10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended June 30, 2006
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission File Number 1-14331

Interstate Hotels & Resorts, Inc.

Delaware (State of Incorporation)	52-2101815 (IRS Employer Identification No.)
4501 North Fairfax Drive, Ste 500 Arlington, VA (Address of Principal Executive Offices)	22203 (Zip Code)

www.ihrco.com
This Form 10-Q can be accessed at no charge through above website.

(703) 387-3100
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  þ  Yes     o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o     Accelerated filer þ     Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

The number of shares of Common Stock, par value $0.01 per share, outstanding at August 1, 2006 was 31,223,065.

INTERSTATE HOTELS & RESORTS, INC.

INDEX

			Page
PART I. FINANCIAL INFORMATION
	Item 1:	Financial Statements (Unaudited):
		Consolidated Balance Sheets — June 30, 2006 and December 31, 2005		2
		Consolidated Statements of Operations and Comprehensive Income (Loss) — Three and six months ended June 30, 2006 and 2005		3
		Consolidated Statements of Cash Flows — Six months ended June 30, 2006 and 2005		4
		Notes to Consolidated Financial Statements		5
	Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 3:	Quantitative and Qualitative Disclosures About Market Risk		31
	Item 4:	Controls and Procedures		32
PART II. OTHER INFORMATION
	Item 1:	Legal Proceedings		33
	Item 4:	Submission of Matters to a Vote of Security Holders		33
	Item 6:	Exhibits		33

1

PART I. FINANCIAL INFORMATION

Item 1:  Financial Statements

INTERSTATE HOTELS & RESORTS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	June 30,			December 31,
	2006			2005
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,323		$	12,929
Restricted cash		3,205			3,209
Accounts receivable, net of allowance for doubtful accounts of $2,508 and $1,873, respectively		42,796			41,594
Due from related parties, net of allowance for doubtful accounts of $785 and $1,800, respectively		1,438			6,001
Prepaid expenses and other current assets		13,962			8,594
Total current assets		64,724			72,327
Marketable securities		1,336			1,503
Property and equipment, net		68,611			52,070
Investments in and advances to affiliates		13,662			7,686
Notes receivable		5,498			6,052
Deferred income taxes, net		21,516			11,925
Goodwill		86,185			96,809
Intangible assets, net		35,292			44,708
Total assets	$	296,824		$	293,080
LIABILITIES, MINORITY INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,200		$	4,508
Accrued expenses		70,098			70,347
Current portion of long-term debt		3,750			3,750
Total current liabilities		79,048			78,605
Deferred compensation		1,417			1,474
Long-term debt		77,802			81,302
Total liabilities		158,267			161,381
Minority interest		1,065			1,059
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized, no shares issued		—			—
Common stock, $.01 par value; 250,000,000 shares authorized; 31,222,565, and 30,609,935 shares issued and outstanding at June 30, 2006 and December 31, 2005, respectively		312			306
Treasury stock		(69	)		(69	)
Paid-in capital		191,738			189,330
Accumulated other comprehensive income		747			64
Accumulated deficit		(55,236	)		(58,991	)
Total stockholders’ equity		137,492			130,640
Total liabilities, minority interest and stockholders’ equity	$	296,824		$	293,080

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

2

INTERSTATE HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands, except per share amounts)

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Revenue:
Lodging	$	6,418		$	3,348		$	11,455		$	5,106
Management fees		13,916			9,610			23,404			17,185
Management fees-related parties		3,467			7,140			16,842			13,759
Corporate housing		33,287			31,126			61,052			58,525
Other		2,718			2,978			6,429			5,735
		59,806			54,202			119,182			100,310
Other revenue from managed properties		217,824			231,853			442,773			423,740
Total revenue		277,630			286,055			561,955			524,050
Operating expense by department:
Lodging		4,572			2,486			8,460			4,006
Corporate housing		26,193			24,620			49,183			48,029
Undistributed operating expenses:
Administrative and general		20,588			19,644			38,959			37,645
Depreciation and amortization		1,926			2,196			3,986			4,355
Restructuring and severance		—			96			—			2,043
Asset impairments and write-offs		92			849			8,642			1,911
		53,371			49,891			109,230			97,989
Other expenses from managed properties		217,824			231,853			442,773			423,740
Total operating expenses		271,195			281,744			552,003			521,729
OPERATING INCOME		6,435			4,311			9,952			2,321
Interest income		545			362			931			503
Interest expense		(1,978	)		(2,321	)		(4,041	)		(6,253	)
Equity in earnings (losses) of affiliates		123			350			(434	)		3,192
Gain on sale of investment		—			—			—			385
INCOME BEFORE MINORITY INTEREST AND INCOME TAXES		5,125			2,702			6,408			148
Income tax expense		(2,085	)		(1,062	)		(2,604	)		(61	)
Minority interest expense		(31	)		(29	)		(49	)		(11	)
INCOME FROM CONTINUING OPERATIONS		3,009			1,611			3,755			76
Income from discontinued operations, net of tax		—			132			—			243
NET INCOME	$	3,009		$	1,743		$	3,755		$	319
Other comprehensive loss, net of tax:
Foreign currency translation gain (loss)		418			64			671			(33	)
Unrealized gain (loss) on investments		24			25			12			(458	)
COMPREHENSIVE INCOME (LOSS)	$	3,451		$	1,832		$	4,438		$	(172	)
BASIC AND DILUTIVE EARNINGS PER SHARE:
Continuing operations	$	0.10		$	0.06		$	0.12		$	—
Discontinued operations		—			—			—			0.01
Basic and dilutive earnings per share	$	0.10		$	0.06		$	0.12		$	0.01

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

3

INTERSTATE HOTELS & RESORTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)

	Six months ended
	June 30,
	2006			2005
OPERATING ACTIVITIES:
Net income	$	3,755		$	319
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		3,986			4,355
Amortization of deferred financing fees		387			2,339
Stock compensation expense		598			782
Bad debt expense		759			454
Asset impairments and write-offs		8,642			1,911
Equity in losses (earnings) of affiliates		434			(3,192	)
Operating distributions from unconsolidated affiliates		186			219
Minority interest		49			11
Deferred income taxes		1,033			(704	)
Gain on sale of investments		—			(385	)
Discontinued operations:
Depreciation and amortization		—			156
Changes in assets and liabilities:
Accounts receivable, net		(1,453	)		(822	)
Due from related parties, net		4,563			5,755
Prepaid expenses and other current assets		(3,024	)		(3,104	)
Accounts payable and accrued expenses		(2,787	)		10,677
Other changes in asset and liability accounts		357			24
Cash provided by operations		17,485			18,795
INVESTING ACTIVITIES:
Proceeds from the sale of investments		—			483
Change in restricted cash		4			(1,882	)
Acquisition of subsidiary		(497	)		—
Acquisition of hotels		(14,528	)		(31,779	)
Purchases of property and equipment		(3,966	)		(1,350	)
Additions to intangible assets		(804	)		(583	)
Investments in joint ventures		(6,039	)		—
Contributions to unconsolidated affiliates		(209	)		(289	)
Distributions from unconsolidated affiliates		—			4,909
Changes in notes receivable		60			374
Cash used in investing activities		(25,979	)		(30,117	)
FINANCING ACTIVITIES:
Proceeds from borrowings		9,000			110,200
Repayment of borrowings		(12,500	)		(99,174	)
Proceeds from issuance of common stock		2,201			22
Financing fees paid		—			(3,585	)
Cash (used in) provided by financing activities		(1,299	)		7,463
Effect of exchange rate on cash		187			(23	)
Net decrease in cash and cash equivalents		(9,606	)		(3,882	)
CASH AND CASH EQUIVALENTS, beginning of period		12,929			16,481
CASH AND CASH EQUIVALENTS, end of period	$	3,323		$	12,599
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest and income taxes:
Interest	$	3,676		$	3,591
Income taxes		1,364			476

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

4

INTERSTATE HOTELS & RESORTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.   BUSINESS SUMMARY

We are the largest independent U.S. hotel management company, measured by number of rooms under management. We have three operating divisions: hotel management, corporate housing and hotel ownership, each of which are reportable operating segments. We manage a portfolio of hospitality properties and provide related services in the hotel, resort and conference center markets. Our portfolio is diversified by franchise and brand affiliations. The related services provided include insurance and risk management, purchasing and capital project management, information technology and telecommunications and centralized accounting. As of June 30, 2006, we managed 262 properties, with 59,020 rooms in 41 states, the District of Columbia, Canada, and Russia.

Our corporate housing division is operated through our subsidiary BridgeStreet Worldwide, Inc. This division provides apartment rentals for both individuals and corporations with a need for temporary housing as an alternative to long-term apartment rentals or prolonged hotel stays. As of June 30, 2006, we had 3,786 apartments under lease or management in the United States, France and the United Kingdom.

We also wholly own three hotel properties and hold non-controlling joint venture equity interests in ten joint ventures, which hold ownership interests in 24 of our managed properties as of June 30, 2006.

Our subsidiary operating partnership, Interstate Operating Company, L.P, indirectly holds substantially all of our assets. We are the sole general partner of that operating partnership. Certain independent third parties and we are limited partners of the partnership. The interests of those third parties are reflected in minority interests on our consolidated balance sheet. The partnership agreement gives the general partner full control over the business and affairs of the partnership. We own more than 99% of the subsidiary operating partnership.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General — We have prepared these unaudited consolidated interim financial statements according to the rules and regulations of the Securities and Exchange Commission. Accordingly, we have omitted certain information and footnote disclosures that are normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). These interim financial statements should be read in conjunction with the financial statements, accompanying notes and other information included in our Annual Report on Form 10-K, for the year ended December 31, 2005.

In our opinion, the accompanying unaudited consolidated interim financial statements reflect all normal and recurring adjustments necessary for a fair presentation of the financial condition and results of operations and cash flows for the periods presented. The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires us to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of our results for the entire year.

These consolidated financial statements include our accounts and the accounts of all of our majority owned subsidiaries. We eliminate all significant intercompany balances and transactions. Certain reclassifications have been made to our prior year financial statements to conform to our current presentation.

Related Parties — In May 2006, The Blackstone Group, which we refer to as “Blackstone,” acquired MeriStar Hospitality Corporation, which we refer to as “MeriStar.” MeriStar had previously been considered a related party as our Chairman of the Board, Paul Whetsell, was also the CEO of MeriStar. Mr. Whetsell did not become part of the Blackstone management team and we do not consider Blackstone to be a related party. As such, the line items “due from related parties” on our consolidated balance sheet and “management fees — related parties” on our consolidated statement of operations have been revised to remove the effects of including MeriStar as a related party at June 30, 2006 and for the period from May 2, 2006 through June 30, 2006. The remaining balances in these related

5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

party line items relate to our managed properties for which we also hold a joint venture ownership interest. See Note 4 “Investments and Advances to Affiliates” for further information on these related party amounts.

Stock-Based Compensation — We adopted the fair-value based method of accounting for stock-based compensation effective January 1, 2003, using the prospective method described in SFAS No. 148, “Accounting for Stock Based Compensation — Transition and Disclosure.” All stock-based awards granted prior to January 1, 2003 were fully vested as of December 31, 2005. On January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share Based Payment” (“SFAS No. 123R”) using the modified prospective method. We have previously and will continue to use the Black-Scholes pricing model to estimate the value of stock options granted to employees. The adoption of SFAS No. 123R did not have a material impact on our results of operations or financial position as all of our unvested stock-based awards as of December 31, 2005 have previously been accounted for under the fair-value method of accounting. See Note 15, “Stock-Based Compensation,” for additional information.

Accounting for Income Taxes — In July 2006, FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109,” was issued. FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109 (“SFAS No. 109”), “Accounting for Income Taxes.” FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The new FASB standard also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

The provisions of FIN 48 are effective for fiscal years beginning after December 15, 2006. Earlier application is permitted as long as the enterprise has not yet issued financial statements, including interim financial statements, in the period of adoption. The provisions of FIN 48 are to be applied to all tax positions upon initial adoption of this standard. Only tax positions that meet the more-likely-than-not recognition threshold at the effective date may be recognized or continue to be recognized upon adoption of FIN 48. The cumulative effect of applying the provisions of FIN 48 should be reported as an adjustment to the opening balance of retained earnings (or other appropriate components of equity or net assets in the statement of financial position) for that fiscal year. We are currently evaluating the financial statement impact, if any, of the interpretation and will adopt the provisions of FIN 48 on January 1, 2007.

Control of a Limited Partnership — Emerging Issues Task Force 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights,” (“EITF 04-05”) was ratified by the FASB in September 2005. At issue is what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with U.S. GAAP. The assessment of limited partners’ rights and their impact on the presumption of control of the limited partnership by the sole general partner should be made when an investor becomes the sole general partner and should be reassessed if (a) there is a change to the terms or in the exercisability of the rights of the limited partners, (b) the sole general partner increases or decreases its ownership of limited partnership interests, or (c) there is an increase or decrease in the number of outstanding limited partnership interests. This Issue was effective for fiscal years beginning after December 15, 2005 and as of June 29, 2005 for new or modified arrangements. We are not the sole general partner in any of our joint ventures, nor are we the controlling general partner for the one joint venture which involves multiple general partners. Accordingly, this EITF does not change the manner in which we account for our existing joint ventures.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

3.   EARNINGS PER SHARE

We calculate our basic earnings per common share by dividing net income 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. Potentially dilutive shares include restricted stock and stock options granted under our various stock compensation plans and operating partnership units held by minority partners. In periods in which there is a loss, diluted shares outstanding will equal basic shares outstanding to prevent anti-dilution. Basic and diluted earnings per common share are as follows (in thousands, except per share amounts):

	Three months ended
	June 30, 2006						June 30, 2005
	Income/				Per Share		Income/				Per Share
	(Loss)		Shares		Amount		(Loss)		Shares		Amount
Income from continuing operations	$	3,009		30,890	$	0.10	$	1,611		30,515	$	0.06
Income from discontinued operations, net of tax		—		—		—		132		—		—
Basic net income	$	3,009		30,890	$	0.10	$	1,743		30,515	$	0.06
Assuming exercise of outstanding employee stock options less shares repurchased at average market price		—		212		—		—		111		—
Assuming vesting of outstanding restricted stock		—		174		—		—		165		—
Diluted net income	$	3,009		31,276	$	0.10	$	1,743		30,791	$	0.06

	Six months ended
	June 30, 2006						June 30, 2005
	Income/				Per Share		Income/				Per Share
	(Loss)		Shares		Amount		(Loss)		Shares		Amount
Income from continuing operations	$	3,755		30,788	$	0.12	$	76		30,485	$	0.00
Income from discontinued operations, net of tax		—		—		—		243		—		0.01
Basic net income	$	3,755		30,788	$	0.12	$	319		30,485	$	0.01
Assuming exercise of outstanding employee stock options less shares repurchased at average market price		—		157		—		—		129		—
Assuming vesting of outstanding restricted stock		—		144		—		—		165		—
Diluted net income	$	3,755		31,089	$	0.12	$	319		30,779	$	0.01

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

4.   INVESTMENTS AND ADVANCES TO AFFILIATES

Our investments and advances to our joint ventures and affiliated companies consist of the following (in thousands, except number of hotels):

			Our Equity	June 30,		December 31,
Joint Venture	Number of Hotels		Participation	2006		2005
MIP Lessee, L.P.		8	10.0%	$	1,563	$	2,022
CNL/IHC Partners, L.P.		3	15.0%		2,635		2,566
Interconn Ponte Vedra Company, L.P.		1	10.0%		2,679		2,670
True North Tesoro Property Partners, LP.		1	21.0%		2,032		—
Amitel Holdings, LLC		6	15.0%		3,887		—
Cameron S-Sixteen Hospitality, LLC		1	10.9%		502		—
Other		4	5.0%-50.0%		364		428
Total		24		$	13,662	$	7,686

In June 2006, we entered into three separate joint ventures, with a total investment of $6.4 million for interests in eight hotels with more than 1,200 rooms. These investments, which were all funded with available cash on hand, will be accounted for under the equity method. The key terms of each investment is as follows:

		Number of		Ownership
Joint Venture & Hotels	Location	Rooms		%			Investment
True North Tesoro Property Partners, LP
Doral Tesoro Hotel & Golf Club	Dallas/Ft. Worth, TX		286		21.0	%	$2.0 million
Cameron S-Sixteen Hospitality, LLC
Statehouse Inn(1)	Boise, ID		112		10.9	%	$0.5 million
Amitel Holdings, LLC	Cleveland, OH		—		15.0	%	$3.9 million
Residence Inn by Marriott, Cleveland Downtown	—		175		—		—
Residence Inn by Marriott, Cleveland Airport	—		158		—		—
Residence Inn by Marriott, Cleveland Independence	—		118		—		—
Residence Inn by Marriott Beachwood	—		174		—		—
Residence Inn by Marriott Westlake	—		104		—		—
Residence Inn by Marriott Mentor	—		96		—		—
Total Rooms in Portfolio	—		825		—		—
Total Rooms Acquired Through Investments	—		1,223		—		—

(1)  To date we have funded $0.2 million of our investment.

We had related party accounts receivable from our joint venture ownership interests of $1.4 million and $1.5 million as of June 30, 2006 and December 31, 2005, respectively. We had related party management fees from these joint ventures of $0.8 million and $2.2 million for the three and six months ended June 30, 2006, respectively, and $1.1 million and $2.3 million for the three and six months ended June 30, 2005, respectively.

The recoverability of the carrying values of our investments and advances to our investees is dependent upon the operating results of 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 impairment losses or the inability to recover the carrying value of these long-lived assets. The debt of all investees is non-recourse to us, and we do not guarantee any of our investees’ obligations.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The summarized financial information of MIP Lessee, L.P. for the three and six months ended June 30, 2006 and 2005 is presented below. Summarized profit and loss information for this investment is required by Regulation S-X to be disclosed in interim periods, as they have met certain financial tests in relation to our consolidated financial position and results of operations. The summarized information is as follows:

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Revenue	$	26,225		$	25,169		$	47,483		$	45,571
Operating expenses		22,094			25,360			42,712			49,046
Net loss		(675	)		(4,873	)		(4,594	)		(13,242	)
Our share of the above losses		(67	)		(489	)		(459	)		(1,294	)

5.   PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

	June 30,			December 31,
	2006			2005
Land	$	6,984		$	5,610
Furniture and fixtures		11,180			7,866
Building and improvements		44,909			32,297
Leasehold improvements		6,071			5,198
Computer equipment		9,568			9,038
Software		12,531			12,298
Other		1,099			865
Total	$	92,342		$	73,172
Less accumulated depreciation		(23,731	)		(21,102	)
Property and equipment, net	$	68,611		$	52,070

The “Other” line item above represents vehicles and operating stock primarily relating to our BridgeStreet corporate housing division.

6.   INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

	June 30,			December 31,
	2006			2005
Management contracts	$	40,809		$	49,902
Franchise fees		1,286			1,226
Deferred financing fees		2,223			2,339
Total cost		44,318			53,467
Less accumulated amortization		(9,026	)		(8,759	)
Intangible assets, net	$	35,292		$	44,708

We amortize the value of our intangible assets over their estimated useful lives, which generally correspond with the expected terms of the associated management, franchise, or financing agreement. In the first six months of 2006, we recognized impairment losses of $8.3 million related to management contract costs for 18 properties sold by MeriStar in 2006. During February 2006, we paid $0.5 million to acquire a corporate housing business in Chicago, IL. In connection with this acquisition, we recorded an intangible asset of $0.5 million related to customer

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

rental contracts which we assumed as part of the purchase. We will amortize this intangible asset over the remaining term of the contracts, all of which expire in 2006.

We incurred scheduled amortization expense on our remaining management contracts and franchise fees of $0.6 million and $1.5 million for the three and six months ended June 30, 2006 and $0.8 million and $1.6 million for the three and six months ended June 30, 2005. We also incurred amortization expense related to deferred financing fees of $0.2 and $0.4 million for the three and six months ended June 30, 2006, respectively, and $0.3 million and $2.3 million for the three and six months ended June 30, 2005, respectively. In the first quarter of 2005, $1.8 million of deferred financing fees was amortized in connection with the refinancing of our senior credit facility and repayment of our subordinated term loan. Amortization of deferred financing fees is included as interest expense.

We evaluate our capitalized management contracts for impairment when circumstances warrant. When we receive notification that a management contract will be terminated early, we evaluate when or if amortization should be accelerated or if any remaining management contract costs should be impaired. In May 2006, The Blackstone Group acquired MeriStar. As of June 30, 2006, we do not believe the carrying value of $23 million associated with the MeriStar management contract intangible asset is impaired as the obligations and duties under those contracts, including the payment of termination fees, were assumed by The Blackstone Group. The Blackstone Group has not indicated to us that they will terminate the management contracts in conjunction with the sales of any of their hotels. However, we will continue to assess the recorded value of those management contracts and the related amortization period.

We evaluate goodwill annually for impairment during the fourth quarter; however, when circumstances warrant, we will assess the valuation of our goodwill more frequently. In March 2006, we analyzed goodwill due to the expected loss of management contracts from the Goldman portfolio and the sale of the 18 MeriStar properties during the first quarter of 2006. Our analysis concluded that goodwill was not impaired. No other circumstances have warranted the need to re-evaluate goodwill as of June 30, 2006.

As a result of the relief of $10.6 million of the valuation allowance on our deferred tax assets in June 2006, our goodwill decreased by a like amount. The relief of the valuation was charged against goodwill in accordance with SFAS No. 109, “Accounting for Income Taxes.” See Note 16 for a full discussion of our income taxes.

7.   ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

	June 30,		December 31,
	2006		2005
Salaries and employee related benefits	$	39,936	$	34,234
Other		30,162		36,113
Total	$	70,098	$	70,347

No individual amounts in “Other” represent more than 5% of current liabilities.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

8.   LONG-TERM DEBT

Our long-term debt consists of the following (in thousands):

	June 30,			December 31,
	2006			2005
Senior credit facility — revolving loan	$	19,526		$	20,526
Senior credit facility — term loan		43,026			45,526
Mortgage debt		19,000			19,000
Total long-term debt		81,552			85,052
Less current portion		(3,750	)		(3,750	)
Long-term debt, net of current portion	$	77,802		$	81,302

Senior Credit Facility — In January 2005, we entered into an amended and restated senior secured credit facility, which we refer to as the “Credit Facility,” with various lenders. The Credit Facility replaced our previous senior secured credit facility and provides aggregate loan commitments for a $53.0 million term loan and a $55.0 million revolving loan. The Credit Facility is scheduled to mature on January 14, 2008. When we entered into the Credit Facility, we borrowed approximately $87.2 million, including the entire $53.0 million term loan and $34.2 million under the revolving loan. We are required to make quarterly payments of $1.3 million on the term loan until its maturity date.

The actual interest rates on both the revolving loan and term loan depend on the results of certain financial tests. As of June 30, 2006, based on those financial tests, borrowings under the revolving loan bore interest at the 30-day LIBOR rate plus 325 basis points (a rate of 8.63% per annum) and borrowings under the term loan bore interest at the 30-day LIBOR plus 450 basis points (a rate of 9.88% per annum). We incurred interest expense of $1.4 million and $3.0 million on the senior credit facilities for the three and six months ended June 30, 2006, respectively, and $1.6 million and $3.1 million for the three and six months ended June 30, 2005, respectively.

The debt under the Credit Facility is guaranteed by certain of our wholly owned subsidiaries and collateralized by pledges of ownership interests, owned hospitality properties, and other collateral that was not previously prohibited from being pledged by any of our existing contracts or agreements. The Credit Facility contains covenants that include maintenance of financial ratios at the end of each quarter, compliance reporting requirements and other customary restrictions. In connection with the purchase of the Hilton Concord hotel, we entered into amendments to the Credit Facility in February 2005 and May 2005 in order to modify certain liquidity covenants that we would have otherwise failed pursuant to the purchase of the hotel. At June 30, 2006, we were in compliance with the loan covenants of the Credit Facility and expect to be in compliance for the remainder of the loan term.

Mortgage Debt — In February 2005, we entered into a $19.0 million non-recourse mortgage loan to finance the acquisition of the Hilton Concord hotel. We are required to make interest-only payments until the loan matures in March 2008. The loan bore interest at the 30-day LIBOR rate plus 225 basis points (rate of 7.63% per annum at June 30, 2006). We incurred interest expense on the loan of $0.3 million and $0.7 million for the three and six months ended June 30, 2006, respectively, and $0.3 million and $1.0 million for the three and six months ended June 30, 2005, respectively.

Interest Rate Caps — In February 2005, we entered into a $19.0 million, three-year interest rate cap agreement in connection with the mortgage loan on the Hilton Concord hotel, to protect against the potential effect of future interest rate fluctuations. The interest rate agreement caps the 30-day LIBOR at 6.65% per annum and is scheduled to mature on March 1, 2008. In March 2005, we entered into a $55.0 million, three-year interest rate cap agreement related to our Credit Facility, in order to provide an economic hedge against the potential effect of future interest rate fluctuations. The interest rate agreement caps the 30-day LIBOR at 5.75% per annum and is scheduled to mature on January 14, 2008. At June 30, 2006, the total fair value of these interest rate cap agreements was approximately $97,000, with changes in fair value recorded in our statement of operations.

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

9.   SEGMENT INFORMATION

We are organized into three reportable segments: hotel management, hotel ownership and corporate housing. Following our acquisition of two hotels in 2005, hotel ownership was required to be classified as a separate reportable segment due to its material significance and management’s internal process established to oversee hotels and joint venture investments. Each segment is managed separately because of its distinctive products and services. Reimbursable expenses, classified as “other revenue and expenses from managed properties” on the statement of operations, are not included as part of this segment analysis because they are offset, dollar-for-dollar between revenue and expense. These reimbursable expenses are all part of the hotel management segment.

Hotel management includes the operations related to our managed properties, our purchasing, construction and design subsidiary and our insurance subsidiary. Revenue for this segment consists of “management fees” (which includes $3.2 million of business interruption proceeds for the six months ended June 30, 2006, as well as $2.2 million and $7.9 million of termination fees for the three and six months ending June 30, 2006, respectively, and $1.5 million and $2.7 million for the three and six months ending June 30, 2005, respectively) and “other” from the face of our income statement. Our insurance subsidiary, as part of the hotel management segment, provides a layer of reinsurance for property, casualty, auto and employment practices liability coverage to our hotel owners.

Corporate housing includes the related revenue and expense from the face of our income statement as well as general and administrative costs, depreciation and interest expense related to that segment. Hotel ownership includes our wholly-owned hotels and joint venture investments. Corporate is not actually a segment but rather includes costs that do not specifically relate to any one segment of our business. Corporate includes expenses related to our public company structure, certain restructuring charges, Board of Directors costs, audit fees, unallocated corporate debt and an allocation for rent and legal expenses. Corporate assets include our cash accounts, deferred tax assets, deferred financing fees and various other corporate assets.

Capital expenditures includes the “acquisition of subsidiary”, “acquisition of hotels” and “purchases of property and equipment” line items from our cash flow statement. We have revised amounts previously reported to reflect the addition of hotel ownership as a reportable segment in 2005. All amounts presented are in thousands.

	Hotel		Corporate			Hotel
	Management		Housing			Ownership			Corporate			Consolidated
Three months ended June 30, 2006
Revenue	$	20,101	$	33,287		$	6,418		$	—		$	59,806
Depreciation and amortization		973		380			457			116			1,926
Operating expense		13,830		31,703			4,572			1,340			51,445
Operating income (loss)		5,298		1,204			1,389			(1,456	)		6,435
Interest expense, net		—		(8	)		(347	)		(1,078	)		(1,433	)
Equity in earnings of affiliates		—		—			123			—			123
Income (loss) before minority interests and income taxes	$	5,298	$	1,196		$	1,165		$	(2,534	)	$	5,125
Capital expenditures	$	814	$	619		$	15,387		$	204		$	17,024
Three months ended June 30, 2005
Revenue	$	19,740	$	31,126		$	3,336		$	—		$	54,202
Depreciation and amortization		1,491		282			242			181			2,196
Operating expense		13,802		29,792			2,486			1,615			47,695
Operating income (loss)		4,447		1,052			608			(1,796	)		4,311
Interest expense, net		—		—			(364	)		(1,595	)		(1,959	)
Equity in earnings of affiliates		—		—			350			—			350
Other gains		—		—			—			—			—
Income (loss) before minority interests and income taxes	$	4,447	$	1,052		$	594		$	(3,391	)	$	2,702
Capital expenditures	$	102	$	55		$	493		$	25		$	675

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Hotel		Corporate			Hotel
	Management		Housing			Ownership			Corporate			Consolidated
Six months ended June 30, 2006
Revenue	$	46,675	$	61,052		$	11,455		$	—		$	119,182
Depreciation and amortization		1,967		897			899			223			3,986
Operating expense		34,365		59,663			8,460			2,756			105,244
Operating income (loss)		10,343		492			2,096			(2,979	)		9,952
Interest expense, net		—		(16	)		(670	)		(2,424	)		(3,110	)
Equity in earnings of affiliates		—		—			(434	)		—			(434	)
Income (loss) before minority interests and income taxes	$	10,343	$	476		$	992		$	(5,403	)	$	6,408
Total assets	$	156,225	$	35,302		$	76,229		$	29,068		$	296,824
Capital expenditures	$	1,394	$	1,564		$	15,684		$	349		$	18,991
Six months ended June 30, 2005 Revenue	$	36,691	$	58,525		$	5,094		$	—		$	100,310
Depreciation and amortization		3,025		579			388			363			4,355
Operating expense		25,512		58,233			4,006			5,883			93,634
Operating income (loss)		8,154		(287	)		700			(6,246	)		2,321
Interest expense, net		—		—			(602	)		(5,148	)		(5,750	)
Equity in earnings of affiliates		—		—			3,192			—			3,192
Other gains		—		—			—			385			385
Income (loss) before minority interests and income taxes	$	8,154	$	(287	)	$	3,290		$	(11,009	)	$	148
Total assets	$	181,339	$	29,136		$	50,878		$	36,640		$	297,993
Capital expenditures	$	586	$	151		$	32,245		$	147		$	33,129

Revenues from foreign operations, excluding reimbursable expenses, were as follows (in thousands):

	Three months				Six months
	ended June 30,				ended June 30,
	2006		2005		2006		2005
Canada	$	124	$	126	$	201	$	334
United Kingdom	$	8,522	$	7,581	$	15,501	$	14,578
France	$	658	$	565	$	1,146	$	1,055
Russia	$	375	$	375	$	750	$	750

10.   RESTRUCTURING AND SEVERANCE EXPENSES

We incurred $0.1 million and $2.0 million in restructuring and severance expenses for the three and six months ended June 30, 2005. These expenses primarily consist of severance payments to former personnel, including $1.8 million related to Steve Jorns, our former CEO.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

11.   ASSET IMPAIRMENTS AND OTHER WRITE-OFFS

The charges for asset impairment and other write-offs consist of the following (in thousands):

	Three months				Six months
	ended June 30,				ended June 30,
	2006		2005		2006		2005
Management contract costs	$	92	$	809	$	8,642	$	1,048
Hotel real estate investment fund costs		—		40		—		863
Total	$	92	$	849	$	8,642	$	1,911

Management contract costs are amortized on a straight-line basis over the life of the management contract. In the event that the management contract is terminated early, the unamortized management contract costs are impaired. For the six months ended June 30, 2006, the management contract impairment primarily relates to the sale of 18 MeriStar properties. For the six months ended June 30, 2005, the impairment of management contract costs related to $0.2 million for the Hilton San Diego Gaslamp hotel, which was sold in January 2005 by our S.D, Bridgeworks joint venture, $0.3 million associated with four hotels sold by Sunstone Hotels Investors, Inc.; $0.4 million related to a MeriStar disposition of one hotel and $0.1 million of other terminated or lost management contract costs. The remaining impairment related to a real estate investment fund which we were attempting to form with a group of institutional investors. We concluded that other investment vehicles were more appropriate for the company and accordingly, decided not to proceed with this particular investment fund.

12.   OTHER TRANSACTIONS

In January 2005, we recognized a gain of $0.4 million from the exchange of stock warrants for stock in an unaffiliated company and subsequent sale of that stock, which we had held as an investment.

We managed eight MeriStar properties that were damaged or closed due to hurricanes in 2004. In March 2006, we settled our claim for lost management fees and we received approximately $3.2 million in business interruption proceeds. This recovery is recorded in management fees on the income statement.

13.   COMMITMENTS AND CONTINGENCIES

Insurance Matters — As part of our management services to hotel owners, we generally obtain casualty (workers’ compensation and general liability) insurance coverage for our managed hotels. In December 2002, one of the carriers we used to obtain casualty insurance coverage was downgraded significantly by rating agencies. In January 2003, we negotiated a transfer of that carrier’s current policies to a new carrier. We have been working with the prior carrier to facilitate a timely and efficient settlement of the original 1,213 claims outstanding under the prior carrier’s casualty policies. The prior carrier has primary responsibility for settling those claims from its assets. As of June 2006, only 72 claims remained outstanding. 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. We are indemnified under our management agreements for such amounts, except for periods prior to January 2001, when we leased certain hotels from owners. Based on the information, 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.

During 2005, the prior carrier presented invoices to us and other policy holders related to dividends previously granted to us and other policy holders with respect to the prior policies. Based on this information we have determined that the amount is probable and estimable and have therefore recorded the liability. In September 2005, we invoiced the prior carrier for premium refunds due to us on previous policies. The initial premiums on these policies were calculated based on estimated employee payroll expenses and gross hotel revenues. Due to the September 11th terrorist attacks and the resulting substantial decline in business and leisure travel in the months that followed we reduced hotel level headcount and payroll. The estimated premiums billed were significantly overstated and as a result, we are owed refunds on the premiums paid. The amount of our receivable exceeds

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

the dividend amounts claimed by the prior carrier. We have reserved the amount of the excess given the financial condition of the carrier. We believe that we hold the legal right of offset in regard to this receivable and payable with the prior insurance carrier. Accordingly, there was no effect on the statement of operations in 2005 or in the first six months of 2006. We will aggressively pursue collection of our receivable and do not expect to pay any amounts to the prior carrier prior to reaching an agreement with them regarding the contractual amounts due to us. To the extent we do not collect sufficiently on our receivable and pay amounts that we have been invoiced, we will vigorously attempt to recover any additional amounts from our owners.

Leases — 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 June 30, 2006 were as follows (in thousands):

2006	$	33,125
2007		29,087
2008		20,282
2009		16,715
2010		11,759
Thereafter		21,406
Total	$	132,374

The operating lease obligations shown in the table above have not been reduced by a non-cancelable sublease related to our former corporate office space. We remain secondarily liable under this lease in the event that the sub-lessee defaults under the sublease terms. We do not believe that material payments will be required as a result of the secondary liability provisions of the primary lease agreements. We expect to receive minimum payments as of June 30, 2006 under this sublease as follows:

2006	$	632
2007		1,112
2008		1,156
2009		1,202
2010		1,250
Thereafter		2,880
Total	$	8,232

Management Agreement Commitments — Under the provisions of management agreements with certain hotel owners, we are obligated to provide an aggregate of $2.0 million to these hotel owners in the form of investments or loans. The timing of future investments or working capital loans to hotel owners is not currently known as these advances are at the hotel owner’s discretion.

Guarantees — In January 2005, BridgeStreet signed a 15-year operating and management agreement to operate 116 apartments in London. As part of the agreement, we have guaranteed the building owner minimum monthly rental revenues of approximately $90,000 from July 2005 through June 2008. We recorded a liability for the minimum revenue guarantee and an offsetting entry to prepaid rent. The liability is reduced as the minimum monthly revenue amount is paid each month and the prepaid rent is amortized to corporate housing expense. We have not been required to fund any shortfalls through the first twelve months of the guarantee. At June 30, 2006, we have a remaining asset and corresponding liability of $2.3 million related to this guarantee.

Letters of Credit — We have a $1.5 million letter of credit outstanding from Northridge Insurance Company in favor of our property insurance carrier. The letter of credit expires on April 4, 2007. We are required by the property insurance carrier to deliver the letter of credit to cover its losses in the event we default on payments to the carrier. Accordingly, the bank has required us to restrict a portion of our cash equal to the amount of the letter of credit,

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

which we present as restricted cash on the consolidated balance sheet. We also have a $0.8 million letter of credit outstanding from Societe Generale in favor of the insurance carrier that issues surety bonds on behalf of the properties we manage. The letter of credit expires on June 2, 2007. We are required by the insurance carrier to deliver the letter of credit to cover its risk in the event the properties default on their required payments related to the surety bonds.

Contingent Liabilities Related to Partnership Interests — We own interests in several partnerships and other joint ventures. To the extent that any of these partnerships or joint ventures would become unable to pay its obligations, those obligations would become obligations of the general partners. We are not the sole general partner on any of our joint ventures. While we believe we are protected from any risk of liability because our investments in these partnerships as a general partner were conducted through the use of single-purpose entities, to the extent any debtors pursue payment from us, it is possible that we could be held liable for those liabilities and those amounts could be material.

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.

14.   ACQUISITIONS

On June 27, 2006, we acquired the 131-room Hilton Garden Inn Baton Rouge Airport in Louisiana. The acquisition cost was $14.5 million, including normal and customary closings costs. We financed the purchase through borrowings on our Credit Facility and available cash. From June 27, 2006 to June 30, 2006, hotel revenues and operating income of $0.1 million and $60,000, respectively, have been included in our statement of operations. The acquisition cost of the hotel was allocated as follows (in thousands):

Accounts receivable and other assets		44
Land		1,375
Buildings and improvements		12,087
Furniture and fixtures		1,022
Total	$	14,528

On February 11, 2005, we acquired the 329-room Hilton Concord hotel located in the East Bay area of San Francisco, California. The acquisition cost was $31.8 million, including normal and customary closing costs. We financed the purchase through borrowings on our credit facility and a $19.0 million non-recourse mortgage loan, which increased our leverage and required us to obtain two amendments under our credit facility in the first and second quarter of 2005. The acquisition cost of the hotel was allocated as follows (in thousands):

Cash and restricted cash	$	1,739
Accounts receivable and other assets		105
Land		4,700
Buildings and improvements		23,235
Furniture and fixtures		2,000
Total	$	31,779

The purchase of the Hilton Concord was a material acquisition; accordingly, we are providing the pro forma financial information set forth below, which presents our combined results as if the acquisition had occurred on January 1, 2005. This pro forma information is not necessarily indicative of the results that actually would have occurred nor does it intend to indicate future operating results. All amounts are presented in thousands.

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Actual		Pro Forma
	Three months ended		Three months ended
	June 30, 2006		June 30, 2005
Lodging revenues	$	6,418	$	3,348
Net income	$	3,009	$	1,743
Diluted earnings per share	$	0.10	$	0.06

	Actual		Pro Forma
	Six months ended		Six months ended
	June 30, 2006		June 30, 2005
Lodging revenues	$	11,455	$	6,254
Net income	$	3,755	$	209
Diluted earnings per share	$	0.12	$	0.01

15.   STOCK-BASED COMPENSATION

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R supersedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and amends SFAS No. 95, “Statement of Cash Flows.” We adopted SFAS No. 123R on January 1, 2006 using the modified prospective transition method. Under the modified prospective transition method, compensation cost recognized in fiscal 2006 includes: (a) compensation cost for all equity-based payments granted prior to but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123 and (b) compensation cost for all equity-based payments granted subsequent to January 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS No. 123R. Results for prior periods have not been restated. We do not consider the accounting for our stock-based awards to be a critical accounting policy as the related amounts are not significant to our consolidated balance sheet and statement of operations.

We maintain two stock-based compensation plans, under which, we may award to participating employees options to purchase our common stock and restricted shares of our common stock. Effective January 1, 2003, we adopted the fair value recognition provisions of SFAS No. 123 for employee stock-based awards granted, modified or settled on or after January 1, 2003 and recorded compensation expense based on the fair value of the stock-based awards at the date of grant. All stock-based awards granted in fiscal years prior to 2003 were fully vested as of December 31, 2005. As a result, the adoption of SFAS No. 123R had no effect on the compensation cost which we have recorded related to stock-based awards, net income and basic and dilutive earnings per share for the six months ended June 30, 2006.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table (in thousands, except per share amounts) illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of SFAS No. 123 to all equity-based compensation for the six months ended June 30, 2005. The reported and pro forma net income and earnings per share for the six months ended June 30, 2006 are the same because all equity-based compensation is calculated under the provisions of SFAS No. 123R. The amounts for the six months ended June 30, 2006 are included in the following table only to provide net income and earnings per share for a comparative presentation to the same period of the previous year. The pro forma disclosure for the six months ended June 30, 2005 utilized the Black-Scholes pricing model to estimate the value of the respective options with such value amortized to expense over the options’ vesting periods.

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Net income, as reported	$	3,009		$	1,743		$	3,755		$	319
Add: Stock-based employee compensation expense included in net loss, net of tax		181			52			359			105
Deduct: Total stock-based employee compensation expense determined under the fair value based method for all awards, net of tax		(181	)		(58	)		(359	)		(121	)
Net income, pro forma	$	3,009		$	1,737		$	3,755		$	303
Earnings per share:
Basic and diluted, as reported	$	0.10		$	0.06		$	0.12		$	0.01
Basic and diluted, pro forma	$	0.10		$	0.06		$	0.12		$	0.01

We have continued to utilize the Black-Scholes pricing model to estimate the fair value of all stock options granted subsequent to January 1, 2006. The fair value of stock options granted in 2006 have been calculated based on the stock price on the date of the option grant, the exercise price of the option and the following assumptions:

	Six months ended
	June 30, 2006
Expected volatility		31.1	%
Risk-free interest rate		5.1	%
Expected life of options		6.0 years
Expected dividend yield		0	%
Forfeiture rate		2	%

Expected Volatility — Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. We use the historical volatility over the preceding six-year period to estimate expected volatility.

Risk-Free Interest Rate — This is the average U.S. Treasury rate (having a term that most closely resembles the expected life of the option) for the quarter in which the option was granted.

Expected Life of Options — This is the period of time that the options granted are expected to remain outstanding. This estimate is based primarily on historical exercise data. Options granted during the three and six months ended June 30, 2006 vest over three years and have a maximum term of ten years.

Expected Dividend Yield — We have never declared or paid dividends on our common stock and do not anticipate paying any dividends in the foreseeable future.

Forfeiture Rate — This is the estimated percentage of options granted that are expected to be forfeited or cancelled on an annual basis before becoming fully vested. We estimate the forfeiture rate based on past turnover data with further consideration given to the level of the employees to whom the options were granted.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

At June 30, 2006, approximately 1.7 million shares of common stock were available for future grants under our stock-based compensation plans. The stock-based awards granted under these plans, which include stock options and restricted stock, are typically awarded at the fair market value of our common stock at the date of grant. They vest over a period of three years and have a maximum term of ten years from the date of grant. For stock subject to graded vesting, we have utilized the “straight-line” method for allocating compensation cost by period. The compensation cost that has been charged against income for these plans for the six months ended June 30, 2006 was approximately $0.6 million.

As of June 30, 2006, there was $1.8 million of unrecognized compensation cost related to unvested stock awards granted under the compensation plans noted above. The cost is expected to be recognized through the first quarter of 2009 with a weighted-average recognition period of 2.5 years.

A summary of option activity under the equity-based compensation plans as of June 30, 2006, and changes during the six months then ended is as follows:

						Aggregate
	Number of			Weighted Average		Intrinsic
	Shares			Exercise Price/Share		Value
Options outstanding at December 31, 2005		1,614,421		$	6.75
Granted		62,500		$	6.22
Exercised		(542,494	)	$	4.06
Forfeited		(357,305	)	$	8.41
Options outstanding at June 30, 2006		777,122		$	7.80	$	2,689,000
Options exercisable at June 30, 2006		591,631		$	8.58	$	1,936,000

The weighted average remaining contractual life for all options outstanding and all options exercisable under these plans at June 30, 2006 was 5.6 years. The total intrinsic value of stock options exercised during the six months ended June 30, 2006 was approximately $1.5 million.

A summary of the restricted stock activity under the equity-based compensation plans as of June 30, 2006, and changes during the six months then ended is as follows:

				Weighted
	Number of			Average Grant-
	Restricted			Date Fair
	Shares			Value
Unvested at December 31, 2005		228,657		$	4.65
Granted		273,000		$	5.60
Vested		(150,189	)	$	4.79
Forfeited		(18,224	)	$	4.37
Unvested at June 30, 2006		333,244		$	5.38

The total intrinsic value of restricted stock which vested during the six months ended June 30, 2006 was approximately $0.7 million.

16.   INCOME TAXES

Our deferred tax assets primarily consist of net operating loss carryforwards, asset basis differences between GAAP and tax, principally intangible assets, and employment related tax credits. As of December 31, 2005, we had approximately $56 million of deferred tax assets, $3 million of deferred tax liabilities and a valuation allowance of $41 million, which equaled the net deferred tax asset of approximately $12 million reported in our consolidated balance sheet. Approximately $29 million of the valuation allowance was recorded in July 2002 at the time of the Interstate-MeriStar merger, as management did not believe based on the facts and circumstances at that time that the combined company would realize certain of the deferred tax assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Management evaluates the expected future utilization of the deferred tax assets based on the nature and expected reversal of the timing difference; future taxable income considering actual results and current and future industry and economic conditions and their impact on projected taxable income; and, current regulations. Based on management’s current evaluation, we believe certain of the assets that were offset by a valuation allowance in purchase accounting will now be realized in the current and future years. During the second quarter of 2006, the Company reduced the valuation allowance by $10.6 million and recorded a corresponding reduction in goodwill in accordance with SFAS No. 109, “Accounting for Income Taxes.” The Company will continue to evaluate the valuation of the deferred tax assets, which may result in a further reduction of goodwill, the recognition of a benefit in a future period, or both, depending on whether the timing differences and the related allowance were created in the pre-merger periods or the post-merger periods.

17.   SUBSEQUENT EVENT

In July 2006, the Sawgrass Marriot Resort & Spa, of which we held a 10.0% joint venture ownership, was sold by us and the majority owners of the joint venture. We received proceeds from the sale of approximately $15.5 million and are currently evaluating the timing and amount of the gain which we will recognize under GAAP.

We also participated in the purchase of the same hotel by a new joint venture as a minority owner and we will retain management under a long-term management contract. The new joint venture is comprised of Redquartz Boundary Ltd., an Irish-based investment company, its investment partners and us. We invested $7.0 million in the new joint venture that purchased the hotel. We expect to contribute an additional $2.3 million for our share of equity for renovations and working capital, bringing out total investment to $9.3 million in the new joint venture.

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Item 2:   Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations, which we refer to as MD&A, is intended to help the reader understand Interstate, our operations and our present business environment. MD&A is provided as a supplement to, and should be read in conjunction with, our consolidated interim financial statements and the accompanying notes, which we refer to as Notes.

Forward-Looking Statements

The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. In this Quarterly Report on Form 10-Q and the information incorporated by reference herein, we make some “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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” and other similar terms and phrases. 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. Forward-looking statements are based on management’s current expectations and assumptions and are not guarantees of future performance that involve known and unknown risks, uncertainties and other factors which may cause our actual results to differ materially from those anticipated at the time the forward-looking statements are made. These risks and uncertainties include those risk factors discussed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2005.

Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K and the documents incorporated by reference herein. 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 to update 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 arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Overview and Outlook

Our Business — We are the largest independent U.S. hotel management company, measured by number of rooms under management. We have three reportable operating segments: hotel management, hotel ownership (through whole-ownership and joint ventures) and corporate housing. Our portfolio of managed properties is diversified by brand, franchise and ownership group. As of June 30, 2006, we managed hotels representing more than 30 franchise and brand affiliations and operated 22 independent hotels. Our managed hotels are owned by more than 50 different ownership groups. We managed 262 properties, with 59,020 rooms in 41 states, the District of Columbia, Canada and Russia. We also owned three hotels with 655 rooms and had 3,786 apartments under lease or management in the United States, France and the United Kingdom through BridgeStreet, our corporate housing subsidiary.

Financial Highlights and Significant Events

Financial Highlights — Our strong operating results in the second quarter of 2006, which followed up on strong operating results from the first quarter, were driven by the performance of each of our reportable segments: hotel management, corporate housing and hotel ownership. Although the number of hotel properties we manage has decreased throughout 2006, our base management fees (excluding the effects of termination fees and business interruption proceeds) remained steady over the comparable three month period of 2005 and increased 3.4% over the comparable six month period of 2005. This growth is primarily due to an improved economy, our focus on increasing revenue per available room (RevPAR), retaining profitable management contracts and continually improving operating efficiencies at our managed properties. Our corporate housing operations achieved an increase in revenues of $2.2 million, or 6.5%, in the second quarter of 2006 while operating 1.3% fewer units than in the

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second quarter of 2005. The improvement was driven by the continued strategic management of our apartment inventory cycle, which focuses on obtaining more flexible lease terms and allows us to quickly add or remove units in particular markets based on demand, as well as continued improvement in our managed apartments in the United Kingdom. Finally, our three wholly-owned hotels, one of which we acquired on June 27, 2006, contributed $1.4 million and $2.1 million to our operating income for the three and six month period ended June 30, 2006, respectively.

Significant Events — In the second quarter of 2006, we were able to close various transactions in accordance with our growth strategy, which focuses on investments in selected joint ventures and acquisitions of wholly-owned hotels. In June 2006, we acquired the 131-room Hilton Garden Inn Baton Rouge Airport for $14.5 million. The acquisition was funded with approximately $5.0 million borrowed under our Credit Facility, with the remaining amount paid from available cash on hand. We also entered into three separate joint ventures in June 2006, with a total investment of $6.4 million for interests in eight hotels with more than 1,200 rooms. These investments include a $2.0 million investment to acquire a 21% interest in the Doral Tesoro Hotel & Golf Club near Dallas/Ft. Worth, Texas, a $0.5 million investment to acquire a 10.9% interest in The Statehouse Inn in Boise, Idaho, and a $3.9 million investment to acquire a 15% interest in a portfolio of six Residence Inn by Marriott properties in and around Cleveland, Ohio. These investments were all funded with available cash on hand.

In addition, in July 2006, we, along with our joint venture partners, sold the Sawgrass Marriott Resort & Spa. We received proceeds of approximately $15.5 million from the sale and immediately reinvested $7.0 million in the new joint venture that purchased the same hotel. We expect to contribute an additional $2.3 million for our share of equity for renovations and working capital, bringing our total investment to $9.3 million in the new joint venture. We are currently evaluating the timing and amount of the gain which we will recognize under GAAP.

In May 2006, The Blackstone Group acquired MeriStar. Our management agreements for the 44 hotels which Blackstone acquired as a result of the transaction are currently in place and were not affected by the transaction. The Blackstone entities have the same rights, responsibilities and duties (including with respect to budget setting, asset management and termination) as MeriStar did under those contracts. Blackstone has not notified us of the termination of any of the hotels. We are in discussions with Blackstone as to its long-term plans for the 44 hotels, which accounted for approximately 13,200, rooms and $4.0 million and $7.5 million in management fees for the three and six month periods ended June 30, 2006, respectively.

Prior to its sale to Blackstone, MeriStar sold 17 hotels and a golf and tennis club in the first quarter of 2006 in connection with its previously announced asset disposition program. We managed all 18 of these properties but will not continue to manage them on a long-term basis. We entered into contracts with the new owner for 11 of the properties; however, our management of these properties ended in July 2006. In connection with these dispositions, we recorded termination fees of approximately $0.5 million and $4.7 million during the three and six month periods ended June 30, 2006, respectively. This includes $4.1 million of one-time termination payments received in the first quarter of 2006. We estimate that the remaining termination fees to be received from these 18 properties will amount to approximately $5.9 million, payable monthly into 2010. We also recorded $1.7 million and $3.2 million in termination fees during the three and six month periods ended June 30, 2006, respectively, related to hotels which were sold by their respective owner prior to 2006. In addition, we recognized $8.3 million of impairment losses for the intangible assets related to the management contracts from these 18 properties.

We were also notified that the private investment fund managed by affiliates of Goldman Sachs and Highgate Holdings, for which we managed 15 properties at the end of 2005, was terminating our management contracts and turning the management of these properties over to Highgate Holdings. We ceased managing 13 of these properties as of June 30, 2006, and our management of an additional property will end within the next nine months. The remaining property, which we continue to manage, was sold by Highgate Holdings to a third party. The 14 properties, that we have ceased or will cease to manage accounted for approximately $0.8 million in management fees during the six months ended June 30, 2006. There are no management contract intangible assets or termination fees associated with these 14 properties.

We have partially offset the loss of these management contracts by obtaining the management contracts to 12 additional properties during the first six months of 2006. These properties, which include the Hilton Times

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Square in New York City and a portfolio of six Residence Inn properties in the Cleveland, Ohio area, added approximately 1,800 rooms to our portfolio.

In February 2006, we and MeriStar agreed to a settlement with the insurance carrier for business interruption proceeds related to eight properties which were damaged or closed by hurricanes in 2004. In accordance with the settlement, we received business interruption proceeds of $3.2 million during the first quarter, which have been recorded as management fees in our statement of operations.

