement, dated as of November 1, 2001, between the Company (formerly MeriStar Hotels & Resorts, Inc.), MeriStar Management Company, LLC and Paul W. Whetsell (incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed with the Securities and Exchange Commission for the three and nine months ended September 30, 2000).
	10.12.1			Amendment to Paul W. Whetsell’s Employment Agreement dated as of July 31, 2002.
	10.12.2			Amendment to Paul W. Whetsell’s Employment Agreement dated as of December 13, 2002.
	10.13			Employment Agreement, dated as of August 3, 1998, between the Company (formerly MeriStar Hotels & Resorts, Inc.) and Steven D. Jorns (incorporated by reference to Exhibit 10.2 to the Company’s Form S-1/ A filed with the Securities and Exchange Commission on June 19, 1998 (Registration No. 333-49881)).
	10.13.1			Amendment to Steven D. Jorns Employment Agreement dated as of December 10, 1998.
	10.14			Employment Agreement, dated as of November 1, 2002, between Interstate Hotels & Resorts, Inc., MeriStar Management Company, LLC and John Emery.