In February 2006, BridgeStreet acquired Twelve Oaks Corporate Residences, Inc., which we refer to as “Twelve Oaks,” a Chicago-based entity with leases for approximately 300 furnished apartment units for $0.5 million. The acquisition includes the assumption of all leases related to Twelve Oaks, 13 furnished apartment complexes in and around the Chicago area, as well as the purchase or assumption of the leases on all of Twelve Oaks’ furniture and equipment. The acquisition nearly doubles our presence in the Chicago market.

Industry Overview

The U.S. economy experienced significant growth in gross domestic sales of 5.3% during the first quarter of 2006, an increase over the growth of 1.6% realized in the fourth quarter of 2005. The economy was limited in the fourth quarter of 2005 due to the effects of hurricanes and other temporary factors. The economic growth is forecasted to slow to expectations of 3.5% during the second half of 2006 and then realize sustainable growth rates through 2008. Projections for the lodging industry for 2006 point to continuing strength across all segments and locations, which is supported by robust consumer discretionary spending grown together with sustained growth in business travel and group meetings. The lodging industry’s RevPAR increased 9.7% during the first quarter of 2006 and is expected to increase a total of 8.4% during 2006. RevPAR growth is forecasted to slow in 2007 and 2008 as supply additions accelerate and demand growth, forecasted to be 2.9% for 2006 (down from 3.2% in 2005), remains constant. For 2006, occupancy is expected to be approximately 64.3%, its highest rate since 1996, and ADR growth is expected to increase by approximately 6.4%.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of our financial statements and the reported amounts of revenues and expenses during the reporting period. Application of these policies involves the exercise of judgment and the use of assumptions as to future uncertainties and, as a result, actual results could differ from these estimates. We evaluate our estimates and judgments, including those related to the impairment of long-lived assets, on an ongoing basis. We base our estimates on experience and on various other assumptions that are believed to be reasonable under the circumstances.

We have discussed those policies that we believe are critical and require judgment in their application in our Annual Report on Form 10-K, for the year ending December 31, 2005. Since the date of that report, there have been no material changes to our critical accounting policies or the methodologies or assumptions we use in applying them.

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Results of Operations

Operating Statistics

Statistics related to our managed hotel properties, corporate housing units and wholly-owned properties include¹:

	As of June 30,				Percent Change
	2006		2005		’06 vs. ’05
Hotel Management
Properties managed		262		302		(13.2	)%
Number of rooms		59,020		68,930		(14.4	)%
Hotel Ownership
Number of properties		3		1		200.0	%
Number of rooms		655		329		99.1	%
Corporate Housing
Number of markets		17		17		0.0	%
Average number of units for the six months ended		3,037		3,151		(3.6	)%

Hotels under management decreased by a net of 40 properties as of June 30, 2006 compared to June 30, 2005, due to the following:

•  We acquired 22 additional management contracts from various owners.

•  MeriStar sold 17 properties, 14 of which we no longer manage.

•  We transitioned 29 properties out of our system, including four properties that we owned as part of the joint venture with FelCor Lodging Trust Incorporated.

•  19 of the hotels we managed for Goldman Sachs and Highgate Holdings have been sold, or transitioned to Highgate Holdings, for management.

The operating statistics related to our managed hotels, including wholly-owned, on a same-store basis² and our corporate housing division, were as follows:

	Three Months
	Ended June 30,						Percent Change
	2006			2005			’06 vs. ’05
Hotel Management
RevPar	$	92.77		$	83.40			11.2	%
ADR	$	121.43		$	112.34			8.1	%
Occupancy		76.4	%		74.2	%		3.0	%
Corporate Housing
ADR	$	118.64		$	108.05			9.8	%
Occupancy		92.7	%		92.9	%		(0.2	%)

¹ Statistics related to hotels in which we manage and also wholly-own, or hold a partial ownership interest through a joint venture, have been included in hotel management.

² We present these operating statistics for the periods included in this report on a same-store hotel basis. We define our same-store hotels as those which (i) are managed or owned by us for the entirety of the reporting periods being compared or have been managed by us for part of the reporting periods compared and we have been able to obtain operating statistics for the period of time in which we did not manage the hotel, and (ii) have not sustained substantial property damage, business interruption or undergone large-scale capital projects during the periods being reported. In addition, the operating results of hotels for which we no longer manage as of June 30, 2006 are also not included in same-store hotel results for the periods presented herein. Of the 262 properties that we managed as of June 30, 2006, 242 hotels have been classified as same-store hotels.

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	Six Months
	Ended June 30,						Percent Change
	2006			2005			’06 vs. ’05
Hotel Management
RevPar	$	87.36		$	77.83			12.2	%
ADR	$	119.67		$	110.42			8.4	%
Occupancy		73.0	%		70.5	%		3.5	%
Corporate Housing
ADR	$	116.34		$	107.94			7.8	%
Occupancy		92.0	%		91.6	%		0.4	%

Three months ended June 30, 2006 compared to three months ended June 30, 2005

Revenue

The significant components of revenue were as follows (in thousands):

	Three Months
	Ended June 30,				Percent Change
	2006		2005		’06 vs. ’05
Lodging	$	6,418	$	3,348		91.7	%
Management fees		17,383		16,750		3.8	%
Corporate housing		33,287		31,126		6.9	%
Other		2,718		2,978		(8.7	)%
Other revenue from managed properties		217,824		231,853		6.1	%
Total revenue	$	277,630	$	286,055		(2.9	)%

Lodging — The increase in lodging revenue is primarily due to the inclusion of revenues of $2.1 million for the Hilton Durham hotel, which was purchased in November 2005, for the second quarter of 2006. The Hilton Concord hotel, which was purchased in February 2005 and recently completed property physical improvement programs, increased revenues by 25.8% for the three months ended June 30, 2006 compared to the three months ended June 30, 2005, due to an increase in occupancy of 19.5% resulting from additional group sales and an increase in ADR over the prior period of 1.9% and RevPAR of 21.8%.

Management fees — Management fees increased approximately $0.6 million due to stronger revenue at our managed properties led by increases in RevPAR, ADR and occupancy. Overall, we managed fewer properties for the three months ended June 30, 2006 compared to June 30, 2005. However, due to the strength of the economy and our improved operating efficiencies at our properties, we were able to significantly increase RevPAR (11.2%), ADR (8.1%) and occupancy (3.0%) during the quarter. This led to an increase in our base management fees, which more than offset the decrease in management fees due to the decreased number of properties. In addition, termination fees increased approximately $0.7 million for the three months ended June 30, 2006.

Corporate housing — The increase in corporate housing revenue is primarily attributable to additional revenue in the Chicago market, resulting from the acquisition of Twelve Oaks, which supplied an additional 300 furnished units. Also, revenue in the London market increased $0.9 million. The continued strategic management of our apartment inventory cycle allowed us to increase ADR by 9.8% while keeping occupancy near 93%. These gains in revenue were offset by a reduction in our average number of units in various markets as we worked to align our supply with current market demands.

Other — Other revenues decreased $0.2 million due to the timing of revenue recognition for our purchasing and capital project management services completing projects earlier in the year than expected and one-time vendor incentives being recognized. These increases were in addition to a slight decrease in revenue from our insurance subsidiary.

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Other revenue from managed properties — These amounts represent the payroll and related costs, and certain other costs of the hotel’s operations that are contractually reimbursed to us by the hotel owners. The decrease of $14.0 million in other revenue from managed properties is primarily due to the decrease in the number of managed hotels directly resulting in a decrease in the number of hotel employees and related reimbursable salaries, benefits and other expenses.

Operating Expenses by Department

Lodging expenses increased $2.1 million or 83.9%, to $4.6 million for the three months ended June 30, 2006, compared to $2.5 million for the three months ended June 30, 2005. The increase is primarily due to the inclusion of lodging expenses of $1.5 million for the Hilton Durham hotel, which was acquired in November 2005, for the second quarter of 2006. Lodging expenses at the Hilton Concord increased $0.7 million, which was primarily driven by an increase in occupancy. In addition, gross margin related to these hotels increased from 25.7% to 28.8%.

Corporate housing expenses increased $1.6 million or 6.4%, to $26.2 million, for the three months ended June 30, 2006, from $24.6 million for the three months ended June 30, 2005. The increase was primarily driven from leasing additional units in markets with higher rental costs per unit, such as London and Chicago.

Undistributed Operating Expenses

The significant components of undistributed operating expenses were as follows (in thousands):

	Three Months
	Ended June 30,				Percent Change
	2006		2005		’06 vs. ’05
Administrative and general	$	20,588	$	19,644		4.8	%
Depreciation and amortization		1,926		2,196		(12.3	)%
Restructuring and severance		—		96		(100.0	)%
Asset impairments and write-offs		92		849		89.2	%
Total undistributed operating expenses	$	22,606	$	22,785		(0.8	)%

Administrative and general — Administrative and general expenses showed a slight increase between periods. These expenses consist of payroll and related benefits for employees in operations management, sales and marketing, finance, legal, human resources and other support services, as well as general corporate and public company expenses.

Depreciation and amortization — Although we had a significant increase in depreciable assets for the three months ended June 30, 2006 compared to the three months ended June 30, 2005 due to the presence of three wholly owned hotels as of June 30, 2006, our depreciation and amortization expense slightly decreased. This occurred as various software assets became fully depreciated in December 2005, resulting in a $0.3 million reduction in depreciation expense. In addition, the significant impairment of management contract costs related to sale of MeriStar properties reduced amortization expense by approximately $0.3 million. These changes were offset by additional depreciation expense of $0.2 million, which is primarily due to the inclusion of the Hilton Durham in the second quarter of 2006. Our third wholly-owned hotel was acquired in late June 2006, therefore it had minimal impact on depreciation expense. We also incurred an additional $0.1 million in amortization costs related to customer contracts acquired in the Twelve Oaks acquisition.

Restructuring and severance — The restructuring expenses incurred in the three months ended June 30, 2005, relate to severance costs for various employees.

Asset impairments and write-offs — When we receive notification that a management contract will be terminated early, we evaluate when or if amortization should be accelerated or if any remaining management contract costs should be impaired. For the three months ended June 30, 2005, $0.8 million of asset impairments were recorded as a result of the termination of management contracts related to the sale of one MeriStar property and four properties owned by Sunstone.

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Other Income and Expenses

The significant components of other income and expenses were as follows (in thousands):

	Three Months
	Ended June 30,				Percent Change
	2006		2005		’05 vs. ’04
Interest expense	$	1,978	$	2,321		(14.8	)%
Equity in earnings of affiliates		123		350		(64.9	)%
Income tax expense		2,085		1,062		96.3	%
Minority interest expense		31		29		6.9	%
Income from discontinued operations, net of tax		—		132		(100	)%

Interest expense — Interest expense decreased as we reduced our average debt balance between periods with only a minor interest rate increase.

Equity in earnings of affiliates — The decrease is due to a gain of approximately $0.7 million recognized in June 2005 from the sale of retail space which was part of the Hilton San Diego Gaslamp hotel. This was offset by a reduction of losses in our MIP joint venture of $0.4 million, due to the improved operating performance of the hotels in the portfolio.

Income tax expense — The change in income tax expense is driven by the increase in income from continuing operations.

Income from discontinued operations, net of tax — Income from discontinued operation represents the operations of the Pittsburgh Airport Residence Inn by Marriott, which was sold in September 2005.

Six months ended June 30, 2006 compared to six months ended June 30, 2005

Revenue

The significant components of revenue were as follows (in thousands):

	Six Months
	Ended June 30,				Percent Change
	2006		2005		’06 vs. ’05
Lodging	$	11,455	$	5,106		124.3	%
Management fees		40,246		30,944		30.1	%
Corporate housing		61,052		58,525		4.3	%
Other		6,429		5,735		12.1	%
Other revenue from managed properties		442,773		423,740		4.5	%
Total revenue	$	561,955	$	524,050		7.2	%

Lodging — The increase in lodging revenue is due to the inclusion of the operations of the Hilton Concord and Hilton Durham hotels for the entire period in 2006 as well as stronger than expected operations year to date. The Hilton Concord hotel, which was purchased in February 2005 and recently completed property physical improvement programs, has increased year to date occupancy and ADR over prior year by 23.2% and 1.5%, respectively. The increase in occupancy was primarily due to additional group reservations, which contributed to the increase of revenue over the corresponding period of $2.8 million. The Hilton Durham, which was purchased in November 2005, had revenues of $3.5 million in 2006 led by strong ADR and occupancy levels through the first and second quarters of 2006. The operations of the Residence Inn Pittsburgh, which was sold in 2005, have been included in discontinued operations. Revenues from the Residence Inn Pittsburgh were $1.7 million for the six months ended June 30, 2005.

Management fees — The increase in management fees is primarily related to one-time termination fees of $4.1 million received from MeriStar due to the sale of ten properties in the first quarter of 2006. Termination fees received throughout the period from various other properties increased $1.1 million. In addition, in the first quarter

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of 2006, we received approximately $3.2 million in business interruption proceeds associated with eight MeriStar properties that were damaged or closed due to the hurricanes in 2004.

Overall, we managed fewer properties in 2006 compared to 2005. However, due to the strength of the economy and our improved operating efficiencies at our properties, we were able to significantly increase RevPAR (12.2%), ADR (8.4%) and occupancy (3.5%) during the year. This led to an increase in our base management fees, which more than offset the decrease in management fees due to the decreased number of properties.

Corporate housing — The marginal increase in corporate housing revenue is primarily attributable to additions in the Chicago market, which had an additional 300 units available resulting from the acquisition of Twelve Oaks. The continued strategic management of our apartment inventory cycle allowed us to increase ADR by 7.8% while keeping occupancy at 92%. The gain in revenue caused by this was offset by a reduction in our average number of units in various markets as we worked to align our supply with current market demands.

Other — Other revenues increased $0.7 million primarily due to the timing of revenue recognition for our purchasing and capital project management services completing projects earlier in the year than expected and one-time vendor incentives being recognized.

Other revenue from managed properties — These amounts represent the payroll and related costs, and certain other costs of the hotel’s operations that are contractually reimbursed to us by the hotel owners. Although this line item decreased for the quarter, the year-to-date amount shows an increase due to timing events in the first quarter. Due to the timing of property changes and the increase in payroll and insurance costs from 2005 to 2006, our reimbursable expenses have increased although our managed properties at the end of the period have decreased. The period to period comparison is further impacted by the 22 upscale hotels affiliated with Goldman Sachs and Highgate Holdings we began operating in March 2005, and the transition of other properties out of our system during 2005 and the first quarter of 2006. As such, the change in the number of our managed properties at the end of June 30, 2006 compared to June 30, 2005 did not have a relative effect on the change in our reimbursable costs.

Operating Expenses by Department

Lodging expenses increased $4.5 million or 111.2%, to $8.5 million for the six months ended June 30, 2006, compared to $4.0 million for the six months ended June 30, 2005. The increase is primarily due to the inclusion of the operations of the Hilton Concord and Hilton Durham hotels for the entire period in 2006. The Hilton Concord hotel was purchased in February 2005, while the Hilton Durham was purchased in November 2005. Gross margins related to the hotels increased from 21.5% to 26.1%. The Hilton Concord and Hilton Durham incurred lodging expenses of $5.7 million and $2.7 million, respectively, for the six months ended June 30, 2006.

Corporate housing expenses increased $1.2 million or 2.4%, to $49.2 million, for the six months ended June 30, 2006, from $48.0 million for the six months ended June 30, 2005. The increase was primarily driven from leasing additional units in markets with higher rental costs per unit, such as London and Chicago.

Undistributed Operating Expenses

The significant components of undistributed operating expenses were as follows (in thousands):

	Six Months
	Ended June 30,				Percent Change
	2006		2005		’06 vs. ’05
Administrative and general	$	38,959	$	37,645		3.5	%
Depreciation and amortization		3,986		4,355		(8.5	)%
Restructuring and severance		—		2,043		(100.0	)%
Asset impairments and write-offs		8,642		1,911		352.2	%
Total undistributed operating expenses	$	51,587	$	45,954		12.3	%

Administrative and general — Administrative and general expenses showed a slight increase between periods. These expenses consist of payroll and related benefits for employees in operations management, sales and

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marketing, finance, legal, human resources and other support services, as well as general corporate and public company expenses.

Depreciation and amortization — Although we had a significant increase in depreciable assets for 2006 compared to 2005 due to the presence of three wholly-owned hotels as of June 30, 2006, our depreciation and amortization expense decreased. Various software assets and furniture and equipment became fully depreciated in December 2005 and throughout 2006, resulting in a $0.7 million reduction in depreciation expense. In addition, the significant impairment of management contract costs related to sale of MeriStar properties reduced scheduled amortization expense by approximately $0.5 million. These changes were offset by additional depreciation expense of $0.5 million related to the owned hotels and additional amortization expense of $0.4 million related to customer contracts acquired in the Twelve Oaks acquisition. Our third wholly-owned hotel was acquired in late June 2006, therefore it had minimal impact on depreciation expense.

Restructuring and severance — The restructuring expenses incurred primarily relate to severance costs of approximately $1.8 million for our former CEO in connection with the terms of his separation agreement.

Asset impairments and write-offs — When we receive notification that a management contract will be terminated early, we evaluate when or if amortization should be accelerated or if any remaining management contract costs should be impaired. For the six months ended June 30, 2006, $8.3 million of asset impairments were recorded as a result of the termination of management contracts related to the sale of 18 MeriStar properties. For the six months ended June 30, 2005, $0.3 million of asset impairments were recorded due to the sale of the Hilton San Diego Gaslamp hotel; an additional $0.3 million associated with the termination of four Sunstone properties as a result of their sale; $0.4 million related to one MeriStar hotel disposition and $0.9 million of costs related to a real estate investment fund which we decided not to proceed with.

Other Income and Expenses

The significant components of other income and expenses were as follows (in thousands):

	Six Months
	Ended June 30,					Percent Change
	2006			2005		’05 vs. ’04
Interest expense	$	4,041		$	6,253		(35.4	)%
Equity in earnings (losses) of affiliates		(434	)		3,192		(113.6	)%
Gain on sale of investments and extinguishment of debt		—			385		(100.0	)%
Income tax expense		2,604			61		> 100.0	%
Minority interest expense		49			11		> 100.0	%
Income from discontinued operations, net of tax		—			243		(100.0	)%

Interest expense — Interest expense decreased primarily due to $1.8 million of unamortized deferred financing fees which were expensed in January 2005 in connection with the refinancing of our credit facility. The remainder of the decrease was due to our average debt balance decreasing between periods with only a minor interest rate increase.

Equity in earnings (losses) of affiliates — The decrease is due to a gain of approximately $4.3 million for the sale of the Hilton San Diego Gaslamp in January 2005 and the related retail space in June 2005. This was offset by a reduction of losses in our MIP joint venture of $0.8 million, due to the improved operating performance of the hotels in the portfolio.

Gain on sale of investments and extinguishment of debt — In January 2005, we recognized a gain of $0.4 million from the exchange of stock warrants in an unaffiliated company and subsequent sale of that stock, which we had held as an investment.

Income tax expense — The change in income tax expense is driven by the increase in our income from continuing operations. Our effective tax rate of 41% has remained consistent between periods.

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Income from discontinued operations, net of tax — Income from discontinued operations represents the operations of the Pittsburgh Airport Residence Inn by Marriott, which was sold in September 2005.

Liquidity, Capital Resources and Financial Position

Key metrics related to our liquidity, capital resources and financial position were as follows (in thousands):

	Six Months
	Ended June 30,						Percent Change
	2006			2005			’05 vs. ’04
Cash provided by operating activities	$	17,485		$	18,795			(7.0	)%
Cash used in investing activities		(25,979	)		(30,117	)		13.7	%
Cash provided by (used in) financing activities		(1,299	)		7,463			(117.4	)%
Working capital		(14,324	)		(6,278	)		(128.2	)%
Cash interest expense		3,676			3,591			2.4	%
Debt balance		81,552			85,052			(4.1	)%

Operating Activities — The slight decrease in cash provided by operating activities is primarily due to $13.5 million of additional cash used to reduce accounts payable and accrued expenses, which partially related to increased payments of incentive compensation in early 2006 for services provided in 2005. This was offset by the change in net income, which increased by $13.6 million after removing all non-cash income and expense items, including asset impairment and write-offs of $8.6 million and $1.9 million incurred during the six months ended June 30, 2006 and 2005, respectively. Included in net income for the six months ended June 30, 2006 is a one-time cash payment of $3.2 million resulting from the settlement of our business interruption claim and one-time termination fees of $4.1 million related to the sale of 10 MeriStar properties in February 2006. In addition, the adjustment for the non-cash portion of equity in earnings of affiliates increased $3.6 million.

Investing Activities — The major components of the decrease in cash used in investing activities in 2006 compared to 2005 were:

•  The purchase of the Hilton Concord hotel in February 2005 for $31.8 million compared to the purchase of the Hilton Garden Inn Baton Rouge Airport in June 2006 for $14.5 million.

•  The change in cash contributed to and distributed from our joint venture equity investments. In 2005, we received distributions from our equity investments of $2.9 million from the sale of the San Diego Gaslamp hotel, $1.1 million from the sale of the Sheraton Smithtown hotel and $1.0 million from the return of our preferred equity interest in MIP Lessee, L.P. In 2006, we contributed a total of $6.0 million for investments in three joint ventures.

•  A decrease in the restricted cash balance of $1.8 million in 2005 compared to no change in 2006. Our insurance subsidiary has restricted cash, which is determined based on statutory requirements and is directly related to premiums written during the year. We also have restricted cash at our purchasing subsidiary, which represents cash that our clients have advanced to us for capital projects. These balances will fluctuate due to the timing and status of various projects at the end of the period.

•  We spent an additional $2.6 million on property and equipment in 2006, which includes $0.8 million for improvements at our owned hotels and general corporate additions. We also spent $0.5 million in 2006 for the Twelve Oaks acquisition.

Financing Activities — The decrease in cash used by financing activities is primarily due to net repayments on long-term debt of $3.5 million in the first six months of 2006, compared to net borrowings on long-term debt of $11.0 million in the first six months of 2005. Our additional borrowings in 2005 related to the purchase of the Hilton Concord hotel, while the repayments in 2006 were made from the cash provided by operating activities. We also drew down an additional $5.0 million from our Credit Facility in 2006 related to the purchase of the Hilton Garden Inn Baton Rouge Airport. In 2005, we also paid financing fees of $3.6 million in connection with the refinancing of our Credit Facility, while in 2006, we received proceeds of $2.2 million from the issuance of approximately 542,000 common shares from the exercise of stock options.

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Liquidity — Our known short-term liquidity requirements consist primarily of funds necessary to pay for operating expenses and other expenditures. Our long-term liquidity requirements consist primarily of funds necessary to pay for scheduled debt maturities and costs associated with potential acquisitions and continuing our growth strategy. We continually monitor our operating and cash flow models in order to forecast our compliance with the financial covenants. As of June 30, 2006, we were in compliance with all financial covenants under our debt covenants.

We will continue to implement our growth strategy by seeking acquisitions of wholly-owned and joint venture interests in hotel properties, such as our three joint venture investments and acquisition of the Hilton Garden Inn Baton Rouge Airport during the second quarter of 2006. The joint venture investments were funded with cash on hand, while the Hilton Garden Inn Baton Rouge Airport was financed with cash on hand and a $5.0 million draw on our Credit Facility. Our ability to incur additional debt is dependent upon a number of factors, including our degree of leverage, the value of our unencumbered assets (if any), our public debt ratings and borrowing restrictions imposed by existing lenders. We expect to use additional cash flows from operations and amounts available under the Credit Facility to pay required debt service, income taxes and make planned capital purchases for our wholly-owned hotels and corporate housing. We may also seek to raise additional funding for future investments and growth opportunities by raising additional debt or equity from time to time based on the specific needs of those future investments.

Senior Credit Facility — In January 2005, we entered into an amended and restated senior secured credit facility, with various lenders. The Credit Facility replaced our previous senior secured credit facility and provides aggregate loan commitments for a $53.0 million term loan and a $55.0 million revolving loan. The Credit Facility is scheduled to mature on January 14, 2008. When we entered into the Credit Facility, we borrowed approximately $87.2 million, comprising the entire $53.0 million term loan and $34.2 million under the revolving loan. We are required to make quarterly payments of $1.3 million on the term loan until its maturity date.

The actual interest rates on both the revolving loan and term loan depend on the results of certain financial tests. As of June 30, 2006, based on those financial tests, borrowings under the revolving Credit Facility bore interest at the 30-day LIBOR rate plus 325 basis points (a rate of 8.63% per annum) and borrowings under the term loan bore interest at the 30-day LIBOR plus 450 basis points (a rate of 9.88% per annum). We incurred interest expense of $1.4 million and $3.0 million on the senior credit facilities for the three and six months ended June 30, 2006, respectively, and $1.6 million and $3.1 million for the three and six months ended June 30, 2005, respectively. As of June 30, 2006, we have repaid $10.0 million of the term loan to date, leaving $43.0 million outstanding as of June 30, 2006. We had $19.5 million outstanding under our revolving loan, leaving approximately $35 million of availability.

The debt under the Credit Facility is guaranteed by certain of our wholly owned subsidiaries and collateralized by pledges of ownership interests, owned hospitality properties, and other collateral that was not previously prohibited from being pledged by any of our existing contracts or agreements. The Credit Facility contains covenants that include maintenance of financial ratios at the end of each quarter, compliance reporting requirements and other customary restrictions. In connection with the purchase of the Hilton Concord hotel, we entered into amendments to the Credit Facility in February 2005 and May 2005 in order to modify certain liquidity covenants that we would have otherwise failed as a result of purchasing the hotel. At June 30, 2006, we were in compliance with the loan covenants and expect to be in compliance for the remainder of the loan term.

Mortgage Debt — In February 2005, we entered into a $19.0 million non-recourse mortgage loan to finance the acquisition of the Hilton Concord hotel. We are required to make interest-only payments until the loan matures in March 2008. The loan bore interest at the 30-day of LIBOR rate plus 225 basis points (rate of 7.63% per annum at June 30, 2006). We incurred interest expense on the loan of $0.3 million and $0.7 million for the three and six months ended June 30, 2006, respectively.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

There were no material changes to the information provided in Item 7A in our Annual Report on Form 10-K regarding our market risk. The 30-day LIBOR rate, upon which our debt and interest rate cap agreements are based on, increased from 4.44% per annum as of December 31, 2005 to 5.38% per annum as of June 30, 2006.

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Giving effect to our interest rate hedging activities, a 1.0% change in the 30-day LIBOR would have changed our statement of operations by approximately $0.1 million and $0.4 million for the three and six months ended June 30, 2006 respectively, and by $0.2 million and $0.5 million for the three and six months ended June 30, 3005, respectively.

Item 4.   Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information that is 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, chief financial officer, and chief accounting officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15-d — 15(e)).

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, we concluded that our disclosure controls and procedures were effective as of June 30, 2006.

Changes in Internal Controls

There has not been any change in our internal control over financial reporting during the second quarter of 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions. 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.

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PART II. OTHER INFORMATION

Item 1.   Legal Proceedings

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.

Item 4.   Submission of Matters to a Vote of Security Holders

Our annual meeting of stockholders was held on June 1, 2006.

At that meeting, the following matters were submitted to a vote of our stockholders:

Item No. 1

To approve the re-election as directors of the Company to serve three-year terms expiring at the Annual Meeting in 2009 and until their successors are duly elected and qualified.

	For		Withheld
Karim J. Alibhai		25,408,311		353,291
Joseph J. Flannery		15,560,095		10,201,507

Item No. 2

To consider and vote upon ratification of the appointment of KPMG LLP as our independent auditors for the fiscal year ending December 31, 2006.

For	25,687,612
Against	70,985
Abstain	3,003

Item 6.   Exhibits

(a) Exhibits

Exhibit No.			Description of Document
	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).

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Exhibit No.			Description of Document
	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 June 30, 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 June 30, 1999).
	10	.1*	Employment Agreement, dated as of April 17, 2006, by and between Bruce A. Riggins and the Company.
	10	.2*	Agreement of Sale and Purchase between Howell Place Hotel, LLC and Interstate Operating Company, L.P., dated March 10, 2006, as amended April 21, 2006 and May 10, 2006, for the purchase of the Hilton Garden Inn Baton Rouge Airport.
	10	.3*	Purchase and Sale Agreement between MeriStar Hospitality Operating Partnership, L.P. and Interstate Durham, LLC, dated October 31, 2005, as amended November 10, 2005, for the purchase of the Hilton Durham.
	10	.4*	Purchase Contract between Interstate Hotel Holdings, LLC and Apple Six Hospitality Ownership, Inc. dated June 15, 2005, as amended July 29, 2005, for the sale of the Pittsburgh Residence Inn by Marriott.
	10	.5*	Agreement of Sale and Purchase between Hanford Hotels, LLC and Interstate Concord, LLC, dated November 12, 2004, as amended December 27, 2004 and January 21, 2005, for the purchase of the Hilton Concord.
	31	.1*	Sarbanes-Oxley Act Section 302 Certifications of the Chief Executive Officer.
	31	.2*	Sarbanes-Oxley Act Section 302 Certifications of the Chief Financial Officer.
	32*		Sarbanes-Oxley Act Section 906 Certifications of Chief Executive Officer and Chief Financial Officer.

*  Filed herewith

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Interstate Hotels & Resorts, Inc.

By:  /s/  Bruce A. Riggins

Bruce A. Riggins

Chief Financial Officer

Dated: August 9, 2006

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EX-10.1

EXHIBIT 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

EXECUTIVE EMPLOYMENT AGREEMENT, effective as of April 17, 2006 (the “Agreement”), by and between INTERSTATE HOTELS & RESORTS, INC., a Delaware corporation (the “Company”), INTERSTATE MANAGEMENT COMPANY, L.L.C., a Delaware limited liability company (the “LLC”) and any successor employer, and BRUCE RIGGINS (the “Executive”), an individual residing at                                         .

          WHEREAS, the Company and the LLC desire to employ the Executive in the capacity of Chief Financial 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 April 17, 2006 (the “Commencement Date”), and ending on April 16, 2009 unless terminated earlier in accordance with Section 4 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”).

          2. Positions; Conduct.

               (a) During the Term, the Executive will hold the title and office of, and serve in the position of Chief Financial 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 position.

               (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

2

support services consistent with his position as Chief Financial Officer and with his duties and responsibilities hereunder.

          3. Salary; Additional Compensation; Perquisites and Benefits.

               (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 $325,000 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 125% 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, deferred compensation plans, 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 and restricted stock award grants from time to time pursuant to the Company’s Incentive Plan in accordance with the terms thereof. All such grants shall be at the discretion of the Board. Executive shall receive a separate option agreement governing any such grants. The Executive shall be granted 25,000 restricted shares in the Company on the Commencement Date and these shares will immediately vest and become unrestricted. In addition, the Executive shall be granted 40,000 restricted shares in the Company on the Commencement Date and these shares will vest equally on the first, second and third anniversary of the date of grant as more fully described in a restricted stock agreement pursuant to which the shares will be granted.

               (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. Executive will also be reimbursed for certain reasonable relocation expenses expected to be approximately $75,000 including real estate costs to sell Executive’s home in Florida and moving fees in connection with Executive’s move to the Washington, DC area at the beginning of his employment. Executive acknowledges he already has a home in the Washington, DC area and will not need to incur costs associated with finding a new residence.

               (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 shall pay up to $7,500 annually toward the premium of a life insurance policy with a death benefit payable to a beneficiary designated by the Executive in accordance with the terms and conditions of such life insurance policy. The Company makes no representations or warranties that the insurance benefits contained in the insurance policies supplied pursuant to this section will be paid under any particular conditions, and the Company shall not be deemed a guarantor of such benefits. Such benefits shall be payable in accordance with the terms of the respective insurance policy.

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               (h) 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 3(h) 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 3(h) 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.

          4. Termination.

               (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.

          5. Severance.

               (a) If the Term is terminated by the Company for Cause,

4

(i)	the Company and the LLC will pay to the Executive an aggregate amount equal to the Executive’s accrued and unpaid base salary through the date of such termination;
(ii)	all unvested options and restricted shares will terminate immediately; and
(iii)	any vested options issued pursuant to the Company’s Incentive Plan and held by the Executive at termination, will expire ninety (90) days after the termination date.

               (b) If the Term is terminated by the Executive other than because of death, Disability or for Good Reason,

(i)	the Company and the LLC will pay to the Executive an aggregate amount equal to the Executive’s accrued and unpaid base salary through the date of such termination;
(ii)	all unvested options and restricted shares terminate immediately; and
(iii)	any vested options issued pursuant to the Company’s Incentive Plan and held by the Executive at termination, will expire ninety (90) days after the termination date.

               (c) If the Term is terminated upon the Executive’s death or Disability,

(i)	the Company and the LLC will pay to the Executive’s estate or the Executive, as the case may be, a lump sum payment equal to the Executive’s base salary through the termination date, plus a pro rata portion of the Executive’s bonus for the fiscal year in which the termination occurred;
(ii)	the Company will make payments for one (1) year of all compensation otherwise payable to the Executive pursuant to this Agreement, including, but not limited to, base salary, bonus and welfare benefits;
(iii)	all of the Executive’s unvested stock options will immediately vest and such options, along with those previously vested and unexercised, will become exercisable for a period of one (1) year thereafter; and
(iv)	all of the Executive’s unvested restricted stock will immediately vest and all of the restricted stock of the Company held by the Executive shall become free from all contractual restrictions.

               (d) Subject to Section 5(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,

(i) the Company and the LLC shall pay the Executive a lump sum equal to one times the sum of (A) the Executive’s then annual base salary and (B) the amount of the Executive’s bonus for the preceding calendar year;

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(ii)	all of the Executive’s unvested stock options will immediately vest and such options, along with those previously vested and unexercised, will become exercisable for a period of one (1) year thereafter;
(iii)	all of the Executive’s unvested restricted stock will immediately vest and all of the restricted stock of the Company held by the Executive shall become free from all contractual restrictions; and
(iv)	the Company shall also continue in effect the Executive’s health and dental benefits (or similar health and dental benefits paid to senior executives) noted in Section 3(c) as follows: Upon Executive’s termination of employment, Executive shall be eligible for continued health insurance benefits under the federal law known as COBRA. Executive is required to timely elect COBRA in order to receive continued health insurance coverage under this Agreement. Upon Executive’s election of COBRA coverage and timely payment of applicable monthly COBRA premiums, Executive will receive health insurance coverage under COBRA up to the maximum period provided by law. The Company will reimburse Executive of the cost of such COBRA coverage until the earlier of (x) eighteen (18) months from the termination date or (y) the date on which the Executive obtains health insurance coverage from a subsequent employer. Executive acknowledges that if he does not timely elect COBRA coverage he will not receive continued health insurance benefits from the Company. Executive also acknowledges that he is responsible for any taxes due on payments from the Company in reimbursement for COBRA premium amounts.

               (e) If, within eighteen (18) 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 provided for under Section 5(d) hereof; provided, that the amount of the multiplier described in clause (d)(i) of Section 5 hereof shall be increased from one (1) to two (2) 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.

               (g) As used herein, the term “Cause” means:

               (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 5(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;

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               (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 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;

               (iii) any material breach of this Agreement by the Company or the LLC which is continuing; or

               (iv) a Change in Control; provided that a Change of Control shall only constitute Good Reason if (i) the Company terminates the Executive within eighteen months following a Change of Control or (ii) the Company changes the Executive’s job title, responsibilities or decreases Executive’s compensation or Section 5(h)(ii) occurs within eighteen months following a Change of Control and Executive within six months after such change (but not later than eighteen months following the Change of Control) terminates the Term of this Agreement;

provided, however, that the Executive shall not be deemed to have Good Reason pursuant to clauses (h)(i) or (iii) 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;

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               (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 5 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 5.

               (k) Notwithstanding the previous provisions, if payments made pursuant to this Section 5 are considered “parachute payments” under Section 280G of the Internal Revenue Code of 1986, then the sum of such parachute payments plus any other payments made by the Company to the Executive which are considered parachute payments shall be limited to the greatest amount which may be paid to the Executive under Section 280G without causing any loss of deduction to the Company under such section; but only if, by reason of such reduction, the net after tax benefit of Executive shall exceed the net after tax benefit if such reduction were not made. “Net after tax benefit” for purposes of this Agreement shall mean the sum of (i) the total amounts payable to Executive under Section 5, plus (ii) all other payments and benefits which the Executive receives or is then entitled to receive from the Company that would constitute a “parachute payment” which the meaning of Section 280G of the Code, less (iii) the amount of federal income taxes payable with respect to the foregoing (based upon the rate in effect for such years as set forth in the Code at the time such payments and benefits are made and received), less (iv) the amount of excise taxes imposed with respect to the payments and benefits described in (i) and (ii) above by Section 4999 of the Code.

          6. 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

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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.

          7. Confidential Information.

               (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 during his employment hereunder and for a period of twelve (12) months thereafter he will not solicit, raid, entice or induce any person that then is or

9

at any time during the twelve (12) month period prior to the end of the Term was an employee in Executive’s department (other than a person whose employment with the Company has been terminated by the Company), to become employed by any person, firm or corporation.

               (f) The Executive shall make no statements disparaging the Company, any of its affiliates, any of its officers, directors, or employees, or any of its business practices. The Company’s directors and officers shall make no statements disparaging the Executive.

          8. Specific Performance.

               (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 7 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 7 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 5 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 7 hereof shall be immediately and permanently terminated.

          9. 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.

          10. 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:

If to the Executive, to:

Bruce Riggins

If to the Company or to the LLC, to:

Interstate Hotels & Resorts, Inc.

4501 North Fairfax Drive

Arlington, VA 22203

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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.

          11. Miscellaneous.

               (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 incurred in the preparation of or in connection with such proceeding.

               (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, 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.

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          IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the date first above written.

EXECUTIVE:
/s/ BRUCE A. RIGGINS
Bruce Riggins
COMPANY:
INTERSTATE HOTELS & RESORTS, INC.
By:	/s/ THOMAS F. HEWITT
Name: Thomas F. Hewitt
Title: Chief Executive Officer
LLC:
INTERSTATE MANAGEMENT COMPANY, LLC
	By: Interstate Operating Company, L.P., a member
	By: Interstate Hotels & Resorts, Inc.,
	its general partner
By:	/s/ THOMAS F. HEWITT
Name: Thomas F. Hewitt
Title: Chief Executive Officer

EX-10.2

EXHIBIT 10.2

AGREEMENT OF SALE AND PURCHASE

     THIS AGREEMENT OF SALE AND PURCHASE (this “Agreement”), dated as of March 10, 2006 (the “Effective Date”), is made by and between HOWELL PLACE HOTEL, LLC, an Arkansas limited liability company, having an address at                                                                                   (“Seller”), and INTERSTATE OPERATING COMPANY. L.P., a Delaware limited partnership having an address at 4501 N. Fairfax Drive, Arlington, VA 22203 (“Purchaser”).

I.

Definitions; Sale and Purchase

     1.01 Definitions. In addition to terms defined elsewhere in this Agreement, the following terms shall have the meanings indicated:

     (a) Bookings shall mean contracts or reservations for the use or occupancy of guest rooms, meeting rooms and/or the banquet facilities of the Hotel.

     (b) Books and Records shall mean all books, records, room rates, customer lists, banquet and function room records with respect to the Hotel (whether in electronic format or reduced to paper).

     (c) Closing Date shall mean the date specified in Section 7.01.

     (d) Consumables shall mean all opened and unopened food and beverages (alcoholic and non-alcoholic) located at, or purchased to be used or sold at but not yet delivered to, the Hotel.

     (e) Cut-off Time shall mean 11:59 p.m. on the date preceding the Closing Date.

     (f) Effective Date shall mean the date of this Agreement.

     (g) Expendables shall mean all expendable supplies including but not limited to china, glassware, linens, silverware, kitchen and bar small goods, paper goods, guest supplies, cleaning supplies, operating supplies, printing, stationary and uniforms, and other operating supplies and inventories whether in use or held in reserve storage for future use in connection with the operation of the Hotel.

     (h) Existing Franchise Agreement shall mean the existing franchise agreement between Hilton Inns, Inc. (“Hilton”), as franchisor, and Seller, as franchisee, with respect to the Hotel.

     (i) Furnishings shall mean all fixtures, furniture, furnishings, fittings, equipment, machinery, apparatus, appliances, computer hardware and equipment, software, reservations terminals, vehicles, building materials, telephones and other communication equipment, copiers, facsimile machines, postal machines, televisions, signs, vacuum cleaners, video equipment and other articles of personal property located on or used or usable in connection with any part of the Hotel.

     (j) Hotel shall mean the hotel located at 3330 Harding Boulevard, Baton Rouge, Louisiana 70807, and known as the Hilton Garden Inn – Baton Rouge.

     (k) Hotel Contracts shall mean all service and maintenance contracts, employment agreements, union contracts, purchase orders, equipment leases, volume transient agreements and other contracts or agreements relating to the maintenance, operation, provisioning or equipping of the Hotel, together with all related written warranties and guaranties.

     (l) Hotel Employees shall mean the persons employed to operate the Hotel.

     (m) Improvements shall mean the buildings, structures (surface and sub-surface), installations and other improvements, including such fixtures and appurtenances as shall constitute real property located on the Land.

     (n) Land shall mean the land and all appurtenances thereto, having a street address at 3330 Harding Boulevard, Baton Rouge, Louisiana 70807, more particularly described in Exhibit A to this Agreement upon which the Hotel is situated together with all appurtenances to the Land.

     (o) Miscellaneous Personal Property shall mean (i) any and all trademarks, service marks, trade names, brand names and copyrights owned by Seller or any affiliate of Seller relating to the Hotel, (ii) any and all goodwill associated with the Hotel, (iii) the Hotel’s website and web address, if any, (iv) the Hotel’s telephone numbers, and (v) printed marketing materials, if any, relating to the Hotel, and any slides, proofs or drawings used to produce such materials, to the extent such slides, proofs or drawings are in Seller’s or its manager’s possession or control.

     (p) Permits shall mean all licenses, franchises, permits, certificates of occupancy, authorizations and approvals used in or relating to the ownership, occupancy or operation of any part of the Hotel.

     (q) Property shall mean the Land and Improvements.

     (r) Space Leases shall mean all leases and other agreements (written or oral) for the use of space at the Property, including but not limited to, agreements for the use of rooftop space on the Hotel for the installation of cellular telephone antennas

     (s) Warranties shall mean any assignable warranties benefiting Seller with respect to the Furnishings, Miscellaneous Personal Property and Improvements.

     1.02 Sale and Purchase. Seller agrees to sell and convey the Hotel to Purchaser, and Purchaser agrees to purchase and accept the Hotel from Seller, for the price and subject to the terms, covenants, conditions and provisions set forth in this Agreement. The sale and purchase shall include the Property and all right, title and interest of Seller in and to the Bookings, the Books and Records, the Consumables, the Furnishings, the Expendables, the Permits, the Space Leases, the Hotel Contracts, the Miscellaneous Personal Property and the Warranties (the Property, the Bookings, the Books and Records, the Consumables, the Furnishings, the Expendables, the Permits, the Space Leases, the Hotel Contracts, the Miscellaneous Personal Property and the Warranties being hereinafter collectively referred to as the “Purchased Assets”).

     1.03 Condition of Property. (a) Purchaser acknowledges for Purchaser and Purchaser’s successors, heirs and assignees, (i) that Purchaser will be given a reasonable opportunity to inspect and investigate the Property, all improvements thereon and all aspects relating thereto, including, without limitation, all of the physical, environmental and operational aspects of the Property, either independently or through agents and experts of Purchaser’s choosing and (ii) that Purchaser will acquire the Property based upon Purchaser’s own investigation and inspection thereof. SELLER AND PURCHASER AGREE THAT, EXCEPT AS PROVIDED FOR IN THIS AGREEMENT OR ANY CLOSING DOCUMENT, THE PROPERTY SHALL BE SOLD AND THAT PURCHASER SHALL ACCEPT POSSESSION OF THE PROPERTY ON THE CLOSING DATE AS IS, WHERE IS, WITH ALL FAULTS WITH NO RIGHT OF SET-OFF OR REDUCTION IN THE PURCHASE PRICE, AND THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR ANY CLOSING DOCUMENT SUCH SALE SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, EXCEPT FOR THOSE SET FORTH IN THIS AGREEMENT OR ANY CLOSING DOCUMENT, INCLUDING, WITHOUT LIMITATION, WARRANTY OF INCOME POTENTIAL, OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. PURCHASER SPECIFICALLY ACKNOWLEDGES THAT, EXCEPT AS PROVIDED FOR IN THIS AGREEMENT OR ANY CLOSING DOCUMENT, PURCHASER IS NOT RELYING AND SHALL NOT RELY ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, FROM SELLER AS TO ANY MATTERS CONCERNING THE PROPERTY INCLUDING WITHOUT LIMITATION: (A) THE CONDITION OR

SAFETY OF THE PROPERTY OR ANY IMPROVEMENTS THEREON, INCLUDING, BUT NOT LIMITED TO, PLUMBING, SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, IF ANY FOUNDATIONS, SOILS AND GEOLOGY INCLUDING HAZARDOUS MATERIALS, LOT SIZE, OR SUITABILITY OF THE PROPERTY OR IMPROVEMENTS FOR A PARTICULAR PURPOSE; (B) WHETHER THE APPLIANCES, PLUMBING OR UTILITIES AND ANY ASSOCIATED MATTERS ARE IN WORKING ORDER; (C) THE LIABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF ITS CONSTRUCTION; (D) THE FITNESS OF ANY PERSONAL PROPERTY; OR (E) WHETHER THE IMPROVEMENTS ARE STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN COMPLIANCE WITH APPLICABLE CITY, PARISH, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR ANY CLOSING DOCUMENT, PURCHASER WAIVES ANY WARRANTY TO WHICH IT MIGHT BE ENTITLED UNDER ARTICLE 2524 OF THE LOUISIANA CIVIL CODE THAT THE PROPERTY BE REASONABLY FIT FOR ITS ORDINARY USE. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR ANY CLOSING DOCUMENT PURCHASER HEREBY EXPRESSLY WAIVES ALL RIGHTS IN REDHIBITION PURSUANT TO LOUISIANA CIVIL CODE ARTICLE 2520, ET SEQ., THE WARRANTIES OF OWNERSHIP AND PEACEABLE POSSESSION OF THE PROPERTY, THE WARRANTIES AGAINST HIDDEN OR REDHIBITORY DEFECTS IN THE PROPERTY, AND THE WARRANTY THAT THE PROPERTY IS FIT FOR ITS INTENDED USE, EACH OF WHICH WOULD OTHERWISE BE IMPOSED UPON SELLER BY LOUISIANA CIVIL CODE ARTICLE 2475. EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR ANY CLOSING DOCUMENT PURCHASER HEREBY RELEASES SELLER FROM ANY LIABILITY FOR HIDDEN, REDHIBITORY OR LATENT DEFECTS OR VICES UNDER LOUISIANA CIVIL CODE ARTICLE 2520 THROUGH 2549.

II.

Consideration

     2.01 Purchase Price. The purchase price (“Purchase Price”) to be paid by Purchaser to Seller at the closing of the purchase and sale of the Property (the “Closing”) shall be FOURTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($14,500,000). The Purchase Price shall be payable by Purchaser as follows:

     (a) FIVE HUNDRED THOUSAND DOLLARS ($500,000) as a deposit (together with any interest earned thereon, the “Deposit”), by check or wire transfer payable to First American Title Insurance Company (in its capacity as holder of the Deposit, the “Escrow Agent”), through its Washington, D.C. office, within three (3) business days after the date hereof; and

     (b) The balance (as adjusted for the prorations and credits hereinafter set forth) at the Closing by wire transfer of good funds to an account to be designated by Seller prior to the Closing.

     2.02 Deposit. The Deposit shall be delivered to and held by Escrow Agent in escrow in an interest-bearing account pursuant to terms of this Agreement. If the Closing occurs in accordance with the terms and provisions of this Agreement, the Deposit shall be paid to Seller and credited against the Purchase Price. If the Closing does not occur, the Deposit shall be held and delivered as provided in this Agreement.

     2.03 Allocation. The Purchase Price shall be allocated between the Land, the Improvements and the other Purchased Assets as set forth on Exhibit B attached hereto subject to such changes as the parties may reasonably and in good faith agree upon prior to the expiration of the Inspection Period.

III.

Survey

     3.01 Survey. Within fifteen (15) business days after the Effective Date, Seller will obtain, at Seller’s cost and expense, a current survey (the “Survey”) of the Property prepared by a surveyor licensed in the State of Louisiana and approved by Purchaser. The Survey, which shall be certified to Purchaser, Purchaser’s lender, if any, and Purchaser’s title insurer, shall indicate the metes and bounds of the Land, shall indicate the Improvements and the location of any easements, servitudes, utility lines, rights-of-way, water courses, drains, sewers, driveways, roads and encroachments affecting the Property, and shall indicate that all Improvements are located within the record and setback lines of the Property and that no easements, servitudes or other encroachments located on the Property interfere with the use of the Property and shall otherwise be in accordance with the Minimum Standard Detail Requirements and Classifications for ALTA/ACSM Land Title Surveys (including without limitation items 1, 2, 3, 6, 7A, 7B, 7C, 8, 9, 10, 11 and 13 of Table A thereof) and the standards of any board or organization promulgating standards for surveys in the State of Louisiana.

IV.

Title Insurance

     4.01 Title Commitment. Within five (5) business days after the Effective Date, Seller will cause First American Title Insurance Company (in its capacity as title insurer, the “Title Company”), through its National Accounts Office in Washington, D.C., to deliver to Purchaser an up-to-date and complete commitment for an ALTA Owner’s Policy of Title Insurance with extended coverage (the “Title Commitment”) accompanied by a legible copy of all recorded documents relating to liens, easements, servitudes, rights-of-way, restrictions and other matters affecting title to the Property.

     4.02 Title Objections. Purchaser shall have thirty (30) days from the last to be received of the Title Commitment and the Survey to notify Seller as to any items that are unsatisfactory to Purchaser. Unless Purchaser or its attorney so notifies Seller within such 30-day period, Purchaser shall be deemed to have approved the condition of title to the Property as reflected by the Title Commitment and Survey. If within such period Purchaser notifies Seller that any of the items are unacceptable (“Objections”), Seller shall within five (5) business days after receipt of such notice notify Purchaser whether Seller shall elect to cure any or all of such Objections (provided, however, that Seller must satisfy and remove of record or cure, as the case may be, and shall not have any right to elect not to cure, any matter which it is required to cure pursuant to Section 4.04 below). If Seller elects to cure any such Objections, then Seller shall promptly cure the Objections which it has elected to cure to Purchaser’s and the Title Company’s satisfaction. If Seller elects not to cure any such Objections, or is unable to cure any such Objections, then Purchaser at its sole and absolute option may either (i) accept title to the Property subject to such Objections or (ii) terminate this Agreement by written notice to Seller, whereupon the Deposit shall be promptly returned to Purchaser and the parties shall have no further rights or liabilities under this Agreement other than those which expressly survive the termination of this Agreement. Purchaser shall make such election by written notice to Seller or on before the Closing Date or within five business days after Seller has advised Purchaser in writing that has elected not to cure any such Objections or is unable to cure any such Objections, whichever occurs first, and in the event Purchaser does not make such election, Purchaser shall be conclusively deemed to have waived such Objections. Those restrictions, liens, encumbrances, easements, servitudes, rights of way and other matters as are not objected to or are waived by Purchaser in the manner provided in this Section shall be deemed “Permitted Exceptions”. Nothing herein shall be deemed to prohibit Purchaser from objecting to title or survey matters revealed subsequent to approval of the title reflected by the Title Commitment and the Survey, and any such objections will be treated as “Objections” in accordance with this Section.

     4.03 Title Conveyed. Seller shall, on the Closing Date, convey to Purchaser good, merchantable, marketable and insurable fee simple title to the Property subject only to the Permitted Exceptions.

     4.04 Monetary Liens. Notwithstanding anything to the contrary set forth in Section 4.02 above, Seller shall satisfy and remove of record or cure, as the case may be, at or before the Closing any mortgage or deed of trust lien affecting the Property and any other Objection which may be removed by the payment of a liquidated sum of money,

including without limitation any liens for unpaid taxes, and Seller may not refuse to cure the same. Seller may use all or any portion of the Purchase Price to affect such cure at the Closing.

     4.05 Searches. Promptly after the Effective Date, Purchaser shall have the right to obtain, at Purchaser’s expense, written reports of searches (the “Searches”) of the records of the appropriate governmental agencies confirming the absence of security interests, judgments, tax liens and bankruptcy proceedings which affect or could affect the Purchased Assets or any interest therein. If such Searches disclose the existence of any security interests, judgments, tax liens or bankruptcy proceedings which affect or could affect the Purchased Assets or any interest therein, Purchaser shall notify Seller thereof in writing and Seller shall have thirty (30) days from the date of such notice to secure the release, or commit in writing to secure on or prior to the Closing the release, of all such security interests, judgments, tax liens and bankruptcy proceedings and provide evidence of such release to Purchaser. Purchaser shall have the right to update said Searches, at Purchaser’s expense, on or prior to the Closing Date confirming that there are no security interests, judgments, tax liens or bankruptcy proceedings affecting the Purchased Assets or any interest therein. If Seller fails to secure all such releases or commit to secure such releases within such thirty (30) day period, and/or (with respect to any releases Seller has committed to securing or releases with respect to any security interests, judgments, tax liens or bankruptcy proceedings affecting the Purchased Assets or any interest therein shown by the aforesaid update of said Searches) fails to secure such releases on or prior to the Closing) without limiting any other obligation which Seller may have under this Agreement, and/or right or remedy which Purchaser may have with respect thereto under this Agreement, Purchaser may elect, upon notice to Seller on or before the Closing Date, to (i) terminate this Agreement, in which event the Deposit shall promptly be returned to Purchaser, or (ii) accept title subject only to such then unreleased security interests, judgments and tax liens with the further right to deduct from the Purchase Price amounts secured by any such security interests, judgments and tax liens of a definite or ascertainable amount.

V.

Representations, Warranties, Covenants
And Conditions Precedent

     5.01 Seller’s Representations and Warranties. Seller represents and warrants to Purchaser that:

     (a) Seller is a duly organized and validly existing Arkansas limited liability company, is qualified to do business and in good standing in the State of Louisiana and in the state of its formation, if different, and has full power to enter into this Agreement and to perform its obligations under this Agreement.

     (b) The execution and delivery of this Agreement has been duly authorized by all necessary and appropriate action of Seller. This Agreement constitutes a legal, valid and binding obligation of Seller enforceable in accordance with its terms, subject to bankruptcy, fraudulent conveyance, moratorium or other creditor’s rights and limitations on equitable remedies.

     (c) No consent or approval of any person, entity, or governmental authority is required with respect to the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby or the performance by Seller of its obligations under this Agreement.

     (d) There are no Space Leases, ground leases, license agreements, occupancy agreements or other similar agreements affecting all or any portion of the Property except for the leases (collectively, the “Space Leases”) listed in Exhibit C to this Agreement. All of the Space Leases described in Exhibit C are in full force and effect, there are no defaults by any party thereunder nor has any event occurred which, with passage of time or the giving of notice or both, would constitute a default by Seller or, to the knowledge of Seller, by any other party thereunder, and true and complete copies of the Space Leases and all instruments and documents related to the Space Leases have been provided to Purchaser.

     (e) There are no Hotel Contracts or similar agreements affecting the Property except as set forth in Exhibit D to this Agreement. All of the Hotel Contracts are in full force and effect, there are no defaults by

any party thereunder nor has any event occurred which, with passage of time or the giving of notice or both, would constitute a default by Seller or, to the knowledge of Seller, by any other party thereunder, and true and complete copies of the Hotel Contracts and all instruments and documents related to the Hotel Contracts have been provided to Purchaser.

     (f) The Existing Franchise Agreement is in full force and effect and has not been extended, amended, modified or otherwise supplemented. There are no defaults by Seller under the Existing Franchise Agreement or, to the knowledge of Seller, by any other party thereunder, nor has any event occurred which, with passage of time or the giving of notice or both, would constitute a default by Seller or, to the knowledge of Seller, by any other party thereunder. True and complete copies of the Existing Franchise Agreement have been provided to Purchaser.

     (g) All Permits necessary for the operation of the Hotel are set forth in Exhibit E to this Agreement. The Permits are in full force and effect, Seller has received no notice of any violations thereof, and true and complete copies of all of the Permits have been delivered to Purchaser.

     (h) All Hotel Employees are employed by Seller or the Hotel’s property manager. Except as set forth in Exhibit F to this Agreement, there are no written or oral employment agreements, representation agreements, labor agreements, collective bargaining agreements or similar agreements affecting the Hotel or any of the Hotel Employees. Neither Seller nor Seller’s property manager has received any notice from any labor union or group of employees that such union or group represents or believes or claims it represents or intends to represent any of the Hotel Employees. There are no current strikes or work stoppages at the Hotel nor, to Seller’s knowledge, has any such strike or work stoppage been threatened.

     (i) Seller has received no notice of, and, to Seller’s knowledge, there are no, violations of laws, ordinances, orders or regulations (“Laws”) of governmental or quasi-governmental authorities with respect to the Property (including, without limitation, those related to environmental, labor or employment matters), and the current use of the Property is in compliance with all zoning and land-use laws and ordinances.

     (j) To Seller’s knowledge, no asbestos or petroleum or any substances defined as hazardous materials or hazardous wastes under any applicable Laws are or have been used, stored, generated or released at the Property.

     (k) Except as set forth in Exhibit G to this Agreement, there is no litigation, action, or proceeding pending or, to the best of Seller’s knowledge, threatened relating to the Property or the transactions contemplated by this Agreement, including, but not limited to, those alleging the violation of any Laws pertaining to employment or employment practices or those alleging violation of the Americans with Disabilities Act, nor is the Hotel affected by any settlement agreement, consent decree or other resolution to any prior litigation, action or proceeding.

     (l) Seller has provided to Purchaser (i) true and complete copies of all bills for real estate and personal property taxes and assessments for the 2006 tax year and the two immediately preceding tax years and (ii) a true and complete list of the current Hotel Employees together with a schedule setting forth the compensation and fringe benefits (including, but not limited to, benefit plans) accorded to such Hotel Employees.

     (m) Seller has provided to Purchaser unaudited financial statements and STR reports for the period from the opening of the Hotel through December 31, 2005 and year-to-date financial statements for the 2006 calendar year. All such statements for the Hotel are, and any financial statements for later periods to be provided by Seller pursuant to this Agreement shall be, true and correct and accurately reflect in all material respects the financial condition of the Hotel for the applicable period. There have been no material adverse changes in the financial condition of the Hotel since the date of the last such statement delivered to Purchaser prior to the execution of this Agreement.

     (n) No Hotel Employees are employed under union agreements, collective bargaining, written or oral employment agreements or similar arrangements.

     (o) Seller owns good, merchantable and marketable fee simple title to the Purchased Assets subject only to the Permitted Exceptions.

     (p) Seller has not granted to any person or entity, other than Hilton pursuant to the Existing Franchise Agreement, any options or other agreements of any kind, whereby any person or entity other than Purchaser will have acquired or will have any right to acquire title to all or any portion of the Purchased Assets.

     (q) Seller has paid all taxes (including, without limitation, transient occupancy (bed) taxes), assessments and other governmental charges relating to the operation of the Hotel were due and payable prior to the Effective Date.

     (r) Other than the agreements disclosed in this Agreement, there are no agreements, written or oral, affecting the Property, which would be binding on Purchaser following the Closing.

     (s) Seller is not a “foreign person” as defined in the Internal Revenue Code of 1986, as amended.

     (t) Neither Seller nor any person who owns a controlling interest in or otherwise controls Seller, nor to the best knowledge of Seller any other person or entity to whom Purchaser directly or indirectly pays amounts on behalf of or for the benefit of Seller pursuant to a provision of this Agreement, is (i) listed on the Specially Designated Nationals and Blocked Persons List or any similar list maintained by the Office of Foreign Assets Control, Department of the Treasury, pursuant to any authorizing statute, executive order or regulation, (ii) a “specially designated global terrorist” or other person listed in Appendix A to Chapter V of 31 C.F.R., as the same has been from time to time updated and amended, or (iii) a person either (A) included within the term “designated national” as defined in the Cuban Assets Control Regulations, 31 C.F.R. Part 515 or (B) designated under Sections 1(a), 1(b), 1(c) or 1(d) of Executive Order No. 13224, 66 Fed. Reg. 49079 (published September 25, 2001) or a person similarly designated under any related enabling legislation or any other similar Executive Orders.

As used in this Agreement, the term “Seller’s knowledge” or “known to Seller” shall mean the current actual knowledge of Seller on the particular date that the representation or warranty is deemed to be made, without independent inquiry or investigation of third parties other than inquiries of the general manager and executive staff of the Property. Notwithstanding the foregoing or any other provision of this Agreement to the contrary, however, it shall be a condition precedent to Purchaser’s obligation to close the transactions set forth herein that each representation and warranty of Seller which is limited to or by Seller’s knowledge be true and correct as if it were not so limited.

     5.02 Purchaser’s Representations and Warranties. Purchaser represents and warrants to Seller that:

     (a) Purchaser is a duly organized and validly existing Delaware limited partnership, is in good standing in the State of Delaware; has full power to enter into this Agreement and to perform its obligations under this Agreement; and is or will be as of the Closing Date in good standing in Louisiana.

     (b) The execution and delivery of this Agreement has been duly authorized by all necessary and appropriate partnership action of Purchaser. This Agreement constitutes a legal, valid and binding obligation of Seller enforceable in accordance with its terms, subject to bankruptcy, fraudulent conveyance, moratorium or other creditor’s rights and limitations on equitable remedies.

     5.03 Remedies Regarding Representations and Warranties. By executing and delivering the documents required of such party in Section 7.04 below, (i) Seller shall be deemed to have remade all of the foregoing representations and warranties of Seller in Section 5.01 as of Closing and (ii) Purchaser shall (subject to changes in such representations and warranties resulting from any assignment of this Agreement permitted pursuant to Section 9.02 below) be deemed to have made all of the foregoing representations and warranties of Purchaser in Section 5.02 as of

Closing. Should any of such representations and warranties of Seller be found to be incorrect prior to Closing, Seller shall attempt to cure the same by Closing. If Seller is unable to cure same by Closing, at Purchaser’s option the Closing shall be postponed until five (5) business days following Purchaser’s receipt of proof satisfactory to Purchaser that such matters have been cured, provided, however, if Seller is unable to cure the same within thirty (30) days from the date of notice of the same, Purchaser shall be entitled either to waive the same and close this transaction, exercise its rights pursuant to Article VI of this Agreement or to terminate this Agreement. In the event Purchaser elects to terminate this Agreement, Escrow Agent shall return the Deposit to Purchaser and neither party to this Agreement shall thereafter have any further rights or liabilities under this Agreement. The representations and warranties of each party shall survive the Closing for a period of two (2) years. Seller shall indemnify and hold Purchaser harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorneys’ fees) that may be incurred by or asserted against Purchaser and arises from a breach of Seller’s representation or warranty. The provisions of this Section 5.03 shall survive the Closing.

     5.04 Seller’s Covenants. Seller covenants and agrees with Purchaser that prior to the Closing:

     (a) Seller will assist Purchaser and Purchaser’s agents, on or before Closing, in acquiring all information necessary to enable Purchaser’s agents and Seller’s agents to compute the prorations described in Section 7.02 of this Agreement.

     (b) Seller will not sell, exchange, assign, transfer, convey, lease or otherwise dispose of all or any part of the Purchased Assets or any interest therein except for Consumables and Expendables which are sold or consumed in the ordinary course of business.

     (c) Seller will keep the Space Leases, the Hotel Contracts, the Existing Franchise Agreement and the Permits in full force and effect, will pay all charges when due thereunder and will perform all of its obligations thereunder.

     (d) Seller will keep the Purchased Assets free and clear of liens and encumbrances other than the Permitted Exceptions and the lien of taxes not yet due and payable and other than such items a will be cured or removed by Seller pursuant to Section 4.02.

     (e) Seller will not enter into any contracts, leases, licenses, easements or other agreements relating to the Purchased Assets which will obligate Purchaser or be a charge or lien against the Property, except those necessary to continue the operation of the Hotel in the ordinary course of business and which are terminable by the owner of the Property without penalty on thirty or fewer days’ notice.

     (f) Seller will cause the Property to be operated and maintained in the manner in which it is being operated and maintained as of the date of this Agreement which undertaking includes, but is not limited to, (i) maintaining Consumables, Expendables and Furnishings in those quantities and at those levels present as of the Effective Date and, with respect to Expendables subject to measurement on a PAR basis, not less than 3.0 PAR of each applicable Expendable on the Closing Date, (ii) entering into Bookings in the ordinary course of business and in accordance with Seller’s historical practice at the Hotel, (iii) performing all repairs and maintenance necessary to keep the Property in good repair, to comply with Laws and to maintain at least the same condition as exists on the Effective Date and (iv) keeping the Hotel staffed with Hotel Employees in accordance with Seller’s historical practice at the Hotel.

     (g) Seller shall permit Purchaser and its representatives, employees, contractors and agents to enter upon and inspect the Property and perform such investigations of the Property and all applicable Books and Records as Purchaser may from time to time deem desirable. Purchaser and Purchaser’s agents and contractors shall have the right during the term of this Agreement to enter upon the Property at reasonable times and upon reasonable prior notice to Seller. Purchaser acknowledges and agrees that any and all inspections of the Property shall be conducted in a manner not unreasonably disruptive to tenants, guests, or otherwise to the operation of the Property and shall be performed upon reasonable prior notice to Seller. In the event Purchaser desires to conduct any physically intrusive due diligence such as sampling of soils or drilling wells, Purchaser

will request Seller’s prior consent thereto, which consent shall not be unreasonably withheld. Purchaser agrees to indemnify Seller and hold Seller, Seller’s affiliates, officers, directors, employees, agents and representatives harmless from and against any and all losses, costs, damages, claims or liabilities, including reasonable attorneys fees but excluding consequential and punitive damages, arising out of any personal injury or property damage resulting from such entry and/or activities upon the Property by Purchaser, its agents, contractors and/or subcontractors pursuant to this Section except to the extent the same arise from the misconduct or negligence of Seller or Seller’s agents and/or representatives. Purchaser’s indemnity and hold harmless provisions pursuant to this Section shall survive the closing of this transaction or earlier termination of this Agreement. In addition to the foregoing, Seller shall assist Purchaser and provide such other information as shall be required to enable an accounting firm of Purchaser’s choosing to prepare audited financial statements of the Property for calendar years 2004 through 2005, the cost of which shall be borne by Purchaser.

     (h) Within fifteen (15) days after the end of each calendar month until the Closing Date, Seller shall provide to Purchaser financial statements and STR reports for such month and on a year-to-date basis which statements shall be prepared in accordance with the Uniform System of Accounts for Hotels and Motels and otherwise in form reasonably acceptable to Purchaser.

     (i) Upon Purchaser’s request, Seller shall from time to time make available a senior representative of Seller and the general manager of the Hotel at a reasonable time to meet with an asset manager of Purchaser to review the operations of the Hotel in reasonable detail, provided that Purchaser shall not contact the general manager or other executives of the Hotel until they have been advised by Purchaser of the pending sale. Seller shall advise such persons of the pending sale with reasonable promptness.

     (j) Seller will promptly notify Purchaser of any matter arising prior to Closing which might materially and adversely affect the condition or operation of the Hotel including, without limitation, the commencement of any litigation or proceeding or any notice of a violation of Laws issued by any governmental or quasi-governmental authority.

     (k) Seller will cooperate with Purchaser in all reasonable respects (which shall include, without limitation, supplying information known to Seller and execution of such documents as may be legally required) in connection with the transfer of any alcoholic beverage licenses used in connection with the operation of the Hotel (the “Liquor License”) to Purchaser to Purchaser or Purchaser’s application for a new Liquor License. If the Purchaser does not obtain the transfer of the Liquor License or obtain a new Liquor License on or prior to the Closing Date then, on the Closing Date, Seller shall enter, or if Seller is not the holder of the existing Liquor License cause the holder of the existing Liquor License to enter, into an agreement (the “Interim Arrangement”) with Purchaser, in form and content reasonably acceptable to Purchaser and Seller, providing for an interim arrangement whereby Seller or such holder, as applicable, shall operate (or if legally permissible allow Purchaser or its manager to operate) the alcoholic beverage concessions at the Hotel under the existing Liquor License on behalf of Purchaser pending the transfer or issuance of the Liquor License to Purchaser or its designee. Purchaser shall indemnify, defend and hold such licensee harmless against any liabilities incurred in such operation (unless caused by such licensee’s willful or negligent conduct or omission or breach of its agreement with Purchaser) and provide adequate dram-shop insurance naming Seller and the licensee as additional insureds.

     (l) Seller will promptly provide Purchaser with notice of any actual or proposed change in the assessed value of the Property or any portion of the Property (including any tentative or preliminary assessment) and of the institution or proposed institution of any proceeding (whether formal, informal, judicial or administrative) relating to any such change or proposed change. Seller will not take any action with respect to the contesting and/or resolution of the taxable assessed value of the Land and Improvements without the prior written consent of Purchaser, which consent shall not be unreasonably withheld.

     (m) Seller shall not request or initiate any proceeding or other action to change any zoning classification applicable to the Property or any other Law which governs the use or occupancy of the Property.

     (n) Seller shall terminate and pay off all equipment leases with respect to the Property and shall deliver to Purchaser at the Closing all equipment or other items leased thereunder free and clear of all liens and encumbrances.

     (o) Seller shall prior to the Closing obtain an estoppel certificate, in the form and substance required by Purchaser’s lender and reasonably acceptable to Purchaser and dated no earlier than thirty (30) days prior to the Closing Date, from each tenant under a Space Lease and from any owner’s association to which the Property is subject.

     (p) Seller shall within ten days after the Effective Date deliver to Purchaser a supplement to Exhibits C and D listing, for each Space Lease and Hotel Contract set forth thereon, (i) a brief description of (x) the space demised under each such Space Lease and (y) the services or materials provided under each such Hotel Contract, (ii) the date on which the current term of such Space Lease or Hotel Contract expires, (iii) a brief description of any automatic renewal provisions in each such Space Lease or Hotel Contract and (iv) the current monthly rent payable under each such Space Lease and the current payments due under each Hotel Contract (on a monthly or quarterly basis, as applicable). To the extent any equipment lease is listed on Exhibit D and is not identified as such on Exhibit D as attached hereto, such supplement shall specifically identify such equipment lease as an equipment lease.

     5.05 Inspection Period. Purchaser and its representatives, employees, contractors and agents shall have a period from the Effective Date through the close of business on the date (or, if such date is not a business day, the next succeeding business day) forty-five (45) days after the Effective Date (the “Inspection Period”) within which to undertake such inspections and investigations of the Purchased Assets (including, but not limited to, engineering and environmental studies, financial analysis, and feasibility studies) as Purchaser deems desirable to evaluate the financial and physical condition of the Purchased Assets and such other matters that Purchaser may deem relevant. If Purchaser shall, in its sole and absolute discretion, (x) determine that the Purchased Assets or any matters related to the Purchased Assets or Purchaser’s acquisition thereof are unsatisfactory in any respect, and/or (y) otherwise decide not to acquire the Purchased Assets for any reason or no reason, then Purchaser may terminate this Agreement by written notice (the “Termination Notice”) given to Seller prior to the close of business on the last day of the Inspection Period. Upon the giving of the Termination Notice, this Agreement shall terminate, Escrow Agent shall return the Deposit (less Fifty and no/100 Dollars ($50.00) to be disbursed to Seller as sole consideration hereunder) to Purchaser and neither party to this Agreement shall thereafter have any further rights or liabilities under this Agreement.

     5.06 Conditions Precedent to Purchaser’s Obligations. Purchaser’s obligation to close the transactions set forth in this Agreement are conditioned upon the satisfaction of the following conditions as of the Closing:

     (a) Purchaser shall not have terminated this Agreement pursuant to Section 5.05 or any other applicable provision of this Agreement.

     (b) Seller’s representations and warranties set forth in this Agreement shall continue to be true and accurate in all material respects (provided, furthermore, and notwithstanding any provision of this Agreement to the contrary, it shall be a condition precedent to Purchaser’s obligation to close the transactions set forth in this Agreement that each representation and warranty of Seller which is limited to or by Seller’s knowledge be true and correct as if it were not so limited).

     (c) Seller shall have delivered all of the documents required under this Agreement and performed all of its obligations under this Agreement in all material respects.

     (d) There shall be no unpaid charges, judgments, debts, liabilities, claims, liens or obligations which burden the Property other than the Permitted Exceptions other than such items as Seller shall cause to be cured or removed at Closing.

     (e) The Property shall on the Closing Date be in the same condition as on the last day of the Inspection Period except as attributable to ordinary wear and tear.

     (f) There shall have been no material adverse change in the condition or operations of the Hotel from the last day of the Inspection Period through the date of Closing (which change may include, but shall not be limited to, the existence of violation of any Laws or the revocation or suspension of any Permit or the right to operate the Hotel or any of its facilities).

     (g) Purchaser shall as of the Closing have either (i) obtained Hilton’s consent to the assumption by Purchaser of, and assumed, the Existing Franchise Agreement, or (ii) entered into a franchise or license agreement with Hilton with respect to the Hotel, in either case on terms satisfactory to Purchaser in Purchaser’s sole and absolute discretion. In no event shall Purchaser be required to assume or have any liability or obligation under the Existing Franchise Agreement for (x) any franchise or other fees under the Existing Franchise Agreement accrued and unpaid with respect to all periods on or prior to the Closing Date or (y) with respect to any monetary or other default under the Existing Franchise Agreement.

     (h) Purchaser shall have obtained the transfer or the issuance of the Liquor License or Seller and Purchaser shall have entered into the Interim Arrangement.

The conditions precedent set forth in this Section 5.06 are solely for the benefit of Purchaser and may be waived only by Purchaser, which waiver may be granted or withheld by Purchaser in its sole and absolute discretion. Without limiting and without prejudice to any of Purchaser’s other rights or remedies under this Agreement in the event any such failure of condition is the result of or arises out of Seller’s default under this Agreement, if any condition precedent to Purchaser’s obligation to close the transactions set forth in this Agreement has not been satisfied as of the Closing Date or waived by Purchaser, then Purchaser shall be entitled in its sole and absolute discretion to terminate this Agreement by giving Seller and Escrow Agent written notice to such effect, whereupon Escrow Agent shall return the Deposit to Purchaser and the parties shall thereafter have no further rights or liabilities under this Agreement.

     5.07 Conditions Precedent to Seller’s Obligations. Seller’s obligation to close the transactions set forth in this Agreement are conditioned upon the satisfaction of the following conditions as of the Closing Date:

     (a) Purchaser’s representations and warranties set forth in this Agreement shall continue to be true and accurate in all material respects.

     (b) Purchaser shall have performed all of its obligations under this Agreement in all material respects.

     (c) Hilton shall have waived in writing its existing right to purchase the Property as set forth in the Existing Franchise Agreement and Purchaser shall as of the Closing have either (i) obtained Hilton’s consent to the assumption by Purchaser of, and assumed, the Existing Franchise Agreement, or (ii) entered into a franchise or license agreement with Hilton with respect to the Hotel, in either case on terms satisfactory to Purchaser in Purchaser’s sole and absolute discretion.

The conditions precedent set forth in this Section 5.07 are solely for the benefit of Seller and may be waived only by Seller, which waiver may be granted or withheld by Seller in its sole and absolute discretion. Without limiting and without prejudice to any of Seller’s other rights or remedies under this Agreement in the event any such failure of condition is the result of or arises out of Purchaser’s default under this Agreement, if any condition precedent to Seller’s obligation to close the transactions set forth in this Agreement has not been satisfied as of the Closing Date or waived by Seller, then Seller shall be entitled in its sole and absolute discretion to terminate this Agreement by giving Purchaser and Escrow Agent written notice to such effect, whereupon Escrow Agent shall return the Deposit to Purchaser and the parties shall thereafter have no further rights or liabilities under this Agreement.

VI.

Remedies

     6.01 SELLER’S REMEDIES. IF PURCHASER DEFAULTS UNDER THIS AGREEMENT OR OTHERWISE FAILS TO CLOSE THE TRANSACTIONS SET FORTH IN THIS AGREEMENT, FOR ANY REASON EXCEPT (A) THE FAILURE OF ANY CONDITION PRECEDENT TO PURCHASER’S OBLIGATION TO CLOSE THE TRANSACTIONS SET FORTH IN THIS AGREEMENT OR (B) PURCHASER’S TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS, SELLER SHALL BE ENTITLED AS ITS SOLE REMEDY UNDER THIS AGREEMENT TO TERMINATE THIS AGREEMENT AND RECOVER THE DEPOSIT (IN ADDITION TO ATTORNEYS’ FEES PURSUANT TO SECTION 6.03 BELOW) AS LIQUIDATED DAMAGES AND NOT AS A PENALTY, IN FULL SATISFACTION OF ANY CLAIMS AGAINST PURCHASER UNDER THIS AGREEMENT. IN CONNECTION THEREWITH, SELLER WAIVES ITS RIGHT TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT FROM PURCHASER. SELLER AND PURCHASER AGREE THAT THE SELLER’S DAMAGES RESULTING FROM PURCHASER’S DEFAULT ARE DIFFICULT TO DETERMINE AND THE AMOUNT OF THE DEPOSIT IS A FAIR ESTIMATE OF THOSE DAMAGES. EACH PARTY HEREBY WAIVES ANY AND ALL RIGHTS TO CONTEST THE VALIDITY OF THE FOREGOING LIQUIDATED DAMAGES PROVISIONS FOR ANY REASON WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, SUCH PROVISION BEING UNREASONABLE UNDER CIRCUMSTANCES EXISTING ON THE EFFECTIVE DATE OR AT THE TIME OF DEFAULT.

     6.02 PURCHASER’S REMEDIES. IF SELLER DEFAULTS UNDER THIS AGREEMENT, OR OTHERWISE FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT FOR ANY REASON EXCEPT THE FAILURE OF ANY CONDITION PRECEDENT TO SELLER’S OBLIGATION TO CLOSE THE TRANSACTIONS SET FORTH IN THIS AGREEMENT, THEN PURCHASER’S SOLE REMEDIES SHALL BE: (A) TO TERMINATE THIS AGREEMENT BY GIVING SELLER WRITTEN NOTICE OF SUCH ELECTION PRIOR TO OR AT CLOSING WHEREUPON (X) THE ESCROW AGENT SHALL PROMPTLY RETURN TO PURCHASER THE DEPOSIT AND (Y) SELLER SHALL PAY TO PURCHASER ON DEMAND ALL OUT-OF-POCKET COSTS (INCLUDING, BUT NOT LIMITED TO, DUE DILIGENCE COSTS AND REASONABLE ATTORNEYS’ FEES) INCURRED BY PURCHASER IN CONNECTION WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT; (B) TO WAIVE THE DEFAULT AND CLOSE; OR (C) TO ENFORCE SPECIFIC PERFORMANCE OF THIS AGREEMENT.

     6.03 Attorney’s Fees. In the event either party hereto is required to employ an attorney because of the other party’s default, then the defaulting party shall pay the nondefaulting party’s reasonable attorney’s fees incurred in the enforcement of this Agreement. The provisions of this Section 6.03 shall be in addition to and not limited by the provisions of Sections 6.01 and/or 6.02 above.

VII.

Closing Matters

     7.01 Closing Date. The delivery of the conveyancing instruments with respect to the Purchased Assets and other documents required hereunder (the “Closing”) shall be held at the Title Company’s offices or by mail, or through escrow with the Escrow Agent, on the date thirty (30) days after the expiration of the Inspection Period (provided that if such date is not a business day then the Closing Date shall be the next succeeding business day) (the “Closing Date”), or such earlier date as may be agreed to by Seller and Purchaser in their sole and absolute discretion.

     7.02 Adjustment and Prorations. The matters and items set forth below shall be apportioned between Seller and Purchaser or, where applicable, credited in total to a particular party:

     (a) Taxes. All real and personal property taxes and special assessments, if any, whether payable in installments or not, shall be prorated as of the Cut-Off Time. If such taxes for the tax year in which the Closing occurs have not been finally determined on the Closing Date, then such taxes shall be prorated on an estimated basis using the most current information available. When such taxes have been finally determined, the parties shall recalculate such prorations and any amount payable by Seller or Purchaser shall be paid to the other party within fifteen days after such taxes are finally determined. Seller shall pay or cause to be paid, in accordance with Louisiana law and on or before the dates the same are due, any sales and use taxes with respect to the Purchased Assets which arise out of sales at the Property prior to the Closing Date.

     (b) Room Rentals. One-half (50%) of the room rentals attributable to the night prior to the Closing Date shall be the property of Seller and the remaining one-half (50%) shall be the property of Purchaser. Room rentals attributable to any night prior to the night prior to the Closing Date shall be the property of Seller.

     (c) Reservation Deposits. Prepaid and unearned reservation deposits and other items prepaid by guests of the Hotel shall be transferred to Purchaser at the Closing.

     (d) Utility Charges. Utility charges for telephone, gas, electricity, sewer, water and other services shall not be prorated to the extent that Seller can make arrangements for the rendering of final bills based on meter readings as of the Cut-Off Time. Seller shall be responsible for the payment at the Closing of all bills for utility charges up to and including the Cut-Off Time. To the extent that utility bills cannot be rendered as of the Closing Date, such charges for the period through the Cut-Off Time shall be prorated as of the Cut-Off Time based upon the most recent available bills and readjusted on the basis of the actual bills as and when received. Any utility deposits shall be either returned to Seller or transferred to Purchaser and credited to Seller.

     (e) Operating Expenses and Trade Accounts. Seller shall be responsible for all operating expenses and trade accounts of the Property (including charges and fees payable under the Hotel Contracts) up to and including the Cut-Off Time. To the extent the amounts of such items are then known, Seller shall pay such items at Closing and shall pay the balance of such amounts in the ordinary course of business but in no event later than 45 days after the Closing Date. Seller agrees to indemnify and hold Purchaser harmless from and against any such amounts. Purchaser shall assume responsibility for purchase orders made by Seller in the ordinary course of business for Expendables or Consumables not delivered to the Hotel as of the Closing Date.

     (f) Food, Beverage and Other Income. Revenues from food, beverage and banquet services, room service, public room revenues, health club revenues and other services rendered to guests of the Hotel shall be prorated as of the Cut-Off Time, if, as and when collected, provided that with respect to food, beverage and banquet services, such revenues shall be prorated as of the end of the employee shift on the night preceding the Closing.

     (g) Rents. All rentals under the Space Leases (including fixed rents and charges in respect of electricity, operating expenses and taxes) shall be prorated as of the Cut-Off Time if, as and when collected. Payments from tenants for electricity, operating expenses and taxes which are billed to tenants in arrears or on an estimated basis shall be

     prorated on such basis and readjusted if, as and when such amounts are finally determined and collected.

     (h) Employees. Wages and fringe benefits (including, but not limited to, accrued vacation pay) of Hotel Employees shall be paid or prorated as provided in Section 7.07.

     (i) Security Deposits. Any security deposits under the Space Leases shall be transferred to Purchaser at the Closing or credited against the Purchase Price.

     (j) Cash. All cash on hand in house banks on the morning of the Closing Date shall become the property of Purchaser and the amount thereof shall be credited to Seller.

     (k) Ledger and other receivables. All accounts receivable attributable to guests in the Hotel on the night preceding the Closing (the “Ledger”) shall be prorated as provided in this Agreement, Seller’s share shall be credited to Seller and the Ledger shall become the property of Purchaser. All other accounts receivable that are the property of Seller under this Agreement shall be set forth in a schedule on the Closing Date and shall remain the property of Seller. Purchaser shall have no obligation to collect such accounts receivable, but shall cooperate with Seller, at Seller’s cost, in reasonable respects in connection with any collection efforts. If any receivables which are the property of Seller under this Agreement shall be collected by Purchaser, Purchaser shall remit the same to Seller within 90 days after the Closing Date, provided that Purchaser may offset against such collections any amounts unpaid by Seller under Section 7.02(e).

     (l) Gift Certificates. On the Closing Date, Seller will provide Purchaser with a complete schedule of all outstanding (i) gift certificates, donations and other similar obligations which have been distributed by Seller and (ii) trade credits, trade-out or barter arrangements payable by Seller to any other party for services rendered in the past or to be rendered in the future. Purchaser shall receive a credit at Closing for all obligations of Seller pursuant to any trade-out or barter arrangements with any other party with respect to the Hotel. In addition, Purchaser shall receive a credit at Closing for the value of any outstanding gift certificates, donations or other similar obligations with respect to the Hotel which have been distributed by Seller prior to Closing. Seller shall indemnify, defend, and hold Purchaser harmless against any liability arising prior to the Closing Date out of or with respect to any such trade-out or barter arrangements and any such gift certificates, donations or other similar obligations not credited to Purchaser at Closing.

     (m) Consumables and Expendables. Seller shall not receive a credit for any item of Consumables, Furnishings or Expendables.

     (n) Prepaid Advertising. Seller shall not receive a credit for any prepaid advertising.

     (o) Delayed Adjustments. If at any time following the Closing Date the amount of an item listed in this Section 7.02 shall prove to be incorrect, the party in whose favor the error was made shall pay to the other party within fifteen (15) days after request the sum necessary to correct such error upon receipt of proof of such error, provided that such proof is delivered to the party from whom payment is requested on or before sixty (60) days after the Closing Date. The acceptance of the closing statement by either party shall not prevent later readjustment pursuant to this Section. After the Closing Date, each party shall have reasonable access to the books and records of the other party with respect to all matters set forth in this Section 7.02 for the purposes of determining the accuracy of all adjustments and the performance of the obligations of the parties under this Section.

     7.03 Guest Property in Seller’s Possession on Closing Date. Property of guests of the Hotel in Seller’s care, possession or control (excluding that in guest rooms) on the Closing Date shall be handled in the following manner:

     (a) Safe Deposit Boxes. On the Closing Date, Seller shall cause notice to be sent to all guests of the Hotel who have safe deposit boxes advising them of the pending sale of the Property and requesting the removal and verification of the contents of such safe deposit boxes within three days after the Closing Date. Seller may have a representative present at the Hotel during such three-day period for the purpose of viewing such removal and verification. Boxes of guests not responding to the written notice shall be listed at the end of such three day period. Such boxes shall be opened on the following day in the presence of representatives of Seller and Purchaser to be agreed upon between Seller and Purchaser and the contents thereof shall be recorded. Any property contained in the safe deposit boxes and so recorded and thereafter remaining in the hands of Purchaser shall be the responsibility of Purchaser; and Purchaser hereby agrees to indemnify and save and hold Seller harmless from and against any claim or obligation arising out of or with respect to such property.

     (b) Baggage Inventory. All guest baggage checked and left in the possession, care and control of Seller shall be listed in an inventory to be prepared in duplicate and signed by Seller’s and Purchaser’s representatives on the Closing Date. Purchaser shall be responsible from and after the Closing Date for all

baggage listed in inventory, and Purchaser hereby agrees to indemnify and save and hold Seller harmless from and against any claim arising out of or with respect to the baggage listed in the inventory.

     (c) Other Property. All other guest property left in the possession, care or control of Seller prior to the Closing Date shall be returned by Seller to guests prior to the Closing Date and if not so returned prior to the Closing Date shall be the sole responsibility of Seller subsequent to the Closing Date.

     7.04 Closing Documents.

(a) At Closing, Seller shall deliver or cause to be delivered to Purchaser the following:

          (i) an Act of Sale in the form attached to this Agreement as Exhibit F conveying the fee estate in the Property to Purchaser subject only to the Permitted Exceptions.

          (ii) an owner’s policy of title insurance issued by the Title Company in the amount of the Purchase Price meeting the requirements of the commitment as provided in Article IV, and containing such affirmative coverage and endorsements as Purchaser shall reasonably request.

          (iii) a warranty bill of sale transferring to Purchaser all of the Furnishings, Expendables, Consumables and other tangible personal property free of all liens and encumbrances.

          (iv) an assignment conveying and transferring to Purchaser all of the Bookings, Books and Records, Space Leases, assignable Permits and Hotel Contracts, Miscellaneous Personal Property and Warranties, and containing an indemnity by Seller benefiting Purchaser with respect to matters arising under the Bookings, Books and Records, Space Leases, assignable Permits and Hotel Contracts, Miscellaneous Personal Property and Warranties prior to the Closing Date.

          (v) an appropriate instrument executed by Seller and other necessary parties pursuant to which any existing management agreement will be terminated as of the Cut-off Time.

          (vi) possession of the Property.

          (vii) a certified copy of such corporate or partnership authorizations, approvals and incumbencies of Seller as Purchaser or the Title Company shall reasonably require.

          (viii) a FIRPTA Affidavit in form required by the Internal Revenue Service.

          (ix) all Books and Records relating to the Property and the Hotel in Seller’s possession.

          (x) any and all plans and specifications for the Improvements on the Property in Seller’s possession.

          (xi) the certificate of occupancy with respect to the Property.

          (xii) such notices of the sale to third parties as may be reasonably requested by the Purchaser.

          (xiii) such affidavits, indemnities and related matters as the Title Company may reasonably request including without limitation such affidavits and indemnities as may be required to permit the Title Company to delete any exceptions for mechanic’s liens.

          (xiv) tax clearance certificates from the applicable regulatory authorities.

          (xv) such transfer and sales tax returns as may be required by law to be executed by Seller.

(b) Purchaser shall deliver or cause to be delivered to Seller the following:

     (i) the balance of the Purchase Price.

     (ii) such corporate or partnership authorizations, approvals and incumbencies as Seller or the Title Company shall reasonably require.

     (iii) an assumption of the obligations of Seller from and after the Closing under the Bookings, the Space Leases, and Hotel Contracts, and containing an indemnity by Purchaser benefiting Seller with respect to matters arising under the Bookings, the Space Leases, and Hotel Contracts prior to the Closing Date.

     (iv) such transfer and sales tax returns as may be required by law to be executed by Purchaser.

     7.05 Closing Costs.

     (a) Purchaser shall pay (i) the premiums for the Title Policy, (ii) the costs of its due diligence investigation of the Purchased Assets, (iii) all amounts incurred in connection with the issuance of a new franchise agreement or license agreement for the Hotel, including, but not limited to, application fees, transfer fees, and costs of implementing a property improvement plan (but specifically excluding any cost of terminating the Existing Franchise Agreement), (v) any costs to obtain the Liquor License, (vi) one-half of the escrow fees, if any, of the Escrow Agent and (vi) the fees and disbursements of Purchaser’s attorneys.

     (b) Seller shall pay (i) any parish or city transfer taxes, deed stamps, documentary stamps, recording fees and the like imposed in connection with the conveyance of the Property, (ii) all sales taxes payable in connection with the transactions set forth in this Agreement, (iii) the cost of the Survey, (iii) any costs of terminating the Existing Franchise Agreement and any property management agreement affecting the Hotel, (v) one-half of the escrow fees, if any, of the Escrow Agent and (vi) the fees and disbursements of Seller’s attorneys.

     (c) Any other closing cost not specifically allocated by this Agreement shall be allocated in accordance with closing customs for similar properties in Baton Rouge, Louisiana.

     (d) The provisions of this Section 7.05 shall survive the Closing or any termination of this Agreement.

     7.06 Real Estate Commissions. Seller and Purchaser each represent and warrant to the other that it has not dealt with any broker in the negotiation of this transaction other than The Lodging Group, Inc. (the “Broker”). Each party agrees to and does hereby indemnify and hold the other harmless against the payment of any brokerage commission to any person or entity claiming by, through or under Seller or Purchaser, as applicable. Seller shall pay the commission of Broker pursuant to separate agreement. The provisions of this Section 7.06 shall survive the Closing.

     7.07 Staff. Seller shall terminate or arrange for the termination of all Hotel Employees as of the Closing Date and shall pay all wages and fringe benefits, including, but not limited to, accrued vacation and sick pay (whether earned or not) and payroll taxes, through the Closing Date. Purchaser shall hire, subject to its standard interview and qualification procedures, criteria and staffing guidelines, the Hotel Employees employed in non-managerial capacities, which such Hotel Employees shall at or in connection with the Closing be offered the standard health and fringe benefit package provided by Interstate Management Company, as operator of the Hotel after the Closing, to the majority of its other hotel employees in the area of the Hotel. If Purchaser or its management company shall rehire any of such Hotel Employees pursuant to the foregoing sentence or otherwise, then such wages and fringe benefits shall be

apportioned as of the Cut-off Time. Seller will indemnify and hold Purchaser harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorney’s fees) that may be incurred by, or asserted against, Purchaser after Closing which involves any matter relating to a past or present Hotel Employee concerning acts or omissions occurring prior to the Closing Date. Notwithstanding the foregoing, Purchaser agrees to indemnify and hold Seller harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorney’s fees) that may be incurred by, or asserted against, Seller arising out of or relating to Purchaser’s or Seller’s failure, if any, to comply with the Worker Adjustment Retraining and Notification Act (the “WARN Act”) with respect to the Hotel Employees and arising out of or in connection with the transactions contemplated by this Agreement. Seller agrees not to give any termination notices under the WARN Act to its Hotel Employees without the prior written consent of Purchaser, which consent may be withheld in Purchaser’s sole and absolute discretion.

     7.08 Indemnities. (a) Purchaser shall indemnify, defend and hold Seller harmless from any and all actual costs, loss, damages (excluding consequential and punitive damages) or expenses (including without limitation reasonable attorneys’ fees) incurred by Seller with respect to the breach by Purchaser of any provision of this Agreement which survives the Closing and, except as may be the obligation of Seller pursuant to an express provision of this Agreement, the existence, use, ownership, occupancy, operation and/or maintenance of the Property arising from acts, commissions, omissions, occurrences or other matters that occur from and after the Closing.

     (b) Seller shall indemnify, defend and hold Purchaser harmless from any and all actual costs, loss, damages (excluding consequential and punitive damages) or expenses (including without limitation reasonable attorneys’ fees) incurred by Purchaser with respect to the breach of any provision of this Agreement by Seller which survives the Closing and, except as may be the obligation of Purchaser pursuant to an express provision of this Agreement, the existence, use, ownership, occupancy, operation and/or maintenance of the Property arising from acts, commissions, omissions, occurrences or other matters that occur prior to the Closing.

     7.09 Survival. The provisions of Article VII shall survive the Closing.

VIII.

Condemnation and Risk of Loss

     8.01 Condemnation. If, prior to Closing, any governmental authority or other entity having condemnation authority shall institute an eminent domain proceeding or take any steps preliminary thereto (including the giving of any direct or indirect notice of intent to institute such proceedings) with regard to the Property, and the same is not dismissed on or before ten (10) days prior to Closing, Purchaser shall be entitled either to terminate this Agreement upon written notice to Seller or to waive such right of termination and receive all such condemnation proceeds or an assignment thereof at the Closing. In the event Purchaser elects to terminate this Agreement under this Section 8.01, Escrow Agent shall promptly return to Purchaser the Deposit and neither party to this Agreement shall thereafter have any further rights or obligations hereunder.

     8.02 Risk of Loss. Until Closing, Seller shall bear the risk of loss should there be damage to any of the Improvements by fire or other casualty. If prior to the Closing any of the improvements shall be damaged by fire or other casualty, Seller shall take all action necessary to preserve and protect the Improvements from further loss or damage, and within ten (10) business days after such loss deliver to Purchaser the following items (collectively “Casualty Loss Information”): (a) copies of all casualty and business interruption policies relating to the Property; (b) the names, addresses and telephone numbers of the adjustors assigned to adjust the loss; (c) letters addressed to each insurance company issuing a policy covering such loss and executed by Seller authorizing said company and its adjustors to discuss all matters relating to such loss with purchaser, its agents and attorneys; and (d) a detailed written description of the damages incurred and an estimate of the cost of restoration. If the Improvements suffer material damage by a casualty, which, for the purpose of this Agreement, shall mean damage in excess of $300,000 or damage of a lesser amount to any area of the Hotel necessary for the day to day operation of the Hotel that cannot reasonably be expected to be repaired within ten business days, Purchaser may within five business days after delivery of the Casualty Loss Information either:

(a)	terminate this Agreement by delivering written notice of same to Seller, in which event Escrow Agent shall promptly return to Purchaser the Deposit and neither party to this Agreement shall thereafter have any further rights or obligations hereunder; or
(b)	waive its right of termination, by delivering written notice of same to Seller, and proceed to close this transaction in accordance with the terms hereof.

At Closing, (i) all insurance proceeds received prior to Closing shall be delivered to Purchaser at Closing, (ii) Purchaser and Seller shall each notify all appropriate insurance companies of Purchaser’s interest in the insurance proceeds, (iii) all casualty insurance proceeds payable as a result of the loss and Purchaser’s pro rata share of any rental or business loss proceeds shall be assigned to Purchaser at Closing and in such event Purchaser as a condition precedent to its obligation to close the transactions set forth in this Agreement shall have received the written recognition of and consent to such assignment (as well as to any assignment of such proceeds from Purchaser to Purchaser’s lender) from the applicable insurance company or companies, in form and content reasonably acceptable to Purchaser and acceptable to Purchaser’s lender, and (iv) Purchaser shall receive a credit against the Purchase Price in the amount of any applicable deductible or self-insured amounts.

IX.

Miscellaneous

     9.01 Entire Agreement. This Agreement contains the entire agreement of the parties hereto. There are no other agreements, oral or written, and this Agreement can be amended only by written agreement signed by Seller and Purchaser.

     9.02 Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the heirs, personal representatives, successors and assigns of each of the parties to this Agreement. Purchaser may assign its rights under this Agreement without Seller’s consent to (i) any successor of Purchaser or its direct or indirect parent entity or entities by merger, reorganization or sale of assets; (ii) any entity directly or indirectly controlling, controlled by or under common control with Purchaser or such successor or entity, (iii) any partnership or limited liability company in which Purchaser, or any entity directly or indirectly controlling, controlled by or under common control with Purchaser, is a partner or limited liability company member, (iv) any entity in which Purchaser, or any entity which is a permitted assignee under any of the foregoing clauses (i), (ii) or (iii), owns, directly or indirectly, an economic interest, or (v) any other entity provided that such entity enters into (x) a sublease of the entire Property with Purchaser or any entity to whom this Agreement could have been assigned under clauses (i), (ii) or (iii) above and/or (y) a management agreement with respect to the entire Property with Interstate Management Company, LLC or its successors or assigns; provided, however, that no such assignment shall relieve Purchaser of its obligations hereunder. Except as set forth in the foregoing sentence, Purchaser may assign its rights under this Agreement to any other entity only with the prior consent of Seller which shall not be unreasonably withheld or delayed.

     9.03 Notices. Any notice, communication, request, reply or advice (collectively, “Notice”) provided for or permitted by this Agreement to be made or accepted by either party must be in writing except as otherwise provided in this Agreement. Written Notice shall be delivered by overnight courier or by facsimile transmission. Notice by overnight courier shall be effective one (1) business day after deposit with the courier service. Notice given by facsimile transmission shall be effective on the business date delivered. For the purposes of Notice, the addresses of the parties shall be:

Seller:	Howell Place Hotel, LLC
	Attn:
	Fax No.:
with copy to:	Kenneth R. Mourton, Esq.
	Fax. No:
Purchaser:	4501 N. Fairfax Boulevard
	Arlington, VA 22203
	Attn: Christopher H. Bennett, Esq.
	Fax No.: 703-387-3389
with copy to:	DeCampo, Diamond & Ash
	Attn:
	Fax No.:

The parties shall have the right from time to time to change their respective addresses for notice by at least five days’ written notice to the other party.

     9.04 Governing Law. This Agreement shall be construed in accordance with the laws of the State of Louisiana.

     9.05 Section Headings. The section headings contained in this Agreement are for convenience only and shall in no way enlarge or limit the scope or meaning of the various and several sections of this Agreement.

     9.06 Obligations. To the extent necessary to carry out the terms and provisions of this Agreement, the terms, conditions, warranties, representations, obligations, indemnities and rights set forth in this Agreement shall not be terminated at the time of Closing, nor will they merge into the various documents executed and delivered at the time of Closing.

     9.07 Counterparts; Facsimile Transmission. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Executed counterparts of this Agreement exchanged by facsimile transmission shall be fully enforceable.

     9.08 No Third-Party Beneficiaries. Seller and Purchaser agree that there are no third parties who are intended to benefit from or who are entitled to rely on any of the provisions of this Agreement. No third party shall be entitled to assert any claims or to enforce any rights whatsoever pursuant to this Agreement. The covenants and agreements provided in this Agreement are solely for the benefit of Seller and Purchaser and their permitted successors and assigns respectively.

     9.09 Contract Construction. In the event of litigation between the parties hereto this Agreement shall not be construed against any party on the basis of which party’s counsel drafted this Agreement.

     9.10 Saturdays, Sundays, Legal Holidays. If the time period by which any right, option, or election provided under this Agreement must be exercised or by which any acts or payments required hereunder must be

performed or paid, or by which any notice must be given, or by which the Closing must be held, expires on a Saturday, Sunday, legal or bank holiday, then such time period shall be automatically extended to the next regularly scheduled business day.

     9.11 Confidentiality. (a) Purchaser and Seller agree that any materials provided by Seller in the course of Purchaser’s investigations of the Property, other than materials which are otherwise available to the public, shall be treated as confidential information by Purchaser and its agents, employees and representatives, and shall not be disclosed by Purchaser or such parties, except disclosures required by law to be made to Purchaser’s lenders (or prospective lenders), investors (or prospective investors), underwriters, accountants, attorneys, engineers and other professionals who need to know such information in connection with making a loan to, sponsoring an offering for or otherwise advising Purchaser, or as may be required by law, litigation or court order, or in connection with the offering of securities or by any applicable rule, regulation or requirement of the New York Stock Exchange. Purchaser may however make appropriate disclosures to its investors and lenders and to its and their respective attorneys, accountants and consultants engaged in connection with this transaction or to such other persons or entities to which disclosure is legally required.

     (b) If Purchaser does not acquire the Property for any reason whatsoever, Purchaser shall deliver to Seller promptly upon demand at no cost to Seller, all materials and documents previously obtained by Purchaser from Seller (with no retention by Purchaser of copies of any such materials and documents).

     (c) Prior to the Closing, neither party shall, without the prior written consent of the other party (which consent shall not be unreasonably withheld), issue any press release or other public statement (except such statements as may be required by law) in connection with the transactions contemplated hereby. From and after the Closing, the parties may issue such a press release or other public statement provided that the same does not describe the economic terms of this transaction except to the extent required by law.

     (d) Each party is authorized to disclose the tax treatment and tax structure of the transactions set forth in this Agreement.

     (e) Notwithstanding any provision in this Agreement to the contrary, this Section shall survive the expiration or termination of this Agreement for one (1) year or, if the Closing shall occur, shall expire and terminate as of the Closing Date except for the provisions of Section 9.11(c) and (d) above, which shall survive the Closing.

     9.12 Bulk Transfers. Seller and Purchaser specifically waive compliance with the Uniform Commercial Code of the State in which the Property is located with respect to bulk transfers, with any similar provision under any applicable law of such State or the county and city in which the Property is located. In the event such waiver is ineffective, Seller shall indemnify Purchaser for any claims made by creditors under the applicable bulk sales laws relating solely to any pre-Closing payment obligations to such creditors and only in the amount of the payments due such creditors. The provisions of this Section 9.12shall survive the Closing.

     9.13 Exclusivity. From the Effective Date through the Closing or the earlier termination of this Agreement, Seller shall (i) discontinue any marketing activities with respect to the Property and any current negotiations for the sale or lease of the Property with any party other than Purchaser, (ii) not enter into any new marketing activities with respect to the Property or any negotiations with any third parties for the sale or lease of the Property, and (iii) not solicit or accept any offers from third parties with respect to the sale or lease of the Property.

     IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement as of the year and date first written above.

HOWELL PLACE HOTEL, LLC, an Arkansas limited liability company

By:	/s/ KENNETH R. MOURTON
Name:	Kenneth R. Mourton
Title:	Authorized Member

INTERSTATE OPERATING COMPANY, L.P., a Delaware limited partnership

By:	Interstate Hotels & Resorts, Inc., a Delaware corporation, general partnership
	By:	/s/ CHRISTOPHER L. BENNETT
	Name:	Christopher L. Bennett
	Title:	Senior Vice President and General Counsel

AMENDMENT TO AGREEMENT OF SALE AND PURCHASE

     THIS AMENDMENT TO AGREEMENT OF SALE AND PURCHASE (“Amendment”) is made as of April 21, 2006, between HOWELL PLACE HOTEL, LLC (“Seller”) and INTERSTATE OPERATING COMPANY, L.P. (“Purchaser”).

     WHEREAS:

     A. Seller and Purchaser entered into that certain Agreement of Sale and Purchase (the “Agreement”), dated as of March 10, 2006, relating to the property known as the Hilton garden Inn — Baton Rouge.

     B. Seller and Purchaser desire to amend the Agreement as set forth in this Amendment.

     NOW, THEREFORE, Seller and Purchaser agree as follows:

     1. The “Inspection Period” (as defined in Section 5.05 of the Agreement) is hereby extended by twenty-one (21) days and shall expire on May 15, 2006.

     2. As amended hereby, the Agreement is ratified and shall remain in full force and effect.

     IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first written above.

HOWELL PLACE HOTEL, LLC, an Arkansas limited liability company

By:	/s/ KENNETH R. MOURTON
Name:	Kenneth R. Mourton
Title:	Authorized Member

INTERSTATE OPERATING COMPANY, L.P., a Delaware limited partnership

By: Interstate Hotels & Resorts, Inc., a Delaware corporation, general partnership

By:	/s/ CHRISTOPHER L. BENNETT
Name:	Christopher L. Bennett
Title:	Senior Vice President and General Counsel

SECOND AMENDMENT TO AGREEMENT OF SALE AND PURCHASE

     THIS SECOND AMENDMENT TO AGREEMENT OF SALE AND PURCHASE (“Amendment”) is made as of May 10, 2006, between HOWELL PLACE HOTEL, LLC (“Seller”) and INTERSTATE OPERATING COMPANY, L.P. (“Purchaser”).

     WHEREAS:

     A. Seller and Purchaser entered into that certain Agreement of Sale tad Purchase (as amended, the “Agreement”), dated as of March 10, 2006, and amended by Amendment dated April 21, 2006, relating to the property known as the Hilton Garden Inn — Baton Rouge.

     B. Seller and Purchaser desire to amend the Agreement as set forth in this Amendment.

     NOW, THEREFORE, Seller and Purchaser agree as follows:

     1. The “Inspection Period” (as defined in Section 5.05 of the Agreement) is hereby extended for seven (7) days and shall expire on May 22, 2006.

     2. The “Purchase Price” (as defined in Section 2.01 of the Agreement) is hereby reduced by the amount of One Hundred Thousand Dollars ($100,000) and shall be Fourteen Million Four Hundred Thousand Dollars ($14,400,000).

     3. As amended hereby, the Agreement is ratified and shall remain in full force and effect.

     IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first written above.

HOWELL PLACE HOTEL, LLC, an Arkansas limited liability company

By:	/s/ KENNETH R. MOURTON
Name:	Kenneth R. Mourton
Title:	Authorized Member

INTERSTATE OPERATING COMPANY, L.P., a Delaware limited partnership

By: Interstate Hotels & Resorts, Inc., a Delaware corporation, general partnership

By:	/s/ LAURA E. FITZRANDOLPH
Name:	Laura E. Fitzrandolph
Title:	Vice President Human Resources and Senior Corporate Counsel

EX-10.3

EXHIBIT 10.3

PURCHASE AND SALE AGREEMENT

HILTON DURHAM, DURHAM, NORTH CAROLINA

     THIS PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of October 31, 2005, is made by and between MeriStar Hospitality Operating Partnership, L.P. (successor by name change to American General Hospitality Operating Partnership, L.P.) (“Seller”), a Delaware limited partnership, having an address at                     , and Interstate Durham, LLC (“Purchaser”), a Delaware limited liability company, having an address at 4501 N. Fairfax Drive, Suite 800, Arlington, VA 22203.

RECITALS

     A. Seller is the owner of the hotel located at 3800 Hillsborough Road, Durham, North Carolina, and known as the Hilton Durham near Duke University (the “Hotel”); and

     B. Seller desires to sell the Hotel and certain related assets to Purchaser, and Purchaser desires to acquire the same from Seller, on the terms and conditions set forth in this Agreement.

     NOW, THEREFORE, in consideration of ten ($10.00) dollars and the agreements hereinafter set forth, and intending to be legally bound hereby, the parties agree as follows:

I.

Definitions; Sale and Purchase

     1.01 Definitions. In addition to terms defined elsewhere in this Agreement, the following terms shall have the meanings indicated:

(a)	“Bookings” shall mean contracts or reservations for the use or occupancy of guest rooms, meeting rooms and/or the banquet facilities of the Hotel, including without limitation (i) volume transient agreements, and (ii) any assignable internet and travel agent reservation agreements and promotions, if any, in effect with respect to the Hotel.
(b)	“Books and Records” shall mean all books, records, room rates, customer lists and banquet and function room records with respect to the Hotel (whether in electronic format or reduced to paper, but with respect to items in electronic format (i) excluding software which is proprietary to Seller, MHL, the Manager, their respective affiliates or any third party, or subject to a non-transferable license, (ii) only in such form as they exist on the Closing Date, (iii) only to the extent the same are not consolidated with items from other hotels owned, leased or managed by Seller, MHL, Manager or any of their respective affiliates not being conveyed to Purchaser and (iv) without any representation or warranty that the same are compatible with Purchaser’s software), to the extent the same (x) are owned by Seller or MHL, (y) reflect operations at the Hotel and not at other properties owned, leased or managed by Seller, MHL, Manager or any of their respective affiliates, and (z) are in Seller’s or MHL’s possession.
(c)	“Closing Date” shall mean the date specified in Section 6.01.
(d)	“Consumables” shall mean all opened and unopened food and beverages (alcoholic and non-alcoholic) owned by Seller or MHL and located at, or purchased to be used or sold at but not yet delivered to, the Hotel, excluding any alcoholic beverages which may not legally be transferred to Purchaser under applicable law.
(e)	“Cut-off Time” shall mean 11:59 p.m. on the date preceding the Closing Date.

(f)	“Effective Date” shall mean the date of this Agreement.
(g)	“Environmental Laws” shall mean any and all federal, state and local laws, statutes, ordinances, rules, regulations, judgments, orders, decrees, permits, licenses or other governmental restrictions or requirements now or hereafter in effect with respect to the Property and relating to the environment and/or Hazardous Substances, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1986, as amended (42 U.S.C. §9601 et seq.), the Resource Conservation Recovery Act, as amended by the Hazardous and Solid Waste Amendments of 1984, as now or hereafter amended (42 U.S.C. §6901 et seq.), the Hazardous Materials Transportation Act, as amended (49 U.S.C. §1801 et seq.), the Clean Air Act, as amended (42 U.S.C. §7401 et seq.), the Clean Water Act, as amended (33 U.S.C. §1251 et seq.), and the Toxic Substances and Control Act, as amended (15 U.S.C. §2601 et seq.).
(h)	“Escrow Agent” shall mean First American Title Insurance Company, through its National Accounts Office in Washington, DC, in its capacity as holder of the Earnest Money described in Section 2.02, with which Purchaser and Seller shall enter into a separate escrow agreement substantially in the form of Exhibit H.
(i)	“Expendables” shall mean all expendable supplies, including, but not limited to, all china, glassware, linens, towels, washcloths, bedding, napkins, tablecloths, silverware, kitchen and bar small goods, paper goods, guest supplies, cleaning and maintenance supplies, office supplies, operating supplies, printing, stationery and uniforms owned by Seller or MHL and located at, or purchased for use at but not yet delivered to, the Hotel. In no event shall Expendables include any such items which bear the trade name, trademark, service mark, logo or other identification of the Franchisor, but only to the extent that at Closing all of such items are removed from the Hotel, transferred to the Franchisor, and otherwise dealt with in accordance with the Franchise Agreement.
(j)	“Franchisor” shall mean Hilton Hospitality, Inc. or its successor under the Franchise Agreement.
(k)	“Franchise Agreement” shall mean that certain Franchise Agreement dated November 21, 1986 between Franchisor and Seller.
(l)	“Furnishings” shall mean all fixtures, furniture, furnishings, fittings, equipment, machinery, apparatus, appliances, computer hardware and equipment, software (to the extent such software is not proprietary to either Seller, MHL or Manager or subject to a non-transferable license), reservations terminals (to the extent not licensed to Seller by Franchisor under the Franchise Agreement or other applicable documentation), vehicles, building materials, telephones and other communication equipment, copiers, facsimile machines, postal machines, televisions, signs, vacuum cleaners, video equipment and other similar articles of personal property (to the extent Seller or MHL have title to such items and such items are not leased pursuant to any Hotel Contract), located on or at the Property and used or usable in connection with the operation of the Hotel, subject to such depletions, substitutions and replacements as shall occur and be made in the ordinary course of business consistent with past practices prior to the Closing Date and in accordance with the terms of this Agreement, excluding therefrom all items of personal property owned by Manager set forth on Exhibit A or a tenant under a Space Lease. In no event shall Furnishings include any such items which bear the trade name, trademark, service mark, logo or other identification of the Franchisor, but only to the extent that at Closing all of such items are removed from the Hotel, transferred to the Franchisor, and otherwise dealt with in accordance with the Franchise Agreement.
(m)	“Hazardous Substance” shall mean any substance, material or waste which is regulated, or governed by any Environmental Law, including without limitation (a) any substance, material or waste defined, used or listed as “hazardous waste”, “extremely hazardous waste”, “restricted hazardous waste”, “hazardous substance”, “hazardous material”, “toxic substance” or similar or related term as defined, used or listed in any Environmental Laws, (b) any asbestos or asbestos

	containing materials, (c) any underground storage tanks or similar facilities, (d) petroleum, petroleum-based substances or polychlorinated biphenyl, (e) mold and similar organisms, and (f) any additional substances or materials which are hazardous or toxic substances under any Environmental Laws.
(n)	“Hotel Contracts” shall mean all service and maintenance contracts, employment agreements, purchase orders and other contracts or agreements, including without limitation equipment leases, relating to the maintenance, operation, provisioning or equipping of the Hotel, together with all related written warranties and guaranties, as the same may change after the date hereof but only to the extent permitted under this Agreement. Hotel Contracts shall not include (i) the Franchise Agreement, (ii) Bookings or agreements relating to Bookings, (iii) the Management Agreement, (iv) any contracts, equipment leases or purchase orders (except to the extent of Consumables, Expendables and/or Furnishings ordered prior to the Closing in the ordinary course of business consistent with past practices and not yet delivered to the Property) under which, or which are subject to master agreements under which, goods and/or services are supplied or leased to more than one hospitality property owned, leased or managed by Seller, MHL, Manager or any of its or their respective affiliates, unless the same is specifically set forth on Exhibit D, (v) the MHL Lease or (vi) the Space Leases.
(o)	“Hotel Employees” shall mean the persons employed at the Hotel, whether by Seller, MHL or Manager, to operate the Hotel.
(p)	“Improvements” shall mean the buildings, structures (surface and sub-surface), installations and other improvements, including such fixtures and appurtenances as shall constitute real property located on the Land.
(q)	“Land” shall mean the land described on Exhibit B, together with all property rights, easements, tenements, hereditaments, rights-of-way, development rights, entitlements, unused densities, privileges and appurtenances thereto; all leases, rents, and profits derived therefrom; all right, title and interest of Seller in and to any land lying in the bed of any street, road, highway or avenue, open or proposed, public or private, in front of or adjoining all or any part of the land to the center line thereof; subject to the limitations herein, all right, title and interest of Seller in and to any unpaid award or payment which may now or hereafter be payable in respect of any taking by condemnation and all right, title and interest of Seller in and to any unpaid award for damage to the Land or any part thereof by reason of change of grade of any street, road, highway or avenue adjacent to such land and all strips and gores adjoining and adjacent to such land.
(r)	“Management Agreement” shall mean that certain Hotel Management Agreement dated as of January 1, 2001 between MHL and Manager.
(s)	“Manager” shall mean Interstate Management Company, L.L.C., an affiliate of Purchaser which is the current manager of the Hotel.
(t)	“MHL” shall mean MeriStar Hotel Lessee, Inc., an affiliate of Seller which is the current lessee of the Property.
(u)	“MHL Lease” shall mean that certain operating lease with respect to the Property between Seller, as owner, and MHL, as tenant, which such operating lease shall be terminated at or prior to Closing.
(v)	“Miscellaneous Personal Property” shall mean the Hotel’s website and web address (if any, and only to the extent such website and/or web address, relates solely to the Hotel), the Hotel’s telephone numbers, printed marketing materials, if any, relating solely to the Hotel, and any slides, proofs or drawings used by Seller or MHL to produce such materials, to the extent such slides, proofs or drawings are in Seller’s or MHL’s possession and without any express or implied

	warranty of any kind by Seller or MHL in connection therewith. In no event shall Miscellaneous Personal Property include any property licensed for use under the Franchise Agreement, but only to the extent that at Closing all of such items are removed from the Hotel, transferred to the Franchisor, and otherwise dealt with in accordance with the Franchise Agreement.
(w)	“Permits” shall mean all governmental licenses, permits, certificates, authorizations and approvals used in or relating to the ownership, occupancy or operation of any part of the Hotel, including, without limitation, those necessary for the sale and on-premises consumption of liquor and other alcoholic beverages.
(x)	“Property” shall mean the Land and Improvements.
(y)	“Space Leases” shall mean all leases and other agreements (written or oral) for the use of space at the Property, including but not limited to, agreements for the use of rooftop space on the Hotel for the installation of cellular telephone antennas (but, with respect to such cellular antenna leases, net of brokerage commissions to third parties). The term “Space Leases” shall not include the MHL Lease or Bookings.
(z)	“Title Company” shall mean First American Title Insurance Company, through its National Accounts Office in Washington, DC, in its capacity as title insurer.
(aa)	“Warranties” shall mean any assignable warranties benefiting Seller or MHL with respect to the Furnishings, Miscellaneous Personal Property and Improvements.

     1.02 Sale and Purchase. Seller agrees to sell, transfer and convey the Property, the Furnishings, the Consumables, the Expendables, the Hotel Contracts, the Bookings, the Books and Records, the Space Leases, the Warranties, the Miscellaneous Personal Property and the assignable Permits (all of the foregoing collectively, the “Purchased Assets”) to Purchaser, and Purchaser agrees to purchase the Purchased Assets from Seller, subject to the terms, covenants, conditions and provisions set forth in this Agreement. Purchaser acknowledges and agrees that notwithstanding anything to the contrary in this Agreement, Seller is not conveying as part of such sale any cash, cash equivalents, bank accounts, reserve accounts, deposits and the like owned or held by Seller, Manager or MHL, other than cash in house banks being apportioned pursuant to Section 6.02(j) and, to the extent the same are credited to Seller and assigned to Purchaser pursuant to Section 6.02, accounts receivable and deposits.

     1.03 Condition of Property. Purchaser acknowledges that (i) Manager is an affiliate of Purchaser and Purchaser is knowledgeable about the Purchased Assets, (ii) Purchaser will have a reasonable opportunity to inspect and investigate the Property, the other Purchased Assets and all matters relating thereto, including, without limitation, all of the physical, environmental and operational aspects of the Purchased Assets, either independently or through agents and experts of Purchaser’s choosing and (iii) Purchaser will acquire the Purchased Assets based upon Purchaser’s own knowledge, investigation and inspection. SELLER AND PURCHASER AGREE THAT, EXCEPT AS EXPRESSLY PROVIDED FOR IN THIS AGREEMENT, THE PURCHASED ASSETS SHALL BE SOLD, AND PURCHASER SHALL ACCEPT THE PURCHASED ASSETS, ON THE CLOSING DATE “AS IS”, “WHERE IS”, “WITH ALL FAULTS” WITH NO RIGHT OF SET-OFF OR REDUCTION IN THE PURCHASE PRICE, AND THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SUCH SALE SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, INCLUDING, WITHOUT LIMITATION, WARRANTY OF INCOME POTENTIAL, OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND SELLER DOES HEREBY DISCLAIM AND RENOUNCE ANY SUCH REPRESENTATION OR WARRANTY, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT. PURCHASER SPECIFICALLY ACKNOWLEDGES THAT, EXCEPT AS PROVIDED FOR IN THIS AGREEMENT, PURCHASER IS NOT RELYING AND SHALL NOT RELY ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, FROM SELLER AS TO ANY MATTERS CONCERNING THE PURCHASED ASSETS, INCLUDING WITHOUT LIMITATION: (A) THE CONDITION OR SAFETY OF THE PURCHASED ASSETS, INCLUDING, BUT NOT LIMITED TO, PLUMBING, SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, FOUNDATIONS, SOILS AND GEOLOGY INCLUDING HAZARDOUS

SUBSTANCES, LOT SIZE, OR SUITABILITY OF THE PROPERTY FOR A PARTICULAR PURPOSE; (B) THE HISTORICAL OR PROJECTED REVENUES, EXPENSES, OCCUPANCY RATES, ROOM RATES, PROFITABILITY OR OTHER FINANCIAL STATISTICS OF THE PURCHASED ASSETS; (C) THE LIVABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF ITS CONSTRUCTION; (D) THE FITNESS OF ANY PERSONAL PROPERTY; OR (E) WHETHER THE IMPROVEMENTS ARE STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN COMPLIANCE WITH APPLICABLE CITY, COUNTY, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES (INCLUDING, WITHOUT LIMITATION, THE AMERICANS WITH DISABILITIES ACT OR ANY SIMILAR STATE OR LOCAL LAW). PURCHASER FURTHER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, SELLER SHALL BE UNDER NO DUTY TO MAKE ANY AFFIRMATIVE DISCLOSURE REGARDING ANY MATTER WHICH MAY BE KNOWN TO SELLER, ITS OFFICERS, DIRECTORS, CONTRACTORS, AGENTS OR EMPLOYEES, AND THAT PURCHASER IS RELYING SOLELY UPON ITS OWN INSPECTION OF THE PROPERTY AND NOT UPON ANY REPRESENTATIONS MADE TO IT BY ANY PERSON WHOMSOEVER. ANY REPORTS, REPAIRS OR WORK REQUIRED BY PURCHASER ARE TO BE THE SOLE RESPONSIBILITY OF PURCHASER. PURCHASER AGREES THAT THERE IS NO OBLIGATION ON THE PART OF SELLER PURSUANT TO THIS AGREEMENT TO MAKE OR TO PAY FOR ANY CHANGES, ALTERATIONS, OR REPAIRS TO THE PROPERTY PRIOR TO OR AFTER THE CLOSING. PURCHASER AGREES AND ACKNOWLEDGES THAT PURCHASER’S OBLIGATIONS HEREUNDER SHALL REMAIN IN FULL FORCE AND EFFECT WITH PURCHASER HAVING NO RIGHT TO DELAY THE CLOSING OR TERMINATE THIS AGREEMENT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, REGARDLESS OF ANY FACTS OR INFORMATION LEARNED BY PURCHASER AFTER THE EFFECTIVE DATE.

     Seller’s Initials:                     Purchaser’s Initials:                     

     1.04 CERCLA Release. Except as may be expressly provided in this Agreement, Purchaser, for itself and its successors in interest, releases Seller from, and waives all claims and liability against Seller for, any structural, physical and/or environmental condition at the Property, and hereby releases Seller from, and waives all liability against Seller attributable to, the structural, physical and/or environmental condition of the Property, including without limitation the presence, discovery or removal of any Hazardous Substances in, at, about or under the Property, or connected with or arising out of any and all claims or causes of action based upon the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended by SARA Superfund Amendment and Reauthorization Act of 1986 and as may be further amended from time to time (“CERCLA”) or any related claims or causes of action or any other federal or state based statutory or regulatory causes of action for environmental contamination at, in or under the Property. The provisions of this Section shall survive the Closing.

II.

Consideration

     2.01 Purchase Price. In consideration of the sale of the Purchased Assets, Purchaser shall pay to Seller the amount of Fourteen Million Fifty Thousand Dollars ($14,050,000) (the “Purchase Price”).

     2.02 Payments. The Purchase Price shall be payable by Purchaser as follows:

(a)	Five Hundred Thousand Dollars ($500,000) as an earnest money deposit (together with any interest earned thereon, the “Earnest Money”), by check or wire transfer of good funds to the Escrow Agent within two (2) business days after the Effective Date;
(b)	At Closing, the termination fee owed by Seller to Manager under the Management Agreement, in the amount of Seven Hundred Fifty Thousand Dollars ($750,000), will be waived by Manager;

(c)

At Closing, Seller will receive a credit from Manager in the amount of One Hundred Thousand Dollars ($100,000), which Seller and its affiliates may apply, at any time prior to the second anniversary of the Closing Date, to termination fees owed to Manager in connection with the termination of any other hotel management agreement, provided that no more than Twenty-Five Thousand Dollars ($25,000) shall be applied to the termination of any individual hotel management agreement (the parties hereby agreeing that this credit shall be reflected in an amendment to that certain Master Fee Agreement dated as of January 1, 2001, as amended, between MHL (together with other affiliates of Seller) and Manager, in form and substance reasonably satisfactory to the parties thereto, which shall be entered into at the Closing); and

(d)

The balance of the Purchase Price (adjusted based on the prorations set forth herein) by wire transfer of immediately available good funds to Seller at the Closing.

     2.03 Earnest Money. The Earnest Money shall be delivered to and held by Escrow Agent in escrow in an interest-bearing account pursuant to the terms of this Agreement. If the Closing occurs in accordance with the terms and provisions of this Agreement, the Earnest Money shall be paid to Seller and credited against the Purchase Price. If the Closing does not occur, the Earnest Money shall be held and delivered as provided in this Agreement.

     2.04 Allocation. The Purchase Price shall be allocated between the Property and the other Purchased Assets as the parties may reasonably agree upon prior to the Closing.

III.

Title Matters

     3.01 Survey. Seller, at Purchaser’s cost, ordered from S.D. Puckett & Associates, Inc. an ALTA (or local equivalent) survey of the Property (the “Survey”) dated August 8, 2005, and delivered the Survey to Purchaser and the Title Company. On September 15, 2005, Seller provided Purchaser with Seller’s Survey Objections.

     3.02 Title Commitment. Seller, at Purchaser’s cost, caused the Title Company to issue to Purchaser a commitment for ALTA Owner’s Policy of Title Insurance or local equivalent, with extended coverage and customary owner endorsements dated August 26, 2005 (the “Title Commitment”), with respect to the Property accompanied by, to the extent available, a legible copy of all recorded documents relating to liens, easements, rights-of-way, restrictions and other matters affecting title to the Property.

     3.03 Title Objections. Purchaser acknowledges that it has received and reviewed the Title Commitment and all recorded documents referenced therein, and, in a letter dated August 18, 2005, Purchaser notified Seller of any items therein which are unacceptable to Purchaser (“Title Objections”). Seller has agreed to cure all such Title Objections prior to Closing. Seller may cure any Title Objection by causing the Title Company, at Seller’s cost and expense, to omit such Title Objection from Purchaser’s and Purchaser’s lender’s title policy issued pursuant to the Title Commitment (the “Title Policy”) or to “insure over” such Title Objection. If Seller fails to cure such Title Objections at or before Closing, then Purchaser may as its sole remedy either (i) accept title to the Property subject to such Title Objections or (ii) terminate this Agreement by written notice to Seller, whereupon the Earnest Money shall be promptly returned to Purchaser and the parties shall have no further rights or liabilities under this Agreement except with respect to those provisions that specifically provide that they survive the termination of this Agreement. Subject to the provisions of Section 3.06, any restrictions, liens, encumbrances, easements, rights of way and other matters shown on the Title Commitment which are waived or are not objected to by Purchaser in the manner provided in this Section shall be deemed “Permitted Exceptions”.

     3.04 Survey Objections. Purchaser acknowledges that it has received and reviewed the Survey, and, in a letter dated September 15, 2005, Purchaser notified Seller of any items therein which are unacceptable to Purchaser (“Survey Objections”). Seller has agreed to cure all such Survey Objections prior to Closing. Seller may cure any Survey Objection by causing the Title Company, at Seller’s cost and expense, to omit such Survey Objection from the Title Policy or to “insure over” such Survey Objection. If Seller fails to cure such Survey

Objections at or before Closing, then Purchaser may as its sole remedy either (i) accept title to the Property subject to such Survey Objections or (ii) terminate this Agreement by written notice to Seller, whereupon the Earnest Money shall be promptly returned to Purchaser and the parties shall have no further rights or liabilities under this Agreement except with respect to those provisions that specifically provide that they survive the termination of this Agreement. Subject to the provisions of Section 3.06, any restrictions, liens, encumbrances, easements, rights of way and other matters shown on the Survey which are waived or are not objected to by Purchaser in the manner provided in this Section shall be deemed “Permitted Exceptions”.

     3.05 Title Conveyed. Subject to Sections 3.03 and 3.04, Seller shall on the Closing Date convey to Purchaser good and marketable title to the Property, subject only to the Permitted Exceptions.

     3.06 Mortgage Liens. Seller, at its expense, shall cure (by payment, bonding or escrow deposit in a manner reasonably acceptable to the Title Company) at or before the Closing any mortgage, deed of trust or other monetary lien constituting a Title Objection, and Seller may not refuse to cure the same.

IV.

Representations; Covenants and Conditions

     4.01 Seller’s Representations and Warranties. Seller represents and warrants to Purchaser that as of the Effective Date and as of the Closing Date:

(a)	Seller is a duly organized and validly existing corporation in good standing in the state of its formation and in the state in which the Property is located. Seller has full power and authority to enter into this Agreement, to perform its obligations under this Agreement and to own and operate the Hotel and the Purchased Assets.
(b)	The execution and delivery of this Agreement has been duly authorized by all necessary and appropriate action of Seller. This Agreement constitutes a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with its terms.
(c)	The execution, delivery and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not: (i) violate any organizational document of Seller; (ii) result in a breach or acceleration of or constitute a default or event of termination under the provisions of any agreement or instrument by which the Hotel or Property is bound or affected (other than the Franchise Agreement) which would have a material impact on the ownership or operation of the Property by Purchaser, provided that Purchaser and Seller obtain all Required Consents; (iii) result in the creation or imposition of any lien, charge or encumbrance, against the Hotel or Property or any portion thereof; or (iv) constitute or result in the violation or breach by Seller of any judgment, order, writ, injunction or decree issued against or imposed upon Seller or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material impact on the ownership or operation of the Hotel or Property by Purchaser.
(d)	No consent or approval of any person, entity, or governmental authority is required with respect to the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby or the performance by Seller of its obligations under this Agreement, other than (i) consents or approvals listed on Exhibit I (collectively, the “Required Consents”), (ii) such consents or approvals as may be required pursuant to the Franchise Agreement and (iii) such consents or approvals as may be required under the Hotel Contracts which, if not obtained, would not have a material

	adverse effect on Purchaser’s ownership and operation of the Hotel or the Property after the Closing.
(e)	There are no Space Leases affecting all or any portion of the Property except as set forth on Exhibit C. To Seller’s knowledge, (i) all of the Space Leases are in full force and effect, (ii) each of the Space Leases delivered, or to be delivered, to Purchaser is true and complete, and (iii) except as set forth on Exhibit C, there are no material defaults by Seller or, to Seller’s knowledge, any other party under any of the Space Leases. The MHL Lease and the Management Agreement will be terminated by Seller on or prior to the Closing Date. Purchaser acknowledges and agrees that rents received under any antenna leases encumbering the Property are net of commissions due to third party brokers arranging such leases.
(f)	There are no Hotel Contracts affecting all or any portion of the Property except as set forth in Exhibit D, other than certain multi-property agreements pursuant to which goods and/or services are supplied to more than one property owned, leased or managed by Seller, MHL or Manager or its or their affiliates, which multi-property agreements Purchaser and Seller acknowledge and agree are not being assigned to Purchaser unless the same are set forth on Exhibit D. To Seller’s knowledge, (i) each of the Hotel Contracts is in full force and effect, (ii) each of the Hotel Contracts delivered, or to be delivered, to Purchaser is true and complete, and (iii) except as set forth on Exhibit D, there are no material defaults by Seller or, to Seller’s knowledge, any other party under any of the Hotel Contracts. If there exists any Hotel Contract which is not reflected on Exhibit D, the foregoing representation shall not be deemed incorrect to the extent such Hotel Contract is entered into after the Effective Date as permitted hereunder.
(g)	To Seller’s knowledge, all material Permits required for and relating to the operation of the Hotel are set forth in Exhibit E. To Seller’s knowledge (i) the Permits are in full force and effect, (ii) except as set forth on Exhibit F, Seller has received no written notice of any violations of the Permits, and (iii) each of the Permits delivered, or to be delivered, to Purchaser is true and complete.
(h)	Except as set forth on Exhibit F, Seller has not received written notice of any violation of laws within the past two (2) years for any violation which has not been remedied. To Seller’s knowledge, Seller is not currently in violation of, any laws, ordinances, building codes, zoning codes, orders, regulations or legal requirements, including without limitation Environmental Laws (“Laws”), of governmental or quasi-governmental authorities with respect to the Property or the ownership, use, maintenance or operation of the Hotel.
(i)	Except as set forth in Exhibit G, there is no litigation, action, investigation or proceeding (including, but not limited to, proceedings in respect to a condemnation) pending or, to Seller’s knowledge, threatened in writing relating to the Purchased Assets, the Hotel or the Property or the transactions contemplated by this Agreement.
(j)	Seller and/or MHL owns good and marketable title to the Furnishings, Consumables, Expendables and Miscellaneous Personal Property, free and clear of all liens, claims and encumbrances other than (i) the Permitted Exceptions, (ii) items which are leased as indicated in the Hotel Contracts (including without limitation any equipment leases for certain Furnishings set forth on Exhibit D) and (iii) the rights, if any, of the Franchisor under the Franchise Agreement therein or thereto.
(k)	Seller is not a “foreign person” as defined in the Internal Revenue Code of 1986, as amended.

(l) Neither Seller nor any of its affiliates, or, to Seller’s knowledge, the funding sources for any of them, is a Specially Designated National or Blocked Person (as defined herein). Neither Seller nor any affiliate is directly or indirectly owned or controlled by the government of any country that is subject to an embargo by the United States government. Neither Seller nor any affiliate is acting on behalf of a government of any country that is subject to such an embargo. Seller agrees that it will notify Purchaser in writing immediately upon the occurrence of any event which would render the foregoing representations and warranties incorrect. For purposes of this Agreement, “Specially Designated National or Blocked Person” means (a) a person or entity designated by the U.S. Department of Treasury’s Office of Foreign Assets Control from time to time as a “specially designated national or blocked person” or similar status, (b) a person or entity described in Section 1 of U.S. Executive Order 13224, issued on September 23, 2001 (the “Executive Order”), or (c) a person or entity otherwise identified by government or legal authority as a person or entity with whom a United States Person (as defined below) is prohibited from transacting business. As of the date hereof, a list of such designations and the text of the Executive Order are published under the internet website address www.ustreas.gov/offices/enforcement/ofac. “United States Person” shall mean: (1) any individual or business entity, regardless of location, that is a resident of the United States; (2) any individual or business entity physically located within the United States; (3) any company or business entity organized under the laws of the United States or of any state, territory, possession, or district thereof; and (4) any individual or business entity, wheresoever organized or doing business, which is owned or controlled by those specified in (1) or (3) above.

     4.02 Seller’s Knowledge. Wherever the phrase “to Seller’s knowledge” or any similar phrase stating or implying a limitation on the basis of knowledge appears in this Agreement, unless specifically otherwise qualified, such phrase shall mean the present actual knowledge, after due inquiry, of John Plunket, Bruce G. Wiles, Michael Linch and/or Kirk Pederson.

     4.03 Seller’s Possession. Wherever the phrase “in Seller’s possession”, “in the possession of Seller” or similar phrase appears in this Agreement, such phrase shall be deemed to mean to the extent the material or other item referred to by such phrase is located at the Hotel or in the corporate headquarters of Seller.

     4.04 Imputation of Manager’s Knowledge to Purchaser. Purchaser acknowledges that Manager is an affiliate of Purchaser. All information, documents and knowledge of Manager concerning the Purchased Assets shall be imputed to Purchaser. In no event shall Seller be in breach of any of its representations and warranties for failure to provide Purchaser with any information or documents concerning the Purchased Assets to the extent such information, documents or knowledge are in the possession of Manager.

     4.05 Purchaser’s Representations and Warranties. Purchaser represents and warrants to Seller that as of the Effective Date and as of the Closing Date:

(a)	Purchaser is a duly organized and validly existing limited liability company, is in good standing in the state of its formation and, as of the Closing Date, the state in which the Property is located, and has full power and authority to enter into this Agreement and to perform its obligations under this Agreement.
(b)	The execution and delivery of this Agreement has been duly authorized by all necessary and appropriate action of Purchaser. This Agreement constitutes a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms.
(c)	The execution, delivery and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby will not: (i) violate any organizational document of Purchaser; (ii) result in a breach or acceleration of or constitute a default or event of termination under the provisions of any agreement or instrument by which Purchaser is bound or affected which would have a material impact

on the ownership or operation of the Property by Purchaser; or (iii) constitute or result in the violation or breach by Purchaser of any judgment, order, writ, injunction or decree issued against or imposed upon Purchaser or result in the violation of any applicable law, rule or regulation of any governmental authority which, with respect to any of the foregoing, would have a material impact on the ownership or operation of the Hotel or Property by Purchaser.

(d)

No consent or approval of any person, entity, or governmental authority is required with respect to the execution and delivery of this Agreement by Purchaser or the consummation by Purchaser of the transactions contemplated hereby or the performance by Purchaser of its obligations under this Agreement, other than such consents or approvals as are contemplated by Section 4.11 and on Exhibit I.

(e)

Neither Purchaser nor any of its affiliates, or, to Purchaser’s knowledge, the funding sources for any of them, is a Specially Designated National or Blocked Person. Neither Purchaser nor any affiliate is directly or indirectly owned or controlled by the government of any country that is subject to an embargo by the United States government. Neither Purchaser nor any affiliate is acting on behalf of a government of any country that is subject to such an embargo. Purchaser agrees that it will notify Seller in writing immediately upon the occurrence of any event which would render the foregoing representations and warranties incorrect.

     4.06 Remedies Regarding Representations and Warranties.

(a) Each party shall promptly after obtaining actual knowledge thereof disclose to the other any changes which results in any of its representations and warranties or the other party’s representations and warranties becoming untrue or incorrect in any material respect. At the Closing, each of Seller and Purchaser shall deliver to the other a certificate affirming, subject only to exceptions specified in such certificate, that the representations and warranties of such party contained in Section 4.01 or 4.05 (as the case may be) are true and correct in all material respects as of the Closing, which such certificate shall be subject to all of the provisions of this Section 4.06.

(i)

Pre-Closing. In the event that Seller becomes aware (either upon written notice from Purchaser or otherwise) prior to Closing that any of Seller’s warranties or representations set forth in this Agreement are not true or accurate in any material respect, Seller may attempt to cure the same by Closing. If Seller is unable or unwilling to cure same by Closing, then Purchaser shall be entitled, as its sole remedy and subject to Section 5.02, either to waive the same and close this transaction or to terminate this Agreement. If Purchaser elects to terminate this Agreement, Purchaser shall give written notice thereof to Seller and Escrow Agent, Escrow Agent shall return the Earnest Money to Purchaser and neither party to this Agreement shall thereafter have any further rights or liabilities under this Agreement, except as provided in Section 5.02 and with respect to those provisions that specifically survive the termination of this Agreement. Notwithstanding the foregoing, Purchaser shall have no right or remedy with respect to Seller’s breach of any representation or warranty if Purchaser had actual knowledge of such breach as of the date hereof.

(ii)

Post-Closing. The representations and warranties of Purchaser and Seller shall survive Closing for a period of one (1) year, and, subject to the provisions of Sections 4.06(b) and 4.06(c), Seller shall indemnify, defend and hold Purchaser harmless from and against any loss, damage, liability, claim, demand, cause of action, cost or expense (including, without limitation, reasonable attorneys’ fees) that may be incurred by or asserted against Purchaser after the Closing and arises from a breach of Seller’s representation or warranty, provided that

Purchaser shall advise Seller in writing in reasonable detail of such breach within fifteen (15) months after Closing.

(b)	Notwithstanding any provision of this Agreement or of the certificate delivered pursuant to Section 4.06(a) above to the contrary, Seller shall have no liability to Purchaser, and shall not be required to indemnify Purchaser, for any breach or breaches by Seller of any representation or warranty set forth in this Agreement or such certificate unless (i) the Closing occurs, (ii) Purchaser had no actual knowledge of such breach at or prior to Closing and (iii) the aggregate monetary loss to Purchaser resulting from all breaches of representations or warranties by Seller is more than Twenty-Five Thousand Dollars ($25,000). Notwithstanding any provision of this Agreement or of the certificate delivered pursuant to Section 4.06(a) above to the contrary, Purchaser shall have no liability to Seller, and shall not be required to indemnify Seller, for any breach or breaches by Purchaser of any representation or warranty set forth in this Agreement or such certificate unless (i) the Closing occurs, (ii) Seller had no actual knowledge of such breach at or prior to Closing and (iii) the aggregate monetary loss to Seller resulting from all breaches of representations or warranties by Purchaser is more than Twenty-Five Thousand Dollars ($25,000).
(c)	Notwithstanding any provision of this Agreement or of the certificate delivered pursuant to Section 4.06(a) above to the contrary, the aggregate liability of Seller to Purchaser with respect to any and all breaches by Seller of representations and warranties under this Agreement and/or under such certificate shall not exceed Seven Hundred Fifty Thousand Dollars ($750,000). Notwithstanding any provision of this Agreement or of the certificate delivered pursuant to Section 4.06(a) above to the contrary, the aggregate liability of Purchaser to Seller with respect to any and all breaches by Purchaser of representations and warranties under this Agreement and/or under such certificate shall not exceed Seven Hundred Fifty Thousand Dollars ($750,000).
(d)	The provisions of this Section 4.06 shall survive the Closing.

     4.07 Seller’s Covenants. Seller covenants and agrees with Purchaser that prior to the Closing (and with respect to the applicable covenants in Section 4.07(f) below, from and after the Closing to the extent set forth therein):

(a)	Seller will not sell, exchange, assign, transfer, convey, lease or otherwise dispose of all or any part of the Purchased Assets or any interest therein except for any Furnishings, Consumables and Expendables which are sold, replaced or consumed in the ordinary course of business consistent with past practices, and shall maintain Furnishings, Consumables and Expendables at the Property in a manner substantially consistent with Seller’s customary operating practices (taking occupancy levels into account) and historical practice at the Property, it being understood that on the Closing Date, the levels of Inventory, Furnishings or Consumables at the Property may be greater or less than those levels on the Effective Date.
(b)	Seller will keep the material Hotel Contracts and the Permits (including any such items entered into after the Effective Date in accordance with Section 4.07(c), but excluding those which may be terminated in the ordinary course of business consistent with past practices or as a result of a default by the other party or which may expire by their terms) in full force and effect, will pay all charges when due under such agreements and will perform all of its material obligations under such Hotel Contracts and Permits. Seller will comply with and pay all charges under the Franchise Agreement consistent with past practices.
(c)	Seller will not enter into, amend or (excluding those which may be terminated in the ordinary course of business consistent with past practices or as a result of a default by the

other party or which may expire by their terms) terminate any contracts, leases, licenses, easements or other agreements relating to the Property, which will obligate Purchaser or be a charge or lien against the Property, except those which (i) are necessary to continue the operation of the Hotel in the ordinary course of business consistent with past practices, (ii) are terminable without payment or penalty on thirty (30) or fewer days notice or (iii) have otherwise been approved by Purchaser in its sole discretion. Purchaser shall advise Seller of its approval or rejection of any such proposed contract, lease, license, easement or other agreement within five (5) business days after Seller has delivered the same to Purchaser. Purchaser’s failure to approve or reject the same within such five (5) business day period shall be deemed to be an acceptance of the submission and an authorization for Seller to execute the applicable contract, lease, license, easement or other agreement. Nothing contained in this Section 4.07 shall limit Seller’s rights to accept or contract for essential Property services, room reservations, bookings or other advanced commitments for use of the Property’s facilities in accordance with its existing standard of operation as of the Effective Date.

(d)

Seller will operate and maintain, or cause to be operated and maintained, the Property in substantially the same manner in which it is being operated and maintained as of the Effective Date.

(e)

Seller will permit Purchaser and its representatives, contractors, agents, personnel, lenders, employees, investors and partners to enter upon and inspect the Property and perform such investigations of the Purchased Assets and all Books and Records as Purchaser may from time to time deem desirable. Provided Purchaser gives Seller reasonable prior notice, Seller shall arrange for Purchaser and Purchaser’s agents to have reasonable access to the Property during regular business hours until the Closing Date to conduct Purchaser’s due diligence, to prepare for Closing and to verify any change in the condition of the Property since the Effective Date. Purchaser does hereby acknowledge and agree, regardless of whether such entry and/or activities occurred before or after the Effective Date, that (i) the costs and expenses of Purchaser’s access, whenever incurred, shall be borne solely by Purchaser, (ii) Purchaser has been obligated during all entries made prior to the Effective Date and shall be obligated with respect to all entries made from and after the Effective Date not to unreasonably disturb or interfere with the operation, management or use of the Property by Seller, Seller’s agents, any tenant or any tenant’s customers, invitees or guests, (iii) Purchaser has been obligated during all entries made prior to the Effective Date, and shall be obligated with respect to all entries made from and after the Effective Date, not to damage or adversely affect the physical structure or any of the mechanical, electrical, plumbing or HVAC systems of the Property and/or the Furnishings and (iv) Purchaser shall be obligated with respect to all entries made from and after the Effective Date to give prior notice to Seller of any such entry and Seller shall have the right to require that Purchaser’s representative be accompanied by a representative of Seller during any such visit to the Property. Purchaser hereby agrees to indemnify, defend, and hold Seller, MHL, Manager and the Property harmless from any and all actual costs, loss, damages (excluding consequential and punitive damages) or expenses (including reasonable attorneys’ fees) arising out of any personal injury or property damage resulting from such entry and/or activities upon the Property by Purchaser, its agents, contractors and/or subcontractors, regardless of whether such entry and/or activities occurred before or after the Effective Date, which indemnity shall survive the Closing or any termination of this Agreement. At all times that Purchaser is given access to the Property in connection with its investigations under this Section 4.07(e), Purchaser shall carry, and Purchaser shall cause all of its agents and contractors to carry, reasonably adequate liability insurance covering their respective activities at the Property and Purchaser shall deliver evidence of such insurance to Seller upon Seller’s request. In no event shall Purchaser or its agents undertake any invasive testing at the Property, other than a standard Phase I environmental type test, without the prior consent of Seller, which consent shall not be unreasonably conditioned, withheld or delayed.

	Purchaser shall have the right to communicate with Hotel Employees, provided the same is coordinated through Seller, without the prior consent of Seller.
(f)	Purchaser is the current holder of the liquor license for the Hotel. Seller will cooperate with Purchaser in all reasonable respects in connection with Purchaser’s retention of all liquor licenses used in connection with the operation of the Hotel.
(g)	Until Closing (or any earlier termination of this Agreement), Seller shall not, directly or indirectly, solicit, discuss or negotiate with any person or entity (other than Purchaser), or accept, any proposal for the acquisition of Seller, the Hotel or the Property in whole or in part.

     4.08 Intentionally Omitted.

     4.09 Conditions Precedent to Purchaser’s Obligations. Purchaser’s obligations under this Agreement are conditioned upon the satisfaction of the following conditions as of the Closing Date:

(a)	Purchaser shall not have terminated this Agreement.
(b)	Seller’s representations and warranties set forth in this Agreement shall continue to be true and accurate in all material respects as of the Closing Date subject to (i) Seller’s right to cure the same prior to the Closing as set forth in Section 4.06(a) above, (ii) any changes permitted pursuant to this Agreement, and (iii) such changes in such representations and warranties as are actually known to Purchaser as of the date hereof.
(c)	Seller shall have delivered all of the documents required under this Agreement and performed in all material respects all of its covenants and obligations under this Agreement.
(d)	The Title Company shall be prepared, upon or simultaneously with compliance by Purchaser of all requirements of Purchaser set forth in the Title Report, to issue to Purchaser an owner’s policy of title insurance in the amount of the Purchase Price meeting the requirements of Section 3.03.
(e)	Purchaser shall have received approval by Franchisor of an assignment of the Franchise Agreement or shall have received a new license or franchise agreement from Franchisor or an Other Franchisor, in form and substance satisfactory to Purchaser in its sole discretion.
(f)	Between the Effective Date and the Closing Date, there shall not have been any material adverse change in the condition (financial or otherwise) or results of operations of the Hotel, the Property or the Purchased Assets.

The conditions precedent set forth in this Section 4.09 are solely for the benefit of Purchaser and may be waived only by Purchaser, which waiver may be granted or withheld by Purchaser in its sole discretion. Without limiting and without prejudice to any of Purchaser’s other rights or remedies under this Agreement in the event any such failure of condition is the result of or arises out of Seller’s default under this Agreement, if any condition precedent to Purchaser’s obligations under this Agreement has not been satisfied as of the Closing Date or waived by Purchaser, then Purchaser shall be entitled in its sole discretion to terminate this Agreement by giving Seller and Escrow Agent written notice to such effect, whereupon Escrow Agent shall return the Earnest Money to Purchaser.

     4.10 Conditions Precedent to Seller’s Obligations. Seller’s obligations under this Agreement are conditioned upon the satisfaction of the following conditions as of the Closing Date:

(a)	Purchaser’s representations and warranties set forth in this Agreement shall continue to be true and accurate in all material respects, subject to such changes as are permitted under this Agreement.
(b)	Franchisor shall have (i) either (A) approved Purchaser’s change of ownership application with respect to the Hotel, and agreed to Purchaser’s assumption of, and Purchaser shall have assumed, the Franchise Agreement, or Franchisor shall have entered into a new license or franchise agreement with Purchaser with respect to the Hotel, as required by Franchisor, or (B) terminated the Franchise Agreement, and, in either case, (ii) delivered to Seller and any guarantor of or party to the Franchise Agreement a release (the “Release”) of their respective obligations under the Franchise Agreement (to the extent the same arise from and after the Closing), executed by Franchisor in Franchisor’s customary form, with such changes as may be reasonably requested by Seller.
(c)	Purchaser shall have paid the Purchase Price, delivered all of the documents required under this Agreement and performed in all material respects all of its other covenants and obligations under this Agreement.

The conditions precedent set forth in this Section 4.10 are solely for the benefit of Seller and may be waived only by Seller, which waiver may be granted or withheld by Seller in its sole discretion. Without limiting and without prejudice to any of Seller’s other rights or remedies under this Agreement in the event any such failure of condition is the result of or arises out of Purchaser’s default under this Agreement, if any condition precedent to Seller’s obligations under this Agreement has not been satisfied as of the Closing Date or waived by Seller, then Seller shall be entitled in its sole discretion to terminate this Agreement by giving Purchaser and Escrow Agent written notice to such effect, in which event the Earnest Money shall be paid to the party entitled thereto under this Agreement.

     4.11 Franchise Agreement.

(a)

Purchaser acknowledges that the Franchise Agreement provides that, in the event of a proposed sale or lease of the Hotel, Franchisor shall have a right of first offer with respect thereto. Promptly following the Effective Date, Seller shall use commercially reasonable efforts to obtain Franchisor’s waiver of such right. If Franchisor asserts that it has the right to purchase the Hotel and notifies Seller that it intends to exercise its right to purchase the Hotel, Seller shall so notify Purchaser within two (2) business days, this Agreement shall terminate, neither party to this Agreement shall thereafter have any further rights or liabilities under this Agreement except with respect to those provisions that specifically provide that they survive the termination of this Agreement, and Escrow Agent shall return the Earnest Money to Purchaser and Purchaser shall be entitled to payment from Seller of (i) Purchaser’s actual third-party out of pocket due diligence costs, including outside legal fees, in connection with this transaction in an amount not to exceed Fifty Thousand Dollars ($50,000) and (ii) Purchaser’s actual non-refundable fees and costs paid by Seller to Franchisor in connection with obtaining a new license or franchise agreement for the Property, in an amount not to exceed Seventy Five Thousand Dollars ($75,000). If Franchisor exercises its right to purchase the Hotel, but fails to consummate the purchase, then Purchaser shall have the option (which may be exercised in Purchaser’s sole discretion within thirty (30) days after Purchaser’s receipt of notice that Franchisor has failed to consummate the purchase) to reinstate the effectiveness of this Agreement and to complete the purchase of the Hotel, in which case the date of reinstatement shall become the new Effective Date.

(b)

Purchaser shall promptly and in good faith seek to obtain a new license or franchise agreement from Franchisor or from another hotel franchisor (“Other Franchisor”), or to assume the existing Franchise Agreement from the Franchisor, in accordance with all applicable provisions of the Franchise Agreement, including without limitation providing such financial and other information regarding Purchaser as may be reasonably required by the Franchisor or by the Other Franchisor, as appropriate. In connection therewith,

	Seller shall, at no cost to Seller, cooperate in all reasonable respects with Purchaser in connection with such application for a new license or franchise agreement or for the assumption of the existing Franchise Agreement. At Seller’s expense, Seller has caused Franchisor to inspect the Hotel and issue a property improvement plan which identifies improvements necessary to maintain a franchise agreement with Franchisor upon a sale of the Hotel (the “PIP”). Purchaser acknowledges and agrees that it shall be Purchaser’s obligation to diligently pursue a transfer of the Franchise Agreement or a new license or franchise agreement for the Hotel from Franchisor or an Other Franchisor. Purchaser shall pay all application fees, transfer fees and similar amounts as may be required by Franchisor or by such Other Franchisor, as appropriate, in connection with the issuance of a new license or franchise agreement to Purchaser or the assumption of the existing Franchise Agreement by Purchaser; provided, however, that Seller shall pay any and all termination fees or termination costs relating to the existing Franchise Agreement, if any. Seller shall have no obligation with respect to the PIP or other work requirement agreed to by Purchaser.
(c)	Notwithstanding anything to the contrary set forth in Section 4.11(b), Purchaser shall have the right not to assume the existing Franchise Agreement or not to obtain a new license or franchise agreement from Franchisor or an Other Franchisor, as applicable.
(d)	If Purchaser shall neither assume the Franchise Agreement nor obtain a new license or franchise agreement from Franchisor, then at the Closing, Seller shall be entitled to remove from the Property and return to Franchisor in accordance with the Franchise Agreement all items of personal property marked with Franchisor’s name or other marks, such items shall not be a part of the Purchased Assets and Purchaser shall receive no credit against the Purchase Price as a result of the removal of such items from the Property.

V.

REMEDIES

     5.01 PURCHASER’S DEFAULT/SELLER’S REMEDIES. IF PURCHASER DEFAULTS UNDER THIS AGREEMENT OR OTHERWISE FAILS TO CLOSE THE TRANSACTIONS SET FORTH IN THIS AGREEMENT, FOR ANY REASON EXCEPT (A) THE FAILURE OF ANY CONDITION PRECEDENT TO PURCHASER’S OBLIGATIONS UNDER THIS AGREEMENT OR (B) PURCHASER’S TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS, SELLER SHALL BE ENTITLED AS ITS SOLE REMEDY UNDER THIS AGREEMENT TO TERMINATE THIS AGREEMENT AND RECOVER THE EARNEST MONEY (IN ADDITION TO ATTORNEYS’ FEES PURSUANT TO SECTION 5.03 BELOW, IF APPLICABLE) AS LIQUIDATED DAMAGES AND NOT AS A PENALTY (WHICH EARNEST MONEY SHALL BE PROMPTLY PAID BY ESCROW AGENT TO SELLER UPON SELLER’S AND PURCHASER’S JOINT WRITTEN NOTICE THEREOF TO ESCROW AGENT), IN FULL SATISFACTION OF ANY CLAIMS AGAINST PURCHASER UNDER THIS AGREEMENT. IN CONNECTION THEREWITH, SELLER WAIVES ITS RIGHT TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT FROM PURCHASER. SELLER AND PURCHASER AGREE THAT THE SELLER’S DAMAGES RESULTING FROM PURCHASER’S DEFAULT ARE DIFFICULT TO DETERMINE AND THE AMOUNT OF THE EARNEST MONEY IS A FAIR ESTIMATE OF THOSE DAMAGES. EACH PARTY HEREBY WAIVES ANY AND ALL RIGHTS TO CONTEST THE VALIDITY OF THE FOREGOING LIQUIDATED DAMAGES PROVISIONS FOR ANY REASON WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, SUCH PROVISION BEING UNREASONABLE UNDER CIRCUMSTANCES EXISTING ON THE EFFECTIVE DATE OR AT THE TIME OF DEFAULT. NOTWITHSTANDING THE FOREGOING, THE ASSERTION OR PAYMENT OF THE FOREGOING LIQUIDATED DAMAGES SHALL NOT BE DEEMED TO BE A WAIVER OF ANY RIGHTS OR REMEDIES THAT SELLER MAY HAVE AGAINST PURCHASER PURSUANT TO ANY PROVISION OF THIS AGREEMENT THAT SPECIFICALLY PROVIDES THAT IT SURVIVES THE TERMINATION OF THIS AGREEMENT.

     Seller’s Initials:                     Purchaser’s Initials:                     

     5.02 SELLER DEFAULT/PURCHASER’S REMEDIES. IF SELLER DEFAULTS UNDER THIS AGREEMENT OR OTHERWISE FAILS TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT ON OR PRIOR TO THE CLOSING, FOR ANY REASON EXCEPT THE FAILURE OF ANY CONDITION PRECEDENT TO SELLER’S OBLIGATIONS UNDER THIS AGREEMENT, THEN ANY ONE OF THE FOLLOWING, AND ONLY THE FOLLOWING, SHALL BE AVAILABLE TO PURCHASER AS ITS SOLE AND EXCLUSIVE REMEDY: (A) TO TERMINATE THIS AGREEMENT BY GIVING SELLER WRITTEN NOTICE OF SUCH ELECTION PRIOR TO OR AT CLOSING WHEREUPON THE ESCROW AGENT SHALL PROMPTLY RETURN TO PURCHASER THE EARNEST MONEY, AND THE PARTIES SHALL HAVE NO FURTHER RIGHTS OR LIABILITIES UNDER THIS AGREEMENT EXCEPT (1) FOR THOSE PROVISIONS WHICH SPECIFICALLY PROVIDE THAT THEY SURVIVE THE TERMINATION OF THIS AGREEMENT AND (2) SELLER SHALL REIMBURSE PURCHASER FOR (i) PURCHASER’S ACTUAL THIRD-PARTY OUT OF POCKET DUE DILIGENCE COSTS AND OUTSIDE LEGAL FEES, IN AN AMOUNT NOT TO EXCEED FIFTY THOUSAND DOLLARS ($50,000) and (ii) PURCHASER’S ACTUAL NON-REFUNDABLE FEES AND COSTS PAID BY SELLER TO FRANCHISOR IN CONNECTION WITH OBTAINING A NEW LICENSE OR FRANCHISE AGREEMENT FOR THE PROPERTY, IN AN AMOUNT NOT TO EXCEED SEVENTY FIVE THOUSAND DOLLARS ($75,000); OR (B) TO WAIVE THE DEFAULT AND CLOSE; OR (C) TO ENFORCE SPECIFIC PERFORMANCE OF THIS AGREEMENT.

     Seller’s Initials:                     Purchaser’s Initials:                     

     5.03 Attorneys’ Fees. If any litigation between Seller and Purchaser shall arise in connection with this Agreement, then the prevailing party shall be entitled to the payment by the other party of the prevailing party’s actual reasonable attorneys’ fees and costs related to such litigation. The provisions of this Section 5.03 shall be in addition to and not limited by the provisions of Sections 5.01 and/or 5.02 above.

VI.

Closing Matters

     6.01 Closing Date. The delivery of the Deed and other documents required hereunder (the “Closing”) shall be held at the Title Company’s offices or by mail, or through escrow with the Escrow Agent, on the earlier of (i) November 10, 2005 and (ii) two (2) business days after Purchaser receives Franchisor’s approval to assume the Franchise Agreement or Purchaser receives a new license from Franchisor (the “Closing Date”), or such other date as may be agreed to by Seller and Purchaser in their sole discretion.

     6.02 Adjustment and Prorations. The matters and items set forth below shall be apportioned between Seller and Purchaser or, where applicable, credited in total to a particular party:

(a)	Taxes. All real and personal property taxes and special assessments, if any, whether payable in installments or not, payable in the tax year in which the Closing Date occurs shall be prorated as of the Cut-Off Time. If such taxes for the tax year in which the Closing Date occurs have not been finally determined on the Closing Date, then such taxes shall be prorated on an estimated basis using the most current information available and shall not be subject to further adjustment (unless an actual bill is received within ninety (90) days after the Closing Date).
(b)	Room Rentals. One-half (50%) of the room rentals and related taxes attributable to the night prior to the Closing Date shall be credited at Closing to Seller and the remaining one-half (50%) shall be credited to Purchaser at Closing. Room rentals attributable to any night prior to the night prior to the Closing Date shall be credited to Seller at Closing.
(c)	Reservation Deposits. Prepaid and unearned reservation deposits and other items prepaid by guests of the Hotel shall be credited or transferred to Purchaser at the Closing.

(d)	Utility and Permit Charges. Utility charges for telephone, gas, electricity, sewer, water and other services shall not be prorated to the extent that Seller can make arrangements for the rendering of final bills based on meter readings as of the Cut-Off Time. Seller shall be responsible for the payment at the Closing of all bills for utility charges up to and including the Cut-Off Time. To the extent that utility bills cannot be rendered as of the Closing Date, such charges for the period through the Cut-Off Time shall be prorated as of the Cut-Off Time based upon the most recent available bills and readjusted on the basis of the actual bills as and when received. If Purchaser elects, any transferable utility deposits shall be transferred to Purchaser and credited to Seller. Seller shall receive a credit at Closing for any prepaid Permit fees and similar prepaid expenses.
(e)	Operating Expenses and Trade Accounts. Seller shall be responsible for all operating expenses and trade accounts of the Property (including charges and fees payable under the Hotel Contracts) up to and including the Cut-Off Time. To the extent the amounts of such items are then known, Seller shall pay such items at Closing and shall pay the balance of such amounts in the ordinary course of business consistent with past practices, but in no event later than forty-five (45) days after the Closing Date. Purchaser shall assume responsibility for purchase orders made by Seller prior to the Closing Date in the ordinary course of business consistent with past practices for Expendables or Consumables not delivered to the Hotel as of the Closing Date. Purchaser shall be deemed to have assumed any and all operating expenses and trade accounts to the extent Purchaser shall have received a credit therefor under this Section 6.02. All prepaid expenses shall be credited to Seller.
(f)	Food, Beverage and Other Income. Revenues from food, beverage and banquet services, room service, public room revenues, health club revenues, vending machine revenues belonging to Seller or MHL, and other services rendered to guests of the Hotel shall be prorated as of the Cut-Off Time, if, as and when collected.
(g)	Rents. All rentals under any Space Leases (including fixed rents and charges in respect of electricity, operating expenses and taxes) shall be prorated as of the Cut-Off Time if, as and when collected. Payments from tenants under the Space Leases for electricity, operating expenses and taxes which are billed to tenants in arrears or on an estimated basis shall be prorated on such basis and readjusted if, as and when such amounts are finally determined and collected.
(h)	Employees. All wages and earned but unpaid fringe benefits of Hotel Employees through the Cut-Off Time shall be paid to such Hotel Employees by Seller as provided in Section 6.07 and shall not be prorated.
(i)	Security Deposits. Any security deposits under the Space Leases shall be transferred to Purchaser at the Closing or credited against the Purchase Price.
(j)	Cash. All cash on hand in house banks on the morning of the Closing Date shall become the property of Purchaser and the amount thereof shall be credited to Seller.
(k)	Ledger and Other Receivables. All accounts receivable attributable to guests in the Hotel on the night preceding the Closing (the “Ledger”) shall be prorated as provided in this Agreement, Seller’s share shall be credited to Seller and the Ledger shall become the property of Purchaser. All other accounts receivable shall be transferred and conveyed to Purchaser at Closing, and Seller shall be paid by Purchaser at Closing an amount equal to the total amount of all such receivables, less a credit of Twenty-eight Thousand Dollars ($28,000) on account of the receivables set forth on Exhibit J (the “Scheduled Receivables”). From and after Closing, Purchaser shall undertake commercially reasonable efforts to collect the Scheduled Receivables, and shall remit to Seller all such

	funds collected on account of the Scheduled Receivables promptly after receipt of payment.
(l)	Unopened Cases of Consumables. Seller shall receive a credit for the cost (i.e., the amount paid by Seller) of all unopened and unused cases of Consumables which are as of the Closing Date stored at the Hotel.
(m)	Delayed Adjustments. If at any time following the Closing Date the amount of an item listed in this Section 6.02 shall prove to be incorrect, the party in whose favor the error was made shall pay to the other party within fifteen (15) days after request the sum necessary to correct such error upon receipt of proof of such error, provided that such proof is delivered to the party from whom payment is requested on or before ninety (90) days after the Closing Date. The acceptance of the closing statement by either party shall not prevent later readjustment pursuant to this Section. After the Closing Date, each party shall have reasonable access to the books and records of the other party with respect to all matters set forth in this Section 6.02 for the purposes of determining the accuracy of all adjustments and the performance of the obligations of the parties under this Section.

     6.03 Guest Property in Seller’s Possession on Closing Date. Property of guests of the Hotel in Seller’s care, possession or control (excluding that in guest rooms) on the Closing Date shall be handled in the following manner:

(a)	Safe Deposit Boxes. On the Closing Date, Seller shall cause notice to be sent to all guests of the Hotel who have safe deposit boxes advising them of the pending sale of the Property and requesting the removal and verification of the contents of such safe deposit boxes within three (3) days after the Closing Date. Seller may have a representative present at the Hotel during such three (3) day period for the purpose of viewing such removal and verification. Boxes of guests not responding to the written notice shall be listed at the end of such three (3) day period. Such boxes shall be opened on the following day in the presence of representatives of Seller and Purchaser to be agreed upon between Seller and Purchaser and the contents thereof shall be recorded. Any property contained in the safe deposit boxes and so recorded and thereafter remaining in the hands of Purchaser shall be the responsibility of Purchaser, and Purchaser hereby agrees to indemnify and save and hold Seller harmless from and against any claim or obligation arising out of or with respect to such property.
(b)	Baggage Inventory. All guest baggage checked and left in the possession, care and control of Seller shall be listed in an inventory to be prepared in duplicate and signed by Seller’s and Purchaser’s representatives on the Closing Date. Purchaser shall be responsible from and after the Closing Date for all baggage listed in inventory, and Purchaser hereby agrees to indemnify and save and hold Seller harmless from and against any claim arising out of or with respect to the baggage listed in the inventory.
(c)	Other Property. All other guest property left in the possession, care or control of Seller prior to the Closing Date shall be returned by Seller to guests prior to the Closing Date and if not so returned prior to the Closing Date shall be the sole responsibility of Seller subsequent to the Closing Date.

     The provisions of this Section 6.03 shall survive the Closing.

     6.04 Closing Documents.

(a) In addition to any other deliveries required of Seller pursuant to the terms of this Agreement, at Closing Seller shall deliver, or cause to be delivered, to Purchaser the following:

(i)	a special warranty deed (or local equivalent) conveying the fee estate in the Property to Purchaser as set forth in Section 3.05 (the “Deed”).
(ii)	bills of sale transferring to Purchaser all of the Furnishings, Expendables, Consumables, Miscellaneous Personal Property, Books and Records and Warranties owned by Seller or MHL with respect to the Property free of all encumbrances except for the Permitted Exceptions, without representation or warranty other than as provided herein.
(iii)	one or more assignments conveying and transferring to Purchaser all of the Bookings, the Space Leases, the Hotel Contracts and any other Hotel Contract which Seller was permitted to enter between the date hereof and the Closing pursuant to a provision of this Agreement, and the assignable Permits.
(iv)	possession of the Property (subject to the rights of tenants, guests and invitees).
(v)	evidence reasonably acceptable to Purchaser and acceptable to the title company of the termination of the MHL Lease and the Management Agreement.
(vi)	a certified copy of such good standing certificates, authorizations, approvals and incumbencies of Seller as the Title Company shall reasonably require.
(vii)	a FIRPTA Affidavit in form required by the Internal Revenue Service.
(viii)	original counterparts of the Hotel Contracts, Space Leases and assignable Permits, all to the extent in Seller’s possession, and all Books and Records relating to the Property and the Hotel in Seller’s possession (provided that Seller shall have the right to make copies of such Hotel Contracts, Space Leases and assignable Permits and such books and records, and after Closing to have reasonable access to the same, to the extent required by Seller for accounting, tax reporting or other reporting purposes).
(ix)	any and all plans and specifications for the Improvements on the Property in Seller’s possession.
(x)	such notices of the sale to third parties as may be reasonably requested by the Purchaser.
(xi)	such affidavits, indemnities and related matters as the Title Company may reasonably request, including without limitation such affidavits and indemnities as may be required to permit the Title Company to delete any exceptions for mechanic’s liens.
(xii)	a certificate restating and reaffirming Seller’s representations and warranties pursuant to Section 4.06(a) hereof, with such changes as shall be necessary to make such representations true, complete, and accurate in all material respects as of the Closing Date.
(xiii)	an amendment to the Master Fee Agreement as contemplated by Section 2.02(c).
(xiv)	all of the Required Consents for which Seller is responsible as set forth on Exhibit I.

(b) In addition to any other deliveries required of Purchaser pursuant to the terms of this Agreement, at Closing Purchaser shall deliver or cause to be delivered to Seller the following:

(i)	the balance of the Purchase Price payable pursuant to Section 2.02(d).
(ii)	such good standing certificates, authorizations, approvals and incumbencies as the Title Company shall reasonably require.
(iii)	an assumption of the obligations (but not the obligations relating to any breach or default existing as of the Closing or which arose due to actions or events occurring prior to the Closing) of Seller from and after the Closing under the Bookings, Space Leases and Hotel Contracts (including those which Seller was permitted to enter into between the date hereof and the Closing pursuant to a provision of this Agreement), and assignable Permits (collectively, the “Assumed Obligations”).
(iv)	a certificate restating and reaffirming Purchaser’s representations and warranties pursuant to Section 4.06(a) hereof, with such changes as shall be necessary to make such representations true, complete, and accurate in all material respects as of the Closing Date.
(v)	an amendment to the Master Fee Agreement as contemplated by Section 2.02(c).
(vi)	all of the Required Consents for which Purchaser is responsible as set forth on Exhibit I.

     6.05 Closing Costs.

(a)	Purchaser shall pay (i) all recording fees imposed in connection with the recordation of the Deed and any deed of trust or mortgage on the Property securing Purchaser’s lender, (ii) Survey costs, (iii) the premiums for the Title Policy, (iv) the costs of its due diligence investigation of the Purchased Assets, (v) all amounts incurred in connection with the issuance of a new license or franchise agreement for the Hotel, including, but not limited to, application fees, transfer fees, and costs of implementing a property improvement plan, but excluding any and all termination fees or costs, and (vi) the fees and disbursements of Purchaser’s attorneys. Purchaser shall pay one-half of the escrow fees of Escrow Agent.
(b)	Seller shall pay (i) all transfer taxes and deed stamps imposed in connection with the conveyance of the Property, (ii) all recording fees imposed in connection with the recordation of documents necessary to remove encumbrances, (iii) the termination fees and costs payable under the Management Agreement, (iv) the termination fees and costs payable under the Franchise Agreement, (v) sales taxes imposed in connection with any items of personal property, (vi) all fees and costs in connection with obtaining any Required Consent, and (vii) the fees and disbursements of Seller’s attorneys. Seller shall pay one-half of the escrow fees of Escrow Agent.
(c)	Any other closing cost not specifically allocated by this Agreement shall be allocated in accordance with closing customs for similar properties in the metropolitan area of the Property.

(d) The provisions of this Section 6.05 shall survive the Closing or any termination of this Agreement.

     6.06 Real Estate Commissions. Seller and Purchaser each represent and warrant to the other that it has dealt with no broker or finder in the negotiation of this transaction other than Jones, Lang LaSalle (the “Brokers”). Each party agrees to and does hereby indemnify and hold the other harmless against the payment of any commission or finder’s fee to any person or entity claiming by, through or under Seller or Purchaser, as applicable. Seller shall pay the commission of Brokers pursuant to separate agreement. The provisions of this Section 6.06 shall survive Closing.

     6.07 Staff.

(a)	Seller shall pay all wages, payroll taxes and fringe benefits (including vacation pay and sick pay to the extent actually earned) as well as social security, unemployment compensation, health, life and disability insurance and pension fund contributions, if any, through the Closing Date. Except as set forth in Section 6.07(b), Seller will indemnify, defend and hold Purchaser harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorneys’ fees) that may be incurred by, or asserted against, Purchaser after Closing which involves any matter relating to a past or present Hotel Employee concerning acts or omissions occurring up to the Cut-Off Time, including, but not limited to, the payments required under the prior sentence. Purchaser will indemnify, defend and hold Seller, MHL and Manager harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorney’s fees) that may be incurred by, or asserted against, any such party after Closing which involves any matter relating to a Hotel Employee concerning acts or omissions occurring after the Cut-Off Time, including, without limitation, any payment required to be made by Purchaser under this Section 6.07.
(b)	Purchaser acknowledges that Seller shall not be employing the Hotel Employees upon the Closing and that Seller is not giving any notice under, or otherwise complying with, the Worker Adjustment and Retraining Notification Act (together with all rules and regulations promulgated thereunder, the “WARN Act”). Purchaser agrees to hire a sufficient number of the Hotel Employees, and on such terms and conditions, as to avoid any violation of the WARN Act and/or any other similar state or local Laws in the absence of such notice, and agrees to indemnify and defend Seller, MHL and Manager, and hold them harmless, from and against any and all loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorneys’ fees) incurred by any of such parties as a result of the failure to give such notice or otherwise comply with the WARN Act and/or any other similar state or local Laws (including, but not limited to, the closing of the Hotel by Purchaser within a period of sixty (60) days after the Closing Date which would result in either (a) a “plant closing” as defined in the WARN Act or (b) a violation under other applicable Laws); provided, however, and without limiting the foregoing, that Purchaser shall (i) not close the Hotel within sixty (60) days after the Closing Date and (ii) rehire at least eighty percent (80%) of the Hotel Employees.
(c)	The provisions of Section 6.07 shall survive the Closing.

     6.08 Further Assurances. Each party agrees that it will without further consideration execute and deliver such other documents and take such other action, whether prior or subsequent to Closing, as may be reasonably requested by the other party to consummate more effectively the purposes or subject matter of this Agreement.

     6.09 Release. Reference is made to that certain letter dated September 27, 2005 from Bruce G. Wiles of MeriStar Hospitality Company (“MeriStar”) to William Richardson of Interstate Hotels & Resorts, Inc. (“Interstate”) regarding management contracts for various hotels specified therein, as well as issues regarding the operation and sale of the Hotel (the “Letter”). Seller, on behalf of itself and each of its affiliates (including without

limitation MeriStar) (collectively, the “Releasing Parties”), hereby releases Interstate and each of its affiliates (including without limitation Purchaser and the Manager), and their respective directors, officers, shareholders, members, partners, managers, representatives, agents and employees, from any and all claims, causes of action, liability, losses and damages which any of the Releasing Parties may have pursuant to the Letter or, except as otherwise provided in this Agreement, in connection with the subject matter thereof, but only to the extent related to the Hotel. The provisions of this Section shall survive the Closing or termination of this Agreement, as applicable.

VII.

Condemnation and Risk of Loss

     7.01 Condemnation. If, prior to Closing, any governmental authority or other entity having condemnation authority shall institute an eminent domain proceeding or take any steps preliminary thereto (including the giving of any direct or indirect notice of intent to institute such proceedings) with regard to any material portion of the Property (including without limitation the taking of any parking spaces or any access to the Property), and the same is not dismissed prior to Closing, Seller shall promptly notify Purchaser thereof, and Purchaser shall be entitled either to terminate this Agreement upon written notice to Seller or to waive such right of termination and receive all such condemnation proceeds or an assignment thereof at the Closing. In the event Purchaser elects to terminate this Agreement under this Section 7.01, Escrow Agent shall promptly return to Purchaser the Earnest Money and the parties shall have no further rights or liabilities under this Agreement except for those provisions which specifically provide that they survive the termination of this Agreement.

     7.02 Risk of Loss. Until Closing, Seller shall bear the risk of loss should there be damage to any of the Improvements by fire or other casualty. If prior to the Closing the Improvements shall be damaged by fire or other casualty, Seller shall promptly take all actions reasonably necessary to preserve and protect the Improvements from further loss or damage, and within five (5) business days after such loss deliver to Purchaser the following items (collectively “Casualty Loss Information”): (a) copies of all casualty and business interruption policies relating to the Property; (b) the names, addresses and telephone numbers of the adjustors assigned to adjust the loss; (c) letters addressed to each insurance company issuing a policy covering such loss and executed by Seller authorizing said company and its adjustors to discuss all matters relating to such loss with Purchaser, its agents and attorneys; and (d) a reasonable written description of the damages incurred and a good faith estimate of the cost of restoration. If the Improvements suffer material damage by a casualty, which, for the purpose of this Section, shall mean damage which would require an expenditure in excess of five percent (5%) or more of the Purchase Price to repair, Purchaser may within five (5) business days after delivery of the Casualty Loss Information either:

(a)	terminate this Agreement by delivering written notice of same to Seller, in which event Escrow Agent shall promptly return to Purchaser the Earnest Money and the parties shall have no further rights or liabilities under this Agreement except for those provisions which specifically provide that they survive the termination of this Agreement; or
(b)	waive its right of termination, by delivering written notice of same to Seller, and proceed to close this transaction in accordance with the terms hereof.

At Closing, (i) the amount of any deductibles under the applicable insurance policies and all insurance proceeds received prior to Closing shall be delivered to Purchaser other than such proceeds as shall have been applied to the restoration of the Property, (ii) Purchaser may notify all appropriate insurance companies of its interest in the insurance proceeds, (iii) all casualty insurance proceeds payable as a result of the loss and Purchaser’s pro rata share of any rental or business loss proceeds shall be assigned to Purchaser at Closing and (iv) Purchaser shall assume all contracts or other agreements entered into by Seller with non-affiliated third parties to preserve and protect the Improvements pursuant to the second sentence of this Section and any other contracts entered into by Seller and approved in writing by Purchaser with respect to the restoration of the Property.

VIII.

Indemnities

     8.01 Seller’s Indemnity. For a period of two (2) years from and after the Closing, Seller shall indemnify, defend and hold Purchaser harmless from any and all actual costs, loss, damages (excluding consequential and punitive damages) or expenses (including without limitation reasonable attorneys’ fees) incurred by Purchaser with respect to (i) any breach by Seller of any of its covenants in this Agreement, (ii) Seller’s failure to duly perform, pay and discharge any liability or obligation of Seller, other than the Assumed Obligations, and (iii) Seller’s ownership and operation of the Hotel and the Property prior to the Closing.

     8.02 Purchaser’s Indemnity. For a period of two (2) years from and after the Closing, Purchaser shall indemnify, defend and hold Seller harmless from any and all actual costs, loss, damages (excluding consequential and punitive damages) or expenses (including without limitation reasonable attorneys’ fees) incurred by Seller with respect to (i) any breach by Purchaser of any of its covenants in this Agreement, (ii) Purchaser’s failure to duly perform, pay and discharge any of the Assumed Obligations, and (iii) Purchaser’s ownership and operation of the Hotel and the Property after the Closing.

IX.

Miscellaneous

     9.01 Entire Agreement. This Agreement supercedes the terms of the letter agreement between Seller and Purchaser dated July 7, 2005, and contains the entire agreement of the parties with respect to the subject matter of this Agreement. There are no other agreements, oral or written, and this Agreement can be amended only by written agreement signed by Seller and Purchaser.

     9.02 Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties to this Agreement. Purchaser may not assign this Agreement without the prior written consent of Seller which may be withheld in Seller’s sole discretion, provided, however, that Purchaser may, with five (5) days prior notice to Seller, assign its rights under this Agreement without Seller’s consent to any entity, partnership or limited liability company wholly owned (directly or indirectly) by Interstate Hotels & Resorts, Inc., provided that (a) no further assignment after the initial assignment by Purchaser shall be permitted without Seller’s consent, (b) Purchaser shall remain primarily liable in all respects for its liabilities and obligations under this Agreement, (c) such assignment will not delay the Closing nor require Seller to obtain any additional third party consents, certificates or approvals, and (d) Purchaser’s assignee must have a net worth reasonably acceptable to Seller. No assignment of this Agreement shall release Purchaser from its obligations under this Agreement. Any assignee of this Agreement shall be jointly and severally liable for all obligations of Purchaser hereunder.

     9.03 Notices. Any notice, communication, request, reply or advice (collectively, “Notice”) provided for or permitted by this Agreement must be in writing. Notices shall be given by delivery by national overnight courier or by facsimile transmission followed by delivery by national overnight courier. Notice by overnight courier shall be effective one (1) business day after deposit with the courier service. Notice given by confirmed facsimile transmission shall be effective on the business date delivered. For the purposes of Notice, the addresses of the parties shall be:

Seller:
	Fax No.:
	Phone:
	Attn:
with copy to:	Arnold & Porter LLP

	Fax No.:
	Phone:
	Attn:
Purchaser:	4501 N. Fairfax Drive
	Arlington, VA 22203
	Fax No.: (703) 387-3389
	Phone: (703) 387-3332
	Attn: Christopher L. Bennett, Senior Vice President and General Counsel
with copy to:	Eckert Seamans Cherin & Mellott, LLC
	Fax No.:
	Phone:
	Attn:

The parties shall have the right from time to time to change their respective addresses for notice by providing at least five (5) days’ written notice to the other party.

     9.04 Governing Law; Waiver of Jury Trial. This Agreement shall be construed in accordance with the laws of the state in which the Property is located, without regard to its conflict of laws principles. Seller and Purchaser each hereby waives any right to jury trial in the event any party files an action relating to this Agreement or to the transactions or obligations contemplated by this Agreement.

     9.05 Section Headings. The section headings contained in this Agreement are for convenience only and shall in no way enlarge or limit the scope or meaning of the various and several sections of this Agreement. Any reference in this Agreement to “Sections,” or “Exhibits” shall be references to Sections or Exhibits of this Agreement unless otherwise specified.

     9.06 Time of the Essence. Time shall be of the essence with respect to the performance of all obligations of the parties under this Agreement.

     9.07 Nonrecordation. Neither this Agreement nor any memorandum thereof shall be recorded.

     9.08 Confidentiality.

(a)

Purchaser agrees that, until after the Closing, all documentation or other information delivered to Purchaser or its representatives or agents by Seller or Seller’s representatives or agents pertaining to the Purchased Assets shall be kept strictly confidential and will not be used by Purchaser or its representatives or agents, directly or indirectly, for any purpose other than evaluating the Purchased Assets. Purchaser may however make appropriate disclosures to its investors and lenders and to its and their respective attorneys, accountants and consultants engaged in connection with this transaction or to such other persons or entities to which disclosure is legally required.

(b)

If Purchaser does not acquire the Property for any reason whatsoever, Purchaser shall deliver to Seller, promptly upon demand at no cost to Seller, all materials and documents previously obtained by Purchaser from Seller (with no retention by Purchaser of copies of any such materials and documents), and copies of all third-party engineering work, soils reports, environmental/biological studies, appraisals, and other materials pertaining to the Property (other than information generated by its counsel) as Purchaser has prepared or caused to be prepared. Such delivery shall be made without representation or warranty by Purchaser as to the contents of such items and Seller shall not be entitled to rely on such items.

(c)	Prior to the Closing, neither party shall, without the prior written consent of the other party (which consent shall not be unreasonably withheld), issue any press release or other public statement (except such statements as may be required by law) in connection with the transactions contemplated hereby. From and after the Closing, the parties may issue such a press release or other public statement provided that the same does not describe the economic terms of this transaction except to the extent required by law.
(d)	Each party is authorized to disclose the tax treatment and tax structure of the transactions set forth in this Agreement.
(e)	This Section 9.08 shall survive the Closing or any termination of this Agreement.

     9.09 Counterparts; Execution by Facsimile. This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Executed counterparts of this Agreement exchanged by facsimile transmission shall be fully enforceable.

     9.10 1031 Exchange. Purchaser acknowledges that Seller has advised Purchaser that Seller is reserving its right to exchange the Property for other property of like kind and qualifying use within the meaning of Section 1031 of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder. Seller expressly reserves the right to assign its rights, but not its obligations, under this Agreement to a “Qualified Intermediary” as provided in such regulations on or before the Closing Date; provided, however, that the exchange contemplated by this Section 9.10 shall in no event delay the Closing beyond the Closing Date. Purchaser agrees to cooperate with Seller to effectuate such exchange but Purchaser shall assume no liability or incur any expense in connection therewith. Seller shall pay all costs and advance all funds required in connection with such exchange and shall indemnify, defend, and hold Purchaser harmless from all claims, damages, liabilities, costs and expenses (including, but not limited to reasonable legal fees) in connection with such exchange. Purchaser shall in no event be required to take title to the exchanged property.

     9.11 Bulk Transfers. Seller and Purchaser specifically waive compliance with the Uniform Commercial Code of the State in which the Property is located with respect to bulk transfers, with any similar provision under any applicable law of such State or the county and city in which the Property is located. In the event such waiver is ineffective, Seller shall indemnify Purchaser for any claims made by creditors under the applicable bulk sales laws relating solely to any pre-Closing payment obligations to such creditors and only in the amount of the payments due such creditors. The provisions of this Section 9.11 shall survive the Closing.

     9.12 No Third-Party Beneficiaries. Seller and Purchaser agree that there are no third parties who are intended to benefit from or who are entitled to rely on any of the provisions of this Agreement. No third party shall be entitled to assert any claims or to enforce any rights whatsoever pursuant to this Agreement. The covenants and agreements provided in this Agreement are solely for the benefit of Seller and Purchaser and their permitted successors and assigns respectively.

     9.13 Contract Construction. In the event of litigation between the parties hereto this Agreement shall not be construed against any party on the basis of which party’s counsel drafted this Agreement.

     9.14 Saturdays, Sundays, Legal Holidays. If the time period by which any right, option, or election provided under this Agreement must be exercised or by which any acts or payments required hereunder must be performed or paid, or by which the Closing must be held, expires on a Saturday, Sunday, legal or bank holiday, then such time period shall be automatically extended to the next regularly scheduled business day.

[Signatures appear on the following page.]

     IN WITNESS WHEREOF, this Agreement has been duly executed in multiple counterparts by the parties hereto as of the date and year first above written.

SELLER:
MERISTAR HOSPITALITY OPERATING
PARTNERSHIP, L.P.
By:	MeriStar Hospitality Corporation,
	its general partner
By:	/s/ DONALD D. OLINGER
Name:	Donald D. Olinger
Title:	Chief Financial Officer
PURCHASER:
INTERSTATE DURHAM, LLC
By:	/s/ CHRISTOPHER L. BENNETT
Name:	Christopher L. Bennett
Title:	Senior Vice President and General Counsel

FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT

     THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this “Amendment”) is made and entered into as of November 10, 2005, by and between MERISTAR HOSPITALITY OPERATING PARTNERSHIP, L.P., Delaware limited partnership (“Seller”), and INTERSTATE DURHAM, LLC, a Delaware limited liability company (“Purchaser”).

RECITALS:

     WHEREAS, Purchaser and Seller are parties to that certain Purchase and Sale Agreement dated as of October 31, 2005 (the “Agreement”); and

     WHEREAS, Purchaser and Seller now desire to amend the Agreement to extend the date on or before which the Closing must occur, all upon the terms and conditions set forth below.

     NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, the parties hereto, intending to be legally bound hereby, agree as follows:

     1. Defined Terms. Capitalized terms used but not defined herein have the meanings ascribed to them in the Agreement.

     2. Amendment of Section 6.01. Section 6.01 of the Agreement is hereby amended by deleting “November 10, 2005” and replacing it with “November 22, 2005.”

     3. No Other Amendment. All other provisions of the Agreement not specifically referenced in this Amendment shall remain in full force and effect.

     4. Entire Agreement. The Agreement, as amended by this Amendment, constitutes the entire agreement between the parties hereto with respect to the subject matter thereof and together supersede all prior agreements and understandings, whether oral or written, between the parties hereto with respect to the subject matter thereof.

     5. Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of North Carolina, without regard to its conflicts of law principles.

     6. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall, when executed, be deemed to be an original and all of which shall be deemed to be one and the same instrument. Signatures on this Amendment transmitted by facsimile shall be deemed to be original signatures for all purposes of this Amendment.

[Signatures appear on the following page.]

     IN WITNESS WHEREOF, the parties have executed and delivered this Amendment as of the date first above written.

MERISTAR HOSPITALITY OPERATING      PARTNERSHIP, L.P.
By:	MeriStar Hospitality Corporation, its general partner
	By:	/s/ JOHN PLUNKET
	Name:	John Plunket
	Title:	Senior Vice President
INTERSTATE DURHAM, LLC
By:	/s/ CHRISTOPHER L. BENNETT
Name:	Christopher L. Bennett
Title:	Senior Vice President and General Counsel

2

EX-10.4

EXHIBIT 10.4

PURCHASE CONTRACT

     This PURCHASE CONTRACT (this “Contract”) is made and entered into as of June 15, 2005, by and between INTERSTATE PITTSBURGH HOTEL HOLDINGS, L.L.C., a Delaware limited liability company (“Seller”), with its principal office at 4501 N. Fairfax Drive, Suite 800, Arlington, Virginia 22203, and APPLE SIX HOSPITALITY OWNERSHIP, INC., a Virginia corporation, with its principal office at                      , or its permitted assigns (“Buyer”).

RECITALS

     A. Seller is the fee simple owner of the Residence Inn by Marriott hotel located at 1500 Park Lane Drive, Pittsburgh, Pennsylvania.

     B. Buyer is desirous of purchasing such hotel property from Seller, and Seller is desirous of selling such hotel property to Buyer, for the purchase price and upon terms and conditions hereinafter set forth.

AGREEMENT:

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

ARTICLE I
DEFINED TERMS

     1.1 Definitions. The following capitalized terms when used in this Contract shall have the meanings set forth below unless the context otherwise requires:

     “Affiliate” shall mean, with respect to Seller or Buyer, any other person or entity directly or indirectly controlling (including but not limited to all directors and officers), controlled by or under direct or indirect common control with Seller or Buyer, as applicable. For purposes of the foregoing, a person or entity shall be deemed to control another person or entity if it possesses, directly or indirectly, the power to direct or cause direction of the management and policies of such other person or entity, whether through the ownership of voting securities, by contract or otherwise.

     “Appurtenances” shall mean all rights, titles, and interests of Seller appurtenant to the Land and Improvements, including, but not limited to, (i) all easements, rights of way, rights of ingress and egress, tenements, hereditaments, privileges, and appurtenances in any way belonging to the Land or Improvements, (ii) any land lying in the bed of any alley, highway, street, road or avenue, open or proposed, in front of or abutting or adjoining the Land, (iii) any strips or gores of real estate adjacent to the Land, and (iv) the use of all alleys, easements and rights-of-way, if any, abutting, adjacent, contiguous to or adjoining the Land.

     “Assumed Contracts” shall have the meaning set forth in Section 8.11.

     “Assumed Obligations” shall have the meaning set forth in Section 8.11.

     “Bills of Sale” shall have the meaning set forth in Section 10.2(b).

     “Brand” shall mean Residence Inn by Marriott, the hotel brand or franchise under which the Hotel operates.

     “Business Day” shall mean any day other than a Saturday, Sunday or legal holiday in the Commonwealth of Virginia or the Commonwealth of Pennsylvania.

     “Ceiling Amount” shall have the meaning set forth in Section 8.8(d)(ii).

     “Closing” shall mean the closing of the purchase and sale of the Property pursuant to this Contract.

     “Closing Date” shall have the meaning set forth in Section 10.1.

     “Contracts, Plans and Specs” shall mean all construction and other contracts, plans, drawings, specifications, surveys, soil reports, engineering reports, inspection reports, and other technical descriptions and reports.

     “Cutoff Time” shall have the meaning set forth in Section 12.1.

     “Damages” shall have the meaning set forth in Section 8.8(a).

     “Deductible Amount” shall have the meaning set forth in Section 8.8(d)(i).

     “Deed” shall have the meaning set forth in Section 10.2(a).

     “Deposits” shall mean, to the extent assignable, all prepaid rents and deposits (including, without limitation, any reserves for replacement of FF&E and for capital repairs and/or improvements), refundable security deposits and rental deposits, and all other deposits for advance reservations, banquets or future services, made in connection with the use or occupancy of the Improvements; provided, however, that to the extent Seller has not received or does not hold all of the prepaid rents and/or deposits attributable to the Leases related to the Property, Buyer shall be entitled to a credit against the cash portion of the Purchase Price allocable to the Property in an amount equal to the amount of the prepaid rents and/or deposits attributable to the Leases transferred at the Closing of such Property, and provided further, that “Deposits” shall exclude (i) reserves for real property taxes and insurance, in each case, to the extent pro rated on the settlement statement such that Buyer receives a credit for (a) taxes and premiums in respect of any period prior to Closing and (b) the amount of deductibles and other self-insurance and all other potential liabilities and claims in respect of any period prior to Closing, and (ii) utility deposits.

     “Due Diligence Examination” shall have the meaning set forth in Section 3.2.

     “Earnest Money Deposit” shall have the meaning set forth in Section 2.5(a).

     “Escrow Agent” shall have the meaning set forth in Section 2.5(a).

     “Escrow Agreement” shall have the meaning set forth in Section 2.5(b).

     “Escrow Funds” shall have the meaning set forth in Section 8.9.

     “Exception Documents” shall have the meaning set forth in Section 4.2.

     “Executive Order” shall have the meaning set forth in Section 7.1(o).

     “Existing Franchise Agreement” shall mean that certain Franchise Agreement dated as of November 1, 1999 between Seller and the Franchisor, granting Seller a franchise to operate the Hotel under the Brand.

     “Existing Management Agreement” shall mean that certain Management Agreement dated as of November 1, 1999 between Seller and the Existing Manager for the operation and management of the Hotel.

     “Existing Manager” shall mean Crossroads Hospitality Management Company.

     “Extension Deposit” shall have the meaning set forth in Section 9.3.

     “Extension Period” shall have the meaning set forth in Section 9.3.

     “FF&E” shall mean all tangible personal property and fixtures of any kind (other than personal property (i) owned by guests of the Hotel or (ii) leased by Seller pursuant to an FF&E Lease) attached to, or located upon and used in connection with the ownership, maintenance, use or operation of the Land or Improvements as of the date hereof (or acquired by Seller and so employed prior to Closing), including, but not limited to, all furniture, fixtures, equipment, signs and related personal property; all heating, lighting, plumbing, drainage, electrical, air conditioning, and other mechanical fixtures and equipment and systems; all elevators, and related motors and electrical equipment and systems; all hot water heaters, furnaces, heating controls, motors and equipment, all shelving and partitions, all ventilating equipment, and all disposal equipment; all spa, health club and fitness equipment; all equipment used in connection with the use and/or maintenance of the guestrooms, restaurants, lounges, business centers, meeting rooms, swimming pools, indoor and/or outdoor sports facilities and other common areas and recreational areas; all carpet, drapes, beds, furniture, televisions and other furnishings; all stoves, ovens, freezers, refrigerators, dishwashers, disposals, kitchen equipment and utensils, tables, chairs, plates and other dishes, glasses, silverware, serving pieces and other restaurant and bar equipment, apparatus and utensils. A current list of FF&E is attached hereto as Exhibit B.

     “FF&E Leases” shall mean all leases of any FF&E and other contracts permitting the use of any FF&E at the Improvements that are assumed by Buyer.

     “Financial Statements” shall have the meaning set forth in Section 3.1(b).

     “Franchisor” shall mean Marriott International, Inc.

     “Hotel” shall mean the hotel located on the Land, including all Improvements and Personal Property associated therewith, known generally as the Residence Inn by Marriott located at 1500 Park Lane Drive, Pittsburgh, Pennsylvania.

     “Hotel Contracts” shall mean all leases, license agreements, leasing agent’s agreements, equipment leases, building service agreements, maintenance contracts, suppliers contracts, warranty contracts, operating agreements or other agreements relating to the ownership, occupancy, operation, management or maintenance of the Property to which Seller is a party (or an assignee) or that are binding on the Property.

     “Improvements” shall mean all buildings, structures, fixtures, parking areas and other improvements to the Land, and all related facilities.

     “Indemnified Party” shall have the meaning set forth in Section 8.8(c)(i).

     “Indemnifying Party” shall have the meaning set forth in Section 8.8(c)(i).

     “Internal Revenue Code” shall mean the Internal Revenue Code of 1986, as amended.

     “Land” shall mean, collectively, a fee simple absolute interest in the real property more fully described in Exhibit A hereto, which is attached hereto and incorporated herein by reference, together with all rights (including without limitation all air rights and development rights), alleys, streets, strips, gores, waters, privileges, appurtenances, advantages and easements belonging thereto or in any way appertaining thereto.

     “Leases” shall mean all leases, franchises, licenses, occupancy agreements, “trade-out” agreements, advance bookings, convention reservations, or other agreements demising space in, providing for the use or occupancy of, or otherwise similarly affecting or relating to the use or occupancy of, the Improvements or Land, together with all amendments, modifications, renewals and extensions thereof, and all guaranties by third parties of the obligations of the tenants, licensees, franchisees, concessionaires or other entities thereunder.

     “Legal Action” shall have the meaning set forth in Section 8.8(c)(ii).

     “Licenses” shall mean all permits, licenses, franchises, utility reservations, certificates of occupancy, and other documents issued by any federal, state, or municipal authority or by any private party related to the

development, construction, use, occupancy, operation or maintenance of the Hotel, including, without limitation, all licenses, approvals and rights (including any and all existing waivers of any brand standard) necessary or appropriate for the operation of the Hotel under the Brand.

     “Manager” shall mean the management company selected by Buyer to manage the Hotel from and after the Closing.

     “New Franchise Agreement” shall mean the franchise license agreement to be entered into between Buyer and the Franchisor, granting to Buyer a franchise to operate the Hotel under the Brand on and after the Closing Date.

     “New Management Agreement” means the management agreement to be entered into between Buyer and the Manager for the operation and management of the Hotel on and after the Closing Date.

     “Pending Claims” shall have the meaning set forth in Section 7.1(e).

     “Permitted Exceptions” shall have the meaning set forth in Section 4.3.

     “Personal Property” shall mean, collectively, all of the Property other than the Real Property.

     “PIP” shall mean a product improvement plan for the Hotel, as required by the Manager or the Franchisor, if any.

     “Post-Closing Agreement” shall have the meaning set forth in Section 8.9.

     “Property” shall mean, collectively, (i) all of the following with respect to the Hotel: the Land, Improvements, Appurtenances, FF&E, Supplies, Leases, Deposits, Records, Service Contracts, Warranties, Licenses, FF&E Leases, Contracts, Plans and Specs, Tradenames, Utility Reservations, as well as all other real, personal or intangible property of Seller related to any of the foregoing and (ii) any and all of the following that relate to or affect in any way the design, construction, ownership, use, occupancy, leasing, maintenance, service or operation of the Real Property, FF&E, Supplies, Leases, Deposits or Records: Service Contracts, Warranties, Licenses, Tradenames, Contracts, Plans and Specs and FF&E Lease.

     “Purchase Price” shall have the meaning set forth in Section 2.2.

     “Real Property” shall mean, collectively, all Land, Improvements and Appurtenances with respect to the Hotel.

     “Records” shall mean all books, records, promotional material, tenant data, guest history information (other than any such information owned exclusively by the Existing Manager), marketing and leasing material and forms (including but not limited to any such records, data, information, material and forms in the form of computerized files located at the Hotel), market studies prepared in connection with Seller’s current annual plan and other materials, information, data, legal or other documents or records (including, without limitation, all documentation relating to any litigation or other proceedings, all zoning and/or land use notices, relating to or affecting the Property, all business plans and projections and all studies, plans, budgets and contracts related to the development, construction and/or operation of the Hotel) owned by Seller and/or in Seller’s possession or control, or to which Seller has access or may obtain from the Existing Manager, that are used in or relating to the Property and/or the operation of the Hotel, including the Land, the Improvements or the FF&E, and proforma budgets and projections and construction budgets and contracts related to the development and construction of the Hotel and a list of the general contractors, architects and engineers providing goods and/or services in connection with the construction of the Hotel, all construction warranties and guaranties in effect at Closing and copies of the final plans and specifications for the Hotel.

     “Release Date” shall have the meaning set forth in Section 8.9.

     “Retained Obligations” shall have the meaning set forth in Section 8.11.

     “Review Period” shall have the meaning set forth in Section 3.1.

     “SEC” shall have the meaning set forth in Section 8.6.

     “Seller Liens” shall have the meaning set forth in Section 4.3.

     “Seller Parties” shall have the meaning set forth in Section 7.1(e).

     “Service Contracts” shall mean contracts or agreements, such as maintenance, supply, service or utility contracts.

     “Supplies” shall mean all merchandise, supplies, inventory and other items used for the operation and maintenance of guest rooms, restaurants, lounges, swimming pools, health clubs, spas, business centers, meeting rooms and other common areas and recreational areas located within or relating to the Improvements, including, without limitation, all food and beverage (alcoholic and non-alcoholic) inventory, office supplies and stationery, advertising and promotional materials, china, glasses, silver/flatware, towels, linen and bedding (which towels, linen and bedding shall be 2-par level for all suites or rooms in the Hotel), guest cleaning, paper and other supplies, upholstery material, carpets, rugs, furniture, engineers’ supplies, paint and painters’ supplies, employee uniforms, and all cleaning and maintenance supplies, including those used in connection with the swimming pools, indoor and/or outdoor sports facilities, health clubs, spas, fitness centers, restaurants, business centers, meeting rooms and other common areas and recreational areas.

     “Survey” shall have the meaning set forth in Section 4.1.

     “Tax Clearance Certificate” shall have the meaning set forth in Section 11.1.

     “Third Party Consents” shall have the meaning set forth in Section 8.3.

     “Title Commitment” shall have the meaning set forth in Section 4.2.

     “Title Company” shall have the meaning set forth in Section 4.2.

     “Title Policy” shall have the meaning set forth in Section 4.2.

     “Title Review Period” shall have the meaning set forth in Section 4.3.

     “Tradenames” shall mean all telephone exchanges and numbers, trade names, trade styles, trade marks, and other identifying material, and all variations thereof, together with all related goodwill (it being understood and agreed that the name of the hotel chain to which the Hotel is affiliated by franchise, license or management agreement is a protected name or registered service mark of such hotel chain and cannot be transferred to Buyer by this Contract.

     “Utility Reservations” shall mean Seller’s interest, if any, in the right to receive immediately on and after the Closing Date and continuously consume thereafter water service, sanitary and storm sewer service, electrical service, gas service and telephone service on and for the Land and Improvements in capacities that are adequate continuously to use and operate the Improvements as conducted prior to the Closing, including, but not limited to (i) any right to the present and future use of wastewater, drainage, water and other utility facilities to the extent such use benefits the Real Property, (ii) any reservations of or commitments covering any such use in the future, and (iii) any wastewater capacity reservations relating to the Real Property. Buyer shall be responsible for any requests or documents to transfer the Utility Reservations, at Buyer’s sole cost and expense.

     “Warranties” shall mean all warranties, guaranties, indemnities and claims for the benefit of Seller, if any, with respect to the Hotel, the Property or any portion thereof, including, without limitation, all warranties and guaranties of the development, construction, completion, installation, equipping and furnishing of the Hotel, and all indemnities, bonds and claims of Seller related thereto.

ARTICLE II
PURCHASE AND SALE; PURCHASE PRICE; PAYMENT;
EARNEST MONEY DEPOSIT

     2.1 Purchase and Sale. Seller agrees to sell and convey to Buyer, and Buyer agrees to purchase from Seller, the Property, in consideration of the Purchase Price and upon the terms and conditions hereof. All of the Property shall be conveyed, assigned, and transferred to Buyer at Closing, free and clear of all mortgages, liens, encumbrances, licenses, franchises, concession agreements, security interests, prior assignments or conveyances, conditions, restrictions, rights-of-way, easements, encroachments, claims and other matters affecting title or possession, except for the Permitted Exceptions.

     2.2 Purchase Price. Buyer agrees to pay, and Seller agrees to accept, as consideration for the conveyance of the Property, subject to the adjustments provided for in this Contract, the amount of Eleven Million and No/100 Dollars ($11,000,000.00) (the “Purchase Price”).

     2.3 Allocation. Buyer and Seller shall attempt to agree, prior to the expiration of the Review Period, on an allocation of the Purchase Price among Real Property, tangible Personal Property and intangible property related to the Property. In the event Buyer and Seller do not agree, each party shall be free to allocate the Purchase Price to such items as they deem appropriate, subject to and in accordance with applicable laws.

     2.4 Payment. The portion of the Purchase Price, less the Earnest Money Deposit and interest earned thereon, if any, which Buyer elects to have applied against the Purchase Price (as provided below), less the Escrow Funds, shall be paid to Seller in cash, certified funds or wire transfer of immediately available funds at the Closing. At the Closing, the Earnest Money Deposit, together with interest earned thereon, if any, shall, at Buyer’s election, be returned to Buyer or shall be paid over to Seller by Escrow Agent to be applied to the portion of the Purchase Price on behalf of Buyer, and the Escrow Funds shall be deposited into an escrow account pursuant to the Post-Closing Agreement as contemplated by Section 8.9.

     2.5 Earnest Money Deposit.

          (a) Within one (1) Business Day after the date of this Contract, Buyer shall deposit the sum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in cash, certified bank check or by wire transfer of immediately available funds (the “Initial Deposit”) with the Title Company, as escrow agent (“Escrow Agent”), which sum shall be held by Escrow Agent as earnest money. If, pursuant to the provisions of Section 3.1, Buyer elects to terminate this Contract at any time prior to the expiration of the Review Period, then the Escrow Agent shall return the Earnest Money Deposit to Buyer promptly upon written notice to that effect from Buyer. If Buyer does not elect to terminate this Contract on or before the expiration of the Review Period, Buyer shall, no later than one (1) Business Day after the expiration of the Review Period, deposit the sum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in cash, certified bank check or by wire transfer of immediately available funds (the “Additional Deposit”) with the Escrow Agent. The Initial Deposit and the Additional Deposit, and all interest accrued thereon, shall hereinafter be referred to as the “Earnest Money Deposit.”

          (b) The Earnest Money Deposit shall be held by Escrow Agent subject to the terms and conditions of an Escrow Agreement dated as of the date of this Contract entered into by Seller, Buyer and Escrow Agent, in the form attached as Exhibit G hereto (the “Escrow Agreement”). The Earnest Money Deposit shall be held in an interest-bearing account in a federally insured bank or savings institution reasonably acceptable to Seller and Buyer, with all interest to accrue to the benefit of the party entitled to receive it and to be reportable by such party for income tax purposes.

ARTICLE III
REVIEW PERIOD

     3.1 Review Period. Buyer shall have a period through 6:00 p.m. Eastern Time on the date that is forty-five (45) days after the date of this Contract, unless a longer period of time is otherwise provided for in this

Contract and except as otherwise agreed to by Buyer and Seller (the “Review Period”), to evaluate the legal, title, survey, construction, physical condition, structural, mechanical, environmental, economic, permit status, franchise status, financial and other documents and information related to the Property. Within five (5) days following the date of this Contract, Seller, at Seller’s sole cost and expense, will deliver to Buyer (or make available at the Hotel) for Buyer’s review, to the extent not previously delivered to Buyer, true, correct and complete copies of the following to the extent within Seller’s possession or control or to which Seller has access or which Seller can obtain upon request, together with all amendments, modifications, renewals or extensions thereof:

          (a) All Warranties and Licenses relating to the Hotel or any part thereof;

          (b) Income and expense statements and budgets for the Hotel and for the Seller, for the current year to date and each of the three (3) prior fiscal years and such other financial information relating to the Hotel as Buyer may reasonably request (the “Financial Statements”), provided that Seller also agrees to provide financial and other information as provided in Section 8.6;

          (c) All real estate and personal property tax statements with respect to the Hotel and notices of assessed value for the Real Property for the current year (if available) and each of the three (3) calendar years prior to the current year;

          (d) Engineering, mechanical, architectural and construction plans, drawings, specifications and contracts, payment and performance bonds, title policies, reports and commitments, zoning information and marketing and economic data relating to the Hotel and the construction, development, installation and equipping thereof, as well as copies of all environmental reports and information, topographical, boundary or “as built” surveys, engineering reports, subsurface studies and other Contracts, Plans and Specs relating to or affecting the Hotel. If the Hotel is purchased by Buyer, all such documents and information relating to the Hotel shall thereupon be and become the property of Buyer without payment of any additional consideration therefor;

          (e) All FF&E Leases, Services Contracts, Leases and, if applicable, a schedule of such Leases of space in the Hotel, and all agreements for real estate commissions, brokerage fees, finder’s fees or other compensation payable by Seller in connection therewith; and

          (f) All notices received since January 1, 2002, or of which Seller otherwise has knowledge, from governmental authorities in connection with the Hotel and all other notices received since January 1, 2002, or of which Seller otherwise has knowledge, from governmental authorities received at any time that relate to any noncompliance or violation of law that has not been corrected.

     Seller shall, upon request of Buyer, make available to Buyer and Buyer’s representatives and agents, for inspection and copying during normal business hours, Records located at Seller’s corporate offices, and Seller agrees to provide Buyer copies of all other reasonably requested information that is relevant to the management, operation, use, occupancy or leasing of or title to the Hotel and the plans specifications for development of the Hotel. At any time during the Review Period, Buyer may, in its sole and absolute discretion, elect not to proceed with the purchase of the Property for any reason whatsoever by giving written notice thereof to Seller, in which event: (i) the Earnest Money Deposit shall be promptly returned by Escrow Agent to Buyer together with all accrued interest, if any, (ii) this Contract shall be terminated automatically, (iii) all materials supplied by Seller to Buyer shall be returned promptly to Seller and copies of such materials shall be destroyed or returned to Seller, and (iv) both parties will be relieved of all other rights, obligations and liabilities hereunder, except for the parties’ obligations pursuant to Sections 3.3 and 16.6.

     3.2 Due Diligence Examination. At any time during the Review Period, and thereafter through Closing, Buyer and/or its representatives and agents shall have the right to enter upon the Property at all reasonable times for the purposes of reviewing all Records and other data, documents and/or information relating to the Property and conducting such surveys, appraisals, engineering tests, soil tests (including, without limitation, Phase I and Phase II environmental site assessments), inspections of construction and other inspections and other studies as Buyer deems reasonable and necessary or appropriate to evaluate the Property, subject to providing reasonable

advance notice to Seller unless otherwise agreed to by Buyer and Seller (the “Due Diligence Examination”). Seller shall have the right to have its representative present during Buyer’s physical inspections of the Property, provided that failure of Seller to do so shall not prevent Buyer from exercising its due diligence, review and inspection rights hereunder. Buyer agrees to exercise reasonable care when visiting the Property, in a manner which shall not materially adversely affect the operation of the Property or the Existing Management Agreement. Buyer will provide a copy of Buyer’s environmental report obtained with respect to the Property during the Review Period.

     3.3 Restoration. Buyer covenants and agrees not to damage or destroy any portion of the Property in conducting its examinations and studies of the Property during the Due Diligence Examination and, if Closing does not occur, shall repair any portion of the Property damaged by the conduct of Buyer, its agents or employees, to substantially the condition such portion(s) of the Property were in immediately prior to such examinations or studies. Buyer agrees to indemnify and hold harmless Seller from any liabilities Seller may suffer by reason of damage to persons or property resulting from such examinations or studies made by or at the request of Buyer.

     3.4 Seller Exhibits. Seller has provided to Buyer completed Exhibits B, C, D, E and F, together with true, correct and complete copies of all documents and instruments described and/or referred to therein. Buyer shall have until the end of the Review Period to review and approve the information on Exhibits B, C, D, E and F and in such documents and instruments. In the event Buyer does not approve any such Exhibit or the information contained therein, Buyer shall be entitled to terminate this Contract prior to the expiration of the Review Period by notice to Seller and the Earnest Money Deposit shall be returned to Buyer with all interest thereon and both parties shall be relieved of all rights, obligations and liabilities hereunder except for the parties’ obligations pursuant to Sections 3.3 and 16.6.

ARTICLE IV
SURVEY AND TITLE APPROVAL

     4.1 Survey. Within five (5) days after the date of this Contract, Seller shall deliver to Buyer true, correct and complete copies of the most recent survey of the Real Property of which Seller is aware (if any). In the event that an update of the survey or a new survey (such updated or new survey being referred to as the “Survey”) is desired by Buyer, then Buyer shall be responsible for all costs related thereto, and Buyer agrees to order such update or new survey within three (3) Business Days after Buyer’s receipt of such survey from Seller.

     4.2 Title. Within five (5) days after the date of this Contract, Seller shall deliver to Buyer Seller’s existing title insurance policy, including copies of all documents referred to therein, for the Real Property. As soon as reasonably practicable after receipt thereof, Buyer shall use commercially reasonable efforts to obtain (i) a Commitment for Title Insurance (the “Title Commitment”) issued by LandAmerica American Title Company, 8201 Preston Road, Suite 280, Dallas, Texas, 75225 (the “Title Company”), for the most recent standard form of owner’s policy of title insurance in the state in which the Real Property is located, covering the Real Property, setting forth the current status of the title to the Real Property, showing all liens, claims, encumbrances, easements, rights of way, encroachments, reservations, restrictions and any other matters affecting the Real Property and pursuant to which the Title Company agrees to issue to Buyer at Closing an Owner’s Policy of Title Insurance on the most recent form of ALTA (where available) owner’s policy available in the state in which the Land is located, with extended coverage and, to the extent applicable and available in such state, comprehensive, access, single tax parcel, contiguity and such other endorsements as may be required by Buyer (collectively, the “Title Policy”); and (ii) true, complete, legible and, where applicable, recorded copies of all documents and instruments (collectively, the “Exception Documents”) referred to or identified in the Title Commitment, including, but not limited to, all deeds, lien instruments, leases, plats, surveys, reservations, restrictions, and easements affecting the Real Property. Buyer agrees to place an order for the Title Commitment with the Title Company within three (3) Business Days after Buyer’s receipt of Seller’s current title policy for the Property. Buyer shall promptly provide Seller, at Seller’s expense, with a copy of the Title Commitment issued by the Title Company, together with copies of the Exception Documents.

     4.3 Survey or Title Objections. If Buyer discovers any title or survey matter which is objectionable to Buyer, Buyer may provide Seller with written notice of its objection to same within ten (10) days after receipt of both the Title Commitment (including all Exception Documents) and the Survey (the “Title Review Period”). If

Buyer fails to so object in writing to any such matter set forth in the Survey or Title Commitment, it shall be conclusively assumed that Buyer has approved same. If Buyer disapproves any condition of title, survey or other matters by written objection to Seller on or before the expiration of the Title Review Period, Seller shall elect either to attempt to cure or not cure any such item by written notice sent to Buyer within five (5) Business Days after Seller’s receipt of notice from Buyer, and if Seller commits in writing to attempt to cure any such item, Seller shall be given until the Closing Date to cure any such defect. In the event Seller shall fail to cure a defect which Seller has committed in writing to cure prior to Closing, or if a new title defect arises after the date of Buyer’s Title Commitment or Survey, as applicable, but prior to Closing and such new title defect is not cured by Seller prior to Closing, then Buyer may elect, in Buyer’s sole and absolute discretion: (i) to waive such objection and proceed to Closing, or (ii) to terminate this Contract and receive a return of the Earnest Money Deposit, and any interest thereon. The items shown on the Title Commitment which are not objected to by Buyer as set forth above (other than exceptions and title defects arising after the Title Review Period and other than those standard exceptions which are ordinarily and customarily omitted in the state in which the Hotel is located, so long as Seller provides the appropriate owner’s affidavit, gap indemnity or other documentation reasonably required by the Title Company for such omission) are hereinafter referred to as the “Permitted Exceptions.” In no event shall Permitted Exceptions include liens, or documents evidencing liens, securing any indebtedness or any mechanics’ or materialmen’s liens or any claims or potential claims therefor covering the Property or any portion thereof (“Seller Liens”), each of which shall be paid in full by Seller and released at Closing.

ARTICLE V
MANAGEMENT AGREEMENT AND FRANCHISE AGREEMENT

     At or prior to the Closing, Seller shall terminate the Existing Management Agreement and use commercially reasonable efforts to terminate the Existing Franchise Agreement, and Seller shall be solely responsible for all claims and liabilities arising thereunder on, prior to or following the Closing Date. Buyer shall use commercially reasonable efforts to enter into the New Management Agreement and the New Franchise Agreement, effective as of the Closing Date, containing terms and conditions reasonably acceptable to Buyer (including, without limitation, such terms and conditions as may be required to accommodate Buyer’s and/or Buyer’s Affiliates’ REIT structure). Seller shall be responsible for paying all costs and fees (including attorneys fees) related to the termination of the Existing Management Agreement and the Existing Franchise Agreement, including but not limited to, the payment of all termination and cancellation fees and/or penalties, all costs and fees of its attorneys and consultants, all costs associated with any releases or other provisions requested by or for the benefit of Seller, provided, however, that, notwithstanding the foregoing, Buyer shall pay the termination fee (if any) payable to the Franchisor pursuant to Section XVIII E of the Existing Franchise Agreement (not to exceed the liquidated damages amount calculated pursuant to such Section) in order to terminate the Existing Franchise Agreement as a result of a sale of the Hotel pursuant to this Contract, provided further, that Buyer shall not be responsible for payment of (x) any costs, expenses, fees or liabilities resulting from any default or other act or omission by Seller under the Existing Franchise Agreement (including, without limitation, any costs, expenses, fees or liabilities relating to termination of any franchise or license agreement between Seller and the Franchisor and/or any Affiliate of either of them relating to any hotel other than the Hotel), or (y) any accrued but unpaid monetary obligations or payments payable to Franchisor or any of its Affiliates under the Existing Franchise Agreement up to the date of termination thereof, all of which shall be the responsibility of, and shall be paid by, Seller. Buyer shall also pay all license, application and similar fees related to the New Management Agreement and the New Franchise Agreement and the costs of any PIP improvements required by the Franchisor, where applicable, incurred in connection with the New Franchise Agreement. Buyer and Seller shall use commercially reasonable efforts to promptly provide all information required by the Manager or the Franchisor in connection with the New Management Agreement and the New Franchise Agreement, and Buyer shall diligently pursue obtaining the same.

ARTICLE VI
BROKERS

     Seller and Buyer each represents and warrants to the other that it has not engaged any broker, finder or other party in connection with the transaction contemplated by this Contract, except that Seller has engaged O’Connell Hospitality Group, LLC (the “Broker”) to act on Seller’s behalf in connection with the transactions contemplated hereby and Seller shall pay at Closing all fees and amounts payable to the Broker in connection with

the transactions contemplated by this Contract. Buyer and Seller each agree to save and hold the other harmless from any and all losses, damages, liabilities, costs and expenses (including, without limitation, attorneys’ fees) involving claims made by any other agent, broker, or other person by or through the acts of Buyer or Seller, respectively, in connection with this transaction.

ARTICLE VII
REPRESENTATIONS, WARRANTIES AND COVENANTS

     7.1 Seller’s Representations, Warranties and Covenants. Seller hereby represents, warrants and covenants to Buyer as follows:

          (a) Authority; No Conflicts. Seller is a limited liability company duly formed, validly existing and in good standing in the State of Delaware and is qualified to do business and in good standing in the Commonwealth of Pennsylvania. Seller has duly authorized, by all necessary limited liability company action, the execution, delivery and performance of this Contract. This Contract has been duly executed and delivered by Seller and constitutes the valid and legally binding obligation of Seller, enforceable against Seller in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws now or hereafter in effect relating to creditors’ rights and by general principles of equity. No consent or approval of any person, entity or governmental authority is required for the execution, delivery or performance by Seller of this Contract, except as set forth in Exhibit D hereto and except for consents and approvals that, individually or in the aggregate, (x) are not required to transfer any part of the Property to Buyer or its permitted assigns, (y) are not necessary for the ownership, occupany and/or operation by Buyer, its Affiliates, permitted assigns and/or Manager of the Property as a Residence Inn by Marriott, and (z) if not obtained, would not have a material adverse effect on the Hotel’s business and/or operations and/or the financial performance of the Property as reflected in the Financial Statements. Neither the execution, delivery nor performance of, or compliance with, this Contract by Seller has resulted, or will result, in any violation of, or default under, or acceleration of, any obligation under the articles of organization or limited liability company agreement of Seller or under any mortgage indenture, lien, agreement, promissory note, contract, or permit, or any judgment, decree, order, restrictive covenant, statute, rule or regulation, applicable to Seller or to the Hotel.

          (b) FIRPTA. Seller is not a foreign corporation, foreign partnership, foreign trust or foreign estate (as those items are defined in the Internal Revenue Code and income tax regulations promulgated thereunder).

          (c) Bankruptcy. None of Seller, nor, to Seller’s knowledge, any of its members, is insolvent or the subject of any bankruptcy proceeding, receivership proceeding or other insolvency, dissolution, reorganization or similar proceeding.

          (d) Property Agreements. A complete list of all FF&E Leases, Service Contracts and Leases used in or otherwise relating to the operation and business of the Hotel is attached as Exhibit C hereto. The assets constituting the Property to be conveyed to Buyer hereunder constitute all of the property and assets of Seller used in connection with the operation and business of the Hotel. There are no leases, license agreements, leasing agent’s agreements, equipment leases, building service agreements, maintenance contracts, suppliers contracts, warranty contracts, operating agreements, or other agreements (i) to which Seller is a party or an assignee, or (ii) to Seller’s knowledge, binding upon the Hotel, relating to the ownership, occupancy, operation, management or maintenance of the Real Property, FF&E, Supplies or Tradenames, except for those Service Contracts, Leases, Warranties and FF&E Leases disclosed on Exhibit C hereto or to be delivered to Buyer pursuant to Section 3.1. The Service Contracts, Leases, Warranties and FF&E Leases disclosed on Exhibit C hereto or to be delivered to Buyer pursuant to Section 3.1 are in full force and effect, and no default by Seller or, to Seller’s knowledge, any other party has occurred and is continuing thereunder and, to Seller’s knowledge, no circumstances exist which, with the giving of notice, the lapse of time or both, would constitute such a default. No party has any right or option to acquire the Hotel or any portion thereof, other than Buyer and the Franchisor pursuant to Section XV.D of the Existing Franchise Agreement to the extent Buyer is deemed a “Competitor” as defined in such Section.

          (e) Pending Claims. To Seller’s knowledge, there are no: (i) claims, demands, litigation, proceedings or governmental investigations pending or threatened (x) against Seller, (y) against the Existing Manager or any Affiliate of Seller or the Existing Manager (collectively with Seller, “Seller Parties”) related to the business or assets of the Hotel or (z) otherwise related to the business or assets of the Hotel, except as set forth on Exhibit F attached hereto and incorporated herein by reference, (ii) special assessments or extraordinary taxes assessed against the Hotel or the business conducted with respect thereto, except as set forth in the Title Commitment or (iii) pending or threatened condemnation or eminent domain proceedings which would affect the Property or any part thereof. Except as set forth on Exhibit F, to Seller’s knowledge, there are no: pending arbitration proceedings or unsatisfied arbitration awards, or judicial proceedings or orders respecting awards, which might become a lien on the Property or any portion thereof, pending unfair labor practice charges or complaints, unsatisfied unfair labor practice orders or judicial proceedings or orders with respect thereto, pending charges or complaints with or by city, state or federal civil or human rights agencies, unremedied orders by such agencies or judicial proceedings or orders with respect to obligations under city, state or federal civil or human rights or antidiscrimination laws or executive orders affecting the Hotel, or other pending, actual or, to Seller’s knowledge, threatened litigation claims, charges, complaints, petitions or unsatisfied orders by or before any administrative agency or court which affect the Hotel or might become a lien on the Hotel (collectively, the “Pending Claims”).

          (f) Environmental, Etc. Seller has not received since January 1, 2002, and Seller otherwise has no knowledge of, any written notice that Seller or the Property is in violation of any applicable environmental, health or safety law, rule or regulation.

          (g) Title and Liens. Except for Seller Liens to be released at Closing, Seller has good and marketable fee simple absolute title to the Real Property, subject only to the Permitted Exceptions. Except for the FF&E subject to the FF&E Leases and any applicable Permitted Exceptions, Seller has good and marketable title to the Personal Property, free and clear of all liens, claims, encumbrances or other rights whatsoever (other than the Seller Liens to be released at Closing), and there are no other liens, claims, encumbrances or other rights pending or of which any Seller Party has received notice or which are otherwise known to any Seller Party related to any other Personal Property.

          (h) Utilities. All appropriate utilities, including sanitary and storm sewers, water, gas, telephone, cable and electricity, are, to Seller’s knowledge, currently sufficient and available to service the Hotel as currently operated, and, to Seller’s knowledge, all installation, connection or “tap-on”, usage and similar fees have been paid.

          (i) Licenses, Permits and Approvals. Seller has not received since January 1, 2002 any written notice, and Seller has no knowledge, that the Property fails to comply with all applicable licenses, permits and approvals and federal, state or local statutes, laws, ordinances, rules, regulations, requirements and codes including, without limitation, those regarding zoning, land use, building, fire, health, safety, environmental, subdivision, water quality, sanitation controls and the Americans with Disabilities Act, and similar rules and regulations relating and/or applicable to the ownership, use and operation of the Property as it is now operated. Seller has received all licenses, permits and approvals required or needed for the lawful conduct, occupancy and operation of the business of the Hotel, except for licenses, permits and approvals that, individually or in the aggregate, (x) are not required to transfer any part of the Property to Buyer or its permitted assigns, (y) are not necessary for the ownership, occupancy and/or operation by Buyer, its Affiliates, permitted assigns and/or Manager of the Property as a Residence Inn by Marriott, and (z) if not obtained, would not have a material adverse effect on the Hotel’s business and/or operations and/or the financial performance of the Property as reflected in the Financial Statements, and each such license and permit is in full force and effect, and will be received and in full force and effect as of the Closing. To Seller’s knowledge, no licenses, permits or approvals necessary for the lawful conduct, occupancy or operation of the business of the Hotel requires any approval of a governmental authority for transfer of the Property except as set forth in Exhibit D.

          (j) Financial Statements. Seller has delivered copies of the Financial Statements. Each of the Financial Statements is, to Seller’s knowledge, complete and accurate in all material respects and, except in the case of budgets prepared in advance of the applicable operating period to which such budgets relate, fairly presents the results of operations of the Hotel for the respective periods represented thereby.

          (k) Employees. All employees employed at the Hotel are the employees of the Existing Manager. There are, to Seller’s knowledge, no (i) unions organized at the Hotel, (ii) union organizing attempts, strikes, organized work stoppages or slow downs, or any other labor disputes pending or threatened with respect to any of the employees at the Hotel, or (iii) collective bargaining or other labor agreements to which Seller or the Existing Manager or the Hotel is bound with respect to any employees employed at the Hotel.

          (l) Operations. To Seller’s knowledge, the Hotel has been operated by the Existing Manager in all material respects in accordance with all applicable laws, rules, regulations, ordinances and codes.

          (m) Existing Management and Franchise Agreements. Seller has furnished to Buyer true and complete copies of the Existing Management Agreement and the Existing Franchise Agreement, which constitutes the entire agreement of the parties with respect to the subject matter thereof and which have not been amended or supplemented in any respect. There are no other management agreements, franchise agreements, license agreements or similar agreements for the operation or management of the Hotel or relating to the Brand, to which Seller is a party or which are binding upon the Property, except for the Existing Management Agreement and the Existing Franchise Agreement. To Seller’s knowledge, the Improvements comply with, and the Hotel is being operated in accordance with, all requirements of such Existing Management Agreement and the Existing Franchise Agreement. The Existing Management Agreement and the Existing Franchise Agreement are in full force and effect, and shall remain in full force and effect until the termination of the Existing Management Agreement and the Existing Franchise Agreement at Closing, as provided in Article V hereof. No default by Seller or, to Seller’s knowledge, any other party has occurred and is continuing under the Existing Management Agreement or the Existing Franchise Agreement, and, to Seller’s knowledge, no circumstances exist which, with the giving of notice, the lapse of time or both, would constitute such a default.

          (n) Easements. To Seller’s knowledge, necessary easements for ingress and egress, drainage, signage and utilities serving the Hotel have either been dedicated to the public, conveyed to the appropriate utility or will be conveyed to Buyer along with the Property.

          (o) Anti-Terrorism Compliance. Seller is not a person or entity described in Section 1 of the Executive Order (No. 13, 224) Blocking Property and Prohibiting Transactions With Persons Who Commit, Threaten to Commit, or Support Terrorism, 66 Fed. 49,079 (September 24, 2001) (the “Executive Order”).

     As used in this Contract, “Seller’s knowledge”, “known to Seller” or similar statements shall mean the actual knowledge of (i) Susan Ridgeway, Vice President of Operations of the Existing Manager, (ii) John Rubino, Regional Director of Operations for the Hotel, (iii) Christopher Bennett, Senior Vice President and General Counsel of Interstate Hotels & Resorts, Inc. (an Affiliate of Seller and the Existing Manager), and (iv) Colin Dunkley, Vice President – Architecture and Construction for the Hotel, in each case, after due inquiry of the General Manager of the Hotel.

     7.2 Buyer’s Representations, Warranties and Covenants. Buyer hereby represents, warrants and covenants to Seller as follows:

          (a) Authority; No Conflicts. Buyer is a corporation duly formed, validly existing and in good standing in the Commonwealth of Virginia. Buyer has received all necessary authorization of the Board of Directors of Buyer to execute and deliver this Contract and to complete the transactions contemplated by this Contract. No other consent or approval of any person, entity or governmental authority is required for the execution, delivery or performance by Buyer of this Contract. This Contract has been duly executed and delivered by Buyer and constitutes the valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, reorganization, moratorium and other similar laws now or hereafter in effect relating to creditors’ rights and by general principles of equity. Neither the execution, delivery or performance of, or compliance with, this Contract by Buyer has resulted, or will result, in any violation of, or default under, or acceleration of, any obligation under the articles of incorporation or by-laws of Buyer or under any mortgage indenture, lien, agreement, promissory note, contract, or permit, or any judgment, decree, order, restrictive covenant, statute, rule or regulation, applicable to Buyer.

          (b) Bankruptcy. Buyer is not insolvent nor the subject of any bankruptcy proceeding, receivership proceeding or other insolvency, dissolution, reorganization or similar proceeding.

          (c) Anti-Terrorism Compliance. Buyer is not a person or entity described in Section 1 of the Executive Order.

     7.3 Survival. All of the representations and warranties are true, correct and complete in all material respects as of the date hereof and the statements set forth therein (without qualification or limitation as to a party’s knowledge thereof except as expressly provided for in this Article VII) shall be true, correct and complete in all material respects as of the Closing Date. All of the representations and warranties made herein shall survive Closing for a period of one (1) year and shall not be deemed to merge into or be waived by any Seller’s Deed or any other closing documents.

     7.4 AS-IS. BUYER ACKNOWLEDGES THAT IT IS EXPERIENCED IN THE ACQUISITION AND OWNERSHIP OF PROPERTIES SIMILAR TO THE PROPERTY. BUYER ACKNOWLEDGES THAT IT IS RELYING ON BUYER’S (OR BUYER’S REPRESENTATIVES’) INSPECTIONS, EXAMINATIONS AND EVALUATIONS OF THE PROPERTY AND NOT UPON ANY STATEMENTS (ORAL OR WRITTEN) WHICH MAY HAVE BEEN MADE OR MAY BE MADE (OR PURPORTEDLY MADE) BY SELLER OR ANY OF ITS REPRESENTATIVES, AGENTS, BROKERS, ATTORNEYS, OFFICERS, MANAGERS OR EMPLOYEES, OTHER THAN AS EXPRESSLY SET FORTH HEREIN OR CONTEMPLATED HEREBY (SELLER EXPRESSLY ACKNOWLEDGING THAT BUYER IS RELYING ON THE REPRESENTATIONS, WARRANTIES AND STATEMENTS MADE IN THIS CONTRACT AND ON INFORMATION PROVIDED PURSUANT TO THIS CONTRACT TO BUYER BY SELLER OR ITS REPRESENTATIVES, AGENTS, BROKERS, ATTORNEYS, OFFICERS, MANAGERS OR EMPLOYEES).

     AS A MATERIAL PART OF THE CONSIDERATION FOR THIS CONTRACT AND THE PURCHASE OF THE PROPERTY, BUYER AGREES TO ACCEPT THE REAL PROPERTY, FF&E AND SUPPLIES ON THE CLOSING DATE IN ITS OR THEIR “AS IS, WHERE IS” CONDITION AS OF THE LAST DATE INSPECTED BY BUYER, WITH ALL FAULTS, AND EXCEPT AS OTHERWISE PROVIDED IN THIS CONTRACT OR IN THE DEED OR ANY OTHER CLOSING DOCUMENT OR CLOSING INSTRUMENT PROVIDED PURSUANT TO THIS CONTRACT, WITHOUT REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, OR ARISING BY OPERATION OF LAW.

     THE PROVISIONS OF THIS SECTION 7.4 SHALL SURVIVE CLOSING.

ARTICLE VIII
ADDITIONAL COVENANTS

     8.1 Subsequent Developments. After the date of this Contract and until the Closing Date, (a) Seller shall use best efforts to keep Buyer fully informed of all subsequent developments of which Seller has knowledge which would cause any of Seller’s representations or warranties contained in this Contract to be no longer accurate in any material respect and (b) Buyer shall use best efforts to keep Seller fully informed of all subsequent developments of which Buyer has knowledge which would cause any of Buyer’s representations or warranties contained in this Contract to no longer be accurate in any material respect.

     8.2 Operations. From and after the date hereof through the Closing, Seller shall comply in all material respects with the Existing Management Agreement and the Existing Franchise Agreement and keep the same in full force and effect and shall perform and comply with all of the following subject to and in accordance with the terms of such agreements:

          (a) Continue to maintain the Property generally in accordance with past practices of Seller and pursuant to and in compliance in all material respects with the Existing Management Agreement and the Existing Franchise Agreement, including, without limitation, (i) using commercially reasonable efforts to keep available the services of all present employees at the Hotel and to preserve its relations with guests, suppliers and

other parties doing business with Seller with respect to the Hotel, (ii) accepting booking contracts for the use of the Hotel’s facilities and retaining such bookings in accordance with the terms of the Existing Management Agreement and the Existing Franchise Agreement, (iii) maintaining the current level of advertising and other promotional activities for the Hotel’s facilities, (iv) maintaining the present level of insurance with respect to the Hotel in full force and effect until the Closing Date and (v) remaining in compliance in all material respects with all current Licenses;

          (b) Keep, observe, and perform in all material respects all its obligations under and pursuant to the Leases, the Service Contracts, the FF&E Leases, the Existing Management Agreement, the Existing Franchise Agreement, the Contracts, Plans and Specs, the Warranties and all other applicable contractual arrangements relating to the Hotel;

          (c) Not cause or permit the removal of FF&E from the Hotel except for the purpose of discarding worn and valueless items that have been replaced with FF&E of equal or better quality; timely make all repairs, maintenance, and replacements to keep all FF&E and all other Personal Property and all Real Property in at least as good a condition as on the date inspected by Buyer during the Review Period; keep and maintain the Hotel generally in such state of repair and condition; and not commit waste of any portion of the Hotel;

          (d) Maintain the levels and quality of the Personal Property generally at the levels and quality existing on the date hereof and keep merchandise, supplies and inventory adequately stocked, consistent with Seller’s past business practice and prudent industry practice, as if the sale of the Hotel hereunder were not to occur, including, without limitation, maintaining linens and bath towels at least at a 2-par level for all suites or rooms of the Hotel;

          (e) Advise Buyer promptly of any litigation, arbitration, or administrative hearing before any court or governmental agency concerning or affecting the Hotel which is instituted or, to Seller’s knowledge, threatened after the date of this Contract or if, to Seller’s knowledge, any representation or warranty made by Seller in this Contract shall become false in any material respect;

          (f) Not take, or purposefully omit to take, any action that would have the effect of violating any of the representations, warranties, covenants or agreements of Seller contained in this Contract;

          (g) Pay or cause to be paid all taxes, assessments and other impositions levied or assessed on the Hotel or any part thereof prior to the delinquency date, and comply in all material respects with all federal, state, and municipal laws, ordinances, regulations and orders relating to the Hotel;

          (h) Not sell or assign, or enter into any agreement to sell or assign, or create or permit to exist any lien or encumbrance (other than a Permitted Exception) on, the Property or any portion thereof, other than any sales of inventory made in the ordinary course of business consistent with Seller’s past practice and prudent industry practice; and

          (i) Not allow any permit, receipt, license, franchise or right currently in existence with respect to the operation, use, occupancy or maintenance of the Hotel to expire, be canceled or otherwise terminated, if (I) any such expiration, cancellation or termination, individually or in the aggregate, would (x) adversely affect the transfer of any part of the Property to Buyer or its permitted assigns or (y) have a material adverse effect on the Hotel’s business and/or operations and/or the financial performance of the Property as reflected in the Financial Statements, or (II) any such permit, receipt, license, franchise or right is necessary for the ownership, occupancy and/or operation by Buyer, its Affiliates, permitted assigns and/or Manager of the Property as a Residence Inn by Marriott.

     Seller shall promptly furnish to Buyer copies of all new, amended or extended FF&E Leases, Service Contracts, Leases and other contracts or agreements (other than routine hotel room bookings entered into in the ordinary course of business) relating to the Hotel and entered into by Seller or, to Seller’s knowledge, the Existing Manager prior to Closing, provided that Buyer shall not assume, nor be deemed to assume, any of the foregoing not

disclosed to Buyer in writing at least five (5) Business Days prior to Closing. The proviso set forth in the preceding sentence shall survive Closing. Buyer shall have the right to extend the Review Period for a period of five (5) Business Days in order to review any of the foregoing that are not received by Buyer at least five (5) Business Days prior to the expiration of the Review Period. Seller shall not, without first obtaining the written approval of Buyer, which approval shall not be unreasonably withheld, conditioned or delayed, enter into, nor permit Existing Manager to enter into, any new FF&E Leases, Service Contracts, Leases or other contracts or agreements related to the Hotel, or extend any existing such agreements, unless such agreements (x) can be terminated, without penalty, upon thirty (30) days’ prior notice or (y) will expire prior to the Closing Date.

     8.3 Third Party Consents. Prior to the Closing Date, Seller, at Seller’s expense, shall use best efforts (i) to obtain any and all third party consents and approvals that, individually or in the aggregate, (x) are required to transfer any part of the Property to Buyer or its permitted assigns, (y) are necessary for the ownership, occupancy and/or operation by Buyer, its Affiliates, permitted assigns and/or Manager of the Property as a Residence Inn by Marriott and (z) if not obtained would have a material adverse effect on the Hotel’s business and/or operations and/or the financial performance of the Property as reflected in the Financial Statements, including, without limitation, all consents and approvals referred to on Exhibit D and (ii) to obtain all other third party consents and approvals (all of such consents and approvals in (i) and (ii) above being referred to collectively as, the “Third Party Consents”).

     8.4 Employees. Upon request and reasonable prior notice to Seller by Buyer, Buyer and its employees, representatives and agents shall have the right to communicate with Seller’s staff, and, subject to the approval of the Existing Manager, the Hotel staff and the Existing Manager’s staff, including without limitation the general manager, the director of sales, the engineering staff and other key management employees of the Hotel, at any time after the end of the Review Period and before Closing; provided, however, that communication with the Hotel’s general manager, director of sales and engineering supervisor may occur (subject to the other limitations in this Section 8.4) at any time before the Closing. Seller shall be entitled to have a representative present at any such meeting. Buyer shall not interfere with the operations of the Hotel while engaging in such communication in a manner that materially adversely affects the operation of the Property or the Existing Management Agreement.

     8.5 Estoppel Certificates. In the event that there are Leases and/or FF&E Leases, upon request of Buyer, Seller shall obtain from (i) each tenant under any Lease (but not from current or prospective occupants of hotel rooms and suites within the Hotel) and (ii) each lessor under each FF&E Lease identified by Buyer as a material FF&E Lease, the estoppel certificates in a form reasonably acceptable to Buyer, which shall be delivered to Buyer not less than five (5) days before the Closing.

     8.6 Access to Financial Information. Buyer’s representatives shall have access to, and Seller shall cooperate, and Seller shall cause Existing Manager to cooperate, with Buyer and furnish upon request, all financial and other information relating to the Hotel’s operations to the extent necessary to enable Buyer’s representatives to prepare audited financial statements in conformity with Regulation S-X of the Securities and Exchange Commission (the “SEC”) and other applicable rules and regulations of the SEC and to enable them to prepare a registration statement, report or disclosure statement for filing with the SEC on behalf of Buyer or its Affiliates, whether before or after Closing and regardless of whether such information is included in the Records to be transferred to Buyer hereunder. Seller shall also provide to Buyer’s representative a signed representation letter in form and substance reasonably acceptable to Seller sufficient to enable an independent public accountant to render an opinion on the financial statements related to the Hotel. Buyer will reimburse Seller for costs reasonably incurred by Seller to comply with the requirements of the preceding sentence to the extent that Seller is required to incur costs not in the ordinary course of business for third parties to provide such representation letter. The provisions of this Section shall survive Closing.

     8.7 Bulk Sales. At Seller’s risk and expense, Seller shall take all steps necessary to comply with the requirements of a transferor under all bulk transfer laws, if any, that are applicable to the transactions contemplated by this Contract.

     8.8 Indemnification. If the transactions contemplated by this Contract are consummated as provided herein:

          (a) Indemnification of Buyer. Without in any way limiting or diminishing the warranties, representations or agreements herein contained or the rights or remedies available to Buyer for a breach hereof, Seller hereby agrees to indemnify, defend and hold harmless Buyer and its successors and assigns from and against all losses, judgments, liabilities, claims, damages or expenses (including reasonable attorneys’ fees) of every kind, nature and description in existence before, on or after Closing, whether known or unknown, absolute or continent, joint or several (collectively, “Damages”), arising out of or relating to:

               (i) any claim made or asserted against Buyer or any of the Property by a creditor of Seller, including any claims based on or alleging a violation of any bulk sales act or other similar laws;

               (ii) the breach of any representation, warranty, covenant or agreement of Seller contained in this Contract;

               (iii) any liability or obligation of Seller other than the Assumed Obligations; and

               (iv) the conduct and operation by or on behalf of Seller of the Hotel or the ownership, use or operation of the Property prior to Closing.

          (b) Indemnification of Seller. Without in any way limiting or diminishing the warranties, representations or agreements herein contained or the rights or remedies available to Seller for a breach hereof, Buyer hereby agrees to indemnify, defend and hold harmless Seller and its successors from and against all Damages arising out of or relating to:

               (i) the breach of any representation, warranty, covenant or agreement of Buyer contained in this Contract;

               (ii) the conduct and operation by or on behalf of Buyer of the Hotel or the ownership, use or operation of the Property after the Closing; and

               (iii) the Assumed Obligations.

          (c) Indemnification Procedure for Claims of Third Parties. Indemnification, with respect to claims resulting from the assertion of liability by those not parties to this Contract (including governmental claims for penalties, fines and assessments), shall be subject to the following terms and conditions:

               (i) The party seeking indemnification (the “Indemnified Party”) shall give prompt written notice to the party or parties from which it is seeking indemnification (the “Indemnifying Party”) of any assertion of liability by a third party which might give rise to a claim for indemnification based on the foregoing provisions of this Section 8.8, which notice shall state the nature and basis of the assertion and the amount thereof, to the extent known; provided, however, that no delay on the part of the Indemnified Party in giving notice shall relieve the Indemnifying Party of any obligation to indemnify unless (and then solely to the extent that) the Indemnifying Party is prejudiced by such delay.

               (ii) If in any action, suit or proceeding (a “Legal Action”) the relief sought is solely the payment of money damages, and if the Indemnifying Party specifically agrees in writing to indemnify such Indemnified Party with respect thereto and demonstrates to the reasonable satisfaction of such Indemnified Party its financial ability to do so, the Indemnifying Party shall have the right, commencing thirty (30) days after such notice, at its option, to elect to settle, compromise or defend, pursuant to this paragraph, by its own counsel and at its own expense, any such Legal Action involving such Indemnified Party’s asserted liability. If the Indemnifying Party does not undertake to settle, compromise or defend any such Legal Action, such settlement, compromise or defense shall be conducted

in the sole discretion of such Indemnified Party, but such Indemnified Party shall provide the Indemnifying Party with such information concerning such settlement, compromise or defense as the Indemnifying Party may reasonably request from time to time and shall notify the Indemnifying Party at least ten (10) days prior to any proposed settlement of the terms thereof. If the Indemnifying Party undertakes to settle, compromise or defend any such asserted liability, it shall notify such Indemnified Party in writing of its intention to do so within thirty (30) days of notice from such Indemnified Party provided above.

               (iii) Notwithstanding the provisions of the previous subsection of this Contract, until the Indemnifying Party shall have assumed the defense of the Legal Action, the defense shall be handled by the Indemnified Party. Furthermore, (x) if the Indemnified Party shall have reasonably concluded that there are likely to be defenses available to it that are different from or in addition to those available to the Indemnifying Party; (y) if the Legal Action involves other than money damages and seeks injunctive or other equitable relief; or (z) if a judgment against Buyer, as the Indemnified Party, in the Legal Action will, in the good faith opinion of Buyer, establish a custom or precedent which will be adverse to the best interest of the continuing business of the Hotel, the Indemnifying Party, shall not be entitled to assume the defense of the Legal Action and the defense shall be handled by the Indemnified Party, provided that, in the case of clause (z), the Indemnifying Party shall have the right to approve legal counsel selected by the Indemnified Party, such approval not to be unreasonably withheld, delayed or conditioned. If the defense of the Legal Action is handled by the Indemnified Party under the provisions of this subsection, the Indemnifying Party shall pay all legal and other expenses reasonably incurred by the Indemnified Party in conducting such defense, unless a judicial determination is made that the Indemnified Party is not entitled to indemnification pursuant to this Section 8.8.

               (iv) In any Legal Action initiated by a third party and defended by the Indemnified Party (w) the Indemnified Party shall have the right to be represented by advisory counsel and accountants, at its own expense, (x) the Indemnifying Party shall keep the Indemnified Party fully informed as to the status of such Legal Action at all stages thereof, whether or not the Indemnified Party is represented by its own counsel, (y) the Indemnifying Party shall make available to the Indemnified Party and its attorneys, accounts and other representatives, all books and records of the Indemnifying Party relating to such Legal Action and (z) the parties shall render to each other such assistance as may be reasonably required in order to ensure the proper and adequate defense of such Legal Action.

               (v) In any Legal Action initiated by a third party and defended by the Indemnifying Party, the Indemnifying Party shall not make settlement of any claim without the written consent of the Indemnified Party, which consent shall not be unreasonably withheld. Without limiting the generality of the foregoing, it shall not be deemed unreasonable to withhold consent to a settlement involving injunctive or other equitable relief against the Indemnified Party or its assets, employees, Affiliates or business, or relief which the Indemnified Party reasonably believes could establish a custom or precedent which will be adverse to the best interests of its continuing business.

          (d) Limitation of Seller’s Liability. Notwithstanding anything in this Contract to the contrary, Seller’s obligation to indemnify Buyer pursuant to Section 8.8(a) shall be subject to the following:

               (i) Deductible. Buyer shall not be entitled to recover Damages pursuant to Section 8.8(a) until the aggregate of all Damages suffered by Buyer exceeds Ten Thousand and No/100 Dollars ($10,000.00) (the “Deductible Amount”); provided, however, that once such aggregate exceeds the Deductible Amount, Buyer may recover all Damages suffered by Buyer in excess of the Deductible Amount.

               (ii) Ceiling. Buyer shall not be entitled to recover Damages pursuant to Section 8.8(a) in excess of One Million One Hundred Thousand and No/100 Dollars ($1,100,000.00) (the “Ceiling Amount”).

               (iii) Time Limitation. No claim for the recovery of Damages may be asserted by Buyer against Seller or its successors or permitted assigns pursuant to Section 8.8(a) after the date that is two (2) years after the Closing Date; provided, however, that claims for Damages first asserted in writing by Buyer within such time period shall not thereafter be barred.

               (iv) Exclusive Remedy. Except with respect to any claim for Damages relating to any intentional or fraudulent breach of a representation, warranty or covenant of Seller and except as otherwise proved in this Contract, indemnification under this Section 8.8 shall be the exclusive remedy of Buyer subsequent to Closing with respect to any legal, equitable or other claim for relief based upon this Contract or arising hereunder.

               (v) Exceptions. The limitations set forth in this Section 8.8(d) shall not apply with respect to any claim for Damages relating to any Retained Obligations, any obligations or liabilities subject to adjustment under Article XII or any intentional or fraudulent breach of a representation, warranty or covenant of Seller, nor shall there be any survival limitation for any such claim except as provided by applicable law.

          (e) Limitation of Buyer’s Liability. Notwithstanding anything in this Contract to the contrary, Buyer’s obligation to indemnify Seller pursuant to Section 8.8(b) shall be subject to the following:

               (i) Deductible. Seller shall not be entitled to recover Damages pursuant to Section 8.8(b) until the aggregate of all Damages suffered by Seller exceeds the Deductible Amount; provided, however, that once such aggregate exceeds the Deductible Amount, Seller may recover all Damages suffered by Seller in excess of the Deductible Amount.

               (ii) Ceiling. Seller shall not be entitled to recover Damages pursuant to Section 8.8(b) in excess of the Ceiling Amount.

               (iii) Time Limitation. No claim for the recovery of Damages may be asserted by Seller against Buyer or its successors or permitted assigns pursuant to clause (i) of Section 8.8(b) after the date that is two (2) years after the Closing Date; provided, however, that claims for Damages first asserted in writing by Seller within such time period shall not thereafter be barred.

               (iv) Exclusive Remedy. Except with respect to any claim for Damages relating to any intentional or fraudulent breach of a representation, warranty or covenant of Buyer and except as otherwise provided in this Contract, indemnification under this Section 8.8 shall be the exclusive remedy of Seller subsequent to Closing with respect to any legal, equitable or other claim for relief based upon this Contract or arising hereunder.

               (v) Exceptions. The limitations set forth in this Section 8.8(e) shall not apply with respect to any claim for Damages relating to any Assumed Obligations, any tax obligations or tax liabilities relating to Buyer, or its Affiliates, or the Property payable or arising in respect of any period after the Closing, any obligations or liabilities subject to adjustment under Article XII or any intentional or fraudulent breach of a representation, warranty or covenant of Buyer, nor shall there be any survival limitation for any such claim except as provided by applicable law.

          (f) Survival. The provisions of this Section 8.8 shall survive Closing, subject to the limitations set forth herein.

     8.9 Escrow Funds. To provide for the timely payment of any post-closing claims by Buyer against Seller hereunder, at Closing, an amount equal to Two Hundred Thousand and No/100 Dollars ($200,000.00) (the “Escrow Funds”) shall be withheld from the Purchase Price payable to Seller and shall be deposited until the later of (i) one hundred eighty (180) days after the Closing Date or (ii) the date on which the Tax Clearance Certificate is delivered to Seller pursuant to Section 11.1 (the “Release Date”) in an escrow account with the Title Company

pursuant to an escrow agreement reasonably satisfactory in form and substance to Buyer and Seller (the “Post-Closing Agreement”), which escrow and Post-Closing Agreement shall be established and entered into at Closing and shall be a condition to Buyer’s obligations under this Contract. The Escrow Funds held on the Release Date shall be released to Seller, provided, that the Title Company shall retain, hold and disburse pursuant to the Post-Closing Agreement Escrow Funds in an amount equal to one hundred ten percent (110%) of the aggregate amount of the unresolved claims asserted by Buyer as of the Release Date.

     8.10 Liquor Licenses. Seller represents and warrants that no liquor or other alcoholic beverages are sold or served at the Hotel other than Existing Manager’s current practice of serving complimentary liquor and alcoholic beverages at manager’s receptions. During the Review Period, Seller shall cooperate with reasonable requests from Buyer to assist Buyer in confirming that Buyer, its Affiliates and/or the Manager shall be permitted to continue the Existing Manager’s practice of serving complimentary liquor and alcoholic beverages at the Hotel without being required to obtain a liquor or alcoholic beverage license.

     8.11 Possession; Assignment and Assumption. Possession of the Property shall be given by Seller to Buyer at Closing, and Seller shall deliver to Buyer at Closing, in addition to all other deliveries of Seller provided for in Section 10.2 or otherwise pursuant to this Contract, all Hotel Contracts assigned to and assumed by Buyer pursuant to the terms of this Contract, together with evidence reasonably satisfactory to Buyer that all Hotel Contracts not assigned to and assumed by Buyer have been terminated as of Closing. Buyer shall not assume, and Seller shall sell the Property to Buyer free and clear of, all obligations and liabilities of Seller, except that, unless otherwise agreed by Buyer and Seller, at Closing, Buyer shall assume those obligations of Seller under the Hotel Contracts described on Exhibit C (collectively, the “Assumed Contracts”) arising in respect of any period from and after the Closing Date (other than any liability or obligation arising from or in any way related to any breach or default by Seller or Existing Manager) (collectively, the “Assumed Obligations”). At Closing, Seller shall assign to Buyer all rights and privileges in, under and to the Assumed Contracts. Seller agrees that it is, and after Closing shall remain, liable for (i) all obligations and liabilities under (x) the Assumed Contracts arising in respect of any period prior to the Closing Date and/or (y) under all Hotel Contracts not assumed by Buyer at Closing, including, in each case, all obligations and liabilities arising from or in any way related to any breach or default by Seller or Existing Manager thereunder, (ii) all tax obligations and tax liabilities relating to Seller, or its Affiliates or the Property payable or arising in respect of any period prior to Closing and (iii) all obligations and liabilities arising with respect to the matter described on Exhibit F hereto (collectively, the “Retained Obligations”). The provisions of the preceding sentence shall survive Closing.

     8.12 Buyer’s Covenants. From and after the date hereof until the Closing, Buyer shall not take, or purposefully omit to take, any action that would have the effect of violating any of the representations, warranties, covenants or agreements of Buyer contained in this Contract.

ARTICLE IX
CONDITIONS FOR CLOSING

     9.1 Buyer’s Conditions for Closing. Unless otherwise waived in writing, and without prejudice to Buyer’s right to terminate this Contract during the Review Period, the duties and obligations of Buyer to proceed to Closing under the terms and provisions of this Contract are and shall be expressly subject to strict compliance with, and satisfaction or waiver of, each of the conditions and contingencies set forth in this Section 9.1, each of which shall be deemed material to this Contract. In the event of the failure of any of the conditions set forth in this Section 9.1 or of any other condition to Buyer’s obligations provided for in this Contract, which condition is not waived in writing by Buyer, Buyer shall have the right at its option to declare this Contract terminated, in which case the Earnest Money Deposit and any interest thereon shall be immediately returned to Buyer and each of the parties shall be relieved from further liability to the other, except as otherwise expressly provided herein. Notwithstanding the foregoing, in the event of the failure of any of any condition set forth in this Section 9.1 as a result of a default by Seller pursuant to Section 14.2, Buyer shall be entitled to exercise its remedies provided for in such Section 14.2.

          (a) All of Seller’s representations and warranties contained in this Contract shall be true and correct in all material respects as if made again on the Closing Date.

          (b) Buyer shall have received all of the instruments and conveyances listed in Section 10.2.

          (c) Seller shall have performed, observed and complied in all material respects with all of the covenants, agreements, closing requirements and conditions required by this Contract to be performed, observed and complied with by Seller, as and when required hereunder.

          (d) Third Party Consents referred to in clause (i) of Section 8.3 in form and substance reasonably satisfactory to Buyer shall have been obtained and furnished to Buyer.

          (e) The Escrow Funds shall have been deposited in the escrow account pursuant to the Post-Closing Agreement and the parties thereto shall have entered into the Post-Closing Agreement.

          (f) The Existing Management Agreement and the Existing Franchise Agreement shall have been terminated.

          (g) Buyer and the Manager shall have executed and delivered the New Management Agreement and Buyer and the Franchisor shall have executed and delivered the New Franchise Agreement, in each case upon terms and conditions acceptable to Buyer in its sole and absolute discretion.

     9.2 Seller’s Conditions for Closing. Unless otherwise waived in writing, the duties and obligations of Seller to proceed to Closing under the terms and provisions of this Contract are and shall be expressly subject to strict compliance with, and satisfaction or waiver of, each of the conditions and contingencies set forth in this Section 9.2, each of which shall be deemed material to this Contract. In the event of the failure of any of the conditions set forth in this Section 9.2, which condition is not waived in writing by Seller, Seller shall have the right at its option to declare this Contract terminated and null and void, in which case the Earnest Money Deposit and any interest thereon shall be immediately returned to Buyer and each of the parties shall be relieved from further liability to the other, except as otherwise expressly provided herein. Notwithstanding the foregoing, in the event of the failure of any condition set forth in this Section 9.2 as a result of a default by Buyer pursuant to Section 14.1, Seller shall be entitled to exercise its remedy provided for in such Section 14.1.

          (a) All of Buyer’s representations and warranties contained in this Contract shall be true and correct in all material respects as if made again on the Closing Date.

          (b) Seller shall have received all of the money, instruments and conveyances listed in Section 10.3.

          (c) Buyer shall have performed, observed and complied in all material respects with all of the covenants, agreements, closing requirements and conditions required by this Contract to be performed, observed and complied with by Buyer, as and when required hereunder.

          (d) Third Party Consents referred to on Exhibit D in form and substance reasonably satisfactory to Buyer shall have been obtained and furnished to Buyer.

          (e) The Existing Franchise Agreement shall have been terminated in accordance with Article V.

     9.3 Return of Earnest Money Deposit. Notwithstanding anything to the contrary in Section 9.1 or 9.2 or Article XIV, if the Closing does not occur solely as a result of the New Franchise Agreement not having been executed and delivered at or prior to the Closing, Buyer shall be entitled to extend the Closing Date up to thirty (30) days (the “Extension Period”); provided, however, that in the event Closing does not occur within the first seven (7) days of the Extension Period solely as a result of the New Franchise Agreement not having been executed and all other conditions to Closing have been, or at Closing would have been, satisfied, on the next Business Day, Buyer shall deposit the additional sum of Two Hundred Fifty Thousand and No/100 Dollars ($250,000,00), in cash,

certified bank check or by wire transfer of immediately available funds (the “Extension Deposit”) with the Escrow Agent, which Extension Deposit, and all interest accrued thereon, shall become part of and be held, applied to the Purchase Price and/or disbursed in accordance with all terms and provisions applicable to the “Earnest Money Deposit” for all purposes under this Contract and the Escrow Agreement, provided, further that in the event Closing does not occur at the end of the Extension Period solely as a result of the New Franchise Agreement not having been executed and all other conditions to Closing have been, or at Closing would have been, satisfied Seller shall be entitled to the Earnest Money Deposit and any interest thereon and, unless otherwise agreed by Buyer and Seller, this Contract shall be terminated and neither party shall have any obligations or liabilities hereunder except pursuant to Sections 3.3 and 16.6.

ARTICLE X
CLOSING AND CONVEYANCE

     10.1 Closing. Unless otherwise agreed by Buyer and Seller, the Closing on the Property shall occur on a date selected by Buyer that is not later than fifteen (15) days after expiration of the Review Period. Buyer will provide Seller at least five (5) days prior written notice of the Closing Date selected by Buyer. The date on which the Closing is to occur as provided in this Section 10.1, or such other date as may be agreed upon by Buyer and Seller, is referred to in this Contract as the “Closing Date” for the Property. The Closing shall be held at 10:00 a.m. at the offices of the Title Company, or as otherwise determined by Buyer and Seller.

     10.2 Deliveries of Seller. At Closing, Seller shall deliver to Buyer the following, and, as appropriate, all instruments shall be properly executed and conveyance instruments to be acknowledged in recordable form (the terms, provisions and conditions of all instruments not attached hereto as Exhibits shall be mutually agreed upon by Buyer and Seller prior to such Closing).

          (a) Deed. A Special Warranty Deed conveying to Buyer fee simple title to the Real Property, subject only to the Permitted Exceptions in the form of Exhibit H hereto (the “Deed”).

          (b) Bills of Sale. Bills of sale to Buyer and/or its designated lessee, conveying title to the tangible Personal Property (other than the alcoholic beverage inventories, which, at Buyer’s election, shall be transferred by Seller to the Manager), in the form of Exhibit I hereto (the “Bills of Sale”).

          (c) Existing Management and Franchise Agreements. The termination of the Existing Management Agreement and the Existing Franchise Agreement.

          (d) General Assignments. Assignments of all of Seller’s right, title and interest in and to all Assumed Contracts, provided that Buyer shall only assume the Assumed Obligations. The assignment shall also be a general assignment and shall provide for the assignment of all of Seller’s right, title and interest in all Records, Warranties, Licenses, Tradenames, Contracts, Plans and Specs and all other intangible Personal Property applicable to the Hotel.

          (e) FIRPTA; 1099. A FIRPTA Affidavit or Transferor’s Certificate of Non-Foreign Status as required by Section 1445 of the Internal Revenue Code and an IRS Form 1099-S.

          (f) Title Company Documents. All affidavits, gap indemnity agreements and other documents reasonably required by the Title Company from Seller.

          (g) Possession; Estoppel Certificates. Possession of the Property, subject only to rights of guests in possession and tenants pursuant to written leases included in the Leases, and estoppel certificates from tenants under Leases and the lessors under material FF&E Leases in form and substance reasonably acceptable to Buyer.

          (h) Vehicle Titles. The necessary certificates of titles duly endorsed for transfer together with any required affidavits and other documentation necessary for the transfer of title or assignment of leases from

Seller to Buyer of any motor vehicles leased or owned by Seller or the Existing Manager and used in connection with the Hotel’s operations.

          (i) Authority Documents. Certified copy of resolutions of Seller’s constituent members authorizing the sale of the Property contemplated by this Contract, and/or other evidence reasonably satisfactory to Buyer and the Title Company that the person or persons executing the closing documents on behalf of Seller have full right, power and authority to do so, along with a certificate of good standing of Seller from the Commonwealth of Pennsylvania.

          (j) Miscellaneous. Such other instruments as are contemplated by this Contract to be executed or delivered by Seller, reasonably required by Buyer or the Title Company, or customarily executed in the jurisdiction in which the Hotel is located, to effectuate the conveyance of property similar to the Hotel, with the effect that, after the Closing, Buyer will have succeeded to all of the rights, titles, and interests of Seller related to the Hotel and Seller will no longer have any rights, titles, or interests in and to the Hotel.

          (k) Plans, Keys, Records, Etc. To the extent not previously delivered to and in the possession of Buyer, all Contracts, Plans and Specs, all keys for the Hotel (which keys shall be properly tagged for identification), all Records, including, without limitation, all Warranties, Licenses, Leases, FF&E Leases and Service Contracts for the Hotel.

          (l) Closing Statements. Seller’s Closing Statement, and a certificate confirming the accuracy in all material respects (except where qualified as to materiality in this Contract) of Seller’s representations and warranties hereunder as of the Closing Date.

     10.3 Deliveries of Buyer. At Closing of the Hotel, Buyer shall deliver the following:

          (a) Purchase Price. The balance of the Purchase Price, adjusted for the adjustments provided for in Section 12.1 and less any sums to be deducted therefrom as provided in Section 2.4 (provided that the Escrow Agent shall deliver the Earnest Money Deposit to Seller at Closing if such amount is deducted from the portion of the Purchase Price funded at Closing by Buyer).

          (b) Authority Documents. Certified copy of resolutions of the Board of Directors of Buyer authorizing the purchase of the Hotel contemplated by this Contract, and/or other evidence satisfactory to Seller and the Title Company that the person or persons executing the closing documents on behalf of Buyer have full right, power and authority to do so.

          (c) Assumption. An assumption by Buyer of the Assumed Obligations.

          (d) Miscellaneous. Such other instruments as are contemplated by this Contract to be executed or delivered by Buyer, reasonably required by Seller or the Title Company, or customarily executed in the jurisdiction in which the Hotel is located, to effectuate the conveyance of property similar to the Hotel, with the effect that, after the Closing, Buyer will have succeeded to all of the rights, titles, and interests of Seller related to the Hotel and Seller will no longer have any rights, titles, or interests in and to the Hotel.

          (e) Closing Statements. Buyer’s Closing Statement, and a certificate confirming the accuracy in all material respects (except where qualified as to materiality in this Contract), of Buyer’s representations and warranties hereunder as of the Closing Date.

ARTICLE XI
COSTS

     All Closing costs shall be paid as set forth below:

     11.1 Seller’s Costs. In connection with the sale of the Property contemplated under this Contract, Seller shall be responsible for all transfer and recordation taxes, including, without limitation, all transfer, sales, use or bulk transfer taxes or like taxes on or in connection with the transfer of the Personal Property constituting part of the Property pursuant to the Bill of Sale, all accrued taxes of Seller, all taxes relating to the Property or the business conducted thereon payable in respect of any period prior to Closing and all income, sales and use taxes and other such taxes of Seller attributable to the sale of the Property to Buyer. In connection with the foregoing, Seller shall take any and all steps reasonably necessary to prevent Buyer from incurring successor or transferee liability for any of the foregoing taxes, including, without limitation, correctly filing all state tax reports and making all payments with respect to all such taxes and providing to Buyer such documentation as Buyer may reasonably request to evidence such filing and payment. Promptly after the expiration of the Review Period, and no later than ten (10) days prior to Closing, Seller shall apply for a tax clearance certificate from the Pennsylvania Department of Revenue reflecting that all state tax reports have been filed and all payments have been made (the “Tax Clearance Certificate”), and Seller shall diligently pursue receipt of, and use best efforts to obtain, the Tax Clearance Certificate at the earliest possible date, all at Seller’s cost and expense. Upon Seller’s receipt of the Tax Clearance Certificate from the Pennsylvania Department of Revenue, Seller shall promptly provide a copy of the Tax Clearance Certificate to Buyer. Seller shall be responsible for all costs related to the termination of the Existing Management Agreement and the Existing Franchise Agreement except as expressly as provided in Article V. Seller shall also be responsible for the costs and expenses of its attorneys, accountants, appraisers and other professionals, consultants and representatives. Seller shall also be responsible for payment of all prepayment penalties and other amounts payable in connection with the pay-off of any liens and/or indebtedness encumbering the Property. The provisions of this Section 11.1 shall survive Closing.

     11.2 Buyer’s Costs. In connection with the purchase of the Property contemplated under this Contract, Buyer shall be responsible for the costs and expenses of its attorneys, accountants and other professionals, consultants and representatives. Buyer shall also be responsible for the costs and expenses in connection with the preparation of any environmental report, any new survey or update to Seller’s existing survey and the costs and expenses of preparation of the Title Commitment and the issuance of the Title Policy contemplated by Article IV and the per page recording charges for the Deed (if applicable). Buyer shall be responsible for all license, application and similar fees payable in connection with the New Management Agreement or the New Franchise Agreement and all costs to complete all PIP improvements required by the Franchisor in connection with the New Franchise Agreement.

ARTICLE XII
ADJUSTMENTS

     12.1 Adjustments. Unless otherwise provided herein, at Closing, adjustments between the parties shall be made as of 12:01 a.m. on the Closing Date (the “Cutoff Time”), with the income and expenses accrued prior to the Closing Date being allocated to Seller and the income and expenses accruing on and after the Closing Date being allocated to Buyer, all as set forth below. All of such adjustments and allocations shall be made in cash at Closing. Except as otherwise expressly provided herein, all apportionments and adjustments shall be made on an accrual basis in accordance with generally accepted accounting principles. Buyer and Seller shall request that the Existing Manager and the Manager coordinate to determine the apportionments, allocations, prorations and adjustments as of the Cutoff Time.

          (a) Taxes. All real estate taxes, personal property taxes, or any other taxes and special assessments (special or otherwise) of any nature upon the Property levied, assessed or pending for the calendar year in which the Closing occurs (including the period prior to Closing, regardless of when due and payable) shall be prorated as of the Cutoff Time and, if no tax bills or assessment statements for such calendar year are available, such amounts shall be estimated on the basis of the best available information for such taxes and assessments that will be due and payable on the Hotel for the calendar year in which Closing occurs.

          (b) Utilities. All suppliers of utilities shall be instructed to read meters or otherwise determine the charges owing as of the Closing Date for services prior thereto, which charges shall be allocated to Seller. Charges accruing after Closing shall be allocated to Buyer. If elected by Seller, Seller shall be given credit, and Buyer shall be charged, for any utility deposits transferred to and received by Buyer at Closing.

          (c) Income/Charges. All rents, income and charges receivable or payable under any Assumed Contracts applicable to the Property, and any deposits, prepayments and receipts thereunder, shall be prorated between Buyer and Seller as of the Cutoff Time, provided that, except as expressly provided herein with respect to the Existing Franchise Agreement, Seller shall be responsible for all amounts payable under any Hotel Contracts not assigned to and assumed by Buyer pursuant to the terms of this Contract (including, without limitation, all accrued and unpaid amounts and all termination fees).

          (d) Accounts. All working capital accounts, reserve accounts and escrow accounts shall remain the property of Seller.

          (e) Guest Ledger. Subject to (f) below, all accounts receivable of registered guests at the Hotel who have not checked out and were occupying rooms as of the Cutoff Time, shall be prorated as provided herein.

          (f) Room Rentals. All receipts from guest room rentals and other suite revenues for the night in which the Cutoff Time occurs shall belong to Seller, but Seller shall provide Buyer credit at Closing equal to the reasonable expenses to be incurred by Buyer to clean such guests’ rooms.

          (g) Advance Deposits. All prepaid rentals, room rental deposits, and all other deposits for advance registration, banquets or future services to be provided on and after the Closing Date shall be credited to Buyer.

          (h) Accounts Receivable. To the extent not apportioned at Closing and subject to (e) and (f) above, all accounts receivable and credit card claims as of the Cutoff Time shall remain the property of Seller, and Seller and Buyer agree that the monies received from debtors owing such accounts receivable balances after Closing shall be applied as expressly provided in such remittance, or if not specified then to the Seller’s outstanding invoices to such account debtors in chronological order beginning with the oldest invoices, and thereafter, to Buyer’s account.

          (i) Accounts Payable. To the extent not apportioned at Closing, any indebtedness, accounts payable, liabilities or obligations of any kind or nature related to Seller or the Property for the periods prior to and including the Closing Date shall be retained by Seller and promptly allocated to Seller and evidence thereof shall be provided to Buyer, and Buyer shall not be or become liable therefor, except as expressly assumed by Buyer pursuant to this Contract, and invoices received in the ordinary course of business prior to Closing shall be allocated to Seller at Closing.

          (j) Restaurants, Bars, Machines, Other Income. All monies received in connection with bar, restaurant, banquet and similar and other services at the Hotel (other than amounts due from any guest and included in room rentals) prior to the close of business for each such operation for the night in which the Cutoff Time occurs shall belong to Seller, and all other receipts and revenues (not previously described in this Section 12.1) from the operation of any department of the Hotel shall be prorated between Seller and Buyer at Closing.

     12.2 Reconciliation and Final Payment. Seller and Buyer shall reasonably cooperate after Closing to make a final determination of the allocations and prorations required under this Contract within one hundred eighty (180) days after the Closing Date. Upon the final reconciliation of the allocations and prorations under this Section, the party which owes the other party any sums hereunder shall pay such party such sums within ten (10) days after the reconciliation of such sums. The obligations to calculate such prorations, make such reconciliations and pay any such sums shall survive the Closing.

     12.3 Employees. Unless Buyer or the Manager expressly agrees otherwise, none of the employees of the Hotel shall become employees of Buyer, as of the Closing Date; instead, such employees shall continue as employees of the Existing Manager. Seller shall not give notice under any applicable federal or state plant closing or similar act, including, if applicable, the Worker Adjustment and Retraining Notification Provisions of 29 U.S.C., Section 2102, the parties having agreed that a mass layoff, as that term is defined in 29 U.S.C., 2101(a)(3), will not have occurred. Any liability for payment of all wages, salaries and benefits, including, without limitation, accrued vacation pay, sick leave, bonuses, pension benefits, COBRA rights, and other benefits accrued or earned by and due to employees at the Hotel through the Cutoff Time, together with F.I.C.A., unemployment and other taxes and benefits due with respect to such employees for such period, shall be charged to Seller for the purposes of the adjustments to be made as of the Cutoff Time. All liability for wages, salaries and benefits of the employees accruing in respect of and attributable to the period from and after Closing shall be charged to Buyer.

ARTICLE XIII
CASUALTY AND CONDEMNATION

     13.1 Risk of Loss; Notice. Prior to Closing and the delivery of possession of the Property to Buyer in accordance with this Contract, all risk of loss to the Property (whether by casualty, condemnation or otherwise) shall be borne by Seller. In the event that (a) any loss or damage to the Hotel shall occur prior to the Closing Date as a result of fire or other casualty, or (b) Seller receives notice that a governmental authority has initiated or threatened to initiate a condemnation proceeding affecting the Hotel, Seller shall give Buyer immediate written notice of such loss, damage or condemnation proceeding (which notice shall include a certification of (i) the amounts of insurance coverages in effect with respect to the loss or damage and (ii) if known, the amount of the award to be received in such condemnation).

     13.2 Buyer’s Termination Right. If, prior to Closing and the delivery of possession of the Property to Buyer in accordance with this Contract, (a) any condemnation proceeding shall be pending against a substantial portion of the Hotel or (b) there is any substantial casualty loss or damage to the Hotel, Buyer shall have the option to terminate this Contract, provided Buyer delivers written notice to Seller of its election within twenty (20) days after the date Seller has delivered Buyer written notice of any such loss, damage or condemnation as provided above, and in such event, the Earnest Money Deposit, and any interest thereon, shall be delivered to Buyer and thereafter, except as expressly set forth herein, no party shall have any further obligation or liability to the other under this Contract. In the context of condemnation, “substantial” shall mean condemnation of such portion of the Hotel (or access thereto) as could, in Buyer’s reasonable judgment, render use of the remainder impractical or unfeasible for the uses herein contemplated, and, in the context of casualty loss or damage, “substantial” shall mean a loss or damage in excess of Two Hundred Thousand and No/100 Dollars ($200,000.00) in value.

     13.3 Procedure for Closing. If Buyer shall not timely elect to terminate this Contract under Section 13.2, or if the loss, damage or condemnation is not substantial, Seller agrees to pay to Buyer at the Closing all insurance proceeds or condemnation awards which Seller has received as a result of the same, plus an amount equal to the insurance deductible, and assign to Buyer all insurance proceeds and condemnation awards payable as a result of the same, in which event the Closing shall occur without Seller replacing or repairing such damage. In the case of damage or casualty, at Buyer’s election, Seller shall use commercially reasonable efforts to repair and restore the Property to its condition immediately prior to such damage or casualty and, if such repair and restoration are not completed prior to Closing in a manner reasonably satisfactory to Buyer, shall assign and pay to Buyer all excess insurance proceeds, plus an amount equal to the insurance deductible.

ARTICLE XIV
DEFAULT REMEDIES

     14.1 Buyer Default. If Buyer defaults under this Contract after the Review Period, and such default continues for thirty (30) days following written notice from Seller (provided no notice shall extend the time for Closing), then at Seller’s election by written notice to Buyer, this Contract shall be terminated and of no effect, in which event the Earnest Money Deposit, including any interest thereon, shall be paid to and retained by the Seller as

Seller’s sole and exclusive remedy hereunder, and as liquidated damages for Buyer’s default or failure to close, and both Buyer and Seller shall thereupon be released from all obligations hereunder.

     14.2 Seller Default. If Seller defaults under this Contract, and such default continues for thirty (30) days following written notice from Buyer (provided no notice shall extend the time for Closing), Buyer may elect, as Buyer’s sole and exclusive remedy, either (i) to terminate this Contract by written notice to Seller delivered to Seller, in which event the Earnest Money Deposit, including any interest thereon, shall be returned to the Buyer, and thereafter both the Buyer and Seller shall thereupon be released from all obligations with respect to this Contract, except as otherwise expressly provided herein; or (ii) to treat this Contract as being in full force and effect by written notice to Seller delivered to Seller at any time prior to the completion of such cure, in which event the Buyer shall have the right to an action against Seller for damages, specific performance and all other rights and remedies available at law or in equity, provided that in any action for damages Seller’s liability shall be limited to actual out-of-pocket transactions costs (including, without limitation, legal fees) incurred by Buyer in connection with the transactions contemplated hereby and Buyer’s proposed purchase of the Property, but not to exceed Two Hundred Thousand and No/100 Dollars ($200,000.00) except in the case of any claim for damages relating to any intentional or fraudulent breach of any representation, warranty or covenant of Seller, in which event, the limitation set forth in this proviso shall not apply.

     14.3 Attorney’s Fees. Anything to the contrary herein notwithstanding, if it shall be necessary for either the Buyer or Seller to employ an attorney to enforce its rights pursuant to this Contract because of the default of the other party, and the non-defaulting party is successful in enforcing such rights, then the defaulting party shall reimburse the non-defaulting party for the non-defaulting party’s reasonable attorneys’ fees, costs and expenses.

ARTICLE XV
NOTICES

     All notices required herein shall be deemed to have been validly given, as applicable: (i) if given by telecopy, when the telecopy is transmitted to the party’s telecopy number specified below and confirmation of complete receipt is received by the transmitting party during normal business hours or on the next Business Day if not confirmed during normal business hours, (ii) if hand delivered to a party against receipted copy, when the copy of the notice is receipted or rejected, (iii) if given by certified mail, return receipt requested, postage prepaid, two (2) Business Days after it is posted with the U.S. Postal Service at the address of the party specified below or (iv) on the next delivery day after such notices are sent by recognized and reputable commercial overnight delivery service marked for next day delivery, return receipt requested or similarly acknowledged:

If to Buyer:	Apple Six Hospitality Ownership, Inc.
	Attention:
	Fax No.:
with a copy to:	McGuireWoods LLP
	Attention:
	Fax No.:
If to Seller:	Interstate Pittsburgh Hotel Holdings, L.L.C.
	c/o Interstate Hotels & Resorts, Inc.
	4501 N. Fairfax Drive, Suite 800
	Arlington, Virginia 22203
	Attention: Christopher Bennett, Senior Vice President and General Counsel
	Fax No.: (703) 387-3389

with a copy to:	Eckert Seamans Cherin & Mellott, LLC
	Attention:
	Fax No.:

     Addresses may be changed by the parties hereto by written notice in accordance with this Section.

ARTICLE XVI
MISCELLANEOUS

     16.1 Performance. Time is of the essence in the performance and satisfaction of each and every obligation and condition of this Contract.

     16.2 Binding Effect; Assignment. This Contract shall be binding upon and shall inure to the benefit of each of the parties hereto, their respective successors and permitted assigns. Buyer may not assign this Contract without the prior written consent of Seller, which consent shall not be unreasonably withheld, conditioned or delayed; provided, however, that Buyer may assign its rights hereunder, without obtaining Seller’s consent, to an Affiliate of Buyer provided that Buyer is not released from liability pursuant to Section 3.3. Buyer shall provide Seller with written notice of such assignment to an Affiliate of Buyer within a reasonable period of time prior to Closing. Seller shall not assign this Contract without the prior written consent of Buyer.

     16.3 Entire Agreement. This Contract and the Exhibits constitute the sole and entire agreement between Buyer and Seller with respect to the subject matter hereof. No modification of this Contract shall be binding unless signed by both Buyer and Seller.

     16.4 Governing Law. The validity, construction, interpretation and performance of this Contract shall in all ways be governed and determined in accordance with the laws of the Commonwealth of Pennsylvania (without regard to conflicts of law principles).

     16.5 Captions. The captions used in this Contract have been inserted only for purposes of convenience and the same shall not be construed or interpreted so as to limit or define the intent or the scope of any part of this Contract.

     16.6 Confidentiality.

          (a) Except as either party may reasonably determine is required by law (including without limitation laws and regulations applicable to Buyer or its Affiliates who may be public companies): (i) prior to Closing, Buyer and Seller shall not disclose the existence of this Contract or their respective intentions to purchase and sell the Property or generate or participate in any publicity or press release regarding this transaction, except to Buyer’s and Seller’s legal counsel and lender, Buyer’s consultants and agents, the Manager, the Existing Manager, the Franchisor and the Title Company and except as necessitated by the Due Diligence Examination and/or shadow management, unless both Buyer and Seller agree in writing and as necessary to effectuate the transactions contemplated hereby and (ii) following Closing, the parties shall coordinate any public disclosure or release of information related to the transactions contemplated by this Contract, and no such public disclosure or release shall be made without the prior written consent of Buyer, and no press release shall be made without the prior written approval of Buyer and Seller.

          (b) Buyer shall keep confidential all information received from or on behalf of Seller during or in connection with the Due Diligence Examination (not already in the public domain or previously known to Buyer from other sources not bound by a confidentiality agreement with Seller the existence of which has been disclosed in writing to Buyer by Seller) and shall not disclose said information to any third party without Seller’s prior written consent. Notwithstanding the immediately preceding sentence, Buyer may disclose such information and the terms of this transaction (i) to the Franchisor and the Manager and to Buyer’s successors, permitted assigns,

Affiliates, investors, lenders, employees, agents, attorneys, advisors and/or consultants provided that such persons agree to maintain the confidentiality of such information and this transaction, and (ii) as required by applicable law.

     16.7 Closing Documents. To the extent any Closing documents are not attached hereto at the time of execution of this Contract, Buyer and Seller shall negotiate in good faith with respect to the form and content of such Closing documents prior to Closing.

     16.8 Counterparts. This Contract may be executed in counterparts by the parties hereto, and by facsimile signature, and each shall be considered an original and all of which shall constitute one and the same agreement.

     16.9 Severability. If any provision of this Contract shall, for any reason, be adjudged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not affect, impair or invalidate the remainder of this Contract but shall be confined in its operation to the provision or provisions hereof directly involved in the controversy in which such judgment shall have been rendered, and this Contract shall be construed as if such provision had never existed, unless such construction would operate as an undue hardship on Seller or Buyer or would constitute a substantial deviation from the general intent of the parties as reflected in this Contract.

     16.10 Interpretation. For purposes of construing the provisions of this Contract, the singular shall be deemed to include the plural and vice versa and the use of any gender shall include the use of any other gender, as the context may require.

     16.11 Further Acts. In addition to the acts, deeds, instruments and agreements recited herein and contemplated to be performed, executed and delivered by Buyer and Seller, Buyer and Seller shall perform, execute and deliver or cause to be performed, executed and delivered at the Closing or after the Closing, any and all further acts, deeds, instruments and agreements and provide such further assurances as the other party or the Title Company may reasonably require to consummate the transaction contemplated hereunder.

[Signatures Begin on Following Page]

     IN WITNESS WHEREOF, this Contract has been executed, to be effective as of the date first above written, by the Buyer and Seller.

SELLER:
INTERSTATE PITTSBURGH HOTEL HOLDINGS, L.L.C., a Delaware limited liability company
By:	/s/ CHRISTOPHER L. BENNETT
Name:	Christopher L. Bennett
Title:	Senior Vice President and General Counsel
BUYER:
APPLE SIX HOSPITALITY OWNERSHIP, INC., a Virginia corporation
By:	/s/ AUTHORIZED SIGNATORY
Name:
Title:	Vice President

FIRST AMENDMENT
TO
PURCHASE CONTRACT

     THIS FIRST AMENDMENT TO PURCHASE CONTRACT (this “Amendment”) is entered into as of July 29, 2005, by and between INTERSTATE PITTSBURGH HOTEL HOLDINGS, L.L.C., a Delaware limited liability company (“Seller”), and APPLE SIX HOSPITALITY OWNERSHIP, INC., a Virginia corporation (“Buyer”).

RECITALS

     A. Seller and Buyer are parties to that certain Purchase Contract dated as of June 15, 2005 (the “Contract”), with respect to a Residence Inn hotel in Pittsburgh, Pennsylvania.

     B. Seller and Buyer desire to amend the Contract as hereinafter provided.

AGREEMENT

     NOW, THEREFORE, for and in consideration of the premises and the mutual agreements herein set forth and further good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Buyer hereby agree as follows:

     1. Capitalized terms used but not otherwise defined herein shall have the meanings given to such terms in the Contract.

     2. The Contract is modified by replacing Exhibit C in its entirety with the form of Exhibit C attached hereto.

     3. Seller and Buyer acknowledge and agree that, except as amended herein, the Contract is in full force and effect and is hereby ratified and confirmed.

     4. This Amendment (i) may be executed by facsimile signatures and in several counterparts, and each counterpart when so executed and delivered shall constitute an original of this Amendment, and all such separate counterparts shall constitute but one and the same Amendment and (ii) embodies the entire agreement and understanding between the parties with respect to the subject matter hereof and supercedes all prior agreements, consents and understandings related to such subject matter.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK;
SIGNATURE PAGES FOLLOW]

     EXECUTED to be effective as of the date first above written.

SELLER:
INTERSTATE PITTSBURGH HOTEL HOLDINGS, L.L.C., a Delaware limited liability company
By:	/s/ JAMES A. CROLLE III
Name:	James A. Crolle III
Title:	Senior Corporate Counsel
BUYER:
APPLE SIX HOSPITALITY OWNERSHIP, INC.
By:	/s/ DAVID BUCKLEY
Name:	David Buckley
Title:	Vice President

2

EXHIBIT C

LIST OF HOTEL CONTRACTS

1.	Security Services Agreement dated April 20, 1998, by and between ADT SECURITY SERVICES, INC. and the SELLER.
2.	Waste Removal Agreement dated November 1, 2004, by and between BFI WASTE SERVICES OF PITTSBURGH and the SELLER.
3.	Special Products Rental Agreement dated February 23, 2000, by and between CINTAS CORPORATION and the SELLER.
4.	Elevator Maintenance Agreement dated June 3, 1999, by and between MARSHALL ELEVATOR COMPANY and the SELLER.
5.	Airport Phone Board Agreement dated June 6, 2005, by and between JCDECAUX AIRPORT and the SELLER.
6.	Telephone and Voicemail Maintenance & Service Agreement dated January 20, 2005, by and between MIS ASSOCIATES, INC. and the SELLER
7.	Cable Service Agreement dated September 28, 2004, by and between ON COMMAND VIDEO CORPORATION and the SELLER.
8.	Area Reservations Sales Office Shared Service Agreement dated January 1, 2005, by and between MARRIOTT INTERNATIONAL, INC. and the SELLER.
9.	Two Way Radio Service Agreement dated November 6, 2002, by and between STALEY COMMUNICATIONS, INC. and the SELLER.
10.	Fire Panel Monitoring Service Agreement dated April 22, 2005, by and between SIMPLEXGRINNELL LP and the SELLER.
11.	Xerox Fax Order Agreement dated April 23, 2003, by and between XEROX CORPORATION and the SELLER.
12.	Landscape Maintenance Agreement dated April 15, 2005, by and between PLANTSCAPE, INC. and the SELLER.
13.	Agreement dated March 26, 1997 between Regional Industrial Development Corporation of Southwestern Pennsylvania and IHC Realty Partnership, L.P. (Recorded March 27, 1997 in the Recorder’s Office of Allegheny County, Pennsylvania, in Deed Book 9910, page 196.)

3

EX-10.5

EXHIBIT 10.5

AGREEMENT OF SALE AND PURCHASE

     THIS AGREEMENT OF SALE AND PURCHASE (this “Agreement”), dated as of November 12, 2004 (the “Effective Date”), is made by and between HANFORD HOTELS, LLC, a California limited liability company, having an address at ________ (“Seller”), and INTERSTATE CONCORD, LLC, a Delaware limited liability company having an address c/o Interstate Hotels & Resorts, Inc., 4501 N. Fairfax Drive, Arlington, VA 22203 (“Purchaser”).

I.

Definitions; Sale and Purchase

     1.01 Definitions. In addition to terms defined elsewhere in this Agreement, the following terms shall have the meanings indicated:

     (a) Bookings shall mean contracts or reservations for the use or occupancy of guest rooms, meeting rooms and/or the banquet facilities of the Hotel.

     (b) Books and Records shall mean all books, records, room rates, customer lists and banquet and function room records with respect to the Hotel (whether in electronic format or reduced to paper.

     (c) Closing Date shall mean the date specified in Section 7.01.

     (d) Consumables shall mean all opened and unopened food and beverages (alcoholic and non-alcoholic) owned by Seller or its property manager and located at, or purchased to be used or sold at but not yet delivered to, the Hotel.

     (e) Cut-off Time shall mean 11:59 p.m. on the date preceding the Closing Date.

     (f) Effective Date shall mean the date of this Agreement.

     (g) Expendables shall mean all china, glassware, linens, silverware, kitchen and bar small goods, paper goods, guest supplies, cleaning supplies, operating supplies, printing, stationary and uniforms, and other operating supplies and inventories whether in use or held in reserve storage for future use in connection with the operation of the Hotel.

     (h) Existing Franchise Agreement shall mean the existing franchise agreement between Hilton Inns, Inc. (“Hilton”), as franchisor, and Seller, as franchisee, with respect to the Hotel.

     (i) Furnishings shall mean all fixtures, furniture, furnishings, fittings, equipment, machinery, apparatus, appliances, vehicles and other articles of personal property located on or used or usable in connection with any part of the Hotel.

     (j) Hotel shall mean the hotel located at 1970 Diamond Boulevard, Concord, California 94520, and known as the Hilton Concord Hotel.

     (k) Hotel Contracts shall mean all service and maintenance contracts, employment agreements, union contracts, purchase orders, equipment leases, volume transient agreements and other

contracts or agreements relating to the maintenance, operation, provisioning or equipping of the Hotel, together with all related written warranties and guaranties.

     (l) Hotel Employees shall mean the persons employed to operate the Hotel.

     (m) Improvements shall mean the buildings, structures (surface and sub-surface), installations and other improvements, including such fixtures and appurtenances as shall constitute real property located on the Land.

     (n) Land shall mean the land and all appurtenances thereto, having a street address at 1970 Diamond Boulevard, Concord, California 94520, Concord, California, more particularly described in Exhibit A to this Agreement upon which the Hotel is situated together with all appurtenances to the Land.

     (o) Miscellaneous Personal Property shall mean (i) any and all trademarks, service marks, trade names and copyrights owned by Seller or any affiliate of Seller relating to the Hotel, (ii) any and all goodwill associated with the Hotel, (iii) the Hotel’s website and web address, if any, (iv) the Hotel’s telephone numbers, and (v) printed marketing materials, if any, relating to the Hotel, and any slides, proofs or drawings used to produce such materials, to the extent such slides, proofs or drawings are in Seller’s possession.

     (p) Permits shall mean all licenses, franchises, permits, certificates of occupancy, authorizations and approvals used in or relating to the ownership, occupancy or operation of any part of the Hotel.

     (q) Property shall mean the Land and Improvements.

     (r) Space Leases shall mean all leases and other agreements (written or oral) for the use of space at the Property, including but not limited to, agreements for the use of rooftop space on the Hotel for the installation of cellular telephone antennas.

     (s) Warranties shall mean any assignable warranties benefiting Seller with respect to the Furnishings, Miscellaneous Personal Property and Improvements.

     1.02 Sale and Purchase. Seller agrees to sell and convey the Hotel to Purchaser, and Purchaser agrees to purchase and accept the Hotel from Seller, for the price and subject to the terms, covenants, conditions and provisions set forth in this Agreement. The sale and purchase shall include the Property and all right, title and interest of Seller in and to the Bookings, the Books and Records, the Furnishings, the Expendables, the Consumables, the Permits, the Space Leases, the Hotel Contracts, the Miscellaneous Personal Property and the Warranties (the Property, the Bookings, the Books and Records, the Furnishings, the Expendables, the Consumables, the Permits, the Space Leases, the Hotel Contracts, the Miscellaneous Personal Property and the Warranties being hereinafter collectively referred to as the “Purchased Assets”). Notwithstanding anything to the contrary in Section 1.02, the following items are expressly excluded from the Purchase Assets:

     (a) All cash on hand or on deposit other than deposits for advance Bookings, operating account or other account or reserve, except for (i) security deposits held by Seller as landlord with respect to any Lease, (ii) the house banks which are to be transferred at Closing subject to the terms of this Agreement and (iii) other deposits and amounts which are to be transferred or credited to Purchaser pursuant to this Agreement;

     (b) Any tangible or intangible property owned by Seller’s property manager which is described on Exhibit F attached hereto and made a part hereof; and

     (c) Any fixtures, personal property or intellectual property which is set forth on Exhibit G, to the extent the same is owned by (A) the supplier, vendor, licensor, lessor or other party under any

operating agreements, provided that any rights to purchase contained in any operating agreements shall be considered part of the Purchased Assets, (B) the tenant under any Leases, (C) any employees, or (D) any guests or customers of the Hotel.

     1.03 Condition of Property. (a) Purchaser acknowledges for Purchaser and Purchaser’s successors, heirs and assignees, (i) that Purchaser will be given a reasonable opportunity to inspect and investigate the Property, all improvements thereon and all aspects relating thereto, including, without limitation, all of the physical, environmental and operational aspects of the Property, either independently or through agents and experts of Purchasers choosing and (ii) that Purchaser will acquire the Property based upon Purchasers own investigation and inspection thereof. SELLER AND PURCHASER AGREE THAT, EXCEPT AS PROVIDED FOR IN THIS AGREEMENT OR ANY CLOSING DOCUMENT, THE PROPERTY SHALL BE SOLD AND THAT PURCHASER SHALL ACCEPT POSSESSION OF THE PROPERTY ON THE CLOSING DATE AS IS, WHERE IS, WITH ALL FAULTS WITH NO RIGHT OF SET-OFF OR REDUCTION IN THE PURCHASE PRICE, AND THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT OR ANY CLOSING DOCUMENT SUCH SALE SHALL BE WITHOUT REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, EXCEPT FOR THOSE SET FORTH IN THIS AGREEMENT, INCLUDING, WITHOUT LIMITATION, WARRANTY OF INCOME POTENTIAL, OPERATING EXPENSES, USES, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. PURCHASER SPECIFICALLY ACKNOWLEDGES THAT, EXCEPT AS PROVIDED FOR IN THIS AGREEMENT OR ANY CLOSING DOCUMENT, PURCHASER IS NOT RELYING AND SHALL NOT RELY ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, FROM SELLER AS TO ANY MATTERS CONCERNING THE PROPERTY INCLUDING WITHOUT LIMITATION: (A) THE CONDITION OR SAFETY OF THE PROPERTY OR ANY IMPROVEMENTS THEREON, INCLUDING, BUT NOT LIMITED TO, PLUMBING, SEWER, HEATING AND ELECTRICAL SYSTEMS, ROOFING, AIR CONDITIONING, IF ANY FOUNDATIONS, SOILS AND GEOLOGY INCLUDING HAZARDOUS MATERIALS, LOT SIZE, OR SUITABILITY OF THE PROPERTY OR IMPROVEMENTS FOR A PARTICULAR PURPOSE; (B) WHETHER THE APPLIANCES, IF ANY, PLUMBING OR UTILITIES AND ANY ASSOCIATED MATTERS ARE IN WORKING ORDER; (C) THE LIABILITY OR SUITABILITY FOR OCCUPANCY OF ANY STRUCTURE AND THE QUALITY OF ITS CONSTRUCTION; (D) THE FITNESS OF ANY PERSONAL PROPERTY; OR (E) WHETHER THE IMPROVEMENTS ARE STRUCTURALLY SOUND, IN GOOD CONDITION, OR IN COMPLIANCE WITH APPLICABLE CITY, COUNTY, STATE OR FEDERAL STATUTES, CODES OR ORDINANCES.

     UNLESS SPECIFICALLY SET FORTH IN THIS AGREEMENT, PURCHASER REPRESENTS TO SELLER THAT PURCHASER HAS OR WILL HAVE PRIOR TO CLOSING EXTENSIVE KNOWLEDGE OF AND FAMILIARITY WITH THE PROPERTY AND HAS CONDUCTED, OR WILL CONDUCT PRIOR TO CLOSING, SUCH INVESTIGATIONS OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO, THE PHYSICAL AND ENVIRONMENTAL CONDITIONS THEREOF, AS PURCHASER DEEMS NECESSARY TO SATISFY ITSELF AS TO THE CONDITION OF THE PROPERTY AND THE EXISTENCE OR NONEXISTENCE OR CURATIVE ACTION TO BE TAKEN WITH RESPECT TO ANY HAZARDOUS OR TOXIC SUBSTANCES ON OR DISCHARGED FROM THE PROPERTY, AND, EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN OR IN ANY DOCUMENT DELIVERED TO PURCHASER BY SELLER AT CLOSING, WILL RELY SOLELY UPON SAME AND NOT UPON ANY INFORMATION PROVIDED BY OR ON BEHALF OF SELLER OR ITS AGENTS OR EMPLOYEES WITH RESPECT THERETO, OTHER THAN SUCH REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AS ARE EXPRESSLY SET FORTH IN THIS AGREEMENT OR IN ANY DOCUMENT DELIVERED TO PURCHASER BY SELLER AT CLOSING. UPON CLOSING, EXCEPT AS EXPRESSLY PROVIDED FOR HEREIN OR IN ANY DOCUMENT DELIVERED TO PURCHASER BY SELLER AT CLOSING, PURCHASER SHALL ASSUME THE RISK THAT ADVERSE MATTERS INCLUDING BUT NOT LIMITED TO, CONSTRUCTION DEFECTS AND ADVERSE PHYSICAL AND ENVIRONMENTAL CONDITIONS, MAY NOT HAVE BEEN REVEALED BY PURCHASER’S INVESTIGATIONS.

     EXCEPT AS MAY BE EXPRESSLY PROVIDED IN THIS AGREEMENT OR IN ANY DOCUMENT DELIVERED TO PURCHASER BY SELLER AT CLOSING, PURCHASER, FOR ITSELF AND ITS SUCCESSORS IN INTEREST, (X) RELEASES SELLER FROM, AND WAIVES ALL CLAIMS AND LIABILITY AGAINST SELLER FOR, ANY ENVIRONMENTAL CONDITION AT THE PROPERTY, AND (Y) RELEASES SELLER

FROM, AND WAIVES ALL LIABILITY AGAINST SELLER ATTRIBUTABLE TO, THE ENVIRONMENTAL CONDITION OF THE PROPERTY, INCLUDING WITHOUT LIMITATION THE PRESENCE, DISCOVERY OR REMOVAL OF ANY HAZARDOUS SUBSTANCES IN, AT, ABOUT OR UNDER THE PROPERTY, CONNECTED WITH OR ARISING OUT OF ANY AND ALL CLAIMS OR CAUSES OF ACTION BASED UPON CERCLA (COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT OF 1980, AS AMENDED BY SARA SUPERFUND AMENDMENT AND REAUTHORIZATION ACT OF 1986 AND AS MAY BE FURTHER AMENDED FROM TIME TO TIME) OR ANY RELATED CLAIMS OR CAUSES OF ACTION OR ANY OTHER FEDERAL OR STATE BASED STATUTORY OR REGULATORY CAUSES OF ACTION FOR ENVIRONMENTAL CONTAMINATION AT, IN OR UNDER THE PROPERTY. THE PROVISIONS OF THIS SECTION SHALL SURVIVE THE CLOSING.

II.

Consideration

     2.01 Purchase Price. The purchase price (“Purchase Price”) to be paid by Purchaser to Seller at the closing of the purchase and sale of the Property (the “Closing”) shall be TWENTY NINE MILLION ONE HUNDRED FIFTY THOUSAND DOLLARS ($29,150,000). The Purchase Price shall be payable by Purchaser as follows:

     (a) FIVE HUNDRED THOUSAND DOLLARS ($500,000) as an earnest money deposit (together with any interest earned thereon, the “First Deposit”), by check or wire transfer payable to First American Title Insurance Company (in its capacity as holder of the Earnest Money, the “Escrow Agent”), through its Washington, D.C. office, within two (2) business days after the date hereof;

     (b) ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) by wire transfer of good funds to the Escrow Agent as an additional earnest money deposit (together with any interest earned thereon, the “Second Deposit”, and the First Deposit and after the deposit thereof the Second Deposit being hereinafter collectively referred to as the “Earnest Money”) within two (2) business days after the expiration of the Inspection Period (as hereinafter defined), if Purchaser shall not have terminated this Agreement as provided in this Agreement; and

     (c) The balance (as adjusted for the prorations and credits hereinafter set forth) at the Closing by wire transfer of good funds to an account to be designated by Seller prior to the Closing.

     2.02 Earnest Money. The Earnest Money shall be delivered to and held by Escrow Agent in escrow in an interest-bearing account pursuant to terms of this Agreement. If the Closing occurs in accordance with the terms and provisions of this Agreement, the Earnest Money shall be paid to Seller and credited against the Purchase Price. If the Closing does not occur, the Earnest Money shall be held and delivered as provided in this Agreement.

     2.03 Allocation. The Purchase Price shall be allocated between the Land, the Improvements and the other Purchased Assets as set forth on Exhibit B attached hereto subject to such changes as the parties may reasonably and in good faith agree upon prior to the expiration of the Inspection Period.

III.

Survey

     3.01 Survey. Promptly after the Effective Date, Seller will obtain, at Purchaser’s cost and expense, a current survey (the “Survey”) of the Property prepared by a licensed surveyor approved by Purchaser. The Survey, which shall be certified to Purchaser, Purchaser’s lender, if any, and Purchaser’s title insurer, shall indicate the metes and bounds of the Land, shall indicate the Improvements and the location of any easements, utility lines, rights-of-way, water courses, drains, sewers, driveways, roads and encroachments affecting the Property, and shall indicate that all Improvements are located within the record and setback lines of the Property and that no easements or other encroachments located on the Property interfere with the use of the Property and shall otherwise be in accordance with the Minimum Standard Detail Requirements and Classifications for ALTA/ACSM Land Title Surveys (including items 1, 2, 3, 6, 7A, 7B, 7C, 8, 9, 10, 11 and 13 of Table A thereof) and the standards of any board or organization promulgating standards for surveys in the State of California.

IV.

Title Insurance

     4.01 Title Commitment. Within ten days after the Effective Date, Purchaser will cause First American Title Insurance Company (in its capacity as title insurer, the “Title Company”), through its Washington, D.C. office to deliver to Purchaser an up-to-date and complete commitment for an ALTA Owner’s Policy of Title Insurance with extended coverage (the “Title Commitment”) accompanied by a legible copy of all recorded documents relating to liens, easements, rights-of-way, restrictions and other matters affecting title to the Property.

     4.02 Title Objections. Purchaser shall have ten (10) days from the last to be received of the Title Commitment and the Survey to notify Seller as to any items that are unsatisfactory to Purchaser. Unless Purchaser or its attorney so notifies Seller within such 10-day period, Purchaser shall be deemed to have approved the condition of title to the Property as reflected by the Title Commitment and Survey. If within such period Purchaser notifies Seller that any of the items are unacceptable (“Objections”), Seller shall within five (5) business days after receipt of such notice notify Purchaser whether Seller shall elect to cure any or all of such Objections (provided, however, that Seller must satisfy and remove of record or cure, as the case may be, and shall not have any right to elect not to cure, any matter which it is required to cure pursuant to Section 4.04 below. If Seller elects to cure any such Objections, then Seller shall promptly cure the Objections which it has elected to cure to Purchaser’s and the Title Company’s satisfaction. If Seller elects not to cure any such Objections, or is unable to cure any such Objections, then Purchaser at its sole and absolute option may either (i) accept title to the Property subject to such Objections or (ii) terminate this Agreement by written notice to Seller, whereupon the Earnest Money shall be promptly returned to Purchaser and the parties shall have no further rights or liabilities under this Agreement other than those which expressly survive the termination of this Agreement. Purchaser shall make such election by written notice to Seller or on before the Closing Date or within five business days after Seller has advised Purchaser in writing that has elected not to cure any such Objections or is unable to cure any such Objections, whichever occurs first, and in the event Purchaser does not make such election, Purchaser shall be conclusively deemed to have terminated this Agreement. Those restrictions, liens, encumbrances, easements, rights of way and other matters as are not objected to by Purchaser in the manner provided in this Section shall be deemed “Permitted Exceptions”. Nothing herein shall be deemed to prohibit Purchaser from objecting to title defects revealed subsequent to approval of the title reflected by the Title Commitment and the Survey and any such objections will be treated as “Objections” in accordance with this Section.

     4.03 Title Conveyed. Seller shall, on the Closing Date, convey to Purchaser good, marketable and insurable title to the Property subject only to the Permitted Exceptions.

     4.04 Monetary Liens. Notwithstanding anything to the contrary set forth in Section 4.02 above, Seller shall satisfy and remove of record or cure, as the case may be, at or before the Closing (x) any mortgage or deed of trust lien

affecting the Property, (y) any liens for unpaid taxes, and (z) any other Objection which may be removed by the payment of a liquidated sum of money and which when aggregated with all other Objections to be cured under this clause (z) is equal to or less than $100,000 in the aggregate, and Seller may not refuse to cure the same. Seller may use all or any portion of the Purchase Price to affect such cure at the Closing.

     4.05 Searches. Promptly after the Effective Date, Seller shall furnish to Purchaser, at Seller’s expense, written reports of searches (the “Searches”) of the records of the appropriate governmental agencies confirming the absence of security interests, judgments, tax liens and bankruptcy proceedings which affect or could affect the Purchased Assets or any interest therein (except the Permitted Exceptions). If such Searches disclose the existence of any security interests, judgments, tax liens or bankruptcy proceedings which affect or could affect the Purchased Assets or any interest therein (except the Permitted Exceptions), Seller shall have thirty (30) days from the date of delivery of such written reports to secure the release, or commit in writing to secure the release, of all such security interests, judgments, tax liens and bankruptcy proceedings and provide evidence of such release to Purchaser. If Seller fails to secure all such releases or commit to secure such releases within such thirty (30) day period, without limiting any other obligation which Seller may have under Section 4.05 or elsewhere in this Agreement, and/or right or remedy which Purchaser may have with respect thereto under this Agreement, Purchaser may elect, upon notice to Seller on or before the Closing Date, to (i) terminate this Agreement, in which event the Earnest Money shall promptly be returned to Purchaser, or (ii) accept title subject only to such then unreleased security interests, judgments and tax liens with the further right to deduct from the Purchase Price amounts secured by any such security interests, judgments and tax liens (other than the Permitted Exceptions) of a definite or ascertainable amount. Said Searches shall be updated, at Seller’s sole cost and expense, as of a date not earlier than three (10) days prior to the Closing Date confirming that there are no security interests, judgments, tax liens or bankruptcy proceedings affecting the Purchased Assets or any interest therein.

V.

Representations, Warranties, Covenants And Conditions Precedent

     5.01 Seller’s Representations and Warranties. Seller represents and warrants to Purchaser that:

     (a) Seller is a duly organized and validly existing California limited liability company, is in good standing in the State of California and in the state of its formation, if different, and has full power to enter into this Agreement and to perform its obligations under this Agreement.

     (b) The execution and delivery of this Agreement has been duly authorized by all necessary and appropriate action of Seller. This Agreement constitutes a legal, valid and binding obligation of Seller enforceable in accordance with its terms, subject to bankruptcy, fraudulent conveyance, moratorium or other creditor’s rights and limitations on equitable remedies.

     (c) No consent or approval of any person, entity, or governmental authority is required with respect to the execution and delivery of this Agreement by Seller or the consummation by Seller of the transactions contemplated hereby or the performance by Seller of its obligations under this Agreement.

     (d) There are no Space Leases, ground leases, license agreements, occupancy agreements or other similar agreements affecting all or any portion of the Property except for the leases (collectively, the “Space Leases”) listed in Exhibit C (as supplemented pursuant to Section 5.05(p) below) to this Agreement. All of the Space Leases described in Exhibit C are in full force and effect, there are no defaults by any party thereunder, and true and complete copies of the Space Leases and all instruments and documents related to the Space Leases have been provided to Purchaser.

     (e) There are no Hotel Contracts or similar agreements affecting the Property except as set forth in Exhibit D to this Agreement (as supplemented pursuant to Section 5.05(p) below). Any equipment leases set forth on Exhibit D (as supplemented pursuant to Section 5.05(p) below) are specifically identified as such. All of the Hotel Contracts are in full force and effect, there are no defaults

by Seller or, to Seller’s knowledge, any other party thereunder, and true and complete copies of the Hotel Contracts and all instruments and documents related to the Hotel Contracts have been provided to Purchaser.

     (f) The Existing Franchise Agreement is in full force and effect and has not been extended, amended, modified or otherwise supplemented. To Seller’s knowledge, after due inquiry of Hilton, there are no defaults by Seller under the Existing Franchise Agreement or, to the knowledge of Seller, by any other party thereunder, nor has any event occurred which, with passage of time or the giving of notice or both, would constitute a default by Seller or, to the knowledge of Seller, by any other party thereunder. True and complete copies of the Existing Franchise Agreement have been provided to Purchaser.

     (g) To Seller’s knowledge all Permits necessary for the operation of the Hotel are set forth in Exhibit E to this Agreement. The Permits are in full force and effect, Seller has received no notice of any violations thereof, and true and complete copies of all of the Permits have been delivered to Purchaser.

     (h) All Hotel Employees are employed by Seller or the Hotel’s property manager. There are no agreements relating to any representation, labor or collective bargaining agreement affecting the Hotel, and no Hotel Employees are employed under union agreements, collective bargaining, written or oral employment agreements or similar arrangements. Neither Seller nor to Seller’s knowledge, Seller’s property manager has received any notice from any labor union or group of employees that such union or group represents or believes or claims it represents or intends to represent any of the Hotel Employees. There are no current strikes or work stoppages at the Hotel nor, to Seller’s knowledge, has any such strike or work stoppage been threatened.

     (i) Seller has received no notice of, and, to Seller’s knowledge, there are no violations of laws, ordinances, orders or regulations (“Laws”) of governmental or quasi-governmental authorities with respect to the Property (including, without limitation, those related to environmental, labor or employment matters) and the current use of the Property is in compliance with all zoning and land-use laws and ordinances.

     (j) To Seller’s knowledge, except as set forth on Exhibit I attached hereto no asbestos or petroleum or any substances defined as hazardous materials or hazardous wastes under any applicable Laws are or have been used, stored, generated or released at the Property.

     (k) Except as set forth on Exhibit J attached hereto, there is no litigation, action, or proceeding pending or, to the best of Seller’s knowledge, threatened relating to the Property or the transactions contemplated by this Agreement, including, but not limited to, those alleging the violation of any Laws pertaining to employment or employment practices or those alleging violation of the Americans with Disabilities Act, nor is the Hotel affected by any settlement agreement, consent decree or other resolution to any prior litigation, action or proceeding.

     (l) Seller has provided to Purchaser (i) true and complete copies of all bills for real estate and personal property taxes and assessments for the 2004 tax year and the two immediately preceding tax years and (ii) a true and complete list of the current Hotel Employees together with a schedule setting forth the compensation and fringe benefits (including, but not limited to, benefit plans) accorded to such Hotel Employees.

     (m) Seller has provided to Purchaser unaudited financial statements and STR reports for the 2000, 2001, 2002 and 2003 calendar years and year-to-date financial statements for the 2004 calendar year. All such statements for the Hotel are, and any financial statements for later periods to be provided by Seller pursuant to this Agreement shall be, true and correct and have, or will, accurately reflect in all material respects the financial condition of the Hotel for the applicable period. There have been no material

adverse changes in the financial condition of the Hotel since the date of the last such statement delivered to Purchaser prior to the execution of this Agreement.

     (n) Seller owns good and marketable title to the Purchased Assets, subject only to the Permitted Exceptions.

     (o) Other than to Hilton pursuant to the Franchise Agreement, Seller has not granted to any person or entity any options or other agreements of any kind, whereby any person or entity other than Purchaser will have acquired or will have any right to acquire title to all or any portion of the Purchased Assets.

     (p) Seller has paid all taxes (including, without limitation, transient occupancy (bed) taxes), assessments and other governmental charges relating to the operation of the Hotel that were due and payable prior to the Effective Date.

     (q) Other than the agreements disclosed in this Agreement, and to Seller’s knowledge, there are no agreements, written or oral, affecting the Property, which would be binding on Purchaser following the Closing.

     (r) Seller is not a “foreign person” as defined in the Internal Revenue Code of 1986, as amended.

     (s) Michael McGlone is President and Chief Operating Officer of Seller and Peter Trapolino is Vice President — Development of Seller. Mr. McGlone and Mr. Trapolino are the individuals employed by Seller having supervisory responsibility for and control of the Hotel and are the employees of Seller having the most knowledge of the matters which are the subject of the foregoing representations which are limited to Seller’s knowledge.

     (t) Neither Seller nor any of its respective officers, directors, shareholders, partners, members or affiliates (including the indirect holders of equity interests in Borrower) is an entity or person: (i) that is listed in the Annex to, or is otherwise subject to the provisions of Executive Order 13224 issued on September 24, 2001 (“EO13224”); (ii) whose name appears on the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) most current list of “Specifically Designated National and Blocked Persons” (which list may be published from time to time in various mediums including, but not limited to, the OFAC website, http:www.treas.gov/ofac/t11sdn.pdf)(the “OFAC List”); (iii) who commits, threatens to commit or supports “terrorism”, as that term is defined in EO 13224; or (iv) who is otherwise affiliated with any entity or person listed above.

     5.02 Purchaser’s Representations and Warranties. Purchaser represents and warrants to Seller that:

     (a) Purchaser is a duly organized and validly existing limited liability company, is in good standing in the State of Delaware and has full power to enter into this Agreement and to perform its obligations under this Agreement.

     (b) The execution and delivery of this Agreement has been duly authorized by all necessary and appropriate limited liability company action of Purchaser. This Agreement constitutes a legal, valid and binding obligation of Purchaser enforceable in accordance with its terms, subject to bankruptcy, fraudulent conveyance, moratorium or other creditor’s rights and limitations on equitable remedies.

     5.03 Knowledge Defined. For purposes of this Agreement, “knowledge” means (a) with respect to Seller, the actual knowledge of Michael McGlone and/or Peter Trapolino and/or, if different, the general manager of the Hotel, (provided that, in no event shall any such person have any personal liability arising under this Agreement), without any duty of inquiry or investigation other than reasonable inquiries of the general manager and executive staff of the Property,

and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, manager, employee, agent or representative of Seller or any of its affiliates, and (b) with respect to Purchaser, (i) the actual knowledge of C.A. Anderson and expressly excluding the knowledge of any other shareholder, partner, member, trustee, beneficiary, director, officer, manager, employee, agent or representative of Purchaser or any of its Affiliates and (ii) any matter disclosed in any exhibits or schedules to this Agreement. For the purposes of this definition, the term “knowledge” means, with respect to any person, the conscious awareness of such person at or prior to the time in question, but expressly excludes any constructive or implied knowledge of such person.

     5.04 Survival of and Other Matters with respect to Seller’s Representations and Warranties.

     (a) The representations and warranties of Seller set forth in Section 5.01 as updated by the certificate of Seller to be delivered to Purchaser at Closing, shall survive Closing for a period of two hundred seventy (270) days. No claim for a breach of any representation or warranty of Seller shall be actionable or payable (a) if the breach in question results from or is based on a condition, state of facts or other matter which was actually known to Purchaser prior to Closing, (b) unless the valid claims for all such breaches, if any, collectively aggregate more than Fifty Thousand Dollars ($50,000), in which event the full amount of such claims shall be actionable, and (c) unless written notice containing a reasonable description of the nature of such breach shall have been given by Purchaser to Seller prior to the expiration of said two hundred seventy (270) day period and an action shall have been commenced by Purchaser against Seller within ninety (90) days after the termination of the survival period provided for above in this Section 5.04 (except that if Purchaser is seeking recovery from any third party as provided in the following sentence Purchaser shall only be required to provide written notice to Seller within the two hundred seventy (270) day period and shall not be required to commence an action against Seller to preserve its claims). As used herein, the term “Cap” shall mean the total aggregate amount of One Million Five Hundred Thousand Dollars ($1,500,000). In no event shall (i) Seller’s aggregate liability to Purchaser for breach of any representation or warranty of Seller in this Agreement (as modified by any certificate to be delivered by Seller at Closing) exceed the amount of the Cap, or (ii) Seller be liable for any consequential or punitive damages unless the same are payable to third parties.

     (b) By executing and delivering the documents required of such party in Section 7.04 below, (i) Seller shall be deemed to have remade all of the foregoing representations and warranties of Seller in Section 5.01 as of Closing and (ii) Purchaser shall be deemed to have made all of the foregoing representations and warranties of Purchaser in Section 5.02 as of Closing. Should any of such representations and warranties of Seller be found to be incorrect prior to Closing, Seller shall attempt to cure the same by Closing. If Seller is unable to cure same by Closing, at Purchaser’s option the Closing shall be postponed until five (5) business days following Purchaser’s receipt of proof satisfactory to Purchaser that such matters have been cured, provided, however, if Seller is unable to cure the same within thirty (30) days from the date of notice of the same, Purchaser shall be entitled either to waive the same and close this transaction, exercise its rights pursuant to Article VI of this Agreement or to terminate this Agreement. In the event the Purchaser elects to terminate this Agreement, Escrow Agent shall return the Earnest Money to Purchaser and neither party to this Agreement shall thereafter have any further rights or liabilities under this Agreement.

     5.05 Seller’s Covenants. Seller covenants and agrees with Purchaser that prior to the Closing:

     (a) Seller will assist Purchaser and Purchaser’s agents, on or before Closing, in acquiring all information necessary to enable Purchaser’s agents and Seller’s agents to compute the prorations described in Section 7.02 of this Agreement.

     (b) Seller will not sell, exchange, assign, transfer, convey, lease or otherwise dispose of all or any part of the Purchased Assets or any interest therein except for Furnishings, Consumables and Expendables which are sold or consumed in the ordinary course of business.

     (c) Seller will keep the Space Leases, the Hotel Contracts, the Existing Franchise Agreement and the Permits in full force and effect, will pay all charges when due thereunder and will perform all of its material obligations thereunder.

     (d) Seller will keep the Purchased Assets free and clear of liens and encumbrances other than the Permitted Exceptions and the lien of taxes not yet due and payable.

     (e) Seller will not enter into any contracts, leases, licenses, easements or other agreements relating to the Purchased Assets which will obligate Purchaser or be a charge or lien against the Property, except those necessary to continue the operation of the Hotel in the ordinary course of business and which are terminable by the owner of the Property without penalty on thirty days notice.

     (f) Seller will cause the Property to be operated and maintained in the manner in which it is being operated and maintained as of the date of this Agreement which undertaking includes, but is not limited to, (i) maintaining Expendables, Consumables and Furnishings in those quantities and at those levels present as of the Effective Date and (y) with respect to Expendables, also not less than the average levels maintained with respect to each such Expendable over the five years previous to the Closing Date, (ii) entering into Bookings in the ordinary course of business, (iii) performing all repairs and maintenance necessary to keep the Property in good repair, to comply with Laws and to maintain at least the same condition as exists on the Effective Date and (iv) keeping the Hotel staffed with Hotel Employees in accordance with Seller’s current practice.

     (g) Seller shall permit Purchaser and its representatives, employees, contractors and agents to enter upon and inspect the Property and perform such investigations of the Property and all applicable Books and Records as Purchaser may from time to time deem desirable. Purchaser and Purchaser’s agents and contractors shall have the right during the term of this Agreement to enter upon the Property at reasonable times and upon reasonable prior notice to Seller. Purchaser acknowledges and agrees that any and all inspections of the Property shall be conducted in a manner not unreasonably disruptive to tenants, guests, or otherwise to the operation of the Property and shall be performed upon reasonable prior notice to Seller. In the event Purchaser desires to conduct any physically intrusive due diligence such as sampling of soils or drilling wells, Purchaser will request Seller’s prior consent thereto, which consent shall not be unreasonably withheld. Purchaser agrees to indemnify Seller and hold Seller, Seller’s affiliates, officers, directors, employees, agents and representatives harmless from and against any and all losses, costs, damages, claims or liabilities, including, without limit, to mechanic’s and materialmen’s liens and attorneys fees arising out of or in connection with the entry by Purchaser and/or any of Purchaser’s agents onto the Property pursuant to this Section except to the extent the same arise from the misconduct or negligence of Seller or Seller’s representatives. Purchaser’s indemnity and hold harmless provisions pursuant to this Section shall survive the closing of this transaction or earlier termination of this Agreement. In addition to the foregoing, Seller shall assist Purchaser and provide such other information as shall be required to enable an accounting firm of Purchaser’s choosing to prepare audited financial statements of the Property for calendar years 2000 through 2003, the cost of which shall be borne by Purchaser.

     (h) Within twenty (20) days after the end of each calendar month until the Closing Date, Seller shall provide to Purchaser financial statements and STR reports for such month and on a year-to-date basis which statements shall be prepared in accordance with either generally accepted accounting principles or the Uniform System of Accounts for Hotels and Motels, and otherwise in form reasonably acceptable to Purchaser.

     (i) Upon Purchaser’s request, Seller shall from time to time make available a senior representative of Seller and the general manager of the Hotel at a reasonable time to meet with an asset manager of Purchaser to review the operations of the Hotel in reasonable detail

     (j) Seller will promptly notify Purchaser of any matter arising prior to Closing which might materially and adversely affect the condition or operation of the Hotel including, without limitation, the commencement of any litigation or proceeding or any notice of a violation of Laws issued by any governmental or quasi-governmental authority.

     (k) Seller will cooperate with Purchaser in all reasonable respects (which shall include, without limitation, supplying information known to Seller and execution of such documents as may be legally required) in connection with the application for transfer of any existing alcoholic beverage licenses held by or on behalf of Seller or its agent in connection with its operation of the Hotel (collectively, the “Liquor License”) to Purchaser or Purchaser’s designee or Purchaser’s (or Purchaser’s designee’s) application for a new Liquor License (as the case may be, the “Liquor Application”). Without limiting the generality of the foregoing, Seller and either Purchaser or Purchaser’s designee shall, if required, open a separate escrow (the “Liquor Escrow”) with an escrow company selected by Purchaser and reasonably acceptable to Seller to effect the transfer of the Liquor License and certain food and beverage inventory attendant to the alcoholic beverage operation at the Hotel (collectively, “Liquor License Property”) with a reasonable portion of the Purchase Price (not to exceed $20,000) designated as consideration for transfer of the Liquor License Property. Seller shall satisfy through the Liquor Escrow all claims of creditors of Seller relating to the purchase and sale of alcoholic beverages at the Hotel arising prior to the Cut-Off Time. Prior to Closing, Purchaser or Purchaser’s designee shall file with the Department of Alcoholic Beverage Control (“ABC”) an application for a temporary permit (“Temporary License”) allowing Purchaser to operate the Liquor License Property effective as of the Closing while the transfer application for a permanent alcoholic beverage license or licenses (the “Permanent License”) is pending. To the extent required by the ABC, Seller shall surrender the Liquor License to the ABC as of the Closing in accordance with the ABC’s rules and execute all necessary forms required by the ABC for the Purchaser or the Purchaser’s designee to obtain a Temporary License. If a Temporary License is granted to Purchaser or Purchaser’s designee, then as of the Closing Date and prior to the issuance of a Permanent License, Purchaser shall operate the alcoholic beverage operations pursuant to the Temporary License in a lawful manner. Purchaser or Purchaser’s designee shall pay any application fees or other transfer costs required to effectuate the transfer of the Liquor License, except that Seller and Purchaser shall each pay one-half of the charges for the Liquor Escrow. If the Purchaser is unable to obtain the transfer of the Liquor License, or obtain a Temporary License, or obtain a new Permanent License prior to the Closing, then, on the Closing Date, Seller and Purchaser shall enter into an interim arrangement (the “Interim Arrangement”) whereby Seller shall operate the liquor concessions at the Hotel on behalf of Purchaser pending the transfer or issuance of the Liquor License to Purchaser and Purchaser shall indemnify Seller against any liabilities incurred in such operation. Seller represents and warrants to Purchaser that it is unaware of any reason why the ABC should deny the application to transfer the Liquor License or a Temporary License from the Seller to the Purchaser or the Purchaser’s designee. The provisions of this Section 5.05(k) shall survive the Closing.

     (l) Seller will promptly provide Purchaser with notice of any actual or proposed change in the assessed value of the Property or any portion of the Property (including any tentative or preliminary assessment) and of the institution or proposed institution of any proceeding (whether formal, informal, judicial or administrative) relating to any such change or proposed change. Seller will not take any action with respect to the contesting and/or resolution of the taxable assessed value of the Land and Improvements without the prior written consent of Purchaser, which consent shall not be unreasonably withheld.

     (m) Seller shall not request or initiate any proceeding or other action to change any zoning classification applicable to the Property or any other Law which governs the use or occupancy of the Property.

     (n) Seller shall prior to the Closing obtain an estoppel certificate, in the form and substance required by Purchaser’s lender and reasonably acceptable to Purchaser and dated no earlier than thirty (30) days prior to the Closing Date, from each tenant under a Space Lease and from any owner’s association to which the Property is subject.

     (o) Seller shall within five (5) days after the Effective Date apply for, and thereafter diligently seek to obtain from Hilton, Hilton’s written waiver of its existing right to purchase the Property as set forth in the Existing Franchise Agreement, and shall notify Purchaser in writing promptly upon Seller’s receipt of same, which notice shall contain a copy of said waiver.

     (p) Seller shall within ten days after the Effective Date deliver to Purchaser a supplement to Exhibits C and D listing, for each Space Lease and Hotel Contract set forth thereon, (i) a brief description of (x) the space demised under each such Space Lease and (y) the services or materials provided under each such Hotel Contract, (ii) the date on which the current term of such Space Lease or Hotel Contract expires, (iii) a brief description of any automatic renewal provisions in each such Space Lease or Hotel Contract and (iv) the current monthly rent payable under each such Space Lease and the current payments due under each Hotel Contract (on a monthly or quarterly basis, as applicable). To the extent any equipment lease is listed on Exhibit D and is not identified as such on Exhibit D as attached hereto, such supplement shall specifically identify such equipment lease as an equipment lease.

     5.06 Inspection Period. Purchaser and its representatives, employees, contractors and agents shall have a period from the Effective Date through the close of business on the date (or, if such date is not a business day, the next succeeding business day) forty-five (45) days after the Effective Date (the “Inspection Period”) within which to undertake such inspections and investigations of the Property (including, but not limited to, engineering and environmental studies, financial analysis, and feasibility studies) as Purchaser deems desirable to evaluate the financial and physical condition of the Property and such other matters that Purchaser may deem relevant. If Purchaser shall, in its sole and absolute discretion, (x) determine that the Purchased Assets or any matters related to the Purchased Assets and/or Purchaser’s acquisition thereof are unsatisfactory in any respect, and/or (y) otherwise decide not to acquire the Purchased Assets for any reason or no reason, then Purchaser may terminate this Agreement by written notice (the “Termination Notice”) given to Seller prior to the end of the Inspection Period. Upon the giving of the Termination Notice, this Agreement shall terminate, Escrow Agent shall return the Earnest Money (less Fifty and no/100 Dollars ($50.00) to be disbursed to Seller as sole consideration hereunder) to Purchaser and neither party to this Agreement shall thereafter have any further rights or liabilities under this Agreement.

     5.07 Conditions Precedent to Purchaser’s Obligations. Purchaser’s obligations under this Agreement are conditioned upon the satisfaction of the following conditions as of the Closing Date:

     (a) Purchaser shall not have terminated this Agreement pursuant to Section 5.06 or any other applicable provision of this Agreement.

     (b) Seller’s representations and warranties set forth in this Agreement shall continue to be true and accurate in all material respects (provided, furthermore, and notwithstanding any provision of this Agreement to the contrary, it shall be a condition precedent to Purchaser’s obligation to close the transactions set forth herein that each representation and warranty of Seller which is limited to or by Seller’s knowledge be true and correct as if it were not so limited).

     (c) Seller shall have delivered all of the documents required under this Agreement and performed all of its obligations under this Agreement in all material respects.

     (d) After payments made at Closing, there shall be no unpaid charges, judgments, debts, liabilities, claims, liens or obligations which burden the Property other than the Permitted Exceptions.

     (e) The Property shall on the Closing Date be in the same condition as on the last day of the Inspection Period except as attributable to ordinary wear and tear.

     (f) There shall have been no material adverse change in the condition or operations of the Hotel from the last day of the Inspection Period through the date of Closing (which change may include, but shall not be limited to, the existence of violation of any Laws or the revocation or suspension of any Permit or the right to operate the Hotel or any of its facilities).

     (g) Hilton shall have waived in writing its existing right to purchase the Property as set forth in the Existing Franchise Agreement and Purchaser shall have either (i) obtained Hilton’s consent to the assumption by Purchaser of, and shall have assumed, the Existing Franchise Agreement, or (ii) entered into a franchise or license agreement with Hilton for the Hotel, such assumption or agreement to be on

terms satisfactory to Purchaser in its sole discretion. In no event shall Purchaser be required to assume or have any liability or obligation under the Existing Franchise Agreement for (x) any franchise or other fees under the Existing Franchise Agreement accrued and unpaid with respect to all periods on or prior to the Closing Date or (y) with respect to any monetary or other default under the Existing Franchise Agreement, nor shall Purchaser be required to agree to any amendment of the Existing Franchise Agreement or to any new franchise agreement with Hilton, or to any capital or other improvements requested or required by Hilton in connection with such assumption or new franchise agreement.

     (h) Purchaser shall have obtained the transfer or the issuance of the Liquor License or Seller and Purchaser shall have entered into the Interim Arrangement.

The conditions precedent set forth in this Section 5.07 are solely for the benefit of Purchaser and may be waived only by Purchaser, which waiver may be granted or withheld by Purchaser in its sole and absolute discretion. Without limiting and without prejudice to any of Purchaser’s other rights or remedies under this Agreement in the event any such failure of condition is the result of or arises out of Seller’s default under this Agreement, if any condition precedent to Purchaser’s obligations under this Agreement has not been satisfied as of the Closing Date or waived by Purchaser, then Purchaser shall be entitled in its sole and absolute discretion to terminate this Agreement by giving Seller and Escrow Agent written notice to such effect, whereupon Escrow Agent shall return the Earnest Money to Purchaser and the parties shall thereafter have no further rights or liabilities under this Agreement.

     5.08 Conditions Precedent to Seller’s Obligations. Seller’s obligations under this Agreement are conditioned upon the satisfaction of the following conditions as of the Closing Date:

     (a) Purchaser’s representations and warranties set forth in this Agreement shall continue to be true and accurate in all material respects.

     (b) Purchaser shall have performed all of its obligations under this Agreement in all material respects.

     (c) Hilton shall have waived in writing its existing right to purchase the Property as set forth in the Existing Franchise Agreement and Purchaser shall have either (i) obtained Hilton’s consent to the assumption by Purchaser of, and shall have assumed, the Existing Franchise Agreement, or (ii) entered into a franchise or license agreement with Hilton for the Hotel, such agreement to be on terms satisfactory to Purchaser.

The conditions precedent set forth in this Section 5.08 are solely for the benefit of Seller and may be waived only by Seller, which waiver may be granted or withheld by Seller in its sole and absolute discretion. Without limiting and without prejudice to any of Seller’s other rights or remedies under this Agreement in the event any such failure of condition is the result of or arises out of Purchaser’s default under this Agreement, if any condition precedent to Seller’s obligations under this Agreement has not been satisfied as of the Closing Date or waived by Seller, then Seller shall be entitled in its sole and absolute discretion to terminate this Agreement by giving Purchaser and Escrow Agent written notice to such effect, whereupon Escrow Agent shall return the Earnest Money to Purchaser and the parties shall thereafter have no further rights or liabilities under this Agreement.

VI.

Remedies

     6.01 Seller’s Remedies IF PURCHASER DEFAULTS UNDER THIS AGREEMENT OR OTHERWISE FAILS TO CLOSE THE TRANSACTIONS SET FORTH IN THIS AGREEMENT, FOR ANY REASON EXCEPT (A) THE FAILURE OF ANY CONDITION PRECEDENT TO PURCHASER’S OBLIGATIONS UNDER THIS AGREEMENT OR (B) PURCHASER’S TERMINATION OF THIS AGREEMENT IN ACCORDANCE WITH ITS TERMS, SELLER SHALL BE ENTITLED AS ITS SOLE REMEDY UNDER THIS AGREEMENT TO TERMINATE

THIS AGREEMENT AND RECOVER THE EARNEST MONEY (IN ADDITION TO ATTORNEYS’ FEES PURSUANT TO SECTION 6.03 BELOW) AS LIQUIDATED DAMAGES AND NOT AS A PENALTY, IN FULL SATISFACTION OF ANY CLAIMS AGAINST PURCHASER UNDER THIS AGREEMENT. IN CONNECTION THEREWITH, SELLER WAIVES ITS RIGHT TO SEEK SPECIFIC PERFORMANCE OF THIS AGREEMENT FROM PURCHASER. SELLER AND PURCHASER AGREE THAT THE SELLER’S DAMAGES RESULTING FROM PURCHASER’S DEFAULT ARE DIFFICULT TO DETERMINE AND THE AMOUNT OF THE EARNEST MONEY IS A FAIR ESTIMATE OF THOSE DAMAGES. EACH PARTY HEREBY WAIVES ANY AND ALL RIGHTS TO CONTEST THE VALIDITY OF THE FOREGOING LIQUIDATED DAMAGES PROVISIONS FOR ANY REASON WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, SUCH PROVISION BEING UNREASONABLE UNDER CIRCUMSTANCES EXISTING ON THE EFFECTIVE DATE OR AT THE TIME OF DEFAULT. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677.

INITIALS:           SELLER                               PURCHASER                    

     6.02 Purchaser’s Remedies. If Seller fails to perform its obligations under this Agreement for any reason except the failure of any condition precedent to Seller’s obligations under this Agreement, then Purchaser’s sole remedies shall be: (a) to terminate this Agreement by giving Seller written notice of such election prior to or at Closing whereupon (i) the Escrow Agent shall promptly return to Purchaser the Earnest Money and (ii) Seller shall pay to Purchaser on demand all out-of-pocket costs (including, but not limited to, due diligence costs and reasonable attorneys’ fees) , incurred by Purchaser in connection with this Agreement and the transactions contemplated by this Agreement (provided, however, that Seller shall not be required to pay more than $85,000 pursuant to this clause 6.02(a)(ii)); (b) to waive the default and close; or (c) to enforce specific performance of this Agreement, provided Purchaser initiates such specific performance action within 60 days from the scheduled date of closing (as the same may have been adjusted as permitted by this Agreement).

     6.03 Attorney’s Fees. In the event either party hereto is required to employ an attorney because of the other party’s default, then the defaulting party shall pay the nondefaulting party’s reasonable attorney’s fees incurred in the enforcement of this Agreement.

VII.

Closing Matters

     7.01 Closing Date. The delivery of the conveyancing instruments with respect to the Purchased Assets and other documents required hereunder (the “Closing”) shall be held at the Title Company’s offices or by mail, or through escrow with the Escrow Agent, on the date forty-five (45) days after the expiration of the Inspection Period (provided that if such date is not a business day then the Closing Date shall be the next succeeding business day) (the “Closing Date”), or such earlier date as may be agreed to by Seller and Purchaser in their sole and absolute discretion.

     7.02 Adjustment and Prorations. The matters and items set forth below shall be apportioned between Seller and Purchaser or, where applicable, credited in total to a particular party:

     (a) Taxes. All real and personal property taxes and special assessments, if any, whether payable in installments or not, shall be prorated as of the Cut-Off Time. If such taxes for the tax year in which the Closing occurs have not been finally determined on the Closing Date, then such taxes shall be prorated on an estimated basis using the most current information available. When such taxes have been finally determined, the parties shall recalculate such prorations and any amount payable by Seller or Purchaser shall be paid to the other party within fifteen days after such taxes are finally determined.

     (b) Room Rentals. One-half (50%) of the room rentals attributable to the night prior to the Closing Date shall be the property of Seller and the remaining one-half (50%) shall be the property of Purchaser. Room rentals attributable to any night prior to the night prior to the Closing Date shall be the property of Seller.

     (c) Reservation Deposits. Prepaid and unearned reservation deposits and other items prepaid by guests of the Hotel shall be transferred to Purchaser at the Closing.

     (d) Utility Charges. Utility charges for telephone, gas, electricity, sewer, water and other services shall not be prorated to the extent that Seller can make arrangements for the rendering of final bills based on meter readings as of the Cut-Off Time. Seller shall be responsible for the payment at the Closing of all bills for utility charges up to and including the Cut-Off Time. To the extent that utility bills cannot be rendered as of the Closing Date, such charges for the period through the Cut-Off Time shall be prorated as of the Cut-Off Time based upon the most recent available bills and readjusted on the basis of the actual bills as and when received. Any utility deposits shall be either returned to Seller or transferred to Purchaser and credited to Seller.

     (e) Operating Expenses and Trade Accounts. Seller shall be responsible for all operating expenses and trade accounts of the Property (including charges and fees payable under the Hotel Contracts) up to and including the Cut-Off Time. To the extent the amounts of such items are then known, Seller shall pay such items at Closing and shall pay the balance of such amounts in the ordinary course of business but in no event later than 45 days after the Closing Date. Seller agrees to indemnify and hold Purchaser harmless for and against any such amounts. Purchaser shall assume responsibility for purchase orders made by Seller in the ordinary course of business for Expendables or Consumables not delivered to the Hotel as of the Closing Date.

     (f) Food, Beverage and Other Income. Revenues from food, beverage and banquet services, room service, public room revenues, health club revenues and other services rendered to guests of the Hotel shall be prorated as of the Cut-Off Time, if, as and when collected, provided that with respect to food, beverage and banquet services, such revenues shall be prorated as of the end of the employee shift on the night preceding the Closing.

     (g) Rents. All rentals under the Space Leases (including fixed rents and charges in respect of electricity, operating expenses and taxes) shall be prorated as of the Cut-Off Time if, as and when collected. Payments from tenants for electricity, operating expenses and taxes which are billed to tenants in arrears or on an estimated basis shall be prorated on such basis and readjusted if, as and when such amounts are finally determined and collected.

     (h) Employees. Wages and fringe benefits (including, but not limited to, accrued vacation pay) of Hotel Employees shall be paid or prorated as provided in Section 7.07.

     (i) Security Deposits. Any security deposits under the Space Leases shall be transferred to Purchaser at the Closing or credited against the Purchase Price.

     (j) Cash. All cash on hand in house banks on the morning of the Closing Date shall become the property of Purchaser and the amount thereof shall be credited to Seller.

     (k) Ledger and other receivables. All accounts receivable attributable to guests in the Hotel on the night preceding the Closing (the “Ledger”) shall be prorated as provided in this Agreement, Seller’s share shall be credited to Seller and the Ledger shall become the property of Purchaser. All other accounts receivable that are the property of Seller under this Agreement shall be set forth in a schedule on the Closing Date and shall remain the property of Seller. Purchaser shall have no obligation to collect such accounts receivable, but shall cooperate with Seller, at Seller’s cost, in reasonable respects in connection

with any collection efforts. If any receivables which are the property of Seller under this Agreement shall be collected by Purchaser, Purchaser shall promptly remit the same to Seller.

     (l) The prepaid expenses paid by Seller set forth on Exhibit H attached hereto shall be prorated as of the Cut-Off Time and Seller shall receive a credit for the portion of said expenses which cover periods after the Cut-Off Time.

     7.03 Guest Property in Seller’s Possession on Closing Date. Property of guests of the Hotel in Seller’s care, possession or control (excluding that in guest rooms) on the Closing Date shall be handled in the following manner:

     (a) Safe Deposit Boxes. On the Closing Date, Seller shall cause notice to be sent to all guests of the Hotel who have safe deposit boxes advising them of the pending sale of the Property and requesting the removal and verification of the contents of such safe deposit boxes within three days after the Closing Date. Seller may have a representative present at the Hotel during such three-day period for the purpose of viewing such removal and verification. Boxes of guests not responding to the written notice shall be listed at the end of such three day period. Such boxes shall be opened on the following day in the presence of representatives of Seller and Purchaser to be agreed upon between Seller and Purchaser and the contents thereof shall be recorded. Any property contained in the safe deposit boxes and so recorded and thereafter remaining in the hands of Purchaser shall be the responsibility of Purchaser; and Purchaser hereby agrees to indemnify and save and hold Seller harmless from and against any claim or obligation arising out of or with respect to such property.

     (b) Baggage Inventory. All guest baggage checked and left in the possession, care and control of Seller shall be listed in an inventory to be prepared in duplicate and signed by Seller’s and Purchaser’s representatives on the Closing Date. Purchaser shall be responsible from and after the Closing Date for all baggage listed in inventory, and Purchaser hereby agrees to indemnify and save and hold Seller harmless from and against any claim arising out of or with respect to the baggage listed in the inventory.

     (c) Other Property. All other guest property left in the possession, care or control of Seller prior to the Closing Date shall be returned by Seller to guests prior to the Closing Date and if not so returned prior to the Closing Date shall be the sole responsibility of Seller subsequent to the Closing Date.

     7.04 Closing Documents.

     (a) At Closing, Seller shall deliver or cause to be delivered to Purchaser the following:

     (i) a grant deed (or local equivalent) with covenant against grantor’s acts conveying the fee estate in the Property to Purchaser subject only to the Permitted Exceptions.

     (ii) an owner’s policy of title insurance issued by the Title Company in the amount of the Purchase Price meeting the requirements of the commitment as provided in Article IV, and containing such affirmative coverage and endorsements as Purchaser shall reasonably request.

     (iii) a warranty bill of sale transferring to Purchaser all of the Furnishings, Consumables, Expendables, and other tangible personal property free of all encumbrances except for the Permitted Exceptions.

     (iv) an assignment conveying and transferring to Purchaser all of the Bookings, Books and Records, Space Leases, assignable Permits, Hotel Contracts (to the extent set forth on Exhibit D), Miscellaneous Personal Property and Warranties containing a provision pursuant to which Seller shall indemnify Purchaser with respect to matters arising thereunder prior to the Closing Date.

     (v) an appropriate instrument executed by Seller and other necessary parties pursuant to which any existing management agreement will be terminated as of the Cut-off Time.

     (vi) possession of the Property.

     (vii) a certified copy of such corporate or partnership authorizations, approvals and incumbencies of Seller as Purchaser or the Title Company shall reasonably require.

     (viii) a FIRPTA Affidavit in form required by the Internal Revenue Service.

     (ix) all Books and Records relating to the Property and the Hotel in Seller’s possession.

     (x) any and all plans and specifications for the Improvements on the Property in Seller’s possession.

     (xi) the certificate of occupancy with respect to the Property.

     (xii) such notices of the sale to third parties as may be reasonably requested by the Purchaser.

     (xiii) such affidavits, indemnities and related matters as the Title Company may reasonably request including without limitation such affidavits and indemnities as may be required to permit the Title Company to delete any exceptions for mechanic’s liens.

     (xiv) tax clearance certificates from (i) the California Employment Development Department, with respect to income tax withholding, disability, and unemployment compensation premiums, and (ii) the California State Board of Equalization, with respect to sales taxes.

     (xv) such documents and instruments as may be required or reasonably desirable under California law to effectuate the Liquor Escrow, all to be in form reasonably acceptable to Seller and Purchaser.

     (xvi) such transfer and sales tax returns as may be required by law to be executed by Seller.

     (b) Purchaser shall deliver or cause to be delivered to Seller the following:

     (i) the balance of the Purchase Price.

     (ii) such corporate or partnership authorizations, approvals and incumbencies as Seller or the Title Company shall reasonably require.

     (iii) an assumption of the obligations of Seller from and after the Closing under the Bookings, the Space Leases, and Hotel Contracts containing a provision whereby Purchaser shall indemnify Seller with respect to matters arising thereunder after the Closing Date.

     (iv) such documents and instruments as may be required or reasonably desirable under California law to effectuate the Liquor Escrow, all to be in form reasonably acceptable to Seller and Purchaser.

     (v) such transfer and sales tax returns as may be required by law to be executed by Purchaser.

     7.05 Closing Costs.

     (a) Purchaser shall pay (i) the premiums for the Title Policy, (ii) the cost of the Survey, (iii) the costs of its due diligence investigation of the Purchased Assets, (iv) all amounts incurred in connection with the issuance of a new franchise agreement or license agreement for the Hotel, including, but not limited to, application fees, transfer fees, costs of implementing a property improvement plan and (but without limiting any of the provisions of Section 5.07(g) above) any termination fees payable to Hilton under the Existing Franchise Agreement in connection with a termination of the Existing Franchise Agreement, (v) any costs to obtain the Liquor License, (vi) sales taxes imposed in connection with any items of personal property, (vii) one-half of the escrow fees, if any, of the Escrow Agent and (vi) the fees and disbursements of Purchaser’s attorneys.

     (b) Seller shall pay (i) any county or city transfer taxes, deed stamps, recording fees and the like imposed in connection with the conveyance of the Property, (ii) any costs of terminating any property management agreement affecting the Hotel, (iii) one-half of the escrow fees, if any, of the Escrow Agent and (iv) the fees and disbursements of Seller’s attorneys in connection with this transaction. Any other closing cost not specifically allocated by this Agreement shall be allocated in accordance with closing customs for similar properties in Contra Costa County, California.

     (c) The provisions of this Section 7.05 shall survive the Closing or any termination of this Agreement.

     7.06 Real Estate Commissions. Seller and Purchaser each represent and warrant to the other that it has not dealt with any broker in the negotiation of this transaction. Each party agrees to and does hereby indemnify and hold the other harmless against the payment of any brokerage commission to any person or entity claiming by, through or under Seller or Purchaser, as applicable.

     7.07 Staff. Seller shall terminate or arrange for the termination of all Hotel Employees as of the Closing Date and shall pay all wages and fringe benefits, including, but not limited to, accrued vacation and payroll taxes, through the Closing Date. Purchaser shall hire, subject to its standard interview and qualification procedures, criteria and staffing guidelines, the Hotel Employees employed in non-managerial capacities, which such Hotel Employees shall at or in connection with the Closing be offered the standard health and fringe benefit package provided by Interstate Management Company, as operator of the Hotel after the Closing, to the majority of its other hotel employees in the area of the Hotel. If Purchaser or its management company shall rehire any of such Hotel Employees pursuant to the foregoing sentence or otherwise, then such wages and fringe benefits shall be apportioned as of the Cut-off Time. Seller will indemnify and hold Purchaser harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorney’s fees) that may be incurred by, or asserted against, Purchaser after Closing which involves any matter relating to a past or present Hotel Employee concerning acts or omissions occurring prior to the Closing Date. Notwithstanding the foregoing, Purchaser agrees to indemnify and hold Seller harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorney’s fees) that may be incurred by, or asserted against, Seller arising out of or relating to Purchaser’s or Seller’s failure, if any, to comply with the Worker Adjustment Retraining and Notification Act (the “WARN Act”) with respect to the Hotel Employees and arising out of or in connection with the transactions contemplated by this Agreement. Seller agrees not to give any termination notices under the WARN Act to its Hotel Employees without the prior written consent of Purchaser, which consent may be withheld in Purchaser’s sole and absolute discretion.

     7.08 Indemnities. (a) Purchaser shall indemnify, defend and hold Seller harmless from any and all actual costs, loss, damages (excluding consequential and punitive damages) or expenses (including without limitation reasonable attorneys fees) incurred by Seller with respect to the breach by Purchaser of any provision of this Agreement which survives the Closing and, except as may be the obligation of Seller pursuant to an express provision of this Agreement, the existence, use, ownership, occupancy, operation and/or maintenance of the Property arising from acts, commissions, omissions, occurrences or other matters that occur from and after the Closing.

     (b) From and after the Closing, Seller shall indemnify, defend and hold Purchaser harmless from any and all actual costs, loss, damages or expenses (including without limitation reasonable attorneys fees) incurred by or asserted against Purchaser with respect to or arising out of (i) any amounts due and owing to Purchaser pursuant to Section 7.02 above, (ii) any physical injury or death caused to any person, or damage to property of unaffiliated third parties, which such injury, death or damage occurred prior to the Closing Date in or about the Property, (iii) (subject to the applicable limitations on Seller’s liability set forth in Section 5.04(a) above, including without limitation the Cap, any breach of any representation or warranty of Seller set forth in this Agreement, and/or (iv) any litigation arising with respect to matters or occurrences on or affecting the Real Property, which first arose, occurred or were asserted or threatened prior to the Closing Date, including without limitation those matters set forth on Exhibit J attached hereto. The provisions of this Section shall survive the Closing.

     7.09 Survival. The provisions of Article VII shall survive the Closing.

VIII.

Condemnation and Risk of Loss

     8.01 Condemnation. If, prior to Closing, any governmental authority or other entity having condemnation authority shall institute an eminent domain proceeding or take any steps preliminary thereto (including the giving of any direct or indirect notice of intent to institute such proceedings) with regard to the Property, and the same is not dismissed on or before ten (10) days prior to Closing, Purchaser shall be entitled either to terminate this Agreement upon written notice to Seller or to waive such right of termination and receive all such condemnation proceeds or an assignment thereof at the Closing. In the event Purchaser elects to terminate this Agreement under this Section 8.01, Escrow Agent shall promptly return to Purchaser the Earnest Money and neither party to this Agreement shall thereafter have any further rights or obligations hereunder.

     8.02 Risk of Loss. Until Closing, Seller shall bear the risk of loss should there be damage to any of the Improvements by fire or other casualty. If prior to the Closing any of the improvements shall be damaged by fire or other casualty, Seller shall take all action necessary to preserve and protect the Improvements from further loss or damage, and within ten (10) business days after such loss deliver to Purchaser the following items (collectively “Casualty Loss Information”): (a) copies of all casualty and business interruption policies relating to the Property; (b) the names, addresses and telephone numbers of the adjustors assigned to adjust the loss; (c) letters addressed to each insurance company issuing a policy covering such loss and executed by Seller authorizing said company and its adjustors to discuss all matters relating to such loss with purchaser, its agents and attorneys; and (d) a detailed written description of the damages incurred and an estimate of the cost of restoration. If the Improvements suffer material damage by a casualty, which, for the purpose of this Agreement, shall mean damage in excess of $1,000,000 or damage of a lesser amount to any area of the Hotel necessary for the day to day operation of the Hotel that cannot reasonably be expected to be repaired within ten business days, Purchaser may within five business days after delivery of the Casualty Loss Information either:

     (a) terminate this Agreement by delivering written notice of same to Seller, in which event Escrow Agent shall promptly return to Purchaser the Earnest Money and neither party to this Agreement shall thereafter have any further rights or obligations hereunder; or

     (b) waive its right of termination, by delivering written notice of same to Seller, and proceed to close this transaction in accordance with the terms hereof.

At Closing, (i) all insurance proceeds received prior to Closing shall be delivered to Purchaser at Closing, (ii) Purchaser and Seller shall each notify all appropriate insurance companies of Purchaser’s interest in the insurance proceeds, (iii) all casualty insurance proceeds payable as a result of the loss and Purchaser’s pro rata share of any rental or business loss proceeds shall be assigned to Purchaser at Closing and Purchaser as a condition precedent to its obligations to close hereunder in such event shall have received the written recognition of and consent to such assignment (as well as to any assignment of such proceeds from Purchaser to Purchaser’s lender), from the applicable insurance company or companies, in form and content reasonably acceptable to Purchaser and acceptable to Purchaser’s lender, and (iv) Purchaser shall receive a credit against the Purchase Price in the amount of any applicable deductible or self-insured amounts.

IX.

Miscellaneous

     9.01 Entire Agreement. This Agreement contains the entire agreement of the parties hereto. There are no other agreements, oral or written, and this Agreement can be amended only by written agreement signed by Seller and Purchaser.

     9.02 Binding Effect; Assignment. This Agreement shall inure to the benefit of and be binding upon the heirs, personal representatives, successors and assigns of each of the parties to this Agreement. Purchaser may assign its rights under this Agreement without Seller’s consent to (i) any successor of Purchaser or its direct or indirect parent entity or entities by merger, reorganization or sale of assets; (ii) any entity directly or indirectly controlling, controlled by or under common control with Purchaser or such successor or entity, (iii) any partnership or limited liability company in which Purchaser or Interstate Operating Company, L.P. (“Interstate OP”), or any entity directly or indirectly controlling, controlled by or under common control with Purchaser or Interstate OP, is a partner or limited liability company member, (iv) any entity in which Purchaser, or any entity which is a permitted assignee under any of the foregoing clauses (i), (ii) or (iii), owns, directly or indirectly, an economic interest, or (v) any other entity provided that such entity enters into (x) a sublease of the entire Property with an entity to whom this Agreement could have been assigned under clauses (i), (ii) or (iii) above and/or (y) a management agreement with respect to the entire Property with Interstate Management Company, LLC or its successors or assigns; provided, however, that no such assignment shall relieve Purchaser of its obligations hereunder. Except as set forth in the foregoing sentence, Purchaser may assign its rights under this Agreement to any other entity only with the prior consent of Seller which shall not be unreasonably withheld or delayed.

     9.03 Notices. Any notice, communication, request, reply or advice (collectively, “Notice”) provided for or permitted by this Agreement to be made or accepted by either party must be in writing except as otherwise provided in this Agreement. Written Notice shall be delivered by overnight courier or by facsimile transmission. Notice by overnight courier shall be effective one (1) business day after deposit with the courier service. Notice given by facsimile transmission shall be effective on the business date delivered. For the purposes of Notice, the addresses of the parties shall be:

Seller:	Hanford Hotels, LLC
	Attention:
with copy to:	Greenberg Traurig, LLP
	Attn:
	Fax No.:
Purchaser:	4501 N. Fairfax Boulevard
	Arlington, VA 22203
	Attn: Christopher H. Bennett, Esq.
	Fax No.: 703-387-3389
with copy to:	DeCampo, Diamond & Ash
	Attn:
	Fax No.:

The parties shall have the right from time to time to change their respective addresses for notice by at least five days’ written notice to the other party.

     9.04 Governing Law. This Agreement shall be construed in accordance with the laws of the State of California.

     9.05 Section Headings. The section headings contained in this Agreement are for convenience only and shall in no way enlarge or limit the scope or meaning of the various and several sections of this Agreement.

     9.06 Obligations. To the extent necessary to carry out the terms and provisions of this Agreement, the terms, conditions, warranties, representations, obligations, indemnities and rights set forth in this Agreement shall not be terminated at the time of Closing, nor will they merge into the various documents executed and delivered at the time of Closing.

     9.07 Counterparts; Facsimile Transmission. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Executed counterparts of this Agreement exchanged by facsimile transmission shall be fully enforceable.

     9.08 No Third-Party Beneficiaries. Seller and Purchaser agree that there are no third parties who are intended to benefit from or who are entitled to rely on any of the provisions of this Agreement. No third party shall be entitled to assert any claims or to enforce any rights whatsoever pursuant to this Agreement. The covenants and agreements provided in this Agreement are solely for the benefit of Seller and Purchaser and their permitted successors and assigns respectively.

     9.09 Contract Construction. In the event of litigation between the parties hereto this Agreement shall not be construed against any party on the basis of which party’s counsel drafted this Agreement.

     9.10 Saturdays, Sundays, Legal Holidays. If the time period by which any right, option, or election provided under this Agreement must be exercised or by which any acts or payments required hereunder must be performed or paid, or by which the Closing must be held, expires on a Saturday, Sunday, legal or bank holiday, then such time period shall be automatically extended to the next regularly scheduled business day.

9.11 Confidentiality.

     (a) Purchaser and Seller agree that any materials provided by Seller in the course of Purchaser’s investigations of the Property, other than materials which are otherwise available to the public, shall be treated as confidential information by Purchaser and its agents, employees and representatives, and shall not be disclosed by Purchaser or such parties, except disclosures required by law to be made to Purchaser’s lenders (or prospective lenders), investors (or prospective investors), underwriters, accountants, attorneys, engineers and other professionals who need to know such information in connection with making a loan to, sponsoring an offering for or otherwise advising Purchaser, or as may be required by law, litigation or court order, or in connection with the offering of securities or by any applicable rule, regulation or requirement of the New York Stock Exchange. Purchaser may however make appropriate disclosures to its investors and lenders and to its and their respective attorneys, accountants and consultants engaged in connection with this transaction or to such other persons or entities to which disclosure is legally required.

     (b) If Purchaser does not acquire the Property for any reason whatsoever, Purchaser shall deliver to Seller promptly upon demand at no cost to Seller, all materials and documents previously obtained by Purchaser from Seller (with no retention by Purchaser of copies of any such materials and documents).

     (c) Prior to the Closing, neither party shall, without the prior written consent of the other party (which consent shall not be unreasonably withheld), issue any press release or other public statement (except such statements as may be required by law) in connection with the transactions contemplated hereby. From and after the Closing, the parties may issue such a press release or other public statement provided that the same does not describe the economic terms of this transaction except to the extent required by law.

     (d) Each party is authorized to disclose the tax treatment and tax structure of the transactions set forth in this Agreement.

     (e) Notwithstanding any provision in this Agreement to the contrary, this Section shall survive the expiration or termination of this Agreement for one (1) year or, if the Closing shall occur, shall expire and terminate as of the Closing Date except for the provisions of Section 9.11(c) and (d) above, which shall survive the Closing.

     9.12 Bulk Transfers. Purchaser and Seller specifically waive compliance with California Uniform Commercial Code, Sections 6101, et seq., commonly referred to as the Uniform Commercial Code — Bulk Transfers, with any similar provision under the laws of the State of California and with any similar provisions under the in which the Property is located. In the event that such waiver is ineffective, Seller shall indemnify Buyer for any claims made by creditors under the applicable bulk sales laws relating solely to any pre-Closing payment obligations to such creditors and only in the amount of the payments due such creditors. The provisions of this Section 9.12 shall survive the Closing.

     IN WITNESS WHEREOF, Seller and Purchaser have executed this Agreement as of the date first written above.

SELLER:
HANFORD HOTELS, INC., a California limited liability company
By:	/s/  WILLIAM A. CAINE, JR.
Name:	William A. Caine, Jr.
Title:	Executive Vice President

PURCHASER:
INTERSTATE CONCORD, LLC, a Delaware limited liability company
By:	/s/  CHRISTOPHER L. BENNETT
Name:	Christopher L. Bennett
Title:	Senior Vice President and General Counsel

FIRST AMENDMENT TO AGREEMENT OF SALE AND PURCHASE

     THIS FIRST AGREEMENT TO AGREEMENT OF SALE AND PURCHASE (this “Amendment”), dated as of December 27, 2004 (the “Effective Date”), is made by and between HANFORD HOTELS, LLC, a California limited liability company, having an address at 4 Corporate Plaza Drive, Suite 102, Newport Beach, CA 92660 (“Seller”), and INTERSTATE CONCORD, LLC, a Delaware limited liability company having an address c/o Interstate Hotels & Resorts, Inc., 4501 N. Fairfax Drive, Arlington, VA 22203 (“Purchaser”).

     WHEREAS, Seller and Purchaser have entered into that certain Agreement of Sale and Purchase (the “Purchase Agreement”), dated as of November 12, 2004, with respect to certain property more particularly set forth therein;

     WHEREAS, the Inspection Period (as defined in the Purchase Agreement) is to terminate on December 27, 2004;

     WHEREAS, Purchaser is satisfied with (i) the physical and environmental condition of the Property as of the date hereof, (ii) the zoning of the Property as of the date hereof, (iii) the Hotel Contracts set forth on Exhibit D of the Purchase Agreement (as revised pursuant to a spreadsheet attached to an e-mail from William Caine to C,A. Anderson dated November 18, 2004) and (iv) the Permits set forth on Exhibit E of the Purchase Agreement;

     WHEREAS, Purchaser among other things (1) has not yet obtained financing for the transactions set forth in the Purchase Agreement on terms satisfactory to Purchaser, (2) has not yet agreed with Hilton (as defined in the Purchase Agreement) on a product improvement plan for the Property, and (3) has not finalized its announced Interstate Investors Fund, Inc. or had a first closing thereof, and for those and other reasons will terminate the Purchase Agreement on or prior to December 27, 2004 if the Inspection Period is not extended; and

     WHEREAS, Seller is willing to extend the Inspection Period for the Extension Payment as provided herein; and

     WHEREAS, Purchaser and Seller now desire to amend the Purchase Agreement on the terms and conditions more particularly set forth herein;

     NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and valuable consideration, and the payment by Purchaser of the Extension Payment (as defined below), the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser hereby amend the Purchase Agreement as follows:

     1. In consideration of the Extension Payment, the Inspection Period (as such term is defined in the Purchase Agreement; any capitalized term used herein and not otherwise defined herein having the meaning given to such term in the Purchase Agreement) is hereby extended through the close of business on January 24, 2005,

     2, Section 7,01 of the Purchase Agreement is deleted in its entirety and the following Section 7.01 substituted therefore:

     “7.01 Closing Date, The delivery of the conveyancing instruments with respect to the Purchased Assets and other documents required hereunder (the “Closing”) shall be held at the Title Company’s offices or by mail, or through escrow with the

Escrow Agent, on the date seventeen (17) days after the expiration of the Inspection Period (provided that if such date is not a business day then the Closing Date shall be the next succeeding business day) (the “Closing Date”), or such earlier date as may be agreed to by Seller and Purchaser in their sole and absolute discretion.

     3. Within one (1) business day after the date hereof, Purchaser shall pay to Seller an amount (the “Extension Payment”) equal to Two Hundred Thousand Dollars ($200,000) in consideration of such extension of the Inspection Period. In the event that the Closing occurs, such amount shall be credited against the Purchase Price payable under the Agreement. In the event the Closing fails to occur due to the default of Seller under the Agreement, Seller shall repay the Extension Deposit to Purchaser within five (5) days after demand therefore by Purchaser. Otherwise, the Extension Payment shall belong to Seller.

     4. The phrase “within five (5) business days” on the sixth line of Section 4.02 of the Purchase Agreement is hereby deleted and replaced with the phrase “within fifteen (15) business days”.

     5. Nothing set forth in this Amendment shall limit or be construed to limit Purchaser’s rights under Sections 5.06 (as amended only by Paragraph 1 above extending the Inspection Period through January 24,2005) or 5.07 of the Purchase Agreement.

     6 Except as amended by this Amendment, the Purchase Agreement is unamended and remains in full force and effect.

     7. This Amendment may be executed and delivered by counterparts and by facsimile transmission.

     IN WITNESS WHEREOF, this Amendment has been entered into as of the ____ day of December, 2004.

SELLER:

HANFORD HOTELS, INC., a California limited liability company

By:	/s/ WILLIAM A. CAINE, JR.
Name:	William A. Caine, Jr.
Title:	Executive Vice President

PURCHASER:

INTERSTATE CONCORD, LLC, a Delaware limited liability company

By:	/s/ ALICIA KABIRI
Name:	Alicia Kabiri
Title:	Assistant General Counsel

SECOND AMENDMENT TO AGREEMENT OF SALE AND PURCHASE

     THIS SECOND AGREEMENT TO AGREEMENT OF SALE AND PURCHASE (this “Amendment”), dated as of January 21, 2005 (the “Effective Date”), is made by and between HANFORD HOTELS, LLC, a California limited liability company, having an address at 4 Corporate Plaza Drive, Suite 102, Newport Beach, CA 92660 (“Seller”), INTERSTATE CONCORD, LLC, a Delaware limited liability company having an address c/o Interstate Hotels & Resorts, Inc., 4501 N. Fairfax Drive, Arlington, VA 22203 (“Purchaser”).

     WHEREAS, Seller and Purchaser have entered into that certain Agreement of Sale and Purchase (as amended by the First Amendment (as hereinafter defined), the “Amended Purchase Agreement”), dated as of November 12, 2004, as amended by that certain First Amendment to Agreement of Sale and Purchase (the “First Amendment”) dated as of December 27, 2004 with respect to certain property more particularly set forth therein;

     WHEREAS, the Inspection Period (as such term is defined in the Amended Purchase Agreement; any capitalized term used herein and not otherwise defined herein having the meaning given to such term in the Amended Purchase Agreement) is to terminate on January 24, 2004;

     WHEREAS, Purchaser is satisfied with, (i) the physical and environmental condition of the Property as of the date hereof, (ii) the zoning of the Property as of the date hereof, (iii) the Hotel Contracts set forth on Exhibit D of the Amended Purchase Agreement (as revised pursuant to a spreadsheet attached to an e-mail from William Caine to C.A. Anderson dated November 18, 2004), (iv) the Permits set forth on Exhibit E of the Amended Purchase Agreement; and (v) has agreed with Hilton on a product improvement plan for the property;

     WHEREAS, Purchaser among other things (1) has not yet obtained financing for the transactions set forth in the Amended Purchase Agreement on terms satisfactory to Purchaser, (2) has not finalized the announced Interstate Investors Fund, Inc. or had a first closing thereof, and for those and other reasons will terminate the Amended Purchase Agreement on or prior to January 24, 2004 if the Inspection Period is not further extended; and

     WHEREAS, Seller is willing to further extend the Inspection Period for the Second Extension Payment (as defined below) as provided herein; and

     WHEREAS, Purchaser and Seller now desire to further amend the Amended Purchase Agreement on the terms and conditions more particularly set forth herein;

     NOW, THEREFORE, in consideration of Ten Dollars ($10.00) and other good and valuable consideration, and the payment by Purchaser of the Second Extension Payment, the receipt and sufficiency of which are hereby acknowledged, Seller and

Purchaser hereby amend the Amended Purchase Agreement as follows:

     1. In consideration of the Second Extension Payment, the Inspection Period is hereby further extended through the close of business on January 28, 2005.

     2. Section 7.01 of the Amended Purchase Agreement is deleted in its entircty and the following Section 7.01 substituted therefore:

     “7.01 Closing Date. The delivery of the conveyancing instruments with respect to the Purchased Assets and other documents required hereunder (the “Closing”) shall be held at the Title Company’s offices or by mail, or through escrow with the Escrow Agent, on the date thirteen (13) days after the expiration of the Inspection Period (provided that if such date is not a business day then the Closing Date shall be the next succeeding business day) (the “Closing Date”), or such earlier date as may be agreed to by Seller and Purchaser in their sole and absolute discretion.

     3. Within one (1) business day after the date hereof, Purchaser shall pay to Seller an amount (the “Second Extension Payment”) equal to One Hundred Thousand Dollars ($100,000) in consideration of such extension of the Inspection Period. In the event that the Closing occurs, such amount shall be credited against the Purchase Price payable under the Amended Purchase Agreement. In the event the Closing fails to occur due to the default of Seller under the Amended Purchase Agreement, Seller shall repay the Second Extension Deposit to Purchaser within five (5) days after demand therefore by Purchaser. Otherwise, the Second Extension Payment shall belong to Seller.

     4. Nothing set forth in this Amendment shall limit or be construed to limit Purchaser’s rights under Sections 5.06 (as amended only by Paragraph 1 of the First Amendment and by Paragraph 1 above extending the Inspection Period through January 28, 2005) or 5.07 of the Amended Purchase Agreement.

     5. Except as amended by this Amendment, the Amended Purchase Agreement is unamended and remains in full force and effect.

     6. This Amendment may be executed and delivered by counterparts and by facsimile transmission,

     IN WITNESS WHEREOF, this Amendment has been entered into as of the 20^th day of January, 2004.

SELLER:

HANFORD HOTELS, INC., a California limited liability company

By:	/s/ WILLIAM A. CAINE, JR.
Name:	William A. Caine, Jr.
Title:	Executive Vice President

PURCHASER:

INTERSTATE CONCORD LLC., a Delaware limited liability company

By:	/s/ CHRISTOPHER L. BENNETT
Name:	Christopher L. Bennett
Title:	Senior Vice President and General Counsel

EX-31.1

EXHIBIT 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Thomas F. Hewitt, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Interstate Hotels & Resorts, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 9, 2006

/s/ THOMAS F. HEWITT

Thomas F. Hewitt

Chief Executive Officer

EX-31.2

EXHIBIT 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Bruce A. Riggins, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Interstate Hotels & Resorts, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

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

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: August 9, 2006

/s/ BRUCE A. RIGGINS

Bruce A. Riggins

Chief Financial Officer

EX-32

EXHIBIT 32

Section 906 Certification

Certification of Chief Executive Officer and Chief Financial Officer

Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Interstate Hotels & Resorts, Inc. (the “Company”) hereby certify that:

(i) the accompanying quarterly report on Form 10-Q of the Company for the three months and six months ended June 30, 2006 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended;

and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 9, 2006

/s/ THOMAS F. HEWITT  

Thomas F. Hewitt 

Chief Executive Officer 

/s/ BRUCE A. RIGGINS  

Bruce A. Riggins 

Chief Financial Officer